Nikola Corporation v. Milton

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Nikola Corporation, No. CV-23-02635-PHX-DJH

10 Petitioner, ORDER

11 v.

12 Trevor R Milton,

13 Respondent. 14 15 In Nikola Corporation v. Milton, AAA Case No. 01-21-0017-196, the American 16 Arbitration Association (“AAA”) rendered an award in favor of Plaintiff Nikola 17 Corporation (“Nikola”) and against Defendant Trevor R. Milton (“Milton”) for over 18 $165 million due to Milton’s breach of fiduciary duties. (Docs. 1-1 (redacted version); 19 9 (unredacted version))1 (the “Final Award”). Nikola filed in this Court a “Petition for 20 Confirmation of Arbitration Award and For Entry of Judgment Thereon” (Doc. 1) under 21 the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”). In response, Milton filed a 22 Motion to Vacate (Doc. 20).2 The Court must decide whether vacatur is warranted under 23 Section 10.3 For the following reasons, Milton’s Motion is denied and Nikola’s Petition 24 is granted.

25 1 The Court permitted the parties to file under seal the documents and information covered by the Confidentiality Order in the underlying arbitration proceedings, including 26 the resulting arbitration awards. (See Docs. 6; 8).

27 2 The matter is fully briefed. Plaintiff filed a Response (Doc. 31) and Milton filed a Reply (Doc. 32). 28 3 Unless where otherwise noted, all Section references are to the FAA. 1 I. Background 2 Nikola is a manufacturer of electric vehicles. (Doc. 1 at 2). Milton is Nikola’s 3 founder. (Id.) Milton and served as Nikola’s Chief Executive Officer and Executive 4 Chairman until his resignation in 2020. (Id.) 5 A. The Report 6 On September 10, 2020, a third-party issued a report called “Nikola: How to 7 Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America” 8 (Doc. 22-3) (the “Report”). The Report opined that “Nikola is an intricate fraud built on 9 dozens of lies over the course of . . . Milton’s career.” (Id. at 2). The Report disclosed a 10 list of “false and misleading statements made by Milton both before and after Nikola 11 shares began trading publicly.” (Doc. 9 at 40–42 (quoting Doc. 22-3)). This prompted 12 various regulatory investigations by the United States Securities and Exchange 13 Commission (“SEC”) and the United States Attorney’s Office as well as civil lawsuits 14 (Id. at 46–47). 15 B. Milton’s Resignation Under the Separation Agreement 16 On September 20, 2020, Milton offered to voluntarily step down from his role at 17 Nikola. (Id. at 46). The terms of Milton’s resignation were governed by the parties’ 18 “Separation Agreement” (Doc. 22-5). Relevant to this matter are the Agreement’s 19 provisions for release of claims, indemnification and contribution, and arbitration of 20 claims. First, Nikola agreed to release Milton from “any and all claims, agreements, 21 obligations, demands and any causes of action, known or unknown, suspected or 22 occurring at any time and prior to and including the date the Company signs this 23 Agreement . . . .” (Id. at ¶ 8). However, this release did not apply to “claims for fraud, 24 securities laws violations, criminal acts or rights under or to enforce this Agreement, the 25 Restrictive Covenants Agreement and the Lock-Up Agreement or any act for which 26 [Milton] is not entitled to indemnification from the Company.” (Id.) 27 As to indemnification, Nikola agreed to comply with “all indemnification and 28 advancement of expenses obligations it has pursuant to . . . the Indemnification 1 Agreement, dated as of June 3, 2020, by and between the Company and [Milton] (the 2 ‘Indemnification Agreement’).” (Id. at ¶ 4). The referenced Indemnification Agreement 3 (Doc. 22-6) requires Nikola to contribute to acts which Milton is not entitled to 4 indemnification as follows: 5 [Nikola], in lieu of indemnifying [Milton], shall contribute to the amount 6 incurred by [Milton], whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection 7 with any claim relating to an indemnifiable event under this 8 [Indemnification] Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order 9 to reflect (i) the relative benefits received by [Nikola] and [Milton] as a 10 result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of [Nikola] (and its directors, officers, 11 employees and agents) and [Milton] in connection with such event(s) and/or transaction(s). 