Filed 3/3 /14 Khnkoyan v. Missakian CA2/1 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

NAIRA KHNKOYAN et al.
, Plaintiffs and Appellants,

v.

C RAIG MISSAKIAN et al.
,
Defendant s and Respondent s

. B248125
(Los Angeles County Super. Ct. No. EC057005)

APPEAL from a judgment of the Superior Court of Los Angeles County. Donna Fields Goldstein, Judge. Affirmed. Shaghzo & Shaghzo and Armen Shaghzo, for Plaintiffs and Appellants

. Russ, August & Kabat and Robert F. Gookin, for Defendants and Respondents

.

______________________________________2

Plaintiffs , minority shareholders of two limited liability companies (LLCs) , ap peal from a judgment confirming an arbitration award that set the value of their shares in the companies

. Plaintiffs maintain that the court erred in confirming the award because the arbitrator exceeded his power s by not valuing their shares in accordance with the provisions of the LLCs ’ Operating Agreements. We conclude that the arbitrator’s
decision that the Operating Agreements did not apply to the valuation of the plaintiffs’
shares , even if erroneous, was an unreviewable error of law. Therefore we a ffirm the judgment. ( Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11.)

FACTS AND PROCEEDINGS BELOW Plaintiffs are minority shareholders in two limited liability companies: Damon’s Glendale Steak House, LLC and 317

- 319 Brand Blvd., LLC

. Disputes aro se among the LLCs’ shareholders over the operation of the companies and plaintiffs filed a suit against the majority shareholders. Pursuant to the LLCs’ Operating Agreements the disputes were submitted to binding arbitration. (The relevant provisions of the LLCs’ Operating Agreements are identical.)
The third cause of action in plaintiffs’ initial arbitration demand sought an appraisal of their shares in the LLCs pursuant to Article 10 of the Operating Agreements which provide s under specified circumstanc es for the sale of a member’s shares to other
members of the LLCs or to third party investors. Article 10.2, subdivision (b) of the Operating Agreements states that in the case of a sale under the Agreements the shares must be appraised “without regard to any discoun t for minority interest in the C ompany or nonmarketability.” Plaintiffs subsequently amended their arbitration demand and
notified the arbitrator and the defendants t hat they “hereby dismiss their Third Cause of
A ctio n for Sale of Minority Sha reholders’ S hares P ursuant to Article 10 without prejudice.”
After plaintiffs d ismissed their action for sale of their shares under the Operati ng Agreements they moved for di ssolution of the LLCs pursuant to former3

Corporations Code section 17351. 1 This statute provide d that when a member seeks
dissolution of the LLC the other members may avoid dissolution by “purchasing for cash the membership interests owned by the members so initiating the [dissolution] proceeding . . . at their fair market value.” (§ 17351, subd. (b)(1).) If the members are unable to agree on the fair market value of the moving members ’ shares then the purchasing members may ask the court , or in this case the arbitrator, to appoint a panel of appraisers to determine the fair market v alue of the shares. (§ 17351, subd. (b)(2), (3).)
In assessing the fair market value of the plaintiffs’ shares in the LLCs the appraisers factored discounts for minority interest and nonmarketability into their
calculations. The arbitrator agreed that th ose discounts were proper and applied them in determining the fair market value of the plaintiffs’ shares.
Plaintiffs contend that the arbitrator erred in applying discounts for minority interest and nonmarketability because the Operating Agreements specif ically prohibit the use of those discounts in appraising the fair market value of membership interests. They further argue that discounts for minority interest and nonmarketability are not appropriate when the shares are being sold to other shareholders i n the company. F or those reasons, they argue, the trial court erred in not vacating or correcting the arbitration award on the ground that the arbitrator “exceeded [his] powers.” (Code Civ. Proc., §§ 1286.2,
subd. (a)(4), 1286.6, subd. (b).)
DISCUSSION
T he Operating Agreements define a “ S ale T rigger E vent” in relevant part as an “event which, were it not for the provisions of this Agreement, w ould cause any Membership I nterests, or any interest therein, to be transferred, for consideration or otherwise, t o any person, whether voluntarily, involuntarily, or by operation of law under circumstances not constituting approved means of transfer under this Agreement.

