Montano v. Venturis Therapeutics, Inc.

• Court: District Court, D. Nevada
• Decided: January 25, 2021
• Docket: 2:20-cv-01410
• Status: Unknown

Opinion

1 UNITED STATES DISTRICT COURT

2 DISTRICT OF NEVADA

3 DANIEL C. MONTANO; JOHN W. JACOBS, ) 4 ) Counter Claimants, ) Case No.: 2:20-cv-01410-GMN-BNW 5 vs. ) ) ORDER 6 VENTURIS THERAPEUTICS, ) 7 ) Counter Defendant. ) 8 ) 9 Pending before the Court is the Motion for Confirmation of Arbitration Award, (ECF 10 No. 1), filed by Counter Claimants John W. Jacobs (“Jacobs”) and Daniel C. Montano 11 (“Montano”). Counter Defendant Venturis Therapeutics, Inc. (“Cardio”)1 filed a Response and 12 Motion to Partially Vacate the Arbitration Award, (ECF No. 5), Montano filed a Reply and 13 Opposition, (ECF No. 9), and Cardio filed a Reply, (ECF No. 11). 14 For the reasons discussed below, the Court GRANTS in part and DENIES in part 15 Montano’s Motion to Confirm and GRANTS in part and DENIES in part Cardio’s Motion to 16 Vacate. 17 I. BACKGROUND 18 This case concerns a dispute over Montano and Jacobs’ arbitration award of back wages 19 against Cardio. (See generally Mot. Confirm. Arbitration Award (“Mot. Confirm”), ECF No. 20 1). Montano and Jacobs previously worked as executives for Cardio; Montano was its 21 President and Chief Executive Officer while Jacobs served as Chief Scientific Officer and 22 Chief Operating Officer. (See Final Memorandum of Award at 1, Ex. 1 to Decl. Barry 23 Cannaday (“Cannaday Decl.”), ECF No. 6-1). On June 17, 2009, in a period of financial 24

25 1 CardioVascular BioTherapeutics, Inc. is currently known as Venturis Therapeutics, Inc. The party is referred to as “Cardio” in this Order because it operated under the prior name during the events giving rise to this action. 1 difficulty for Cardio, Cardio’s board adopted a resolution (the “2009 Resolution”) offering 2 benefits to employees if they agreed to defer their compensation. (See 2009 Resolution, Ex. 3 to 3 Cannady Decl., ECF No. 6-3). Specifically, the board offered warrants for Cardio stock and 4 12% interest on unpaid wages in exchange for employees’ continuing to work without pay until 5 after Cardio satisfied “current obligations including compensation, rent, trial costs, and other 6 ongoing operating expenses [and] vendor liabilities as needed.” (Id.). The present dispute 7 concerns Cardio’s liability to Montano for back wages owed under the 2009 Resolution. 8 While continuing to work under the 2009 Resolution, Montano filed for bankruptcy on 9 July 9, 2013. (See Bankr. Court Findings of Fact, Ex. 4 to Cannaday Decl., ECF No. 6-4). On 10 his bankruptcy disclosures, Montano listed $6,645,866.20 in assets as a receivable of “unpaid 11 salary” from Cardio, 75% of which he listed as exempt from his creditors under NRS 12 21.090(1)(g). (Id. ¶¶ 4–5). After an evidentiary hearing, the bankruptcy court held that 13 Montano was not entitled to any of the claimed exemption comprised of interest payments 14 under the 2009 Resolution. (Id. ¶ 9). The court also held that Montano could not claim other 15 exemptions outside of those authorized by law, but the court did not specify other non-exempt 16 property that Montano had claimed. (Id.). 17 The underlying arbitration took place from August 26 to August 28, 2019, and Montano 18 and Jacobs prevailed upon counterclaims they raised for unpaid wages. (See Final 19 Memorandum of Award at 33–34, Ex. 1 to Cannaday Decl.). The arbitrator awarded 20 $96,222.13 in past wages to Jacobs, plus accrued 12% interest, “but not to be paid until Cardio 21 has the necessary funds after ‘taking care of current obligations including compensation, rent, 22 trial costs and ongoing operating expenses [and] vendor liabilities as needed’” pursuant to the 23 terms of the 2009 Resolution. (Id.). Montano received an award of $900,000.00, representing 24 the exempt 75% of $1,200,000.00 in recoverable unpaid wages, which the arbitrator ordered

