Court Opinion

ID: 9383604
Source: CourtListenerOpinion
Date Created: 2023-03-30 19:03:26.516294+00
Date Added: 2024-06-11T17:17:46.608377
License: Public Domain

Filed 3/30/23 Future Energy Overseas Group v. Entravision Communications CA2/4
    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115.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 FOUR

 FUTURE ENERGY                                                              B318981
 OVERSEAS GROUP, INC.,
                                                                            (Los Angeles County
 Plaintiff and Respondent,                                                  Super. Ct. No.
                                                                            20STCV04768)
             v.

 ENTRAVISION
 COMMUNICATIONS CORP.
 et al.,

 Defendants and Appellants.

      APPEAL from orders of the Superior Court of Los
Angeles County, Maureen Duffy-Lewis, Judge. Reversed in
part, affirmed in part, and remanded with directions.
     King & Spalding and Arwen R. Johnson; Boies Schiller
Flexner and Eric Brenner for Defendants and Appellants.
     Eisner, Jeremiah Reynolds, Ashlee Lin, and Katherine
Pierucci for Plaintiff and Respondent.
        _________________________________________
                      INTRODUCTION
      This case now comes before this court for the second
time. It arises out of the 2017 purchase by Appellant
Entravision Communications Corp. (Entravision) of a digital
media advertising business from respondent Future Energy
Overseas Group, Inc. The parties to the transaction had
agreed to use a form of alternative dispute resolution (ADR)
to resolve disputes arising out of an Earn-Out Agreement
that was part of the transaction by referring them to an
accounting firm for resolution.
      When disputes arose, the parties disagreed about
which of them should be referred to the accounting firm for
resolution and which, if any, should be decided in the trial
court. In the first appeal, this court remanded the case to
the trial court with instructions that the court should grant
Entravision’s motion to compel ADR, identify the specific
issues subject to the ADR provision, and stay court
proceedings as to those issues. (Future Energy Overseas
Group, Inc. v. Entravision Communications Corp. (Sept. 24,

                              2
2021, No. B308533) 2021 Cal.App.Unpub. LEXIS 6088, at
*1–*18 (Future Energy I) [nonpub. opn.].)1
      On remand, the trial court started from the premise
that a disputed item that encompassed any legal question
should be resolved in its entirety by the court. We now
conclude that all but two of the disputed items still at issue
encompass at least one question of fact within the
accounting firm’s expertise, and that those questions, though
not necessarily the disputed items as a whole, should be
answered by the accounting firm. Accordingly, we reverse in
part and remand for additional proceedings consistent with
this opinion.

                    BACKGROUND
      A. The Parties’ Transaction and the Earn-Out
      Agreement
      In 2017, Entravision acquired a group of affiliated
companies that provided digital-media advertising services
(collectively, Headway) from several individuals and
corporate affiliates.2 One of the sellers, Future Energy, was

1      We cite the unpublished opinion in Future Energy I as
relevant to the law of the case doctrine. (See Cal. Rules of Court,
rule 8.1115(b)(1) [prior unpublished opinions may be cited as law
of the case].)
2     Entravision made this acquisition through its subsidiary,
appellant Headway Spain Digital Technology Services, S.L.U.
For the sake of simplicity, we refer to both entities as
Entravision.

                                 3
designated the sellers’ representative, authorized to
represent the sellers in matters relating to the transaction’s
governing documents. As part of the transaction, the parties
executed an “Earn-Out Agreement,” under which
Entravision was to pay the sellers additional sums for each
year in 2017–2019 (referred to in the agreement as Periods
1–3) in which Headway achieved specified financial targets.
If Headway reached certain performance thresholds for the
entire three-year period, the agreement provided for an
“Overachievement Bonus.”
      Under the Earn-Out Agreement, Entravision was to
provide a yearly statement setting forth its calculations of
the business’s performance and the payment to which it
believed the sellers were entitled. In determining
Headway’s operating expenses, Entravision was to apply
“GAAP,” defined as “U.S. Generally Accepted Accounting
Principles as consistently applied by [Entravision].”
      The Earn-Out Agreement specified various categories
to be included in or excluded from operating expenses. For
instance, section 1(mm)(iv) of the agreement provided that
“expenses relating to marketing and public relations related
to Company Products and Services to the extent consistent
with the historical operations of the Business” were to be
included in operating expenses, and section 1(mm)(vii)
provided that expenses relating to accounting, bookkeeping,
and financial reporting were to be included. Conversely,
section 1(mm)(xiv) of the Agreement excluded expenses for
audits and financial statements in accordance with GAAP,

