The panel reversed the Orange County Superior Court's June 2024 confirmation of an arbitrator's award of $20,972,601 in favor of NNN Capital Fund I, LLC. The underlying suit, filed in 2017 by Cap Fund members Tyrone Wynfield and Mary Jo Saul, accused Todd A. Mikles and his entities of breach of fiduciary duty and fraud tied to a 2011 sale of nonperforming loans to SSMF Liquidation, LLC at a discount.
Justice Sanchez, joined by Acting Presiding Justice Moore, concluded that neither Wynfield nor Saul was lawfully authorized to bring those claims. The majority found that the member ballots used to elect the two explicitly called for a court to appoint them, yet neither applied to the Delaware Court of Chancery or any other court to dissolve Cap Fund.
When votes from transferee members who lacked voting rights under the operating agreement were excluded, Wynfield received 44 percent of the eligible vote and Saul 37 percent, both short of the 50 percent threshold the agreement required.
The majority framed the appeal as a collision between two foundational principles: that jurisdiction is never waived and can be raised at any time, and that arbitration awards may be challenged only on narrow grounds. The court sided with the jurisdictional principle, reasoning that if the representatives lacked standing, the trial court and arbitrator alike never had authority to hear the case.
Justice Bancroft dissented, warning that the majority's rule would permit an unhappy party to challenge any judgment based on a bare contention of lack of standing. Bancroft noted that the appellants had themselves moved to compel arbitration and argued the standing question before the arbitrator, making their appellate challenge a second bite at the apple.
The dissent further argued that the broad arbitration clause gave the arbitrator full authority to decide standing and that the arbitrator's factual findings were not subject to judicial override under the California Supreme Court's decision in Moncharsh v. Heily & Blase.
On remand, the Orange County Superior Court must vacate both the order compelling arbitration and the order confirming the award, and hold an evidentiary hearing to determine whether Wynfield and Saul were validly elected. If they were not, and no authorized representative can be substituted, the trial court must dismiss the action.