Los Angeles County Super. Ct. No. BC356794 APPEAL from an order of the Superior Court of Los Angeles County, Joanne B. O'Donnell, Judge. Reversed.
The opinion of the court was delivered by: Mallano, P. J.
CERTIFIED FOR PUBLICATION
A real estate developer created several limited liability companies to supervise his various construction projects. The developer transferred ownership of the companies to a trust, chose his brother as the trustee, and acted as the "manager" of the companies.
Plaintiff filed suit against two of the companies, alleging a claim for breach of contract, among others. Plaintiff sued the manager on different claims, such as breach of fiduciary duty but not breach of contract. The case was arbitrated. At the time of the arbitration, one of the companies had recently received more than $47 million in property sales. Plaintiff prevailed against the two companies for breach of contract. The manager prevailed on the claims against him. The arbitrator awarded plaintiff $8.45 million against the companies.
The trial court, Judge Robert L. Hess presiding, confirmed the arbitration award and entered judgment accordingly. The companies unsuccessfully appealed. (Greenspan v. LADT, LCC (2010) 185 Cal.App.4th 1413 (Greenspan I).)
Meanwhile, the $47 million had dwindled to less than $13,000. The two companies appeared to be judgment proof. Plaintiff commenced proceedings to satisfy the judgment. After conducting judgment debtor examinations, plaintiff filed a motion to amend the judgment to add the manager, the trustee, and two other affiliated companies as judgment debtors, relying on the alter ego doctrine. (See Code Civ. Proc., § 187; undesignated section references are to that code.)
The trial court, Judge Joanne B. O'Donnell presiding, denied the motion. First, the court held it would be inequitable to add the manager as a judgment debtor because he had been a party to the arbitration and had prevailed. Second, the trial court concluded that alter ego principles do not apply in the trust context, precluding the addition of the trustee. Last, the trial court sustained multiple objections to plaintiff's exhibits, excluding most of his evidence.
We conclude it would not always be inequitable to add as a judgment debtor a party who prevailed in an arbitration. Rather, it would depend on the facts of the case. Here, the manager was not sued for breach of contract and did not prevail on that claim. The judgment is based on a claim to which he was not a party. The addition of the manager as a judgment debtor would not constitute a finding that he breached the companies' contract but would instead serve to remedy his alleged disregard of the companies' separate existence. Second, we determine that although a trust is not subject to the alter ego doctrine because it is not a legal entity, a trustee may be added as a judgment debtor. Last, with two exceptions, the trial court erred in sustaining the objections to plaintiff's evidence. We therefore reverse the order denying the motion to amend the judgment.
The allegations and facts on this appeal are taken from the complaint, the record in the arbitration proceeding, and the papers and exhibits submitted in connection with the motion to amend the judgment.
Barry Shy (Shy) is a real estate developer who worked with Andrew Meieran (Meieran) to renovate the Higgins Building in downtown Los Angeles. For that purpose, they formed a company, LADT LLC (LADT). LADT was jointly owned by (1) LABAR LLC (LABAR), another of Shy's companies, and (2) the Andrew Meieran Family Trust (Meieran Trust or Trust).
In 1998, LADT purchased the Higgins Building and started to convert the dilapidated structure, built in 1910, from an office building into apartments. In 2003, Shy, who managed LADT and LABAR, proposed to convert the Higgins Building into loft-style residential condominiums, with commercial units on the ground floor.
The goal of the Meieran Trust was to develop and operate historic bars. In pursuit of that goal, the trustee, Arnold Greenspan, decided to sell the Trust's interest in LADT to Shy and to acquire commercial space on the ground floor of the Higgins Building, where the Trust would later build the Edison Bar.
On August 20, 2004, the Meieran Trust sold its interest in LADT to a new company created by Shy -- LA ABC, LLC (LA ABC) -- in exchange for $7.75 million and title to six commercial units in the Higgins Building, valued at $3.5 million altogether. The terms of the transaction were recited in a "Purchase Agreement," which stated that the agreement was "entered into . . . by and between Arnold Greenspan, Trustee of the Andrew Meieran Family Trust u/a/d 12/19/03 . . . (the 'Seller'), and LA ABC, a California limited liability company (the 'Purchaser')."
