Simons v. Superior Court

ANN SIMONS, Petitioner, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent;

THE ENTERPRISE et al., Real Parties in Interest.

B306193

California Court of Appeals, Second District, Third Division

September 30, 2021

NOT TO BE PUBLISHED

Petition for writ of mandate. Los Angeles County Super. Ct. No. 19STCP01994 Randolph M. Hammock, Judge. Writ issued.

Sauer & Wagner, Gerald L. Sauer and Gregory P. Barchie for Petitioner.

Greenberg Traurig, Eric V. Rowen, Scott D. Bertzyk, and Matthew R. Gershman for Real Parties in Interest.

No appearance for Respondent.

EDMON P. J.

Petitioner Ann Simons (Simons) and real parties in interest Gilad Lumer Harry Lumer, Nathan Rubin, and David Wank ran a business known as the Enterprise. When disputes about managing the Enterprise arose between the parties, Simons demanded arbitration, asking that the Enterprise be dissolved and for monetary damages based on the Enterprise's alleged breaches of fiduciary duty. After proceedings spanning a decade, the arbitrator issued an award dividing the Enterprise's real properties among the parties-the so-called in-kind division or distribution.

Simons petitioned the trial court to vacate the award on the grounds the arbitrator was not impartial because she had objected to a proposed increase in his rate, he failed to comply with his disclosure obligations, and he exceeded the scope of his power by ordering the in-kind division. The trial court rejected all contentions, confirmed the arbitration award and entered judgment.

Simons appealed. Treating the appeal as a petition for writ of mandate, we conclude that the trial court properly denied the petition to vacate the arbitration award but should have entered an interlocutory judgment as opposed to a judgment. We further conclude that there is no merit to Simons's objections to the arbitrator's award.

BACKGROUND

I. The parties' agreement and initiation of arbitration

Decades ago, five families started the Enterprise, a business that primarily owned and operated parking lots across the nation including Los Angeles. One family, represented by Simons, owned 22 percent of the Enterprise. Four other families, represented by the individual real parties in interest, owned the remaining 78 percent.

The parties' agreement governing the Enterprise required arbitration of “any dispute arising under or in connection with this agreement or any agreement relating to any of the entities.” Any arbitration had to conform and be subject to the applicable rules and procedures of the American Arbitration Association (AAA). Also, the agreement was to be “governed by and construed and enforced according” to the laws of California “applicable to agreements made and to be performed entirely in such State without giving effect to the conflicts of laws principles thereof.”

When the Enterprise grew to encompass other commercial real estate ventures, the families restructured how the business was managed and removed Simons from her management position. Unhappy with the restructuring, Simons initiated arbitration in 2008 with AAA. Simons's arbitration demand sought to rescind an amendment to the agreement removing her as executive manager.

In 2009, the Honorable John Zebrowski (Ret.) was appointed arbitrator at an hourly rate of $550. He divided the arbitration into phases, with Phase I concerning so-called governance issues. Phase I concluded in 2010 with a partial award in real parties in interest's favor that was confirmed by the trial court.

II. Phase II proceedings

The arbitration then lay dormant for four years while the parties tried to settle. When new disputes arose, the matter proceeded to Phase II in 2014, still before Justice Zebrowski as arbitrator. At that time, AAA informed the parties that Justice Zebrowski's hourly rate had increased to $675; however, on Simons's confidential objection to the increase and to Justice Zebrowski remaining arbitrator, AAA determined that his original $550 rate would remain applicable and that he would continue to preside over the case.

At the arbitrator's request, Simons updated her arbitration demand. Her updated demand alleged breaches of fiduciary duty and self-dealing in connection with three real estate transactions. She further alleged that real parties in interest breached their fiduciary duties by failing to follow generally accepted accounting principles, to pay Simons her fair share from the sale of some of the Enterprise's assets, and by using a management services company. Based on these allegations, she asked (1) that the Enterprise be dissolved, (2) for money damages based on real parties in interest's alleged breaches of fiduciary duty, and (3) that she be appointed executive manager to wind up the Enterprise's affairs.