                              4
section 1(mm)(xi) excluded general allocation of corporate
overhead to Headway, and section 1(mm)(xix) excluded
interest on loans by Entravision to Headway to the extent
such loans do not exceed the amount of cash dividends by
Headway to Entravision.
      If Future Energy disagreed with Entravision’s Earn-
Out statement, it was to submit a list of “‘Disputed Items’” to
Entravision, specifying the basis for each item. Section 2(c)
of the agreement stated: “If the parties are unable to resolve
any Disputed Items . . . , then such Disputed Items shall be
submitted to [an] Accounting Firm . . . which shall be jointly
engaged by [Entravision] and [Future Energy] and shall act
as an expert in accounting and not an arbitrator to promptly
review the Earn-Out Statement and resolve the Disputed
Items. . . . In resolving any Disputed Item, the Accounting
Firm . . . will base its determination solely on written
materials submitted by [Entravision] and [Future Energy]
(and not on any independent review).”

     B. The Parties’ Disputes and Future Energy’s
     Complaint
      A series of disputes later arose about the sellers’
entitlement to payments under the Earn-Out Agreement.
After Period 1, the parties agreed that the sellers were
entitled to the maximum earn-out payment, and Entravision
made a partial payment of that amount. In May 2019,
however, Entravision claimed it had discovered undisclosed
accounting deficiencies that caused it to conclude that the

                              5
sellers were not entitled to payments for Periods 1 and 2.
Entravision provided an Earn-Out statement for Period 2,
reflecting its determination that Headway had not met the
specified performance thresholds. Future Energy responded
with Disputed Items challenging Entravision’s Earn-Out
statement for Period 2. In the Disputed Items, Future
Energy asserted objections based on GAAP, specific
provisions in the Earn-Out Agreement, alleged agreements
subsequent to the Earn-Out Agreement, or some
combination of the foregoing.
      In February 2020, after the parties failed to resolve
their differences, Future Energy, in its capacity as the
sellers’ representative, filed this action against Entravision.
The complaint asserted breach of contract and fraudulent
misrepresentation, among other claims, and sought the
remainder of the Earn-Out payment for Period 1, the
maximum payments for Periods 2 and 3, and the maximum
overachievement bonus, among other prayers for relief.
Future Energy alleged, inter alia, that Headway had met the
performance thresholds for all three periods and the
overachievement bonus.
      The complaint included allegations that were not based
on accounting principles. For example, Future Energy
asserted that at a November 2018 meeting, the parties
entered into an “oral and implied contract” regarding the
treatment of certain operating expenses for purposes of the
Period 2 Earn-Out calculation. It claimed Entravision had
breached this contract. Additionally, Future Energy

                              6
asserted that if the sellers were not entitled to the Period 2
Earn-Out payment, Entravision had knowingly or recklessly
misrepresented that they would be and used those
misrepresentations in extracting certain concessions from
the sellers.

     C. Entravision’s Motion to Compel ADR as to
     Period 2 and the Period 3 Disputed Items
      In response to Future Energy’s complaint, Entravision
moved to compel ADR as to 17 Period 2 Disputed Items and
to stay the litigation.3 Future Energy opposed this motion,
contending, inter alia, that the Earn-Out Agreement’s ADR
provision covered only accounting issues and thus did not
reach most of the Disputed Items. In its reply, Entravision
asserted that the ADR provision mandated that all 17
Disputed Items be resolved by an accounting firm,
regardless of their nature. Alternatively, Entravision
claimed that the Disputed Items all presented issues within
an accounting firm’s expertise.
      In the interim, Entravision issued a Period 3 Earn-Out
statement concluding that the sellers were not entitled to an
Earn-Out payment. Future Energy again disputed
Entravision’s calculations and provided another set of

3      Entravision’s motion addressed Period 3 and the
overachievement bonus only to assert that they were not yet ripe
for resolution, as Entravision had not yet issued its Earn-Out
statement for Period 3.

