8minutenergy US Manager v. MDS Capital CA1/3

Filed 6/30/23 8minutenergy US Manager v. MDS Capital CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or

ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

8MINUTENERGY US MANAGER,

LLC et al.,

Plaintiffs and Respondents, A165588

v. (City & County of San Francisco

MDS CAPITAL, LLC et al., Super. Ct. No. CPF-22-517713)

Defendants and Appellants.

This action arises out of a failed joint venture to develop solar energy

projects. Appellants, Class B investors in the joint venture,1 appeal from an

order confirming an arbitration award in favor of Thomas Buttgenbach,

8minutenergy US Manager, LLC (Manager), and 8minutenergy US Investor,

LLC (Managing Member) (collectively respondents). Appellants contend the

trial court should have vacated the award because the arbitrator exceeded

her authority by remaking or removing various terms of the parties’ contracts

and awarding relief that was not authorized by contract or law.

1 The Class B investors are comprised of MDS Capital, LLC, PEG Direct

Global Private Equity Institutional Investors VI, LLC, PEG Direct Global

Private Equity VII L.P., PEG U.S. Direct Corporate Finance Institutional

Investors V LLC, Nickel Alternatives, LLC, Tahoe Private Equity Fund L.P.,

Courier Private Equity Fund L.P., and PEG US 8ME Blocker, LLC.

1

Given the highly deferential and limited nature of judicial review of

contractual arbitration awards, we see no basis to reverse the trial court’s

decision. The arbitral rulings in question involved arguable constructions of

the parties’ contracts and remedies rationally related to the contracts, and as

such, appellants did not demonstrate that the arbitrator exceeded her

authority. Accordingly, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

We take the following facts from the arbitrator’s written arbitration

award and treat them as correct without examining the arbitration record.

(See Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 367,

fn. 1 (AMD).)

A. Formation of the Joint Venture

Dr. Buttgenbach was the co-founder, principal owner, and leader of a

company doing business as 8minute Solar Energy LLC (8minute Solar),

which “had a thriving pipeline of solar projects that were already known for

innovations in the renewable sector.” In 2018, the private equity firm Upper

Bay Infrastructure Partners (Upper Bay) approached 8minute Solar with the

goal of investing in the solar energy sector. The parties eventually formed

8minutenergy US Solar LLC (hereafter the “joint venture” or the

“Company”). After Upper Bay raised hundreds of millions of dollars in

investment capital, the parties entered into the operative Third Amended

Limited Liability Company Agreement of 8minutenergy US Solar LLC

(LLCA), Amended Management Services Agreement (MSA), and Mutual

Release.

A few provisions of these agreements bear early mention.

2

1. LLCA

Article 11 of the LLCA (§§ 11.1–11.9.6) sets forth the members’ rights

to the Company’s financial information. Under section 11.2, the Company

was required to make available “all records and historical information . . . for

inspection and copying upon reasonable notice by any Member or its

representative at any reasonable time during business hours and at such

Member’s expense for any purpose reasonably related to the Member’s

interest in the Company.” Members also had the right, upon reasonable

notice, to visit the Company’s principal office and facilities to inspect its

books and records, provided the notice stated a purpose that was reasonably

related to the member’s interest in the Company.

Section 11.5 entitled appellants to receipt of audited annual financial

statements within 120 days after the end of the fiscal year (§ 11.5.2);

unaudited quarterly financial statements within 45 days after the end of the

first, second, and third quarters of each fiscal year (§ 11.5.1); and quarterly

updates regarding certain financial matters (e.g., issuance of letters of credit)

within 45 days after the end of any applicable quarter (§ 11.6).

Section 14.20, entitled “Dispute Resolution,” contained the parties’

agreement to arbitrate “[a]ll claims, controversies or disputes of any type

arising out of or related to the Company or this Agreement or the breach

thereof . . . pursuant to JAMS Comprehensive Arbitration Rules and in

accordance with the JAMS Expedited Procedures” (hereafter JAMS Rules).

Section 4.6.1 of the LLCA required Managing Member to cause the

Company to “operate in accordance with the Five-Year Budget.” Under

section 5.6, board approval was required to amend the budget or to allow for

any budget deviation.

3

Article 13 (§§ 13.1–13.5) set forth the procedures for unwinding and

dissolving the Company in the event the board became deadlocked over a

“Major Business Decision” requiring board approval.

2. MSA

Under the MSA, Manager agreed to provide the Company with “all

services necessary in connection with the ownership, development,

acquisition, management and disposition of the Projects and management of

the Company,” including specific “ ‘Management Services’ ” described in an

exhibit to the MSA. In return, the Company would reimburse Manager for

its “Management Costs”—e.g., “all actual costs and expenses incurred by

Manager and its Affiliates for the performance of the Management Services

that Manager reasonably and in good faith determines directly benefits the

Company.” However, Manager did “not have the right to receive payment for

any Management Costs that would result in a Five-Year Budget Deviation or

Additional Budget Deviation” unless the budget was modified or the payment

was approved by the board.

3. Mutual Release

Under the Mutual Release, the parties agreed to release one another

from “any and all known and unknown claims . . . related to or arising out of”

the parties’ prior limited liability company agreements and management

services agreements. Expressly excluded from release was the “payment of

Management Costs under the [p]rior MSA for periods prior to the date hereof

in accordance with the terms and subject to the conditions set forth in the

[MSA] that are currently estimated at $75,000,000 and shall not exceed

$79,000,000.”

