The Fourth Appellate District, Division Three, issued the opinion on March 20 and certified it for publication on April 16. Justice Sanchez wrote for the majority, joined by Acting Presiding Justice Moore. Justice Bancroft, sitting pro tem by assignment from Orange County Superior Court, dissented.
The dispute traces to 2017, when Tyrone Wynfield, purporting to act as Cap Fund's "liquidating trustee," sued Todd A. Mikles, SCMG Liquidation, LLC, and SSMF Liquidation, LLC, alleging breach of fiduciary duty and fraud in connection with the sale of three nonperforming notes. The trial court ordered the case to arbitration in 2018 on the defendants' motion to compel. After Wynfield's death in December 2019, a March 2020 vote purported to appoint his widow, Mary Jo Saul, as a new liquidating trustee. The arbitrator issued an interim award of $20,972,601 in compensatory and punitive damages in January 2024, and the Orange County Superior Court, Judge David J. Hesseltine presiding, confirmed the final award on June 3, 2024.
On appeal, the defendants argued that neither Wynfield nor Saul was properly elected under Cap Fund's operating agreement, which required a majority vote of qualified members. The majority found that purported election ballots "counted all the ballots returned, including those that were not qualified to vote per the terms of Cap Fund's operating agreement." When non-qualified votes were excluded, Wynfield allegedly received 44 percent and Saul 37 percent, both short of the 50 percent threshold.
"A litigant's standing to sue is a threshold issue to be resolved before the matter can be reached on the merits," the majority wrote, quoting Blumhorst v. Jewish Family Services of Los Angeles. The panel added that "contentions based on a lack of standing involve jurisdictional challenges and may be raised at any time in the proceeding."
The court held that Cap Fund's operating agreement "does not authorize any individual member to file an action on the company's behalf, but instead specifically vests this authority in the company's manager." Section 6.3.19 gives the manager "exclusive authority to '[i]nitiate, settle and defend legal actions on behalf of the Company.'" The majority noted that SCMG had replaced NNNRI as manager by member vote and that "no action was taken to revoke the amendment or to remove SCMG as manager."
On the reviewability of the arbitration award, the majority relied on Code of Civil Procedure section 1286.2, which requires vacation where "the arbitrators exceeded their powers." Citing National Union Fire Ins. Co. v. Stites Prof. Law Corp., the court said "an arbitrator exceeds his powers when he acts without subject matter jurisdiction."
Justice Bancroft's dissent argued that the majority's rule would "require the trial court to conduct an evidentiary hearing on the plaintiff's standing in every case before ordering the matter to arbitration." The dissent said standing "is a factual matter to be decided by the arbitrator and is not subject to judicial review" under Moncharsh v. Heily & Blase. Bancroft also noted that the appellants "did not file an opposition to the petition" to confirm and "did not file their own motion to correct or vacate the arbitration award."
The dissent distinguished Cohen v. TNP 2008 Participating Notes Program, LLC, on which the majority relied, saying the specific issue in Cohen was "whether the agent of a party to an arbitration agreement had standing to compel arbitration of his personal claims." Bancroft wrote that "the subject matter jurisdiction of an arbitrator is purely a product of contract."
The disposition directs the trial court to vacate its orders compelling arbitration and confirming the award, and to make factual findings on whether Wynfield or Saul had standing. If neither had standing and no other plaintiff may be substituted, the action must be dismissed. If the court finds that either had standing, or that another plaintiff may be substituted, it is directed to reinstate the orders compelling arbitration and confirming the award. Thomas E. Walling represented the appellants. Catanzarite Law, with Kenneth J. Catanzarite and Tim James O'Keefe, represented Cap Fund.