$8+ Million Binding Arbitration Award to Walsworth Clients Affirmed on Appeal
Walsworth partners John Kaniewski and Anna Greenstin Kudla recently prevailed on an appeal which affirmed a binding arbitration award of more than $8 million they previously obtained on behalf of one of the firm’s corporate clients. A non-profit educational company focused on early American coinage, The Cardinal Collection Educational Foundation, along with its contributors, the “CCEF Group”, provided capital contributions of almost $4 million to Super98, LLC, a company that developed drag reduction technology for commercial jets. The CCEF Group also loaned close to $1 million to Super98 for operating expenses. As Super98’s business began to slow, the interests of the CCEF Group were zeroed out on the books of the company by the officers of Super98 without any explanation. The interests of the CCEF Group were simply transferred to the officers of Super98 without any compensation to the CCEF Group. In addition, the loan was never repaid.
As a result, the CCEF Group claimed breach of contract against Super 98 as well as conversion and breach of fiduciary duty against its CFO and CEO. The matter proceeded to binding arbitration over the course of six days in front of retired Court of Appeal Justice, Jeffrey King. In a lengthy written opinion, Justice King found in favor of the CCEF Group and awarded them more than $7.5 million against Super 98 and Super98’s CFO, including $175,000 in punitive damages against the CFO individually. Justice King also made an overlapping award to the CCEF Group of more than $8.5 million against the CEO, including $300,000 in punitive damages.
The Arbitration Award was subsequently entered as a judgment by Judge Robert Moss of the Orange County Superior Court. Super98’s CFO appealed the judgment, but Super98 and the CEO did not.
On October 8, 2019, the Fourth District Court of Appeal, Division Three, issued its ruling, unanimously upholding the judgment in favor of the CCEF Group. The Court of Appeal followed a long line of California cases which hold that extreme deference is given to the decisions of arbitrators chosen by parties, stating that the merits of a controversy being arbitrated between the parties are ordinarily not subject to judicial review. In addition, the Court of Appeal rejected the CFO’s claim about due process violations by the arbitrator. The CFO had claimed that the arbitrator required him to proceed without counsel during the arbitration hearing. However, the CFO presented nothing in the appellate record to support this claim nor any authority which requires an arbitrator to appoint civil counsel for one of the parties.
During the appeal process, efforts to enforce the judgment went forward as there was no appeal bond posted. As part of those efforts, John and Anna were able to collect $3.8 million for the CCEF Group by filing a lien in an action whichSuper98 had brought against one of its customers. Super98 later declared bankruptcy. Judgment enforcement efforts are continuing against both the CEO and CFO individually.