25 Cardio to pay immediately. (Id.). The arbitrator reasoned that Cardio was not entitled to the 1 benefit of the 2009 Resolution’s forbearance provision as to Montano because Montano’s 2 bankruptcy precluded him from recovering the 12% interest accepted in exchange for his 3 forbearance. (Id.). 4 Montano and Jacobs initiated the present action by filing a Motion to Confirm the 5 Arbitration Award. (See Mot. Confirm, ECF No. 1). Cardio then moved to vacate the award in 6 part, only with respect to Montano. (See Mot. Vacate 16:18–17:16, ECF No. 1). Cardio seeks 7 to vacate Montano’s award in full, arguing that none of the past wages are exempt property 8 under Nevada bankruptcy law. (Id.). In the alternative, Cardio seeks to vacate the requirement 9 that it pay the award immediately in contravention of the 2009 Resolution, and it seeks a 10 deduction of $50,000.00 from the award. (Id.). 11 II. LEGAL STANDARD 12 The Federal Arbitration Act (“FAA”), 9 U.S.C. § 9, provides that any party to an 13 arbitration award may apply to the court for an order confirming the award if the parties have 14 previously agreed to such action. Section 9 mandates that the court grant the order confirming 15 the award unless the award is vacated, modified, or corrected, and under section 12, “[n]otice of 16 a motion to vacate, modify, or correct an award must be served upon the adverse party or his 17 attorney within three months after the award is filed or delivered.” 18 The review of arbitration awards is “extremely limited.” A.G. Edwards & Sons, Inc. v. 19 McCollough, 967 F.2d 1401, 1403 (9th Cir. 1992); Todd Shipyards Corp. v. Cunard Line, Ltd., 20 943 F.2d 1056, 1060 (9th Cir. 1991). Courts are deferential to the decisions made by 21 arbitrators. Rostad & Rostad Corp. v. Inv. Mgmt. & Research, Inc., 923 F.2d 694, 697 (9th Cir. 22 1991). “An arbitrator’s decision must be upheld unless it is ‘completely irrational,’ or it 23 constitutes a ‘manifest disregard of law.’” Todd Shipyards Corp., 943 F.2d at 1060 (quoting 24 French v. Merrill Lynch, 784 F.2d 902, 906 (9th Cir. 1986)).

25 // 1 III. DISCUSSION 2 Cardio argues that the Court should vacate the arbitration award to Montano because the 3 arbitrator refused to consider evidence material to the controversy in violation of 9 U.S.C. § 4 10(a)(3) and exceeded his powers and manifestly disregarded the law in computing the award 5 in violation of 9 U.S.C. § 10(a)(4). (Mot. Vacate 10:1–14:24). In the alternative, Cardio argues 6 that the Court should vacate the requirement to immediately transmit the award. (Id. 16:24– 7 17:2).2 At minimum, Cardio requests that the Court vacate $50,000.00 of the award. (Id. 15:1– 8 16:16). 9 Cardio’s arguments in favor of vacating the full award flow from one central thesis: the 10 arbitrator erred in awarding Montano any back wages because the wages were not exempt 11 property in Montano’s bankruptcy proceeding and are therefore not recoverable now. (See Mot. 12 Vacate 7:17–14:24). The record indicates that the arbitrator considered and rejected these 13 arguments during arbitration, but Cardio now seeks another bite at the apple. Cardio’s 14 arguments fall well short of meeting the substantial burden to vacate an arbitration award. 15 With one limited exception, the Court grants confirmation of the award and denies the motion 16 to vacate for the reasons discussed below. 17 // 18