4

B. Parties’ Disputes

The parties’ relationship was “adversarial . . . from the very beginning.”

Three main disputes led to the unwinding of the Company.

1. OpCo

The first dispute was Dr. Buttgenbach’s proposal to develop a separate

operating company (OpCo) to construct and operate projects. According to

the arbitrator, this type of arrangement was not unusual in the solar

business, was contemplated in the LLCA, would have benefitted the joint

venture, and was structured not to undercut competitive bidding for the

Company’s projects. Nevertheless, appellants were “vehemently opposed to

the plan” because they viewed it as “Dr. Buttgenbach’s attempt at self-

dealing.”

2. $7.5 Million Reimbursement

The second dispute arose from respondents’ demand for reimbursement

of a $7.5 million security deposit that Dr. Buttgenbach had made to NV

Energy for the Eagle Shadow Mountain project in Nevada. Appellants

maintained that the claim was either released under the Mutual Release or

barred because transferring this amount would exceed the $79 million cap on

total management costs.

3. D.E. Shaw Renewable Investments (DESRI)

The third dispute arose from respondents’ proposed sale of a solar

project to DESRI. As the arbitrator found, DESRI was “one of the most

qualified buyers in the solar industry” and “needed 8minute Solar’s technical

expertise” for a complex battery technology. However, appellants claimed the

sale would involve self-dealing by Dr. Buttgenbach and refused to approve it.

In October 2020, appellants issued a breach notice and threatened litigation

if respondents moved ahead with the DESRI deal.

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C. Deadlock

Prior to the October 2020 board2 meeting, the parties continued their

negotiations over OpCo. “[A]lthough Class A attempted to modify the

structure with price protections and the like, Class B refused to cooperate in

this effort [citation]. When the issue finally was presented for a vote by the

Board on October 20, 2020, Class B opposed the measure and left the Board

deadlocked over this Major Business Decision.”

In December 2020, respondents delivered a formal deadlock notice to

appellants.

D. Arbitration Demand and Counterclaims

In February 2021, appellants filed a demand for arbitration with JAMS

alleging that: Dr. Buttgenbach and Managing Member defrauded appellants

“by providing false and inflated financial projections to induce the Class B

Investors to invest substantial amounts of capital in the Company and

subsequently to support a significant financing arrangement”; respondents

pursued conflicted projects in material breach of the LLCA; Dr. Buttgenbach

and Managing Member failed to comply with their duty to produce books,

records, and other financial information; and Manager and Managing

Member committed an anticipatory breach by wrongfully requesting

reimbursement of $7.5 million.

Respondents asserted counterclaims against appellants for:

obstructing project sales in breach of the LLCA; tortiously interfering with

project sales to DESRI; sharing confidential information; and breaching the

implied covenant of good faith and fair dealing.

2 The board was made up of two members from the Class A investors and

two members from the Class B investors.

6

E. Alleged Breaches of Informational and Inspection Rights

While arbitration proceedings were pending, the deadline for delivery

of the audited financial statement for fiscal year 2020 passed without the

audit being completed on time. (The audited financial statement for fiscal

year 2020 would not be delivered until January 31, 2022.)3

In July 2021, appellants’ agent attempted to perform a three-day site

visit at the Company but was given limited access only for one day.

F. Unwinding Notice

In July 2021, the Class A investors became “persuaded that the parties

were hopelessly deadlocked” and directed Managing Member to issue an

unwinding notice. As required under the LLCA, the unwinding notice set

forth “the status of each project in the pipeline including an estimate of

needed funding and a timeline.” Appellants had 30 days after issuance of the

unwinding notice to deliver a written “Designated Project Notice” (DPN)

designating any projects they wished to continue to fund. The Managing

Member would then deliver written notice to the Class A and Class B

investors of their contributions amounts “sufficient to fund each Designated

Project until it is sold by the Company” (hereafter the Designated Project

Contributions Notice or DPCN). The Class A and B investors then had 60

days after the DPCN to contribute their share of funds for the designated

projects, with Class A required to contribute 12.5 percent of the funds, and

Class B required to contribute the remaining 87.5 percent.

3 Appellants also claim that respondents failed to timely deliver

quarterly financial statements in 2021, as well as a quarterly report

disclosing a letter of credit issued to the Company in July 2021. However, as

discussed post, the arbitrator found no material breach of the LLCA

provisions regarding quarterly financial statements and reports.

7

Appellants initially moved to enjoin the unwinding process, but the

arbitrator denied their request. Appellants then made other “attempts to

disrupt and stop” the unwinding process, all to no avail. In early August

2021, appellants delivered their DPN designating all 73 of the joint venture’s

projects for funding. In turn, Dr. Buttgenbach issued DPCNs to both

appellants and respondents seeking their respective cash contributions to

fund the designated projects.

On August 19, 2021, the Class B board members sent Dr. Buttgenbach

an “extensive Request for Information” (hereafter the August 19 letter),

claiming the DPCN materially deviated from the Company’s five-year budget,

and demanding production of a variety of documents (including emails,

instant messages, and text messages) concerning the preparation of the

DPCN and other matters. The August 19 letter also demanded a site visit,

with “full and unfettered access, for inspection and copying,” of the

Company’s books and records.

Respondents rejected appellants’ request for an additional site visit.

