ML Park Place Corp. v. Hedreen

862 P.2d 602, 71 Wash. App. 727, 1993 Wash. App. LEXIS 426
CourtCourt of Appeals of Washington
DecidedNovember 29, 1993
Docket31063-1-I; 32360-1-I
StatusPublished
Cited by27 cases

This text of 862 P.2d 602 (ML Park Place Corp. v. Hedreen) is published on Counsel Stack Legal Research, covering Court of Appeals of Washington primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
ML Park Place Corp. v. Hedreen, 862 P.2d 602, 71 Wash. App. 727, 1993 Wash. App. LEXIS 426 (Wash. Ct. App. 1993).

Opinion

Pekelis, A.C.J.

ML Park Place Corporation and Merrill Lynch Life Insurance Company 1 appeal from two orders in favor of Richard Hedreen. These orders were entered in the wake of the arbitration of a claim concerning the terms of the parties' joint venture agreement. ML Park Place does not here dispute the merits of the award in favor of Hedreen, but instead contends that the trial court should have vacated that portion of the award attributable to Hedreen's counterclaim on the ground that the arbitrators had no contractual authority over it. Additionally, ML Park Place appeals the trial court's refusal to vacate the judgment confirming the award, contending that the award was procured through Hedreen's bad faith representations to the arbitrators. Finding no merit in either of ML Park Place's arguments, we affirm.

I

Facts

In 1970, Hedreen and ML Park Place's predecessor, Family Life Building Co. (FLBC), entered into a written joint venture agreement for the purpose of developing and owning the Park Place Building (hereinafter the Building) in downtown Seattle. Simultaneously, the joint venture entered into a management agreement with Hedreen and an agreement with Family Life Insurance Company (FLIC), FLBC's parent *730 company, pursuant to which FLIC agreed to enter into a lease upon completion of the Building. When the Building was completed in 1972, FLIC leased office space from the joint venture.

The joint venture endured and prospered despite several changes in the identity of the corporate venture partner. Then, in 1991, $21 million in joint venture obligations under two bank notes came due. Being unable to renew the notes or arrange alternative financing, Merrill Lynch Life Insurance Company (MLLIC), the then-current joint venture partner and fiscal administrator, initiated a capital call pursuant to the provisions of the joint venture agreement in order to satisfy the note obligations.

Hedreen refused to pony up, insisting that the capital calls were wrongful and in violation of provisions of the joint venture agreement. MLLIC satisfied the note obligations itself, and then, under the provisions of an arbitration clause in the joint venture agreement, 2 commenced an arbitration against Hedreen to resolve the dispute. MLLIC, and subsequently its assignee, ML Park Place, sought to extinguish Hedreen's interest in the joint venture owing to the failure to make the capital contributions. ML Park Place also sought restitution of funds allegedly converted by Hedreen in his capacity as property manager, alleging that Hedreen had wrongfully made cash distributions in violation of his fiduciary duties and the joint venture agreement.

Hedreen interposed counterclaims against MLLIC, alleging that MLLIC had reneged on a promise to refinance the joint venture debt and that MLLIC had caused FLIC to breach its commitment to enter into an extended 10-year lease on seven floors in the Building. In his response to MLLIC's demand for arbitration, Hedreen asserted that MLLIC's actions constituted "a violation of the Joint Venture Agreement and a *731 breach of the fiduciary duty owed to its partner in this venture."

After the arbitration panel had been selected, ML Park Place requested that the panel consider the arbitrability of Hedreen's counterclaims at a preliminary hearing. According to ML Park Place, "[a] threshold matter for the panel to consider is whether, and if so to what extent, those issues are properly before the Panel." The panel concluded the counterclaims were arbitrable; in a letter written prior to the second preliminary hearing, ML Park Place again objected, stating:

[W]e renew the objection we raised at the December 4 Preliminary Hearing regarding the arbitrability of Hedreen's counterclaims .... MLLIC is being compelled to arbitrate Hedreen's counterclaims, and it does so under protest.

The arbitration proceeded. ML Park Place raised the question of the arbitrability of Hedreen's counterclaims with the arbitrators again, making reference to the issue in closing argument and in its "Post-Hearing Brief", where it argued that the counterclaims were not within the jurisdiction of the arbitration.

The award issued on May 7, 1992. The arbitrators denied all claims asserted by ML Park Place, and found that ML Park Place had committed breaches of the joint venture agreement and had breached its fiduciary duties to Hedreen under the agreement. The panel assessed $7 million in damages against ML Park Place.

Hedreen moved in superior court to confirm the arbitration award, and ML Park Place petitioned to vacate, modify, or correct the award under the Washington arbitration act, RCW 7.04.180. ML Park Place argued that Hedreen's counterclaims were not within the scope of the parties' arbitration agreement, that the arbitrators had exceeded their powers and decided a claim that was not validly submitted to them, and that the award should therefore be modified to delete the damages award in favor of Hedreen.

*732 The trial court denied ML Park Place's motion. Preliminarily, the court determined that the record did not establish a waiver of judicial review of arbitrability. Yet, "given the presumption in favor of arbitration, the very broad scope of the arbitration clause, and the necessary inference from the award itself as to its basis", the court concluded that ML Park Place had failed to establish that the issue was nonar-bitrable. Accordingly, the court confirmed the award and entered judgment on July 27, 1992. ML Park Place filed an appeal of that judgment in due course.

Meanwhile, on May 12, 1992, MLLIC had exercised its contractual option to purchase Hedreen's interest in the joint venture. Because the parties were unable to agree on the purchase price, they invoked the appraisal procedure provided for in the joint venture agreement. 3

Shortly after the appraisal process was completed, ML Park Place moved to vacate the July 27 judgment under CR 60(b). ML Park Place contended that Hedreen and his expert witness, Katzenberger, had opportunistically and in bad faith changed their position on the value of the Building. According to ML Park Place, throughout the arbitration Hedreen and Katzenberger had represented to the panel that the value of the Building had diminished from $50 million to $29 million owing to the absence of the extended FLIC lease, while during the appraisal process they represented that the "as is" (i.e., without the FLIC lease) value was $47 million.

ML Park Place argued that at the arbitration Hedreen had misrepresented his position regarding the impact of the FLIC vacancy in order to obtain an inflated damage award. According to ML Park Place, Hedreen's "flip-flop" constituted newly discovered evidence demonstrating the arbitration award was procured by "undue means", which justified *733

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Bluebook (online)
862 P.2d 602, 71 Wash. App. 727, 1993 Wash. App. LEXIS 426, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ml-park-place-corp-v-hedreen-washctapp-1993.