Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_04-cv-02926/USCOURTS-cand-5_04-cv-02926-6/pdf.json

Nature of Suit Code: 195
Nature of Suit: Contract Product Liability
Cause of Action: 28:2201 Declaratory Judgement

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United States District Court

For the Northern District of California

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 The background facts of this case are not in dispute. The following description is taken from

Magistrate Judge Seeborg's Report and Recommendation, Docket No. 60.

ORDER DENYING (1) DEFENDANT'S MOTION TO VACATE ARBITRATION AWARD AND (2) MOTION FOR NEW TRIAL

OR TO ALTER OR AMEND JUDGMENT—No. C-04-02926 RMW, JAMS Ref. No. 1110008572

MAG

United States District Court

For the Northern District of California

E-FILED on 7/20/07

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

STEPHEN E. SNYDER,

Plaintiff,

v.

FLOWORKS, INC.,

Defendant.

No. C-04-02926 RMW

JAMS Ref. No. 1110008572

ORDER DENYING (1) DEFENDANT'S

MOTION TO VACATE ARBITRATION

AWARD AND (2) MOTION FOR NEW

TRIAL OR TO ALTER OR AMEND

JUDGMENT

[Re Docket Nos. 62, 66]

Defendant Floworks, Inc. ("Floworks") asks this court to vacate the arbitrator's award dated

February 13, 2007 on the grounds that the arbitrator's award was "irrational." Plaintiff Stephen E.

Snyder ("Snyder") opposes the motion. For the reasons set forth below, the court denies defendant's

motion.

I. BACKGROUND1

Stanford Square, LLC ("Stanford Square") owned a commercial office building located at

100 Hamilton Avenue in Palo Alto, CA. Under its operating agreement, the property was managed

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For the Northern District of California

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ORDER DENYING (1) DEFENDANT'S MOTION TO VACATE ARBITRATION AWARD AND (2) MOTION FOR NEW TRIAL

OR TO ALTER OR AMEND JUDGMENT—No. C-04-02926 RMW, JAMS Ref. No. 1110008572

MAG 2

by Stanford Square Management Company ("Stanford Management"). Stanford Management's

rights, titles and interests under the Stanford Square operating agreement were eventually assigned

to Snyder, who intended to become the new manager under the operating agreement. One of the

members of Stanford Square, Lewis Graham, asserted that Snyder did not have the right to become

the Stanford Square manager without approval of the membership. Following an election by the

Stanford Square members, Graham's company, defendant Floworks, was voted to assume the

management position from Stanford Management. 

The operating agreement provided that any "substitute" manager was required to compensate

the "retiring" manager for taking over the position. The amount of such compensation was to be

agreed upon between the parties, but if no agreement could be reached, the dispute was to be

submitted to arbitration. Floworks did not deny that by becoming the manager of Stanford Square it

became liable under the operating agreement to negotiate for an amount to be paid to the retiring

manager, but it denied that the assignment from Stanford Management to Snyder meant that

Floworks had to negotiate with Snyder. This issue was resolved on summary judgment by

Magistrate Judge Seeborg, who determined that the assignment of the operating agreement from

Stanford Management to Snyder also resulted in the assignment of the right to be paid as the retiring

manager. Order Granting Plf's Mot. Summ. J., Docket No. 25. The parties subsequently submitted

the dispute to arbitration before a court-appointed arbitrator, the Hon. Read Ambler (Ret.), whom

both sides had agreed would be acceptable.

On February 13, 2007, Judge Ambler entered his final arbitration award in favor of Synder in

the amount of $1,500,000, plus prejudgment interest of $266,671.11 through the date of the award

and costs of $44,997.97. Judge Ambler's 21-page decision set forth his evaluation of the evidence

and the parties' legal arguments. On February 16, 2007, Snyder moved to confirm the arbitration

award and for the entry of judgment. On March 26, 2007, after a hearing on the motion, Judge

Seeborg issued a report and recommendation that the arbitration award be confirmed and that

judgment be entered in favor of Snyder. On May 24, 2007, this court entered an order adopting

Judge Seeborg's report and recommendation and judgment based thereupon. In the interim,

however, Floworks filed a motion to vacate the arbitration award. After the entry of judgment on

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ORDER DENYING (1) DEFENDANT'S MOTION TO VACATE ARBITRATION AWARD AND (2) MOTION FOR NEW TRIAL

OR TO ALTER OR AMEND JUDGMENT—No. C-04-02926 RMW, JAMS Ref. No. 1110008572

MAG 3

May 24, Floworks also filed a motion for a new trial or to alter or amend the judgment to ensure that

the court retained jurisdiction to modify the judgment as required.