Furthermore, after appellants failed to deliver their share of contributions to

fund the designated projects, respondents issued a contribution default

notice. Pursuant to section 7.1.3 of the LLCA, in the event of a “Contribution

Default” relating to a DPCN, respondents had the right “to purchase the non-

funding Investor’s interest in each of its Designated Projects for an amount

equal to $1.00.”4

4 Accordingly, in December 2020, Managing Member delivered payment

by check of $73 to appellants to purchase the entire project pipeline.

8

G. Dismissal of Claims, and Amended Claims and

Counterclaims

Ten days before the arbitration hearings were scheduled to begin,

appellants’ then-counsel, the Bracewell law firm, withdrew from

representation under a “cloud of claimed ethical breaches” involving use of

the Company’s attorney-client privileged information to give appellants an

“upper hand in negotiations with Dr. Buttgenbach and others at [the

Company].” After appellants’ new counsel assumed representation,

appellants dismissed their original arbitration claims “with prejudice.”

In late August 2021, appellants filed an amended demand for

arbitration, asserting 13 new claims across five general categories:

(1) respondents breached the LLCA by issuing the unwinding notice and

DPCN with cost projections that exceeded the five-year budget; (2) the

unwinding notice and DPCN did not comply with LLCA requirements;

(3) respondents breached the implied covenant of good faith and fair dealing;

(4) respondents breached the LLCA by blocking appellants from selling their

interests in the Company; and (5) respondents violated appellants’

informational and inspection rights under the LLCA and section 18-305 of

the Delaware Limited Liability Company Act (hereafter the LLC Act) by

failing to timely deliver financial statements and denying them inspection of

the Company’s books and records.

Respondents filed amended counterclaims seeking, in relevant part,

prejudgment interest on the repayment of the $7.5 million, and a declaratory

judgment that the unwinding notice was valid.

H. Arbitration Hearings and Decision

The arbitration hearings took place in December 2021. In February

2022, the arbitrator issued a final award in favor of respondents.

9

As relevant here, the arbitrator found that appellants made bad faith

claims of anticipatory breach regarding the reimbursement of the

“misdirected $7.5 million deposit,” despite respondents’ repeated

explanations that the money was a security deposit that was “mistakenly

refunded to the JV, not the parent company.” Because appellants “continued

to dispute the matter until this claim was dismissed with prejudice on the eve

of trial,” the arbitrator found that respondents were entitled to “prejudgment

interest at the legal rate of 5.25 percent on the $7.5 million that was

misdirected and not yet returned [citation]. The total amount of interest due

to [the Company] is $490,839.04, running from October 30, 2020, to the end of

February 2022.”

The arbitrator also rejected appellants’ claim that the unwinding notice

and DPCN breached the budgetary provisions of the LLCA. Crediting the

testimony of Dr. Buttgenbach and respondents’ expert, Robert Gurman, over

that of appellants’ expert, Seabron Adamson, the arbitrator found that the

DPCN and the five-year budget had “entirely different functions” because the

budget was “an operating budget while the [DPCN] is project-focused, not

operations-focused, and is part of LLCA Article 13 regarding the Unwinding.”

Because the DPCN “does not assume the continued operations of the

company and relates to circumstances involving termination of the operations

of the company,” the arbitrator found that board approval was not required

for the unwinding notice or DPCN, which were “left to the Managing

Member.”

The arbitrator also found that appellants failed to prove violations of

their informational and inspection rights under the LLCA and section 18-305

of the LLC Act. According to the arbitrator, the Company “did produce a lot

of documents as set forth in Mr. Gurman’s rebuttal report,” and the

10

arbitrator credited Gurman’s testimony that “Manager and Managing

Member did provide Class B with the required information disclosures

pursuant to the LLCA.” The arbitrator further noted that the Company

“objected to a number of the overbroad requests as well as to a July 2021

forensic audit . . . that demanded unfettered access to all the JV’s books and

records. Those requests went well beyond the requirements of the LLCA

[citation]. [Respondents] explain that they did provide the usual business

records to [appellants] but objected to litigation discovery requests made in

August 2021.” As for appellants’ statutory claim under section 18-305, the

arbitrator remarked in a footnote that “Class B has no rights in addition to

those set forth in the LLCA under Delaware’s LLC Act, section 18-305.”

Although the arbitrator recognized that “the audited financials [were]

late,” the arbitrator found that “[t]he audit [was] delayed because the Board

voted late in the first quarter of 2021 to replace its auditor and appoint

Deloitte as the new auditor. Deloitte has not yet completed its work.” The

arbitrator concluded that appellants “did not prove that Managing Member

or Manager violated the informational rights set forth in the LLCA.”

Finally, the arbitrator found that respondents were entitled to their

reasonable attorney fees and expenses pursuant to section 5.9.2 of the

LLCA.5 Among the amounts requested by respondents were over $5.5 million

in fees for an investigation performed by the law firm of Brown Rudnick into

5 Under section 5.9.2, in the event of an alleged breach of the LLCA by

the Manager, the parties “shall resolve such dispute in accordance with the

dispute resolution procedures set forth in Section 14.20; provided, however,

that the fees and expenses of such arbitration proceedings (including, without

limitation, reasonable attorneys’ fees) shall be borne . . . 100% by the Class B

Investors . . . if the arbitrators determine that such Alleged Breach does not

constitute a Management Breach.”