19 2 Cardio argues that requiring the Montano award to be paid immediately was completely irrational because it 20 violates the terms of the 2009 Resolution and the arbitrator deferred Jacobs’s award consistent with the Resolution. (Mot. Vacate 5:12–7:16). An arbitral award is “completely irrational” if it “fails to draw its essence 21 from the agreement” as evidence by the agreement’s “language and context, as well as other indicia of the parties’ intentions.” Comedy Club Inc. v. Improv W. Assocs., 553 F.3d 1277, 1288–89 (9th Cir. 2009); Bosack v. 22 Soward, 586 F.3d 1096, 1106 (9th Cir. 2009). Here, the arbitrator required the award to be paid immediately because, as consideration for deferment, Montano and Jones accepted 12% interest on their back wages, which 23 Montano could no longer recover after declaring bankruptcy because the interest is not exempt property. (See 2009 Resolution, Ex. 3 to Cannaday Decl., ECF No. 6-3); (Final Memorandum of Award, Ex. I to Mot. Confirm, 24 ECF No. 1). Thus, because the arbitrator considered whether the agreement after Montano’s bankruptcy reflected the parties’ intent in light of the record, the Court cannot say the decision was “completely irrational.” 25 Cardio provides the Court with no legal authority suggesting that the arbitrator lacked the legal authority to reach his conclusion. Therefore, the Court declines to vacate the requirement that Cardio pay the back wages immediately as Cardio has not met its burden to show that the requirement is completely irrational. 1 A. The Award’s Exempt Status 2 Cardio contends that the arbitrator erred by granting Montano any recovery because the 3 2009 Resolution converted the wages owed under the agreement to proceeds thereof, which are 4 not exempt property under Nevada bankruptcy law. (See Mot. Vacate 3:7–11, 7:17–14:24). 5 Cardio first argues that the arbitrator failed to consider relevant evidence that the awarded 6 wages are not exempt property because, despite Cardio raising the exemption issue as an 7 affirmative defense at the outset of the arbitration and later introducing evidence thereon, “not 8 once did the Arbitrator address, analyze, or consider, those arguments in the final Award or any 9 of its prior iterations.” (Id. 11:6–7) (emphasis original). Montano responds that not only did the 10 arbitrator cite the relevant statute in his order, but Cardio failed to brief the issue until the 11 conclusion of the arbitration after previously conceding that the $900,000.00 award represented 12 the wages exempt from the bankruptcy estate. (Montano’s Reply 4:13–7:9, ECF No. 9). 13 The Court finds that the arbitrator adequately considered the evidence presented. In his 14 thirty-three-page final order, the arbitrator summarized Cardio’s argument that because “the 15 sums sought by Montano are not a payment for ‘personal services’ performed in the ordinary 16 course of business, they are not exempt under NRS § 21.090(1)(g)(1).” (Final Memorandum of 17 Award at 31, Ex. I to Mot. Confirm, ECF No. 1). Rejecting the argument, the arbitrator 18 explained “the amount due to Montano is unpaid wages earned for work done in the ordinary 19 course of Cardio’s business during its long downward spiral.” (Id.). In so doing, the arbitrator 20 declined to disturb his factual finding that the award was “compensation paid or payable for 21 personal services . . . in the regular course of business,” which is exempt from bankruptcy 22 under NRS 21.090(1)(g). (Id.) (Cf. Cardio’s Post Arbitration Brief at 72–74, Ex. 8 to Cannaday 23 Decl., ECF No. 6-8). While Cardio listed the non-exempt status of the wage claim as an 24 affirmative defense, it appears Cardio did not further explain the argument until its final reply

25 brief; nevertheless, Cardio now asserts that the arbitrator committed reversible error in his 1 treatment of the argument. (See Mot. Vacate 10:4–21) (highlighting the timeline of the 2 argument in the arbitration, which indicates that Montano did not develop its present argument 3 in the arbitration until its final reply brief). Contrary to Cardio’s assertions, the arbitrator’s 4 final order demonstrates that he considered whether the award qualified as exempt wages. 5 Next, Cardio argues that the arbitrator exceeded his powers and disregarded the law by 6 failing to properly consider and construe NRS 21.090(1)(g) and in re Christensen, 149 P.3d 40 7 (Nev. 2006), with respect to Montano’s right of recovery. (Mot. Vacate 11:11–14:24). 8 Montano responds that Cardio improperly construes the law, and even if Cardio’s interpretation 9 is correct, Cardio has not shown that the improper application of the law demonstrates that the 10 arbitrator manifestly disregarded the law. (Cardio’s Reply 7:3–11:22). 11 i. NRS 21.090(1)(g) 12 Under NRS 21.090(1)(g) exempt “earnings” include “compensation paid or payable for 13 personal services performed by a judgment debtor in the regular course of business . . . as 14 wages.” Only 75% of earnings are exempt property. See NRS 21.090(1)(g). In the final 15 arbitration order, the arbitrator mirrored the language of the statute in concluding that 16 Montano’s award of $900,000 was for 75% of “unpaid wages earned for work done in the 17 ordinary course of Cardio’s business,” indicating that the award is for exempt earnings (Final 18 Memorandum of Award at 31, Ex. I to Mot. Confirm). The arbitrator’s conclusion that the 19 wages are earnings under the exempt property statute is not in manifest disregard for law, even 20 if the award could conceivably be construed to fit a category of non-exempt property. (See 21 Cardio’s Post Arbitration Brief at 72–74, Ex. 8 to Cannaday Decl.); see also Mich. Mut. Ins. 22 Co. v. Unigard Sec. Ins. Co., 44 F.3d 826, 832 (9th Cir. 1995) (explaining that a decision is in 23 manifest disregard of the law only if it is “clear from the record that the arbitrator . . . 24 recognized the applicable law and then ignored it.”).

