Judge Gail Killefer, Case Number: 24STCP01361, Date: 2024-09-23 Tentative Ruling

On April 29, 2024, ABC Funding LLC (“Petitioner”) filed a Petition to Confirm Arbitration Award. Nicholas Gross (“Respondent”) moves to vacate the arbitration award. On June 28, 2024, Respondent filed a Response to the Petition and a Cross-Petition to Vacate the Arbitral Award. The arbitration occurred before the International Court of Arbitration of the International Chamber of Commerce (“ICC”) before Arbitrator David Huebner (“Arbitrator”).

The arbitration arose due to a dispute about a document titled “Guaranty” purportedly entered by the parties to this arbitration and dated as of September 25, 2020 (the “Guaranty”). On its face, the Guaranty references and guarantees certain obligations arising under a Financing Agreement dated September 25, 2020, and subsequent modifications thereto.

The arbitration hearing took place between November 27 and 29, 2024. On April 16, 2024, the Arbitrator issued the Final Award (“Award”).

Petitioner now moves to confirm the Arbitration Award. Respondent opposes the Motion and moves to vacate the Award. The matter is now before the court.

petition to vacate arbitration award[1]

CCP § 1286.6 provides that the court “shall correct the award and confirm it as corrected if the court determines that:¿¿

(a) There was an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award;¿

(b) The arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted; or¿

CCP § 1286.2(a) provides that the court shall vacate an arbitration award if it determines any of the following:¿¿

4) the arbitrator exceeded his power and the award cannot be corrected without affecting the merits of the decision;¿

5) the arbitrator refused to hear material evidence, to postpone the hearing, or acted contrary to the provisions of the code concerning arbitration;¿ and

6) the arbitrator was subject to disqualification but did not disqualify himself.¿

This statute provides the exclusive grounds upon which a court may review private arbitration awards. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 26-28 (Moncharsh).)¿ A court may not set aside an arbitration award even if the arbitrator made an error of law because the parties have agreed to bear the risk of an erroneous decision in return for a quick, inexpensive, and conclusive resolution to their dispute.¿ (Schlessinger v. Rosenfeld, Meyer & Susman (1995) 40 Cal. App. 4th 1096, 1109; Moncharsh, at p. 11-12.)¿ Courts may not review the merits of the controversy, the validity of the arbitrator's reasoning, or the sufficiency of the evidence. (Jordan v. Department of Motor Vehicles (2002) 100 Cal. App. 4th 431, 443.)¿ An arbitrator's decision is not generally reviewable for errors of fact or law, even if the error appears on the face of the award and causes substantial injustice. (Ibid.) This ensures that the arbitrator’s decision is the end, not the beginning, of the dispute. (Ibid.)¿

As part of a Financing Agreement (“Financing Agreement”), affiliates of Petitioner, known as Summit, loaned $35.5 million to ReKTGlobal LLC (“ReKT LLC”), a subsidiary of ReKT Global, Inc. (“ReKT Inc.”). (Award, ¶¶ 138-140.) On September 25, 2020, ReKT issued warrants that entitled the Lenders to purchase a certain number of shares of ReKT. (Id., ¶ 141.) The warrants are referenced in the Financing Agreement. (Id; see also White Decl., Ex. 28 [Financing Agreement, §§ 1.01, 5.01(d)(xiii)].) As a condition to completing the financing, Respondent agreed to act as Personal Guaranty for the loan. (Award, ¶¶ 142, 145-146; see also Bobroff Decl., Ex. 2 [Guaranty]; White Decl., Ex. 30 [Guaranty].)

When ReKT LLC failed to fulfill certain obligations, Petitioner moved to enforce the terms of the Guaranty through arbitration, pursuant to the arbitration clause in the Guaranty. At issue was whether the warrants referenced in the Financial Agreement which entitled Summit/Petitioner under certain conditions to either obtain ReKT Inc. shares in exchange for its warrants or to exercise an option, known as “put”, the required ReKT Inc. to pay Summit the fair market value of the shares that the warrants represented. (Award, ¶¶ 148, 180; Bobroff Decl., Ex. 6 [Warrant PW-5 issued by ReKT Inc. to Summit, § 3].) On April 16, 2024, the Arbitrator issued a final award (“Award”) in favor of Petitioner and against Respondent in the sum of approximately $35 million. (Award, ¶¶ 195, 301-302, 307.)