11

“the fraud allegations asserted against [the Company]” by appellants. The

arbitrator observed that “some of this work was performed in connection with

the arbitration and some was performed as part of the ongoing management

of the business,” but that “a precise calculation [was] not possible based on

the information submitted.” Nevertheless, the arbitrator found it “clear that

[appellants’] claims of fraud that were later dismissed with prejudice caused

much of this cost. Therefore, [respondents] are awarded a portion of this

claim: $4,514,624.”

I. Trial Court Proceedings

Respondents petitioned the trial court to confirm the arbitration award.

Appellants opposed the petition and cross-petitioned to vacate the award.

The court granted respondents’ petition, denied appellants’ cross petition,

and entered judgment in favor of respondents.

As relevant here, the trial court found that it “cannot revisit” the

arbitrator’s factual determinations that the Brown Rudnick investigation

costs were related to the arbitration, or that respondents were entitled to

prejudgment interest on their $7.5 million claim. The court found “[t]he

arbitrator was entitled to conclude that the money was misdirected to the

joint venture when it should have gone to [the Company].”

The trial court further concluded the arbitrator did not act irrationally

in finding that “the budgetary provision did not apply in the circumstances of

this case.” As to appellants’ informational rights claims, the court found that

“[t]he award need not be vacated because [respondents] did not comply with

the letter of the informational rights provisions. The arbitrator apparently

concluded that the delay was excused since a new auditor was appointed and

the work had yet to be completed. The arbitrator had the discretion to excuse

the breach.”

12

Finally, the trial court awarded respondents’ their fees and costs for the

postarbitration proceedings in court. Citing section 5.9.2 of the LLCA, which

provides for the shifting of “ ‘fees and expenses of such arbitration

proceedings,’ ” the court found that “the confirmation or vacation of an

arbitration award is part of the ‘arbitration proceedings.’ The clause is

therefore broad enough to allow [respondents] to recover the claimed $36,653

as reasonable fees for this work.”

This appeal followed. (Code Civ. Proc., § 1294, subd. (d) [right to

appeal from judgment confirming arbitration award].)6

DISCUSSION

“Arbitration awards are generally subject to narrow judicial review

because of the strong public policy in favor of arbitration as a speedy and

relatively inexpensive means of dispute resolution. [Citation.] Thus, courts

will not review the merits of the controversy, the validity of the arbitrator’s

reasoning, or the sufficiency of the evidence supporting the arbitrator’s

award. [Citation.] Typically, an arbitrator’s factual and legal errors are also

not reviewable because the arbitrator’s (as opposed to the court’s) resolution

of the disputed issues ‘ “ ‘is what the parties bargained for in the arbitration

agreement.’ ” ’ ” (California Union Square L.P. v. Saks & Co. LLC (2020) 50

Cal.App.5th 340, 348 (California Union Square).)

However, section 1286.2 provides that courts “shall” vacate an

arbitration award under specified grounds. Here, the sole statutory ground

cited by appellants in support of vacatur is section 1286.2, subdivision (a)(4),

which requires that an arbitration award be vacated if the court determines

that “[t]he arbitrators exceeded their powers and the award cannot be

6 Further unspecified statutory references are to the Code of Civil

Procedure.

13

corrected without affecting the merits of the decision upon the controversy

submitted.”

“An arbitrator exceeds his [or her] powers when he [or she] acts without

subject matter jurisdiction [citation], decides an issue that was not submitted

to arbitration [citations], arbitrarily remakes the contract [citation], upholds

an illegal contract [citation], issues an award that violates a well-defined

public policy [citation], issues an award that violates a statutory right

[citation], fashions a remedy that is not rationally related to the contract

[citation], or selects a remedy not authorized by law [citations]. In other

words, an arbitrator exceeds his [or her] powers when he [or she] acts in a

manner not authorized by the contract or by law.” (Jordan v. Department of

Motor Vehicles (2002) 100 Cal.App.4th 431, 443 (Jordan).) “In determining

whether an arbitrator exceeded his or her powers, we look to the parties’

arbitration agreement to see if and how it limited the arbitrator’s authority

because arbitrators have no powers beyond those conferred upon them by the

arbitration agreement.” (California Union Square, supra, 50 Cal.App.5th at

pp. 348–349.)

Importantly, “ ‘arbitrators do not exceed their powers merely because

they assign an erroneous reason for their decision.’ ” (Moncharsh v. Heily &

Blase (1992) 3 Cal.4th 1, 28 (Moncharsh).) Even “an error of law apparent on

the face of the award that causes substantial injustice does not provide

grounds for judicial review.” (Id. at p. 33.) “Absent an express and

unambiguous limitation in the contract or the submission to arbitration, an

arbitrator has the authority to find the facts, interpret the contract, and

award any relief rationally related to his or her factual findings and

contractual interpretation.” (Gueyffier v. Ann Summers, Ltd. (2008) 43

Cal.4th 1179, 1182 (Gueyffier).) “ ‘[A]s long as the arbitrator is even arguably

14

construing or applying the contract and acting within the scope of his [or her]

authority, that a court is convinced he [or she] committed serious error does

not suffice to overturn his [or her] decision.’ ” (AMD, supra, 9 Cal.4th at

p. 378.)

“In determining whether an arbitrator exceeded his [or her] powers, we

review the trial court’s decision de novo, but we must give substantial

deference to the arbitrator’s own assessment of his [or her] contractual

authority.” (Jordan, supra, 100 Cal.App.4th at pp. 443–444.) “In close cases

the arbitrator’s decision must stand.” (AMD, supra, 9 Cal.4th at p. 381.)