12 13 (Id. at ¶ 9) (the “Contribution Provision”). 14 Last, the Separation Agreement included the following arbitration agreement: 15 Except as prohibited by law, the Parties agree that any dispute as to the 16 meaning, effect, performance or validity of this [Separation] Agreement or arising out of, related to, or in any way connected with, this 17 [Separation] Agreement or any relationship between [Milton] and [Nikola] 18 (or between [Milton] and any officer, director, employee or affiliates of [Nikola], each of whom is hereby designated a third party beneficiary of 19 this [Separation] Agreement regarding arbitration) will be resolved through 20 binding arbitration in Maricopa County, Arizona under the rules of the American Arbitration Association and the Arbitration Rules set forth in 21 Arizona Rules of Civil Procedure. 22 (Doc. 22-5 at ¶ 20) (the “Arbitration Provision”). 23 C. The Underlying Arbitration Proceedings 24 On November 3, 2021, Nikola initiated arbitration proceedings at the AAA against 25 Milton for breach of fiduciary duty and various damages claims (“the Arbitration”). 26 (Docs. 1 at ¶ 9); (9 at 7). The Arbitration was held before the Honorable Russ Fagg, 27 Mr. Jonathan J. Lerner, Esq., and Mr. Dan K. Webb, Esq. (together “the Panel”). In the 28 1 interim, Nikola entered into a settlement with the SEC on December 21, 2021, (Doc. 22- 2 4) (“SEC Settlement”) in which Nikola agreed to a $125 million fine (the “SEC Fine”) to 3 resolve certain claims against Nikola. See Nikola Corp., Securities Act Release No. 4 11018, Exchange Act Release No. 93838 (Dec. 21, 2021). 5 After holding Arbitration Hearings from July 24–August 2, 2023 (Doc. 9 at 3), the 6 Panel issued a Decision and Interim Award on October 20, 2023, (the “Interim Award”) 7 signed by a majority of the Panel—Judge Fagg and Mr. Webb (the “Majority”). (Id.) 8 The Interim Award “invited the Parties to submit limited, additional briefing on: 9 (1) Nikola’s claim for legal fees and expenses in this Arbitration; (2) the amount of 10 prejudgment interest Nikola could recover; and (3) the amount of post-judgment interest 11 Nikola could recover.” (Id.) 12 On November 17, 2023, the Majority issued the Final Award in favor of Nikola, 13 holding “Milton violated his fiduciary duties of loyalty and good faith to Nikola, which 14 caused damages to Nikola, and that Milton is liable for certain of those damages claimed 15 by Nikola.” (Id. at 9). The Majority first applied Delaware law to find Milton violated 16 his duties owed “through his pattern of false and misleading public statements about the 17 Company and by subverting all efforts by individuals . . . to review and approve Milton’s 18 public statements in advance” and no equitable defenses applied. (Id. at 59). It then 19 settled that there was no basis for Milton to receive indemnification under the 20 Indemnification Agreement, but that he was entitled to contribution from Nikola based on 21 the Contribution Provision. (Id. at 60–79). The Majority ultimately found Milton liable 22 for 97% of the SEC Fine and certain legal and professional fees. The Majority also 23 “ascribe[d] some responsibility to Nikola, however, based on the Company’s slowness to 24 adopt more formal policies to stop these false and misleading statements from being 25 published, when informal efforts to persuade and educate Milton consistently failed.” 26 (Id. at 94). Accordingly, the Majority awarded Nikola a total of $167.7 million in 27 damages as follows: $121.250 million for the SEC Fine, and approximately $46.477 28 million for legal and professional fees and expenses. (Id. at 128–33). Because Nikola 1 had only paid $38 million of the $125 million SEC Fine, the Majority ordered Milton to 2 pay $83.337 million of the $167.7 million award, with payment of the remaining $84.363 3 million contingent on Nikola’ paying the outstanding balance of the SEC Fine. (Id. at 4 128). 5 Mr. Lerner dissented in a separate dissenting opinion, concurrence and alternative 6 award (Docs. 1-2 (redacted version); 10 (unredacted version)) (the “Dissent”). The 7 Dissent primarily addressed “the allocation required by the Separation Agreement and 8 based on the ‘relative fault’ of Milton and the other Nikola Directors, Officers and 9 Employees to arrive at a ‘fair and reasonable’ contribution to be made by Nikola.” 