Respondent moves to vacate the arbitration award on four grounds: (1) the Arbitrator exceeded his authority by compelling Respondent to arbitrate a non-arbitrable claim of fraud in the execution; (2) the Arbitrator resolved conflicting forum selection provisions when such questions should have been decided by a court rather than an arbitrator, (3) the Arbitrator abused his discretion by refusing to postpone the hearing in favor of pending state court litigation, thus prejudicing Respondent; and (4) the Arbitrator exceeded his powers by ignoring Petitioner’s failure to fulfill a condition precedent to any right to arbitrate. The court examines each contention in turn.

B. Arbitrator Did Not Exceed His Authority Because Respondent Submitted the Issue of Jurisdiction to Arbitration

In issuing the final Award, the Arbitrator addressed the issue of jurisdiction and the Respondent’s contention that no arbitration agreement existed such that the Arbitrator lacked jurisdiction to hear and decide the issues presented in arbitration. (Award, ¶ 12.) The Arbitrator stated “Respondent subsequently agreed to appear in this proceeding on the condition that the Arbitrator hear and decide his jurisdictional objection (“Objection”) before a procedural timetable, if any, was set in the case.” (Id. ¶ 13.)

The Arbitrator stated that Respondent disputed the formation and existence of the Guaranty, including the arbitration clause contained therein “on the ground the Guaranty was obtained ‘by fraud in the execution (referred to in certain circumstances as ‘fraud in the factum’) and this is ‘void ab initio, not merely voidable.’ ” (Award, ¶ 15.) The Arbitrator rejected Respondent's contention that only a court of law—rather than the ICC Court of Arbitration or any arbitrator—could decide the issue of fraud in the exaction because “Respondent waived this argument by expressly agreeing to submit the question of jurisdiction to the Arbitrator [citation], but the Arbitrator nonetheless considered and determined the contention on its merits [citations].” (Id, ¶ 17.)

The Arbitrator noted that by selecting the ICC Rules of Arbitration (“ICC Rules”), the Parties agreed to abide by Article 6(3), which is a delegation clause that leaves the question of jurisdiction to the Arbitrator. (Award, ¶ 21.) The Arbitrator noted that the evidence before him showed that the dispute resolution provision, section 12 in the Guaranty, that was originally reviewed and executed by Respondent on September 9, 2020, was identical to the September 25, 2020, revised version that is now at issue and that Respondent contends was procured by fraud and that “[t]he record before the Arbitrator contains no evidence of any disagreement between the parties at any time over the language of Guaranty § 12, nor any objection to the use of the arbitration under the ICC Rules as the parties’ dispute resolution mechanism, until Respondent received notice in 2023 of the filing of Claimant’s Request for Arbitration.” (Id., ¶¶ 41-42 [italics original]; see also ¶ 186 subd. (d), (s).)

After fully considering the legal authorities submitted by the parties, the Arbitrator was unpersuaded by Respondent’s core contention that a mere allegation of fraud in the inducement or in the execution of a contract invalidates per se an agreement to arbitrate embedded therein and necessarily propels a dispute into state or federal court. If such were the case, all arbitration agreements would be subject to unilateral repudiation by a party who, at the time a dispute arises, sees advantage in court proceedings. The Arbitrator reads no case presented by Respondent supporting such an expansive proposition, particularly in a situation, such as presented here, in which the record is devoid of any evidence, allegation, or even vague hit of disagreement, confusion, or deception as to the dispute resolution provision at issue.

The Arbitrator acknowledged that while Respondent alleged fraud in the execution of the Guaranty signed in late September 2020, Respondent did not challenge the validity of the earlier signed Guaranty that contained an identical arbitration clause requiring arbitration under the ICC Rules. (Award, ¶¶ 41-42, 144.) Furthermore, while Respondent alleged that the Guaranty signed in late September 2020 was modified as to the loan term and certain definitions in the financing agreement referenced in the Guaranty, no fraud in the execution was alleged as the arbitration clause itself. (Award, ¶¶ 45-48, 54-56, 181-197.)

“If the party's challenge is directed to the agreement as a whole--even if it applies equally to the delegation clause--the delegation clause is severed out and enforced; thus, the arbitrator, not the court, will determine whether the agreement is enforceable.” (Malone v. Superior Court (2014) 226 Cal.App.4th 1551, 1559–1560; see also Rent-A-Center, West, Inc. v. Jackson (2010) 561 U.S. 63, 70-71.) Therefore, even if the later signed September 2020 Guaranty was invalid due to fraud, the earlier signed Guaranty was not challenged by Respondent, remained valid, and obligated Respondent to arbitrate the dispute. “By contrast, when—as here—the alleged illegality goes to only a portion of the contract (that does not include the arbitration agreement), the entire controversy, including the issue of illegality, remains arbitrable.” (Moncharsh, supra, 3 Cal.4th at p. 30.)

