Cohen v. TNP 2008 Participating Notes Program, LLC
31 Cal. App. 5th 840
Cal. Ct. App. 5th2019Background
- Mark Cohen, an attorney, recommended two TNP subsidiary note programs (2008 Program and 12% Program) to clients; Cohen's firm's 401(k) Plan invested in the 12% Program. Programs defaulted in 2012.
- Investors (initially represented by Cohen) submitted AAA arbitration demands against the Programs, TNP (parent/guarantor), and Anthony Thompson (CEO). Only investors and the Programs signed subscription agreements containing arbitration clauses; TNP and Thompson did not.
- Cohen filed a state-court petition to compel arbitration against TNP and Thompson; the trial court granted the petition finding agency/principal relationships and that Cohen had standing as a representative.
- The AAA arbitrator allowed amendment to add individual investors as real parties in interest, awarded investors breach-of-contract damages, found TNP liable as guarantor and Thompson liable as alter ego, but denied attorneys’ fees to investor claimants (reasoning fees were advanced by Cohen’s firm and Cohen was culpable).
- Trial court confirmed the arbitration award and denied postarbitration attorneys’ fees; parties appealed and cross-appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to petition to compel arbitration | Cohen: as agents/representative, he can enforce arbitration for his clients; Plan: can enforce for 12% Program | TNP/Thompson: Cohen not a signatory or real party; Plan only invested in 12% Program | Cohen lacked standing; Plan had standing only for claims tied to its 12% Program investment |
| Compel nonsignatory parent/officer to arbitrate under agency theory | Petitioners: TNP and Thompson acted as agents/principals of Programs so must arbitrate | TNP/Thompson: agency alone insufficient; no contract binding nonsignatories | TNP can be compelled to arbitrate claims arising from 12% Program (parent controlled subsidiary); Thompson cannot be compelled on record presented |
| Arbitrator adding real parties / substituting claimants | Petitioners: arbitrator exceeded authority by substituting parties without consent, prejudicing respondents | Respondents: AAA rules permit changes; arbitrator may amend caption and determine real parties | Arbitrator acted within authority under AAA rules; did not exceed powers in adding investors |
| Denial of attorneys' fees by arbitrator and denial of postarbitration fees by trial court | Cohen Parties: contractual fee clause entitles prevailing parties to fees in arbitration and in post-arbitration court proceedings | Programs/TNP/Thompson: arbitrator/court properly exercised equitable discretion to deny fees due to Cohen’s culpability; trial court adopted arbitrator’s reasoning | Arbitrator did not exceed authority by denying fee award in arbitration (contract did not unambiguously strip arbitrator of discretion); trial court erred in denying postarbitration statutory/contractual fees to prevailing parties and must award reasonable fees for postarbitration litigation |
Key Cases Cited
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (Cal. 1992) (arbitral finality; courts have limited grounds to vacate awards)
- Moshonov v. Walsh, 22 Cal.4th 771 (Cal. 2000) (arbitrator does not exceed powers by ruling on fee entitlement within submitted issues)
- Moore v. First Bank of San Luis Obispo, 22 Cal.4th 782 (Cal. 2000) (arbitrator's erroneous fee ruling is not necessarily excess of power if issue was submitted)
- Gueyffier v. Ann Summers, Ltd., 43 Cal.4th 1179 (Cal. 2008) (contract must explicitly and unambiguously limit arbitrator to defeat equitable excusal/modification)
- Safari Associates v. Superior Court, 231 Cal.App.4th 1400 (Cal. Ct. App. 2014) (declining to follow DiMarco; arbitrator's legal error on fee clauses generally not vacatur-worthy)
- DiMarco v. Chaney, 31 Cal.App.4th 1809 (Cal. Ct. App. 1995) (held arbitrator exceeded authority by refusing contractual fee award)
- E.I. DuPont de Nemours v. Rhone Poulenc Fiber, 269 F.3d 187 (3d Cir. 2001) (parent may be compelled to arbitrate when subsidiary acted as agent and claims arise from that relationship)
- Westra v. Marcus & Millichap Real Estate Inv. Brokerage Co., 129 Cal.App.4th 759 (Cal. Ct. App. 2005) (nonsignatory may enforce arbitration clause where confidential/agency relationship makes it equitable)
- Jensen v. U-Haul Co. of California, 18 Cal.App.5th 295 (Cal. Ct. App. 2017) (agency alone insufficient to bind nonsignatory; signatory must have authority to bind nonsignatory)