Section 6 of the Purchase Agreement addressed LADT's obligations under the agreement, stating: "LADT hereby consents to the terms of this Agreement, including, without limitation, the provisions of . . . Section 4. LADT shall cooperate with the parties hereto and take all actions and execute any agreements and other documents necessary to effectuate the transactions contemplated by this Agreement, including, without limitation, the transactions set forth in . . . Section 4, as necessary." Section 4 stated that LA ABC would indemnify the Trust for any breach of the Purchase Agreement by LA ABC and that the Trust would indemnify LA ABC with respect to any breach by the Trust.
The Purchase Agreement was signed by Greenspan as trustee of the "Seller" -- the Meieran Trust -- and by Shy as manager of the "Purchaser" -- LA ABC. For its part, LADT "acknowledged and agreed . . . to Section 6" of the Purchase Agreement, with Shy signing twice, first as manager of LADT and then individually. Meieran signed the Purchase Agreement as a member of LADT. The agreement did not contain an arbitration provision.
In 1998, Shy had created the BR Shy Irrevocable Trust (Shy Trust) for the benefit of his children. He transferred ownership of LA ABC and LABAR to the trust. As a result of the Purchase Agreement, LA ABC and LABAR became the owners of LADT, and LADT, too, became the property of the Shy Trust. Shy chose his brother, Moti Shai, to serve as the trustee.
During the construction phase of the Higgins Building project, Shy and Meieran had a number of disagreements. They argued about walls that had been moved, trash areas, parking spaces, and storage spaces. In the midst of the squabbling, LA ABC failed to make a payment to the Meieran Trust that was due under the Purchase Agreement.
In an attempt to settle their disputes, Shy and Meieran participated in a mediation on September 26, 2005. The mediation resulted in a handwritten document drafted by the mediator, which Shy and Meieran signed. The document contained a list of 10 items to be provided or completed by LA ABC. It concluded: "This is the agreement between the parties with regard to the purchase of LADT by LA ABC [from the] Andrew Meieran [Family] Trust . . . . The parties hereby agree that LA ABC will do or perform or pay these items in exchange for release from the [Meieran] Trust with respect to this purchase ([of] the Higgins Building), and as full satisfaction of the obligation of LA ABC with regard to the tenant improvements. [¶] Any dispute as to the interpretation of this agreement shall be submitted to mediation, failing which, shall be submitted to binding arbitration." (We will refer to the handwritten document as the Arbitration Agreement.)
On August 10, 2006, Greenspan, as trustee of the Meieran Trust, filed this action against LADT, LA ABC, and Shy (defendants). The complaint alleged as follows.
LA ABC had failed to pay more than $4.2 million of the purchase price for the Meieran Trust's interest in LADT. LA ABC had also interfered with the Trust's use of parking spaces and storage space in the Higgins Building.
The complaint asserted seven causes of action: (1) rescission of the Purchase Agreement, against LA ABC and LADT; (2) breach of the Purchase Agreement, against LA ABC; (3) breach of guaranty, against Shy; (4) breach of fiduciary duty, against Shy; (5) accounting, against all defendants; (6) conversion, against all defendants; and (7) constructive trust, against all defendants.
C. Petition to Compel Arbitration
On September 22, 2006, defendants filed a petition to compel arbitration and stay the action pending the outcome of arbitration. According to the petition, the Arbitration Agreement required the parties to arbitrate disputes related to the Purchase Agreement. Greenspan filed opposition papers, contending (1) the Meieran Trust was not a party to the Arbitration Agreement because Andrew Meieran -- not Greenspan, the trustee -- had signed the agreement, and (2) the Arbitration Agreement did not encompass the causes of action in the complaint.
By order dated January 11, 2007, the trial court, Judge Robert L. Hess presiding, found that "the parties have entered into a valid agreement to submit disputes regarding the Higgins Building initially to mediation and thereafter to binding arbitration. [¶] . . . Plaintiff is to initiate mediation, and defendants are to cooperate in that initiation. Should mediation be unsuccessful, the parties are to attempt to agree upon an arbitrator. If the parties are unable to agree, the Court on application will select an arbitrator."
The parties failed to resolve their disputes through mediation and proceeded with selecting an arbitrator. They chose retired Judge Keith Wisot, in association with JAMS.