A. Arbitrarily Remaking the Contracts

Appellants contend the arbitrator exceeded her authority by remaking

the following contractual terms between the parties: (1) the LLCA’s

provisions requiring the Company to operate within a five-year budget and to

obtain board approval for any deviations from the budget; (2) the LLCA’s

provisions entitling appellants to receive timely financial statements and to

inspect the Company’s books and records; and (3) the Mutual Release, which

either released respondents’ $7.5 million claim, or barred it due to the cap on

total management costs.

1. Five-Year Budget

Appellants fail to demonstrate that the arbitrator’s decision “arbitrarily

rema[de]” the budgetary provisions of the LLCA. (Jordan, supra, 100

Cal.App.4th at p. 443.) To the contrary, the arbitrator appears to have

interpreted the scope of these terms—in particular, the requirement under

section 4.6.1 that the Company “operate” in accordance with the five-year

budget—and found them inapplicable to the “project-focused, not operations-

focused” expenses projected under the unwinding notice and DPCN.

15

Appellants nevertheless contend the arbitrator impermissibly relied on

sources extrinsic to the LLCA to reach her decision. We disagree. While the

arbitrator cited testimony from Dr. Buttgenbach and expert Gurman, we are

not “compelled to infer the award was based on an extrinsic source” rather

than an interpretation of the contract. (AMD, supra, 9 Cal.4th at p. 381.)

The arbitrator appears to have relied on the testimony—specifically, the

witnesses’ distinction between the “operations-focused” budget and the

“project-focused” DPCN— to aid in her interpretation of the LLCA. Thus, the

arbitrator was still “arguably construing or applying the contract” and was

therefore acting within the scope of her authority. (AMD, supra, 9 Cal.4th at

p. 378.)

Appellants suggest it was error for the arbitrator to rely on extrinsic

evidence to interpret the LLCA because the budgetary provisions were

unambiguous.7 While the arbitrator did observe that “[n]either side claims

that the contract is ambiguous,” the arbitrator appears to have implicitly

found ambiguity given her reliance on testimony to interpret section 4.6.1.

(See Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1357 [expert

testimony admissible as to industry custom and usage of latently ambiguous

contract language].) In any event, even assuming it was legal error for the

arbitrator to rely on expert testimony to interpret the LLCA, the arbitrator

did not exceed her powers simply by reaching erroneous conclusions on issues

of law or fact. (Safari Associates v. Superior Court (2014) 231 Cal.App.4th

1400, 1408.)

7 As previously mentioned, appellants also submitted expert testimony to

support their contention that the unwinding notice and DPCN exceeded the

five-year budget.

16

Aspic Eng’g & Constr. Co. v. EEC Centcom Constructors, LLC (9th Cir.

2019) 913 F.3d 1162 does not compel a contrary conclusion, as the arbitrator’s

decision in that case was not based on an attempt to interpret the

subcontract in question. Rather, the arbitrator concluded that an Afghani

subcontractor could not be expected to comply with United States Federal

Acquisition Regulation (FAR) provisions incorporated by reference into the

subcontract because the business practices of subcontractors in Afghanistan

were more “ ‘ “primitive” ’ ” than those of U.S. subcontractors. (Id. at

p. 1168.) In so concluding, the arbitrator “evaded” the provisions of the

subcontract incorporating the FAR clauses and “failed to draw the essence of

the Award from the Subcontracts.” (Ibid.) Here, in contrast, the arbitrator

did not evade the budgetary provisions of the LLCA but interpreted them to

conclude the projected expenses under the unwinding notice and DPCN were

not subject to the five-year budget.

In sum, appellants fail to demonstrate that the arbitrator remade the

LLCA’s budgetary provisions in excess of her powers.

2. Informational and Inspection Rights

a. Right to Inspect Books and Records (LLCA § 11.2)

The arbitrator rejected appellants’ claim that they were denied their

right to inspect the Company’s books and records pursuant to section 11.2 of

the LLCA and section 18-305 of the LLC Act. Specifically, the arbitrator

found that appellants’ demand for “unfettered access” to the Company’s books

and records went “well beyond the requirements of the LLCA,” and that

section 18-305 of the LLC Act did not afford appellants any rights beyond

those set forth in the LLCA.

As such, the arbitrator’s decision was based on an interpretation of the

scope of the inspection rights afforded under section 11.2 of the LLCA, as well

17

as a determination that section 18-305 of the LLC Act did not provide a basis

for further liability.8 These arguable constructions of the LLCA, vis-à-vis

section 18-305 of the LLC Act, were within the arbitrator’s powers and are

not subject to judicial review, even if erroneous. (AMD, supra, 9 Cal.4th at

p. 378; Moncharsh, supra, 3 Cal.4th at p. 28.)