10 (Doc. 10 at 198). 11 Nikola has since petitioned this Court to confirm the Final Award under the FAA. 12 (See generally Doc. 1). Milton filed a Motion to Vacate in response. The Court must 13 decide whether Milton has identified grounds for vacatur under the FAA. 14 II. The Federal Arbitration Act 15 The FAA provides district courts with jurisdiction to review arbitration awards. 16 9 U.S.C. §§ 9–12. A party to an arbitration may apply to the Court for an order 17 confirming the arbitration award, and the Court “must grant such an order unless the 18 award is vacated, modified, or corrected as prescribed in sections 10 and 11 of [the 19 FAA].” 9 U.S.C. § 9; See Stafford v. Baart Behavioral Health Servs., 855 F. App’x 426, 20 427 (9th Cir. 2021) (granting an arbitration award because there were no grounds for 21 vacatur). “The [FAA] enumerates limited grounds on which a federal court may vacate, 22 modify, or correct an arbitral award.” Kyocera Corp. v. Prudential–Bache Trade Servs., 23 Inc., 341 F.3d 987, 994 (9th Cir. 2003). Section 10 authorizes vacatur in the following 24 circumstances: 25 (1) where the award was procured by corruption, fraud, or undue means; 26 (2) where there was evidence of partiality or corruption in the arbitrators; 27 (3) where the arbitrators were guilty of misconduct or misbehavior; or 28 1 (4) where the arbitrators exceeded their powers or so imperfectly executed them that a mutual, final, and definite award upon the subject matter 2 submitted was not made. 3 4 Stafford, 855 F. App’x at 427 (citing 9 U.S.C. § 10(a)(1)–(4)) (internal quotations 5 omitted). 6 “The burden of establishing grounds for vacating an arbitration award is on the 7 party seeking it.” U.S. Life Ins. Co. v. Superior Nat. Ins. Co., 591 F.3d 1167, 1173 (9th 8 Cir. 2010). “[A]n award may be void in part, and good for the residue.” Comedy Club, 9 Inc. v. Improv W. Assocs., 553 F.3d 1277, 1288 (9th Cir. 2009) (quoting Lyle v. Rodgers, 10 18 U.S. (5 Wheat.) 394, 409 (1820) (“[B]ut if that part which is void be so connected 11 with the rest as to affect the justice of the case between the parties, the whole is void.”). 12 A district court’s review of an arbitration award is “both limited and highly deferential.” 13 Id. The Ninth Circuit has held that “[a]lthough an arbitrator has great freedom in 14 determining an award, he may not dispense his own brand of industrial justice.” Garvey 15 v. Roberts, 203 F.3d 580, 588–89 (9th Cir. 2000) (quoting Pac. Motor Trucking Co. v. 16 Auto. Machinists Union, 702 F.2d 176, 177 (9th Cir. 1983)). 17 III. Discussion 18 The Panel’s authority comes from the Arbitration Provision in Milton’s 19 Separation Agreement, which incorporates by reference the Indemnification Agreement 20 and Contribution Provision therein. Milton advances two main arguments in his Motion 21 to Vacate. First, Milton argues the Majority’s ruling that he is 97% liable for the SEC 22 Fine should be vacated because the Majority disregarded its obligation under the 23 Contribution Provision when conducting its comparative fault analysis. (Doc. 21 at 11– 24 15). Second, Milton contends the Majority’s ruling that he is 97% liable for certain legal 25 and professional fees should be vacated due to its inconsistency with the Contribution 26 Provision, violation of procedural laws, and disregard of Delaware law. (Id. at 15–21). 27 The Court will discuss each of Milton’s arguments. 28 / / / 1 A. Milton’s 97% Liability for the SEC Fine 2 Milton first argues the Majority disregarded the Contribution Provision when 3 ascribing him liability for the $125 million SEC Fine. The Contribution Provision states 4 in relevant part: 5 [Nikola], in lieu of indemnifying [Milton], shall contribute to the amount 6 incurred by [Milton] . . . in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order 7 to reflect . . . the relative fault of [Nikola] (and its directors, officers, 8 employees and agents) and [Milton] in connection with such event(s) and/or transaction(s). 9 10 (Doc. 22-6 at ¶ 9) (emphasis added). The issue is whether the Majority’s allocation of 11 fault to Milton represents a plausible interpretation of the Contribution Provision. 