Emerald Aero v. Kaplan
D070579M
| Cal. Ct. App. | Mar 21, 2017Background
- Plaintiffs (investors) sued Kaplan and an LLC for breach of fiduciary duty and related claims; complaint sought compensatory damages (no punitive damages specified).
- Parties' contract required binding AAA arbitration; claim form initially listed $1,000,000 as the claim amount; AAA rules (2013) were incorporated.
- Arbitration was stayed during related criminal proceedings; after Kaplan pled guilty but before sentencing, the stay was lifted and a default "prove-up" telephonic hearing was scheduled. Kaplan was unrepresented at the merits hearing.
- Plaintiffs emailed a late arbitration brief the day before the hearing that increased the claimed compensatory damages substantially and—for the first time—requested punitive damages (seeking a 3x multiplier).
- Defendants did not appear at the hearing; the arbitrator issued a $30,835,152.57 award without detailing compensatory vs. punitive breakdown. Kaplan moved to vacate; the arbitrator recused and the AAA administrator declined further arbitration action. The superior court confirmed the award; Kaplan appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitrator exceeded authority by awarding punitive damages without adequate prior notice | Plaintiffs: they provided notice by emailing the arbitration brief to Kaplan the day before the hearing; award is final | Kaplan: late email did not give reasonable notice or opportunity to respond; punitive damages were an unnotified, new claim | Held: Arbitrator exceeded powers; late notice violated AAA rule 6 and fairness principles; award vacated as to Kaplan (remand for new damages arbitration). |
| Whether Kaplan waived right to appeal the superior court judgment by contractual waiver of "appeal" | Plaintiffs: arbitration clause waived judicial appellate rights | Kaplan: clause did not clearly and explicitly waive statutory limited judicial review/appeal under California arbitration statutes | Held: Waiver not sufficiently clear as to statutory limited review; Kaplan retained right to seek judicial review/appeal under statutes. |
| Whether the arbitrator/refusal to postpone the hearing prejudiced Kaplan (§ 1286.2(a)(5)) | Kaplan: arbitration should have been continued until criminal sentencing; he was prejudiced | Plaintiffs: stay had expired; Kaplan did not request continuance or show prejudice | Held: No relief under § 1286.2(a)(5); Kaplan never timely requested a continuance after the stay expired. |
| Whether AAA administrator erred by refusing to assign an arbitrator after recusal | Kaplan: administrator should have forwarded motions to an arbitrator or reappointed; administrative refusal was improper | Plaintiffs: finality of award and arbitrator's recusal limited AAA action | Held: Administrator should not have refused to present the postarbitration motion to an arbitrator; this procedural handling contributed to concerns about fairness. |
Key Cases Cited
- Guseinov v. Burns, 145 Cal.App.4th 944 (Cal. Ct. App.) (contractual waiver of appellate rights must be clear and explicit)
- Pratt v. Gursey, Schneider & Co., 80 Cal.App.4th 1105 (Cal. Ct. App.) (express language waiving "any judgment" or "any order" constituted waiver of appellate review)
- Advanced Micro Devices, Inc. v. Intel Corp., 9 Cal.4th 362 (Cal.) (arbitrator powers derive from agreement; remedies are reviewable only when outside contractual/rules limits)
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (Cal.) (strong public policy favoring arbitration and narrow judicial review)
- Totem Marine Tug & Barge v. North American Towing, 607 F.2d 649 (5th Cir.) (arbitration award vacated where arbitrator awarded an unrequested item of damages)
- In re Wal-Mart Wage & Hour Emp. Practices Litig., 737 F.3d 1262 (9th Cir.) (parties cannot contractually eliminate limited judicial review or appellate rights under the FAA)