                               7
Disputed Items, raising similar objections to those made as
to Period 2. The parties ultimately failed to resolve their
differences as to Period 3 as well, but Entravision did not file
a new motion to compel ADR targeting Period 3 Disputed
Items before the trial court’s ruling on its motion as to
Period 2.

     D. The Trial Court’s Initial Ruling and the Prior
     Appeal
       Following a hearing on Entravision’s motion to compel
ADR as to Period 2, the trial court determined that the
Earn-Out Agreement’s ADR provision was not a traditional
arbitration clause and that the action involved many non-
accounting issues that were not subject to the ADR
provision. The court stated it was denying the motion to
compel but also that non-arbitrable claims would be litigated
first, and the remaining accounting issues could then be
referred to the accounting firm. The court did not specify the
issues it determined were subject to the ADR provision and
did not address Entravision’s request to stay the litigation as
to issues subject to ADR. Entravision appealed.
       In Future Energy I, this court reversed in part the trial
court’s order, concluding that the court validly exercised its
discretion to delay the ADR process pending adjudication of
non-arbitrable issues but erred in failing to grant the motion
to compel ADR, identify the specific issues subject to ADR,
and stay court proceedings as to those issues. (Future
Energy I, supra, 2021 Cal.App.Unpub. LEXIS at *2.)

                               8
Reviewing the scope of the ADR provision de novo, this court
rejected Entravision’s argument that the ADR provision
encompassed all Disputed Items “no matter whether they
involved accounting or legal issues.” This court held that,
based on the provision’s language, the accounting firm was
to address “only those issues that could be resolved through
the application of accounting principles.” (Id. at *13, fn. 8.)
We further stated that, “[o]n remand, the court should
identify those Disputed Items (or portions thereof) that raise
accounting issues and are thus subject to the ADR provision.
The court should then stay the litigation as to those issues
. . . .” (Id. at *19.) We explained that the litigation of “non-
arbitrable, legal issues” could proceed in court. (Ibid.)

     E. Subsequent Proceedings in the Trial Court
       Following the issuance of the opinion in Future Energy
I, the parties submitted briefing to the trial court addressing
the arbitrability of individual Period 2 Disputed Items.4 On
November 4, 2021, the trial court issued a minute order
identifying the Disputed Items subject to ADR and
concluding that most were not. On January 12, 2022, the
trial court vacated the November 4, 2021, order because it
had been issued before the remittitur and reissued it as of
that date. The court concluded that three of the 17 Period 2

4      Future Energy conceded that three of these Disputed Items
were subject to ADR, while Entravision conceded that two must
be litigated in court.

                               9
Disputed Items were subject to ADR, as conceded by Future
Energy, but that the remaining Disputed Items were “not to
be handled by an accountant as they pertain to legal issues
including contract interpretation, fraud determination and
contract enforceability.”
      In the interim, Entravision moved to compel ADR as to
21 Period 3 Disputed Items. Future Energy conceded that
seven of the Disputed Items were subject to ADR, while
Entravision conceded that two must be litigated in court.5
The trial court concluded that seven of the 21 Period 3
Disputed Items were subject to ADR as conceded by Future
Energy, but that none of the remaining Disputed Items were
“to be handled by an accountant as they pertain to legal
issues including contract interpretation, fraud determination
and contract enforceability.” In addition, the court decided
to allow ADR to proceed first and stayed the litigation
pending the accounting firm’s resolution of the accounting
issues.
      Entravision appealed both the January 12, 2022, order
as to Period 2 and the January 25, 2022, order as to Period 3.