12 1. Legal Standards 13 “If on its face, [an arbitration] award presents a plausible interpretation of the 14 [underlying] contract, judicial inquiry ceases and the award must be enforced.” Sovak v. 15 Chugai Pharmaceutical Co., 280 F.3d 1266, 1271 (9th Cir. 2002); see also Holly Sugar 16 Corp. v. Distillery, Rectifying, Wine & Allied Workers International Union, 412 F.2d 17 899, 903 (9th Cir. 1969). A reviewing court has “no authority to vacate an award solely 18 because of an alleged error in contract interpretation.” Employers Ins. of Wausau v. Nat’l 19 Union Fire Ins. Co., 933 F.2d 1481, 1485 (9th Cir. 1991). “As long as the arbitrator is 20 even arguably construing or applying the contract and acting within the scope of his 21 authority, that a court is convinced he committed serious error does not suffice to 22 overturn his decision.” Id. 23 However, an “award that conflicts directly with the contract cannot be a ‘plausible 24 interpretation.’ ” Pac. Motor Trucking, 702 F.2d at 177 (quoting Federated Employers of 25 Nevada, Inc. v. Teamsters Local No., 631, 600 F.2d 1263, 1265 (9th Cir. 1979)). 26 “Although an arbitrator has great freedom in determining an award, he may not” 27 “disregard[] a specific contract provision to correct what he perceived as an injustice.” 28 Id. (citing United Steelworkers of Am. v. Enterprise Wheel & Car Corp., 363 U.S. 593, 1 597 (1960)); Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors LLC, 913 F.3d 2 1162, 1168 (9th Cir. 2019) (“What an arbitrator may not do, however, is disregard 3 contract provisions to achieve a desired result.”). 4 2. The Parties’ Arguments 5 Milton argues the Majority failed to conduct a “fair and reasonable” comparative 6 fault analysis despite recognizing its obligation do so. (Doc. 21 at 12–13). He points out 7 the SEC Settlement set forth three categories of allegations—“(i) Nikola was liable for 8 allowing Mr. Milton to make statements alleged to be misleading; (ii) Nikola was liable 9 for false statements made by Nikola, independent of any statements by Mr. Milton; and 10 (iii) Nikola was liable for failing to establish adequate internal controls” (Id. at 13 (citing 11 Doc. 22-4 at ¶¶ 17–40))—yet the Majority only focused on the first category in its 12 analysis. (Docs. 21 at 13; 32 at 4–5). Milton reasons that by ascribing to him 97% of 13 fault for the SEC Fine, the Majority did not fairly reflect the relative fault of others and 14 imposed “its own sense of ‘rough justice[.]’ ” (Doc. 21 at 15). 15 Nikola opposes, arguing that “[b]y allocating 97% of fault to Milton instead of the 16 100% sought by Nikola, the Majority clearly acted within the scope of its authority and in 17 a manner consistent with their interpretation of the Contribution Provision. 18 (Doc. 31 at 11). Nikola maintains the Majority “devoted nearly 30 pages explaining 19 why Nikola was entitled to recover the portion of the SEC Fine and the Fees that the 20 Majority attributed to Milton’s misconduct.” (Id. (citing Doc. 9 at 83–112)). It further 21 contends Milton’s disagreement with the Majority’s weighing of evidence does not 22 justify vacatur because Section 10 does not allow for judicial review of the merits of the 23 Final Award. (Doc. 31 at 12). The Court agrees with Nikola. 24 3. The Majority’s Analysis 25 The Majority began its discussion of the Contribution Provision by determining 26 the Provision was enforceable under federal law notwithstanding Milton’s breach of 27 fiduciary duty. (Doc. 9 at 61–79). It then found that “Milton is entitled to contribution in 28 accordance with Paragraph 9 of the Indemnification Agreement,” and “Nikola shall 1 contribute based on the relative fault of Milton and the Company, its Officers and 2 Directors for any damages it seeks to recover in this Arbitration.” (Id. at 79). The 3 Majority proceeded to evaluate Nikola’s various claimed damages. It found Milton 4 responsible for 97% of the SEC Fine (id. at 85–100), and attributed the remaining 5 3% fault to Nikola due to its failure to implement adequate internal controls to prevent or 6 otherwise stop the false and misleading statements at issue from being published. 7 (Id. at 94 (“We ascribe some responsibility to Nikola, however, based on the Company’s 8 slowness to adopt more formal policies to stop these false and misleading statements 9 from being published, when informal efforts to persuade and educate Milton consistently 10 failed.”)). 