1 See now Corporations C ode section 17707.1, effective January 1, 2014. All statutory references are to the Corporations Code except where otherwise stated.4

Article 10.2 of the Agreements provides in relevant part: “Should any M ember suffer a Sale Trig ger E vent, then the interest of the Member may be purchased by the Company and any other Member or M embers pursuant to t he procedure set forth in this
S ection[.]” Article 10.2, subdivision (b) provides the method for determining the fair
market value of t he interest “indir ectly or directly owned by the M ember suffering the
S ale T rigger Event [.]” Subdivision (b) further states that the value of the member’s interest shall “be appraised . . . without regard to any discoun t for minority interest in the
C omp a ny or nonmarketability[.]” Plaintiffs argue that their bringing an involuntary d issolution action under
section 17351 is a Sales Trigger Event be cause it causes a member’s interest to be “transferred . . . by operation of law . . . under circumstances not constituting approved means of transfer under this Agreement.” They then reason that b ecause the transfer of shares is a Sale Trigger Event the shares must be appraised under the provisions of Article 10.2, subdivision (b) which unequivocally states that in the case of a Sale Trigger
Event the shares must be appraised “without regard to any discoun t for minority interest
in the C ompany or nonmarketability.” Defendants respond that the appraisal rules in Article 10.2 do not apply because plaintiffs dismisse d their claim for the sale of their intere sts under Article 10.2, choosing instead to proceed under section 17351. That statute expressly requires that the shares be appraised at “fair market value.” (§ 17351, subd. (b)(1), (2)). The arbitrator reasonab ly found that “fair market value” includes discounts for lack of control and nonmarketability. (See Pratt, Valuing a Business: The Analysis and Appraisal of Closely Held Companies (2d ed. 1989) 43.) Plaintiffs reply that section 17351 does not define “fa ir market value” and does not expressly require discounts for lack of control and nonmarketability. Because the Operating Agreements show that the parties intended that in sales of shares among members of the LLCs the shares be appraised without those dis counts th eir intent should
be honored in determining fair market value for purposes of section 17351. Secondly,5

and of equal or greater weight
, p laintiffs challenge the premise for applying discounts for lack of control and nonmarketability in determining the value of shares in a transaction
between shareholders. In Brown v. Allied Corrugated Box Co. (1979) 91 Cal.App.3d 477, 486 the court observed: “As a practical matter, there is no question but that the lack of control inherent in plaintiffs’ minority shares would substantially decrease their value if they w ere placed on the open market. . . . It has been noted, however, that the rule justifying devaluation of minority shares in closely held corporations for their lack of control has little validity wh en the shares are to be purchased by someone who is already in control of the corporation.” Likewise, it can be argued that nonmarketability is not a
valid consideration because the other members of the LLC are forced to buy the minority members’ shares t o avoid dissolution of the company. (§ 17351, subd. (b)(1).) The question whether the arbitrator’s appraisal of the plaintiffs’ shares should have included discounts for minority interest and lack of ma rketability is a close one.
We need not decide that question, however, because even if the arbitrator erred in applying discounts for minority interest and lack of marketability in assessing the fair
market value of plaintiff’s shares that error was one of law and is not judicially reviewable. ( Moncharsh v . Heily & Blase
, supra , 3 Cal.4th at p. 11.)6 DISPOSITION The judgment is affirmed. Respondents are awarded their costs on appeal

. NOT TO BE PUBLISHED

.

ROTHSCHILD, Acting P. J. We concur:

JOHNSON, J.

MILLER, J. 

 Judge of the Los Angeles Superio r Court, assigned by the Chief Justice pursuant to article VI, section 6 of the Californ ia Constitution.