II. ANALYSIS

A. Legal Standard

Under 9 U.S.C. § 10, a district court may vacate an arbitration award only: 

(1) where the award was procured by corruption, fraud, or undue means; (2) where

there was evident partiality or corruption [by] the arbitrators, or either of them; (3)

where the arbitrators were guilty of misconduct in refusing to postpone the hearing,

upon sufficient cause shown, or in refusing to hear evidence pertinent and material

to the controversy; or of any other misbehavior by which the rights of any party

have been prejudiced; or (4) where the arbitrators exceeded their powers, or so

imperfectly executed them that a mutual, final, and definite award upon the subject

matter submitted was not made. 

Kyocera v. Prudential-Bache Trade Services, 341 F.3d 987, 997 (9th Cir. 2003) (quoting 9 U.S.C. §

10); accord G.C. and K.B. Investments, Inc. v. Wilson, 326 F.3d 1096, 1106 (9th Cir. 2003). 

Vacatur under § 10 is limited. "It is generally held that an arbitration award will not be set

aside unless it evidences a manifest disregard for law." Wilson, 326 F.3d at 1105. "Confirmation of

an arbitration award is required even in the face of erroneous misinterpretations of law." Id. "It is

not even enough that the [arbitrator] may have failed to understand or apply the law. An arbitrator's

decision must be upheld unless it is completely irrational or it constitutes a manifest disregard of the

law." Id. (quoting French v. Merrill Lynch, 784 F.2d 902, 906 (9th Cir. 1986)); Poweragent Inc. v.

Electronic Data Systems Corp., 358 F.3d 1187, 1193 (9th Cir. 2004) ("an arbitration award may be

vacated only if it is 'completely irrational' or 'constitutes manifest disregard of the law.'") (citing

Coutee v. Barrington Capital Group, 336 F.3d 1128, 1132-33 (9th Cir. 2003)); Kyocera, 341 F.3d at

994 ("Neither erroneous legal conclusions nor unsubstantiated factual findings justify federal court

review of an arbitral award . . . ."). 

B. Waiver

As an initial matter, plaintiff contends that defendant has waived its arguments in support of

vacating the arbitrator's award because it failed to make them either in opposition to plaintiff's

motion to confirm the arbitration award or in response to Magistrate Judge Seeborg's Report and

Recommendation. Although the parties' and the court's time could have been saved if defendant if

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ORDER DENYING (1) DEFENDANT'S MOTION TO VACATE ARBITRATION AWARD AND (2) MOTION FOR NEW TRIAL

OR TO ALTER OR AMEND JUDGMENT—No. C-04-02926 RMW, JAMS Ref. No. 1110008572

MAG 4

defendant had made its arguments earlier, defendant's arguments have not been waived. Although it

is true that defendant failed to raise these arguments in its opposition to plaintiff's motion to confirm

the award, did not file any opposition to the report and recommendation, and did not file its motion

to vacate until approximately 5 weeks after the report and recommendation was filed, defendant

nevertheless moved to vacate the arbitrator's award 10 days before the court entered its order

adopting the report and recommendation and its judgment and within three months of the filing of

the arbitration award.