11 The Court finds the Majority’s ruling represents a plausible interpretation of the 12 Contribution Provision. First, Milton misrepresents the scope of the Majority’s analysis 13 when arguing it failed to consider certain categories of allegations in the SEC Settlement. 14 When evaluating comparative fault for the SEC Fine, the Majority indeed identified that 15 the SEC Settlement was “based on three separate and independent categories of violation 16 of the securities laws and SEC Rules and Regulations, and all are asserted against 17 Nikola.” (Doc. 9 at 90). The Majority made clear that its analysis largely focused on the 18 first category regarding Milton’s statements because the SEC characterized these 19 allegations as the “primary” claims alleged. (Id. (quoting Doc. 22-4 at ¶¶ 20–34)). The 20 Majority acknowledged the second category regarding Nikola’s independent statements 21 and reasoned “that Nikola can only act through its officers and directors, and Milton’s 22 actions played a prominent role in certain of the claims alleged by the SEC.” (Id. at 90 23 (“Indeed, in the [SEC Settlement,] the SEC alleged that ‘Nikola violated Section 10(b) of 24 the Exchange Act and 13a-15(a) thereunder and Section 17(a) of the Securities Act,’ and 25 ‘Nikola primarily misled investors through scores of misrepresentations by its CEO and 26 later Executive Chairman Trevor R. Milton.’”) (quoting Doc. 22-4 at ¶¶ 2, 4) (internal 27 citations omitted)). To the extent Milton seeks to require the Majority to engage in a 28 more detailed discussion of its reasoning behind the “Nikola-specific allegations” in the 1 SEC Settlement, the Majority was under no such duty. See Bosack v. Soward, 586 F.3d 2 1096, 1104 (9th Cir. 2009) (“Arbitrators are not required to set forth their reasoning 3 supporting an award” and their “award may be made without explanation of their reasons 4 and without a complete record of their proceedings.”) (citations omitted). Last, the 5 Majority expressly considered the allegations regarding Nikola’s inadequate internal 6 controls under the third category and ascribed 3% liability to Nikola for such failures. 7 (Doc. 9 at 94). The Majority clarified that it took into account the “actions and inactions 8 of Nikola’s board of directors and senior officers to address Milton’s improper conduct” 9 and “simply weigh[ed] the evidence differently than [the Dissent.]” (Id. at 94–95). Thus, 10 there is no evidence that the Majority’s comparative fault analysis of the SEC Fine 11 directly contradicted the Contribution Provision based on its discussion of the SEC 12 Settlement. 13 Second, the Court is unpersuaded by Milton’s supporting authorities. Milton cites 14 to four cases to assert the Majority imposed its own sense of “rough justice” when 15 ascribing Milton 97% liability. (Doc. 21 at 15). However, those cases are 16 distinguishable because they concern proceedings where the arbitrators either expressly 17 refused to enforce the parties’ contractual provisions or altered the terms of a provision. 18 See Aspic, 913 F.3d at 1168 (affirming vacatur because even though the arbitrator 19 recognized the underlying contract required the arbitration to comply with certain Federal 20 Acquisition Regulations, the Arbitrator found the appellant “was not held to the[se] strict 21 provisions”); United Food & Com. Workers Union, Loc. 1119, AFL-CIO v. United 22 Markets, Inc., 784 F.2d 1413, 1416 (9th Cir. 1986) (affirming vacatur because the 23 arbitrator’s resolution “ ‘add [ed] to’ the terms of the agreement—an effect forbidden 24 by . . . the main agreement”); Pac. Motor Trucking Co., 702 F.2d at 177 (affirming 25 vacatur because the arbitrator acknowledged the underlying contract “gave the company 26 discretion over the [employee] position” but “[n]onetheless . . . ruled that the company 27 could not demote [the employee] from [the position] because to do so would be 28 ‘unreasonable and unconscionable’ ”); Coast Trading Co. v. Pac. Molasses Co., 681 F.2d 1 1195, 1197 (9th Cir. 1982) (affirming vacatur because the underlying contract provided 2 for a certain delivery date, yet the arbitrators and appeals committee extended that date 3 by some years). The Majority engaged in no such comparable conduct. The Majority 4 found the Contribution Provision enforceable, and applied it to allocate 97% of the SEC 5 fine to Milton and the remaining 3% to Nikola. The