25 1 Cardio contends that the award does not deduct those amounts required to be withheld 2 by law; however, Cardio fails to explain any subset of the award that the arbitrator was bound 3 to exclude. (See Mot. Vacate 13:1–14:24). Instead, Cardio conclusorily asserts that all unpaid 4 wages must be withheld because the final bankruptcy settlement did not allow Montano to 5 recover “any wages that did not fall within the definition of exempt wages under NRS 6 21.090(1)(g).” (Id.). In light of the arbitrator’s finding that the award is for wages encompassed 7 in the statutory definition of exempt earnings, it was not reversible error to determine the total 8 award is exempt property under NRS 21.090(1)(g). Cardio provides little explanation why the 9 Court should hold otherwise. 10 ii. In re Christensen 11 The sole reasoned explanation Cardio provides is that the wages are not recoverable 12 because they are to be paid pursuant to a “contract,” the 2009 Resolution, which in re 13 Christensen demonstrates is not exempt under Nevada law. (Mot. Vacate 8:1–21, 12:3–17). In 14 re Christensen explains that proceeds of exempt earnings are exempt property “so long as [the 15 proceeds] remains subject to demand and use as the needs of the debtor for required support 16 and maintenance.” 149 P.3d at 49. Cardio argues that because the 2009 Resolution deferred 17 Montano’s right to demand wages for an indefinite period in exchange for warrants to purchase 18 Cardio stock and a right to the earnings in the future, the wages are “proceeds of exempt 19 earnings to a permanent investment” in Cardio’s future and are therefore not exempt property. 20 (Id.). Montano responds that not only did Cardio wait to raise this argument until its final reply 21 brief, but the 2009 Resolution did not convert the unpaid wages to proceeds of the wages. 22 (Montano Reply 9:17–11:22) 23 The Court finds that the law does not unequivocally show the award is for non-exempt 24 proceeds. In re Christensen is distinguishable from the facts at issue because the case does not

25 concern an agreement to defer the payment of exempt wages given for other consideration. 1 Rather, the case considers when proceeds of wages that have already been deposited into an 2 account retain their exempt status. See in re Christensen, 149 P.3d at 42–44 48–49. The 3 Nevada Supreme Court held the negative when the proceeds are not subject to immediate 4 demand. Id. However, the holding may not extend to wages deferred by contract that have not 5 yet been paid. Accordingly, Cardio has not satisfied its burden to show that the arbitrator acted 6 completely irrationally or manifestly disregarded the law. 7 B. The $50,000.00 Credit 8 Cardio argues that the arbitrator erred by refusing to consider Montano’s own evidence 9 that Cardio was entitled to a $50,000.00 credit against whatever back wages Montano 10 ultimately recovered against Cardio. (See Mot. Vacate 15:1–16:16); (Bankr. Court Findings of 11 Fact ¶ 28, Ex. 4 to Cannady Decl.) (explaining, “CVBT is entitled to a credit of $50,000 on any 12 subsequent award made to Debtor related to the CVBT Receivable.”). Although there may 13 have been a colorable argument that Cardio waived the objection by failing to timely raise the 14 issue in the arbitration, Montano provides no response to the validity of Cardio’s requested 15 credit. (See Montano’s Reply, ECF No. 9). The arbitrator himself counseled that “[a]s for the 16 $50,000 credit Cardio asserts it is entitled to from the bankruptcy court’s settlement order, it 17 can raise that claim at the time that Montano seeks to collect his judgment.” (Final 18 Memorandum of Award at 33, Ex. I to Mot. Confirm., ECF No. 1). Given that Montano has 19 not provided a response to the requested credit, and the evidence indicates that Montano agreed 20 to the credit, the Court grants Cardio’s request to vacate $50,000.00 of the Montano award. 21 // 22 // 23 // 24 //

25 // 1 IV. CONCLUSION 2 IT IS HEREBY ORDERED that the Partial Motion to Vacate the Arbitration Award, 3 (ECF No. 5), is GRANTED in part and DENIED in part. The Court VACATES $50,000.00 4 of the arbitral award to Montano. The remaining $850,000.00 awarded to Montano is 5 confirmed and due immediately. 6 IT IS FURTHER ORDERED that the Motion for Confirmation of Arbitration Award, 7 (ECF No. 1), is GRANTED in part and DENIED in part consistent with the foregoing. 8 The Clerk of Court shall enter judgment and close the case. 9 Dated this _2_5_ day of January, 2021. 10 11 12 ___________________________________ Gloria M. Navarro, District Judge 13 UNITED STATES DISTRICT COURT 14 15 16 17 18 19 20 21 22 23 24 25