The court finds that Respondent waived the right to challenge the Arbitrator’s jurisdiction by agreeing to have the arbitrator decide the issue of jurisdiction and also agreeing to have the arbitrator decide the issue of fraud in the execution. (Award, ¶¶ 13, 128, 155-157.) Respondent cannot agree to submit the question of jurisdiction into arbitration and then challenge the arbitrator’s authority only after obtaining an unfavorable award. (See Malek v. Blue Cross of California (2004) 121 Cal.App.4th 44, 58 referencing United Food & Commercial Workers Union v. Clougherty Packing Co. (1984) 154 Cal.App.3d 282 [parties could not challenge the arbitrator’s findings as to whether a particular seniority provision was arbitrable because the parties by agreement asked the arbitrator to decide the issue].) “A claimant may not voluntarily submit his claim to arbitration, await the outcome, and if the decision is unfavorable, challenge the authority of the arbitrator to act.” (University of San Francisco Faculty Assn. v. University of San Francisco (1983) 142 Cal.App.3d 942, 954.)

Generally, “[t]he ‘gateway’ question of whether the parties are bound by a particular arbitration agreement is a question of arbitrability for the court.” (Malek, supra, 121 Cal.App.4th.) However, by submitting the question of jurisdiction and fraud in the execution of the Guaranty to the Arbitrator, there were no longer any gateway questions for the court to determine. (Award, ¶¶ 13, 44.) “[A] party who questions the validity of the arbitration agreement may not proceed with arbitration and preserve the issue for later consideration by the court after being unsuccessful in the arbitration.” (Bayscene Resident Negotiators v. Bayscene Mobilehome Park (1993) 15 Cal.App.4th 119, 129.)

By submitting to the Arbitrator, the question of jurisdiction and whether a valid arbitration agreement exists, the Respondent waived the right to challenge the Arbitrator’s authority and findings of fact and law as to these issues. Consequently, because these issues were voluntarily submitted to arbitration by the Respondent, the Arbitrator did not usurp the court’s authority in deciding those issues. If Respondent wished to have the court decide the issue of arbitrability, he should not have submitted the question to the Arbitrator and instead forced Petitioner to move to compel arbitration via a court order.

Therefore, the court will not vacate the arbitration award on the basis the Arbitrator acted in excess of his jurisdiction.

C. There was No Mandatory Forum Selection Clause in the Joiner Agreement that Conflicts with the Guaranty’s Arbitration Clause Requiring the Dispute be Adjudicated in Court Rather than in Arbitration

Respondent asserts that the Arbitrator did not have the power to arbitrate the dispute because the Joiner Agreement contained a mandatory forum selection clause:

27. Submission to Jurisdiction. Any legal suit, action or proceeding arising out of or based upon this Warrant or the transactions contemplated hereby may be instituted in the federal courts of the United States of America or the courts of the State of New York in each case located in the city of New York, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by certified or registered mail to such party’s address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or any proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

Respondent asserts that pursuant to Coinbase, Inc. v. Suski (2024) 144 S.Ct. 1186, issues arising out of and based on the warrants, as referenced in the Joiner Agreement, were to be decided by New York courts rather than in arbitration.

What happens if parties have multiple agreements that evidence a conflict over the answer to the third-order question of who decides arbitrability? That question can be answered as to these parties only by determining which contract applies. Homing in on the conflict between the delegation clause in the first contract and the forum selection clause in the second, the question becomes whether the parties agreed to send the given dispute to arbitration. And that question must be answered by a court.

Petitioner contends that Coinbase is not applicable because the sole contract at issue was the Guaranty and Respondent’s obligations under said contract. (Award, ¶ 128; Respondent’s Ex. 23, ¶ 12.) Petitioner asserts Respondent is not a signatory to the warrants and Petitioner could not have sued Respondent under the warrants. (Bobroff Decl., Ex. 6.)