Majority’s comparative fault 6 analysis presents a plausible interpretation of the Contribution Provision and will be 7 enforced. See Sovak, 280 F.3d at 1271.4 8 Furthermore, Milton’s argument that the Majority did not carry out its comparative 9 fault analysis of the SEC Fine in a “fair and reasonable manner” invokes a judicial review 10 of the merits. Section 10 prohibits the Court from doing so. Biller v. Toyota Motor 11 Corp., 668 F.3d 655, 664 (9th Cir. 2012) (“[Section] 10 of the FAA provides no 12 authorization for a merits review.”). The Court agrees with Nikola that the Majority 13 acted within its scope of authority when interpreting and applying the Contribution 14 Provision. (Doc. 31 at 11 (citing Mike Rose’s Auto Body, Inc. v. Applied Underwriters 15 Captive Risk Assurance Co., Inc., 389 F. Supp. 3d 687 (N.D. Cal. 2019)); see also See 16 Employers Ins. of Wausau, 933 F.2d at 1485. Even if the Majority erroneously 17 interpreted the Contribution Provision, “[a] reviewing court has ‘no authority to vacate an 18 award solely because of an alleged error in contract interpretation.’ ” Employers Ins. of 19 Wausau, 933 F.2d at 1485. Milton’s insistence that the Dissent conducted the better 20 comparative fault analysis does not warrant vacatur. Neither does his disagreement with 21 the outcome of the Majority’s comparative fault analysis. See Bosack, 586 F.3d at 1104 22 (requiring there be “some evidence in the record, other than the result, that the arbitrators 23 were aware of the law and intentionally disregarded it”). 24 B. Milton’s 97% Liability for Legal and Professional Fees 25 Milton next argues the Majority’s ruling that he is liable for 97% of certain legal 26 4 Notably, Milton cites to non-binding, out-of-circuit precedent to urge “an arbitrator 27 cannot shield himself from judicial correction by merely making noises of contract interpretation.” (Doc. 32 at 3 (citing Anheuser-Busch, Inc. v. Beer, Soft Drink, et al., 280 28 F.3d 1133, 1138 (7th Cir. 2002)). Milton fails to argue the plausible interpretation standard recognized in this circuit. 1 and professional fees requires vacatur for four reasons: (1) like the SEC fine, the 2 Majority failed to conduct a comparative fault analysis for the fees as required by the 3 Contribution Provision; (2) the ruling is premised on evidence admitted in violation of 4 applicable procedural laws and to Milton’s prejudice; and (3) the ruling disregards 5 Delaware law. 6 1. Assessment of Comparative Fault Under the Contribution 7 Provision 8 Milton asserts that the Majority disregarded the Contribution Provision when 9 ascribing him liability for legal and professional fees because it failed to conduct a “fair 10 and reasonable” comparative fault analysis. (Doc. 20–21). The Court has already settled 11 the Majority’s allocation of 97% responsibility for the SEC Fine to Milton constituted a 12 plausible interpretation of the Contribution Provision. See supra Section III.A. The 13 Court will conduct the same evaluation of the legal and professional fees. 14 As explained, the Majority applied the Contribution Provision in the Final 15 Award—it did not expressly refused to enforce the Provision or altered the terms of the 16 Provision. See supra Section III.A(3). In addition to the SEC Fine, the Majority 17 examined each of the following fee categories Nikola claimed it incurred as a result of 18 Milton’s misconduct: 19 (1) legal fees incurred when defending Milton in his criminal action in 20 the Southern District of New York; 21 (2) legal fees paid to law firm Kirkland & Ellis for services related to 22 relevant government investigations, securities and derivative litigations, corporate governance advice in response to the Report, 23 and separate and arbitration proceedings; 24 (3) professional fees and expenses incurred that relate to law firm 25 Kirkland & Ellis; and 26 (4) legal expenses incurred for law firms that represented Nikola’s 27 officers, directors, and employees 28 (Doc. 9 at 79–85, 95–113). Upon doing so, the Majority declined to award damages 1 connected to Milton’s criminal action and the separate arbitration proceedings. 2 (Id. at 79–85). However, the Majority found Milton 97% responsible for the other legal 3 fees and professional services that Nikola incurred. The Majority ascribed the remaining 4 3% fault to Nikola for its failure to implement adequate internal policies. (Id. at 94). 