Court Opinion

ID: 4103921
Source: CourtListenerOpinion
Date Created: 2016-12-01 22:01:13.149782+00
Date Added: 2024-06-11T07:45:42.075121
License: Public Domain

NOT FOR PUBLICATION

                    UNITED STATES COURT OF APPEALS
                                                                            FILED
                            FOR THE NINTH CIRCUIT
                                                                            DEC 01 2016
                                                                         MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS
WATERMILL VENTURES, LTD. and                     No.   15-55145
WATERMILL-TOOLROCK
ENTERPRISES, LLC,                                D.C. No.
                                                 2:14-cv-08182-CAS-PLA
              Plaintiffs-Appellants,

 v.                                              MEMORANDUM*

CAPPELLO CAPITAL CORPORATION,

              Defendant-Appellee.

                   Appeal from the United States District Court
                       for the Central District of California
                   Christina A. Snyder, District Judge, Presiding

                          Submitted November 8, 2016**
                              Pasadena, California

Before: WARDLAW and BYBEE, Circuit Judges, and BELL,*** District Judge.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
      ***
            The Honorable Robert Holmes Bell, United States District Judge for
the Western District of Michigan, sitting by designation.
      Watermill Ventures, Limited and Watermill-Toolrock Enterprises, LLC

(“Watermill”) appeal the district court’s denial of their motion to vacate the

arbitration award in favor of defendant Cappello Capital Corporation (Cappello)

under the Federal Arbitration Act (FAA), 9 U.S.C. §§ 10(a)(1) & 10(a)(4). We

affirm.

1.    The district court correctly concluded that Cappello’s alleged assignment of

its rights to the arbitration proceeds was not a material breach of the “Settlement

Agreement” under New York law, and thus did not excuse Watermill from its duty

to submit the “Equity Split Dispute” to binding arbitration.1 The court held that

even if Cappello’s alleged assignment did breach the Settlement Agreement, it did

not relieve Watermill of its duty to arbitrate because the agreement was merely a

personal “covenant not to assign” that “[gave] rise only to a right to sue for

damages.” Watermill Ventures, Ltd. v. Cappello Capital Corp., No. 2:14-cv-

08182-CAS (PLAx), 2015 WL 251895 (C.D. Cal. Jan. 5, 2015), at *6–7; see also

Pro Cardiaco Pronto Socorro Cardiologica S.A. v. Trussell, 863 F. Supp. 135, 137

(S.D.N.Y. 1994). However, we need not decide whether the anti-assignment

      1
      The parties agree, and the district court concluded, that New York state law
governs our interpretation of the Settlement Agreement.
                                           2
provision here was a personal covenant that gave rise to a right to damages only,

because the alleged breach was not material in any event.

      A material breach is “a breach which is so substantial as to defeat the

purpose of the entire transaction,” relieving the non-breaching party of its duty to

perform under the contract. Lipsky v. Commonwealth United Corp., 551 F.2d 887,

895 (2d Cir. 1976). The purpose of the Settlement Agreement was to resolve

certain disputes between the parties and reserve the remaining Equity Split Dispute

for arbitration. Under these facts, the alleged assignment of rights in one claim

does not “defeat the purpose of the entire” Settlement Agreement, which resolved

$550,000 worth of other claims.

      Watermill’s undisclosed belief that the anti-assignment clause was “critical”

is also insufficient to establish materiality. Jacob & Youngs v. Kent, 129 N.E. 889,

891 (N.Y. 1921) (“Intention not otherwise revealed may be presumed to hold in

contemplation the reasonable and probable. If something else is in view, it must

not be left to implication.”). Finally, additional fact-finding was not required

because the district court assumed as true Watermill’s factual allegations, leaving

only a question of law. See WILJEFF, LLC v. United Realty Mgmt. Corp., 82
A.D.3d 1616, 1617–18 (N.Y. App. Div. 2011).

                                           3
2.    Given that Cappello’s alleged breach of the anti-assignment provision was

not material, the FAA provides no grounds for vacatur. The arbitration award was

not “procured by . . . fraud” because Watermill would have been required to

arbitrate regardless of whether Cappello “fraudulently concealed” the assignment.

See 9 U.S.C. § 10(a)(1). And the arbitrator did not exceed his powers by issuing

the award, see 9 U.S.C. § 10(a)(4), because Watermill had no defense to

arbitration. Moreover, Watermill cites no case in which a court vacated an award

under section 10(a)(4) based on an arbitrator’s failure to consider an argument the

parties did not present during the arbitration.

3.    Because we affirm on other grounds, we decline to consider whether

Watermill’s complaint was untimely under the FAA, 9 U.S.C. § 12.

      AFFIRMED.

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