Petitioner states the Joiner Agreement, signed on the same day of the Guaranty, imposed limited obligations on Respondent, not in his individual capacity, but in his capacities as shareholder and board member of ReTK Inc., and are unrelated to Respondent’s obligations to pay under the Guaranty. (Opposition, at p. 2:7-11.) The Joiner Agreement only required the Respondent to comply with three provisions:

1. Joiner. To directly and to cause each Affiliate of the Joining Party to comply with, and to vote (whether as a stockholder and/or member of the Company’s board of directors) to cause the Company to comply with, the following provisions of the Warrants: (1) Section 7 (Tag-Along), (ii) Section 29 (Preemptive Rights) and (iii) Section 30 (Registration of Warrant Shares).

(White Decl., Ex. 36, ¶ 1.) Accordingly, the Respondent’s obligations under the Joiner Agreement did not implicate the Parties’ dispute regarding the Respondent’s obligations under the Guaranty.

Petitioner does not dispute that the warrants contained a forum selection clause but asserts that the clause was incorporated to enforce the substantive rights under the Joiner Agreement. Petitioner contends that the Joiner Agreement does not apply to the dispute because Petitioner never claimed that Respondent failed to comply with the Tag-Along, Preemptive Rights, or Registration provisions of the warrants. Most importantly, the Joiner Agreement did not make Respondent a party to the warrants. Therefore, because the Joiner Agreement imposed different obligations on the Respondent, the dispute resolution provision in the Guaranty did not implicate the Joiner Agreement. This contrasts with the forum dispute in Coinbase, wherein the cryptocurrency exchange sought to impose an arbitration clause contained in a User Agreement to a dispute governed by the sweepstakes rules that provide for adjudication in court. (Coinbase, supra, 144 S.Ct, at pp. 1191-1192.)

Petitioner further contends that Coinbase does not apply because the forum section clause is not mandatory and does not bar arbitration:

27. Submission to Jurisdiction. Any legal suit, action or proceeding arising out of or based upon this Warrant or the transactions contemplated hereby may be instituted in the federal courts of the United States of America or the courts of the State of New York in each case located in the city of New York, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. . . .

(White Decl., Ex. 36 [emphasis added].) Respondent cites no legal authority supporting the conclusion that the Submission of Jurisdiction clause was a mandatory forum selection clause that mandated that issues regarding the warrants be submitted to a court for adjudication.

Respondent also fails to articulate how the Guaranty dispute implicated the Joiner Agreement and warrants. Respondent does not identify what specific provisions of the Joiner Agreement Petitioner violated. Consequently, the court is not persuaded that the arbitration dispute implicated the Joiner Agreement or that the Submission of Jurisdiction clause was a mandatory forum selection clause that required a court, rather than an arbitrator, to decide jurisdiction.

Respondent asserts that he brought the Submission of Jurisdiction clause to the attention of the Arbitrator in a motion to modify the procedural timetable for arbitration. (White Decl., Ex. 20, at p. 19.) However, Respondent’s request to modify the timetable did not argue that the Guaranty dispute required adjudication by a court rather than by arbitration. Instead, Respondent argued issue of warrant defenses should be decided by New York courts and the hearing postponed. (Id., Ex. 20, at pp. 16-19.) Respondent contended that the arbitration clause in the Guaranty should be narrowly construed and deemed inapplicable to the warranty defenses. (Id., Ex. 20, at pp. 17-19.)

Respondent specifically contends that the following issues related to the warrants should have been decided by a New York court rather than the Arbitrator:

(1) whether the put options had been timely and validly exercised in accordance with the terms of the warrants, (2) when, pursuant to the terms of the warrants, the alleged put amounts were immediately payable or payable over time, (3) how much, if anything, was owed upon exercise of the put rights given the fair market value provisions of the warrants, and (4) whether Petitioner and ReKT had reached agreement regarding the valuation.

The Arbitrator responded to Respondent’s motion by noting that the Parties had not sought to join additional parties, such as those involved in the New York litigation. (White Decl., Ex. 23, 4.) Furthermore, the Respondent failed to show he had standing to enforce the terms of the warrants, let alone any defenses related to the warrants.

Secondly, the Arbitrator was unpersuaded that the Guaranty’s language limited the issues to be decided in arbitration. (White Decl., Ex. 23.) However, the Arbitrator noted: “[t]he Arbitrator’s conclusion with respect to the interpretation of the language of the Guaranty is without prejudice to the parties presenting testimony and other evidence of contractual interpretation at the merits hearing.” (Id., Ex. 23, ¶ 14(d); Ex. 40, § 14.11.)