Preliminary proceedings in the arbitration, including conferences and motion hearings, began in March 2007 and continued for several months. At a status conference on March 7, 2007, the parties agreed that the arbitration would be governed by "JAMS Comprehensive Arbitration Rules & Procedures."
"In March 2007, the parties executed an 'Agreement Concerning Hold Instructions,' which required the arbitrator to decide how to dispose of certain funds belonging to LADT. The funds were generated by LADT's sale of two condominiums in the Higgins Building. At some point, the [Meieran] Trust had recorded a lis pendens against those units, preventing the closing of escrow. The [Meieran] Trust eventually removed the lis pendens, allowing the units to be sold, in exchange for LADT's promise to hold the sales proceeds for disposition by the arbitrator. The agreement concerning hold instructions (Hold Funds Agreement) stated: 'Whereas, on or about March 9, 2007, Arnold Greenspan, as Trustee of the Andrew Meieran Family Trust, and Barry Shy, as managing member of LADT LLC, executed Hold Instructions for the seller's net proceeds concerning Units 906 and 1001 of the Higgins Building in order to allow the sales of these Units to be closed.
"'The Undersigned hereby agree that they will execute Mutual Instructions ("Instructions"), on or before April 30, 2007, to Mara Escrow. These Instructions will provide that Mara Escrow will transfer the monies held in its interest bearing account, pursuant to the Hold Instructions, to a joint blocked account designated by the undersigned parties. Said account will be opened by the undersigned parties in an institution that is FDIC insured. The account will be [a] blocked account and the institution will receive instructions that the funds may only be released to a person or entity designated by Judge Wisot in his final award in [the Higgins Building arbitration].
"'The parties hereby waive any right to challenge, in court or otherwise, any order to release these funds as set forth in Judge Wisot's final award.'" (Greenspan I, supra, 185 Cal.App.4th at p. 1427.)
The Hold Funds Agreement was signed by Shy as manager of LADT and by Greenspan as trustee of the Meieran Trust.
During the arbitration proceeding, Greenspan learned that LADT had recently received more than $47 million from the sale of condominiums in the Higgins Building.
D. Interim and Final Arbitration Awards
On June 13, 2008, the arbitrator rendered an "Interim Award." As to the Meieran Trust's claims, the arbitrator found LA ABC liable on the second cause of action, for breach of contract, and awarded the Trust $6,338,566.89 in damages. The Trust failed to prove its other claims. With respect to the issues raised by the Hold Funds Agreement, the arbitrator stated: "The funds in escrow (including any interest earned) are . . . the property of LADT, for distribution under its current operating agreement. However, in an exercise of equitable discretion in fashioning this Award, the arbitrator now directs the funds are to remain in escrow until the award . . . is fully satisfied."
"The Interim Award concluded: 'This Award disposes of all substantive issues raised in this arbitration. [The Meieran Trust] is the prevailing party, and entitled . . . to recover attorney fees and costs . . . . [¶] This is an Interim Award, however, because the arbitrator retains jurisdiction in several particulars: [¶] . . . [¶] [(1)] to include within the award attorney fees and costs, including JAMS fees; [¶] [(2)] to reopen the hearing, if requested by [the Trust] . . . ; [¶] [(3)] to consider modification of the Disposition of Funds Held in Escrow, or equitable remedies, if any, available against [defendants] other than LA ABC for satisfaction of the award[.] . . . [¶] The parties are directed to submit briefs and declarations on the matters reserved for further consideration pursuant to the [established] schedule[.] [¶] . . . [¶] Unless the arbitrator determines to reopen the hearing, or to schedule further argument based on the submissions, the Final Award will issue no later than August 1, 2008.' On June 16, 2008, JAMS served the Interim Award on the parties." (Greenspan I, supra, 185 Cal.App.4th at p. 1431, italics added & omitted.)
"On June 30, 2008, the [Meieran] Trust submitted a 'Request to Reopen Hearing.' The Trust argued that, under section 6 of the Purchase Agreement, LADT was jointly and severally liable for payments owed by LA ABC, including all damages. (See pt. I.A, ante, quoting Purchase Agreement, § 6.) The Trust also relied on the Hold Funds Agreement: 'Since LA ABC's only asset was its interest in LADT, it had no funds to make the payments to the [Meieran] Trust. . . . [¶] . . . [¶] . . . [T]he Trust will be forced to pursue LADT to recover the balance owed under the final award. No purpose would be served by having the funds remain in escrow. To the contrary, it is only fair and just that the Arbitrator include in the final award an express order that the funds be released to the [Meieran] Trust as partial satisfaction of the award.'" (Greenspan I, supra, 185 Cal.App.4th at p. 1431.)
