Park Med. Pharmacy v. W. Pharmacy Grp. LLC

640 F.Supp.3d 985

Park Medical PHARMACY, et al., Petitioners, v. WESTERN PHARMACY GROUP LLC, et al., Respondents.

Western Pharmacy Group LLC, et al., Cross-Petitioners, v. Park Medical Pharmacy, et al., Cross-Respondents.

Case No. 22-cv-466-MMA (BGS)

United States District Court, S.D. California

Signed November 9, 2022

Benjamin Patrick Smith, Mark Andrew Feller, Morgan, Lewis & Bockius LLP, San Francisco, CA, Rollin B. Chippey, II, Brobeck Phleger and Harrison, San Francisco, CA, for Plaintiffs/Cross-Respondents Park Medical Pharmacy, Joseph E. Grasela, The Joseph E. Grasela Trust, dated November 6, 2000, Mitchell J. Robins, Geroge R. Awad, The George and Mona Awad Family Trust, dated November 12, 2002.

Benjamin Patrick Smith, Morgan Lewis, San Francisco, CA, for Plaintiffs The John C. Grasela Trust, dated October 1, 2001, Robins & Associates.

VIII Valentine Shade Hoy, Joseph L. McGeady, Allen Matkins Leck Gamble Mallory & Natsis LLP, San Diego, CA, Leticia Butler, Frederick William Kosmo, Jr., Wilson Turner Kosmo LLP, San Diego, CA, for Respondents/Cross-Petitioners.

ORDER: (1) DENYING PETITIONERS' PETITION AND MOTION TO CONFIRM IN PART AND VACATE IN PART ARBITRATION AWARD; (2) GRANTING RESPONDENTS' PETITION AND MOTION TO CONFIRM ARBITRATION AWARD; AND (3) CONFIRMING ARBITRATION AWARD

MICHAEL M. ANELLO, United States District Judge

Petitioners and Cross-Respondents Park Medical Pharmacy; each of Park Medical's owner trusts through their trustees, Joseph E. Grasela, as Trustee of the Joseph E. Grasela Trust, dated November 6, 2000, the Joseph E. Grasela Trust, dated November 6, 2000, Mitchell J. Robins, individually and as Trustee of the John C. Grasela Trust, dated October 1, 2001, the John C. Grasela Trust, dated October 1, 2001, George R. Awad, as Trustee of the George and Mona Awad Family Trust, dated November 12, 2002, the George and Mona Awad Family Trust, dated November 12, 2002; and Robins & Associates (collectively, "Petitioners" or "Park Medical") petition the Court to confirm in part and vacate in part the award of a JAMS arbitrator pursuant to California Code of Civil Procedure Sections 1285, 1286.2(a)(1) and (a)(4), and 1287.4. See Doc. No. 1 ("Petition"). Respondents and Cross-Petitioners Western Pharmacy Group LLC, Matthew Grayson, Kevin Faris, and Kevin McCarthy (collectively, "Respondents" or "Western Pharmacy") oppose vacatur and cross-petition to confirm the arbitration award in its entirety pursuant to California Code of Civil Procedure Section 1285. See Doc. No. 3 ("Cross-Petition"). For the reasons set forth below, the Court DENIES Park Medical's Petition and Motion for Order Confirming in Part and Vacating in Part Arbitration Award and GRANTS Western Pharmacy's Cross-Petition and Motion for Order Confirming Arbitration Award.

I. BACKGROUND¹

A. The Asset Purchase Agreement

"Beginning in 2015, Park Medical initiated efforts to sell its pharmacies . . ." Doc. No. 10-4 at 8 ("Final Award") Ex. A. On February 9, 2016, Kevin Faris and Matthew Grayson "prepared a proposed term sheet for purchase of" one of Park Medical's stores. Id. "At all times material, [ ] Grayson and [ ] Faris have been members of Western [Pharmacy] . . . . Kevin McCarthy formerly was a member of the LLC." Id. at 6. After multiple rounds of negotiations, "[t]he transaction closed on December 15, 2017." Id. at 14. Western Pharmacy ultimately purchased seven pharmacies from Park Medical. Id. at 8. The "Asset Purchase Agreement that the parties signed [was] effective July 19, 2017." See id. at 12; see also Doc. No. 10-5 (the "APA") Ex. B.

"[Western Pharmacy] and Park Medical Pharmacy, with its shareholders, filed separate Demands for Arbitration on June 16, 2020." Final Award at 2. Western Pharmacy's "causes of action were set forth in a series of written demands that culminated in a Third Amended Demand filed on March 17, 2021, and alleging Intentional or Negligent Misrepresentation against Park Medical Pharmacy and Breach of Warranty against Park Medical and its shareholders—three family trusts of the company's principals." Id. at 3. "Claims against Mitchell Robins and Robins & Associates, P.C. were pleaded in a federal court complaint filed August 31, 2020" and "Park Medical's Breach of Guaranty claims against Messrs. Grayson, Faris, and McCarthy were pleaded in a draft complaint dated September 23, 2020, that was tendered [to the arbitrator] but not filed in federal court." Id.