5     In its filings, Entravision included the declaration of
accounting expert Greggory Peat, who opined, inter alia, that
most of the 12 remaining Period 3 Disputed Items involved “the
kind of accounting issues that accounting practitioners have the
expertise to resolve, and are regularly called on to resolve in
practice.”

                               10
                       DISCUSSION
      In this appeal, Entravision challenges the trial court’s
denial of ADR as to a total of 22 of the Disputed Items
arising out of the Earn-Out statements for Periods 2 and 3.
Entravision argues that all 22 involve accounting issues
subject to ADR. Future Energy disputes that and also
contends that Entravision’s appeal as to Period 2 should be
dismissed because the January 12, 2022, order was not
appealable. As discussed below, we find no procedural
infirmity in the Period 2 appeal. Moreover, we conclude that
20 of the 22 Disputed Items present at least one question of
fact within the expertise of the accounting firm and that
these questions, though not necessarily the entire Disputed
Item to which each pertains, are subject to resolution by the
accounting firm.

     A. Appealability of the Period 2 Order
      An order denying a motion to compel arbitration, in
whole or in part, is appealable. (See Code of Civil Procedure
section 1294, subd. (a).) The court’s January 12, 2022, order
identifying which Period 2 Disputed Items were subject to
ADR amounted to a denial of the motion to compel as to the
remaining Disputed Items. The January 12, 2022, order was
accordingly appealable. (See, e.g., In re Marriage of Loya
(1987) 189 Cal.App.3d 1636, 1638 [“it is not the label but
rather the substance and effect of a court’s judgment or
order which determines whether or not it is appealable”].)

                             11
     B. The Merits
        1. Governing Principles
      Code of Civil Procedure section 1281.2 requires a court
to order arbitration of a particular controversy if it
determines that an agreement to arbitrate it exists. (Ibid.)
The statute embraces not only traditional arbitrations but
also alternative forms of dispute resolution, such as
valuations, appraisals, and audits, in which an independent
expert resolves specific questions of fact. (See id., § 1280,
subd. (a); Coopers & Lybrand v. Superior Court (1989) 212
Cal.App.3d 524, 534.) These proceedings have been
characterized as “a special form of limited arbitration.”
(Doan v. State Farm General Ins. Co. (2011) 195 Cal.App.4th
1082, 1094 (Doan).)
      The powers of a neutral accountant, appraiser, or
similar expert in such a proceeding are “far more limited”
than those of an arbitrator. (Doan, supra, 195 Cal.App.4th
at 1094, citing Jefferson Insurance Co. v. Superior Court
(1970) 3 Cal.3d 398, 402 (Jefferson Insurance).) The expert
is tasked with deciding factual questions within his or her
expertise, not with construing statutes, interpreting
contracts, or deciding other legal questions. (See ibid.;
Jefferson Insurance, supra, 3 Cal.3d at 403 [“‘the function of
appraisers [in insurance ADR proceeding] is to determine
the amount of damage resulting to various items submitted
for their consideration. It is certainly not their function to
resolve questions of coverage and interpret provisions of the
policy’”].)

                             12
        2. The Parties’ ADR Agreement
      Here, the parties’ Earn-Out Agreement contemplates a
limited ADR proceeding in which the accounting firm was to
“act as an expert in accounting and not an arbitrator,” a
phrase commonly used to indicate the parties’ intent that the
accountant answer only factual questions pertaining to
accounting. (See Penton Business Media Holdings, LLC v.
Informa PLC (Del.Ch. 2018) 252 A.3d 445, 460–466.)
Nothing in the agreement suggests the parties intended the
accounting firm to resolve legal questions such as the correct
interpretation of contractual provisions. Entravision
nevertheless argues that the accounting firm should be
allowed to decide certain matters of contractual
interpretation.
      In Future Energy I, we distinguished “accounting” from
“legal issues,” and concluded that litigation of “non-
arbitrable, legal issues” between the parties should proceed
in court (id. at *19). We agree with Entravision that an
accounting expert presiding over a limited ADR proceeding
may apply a contractual provision regarding the treatment
of certain expenses to a particular set of facts. But an
accountant may not settle a dispute over the legal meaning
of the provision, a task reserved for the court. (See Jefferson
Insurance, supra, 3 Cal.3d at 403; Doan, supra, 195
Cal.App.4th at 1094.) And a Disputed Item should not be
withheld in its entirety from the accounting firm’s review
merely because a party has raised a legal contention that
could affect its disposition.