On July 14, 2008, defendants submitted a brief in opposition to the Request to Reopen Hearing, addressing the issue of LADT's joint and several liability. They "asserted that such liability would not be rationally derived from the Purchase Agreement, citing Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 383, and '[that the Trust] has no grounds to "pursue" LADT for LA ABC's debts. Under no circumstances can LADT be held liable for LA ABC's obligations. . . . [The Trust] argue[s] that no point would be served in LADT being allowed to keep its own money. The points that would be served include complying with the Purchase Agreement, the laws of California and the Due Process clause of the United States Constitution.'" (Greenspan I, supra, 185 Cal.App.4th at p. 1432.)
"In a reply brief submitted on July 25, 2008, the [Meieran] Trust emphasized that the arbitrator could grant any remedy or relief that was just and equitable: 'Under California law, an arbitrator enjoys the authority to fashion relief that he considers just and fair so long as the remedy may be 'rationally derived' from the contract and the breach. [Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362,] 383. Here, both of the rulings that the [Meieran] Trust seeks are 'rationally derived' from the parties' agreements. The Purchase Agreement -- which LADT executed -- required LADT to 'take all actions . . . necessary to effectuate the transactions contemplated by [the] Agreement . . . .' . . . LADT thus had the contractual duty to make the payments due under the Purchase Agreement in the event that LA ABC failed to do so. Therefore, the remedy of holding LADT jointly and severally liable for payments is rationally derived from the Purchase Agreement itself. Likewise, an order directing the disbursement of funds held in escrow to the [Meieran] Trust as partial satisfaction of the award is rationally derived from both the Purchase Agreement and the [Hold Funds Agreement]. This latter agreement expressly states that the funds in escrow will be disbursed to a person or entity designated by the Arbitrator in his Final Award . . . . Under California law, . . . the Arbitrator has authority to find LA ABC and LADT jointly and severally liable, and to direct that the funds in escrow be distributed to the Trust.'" (Greenspan I, supra, 185 Cal.App.4th at p. 1433.)
On August 1, 2008, the arbitrator rendered a "Final Award." It "reiterated the terms of the Interim Award virtually verbatim and went on to say: '[The Meieran Trust] has demonstrated by a preponderance of evidence its entitlement to an award for breach of contract against LA ABC. In [the Trust's] request to reopen the hearing, [it] reviews evidence previously presented as the basis for rendering a final award on this cause of action jointly and severally against LA ABC and LADT. As [the Trust] points out, section 6 of the Purchase Agreement sets forth the specific consent of LADT to all terms of the Agreement, and further mandates LADT to "cooperate with the parties hereto and take all actions and execute any agreements and other documents necessary to effectuate the transactions contemplated by this Agreement. . . ." In fact, the evidence demonstrates that payments on the Purchase Agreement were made by LADT. . . . LADT by Shy, was a signator[y] to acknowledge its obligations under section 6 of the Purchase Agreement.
"'Both sides rely on Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362 in arguing whether the award should include LADT and find joint and several liability with LA ABC. Under that case, the arbitrator is authorized, when circumstances warrant, to fix a remedy for breach of contract that is flexible, creative, and based on fairness. "In private arbitrations, the parties have bargained for the relatively free exercise of those faculties. Arbitrators, unless specifically restricted by the agreement to follow legal rules, may base their decision upon broad principles of justice and equity. . . ." . . . Id. at 374-375.
"'The agreement between the parties to this arbitration contains no restriction to "dry law," or legal rules. In the circumstances here, LA ABC has only one asset: its membership in LADT. It is apparently without resources to pay the award for breach of contract. Further, the evidence is clear that Shy has exclusive control over each of his entities, and that he pays little attention to which account is used to make payments on the Purchase Agreement. . . . [T]he arbitrator finds that LADT had a full opportunity and did in fact present its evidence in connection with payments on the Purchase Agreement. [Defendants'] arguments that joint and several liability violate[s] due process rights of another Shy entity, LABAR, or LADT's creditors, [are] rejected. Under the circumstances here, the arbitrator finds the remedy sought by [the Meieran Trust] is rationally derived from the Purchase Agreement and its breach. Joint and several liability with LA ABC simply implements LADT's obligation to effectuate the transactions of the Purchase Agreement.'" (Greenspan I, supra, 185 Cal.App.4th at pp. 1433-1434.) The arbitrator denied the Trust's request to reopen the hearing.