The parties proceeded to arbitration before JAMS arbitrator Charles H. Dick, Jr. (the "Arbitrator"). Id. at 4, 40. The Arbitrator held a seven-day evidentiary hearing in October 2021. See id. at 2. On December 30, 2021, the Arbitrator issued an Interim Award. Id. at 5. "[Western Pharmacy] and Park Medical [filed] post-hearing briefs and replies requesting corrections and a recomputation of damages." Id. "[T]he case was deemed submitted for final resolution on February 17, 2022." Id. On March 28, 2022, the Arbitrator issued a Final Award. Id. at 40.²

B. The Arbitration Award

The Arbitrator determined that: (1) Western Pharmacy was "entitled to a Final Award in its favor on the claims of Negligent Misrepresentation, Breach of Warranty, and Breach of Contract against Park Medical Pharmacy; the George and Mona Awad Family Trust, dated November 12, 2002; the Joseph E. Grasela Trust, dated November 6, 2000; the John C. Grasela Trust, dated October 1, 2001" with Western Pharmacy's "aggregate damages of $6,245,000 plus $34,192 SPA 17-0002 reimbursement [ ] offset the parties' Escrow Account and the original Principal balance of the Secured Subordinated Promissory Note"; (2) Western Pharmacy's "claim against Park Medical Pharmacy for Fraud or Intentional Misrepresentation should be dismissed with prejudice"; (3) Western Pharmacy's "claims against Mitchell J. Robbins and Robins & Associates, A Professional Corporation, should be dismissed with prejudice"; (4) Park Medical was "entitled to a Final Award on its claim for Declaratory Relief against [Western Pharmacy] and Messrs. Matthew Grayson, Kevin Faris, and Kevin McCarthy, determining that after offset, [Western Pharmacy] owes Principal and Interest on the Subordinated Secured Promissory for $975,104.35"; (5) "[t]he Final Award should direct Park Medical Pharmacy to execute a Joint Release Instruction directing Citibank National Association to disburse all Escrow Funds"; (6) "[a]s the prevailing party, [Western Pharmacy was] entitled to recover its attorney fees, costs, arbitration, and litigation expenses for $1,828,383"; and (7) "[t]he Application of Mitchell J. Robins and Robins & Associates, PC, for recovery of attorney fees and costs should be denied." Id. at 39-40.

Park Medical now petitions and moves the Court to vacate in part and confirm in part the Arbitrator's Award. See Doc. Nos. 1, 10. Western Pharmacy moves the Court to confirm the Arbitrator's Award in its entirety. See Doc. No. 3, 9.

II. LEGAL STANDARD³

"In general, judicial review of an arbitration award is extremely limited." SingerLewak LLP v. Gantman, 241 Cal. App. 4th 610, 615, 193 Cal.Rptr.3d 672 (2015). "[A]n arbitrator's decision is not generally reviewable for errors of fact or law, whether or not such error appears on the face of the award and causes substantial injustice to the parties." Moncharsh v. Heily & Blase, 3 Cal. 4th 1, 6, 10 Cal. Rptr.2d 183, 832 P.2d 899 (1992). California Code of Civil Procedure Section 1286.2 sets forth grounds for vacating an arbitration award. Section 1286.2 states, in pertinent part, that "the court shall vacate the award if the Court determines" that "(1) [t]he award was procured by corruption, fraud or other undue means" or that "(4) [t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted." Cal. Civ. Proc. Code § 1286.2(a)(1), (4). Pursuant to Section 1286.2(a)(1),

an award may be vacated if the award is secured by corruption, fraud or other undue means. Fraud, as that term is used in section 1286.2, subdivision (a)(1), is that perpetrated by the arbitrator or a party. Only extrinsic fraud which denies a party a fair hearing may serve as a basis for vacating an award. (Maaso v. Signer (2012) 203 Cal.App.4th 362, 371-372, ; Pour Le Bebe, Inc. v. Guess? Inc. (2003) 112 Cal. App.4th 810, 813, 827 ; Pacific Crown Distributors v. Brotherhood of Teamsters (1986) 183 Cal.App.3d 1138, 1147, fn. 5 [228 Cal. Rptr. 645].) As to undue means, a Ninth Circuit panel has defined the term thusly: "Although the term has not been defined in any federal case of which we are aware, it clearly connotes behavior that is immoral if not illegal. See Black's Law Dictionary 1697 (Rev. 4th ed. 1968) ('Undue' means 'more than necessary; not proper; illegal,' and 'denotes something wrong, according to the standard of morals which the law enforces.' 'Undue influence' means any 'improper or wrongful constraint, machination, or urgency of persuasion whereby the will of a person is overpowered.')." (A.G. Edwards & Sons, Inc. v. McCollough (9th Cir. 1992) 967 F.2d 1401, 1403-1404; accord, Pour Le Bebe, Inc. v. Guess? Inc., supra, 112 Cal.App.4th at p. 831 [5 Cal. Rptr.3d 442].) Undue means can include representation of a party where an attorney is operating under a conflict of interest. (Pour Le Bebe, Inc., at pp. 813, 825-833 .) Undue influence occurs when there is bribery or intimidation of the arbitrator. (Id. at p. 832 .)

Comerica Bank v. Howsam, 208 Cal. App. 4th 790, 822-23, 145 Cal.Rptr.3d 795 (2012). Pursuant to Section 1286.2(a)(4),

California courts have found that an arbitrator exceeds his powers when he (1) acts without subject matter jurisdiction, (2) decides an issue that was not submitted to arbitration, (3) arbitrarily remakes the contract, (4) upholds an illegal contract, (5) issues an award that violates a well-defined public policy, (6) issues an award that violates a statutory right, (7) fashions a remedy that is not

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