                              13
       Under certain circumstances, a legal determination
might effectively moot an accounting issue. But the mere
potential for mootness does not turn an accounting question
into a question for the court. (See Code Civ. Proc., § 1281.2.)
Instead, the statute grants courts discretion to “delay”
arbitration if “the determination of [non-arbitrable] issues
may make the arbitration unnecessary.” (Ibid.; accord,
Doan, supra, 195 Cal.App.4th at 1100 [“the trial court has
discretion to stay an order for arbitration if ‘the adjudication
of the nonarbitrable claims in court might make the
arbitration unnecessary’”].)
       As a result of concessions by the parties during the
pendency of these proceedings,6 only the following 22
Disputed Items remain at issue: Disputed Items 4, 7, 9, 10,
11, 13, 14, 15, 16 & 17 from Period 2 and Disputed Items 3,
6, 7, 8, 9, 12, 16, 17, 18, 19, 20 & 21 from Period 3.7 In
Future Energy I, we applied a de novo standard of review to
determine the scope of the parties’ arbitration provision.
(See Future Energy I, supra, 2021 Cal.App.Unpub. LEXIS, at
*4.) Future Energy now contends the trial court’s denial of

6    The parties agreed in the trial court on the treatment of 14
Disputed Items. And Entravision has chosen not to challenge on
appeal the denial of ADR as to two additional Disputed Items.
7      A table provided by Entravision identifying 17 Disputed
Items for Period 2, including Future Energy’s objections and
Entravision’s responses, is appended below. We refer to a
Disputed Item for this period as “Disputed Item 2:[X].” A table of
the 21 Disputed Items for Period 3 is also appended below. We
refer to Disputed Items for this period as “Disputed Item 3:[X].”

                               14
accounting ADR as to the remaining 22 Disputed Items is
reviewable only for abuse of discretion. We disagree. The
parties here agreed to accounting ADR as a form of limited
arbitration, making the cases upon which Future Energy
relies inapposite. Some deal with the court’s discretion to
delay, not deny, accounting ADR. (See Alexander v. Farmers
Ins. Co. (2013) 219 Cal.App.4th 1183, 1196, fn. 7; Lee v.
California Capital Ins. Co. (2015) 237 Cal.App.4th 1154,
1164; Doan, supra, 195 Cal.App.4th at 1100.) Another
concerns the court’s authority to appoint an accounting
referee in the absence of a contractual ADR provision. (See
Walsh v. Jack Rubin & Sons, Inc. (1960) 182 Cal.App.2d 652,
655.) Future Energy asserts that conflicting evidence before
the trial court regarding the arbitrability of the remaining
Disputed Items warrants the more deferential standard of
review. But our review of the record reveals only competing
arguments, not conflicting evidence. Accordingly, we decide
de novo the arbitrability of the issues presented by the 22
remaining Disputed Items. (See RN Solution, Inc. v.
Catholic Healthcare West (2008) 165 Cal.App.4th 1511, 1522
[“We review the scope of an arbitration provision de novo
when, as here, that interpretation does not depend on
conflicting extrinsic evidence”]; Doan, supra, 195
Cal.App.4th at 1100 [“the rules governing arbitration apply
with equal force to insurance appraisals”].)