In March 2016, the arbitrator ordered the arbitration to proceed in two more phases. Phase II would address Simons's request for liquidation and winding up of the business. Phase III would then address Simons's claims for monetary damages based on real parties in interest's alleged breaches of fiduciary duty. As to Phase II, the arbitrator found that “ongoing strife” between the parties made it infeasible for them to continue in business together and that a “full value buy-out” by one party of the other that allowed the business to continue as a going concern was the preferred remedy. The arbitrator intended to appoint three disinterested appraisers to value the Enterprise. However, the arbitrator warned that if “such financial performance” did not occur, “resort to other less attractive procedures may then be required to achieve separation of the warring parties.”

An evidentiary hearing commenced in August 2017 but did not conclude until a year later.^[1] By the time of the hearing, the arbitrator had abandoned the idea of using three appraisers to value the property. Instead, during the arbitration, each side presented evidence, including expert testimony, about the Enterprise's value. Even so, the arbitrator and the parties continued to discuss how to value the Enterprise and how best to achieve the parties' business separation.

At a hearing on September 13, 2017, real parties in interest agreed to accept Simons's property valuations if the parties could then split the properties in accordance with their percentage interests (78 and 22 percent), an in-kind division having tax benefits over a cash distribution. Counsel for Simons did not reject the proposal and instead said he needed to talk to his client.^[2] The hearing proceeded and did not conclude until August 2018.

III. The Phase II arbitration award

The arbitrator issued his Phase II arbitration award in February 2019. In it, the arbitrator noted that he had abandoned his original idea of appointing appraisers to value the Enterprise. He had also abandoned having “each separate element” of the Enterprise appraised. Instead, counsel “chose to rely primarily on macro metrics analysis such as cash flow, weighted average cost of capital, cap rates applied across a span of Enterprise assets and the like, rather than focused appraisals of different operating entities.”

Although the arbitrator had considered a full cash buyout, neither side had sufficient funds to accomplish this, there were financing issues, and the parties presented widely divergent absolute valuations. “Consequently, the possibility of a full cash buy-out was rejected, and a division in kind is now being ordered.”

The arbitrator found that the valuation evidence created “significant credibility issues, ” which he considered when distributing the properties. The arbitrator further found that Simons's gross valuation diverged “substantially” from the Enterprise's actual value, but real parties in interest's valuations were “much closer” to its true value. Taking that into account, the award directed various properties to be sold and allocated other properties between the parties, with only out-of-state properties being allocated to Simons.

IV. Simons petitions the trial court to vacate the award.

Simons petitioned the trial court to vacate the arbitration award.^[3] The petition first asserted that the arbitrator should have been disqualified after proposing the rate increase and that although AAA had assured Simons the arbitrator would not be informed of her objection, such “pretense of confidentiality was illusory.” Second, the arbitrator violated his ethical obligations by failing to disclose other offers to serve as an arbitrator in matters involving the real parties in interest or their counsel. Third, the arbitrator exceeded his powers by pivoting without notice from a cash buyout remedy to the in-kind division.^[4]

Real parties in interest opposed the motion. As to Justice Zebrowski's proposed change to his hourly rate, they argued there was no evidence either that he knew who objected to the increase or that, if he did know, it impacted his impartiality. They next argued that the arbitrator complied with all disclosure requirements and Simons relied on inapplicable authority to argue to the contrary. Finally, the arbitrator did not exceed his authority by ordering an in-kind division because AAA's rules allowed its arbitrators to grant any just or equitable relief. Moreover, Simons was not blindsided by the chosen remedy, which had been discussed and briefed at length by the parties.

V. The trial court denies the petition to vacate the award and confirms the arbitration award.

The trial court denied Simons's petition to vacate the arbitration award. The trial court first found that Simons had not shown any “ ‘corruption' ” by the arbitrator arising from Simons's objection to the proposed rate increase. There was no evidence the arbitrator knew of Simons's objection, and AAA said he...