Appellants maintain the arbitrator’s finding that they had no statutory

rights in addition to those set forth in the LLCA “directly contradicts” section

11.2 of the LLCA, which applies “[w]ithout limiting the rights of either the

Company and its representatives, or the Members, under Section 18-305 of

the [LLC] Act.” Reasonably read, this nonlimitation clause avoids an

application of section 11.2 that would confer narrower inspection rights than

under Delaware law. Here, however, the arbitrator determined that the joint

venture members’ rights under section 11.2 of the LLCA were coextensive

with section 18-305 of the LLC Act, and furthermore, that section 11.2 was

not breached. Thus, the arbitrator’s decision did not, as appellants contend,

8 Section 18-305 of the LLC Act lists the following categories of

information that members of a limited liability company have the right to

inspect: “(1) True and full information regarding the status of the business

and financial condition of the limited liability company; [¶] (2) Promptly after

becoming available, a copy of the limited liability company’s federal, state

and local income tax returns for each year; [¶] (3) A current list of the name

and last known business, residence or mailing address of each member and

manager; [¶] (4) A copy of any written liability company agreement and

certificate of formation and all amendments thereto, together with executed

copies of any written powers of attorney pursuant to which the limited

liability company agreement and any certificate and all amendments thereto

have been executed; [¶] (5) True and full information regarding the amount of

cash and a description and statement of the agreed value of any other

property or services contributed by each member and which each member has

agreed to contribute in the future, and the date on which each became a

member; and [¶] (6) Other information regarding the affairs of the limited

liability company as is just and reasonable.” (6 Del. C., § 18-305, subd. (a).)

18

contradict the nonlimitation clause or “remove[] the statutory protections of

Delaware law.” (See T. Wall Props. MLP v. Vanta Commer. Props., LLC,

2015 Del.Ch. Lexis 318, *3, *6–7 [courts need not reach section 18-305 of LLC

Act claim where agreement provides contractual inspection rights that exceed

rights under LLC Act].)

In sum, appellants fail to demonstrate that the arbitrator remade

section 11.2 of the LLCA or exceeded her authority as to appellants’ rights

under section 18-305 of the LLC Act.

b. Unaudited Quarterly Financial Statements

(§ 11.5.1) and Quarterly Financial Updates (§ 11.6)

The arbitrator also rejected appellants’ claim for breach of sections

11.5.1 and 11.6 of the LLCA, finding that the Company produced “a lot of

documents as set forth in Mr. Gurman’s rebuttal report,” and crediting

Gurman’s testimony that “Manager and Managing Member did provide Class

B with the required information disclosures pursuant to the LLCA.” The

arbitrator also found that respondents properly objected to litigation

discovery requests made in the August 19 letter. These factual findings,

based on the arbitrator’s interpretation of the informational rights provisions

of the LLCA, are not subject to judicial review. (Gueyffier, supra, 43 Cal.4th

at pp. 1184–1185.)

Appellants nevertheless contend that the arbitrator’s failure to

specifically address the claims under sections 11.5.1 and 11.6 “ignores the

uncontroverted evidence and removes the LLCA’s contractual requirement to

timely deliver information to Appellants.”9 Once again, appellants

9 Specifically, appellants claim it was undisputed that unaudited

quarterly financial statements were not provided until well after the

applicable deadlines; that no cash flow statement for any quarter of 2021 was

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improperly attempt to obtain judicial review of the arbitrator’s factual

findings under the guise of claiming the arbitrator rewrote the parties’

contract. (See Delaney v. Dahl (2002) 99 Cal.App.4th 647, 655–656 [rejecting

attempt to “style the arbitrator’s decision as one exceeding the limits of the

powers conferred by the retainer agreements”].) Even assuming for the sake

of argument that appellants’ contentions are true, it simply means the

arbitrator erred in her evaluation of the evidence that all informational

disclosures required under the LLCA were made. But such error on a

submitted issue, even one that “causes substantial injustice,” does not

demonstrate that the arbitrator exceeded her powers. (Moncharsh, supra, 3

Cal.4th at p. 33.)

Appellants next contend the arbitrator impermissibly limited their

informational rights under the LLCA to what can be obtained under the

JAMS Rules for discovery. In appellants’ view, the arbitrator wrongfully

construed the August 19 letter as a request for “ ‘litigation discovery’ ” rather

than an exercise of their right to financial disclosures under Article 11 of the

LLCA. We again are unpersuaded. The arbitrator was within her powers to

determine, based on the language, timing, and circumstances of the August

19 letter, that the request for information went beyond the scope of the

informational rights afforded under the LLCA, and were instead sweeping

discovery requests subject to the JAMS Rules. The arbitrator’s arguable

construction of the scope of the informational rights provisions, which were

based on the facts and evidence presented, did not exceed her powers. (AMD,

supra, 9 Cal.4th at p. 378.)

ever provided; and that respondents failed to timely disclose a $200 million

letter of credit as required under section 11.6.

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c. Audited Annual Financial Statement (§ 11.5.2)

In rejecting appellants’ claim for breach of section 11.5.2 of the LLCA,

the arbitrator acknowledged that the audited financial statement for fiscal

year 2020 was “late” but found the noncompliance to be excused because the

audit could not be completed on time due to the replacement of the

Company’s auditor in the first quarter of 2021. Appellants contend that the

auditor’s decision was in excess of her powers. We disagree.

The Supreme Court’s decision in Gueyffier is instructive. There, a

franchisee sued a franchisor in arbitration for failing to provide promised

assistance as required by their franchise agreement. (Gueyffier, supra, 43

Cal.4th at pp. 1181.) The franchise agreement required the franchisee to give

the franchisor notice and an opportunity to cure any alleged breach, but the

franchisee failed to comply with this provision. (Id. at pp. 1182–1183.) The

franchise agreement also contained a general clause prohibiting the

arbitrator from modifying or changing any material term of the contract. (Id.

at p. 1183.) In ruling in favor of the franchisee, the arbitrator excused the

franchisee’s failure to comply with the notice and cure provision, concluding

the franchisor’s breach “was not curable.” (Id. at p. 1183.)

