JP-Richardson v. Pacific Oaks etc.
G059479
| Cal. Ct. App. | Jun 29, 2021Background
- In 2011 JP-Richardson, LLC (JP) and Pacific Oak formed a Delaware‑law joint venture (JV) to develop Texas property; JP (managed by Mark Jordan) served as managing member. The operating agreement required arbitration (JAMS) for disputes and allowed removal of a managing member for specified “Just Cause Events” (fraud; gross negligence/willful misconduct; material breach with 30‑day cure; insolvency).
- Jordan developed a personal relationship with the Richardson, Texas mayor while seeking permits for the JV; a federal investigation and later indictment followed alleging bribery and related offenses tied to that relationship.
- Pacific Oak removed JP as managing member after learning of the investigation; JP then demanded arbitration seeking reinstatement. Jordan repeatedly refused or limited discovery and invoked his Fifth Amendment right at deposition.
- The arbitrator drew adverse inferences from Jordan’s discovery conduct and, after Jordan’s criminal conviction (later vacated for juror misconduct), granted summary disposition for Pacific Oak finding “Just Cause Events” (fraud and gross negligence/willful misconduct) and awarded attorney fees and costs exceeding $1 million.
- JP petitioned to vacate the award in trial court; the court confirmed the arbitration award. On appeal JP argued manifest disregard of law (reliance on a vacated conviction; misuse of adverse inferences; failure to enforce notice/cure; lack of evidence of a removal event). The appellate court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Use of vacated criminal verdict / collateral estoppel | Arbitrator impermissibly relied on a now‑vacated conviction as collateral estoppel to justify removal | Arbitrator relied on multiple independent grounds (adverse inferences, trial testimony) and reconsidered after conviction was vacated | No manifest disregard — award rested on additional evidence and arbitrator reissued findings without relying solely on the vacated verdict |
| Reliance on adverse inferences from Jordan's Fifth Amendment invocation | Baxter bars using silence to prove liability; adverse inferences are insufficient | Baxter permits adverse inferences in civil contexts; arbitrator considered Baxter and applied adverse inferences alongside other evidence | No manifest disregard — adverse inferences are permissible in civil arbitration and arbitrator properly relied on them with supporting evidence |
| Failure to require notice/cure before removal | Agreement required written notice and 30‑day cure for removals; Pacific Oak failed to give notice | Notice/cure applies only to the specific subsection (material breach). Fraud and gross negligence provisions contain no cure right. | No manifest disregard — arbitrator did not rewrite the contract; notice/cure was not required for the fraud or negligence removal grounds relied upon |
| Lack of evidence of damages or grounds to remove (A & J argument) | Removal invalid because plaintiff argues no proof of damages or actionable misconduct to justify expulsion | Arbitrator found reputational harm, misuse of JV funds, and jeopardy to JV assets; A & J (unpublished) is inapplicable | No manifest disregard — arbitrator’s factual findings are final in arbitration and supported the contract’s removal standards |
Key Cases Cited
- Lucido v. Superior Court, 51 Cal.3d 335 (discusses collateral estoppel/finality in California)
- Norman v. State, 976 A.2d 843 (Del. 2009) (collateral estoppel requires final judgment under Delaware law)
- SPX Corp. v. Garda USA, Inc., 94 A.3d 745 (Del. 2014) (explains narrow standard for vacating arbitration awards; manifest disregard test)
- TD Ameritrade, Inc. v. McLaughlin, Piven, Vogel Secs., Inc., 953 A.3d 726 (Del. Ch. 2008) (summary judgment framework for judicial review of arbitration awards)
- Beebe Medical Center, Inc. v. InSight Health Services Corp., 751 A.2d 426 (Del. Ch. 1999) (summary judgment as appropriate mechanism for arbitration review)
- Baxter v. Palmigiano, 425 U.S. 308 (1976) (Fifth Amendment silence and limits on drawing adverse inferences; distinguishes criminal and civil contexts)
- S.E.C. v. Graystone Nash, Inc., 25 F.3d 187 (3d Cir. 1994) (use of privilege in civil cases may carry adverse consequences)
- Flamer v. State, 953 A.2d 130 (Del. 2008) (issues inadequately briefed may be deemed waived)