                            15
        3. Application
               a. Issues subject to ADR
                   i. GAAP and consistency
      Several of the Disputed Items present a question of
whether the treatment of the relevant expenses complied
with GAAP, “as consistently applied by [Entravision].”
Whether a particular accounting treatment complied with
GAAP and whether it was consistent with prior treatment
are questions of fact within an accountant’s expertise. (See
Campeau Corp. v. May Dept. Stores Co. (S.D.N.Y. 1989) 723
F.Supp. 224, 228 [accounting ADR provision covered
disputes regarding accounting methodology]; Seed Holdings,
Inc. v. Jiffy International AS (S.D.N.Y. 2014) 5 F.Supp.3d
565, 584 [whether parties calculations failed to comply with
GAAP was “squarely within the scope of arbitrable issues”
under accounting ADR provision]; Alliant Techsystems, Inc.
v. MidOcean Bushnell Holdings, L.P. (Ch. Apr. 24, 2015, No.
9813-CB) 2015 Del. Ch. LEXIS 118, at *32 [“When it comes
to deciding questions of GAAP . . . , accounting firms are
particularly well-positioned to do so”].)
      In connection with many of the Disputed Items that
raise GAAP and consistency issues, Future Energy argues
that the dispute is over “whether the Agreement allows
[Entravision] to classify these items differently in Period 2
[or 3] than it did in Period 1.” However, the dispute here is
not over the meaning of the contractual term “GAAP,” which
includes the concept of consistency, but over whether

                             16
Entravision’s accounting practices complied with these
established accounting principles. Accordingly, the following
matters involving consistency and compliance with GAAP
are subject to ADR:
   • Disputed Items 2:7 and 3:16 - Future Energy’s
      objections that the classification of certain tax expenses
      was inconsistent with prior treatment
   • Disputed Item 2:14 - Future Energy’s objection that the
      relevant expenses were previously excluded from
      operating expenses, and Entravision’s contention that
      exclusion of tax-related expenses would result in an
      understated EBITDA
   • Disputed Item 2:15 - Future Energy’s objection that the
      relevant expenses were previously excluded from
      operating expenses
   • Disputed Items 2:16 and 3:21 - Future Energy’s
      objection that Headway’s bad-debt reserves should be
      calculated based on the same bad-debt allowance used
      for Period 1
   • Disputed Items 2:17 and 3:19 - Future Energy’s
      objections that foreign currency losses should be
      excluded from operating expenses because they (a) did
      not relate to Headway’s core business and were not
      within its management’s control, and (b) were
      previously excluded from operating expenses
   • Disputed Item 3:3 - Entravision’s contention that
      including the reversal of the accrual of certain unpaid

                              17
      bonuses would be inconsistent with prior treatment of
      these payments8
    • Disputed Item 3:12 - Future Energy’s objection that the
      inclusion of the relevant penalties and interest was
      inconsistent with prior treatment of these expenses
    • Disputed Item 3:17 - Future Energy’s objection that the
      relevant expenses were previously excluded from
      operating expenses
    • Disputed Item 3:20 - Entravision’s contention that
      Future Energy’s proposed adjustment would be
      duplicative
                    ii. Allocation
     Several of the Disputed Items present a question of
whether relevant expenses were properly allocated to
Headway or constituted allocation of corporate overhead or
marketing expenses unrelated to Headway’s business, which
the Earn-Out Agreement prohibited. These matters, too,
involve questions of fact within an accountant’s expertise.

8     In this Disputed Item, Future Energy objected that most of
the reversal of these bonuses’ accrual should be included in
operating expenses because most of the bonuses did not relate to
“Key Employees,” as defined under the Earn-Out Agreement. In
addition to its consistency argument, Entravision responded that
the reversal was excludable under the Earn-Out Agreement
because it related to “Employee Payments,” as defined by the
purchase agreement. These contentions all relied solely on the
terms of the relevant agreements, raised no factual issue within
an accountant’s expertise, and are therefore not subject to the
accounting ADR.