"Regarding the Hold Funds Agreement, the arbitrator found '[t]he parties stipulated the arbitrator is to determine disposition of the proceeds of sale from two units sold, where the proceeds have been held in escrow pending this arbitration. . . . No criteria were presented to guide the arbitrator's determination, but only that the funds are to be released to the person or entity designated by the arbitrator in the final award. Further, [the Meieran Trust] quotes a letter agreement that the parties "waive any right to challenge, in court or otherwise, any order to release these funds as set forth in Judge Wisot's final award." . . . [The Trust's] request for enforcement of that agreement was deferred until the final award. [¶] [The Trust] has not been successful in obtaining rescission of the Purchase Agreement. The funds in escrow (including any interest earned) are . . . the property of LADT. However, in an exercise of equitable discretion in fashioning this Award, and because this award sets forth joint and several liability of LADT and LA ABC, the arbitrator now directs: [¶] (1) On [the Trust's] written notice to escrow, to LADT and LA ABC, that the funds will apply in partial discharge of this award, escrow is to release the funds directly to [the Trust] within 3 business days of notice, and notwithstanding escrow instructions that may remain unfulfilled; [¶] (2) If no notice is given, escrow is to continue to hold the funds until [the Trust] gives written notice that the award has been fully satisfied. Only if the award is satisfied, escrow is then directed to release the funds directly to LADT.'" (Greenspan I, supra, 185 Cal.App.4th at p. 1434.)
"In concluding the Final Award, the arbitrator stated: 'Arnold Greenspan, as Trustee of the Andrew Meieran Family Trust, is to recover from . . . LA ABC, a California Limited Liability Company, and LADT, LLC, a California Limited Liability Company, jointly and severally: [¶] the amount of $6,534,605.66 as compensatory damages on the contract. This amount shall bear further interest at $1,298.27 per day until entry of judgment; [¶] the amount of $1,546,478 in attorney fees; [¶] the amount of $368,215.86 in costs; [¶] for a total recovery of $8,449,299.40.'" (Greenspan I, supra, 185 Cal.App.4th at pp. 1434-1435.)
E. Postarbitration Petitions
On August 13, 2008, defendants petitioned the trial court to vacate the award. On behalf of the Meieran Trust, Greenspan filed a petition to confirm. On October 16, 2008, the trial court, Judge Hess presiding, heard argument on the cross-petitions, granted the petition to confirm, denied the petition to vacate, and entered an order to that effect. Judgment was subsequently entered in favor of Greenspan, as trustee, for $8.8 million based on the arbitration award, interest, costs of suit, and attorney fees. LADT and LA ABC appealed (B213866).
F. Prior Appeal (B213866)
In the earlier appeal, LADT argued the arbitrator had erred in determining it was jointly and severally liable on the breach of contract claim. We rejected that argument, stating: "'Judicial review of [arbitral] remedies . . . looks not to whether the arbitrator correctly interpreted the agreement, but to whether the award is drawn from the agreement as the arbitrator interpreted it or derives from some extrinsic source. . . . [W]here an arbitrator is authorized to determine remedies for contract violations, "courts have no authority to disagree with his honest judgment in that respect. . . . [A]s long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision."' . . .
"'Arbitrators are not obliged to read contracts literally, and an award may not be vacated merely because the court is unable to find the relief granted was authorized by a specific term of the contract. . . . The remedy awarded, however, must bear some rational relationship to the contract and the breach. The required link may be to the contractual terms as actually interpreted by the arbitrator (if the arbitrator has made that interpretation known), to an interpretation implied in the award itself, or to a plausible theory of the contract's general subject matter, framework or intent. . . . The award must be related in a rational manner to the breach (as expressly or impliedly found by the arbitrator). . .
"'The award will be upheld so long as it was even arguably based on the contract; it may be vacated only if the reviewing court is compelled to infer the award was based on an extrinsic source. . . . In ...