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The Morrison Law Journal
July 2010
Volume V, Edition 7

The Lengthening Arm of the California Arbitration Statute: Court Of Appeal Rules That
Entity Which Was Not Party To Any Contract Containing An Arbitration Clause Could Be
Added As A Respondent Debtor To An Arbitration Award On A Joint And Several Basis

By: Edward F. Morrison, Jr., Esq.
Brett C. Drouet, Esq.

Consistent with a recent series of published opinions interpreting the California
Arbitration Act, the California Court of Appeal, Second Appellate District, ruled that an
arbitrator, in the context of a post hearing motion, had the authority to add a non-party
entity to an award ona joint and several basis even though the entity was not a party to
any arbitration contract which was before the arbitrator.

This decision of the California Court of Appeal was issued on June 25, 2010in the
case of Greenspan v. LADT,LLC (2010)185Cal.App.4th 413 ("Greenspan"). In Greenspan,
two investors acquired a commercial building in Los Angeles (thefamous Higgins Building
in downtown Los Angeles) in 1998 through an investment entity, known as LADT
("LADTU).LADTconverted the dilapidated structure, built in 1910,from an officebuilding
into apartments. In 2003,Barry Shy ("Shy"),who managed LADT, proposed to convert the
Higgins Building into loft-style residential condominiums, with commercial units on the
ground floor. At the time, Shy held a 50 percent interest in LADT through a company he
controlled, LABAR,LLC. ("LABAR").The Andrew Meieran Family Trust CTrust")held the
other 50 percent interest. The Trust had, as its primary interest, the rehabilitation of
properties to operate bars, and decided that it wanted to sell its.interest in the entity (itlater
established the Edison Bar on the first floor of that building). In 2004, the Trust entered
into an agreement with the principal of LABAR(Mr. Shy) to sell its one-half share. The
Trust's one-half share was then sold to a new entity controlled by the principal of the other
investor, which was commonly known in that case as LA ABC, LLC ("LA ABC").
Thereafter, LA ABCdefaulted on its payment obligations under the purchase agreement.
The purchase agreement did not have an arbitration clause.

In an attempt to settle their disputes, the Trustee of the Trust and Shy participated in
a Mediation in September 2005. They then sign~d a handwritten settlement agreement
(prepared by the mediator) which included a provision for arbitration in the event a later
dispute arose. Thereafter, on August 10, 2006, the Trustee of the Trust filed an action
against LADT, LA ABC and Shy. The Defendants then petitioned to compel arbitration
and the 'petition was granted. During the pendency of the litigation, the Trust became
embroiled in a dispute with Shy on another investment, which also went into arbitration.
The litigation on the other investment was arbitrated before retired Judge Keith Wisot of


JAMS. Judge Wisot rendered an award unfavorable to Shy. Shy then sued, unsuccessfully,
Judge Wisot and the JAMSorganization.

An arbitration then went forward on the Higgins Building matter before Judge
Wisot, who again ruled in favor of the Trust and against Shy. After the award was issued,
the Trust sought to reopen the hearing to add LADT as a joint and severally liable
respondent to the award. Judge Wisot reopened the hearing and added LADT as a
respondent debtor.

The Trust then filed a Petition to Confirm the Award, which was granted. LADT,
LA ABCand Shy then appealed arguing that Judge Wisot exceeded his authority as the
arbitrator, am(:mgother reasons. On appeal, the Court of Appeal ruled that because there
was an arbitration agreement between LA ABCand the Trust, because the parties later
agreed to select JAMSas the arbitration entity, and given JAMS Rule 11which provides
that the ar1Jiter decides arbitrability of disputes, there was "clear and unmistakable
evidence" of the parties' intent to delegate the issue of arbitrability tothe arbitrator. Based
on that conclusion, the Court ruled it would affirm Judge Wisot's conclusion as to
arbitrability of the disputes unless it found the arbitrator's decision to be "wholly
groundless". Applying that standard, the Court of Appeal ruled that Judge Wisot's
determination of arbitrability-that the parties submitted to arbitration the issue ofLADT's
liability for breach of contract-was not wholly groundless. The Court of Appeal ruled,
again using the "wholly groundless'l standard, that the finding ofjoint and several liability,
resting on alter ego principles, was also arbitrable under the savings clause found inJAMS
Rule 24 which provides that, absent an agreement of the parties, the arbitrator shall be
guided by general rules of law and equity .

.The Court of Appeal further ruled that, since the arbitrator had the authority to
issue the award, it could not review the.determination on the merits;

The decision in Greenspan is significant in two respects, First, it provides authority
for the proposition that the Court, in deciding the scope of the arbitration agreement, will
consider not only the parties' arbitration contract, but the rules of the alternative dispute
resolution provider which is selected to arbitrate the matter. The Greenspan decision is of
particular note in that the alternative dispute resolution provider - JAMS, was not
mentioned in the parties' arbitration contract and was only selected after the Court had
granted a petition to compel arbitration. Second, it specifically provides that, when the
alternative dispute resolution provider's rules contain a general (and broad) savings clause
dealing with th~ arbitrator's powers, additional parties may potentially be added asjointly
and severally liable respondents, even if they were not party litigants to the arbitration.

About the Authors: Edward F. Morrison, Jr. is the founding partner and Brett C. Drouet is a partner
of The Morrison Law Group, a professional corporation. Their biographies can be viewed at the


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