                               18
(Cf. Catalyst Pharma Group, Inc. v. ICON Clinical Research,
Inc. (D.Del., Mar. 31, 2010, No. 09-391-SLR) 2010 U.S.Dist.
LEXIS 31336, at *5 [“an accountant charged with calculating
EBITDA (consistent with the definition of EBITDA in the
Purchase Agreement) will review such matters as the
appropriate allocation of overhead expenses, bringing to
such issues an expertise [the court] do[es] not have”].) The
following matters involving allocation issues are subject to
ADR:
   • Disputed Items 2:9 and 3:7 - Future Energy’s objection
      that the relevant marketing or public relations
      expenses were incurred by Entravision and should not
      be attributed to Headway
   • Disputed Items 2:11 and 3:9 - Future Energy’s
      objections that the inclusion of the relevant consulting
      fees represented an improper general allocation of
      corporate overhead
   • Disputed Item 2:14 - Future Energy’s objection that the
      inclusion of the relevant expenses represented an
      improper general allocation of corporate overhead
   • Disputed Item 3:17 - Future Energy’s objection that the
      inclusion of expenses for the relevant services
      represented an improper general allocation of
      corporate overhead
   • Disputed Item 3:18 - Future Energy’s objection that the
      inclusion of the relevant rent and related expenses
      represented an improper general allocation of
      corporate overhead

                             19
                   iii. Salary of Headway’s Controller
     Disputed Items 2:10 and 3:8 concern the inclusion of
Headway’s controller’s salary in its operating expenses.
Future Energy objected that these expenses should be
excluded under section 1(mm)(xiv) of the Earn-Out
Agreement, as expenses for audits and financial statements.
Entravision, on the other hand, claimed that these expenses
did not concern audits or financial statements and were
properly included under section 1(mm)(vii), because the
controller’s duties included accounting, bookkeeping, and
financial reporting. This factual dispute regarding the
correct classification of these expenses and the scope of the
controller’s duties is within an accountant’s expertise.

                   iv. Bonus Paid to Victor José Ruiz
                       Ortiz
      In Disputed Item 2:13, Future Energy objected that
this bonus should be excluded from operating expenses
under section 1(mm)(xxvi) of the Earn-Out Agreement.
Entravision responded, inter alia, that this bonus was not
given for the purpose described in that provision.9 Whether

9     The version of the agreement in the record does not include
section 1(mm)(xxvi), and it appears it may have been part of a
subsequent amendment that is not in the record. However,
Future Energy does not dispute Entravision’s characterization of
this provision.

                               20
a payment was made for a defined purpose is a factual
matter within an accountant’s expertise.

               b. Disputed Items not subject to ADR
     The two remaining Disputed Items present legal issues
that may be litigated only in court, such as the existence and
enforceability of additional agreements between the parties
about certain accounting practices and the correct
interpretation of various provisions in the Earn-Out
Agreement.
                    i. Disputed Item 2:4
     Future Energy’s sole objection in this Disputed Item
was that a prior agreement by the parties governed the
treatment of the relevant expenses. Accordingly, this
Disputed Item presented no accounting-related dispute
between the parties.

                  ii. Disputed Item 3:6
      This Disputed Item concerned the inclusion of interest
on loans by Entravision to Headway. Future Energy
objected that under Section 1(mm)(xix) of the Earn-Out
Agreement, interest on such loans must be excluded to the
extent those loans do not exceed the amount of cash
dividends by Headway to Entravision. Entravision
responded that Headway had issued it no cash dividends,
and thus the entire amount of interest was properly included
in operating expenses. Future Energy has made no claim,

                             21
either in the Disputed Items before the trial court or on
appeal, that Headway had issued qualifying dividends.
Accordingly, any remaining dispute regarding this issue
presents question of law not subject to ADR.

                             22
                        DISPOSITION
      The trial court’s orders are reversed in part and
affirmed in part. The matter is remanded for further
proceedings consistent with this opinion. Entravision shall
recover its costs on appeal.
    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                                   SCADUTO, J. *

We concur:

COLLINS, Acting P.J.

CURREY, J.

*     Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to Article VI, section 6, of the California
Constitution.

                                23
     APPENDIX
Period 2 Disputed Items

          24
Period 3 Disputed Items