The dispute centers on a 2011 transaction in which Todd A. Mikles, as president of Cap Fund's manager, arranged for SSMF Liquidation, LLC to purchase nonperforming loans from NNN Capital Fund I, LLC at a discount. Members of Cap Fund, Tyrone Wynfield and Mary Jo Saul, sued Mikles and his entities in 2017, claiming breach of fiduciary duty and fraud while purporting to act as the fund's court-appointed liquidating trustees.
An arbitrator awarded Cap Fund $20,972,601 in January 2024, concluding that Wynfield and Saul had standing to bring the action. The Orange County Superior Court confirmed the award in June 2024.
The appellate majority, in an opinion authored by Justice Sanchez and joined by Acting Presiding Justice Moore, concluded that neither Wynfield nor Saul was lawfully authorized to bring those claims. The court found that the ballots used to elect them explicitly called for a court to appoint them, yet neither Weiss nor Wynfield ever applied to the Delaware Court of Chancery or any other court to dissolve Cap Fund.
More critically, when votes from transferee members who lacked voting rights under Cap Fund's operating agreement were excluded, Wynfield received only 44 percent of the eligible vote and Saul only 37 percent. Both figures fell below the 50 percent threshold required by the operating agreement.
The majority framed the case as a collision of two foundational legal principles: jurisdiction is never waived and can be raised at any time, while an arbitration award can only be challenged on very limited grounds. The court sided with the jurisdiction principle, concluding 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 appellants had moved to compel arbitration and argued standing before the arbitrator, making their appellate challenge a second bite at the apple.
The dissent argued that the broad arbitration clause gave the arbitrator full authority to decide standing as a contested issue and that the arbitrator's factual findings in favor of Cap Fund 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. The court must then 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 court must dismiss the action.