The Supreme Court held the arbitrator did not exceed his powers by

applying an equitable excusal defense to the notice and cure requirement,

notwithstanding the no-modification provision. (Gueyffier, supra, 4 Cal.4th

at p. 1185.) As Gueyffier explained, “California law allows for equitable

excusal of contractual conditions causing forfeiture in certain circumstances,

including circumstances making performance futile,” and the no-modification

provision “did not unambiguously prohibit the arbitrator from excusing

performance of a contractual condition where the arbitration concluded

performance would have been an idle act.” (Id. at pp. 1185–1186.) “[T]o

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excuse performance of a contract term in a specific factual setting is not, in

ordinary usage at least, to ‘modif[y] or change[]’ the term. The no-

modification clause did not ‘explicitly and unambiguously’ [citation] bar the

arbitrator from deciding that article 7.2’s notice-and-cure provision was

inapplicable on the facts of the case as he found them.” (Ibid., italics

omitted.)

Gueyffier’s rationale aptly applies here. “The arbitrator was

empowered to interpret and apply the parties’ agreement to the facts [she]

found to exist; included therein was the power to decide when particular

clauses of the contract applied. In concluding the [120-deadline of section

11.5.2 of the LLCA] was inapplicable on the facts as [she] found them, the

arbitrator did no more than exercise this power.” (Gueyffier, supra, 43

Cal.4th at p. 1185.) Because appellants cite no provision of the LLCA

expressly and unambiguously preventing the arbitrator from excusing

noncompliance with section 11.5.2 of the LLCA, they fail to demonstrate that

the arbitrator exceeded her powers.

Appellants nevertheless maintain that the arbitrator’s finding

“contradicted contemporaneous documents and testimony from the hearing

that informed the arbitrator that the Board approved the change of auditor

on the understanding that the audit would be completed on time.” Once

again, appellants simply attempt to dispute the arbitrator’s factual and legal

determinations that an equitable excusal defense applied on the facts before

her. Right or wrong, the arbitrator’s resolution of disputed issues submitted

for her decision is what the parties bargained for and is therefore not subject

to judicial review. (California Union Square, supra, 50 Cal.App.5th at

p. 348.)

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3. Mutual Release and MSA

Appellants contend the arbitrator exceeded her powers by “remov[ing]

the general release and cost cap from the Mutual Release, effectively allowing

[r]espondents to seek any cost reimbursement from previous MSAs.” Again,

we disagree.

The arbitrator found that respondents’ claim for $7.5 million was not

for management costs, but for the return of a security deposit that NV

Energy mistakenly remitted to the joint venture rather than to the parent

company, 8minute Solar. As such, the arbitrator did not “remove” or

disregard the release provision and cost cap so much as find that the $7.5

million claim was not subject to either term. This decision involved

interpreting the applicable contractual language to determine what

constituted a “management cost” for purposes of the cost cap, as well as what

types of claims were released under the Mutual Release. Because the

arbitrator’s decision was based on an arguable interpretation of the contracts,

it is not subject to judicial review. (AMD, supra, 9 Cal.4th at p. 378.)

4. Relief Not Authorized by Contract or Law

Appellants next contend the arbitrator’s award of more than $4.5

million on an “unpled” claim for investigative expenses was not authorized by

the LLCA or the law because the expenses were not related to the

arbitration. Appellants further contend the trial court impermissibly

awarded appellants attorney fees incurred during postarbitration judicial

proceedings. We reject both contentions.

a. Brown Rudnick Investigation Expenses

There is no question the arbitrator had broad authority to determine

what fees and expenses would be awarded to the prevailing party in the

arbitration. The parties agreed to arbitrate their disputes under JAMS Rule

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24(c), which provides that “[t]he Arbitrator may grant any remedy or relief

that is just and equitable and within the scope of the Parties’ Agreement,

including, but not limited to, specific performance of a contract or any other

equitable or legal remedy.” “ ‘This type of rule “has been described as ‘a

broad grant of authority to fashion remedies’ . . . and as giving the arbitrator

‘broad scope’ in choice of relief.” ’ ” (Mave Enters. v. Travelers Indem. Co.

(2013) 219 Cal.App.4th 1408, 1431.)

Appellants nevertheless maintain that the arbitrator acted outside her

authority because respondents’ claim for attorney fees incurred in the Brown

Rudnick investigation “was never mentioned in the arbitration until an add-

on to [r]espondents’ post-hearing fee application, after the merits of the

arbitration were decided.” Based on this, appellants claim the posthearing

issue was not properly “submitted to arbitration” for decision. We disagree.

The arbitrator could reasonably determine that the issue was properly

submitted for decision, as both parties requested an award of attorney fees,

costs, and other expenses of arbitration in their arbitration pleadings.

Moreover, the award was appropriately deferred until after the merits

hearings on the parties’ claims and counterclaims, as per the prehearing

scheduling order stating the arbitrator would consider all requests for

attorney fees and costs after the issuance of the interim ruling, which the

arbitrator would provide within 30 days after the later of the close of the

arbitration hearings or the submission of posthearing briefs.

Appellants next contend the Brown Rudnick expenses were not

awardable under section 5.9.2 of the LLCA because they related to the

Company’s annual audit and not to the arbitration. But in light of the highly

deferential standard of review applicable to contractual arbitration awards,

this contention is likewise unavailing.