5 Milton contends the Majority’s comparative fault analysis did not comply with the 6 Contribution Provision because the Majority “swept into its damages award . . . services 7 that were clearly attributable to Nikola and its employees, officers, and directors.” (Doc. 8 21 at 21). The Majority specifically addressed this point as follows: 9 Although K&E’s representation involved the failure of the Nikola Board 10 and senior management to adopt and implement certain policies at issue, the SEC investigation was still directed to Milton’s false statements on 11 social media. Accordingly, Milton cannot escape liability for the K&E 12 fees. As to the fees relating to Nikola’s public filings, here too the Panel cannot ignore the reality that the SEC’s “primary claims” centered entirely 13 on Milton’s false statements, which precipitated the investigation and 14 without which the SEC may have determined not to investigate Nikola. 15 (Doc. 9 at 99). Based on the foregoing, The Majority’s comparative fault analysis as it 16 relates to fees presents a plausible interpretation of the Contribution Provision and will be 17 enforced. See Sovak, 280 F.3d at 1271. Like his arguments regarding the SEC Fine, 18 Milton merely disagrees with the outcome of the Majority’s comparative fault analysis 19 and insists that the Dissent got it right. Such conclusory arguments are insufficient to 20 justify vacatur. See Bosack, 586 F.3d at 1104. 21 Nikola’s point is well taken that by asking the Court to vacate the Majority’s 22 allocation of fault for certain fees, Milton asks the Court to review and overturn the 23 Majority’s factual findings and legal conclusions regarding causation and damages. 24 (Doc. 31 at 20). To do so is beyond the scope of the Court’s review under the FAA. 25 Bosack, 586 F.3d at 1102 (“Neither erroneous legal conclusions nor unsubstantiated 26 factual findings justify federal court review of an arbitral award.”). 27 2. Admission of Unredacted Invoices 28 Milton next argues the Majority’s award of certain legal and professional fees 1 requires vacatur because it was premised on unredacted invoices that were admitted in 2 violation of the applicable procedural rules and to his prejudice. The Arbitration 3 Provision in Milton’s Separation Agreement provided that all covered disputes “will be 4 resolved . . . under the rules of the American Arbitration Association [(AAA Rules)]and 5 the Arbitration Rules set forth in Arizona Rules of Civil Procedure [(Arizona Rules)].” 6 (Doc. 22-5 at ¶ 20). Arizona Rules 72–77 apply to arbitration proceedings. See Ariz. R. 7 Civ. P. 72–77. Relevant here, Arizona Rule 75 states that “[u]nless the parties agree 8 otherwise or the offering party shows good cause, no witness or exhibit may be offered at 9 the hearing other than those listed and exchanged.” Ariz. R. Civ. P. 75(b)(3). AAA Rule 10 R-34(a) further provides: 11 The parties may offer such evidence as is relevant and material to the 12 dispute and shall produce such evidence as the arbitrator may deem necessary to an understanding and determination of the dispute. Conformity 13 to legal rules of evidence shall not be necessary. All evidence shall be taken 14 in the presence of all of the arbitrators and all of the parties, except where any of the parties is absent, in default, or has waived the right to be present. 15 16 AAA Rule R-34(a). 17 a. The Redacted and Unredacted Invoices 18 The panel discussed the issue of evidence relating to causation and damages 19 throughout the Arbitration Hearings. (See generally Doc. 23-2). The Panel initially 20 indicated that Nikola’s submission of various redacted invoices5 may pose a “proof 21 problem” when it was “asking for damages based on redacted invoices and there’s a 22 question about whether the work was causally related to Milton’s actions.” (Doc. 23-2 at 23 65). Nikola then moved to admit the unredacted invoices, which the Panel granted over 24 Milton’s objections under Arizona Rule 75.6 (Id. at 70–74). 25 5 Milton provided copies of these redacted invoices at Docs. 23-9; 23-10; 24-1; 24-2; 24- 26 3; 24-4; 24-5; 24-6; 24-7; 24-8; 24-9; 24-10; 25-1; 25-2; 25-3; 25-4; 25-5; 25-6; 25-7; 25- 8; 25-9; 25-10; 26-1; 26-2; 26-3; 26-4; 26-5; 26-6; 26-7; 26-8; 26-9; 26-10; 27-1; 27-2; 27 and 27-3.