Third, the Arbitrator explained that on April 5, 2023, the Parties approved and executed the Terms of Reference setting out the issues to be decided in arbitration, including Respondent’s defenses, Petitioner’s lack of entitlement to immediate payment because of the prematurity of its demand, Respondent’s non-compliance with the terms of the warrants on which it purposes to rely, and Petitioner’s erroneous valuation of the securities it purports to put up for sale. (White Decl., Ex. 23, ¶ 10.)

Accordingly, the issues of the warrants that Respondents now contend should have been decided by a court were instead submitted to arbitration with the express consent and authorization of Respondent. This fact is distinguishable from the facts in Coinbase, wherein the users never acquiesced to arbitration and instead argued in court that the sweepstakes dispute required adjudication by a court and no arbitration agreement existed. (Coinbase, supra 144 S.Ct. at p. 1191.)

Therefore, the court considers any issues regarding the Arbitrator’s authority to decide the warrant issues as waived by the Respondent because the warrant issues were presented to the Arbitrator and the Respondent acquiesced to the arbitration of those issues. (Award, ¶¶ 128, 129.) Moreover, as explained above, the Respondent failed to show that the Submission of Jurisdiction clause is a mandatory forum selection clause that barred arbitration as a possible forum.

Respondent fails to show that the Arbitrator exceeded his powers by deciding questions of arbitrability related to the warrants.

D. The Arbitrator’s Refusal to Postpone the Arbitration Pending State Court Litigation Did Not Substantially Prejudice Respondent

Respondent asserts that the Arbitrator abused his discretion by refusing to postpone the hearing in favor of pending New York litigation, thus prejudicing Respondent’s ability to effectively present ReKT’s defenses. According to respondent, the focus of ReKT’s defenses included:

(1) the existence of a payoff letter acknowledging that all payment obligations related to the Financing Agreement between Petitioner and ReKT were satisfied and released, (2) Petitioner’s failure to fulfill the warrants’ requirement of appointing an independent appraiser to determine the fair market value of the shares Petitioner sought to put, and (3) the warrants’ provision that payment is not due unless and until ReKT has sufficient funds legally available to pay, with any unpaid amount becoming an unsecured loan accruing interest at 2% per year.

In denying Respondent’s motion for bifurcation and request to stay the arbitration, the Arbitrator stated that the ICC Rules provided useful guidance on case management techniques but “[t]he record currently before the Arbitrator, however, provides no basis for a finding that the bifurcation sought by Respondent ‘may genuinely be expected to result in a more efficient resolution of the case.’ ” (White Decl., Ex. 23, ¶ 15(f).) “Rather, it appears that bifurcation is more likely to produce extended delay, a certain amount of redundant activity, and increased costs.” (Id.)

The Arbitrator asserted that he was “not persuaded that there is a meaningful risk of actual prejudice to Respondent if this Arbitration proceeds as currently configured and scheduled.” (Id., ¶ 14(b).) The Arbitrator proceed to note:

On the record currently established, the Arbitrator sees insufficient basis for concluding that Respondent’s ability to be heard and to receive a fair and reasonable hearing in this arbitration will be impaired if determination of certain claims or defenses herein are not deferred until such time as the New York Action concludes. The balance of equities, as evidenced on the record currently establish, weighs in favor of proceeding with the case as set forth in the existing Procedural Timetable.

(Id., ¶ 15(h).) Lastly, the Arbitrator noted that by their own accord, the Parties had conducted “fulsome ‘discovery’ in this arbitration, including document productions and deposition.” (Id., ¶ 13.)

“‘[A] court's review of the arbitrator's decision to postpone or not postpone the hearing is quite limited.’” (SWAB Financial, LLC v. E*Trade Securities, LLC (2007) 150 Cal.App.4th 1181, 1197 (SWAB).) Respondent fails to show that the Arbitrator’s decision to not postpone the arbitration was without reasonable justification. (See City of Fresno v. California Highway Com. (1981) 118 Cal.App.3d 687, 700 [“Abuse of discretion is arbitrary determination, capriciousness or ‘whimsical thinking.’ ”].) “The arbitrator, and not the court, decides questions of procedure and discovery. [Citations.]” (Titan/Value Equities Group, Inc. v. Superior Court (1994) 29 Cal.App.4th 482, 488 [footnote omitted].)

Arbitrators may exceed their powers when they act in a manner not authorized by the contract or by law, act without subject matter jurisdiction, decide an issue that was not submitted to arbitration, arbitrarily remake the contract, uphold an illegal contract, issue an award that violates a well-defined public policy, issue an award that violates a statutory right, fashion a remedy that is not rationally related to the contract, or select a remedy not authorized by law.

(Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840, 868.)

CCP § 1286.2 mandates that an arbitration award be vacated upon a showing that “[t]he rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor[.]” (Id. [italics added].) The record before the court reflects that at the time Respondent requested a postponement, the Arbitrator sufficiently explained why Respondent had not made a sufficient showing that a postponement was necessary. (See White Decl., Ex. 23.)

“Where, as here, a party complains of excluded material evidence, the reviewing court should generally focus first on prejudice, not materiality. To find substantial prejudice the court must accept, for purposes of analysis, the arbitrator's legal theory and conclude that the arbitrator might well have made a different award had the evidence been allowed.” (Hall v. Superior Court (1993) 18 Cal.App.4th 427, 439.) Respondent asserts that presenting ReKT defenses required knowledge and access to the history of negotiations between Petitioner and ReKT and that an expedited discovery severely curtailed Respondent’s access to such discovery. (Motion, at pp. 15:25-16:9.)

Respondent fails to show that if Respondent had an adequate opportunity to conduct discovery, Respondent would have uncovered evidence that would have resulted in a different outcome than the one produced at arbitration. Furthermore, Respondent’s discovery pertained to defenses related to the warrants, which the Arbitrator found to be without merit.

The Arbitrator sided with the Petitioner in determining that case law did not support the proposition that guarantors are entitled to the same defenses as borrowers. (Award, ¶ 219.) Accordingly, any defenses that ReKT could assert did not mean that Respondent could also assert the same defenses to excuse his obligations under the Guaranty. The Arbitrator further noted that Section 1 of the Guaranty provides, “‘The Individual Guarantor hereby uncondi-tionally irrevocably and absolutely guarantees to each of the Secured Parties, as primary obligor and not merely as a surety, the full and prompt payment when due of all Obligations arising under or out of the Financing Agreement and other Loan Documents . . .’ ” (Id., ¶ 220, [italics original].) Therefore, Respondent fails to show he was substantially prejudiced by not being given a full opportunity to engage in discovery regarding ReKT’s defenses to the warrants.

Respondent asserts that the biggest prejudice resulted from Respondent being deprived of the benefit of an independent appraisal process contemplated by the warrants. However, the Arbitrator determined that as an independent appraisal was not required, no postponement was required. CCP § 1283.4 provides that an arbitration “shall include a determination of all the questions submitted to the arbitrators the decision of which is necessary in order to determine the controversy.” Here, the arbitrator necessarily decided that the Warrants fall within the ambit of the Guaranty. In determining the scope of the Guaranty, the Arbitrator stated in the relevant part:

The Guaranty applies to “all Obligations arising under or out of the Financing Agreement and other Loan Documents”; “Loan Document” is defined in the Financing Agreement to include “any Equity Document”; and “Equity Document” is defined expressly to include “the Warrants” here at issue. [Citation].

Section 1 of the Guaranty provides, “The Individual Guarantor hereby unconditionally, irrevocably and absolutely guarantees each of the Secured Parties, as primary obligor and not merely as surety, the full and prompt payment when due of all Obligations arising under or out of the Financing Agreement and the other Loan Documents . . .” (Emphasis added). As set forth in ¶¶ 145, 146, & 161-63, supra, the defined terms “Obligations” and “Loan Documents” clearly bring the Warrants, and obligations thereunder, within the ambit of the Guaranty’s mandate of “full and prompt payment when due.”

“The determination of which issues are actually necessary to the ultimate decision is a question of fact to be resolved by the arbitrator.” (United Food & Commercial Workers Union, supra, 154 Cal.App.3d at p. 288.) Here, the arbitrator necessarily decided that the warrants fall within the ambit of the Guaranty. The Arbitrator determined that the warrants defined “Fair Market Value” as “the fair market value per share as determined jointly by the Board of ReKT and the Holder” and that a formal appraisal process was only required if the two parties were unable to agree on the fair market value per share. (Award, ¶ 246.) The Warrant in the Joiner Agreement similarly triggers the appraisal process only upon disagreement between the ReKT board and the Holder:

“Fair Market Value” means the fair market value per share as determined jointly by the Board and the Holder; provided, that if the Board and the Holder are unable to agree on the fair market value per share of the Common Stock within a reasonable period of time (not to exceed 20 days from the Company’s receipt of the Notice of Exercise), each of the Board and the Holder, at the cost of the Company, shall select, within 10 days of the expiration of such 20-day period, an independent appraiser experienced in valuing securities or other applicable consideration of companies comparable to the Company (the “Company Appraiser” and the “Holder Appraiser”, respectively). Within 10 days of their appointment, the Company Appraiser and the Holder Appraiser shall mutually agree as to the appointment of a third independent appraiser experienced in valuing securities or other applicable consideration of companies comparable to the Company (the “Independent Appraiser”). The Independent Appraiser shall be instructed to complete its valuation within 30 days following appointment and the Independent Appraiser shall deliver its determination of valuation in writing to the Board and the Holder within such 30-day period. The Independent Appraiser’s determination of Fair Market Value shall be binding upon the Board and the Holder.

The Arbitrator determined that the condition requiring an independent appraisal was not triggered because Petitioner and ReKT agreed as to the fair market value of the shares.

“Nothing in the record before the Arbitrator establishes or even suggests a contemporaneous disagreement between ReKTGlobal and Summit over the fair market value of the Warrants.” (Award, ¶ 242.)

In Summary, no formal appraisal process or external/independent validation of “fair market value” was required if the company and the warrant holder agreed on share valuation. The record herein establishes that ReKTGlobal and Summit agreed – not disagreed – on the valuation of Summit’s warrant shares at times relevant to the dispute in this arbitration. Respondent has failed to establish any basis for overturning or reconsidering, almost two years later, such contemporaneous agreement.

The Arbitrator had the authority to decide whether the warrants required Petitioner and ReKT to engage in an independent appraisal process. (Award, ¶¶ 228-248.) This was also a question that was expressly submitted to the arbitrator for adjudication by the Parties:

Claimant and Respondent each engaged in valuation expert who offered testimony at the final hearing. The Arbitrator will not list and evaluate the scores of disagreements in their respective calculations and conclusions with respect to valuation process, offsets, comparable transactions, and retrospective valuation ranges because the record established that ReKTGlobal and Summit actually agreed at the relevant time on the valuation of Summit’s warrant shares.

The court has no authority to vacate an arbitration award based on findings of errors of law or fact by the Arbitrator.

‘When parties contract to resolve their disputes by private arbitration, their agreement ordinarily contemplates that the arbitrator will have the power to decide any question of contract interpretation, historical fact or general law necessary, in the arbitrator's understanding of the case, to reach a decision. [Citations.] Inherent in that power is the possibility the arbitrator may err in deciding some aspect of the case. Arbitrators do not ordinarily exceed their contractually created powers simply by reaching an erroneous conclusion on a contested issue of law or fact, and arbitral awards may not ordinarily be vacated because of such error, for ‘[t]he arbitrator's resolution of these issues is what the parties bargained for in the arbitration agreement.’ [Citations].

(Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1360–1361 (Cabel Connection).) As no independent appraisal was required under the warrants, the Respondent was not prejudiced by the inability to conduct an independent appraisal. Moreover, Respondent fails to show he was a party to the warrants and had standing to enforce the independent appraisal process contemplated by the warrants.

“Only if the arbitrators abused their discretion and there was resulting prejudice could the trial court properly vacate the arbitration award.” (SWAB, supra, 150 Cal.App.4th at p. 1198.) Respondent fails to show the Arbitrator abused his discretion in denying postponement of the arbitration and that postponement substantially prejudiced Respondent who had no defenses to the enforcement of the Guaranty, there was no basis for an independent appraisal of ReKT’s shares, and Respondent had no standing to order an independent appraisal.

E. The Arbitrator Did Not Exceed His Powers by Ignoring Petitioner’s Failure to Fulfill a Condition Precedent to Any Right to Arbitrate

Respondent asserts that under the warrants, a condition precedent was that “the amount payable” on account of the put options required Petitioner to participate in an independent appraisal process.

As stated above, the Arbitrator determined that no independent appraisal process for the shares was required because Petitioner and ReKT were both in agreement as to the fair market value of the shares. (Award, ¶¶ 242, 245.) “ ‘Fair Market Value’ means the fair market value per share as determined jointly by the Board and the Holder[.]” (White Decl., Ex. 36 [Ex. A Warrants at p. 4.] The obligation to conduct an independent appraisal was only triggered “if the Board and the Holder are unable to agree on the fair market value per share of the Common Stock[.]” (Id.)