C. Irrational Award

Defendant asserts that the court must vacate the arbitrator's award under § 10(4) because it is

"completely irrational." Defendant argues that the arbitrator's award was irrational because the

arbitrator adopted plaintiff's analysis regarding what a substitute manager and the retiring manager

would have agreed to for a purchase price in 2002, even in light of evidence that plaintiff's expert's

projections had already proven wrong. Specifically, defendant argues that the arbitrator's award

irrationally (1) adopted plaintiff's analysis that Stanford Square's principle asset, an office building

owned since 1987, would sell for $32.4 to $35.6 million between 2007 and 2009 when the building

had actually sold in 2005 for $28.5; (2) determined based on the plaintiff's projected sale dates in

2007 to 2009 that the new manager would derive a revenue stream of net income totaling $3.4 to

$3.8 million when the stream of payments, according to defendant, totaled only $1,865,000; (3)

calculated that the resulting stream of net income had a net present value in 2002 of around

$2,250,000 when the net present value of the $1,865,000 stream of payments above was less than

$1,495,780; and (4) opined that given a net present value of the stream of payments estimated at

$2,250,000, that the new manager (defendant) would have been willing to pay the old manager

(plaintiff) a purchase price of $1,500,000, leaving the new manager with a net income of $750,000,

when a payment of $1,500,000 was in excess of the net value of the stream of payments

($1,495,780), leaving defendant in the hole. 

Plaintiff, on the other hand, counters that defendant's arguments rely on a misstatement of the

facts presented to the arbitrator. As the arbitrator found, Stanford Square paid $930,000 in

management fees to another company owned by defendant Floworks and $2,388,135 in fees and

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ORDER DENYING (1) DEFENDANT'S MOTION TO VACATE ARBITRATION AWARD AND (2) MOTION FOR NEW TRIAL

OR TO ALTER OR AMEND JUDGMENT—No. C-04-02926 RMW, JAMS Ref. No. 1110008572

MAG 5

commissions in connection with the 2005 sale of the 100 Hamilton Avenue property. Plaintiff

asserts that defendant's figure for the stream of payments ($1,865,000) is derived from his expert's

testimony that defendant had committed fraud and that, but for that fraud, the over $3,300,000 paid

by Stanford Square, should have only amounted to $1,865,000.

A review of the arbitrator's detailed arbitration award does not reveal that the award was

irrational, completely or otherwise. The arbitrator weighed the credibility of the respective experts

and determined that plaintiff's experts' opinions were more appropriate to the valuation task at hand. 

See Award at 5 ("[Defendant's expert] valued the Manager's Interest as a 'business opportunity,' not a

real estate investment . . . whereas Plaintiff's experts treated the case as if valuation of a real estate

opportunity were involved. This distinction is pivotal to analyzing this case."). Based on these

opinions, the arbitrator, as required, projected what value would have been assigned in 2002 for the

management of the Stanford Square property rights under the operating agreement. But, even

assuming that the arbitrator disregarded the facts, in the Ninth Circuit, "[m]anifest disregard of the

facts is not an independent ground for vacatur." Coutee, 336 F.3d at 1133. Here, the arbitrator

considered the factual disputes cited by defendants and resolved them in favor of plaintiff. This

court has no authority to re-weigh the evidence. Id. at 1134. Thus, defendant's contention that the

arbitral award was "completely irrational," Kyocera, 341 F.3d at 997, is without any merit. 

III. ORDER

For the foregoing reasons, the court denies defendant's motion to vacate the arbitrator's

award and denies its motion for a new trial or to alter or amend the judgment. The court's May 24,

2007 judgment shall remain unaltered.

DATED: 7/20/07

RONALD M. WHYTE

United States District Judge

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ORDER DENYING (1) DEFENDANT'S MOTION TO VACATE ARBITRATION AWARD AND (2) MOTION FOR NEW TRIAL

OR TO ALTER OR AMEND JUDGMENT—No. C-04-02926 RMW, JAMS Ref. No. 1110008572

MAG 6

Notice of this document has been electronically sent to:

Counsel for Plaintiff:

Spencer T. Denison spencer.denison@hro.com jan.diggles@hro.com

James Wesley Kinnear wesley.kinnear@hro.com alice.tam@hro.com;molly.morris@hro.com

Adria Yvonne LaRose larosea@hro.com

Paula Quintiliani paula.quintiliani@hro.com jill.wilkinson@hro.com

Counsel for Defendants:

J. Mark Dunbar mdunbar@dunbarlaw.com

Counsel are responsible for distributing copies of this document to co-counsel that have not

registered for e-filing under the court's CM/ECF program.

Dated: 7/20/07 /s/ MAG

Chambers of Judge Whyte

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