Kapur v. Trumbly CA3
C076804
Cal. Ct. App.May 14, 2015Background
- In 2009 KAXT, LLC was formed to buy a TV station from Broadland (owned by Linda Trumbly). An operating agreement (Exhibit B) allocated membership and capital contributions among 11 members; an asset purchase agreement provided the purchase consideration by cancelling indebtedness (Exhibit C) totaling $850,000.
- The Kapurs (Ravi, Nalini, Rishi) provided loans/services for a 42% interest; Donaldson was listed as contributing $250,000 in legal services for a 20% interest; the Noonans were listed as providing $75,000 (each) shown as loans for 13% each.
- Disputes arose after members (excluding the Kapurs) approved a $10.1 million sale in January 2013; Kapurs contested validity and asserted Donaldson and the Noonans failed to make required capital contributions.
- Arbitrator concluded (phase 1, later final award) that the Noonans’ interest derived from cancellation of indebtedness the Trumblys owed the Noonans and thus satisfied capital contribution requirements, and that Donaldson held his membership interest in trust for the Trumblys and later returned it to them.
- Trial court denied the Kapurs’ petition to vacate the arbitration award and granted the petition to confirm; Kapurs appealed. Court of Appeal consolidated issues and held the appeal in one trial case nonappealable and affirmed the judgment confirming the award in the other.
Issues
| Issue | Plaintiff's Argument (Kapur) | Defendant's Argument (Trumbly/others) | Held |
|---|---|---|---|
| Whether the arbitrator exceeded powers by effectively reforming the operating or asset purchase agreements (excusing Noonans’ contributions / finding Donaldson held interest in trust) | Arbitrator changed contract terms without applying California reformation law; therefore award must be vacated | Arbitrator interpreted agreements based on evidence; did not reform documents and stayed within arbitration authority | Court: Arbitrator interpreted agreements; did not arbitrarily remake them; no excess of power — award confirmed |
| Whether Noonans’ capital contributions were ineffective because Exhibit C did not show loans and §1.5 limited assumed liabilities to station operations | Exhibit C’s “services” cannot be equated to the “loans” in operating agreement; cancelled debt unrelated to station cannot create capital contributions | Parties treated loans/services interchangeably; §1.3 cancellation differs from §1.5 assumed liabilities; evidence supported that debt cancellation constituted contributions | Court: Reasonable interpretation that cancelled indebtedness/services satisfied contribution requirement; arbitrator not arbitrary in finding contribution made |
| Whether Donaldson’s membership could be treated as held in trust for the Trumblys (contradicting his $250,000 services contribution) | Operating agreement requires $250,000 services contribution by Donaldson; treating interest as trust for Trumblys remakes contract | Evidence showed interests were allocated to satisfy preexisting indebtedness to Trumblys and Donaldson took interest nominally for them; Kapurs’ stake unchanged | Court: Trust finding consistent with evidence and not in direct conflict with agreement language; arbitrator acted within powers |
| Whether the trust arrangement violated public policy (fraudulent transfer / creditor evasion) | Trust validated and abetted Trumblys’ evasion of creditors; contravenes public policy/Uniform Fraudulent Transfer Act | No showing of any illegal transfer or statutory violation; arrangement supported by evidence | Court: Argument undeveloped and insufficient; no showing award violated a well-defined public policy |
Key Cases Cited
- Pacific Gas & Electric Co. v. Superior Court, 15 Cal.App.4th 576 (Cal. Ct. App.) (arbitrator exceeds powers only when award arbitrarily remakes contract; review tests for arbitrariness)
- Mid-Wilshire Associates v. O’Leary, 7 Cal.App.4th 1450 (Cal. Ct. App.) (judgment confirming arbitration award is appealable; order denying vacation alone not appealable)
- National Marble Co. v. Bricklayers & Allied Craftsmen, 184 Cal.App.3d 1057 (Cal. Ct. App.) (appealability rules for orders vs judgments under arbitration act)
- Department of Personnel Administration v. California Correctional Peace Officers Assn., 152 Cal.App.4th 1193 (Cal. Ct. App.) (an award that violates a well-defined public policy may exceed arbitrator’s powers)
- Monsan Homes, Inc. v. Pogrebneak, 210 Cal.App.3d 826 (Cal. Ct. App.) (standards for invoking Code Civ. Proc. § 909 to consider additional evidence are narrow)