The findings of the Arbitrator were that “[N]othing in the record before the Arbitrator establishes or even suggests a contemporaneous disagreement between ReKTGlobal and Summit over the fair market value of the Warrants.” (Award, ¶ 242.) Any finding that the Arbitrator erred in determining that an appraisal was not required, is not grounds for vacating the Award. (Cable Connection, supra, 44 Cal.4th at pp. 1360–1361.) Respondent also fails to point to the provision in the Guaranty or Financing Agreement that required Petitioner to submit to an independent appraisal process before seeking the dispute to arbitration.

On reply, Respondent asserts that Section 12 of the Guaranty required arbitration only if a dispute could not be amicably resolved. (Bobroff Decl., Ex. 2 [Guaranty, § 12]; White Decl., Ex. 30 [Guaranty, § 12].) Respondent speculates that had Petitioner complied with the terms of the warrants and conducted an independent appraisal, the dispute could have been amicably resolved making arbitration unnecessary. However, Respondent fails to show that Respondent did not comply with the terms of the warrants, or that an independent appraisal was required. Respondent failed to point to any evidence that showed ReKT disagreed with the appraisal of its stock or that ReKT and Petitioner plan to conduct an independent appraisal due to disagreement.

Based on the above, the Respondent fails to show that the Petitioner’s participation in an independent appraisal was a condition precedent to seeking arbitration. Therefore, the Award will not be vacated on these grounds.

petition to confirm arbitration award

“Any party to an arbitration award in which an award has been made may petition the court to confirm, correct, or vacate the award.” (CCP § 1285.) A petition under this chapter shall:

(a) Set forth the substance of or have attached a copy of the agreement to arbitrate unless the petitioner denies the existence of such an agreement.

(Id. § 1285.4.) “A response to a petition under this chapter may request the court to dismiss the petition or to confirm, correct or vacate the award.” (Id. § 1285.2.)

A petition to confirm an arbitration award must set forth the substance of or attach the arbitration agreement, include the name of the arbitrator, and attach a copy of the award and the written opinion of the arbitrator, if any. (CCP § 1285.4.) The petition must be served no earlier than 10 days, but no later than 4 years, after service of the award on the petitioner. (Id., §§ 1288, 1288.4.) The petition, written notice of the time and place of the hearing on the petition, and any other papers upon which the petition is based must be served in the manner provided in the arbitration agreement for service of such petition and notice. (Id., § 1290.4(a).)

Petitioner moves to confirm the April 16, 2024 Arbitration Award rendered by the Arbitrator David Huebner (“Arbitrator”). A copy of the Award is attached to the Petition as Attachment 8(c). A summary of the dispute is articulated above and in Paragraph 5 of the Petition filed on April 29, 2024.

The arbitration hearing occurred in Los Angeles, CA in between November 27, 2023 to November 29, 2023. (Petition, ¶ 7.) The Arbitrator found against Respondent and awarded Petitioner $30,996,257.22 in damages and pre-judgment interest in the amount of 2% per annum as to $30,051,983.00 of the award. (Id., ¶ 8; see also Award, ¶ 307(A)-(B).) The Arbitrator also ordered the Respondent to pay $2,470,873.56 to Petitioner in legal fees and expenses incurred in arbitration. (Id., ¶ 307(B)(1).) The Arbitrator also ordered the Respondent to pay $140,000.00 to the Petitioner for the Petitioner’s share of the arbitration costs and expenses as fixed by the ICC Court. (Id., ¶ 307(B)(2.)

“[A]n arbitrator's decision cannot be reviewed for errors of fact or law.” (Moncharsh, supra, 3 Cal.4th at p. 9.) An arbitrator’s award may only be challenged based upon narrow, limited grounds articulated in CCP § 1286.2. As articulated in the ruling denying Respondent’s petition to vacate the Award, Respondent’s assertion the arbitration agreement was procured by fraud in the execution is without merit as is Respondent’s contention that the Arbitrator lacked authority to decide the issue of jurisdiction. Moreover, Respondent failed to demonstrate that one of the limited grounds articulated within Section 1286.2 supported vacating the Award.

Therefore, the court fails to see any basis as to why the Petition to confirm the Award should be denied. Petitioner’s motion is granted.

Respondent’s motion to vacate the arbitration award is denied. Petitioner’s Motion to confirm the arbitration award is granted.

[1] A copy of the Award is provided by Petitioner as Attachment 8(c) to the motion to confirm the arbitration award. A copy of the Award is also provided by Respondents as Exhibit 38 to the motion to vacate the arbitration award.