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As discussed, section 5.9.2 of the LLCA set forth the applicable dispute

resolution procedures and authorized the arbitrator to award the “fees and

expenses of such arbitration proceedings” to the prevailing party. Here, the

arbitrator was presented with evidence that the Brown Rudnick expenses

were incurred “solely as a result of” appellants’ fraud allegations in their

initial arbitration demand, as these allegations prevented the Company’s

auditors from relying “on standard management representations,” and

required an investigation and report into appellants’ claims in order for the

auditors to proceed with the annual audit. In short, the evidence arguably

showed that the Brown Rudnick expenses were rationally related to the

arbitration. (See Gueyffier, supra, 43 Cal.4th at p. 1182 [arbitrator has

authority to “award any relief rationally related to his or her factual findings

and contractual interpretation”].)

Even if we accept that the arbitrator’s decision entailed a broad

interpretation of what constituted arbitration-related expenses under section

5.9.2, it was still an arguable interpretation of the LLCA, and thus, it did not

constitute an act in excess of the arbitrator’s powers. (AMD, supra, 9 Cal.4th

at pp. 378, 381 [in close cases, arbitrator’s decision must stand].) Because the

recovery or nonrecovery of arbitration-related expenses was “one of the

‘contested issues of law and fact submitted to the arbitrator for decision,’ the

arbitrators’ decision was final and could not be judicially reviewed for error.”

(Moore v. First Bank of San Luis Obispo (2000) 22 Cal.4th 782, 787.) Here,

having submitted the issue of expenses to arbitration, appellants are hard-

pressed to maintain that the arbitrator exceeded her powers by deciding it,

even if she decided it incorrectly. (Ibid.)

Appellants contend that the arbitrator’s decision contradicted the

express and unambiguous language of section 14.6 of the LLCA, which bars

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awards of “special, indirect, punitive or consequential damages resulting or

arising out of this Agreement, including loss of profit.” As discussed above,

however, the Brown Rudnick expenses were arguably arbitration-related

expenses for purposes of section 5.9.2 of the LLCA, not consequential

damages. Thus, section 14.6 was not a bar, let alone a clear and

unambiguous one, to such relief. (See Gueyffier, supra, 43 Cal.4th at

p. 1182.)

5. Attorney Fees for Postarbitration Judicial Proceedings

Finally, appellants contend the trial court erred in awarding

respondents attorney fees for successfully petitioning to confirm the

arbitration award and opposing the petition to vacate it. According to

appellants, the fee shifting language of section 5.9.2 of the LLCA does not

extend to postarbitration judicial proceedings. We disagree.

Costs incurred in “any judicial proceeding” to enforce an arbitration

award are recoverable by the prevailing party. (§ 1293.2; Marcus &

Millichap Real Estate Investment Brokerage Co. v. Woodman Investment

Group (2005) 129 Cal.App.4th 508, 513.) Attorney fees are recoverable as

costs if authorized by contract, statute, or law. (§ 1033.5, subd. (a)(10)(A).)

The determination of the legal basis for an attorney fee award is a question of

law, which is reviewed de novo. (Connerly v. State Personnel Board (2006) 37

Cal.4th 1169, 1175.)

Section 5.9.2 of the LLCA provides that the parties must resolve their

disputes “in accordance with the dispute resolution procedures set forth in

Section 14.20; provided, however, that the fees and expenses of such

arbitration proceedings (including, without limitation, reasonable attorneys’

fees) shall be borne” 100 percent by the Class B investors if the arbitrator

finds in favor of management. (Italics added.) The phrase “such arbitration

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proceedings” necessarily refers back to “the dispute resolution procedures set

forth in Section 14.20” in the prior clause. (See Lueras v. BAC Home Loans

Servicing, LP (2013) 221 Cal.App.4th 49, 70–71 [meaning of contract must be

derived from reading contract as a whole, with individual provisions

interpreted together].) Section 14.20 states in relevant part that “[t]he award

rendered by the arbitrator shall be binding and final, and judgment may be

entered upon it in accordance with applicable Law in any court having

jurisdiction thereof.”

Thus, section 5.9.2 contemplates that the “arbitration proceedings” for

which fees shall be awarded include court proceedings to obtain a judgment

on the arbitration award. Accordingly, we conclude on our de novo review

that section 5.9.2 provides a contractual basis for the award of attorney fees

incurred during postarbitration judicial proceedings. (§§ 1033.5, subd.

(a)(10)(A), 1293.2.)

Appellants’ reliance on Cohen v. TNP 2008 Participating Notes

Program, LLC (2019) 31 Cal.App.5th 840 is unavailing, as the court there

held that arbitration proceedings were distinct from postarbitration judicial

proceedings for the purposes of determining prevailing party status in the

latter. (Id. at pp. 878–879.) Here, there is no prevailing party issue, as

respondents prevailed in both the arbitration and postarbitration judicial

proceedings.

DISPOSITION

The order granting respondents’ petition to confirm the arbitration

award and denying appellants’ cross petition to vacate the award is affirmed.

Respondents shall receive their costs on appeal.

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_________________________

Fujisaki, J.

WE CONCUR:

_________________________

Tucher, P.J.

_________________________

Rodríguez, J.

8MINUTENERGY US MANAGER, LLC et al. v. MDS CAPITAL, LLC et al., (A165588)

28