28 6 At the July 25, 2023, Hearing, Milton also objected under AAA Rule 32, which states that all parties must be treated equally. (Doc. 23-2 at 73). 1 Milton’s position is that Arizona Rule 75 required Nikola to identify and provide 2 Mr. Milton with any exhibits in intended to use at the Hearings ten days prior, yet Nikola 3 moved to admit unredacted invoices that had never been previously disclosed on the third 4 day of the Hearings. (Doc. 21 at 18). Milton reasons the Panel’s admission clearly 5 violated the procedural rules the parties designated to govern the Arbitration and also 6 prejudiced his ability to review the exhibits. (Id. at 19). He further maintains Nikola did 7 not make any good cause argument under Arizona Rule 75 at the time the exhibits were 8 admitted. (Doc. 32 at 6–7). 9 Nikola opposes, arguing the parties’ agreed that both the AAA Rules and the 10 Arizona Rules should apply, not just the Arizona Rules. Nikola further contends the 11 AAA rules provide arbitrators with “wide discretion with regard to the conduct of the 12 proceedings, the exchange of evidence, and whether to admit or exclude evidence. 13 (Doc. 31 at 15) (citing AAA Rules R-35(a), R-35(b)). Nikola reasons the Panel acted 14 within its scope of discretion provided by the parties’ Arbitration Provision when it 15 admitted the unredacted invoices. (Id. at 15–16). 16 b. The Panel Did Not Abuse Their Discretion 17 To start, the Court agrees with Nikola that the parties contracted for both the 18 Arizona Rules and the AAA Rules to govern. Judge Fagg indeed reiterated in an email to 19 the parties that both procedural bodies of law would govern proceedings: 20 The July 8, 2022, Scheduling Order, specifies the “rules of the American 21 Arbitration Association [(“the AAA Rules”)] and the Arbitration Rules set forth in [the] Arizona Rules of Civil Procedure” [(“Arizona Rules”)] apply. 22 The September 20, 2020, Separation Agreement specify the applicable law 23 would be the American Arbitration Act and the “Arbitration Rules set forth in the Arizona Rules of Civil Procedure”. Thus, the panel will follow the 24 Arizona Rules of Civil Procedure, and, as needed, will look to the rules of 25 the American Arbitration Association and the American Arbitration Act for guidance. 26 27 (Doc. 23-3 at 2). Milton’s statement that the AAA Rules are “of no relevance” is 28 unavailing. (Doc. 32 at 6). Contrary to Milton’s position, Arizona Rule 75 is not the 1 only evidentiary rule the parties agreed to govern regarding production of evidence. 2 AAA Rule R-34 provides “[t]he parties may offer such evidence as is relevant and 3 material to the dispute and shall produce such evidence as the arbitrator may deem 4 necessary to an understanding and determination of the dispute.” And the Ninth Circuit 5 has recognized that arbitrators must provide “each of the parties to the dispute an 6 adequate opportunity to present its evidence and arguments” but otherwise enjoy “wide 7 discretion to require the exchange of evidence, and to admit or exclude evidence, how 8 and when they see fit.” U.S. Life Ins., 591 F.3d at 1175 (internal quotations and citations 9 omitted). 10 Here, the Panel considered arguments from both parties regarding admission of the 11 unredacted invoice and took note that the underlying redacted versions were admitted and 12 timely exchanged. (Doc. 23-2 at 70). The Panel also stated they “appreciate[d] the 13 difficulty that [Milton] was put in by the late disclosure . . . . However, we thought it 14 would be best to have the exhibits admitted and if [Milton] want[s] to make argument 15 over the next three weeks, [Milton was] going to be allowed to.” (Doc. 31-1 at 67). This 16 evidence was admitted in the presence of all parties and Milton was given multiple 17 opportunities to argue against admission both during and after the Hearings. In light of 18 the wide discretion afforded to arbitrators by Ninth Circuit in handling evidentiary 19 matters, the Court finds no evidence that the Panel violated the AAA Rules or Arizona 20 Rules when admitting the unredacted invoices. 21 c. Harmless Error 22 Alternatively, whether or not the Panel’s decision to admit the unredacted invoices 23 violated the applicable procedural laws is a non-issue because the Panel expressly stated 24 it did not independently consider the unredacted invoices when reaching its conclusion on 25 causation and damages: 26 In deciding Milton’s false and misleading statements caused Nikola to incur 27 these legal and profession services fees, the Panel has relied primarily on [Nikola’s Chief Legal Officer Britton] Worthen’s testimony. Although the 28 Panel has reached this decision largely based on Worthen’s testimony, the 1 Panel has considered invoices, previously produced by Nikola as redacted and subsequently unredacted during the hearing, in further support of the 2 testimony. The Panel has not relied on these unredacted invoices as 3 independently demonstrating causation. 4 (Doc. 9 at 95 n.19) (emphasis added). Thus, even if the Court were to find the Panel 5 erred under the procedural rules, such error would be harmless because the unredacted 6 invoices were not material to the Final Award’s causation analysis. See e.g., Coutee v. 7 Barington Capital Grp., L.P., 336 F.3d 1128, 1134 (9th Cir. 2003) (finding that the 8 arbitrator’s failure to apply a choice of law provision was not grounds for vacatur because 9 such error was harmless) (citing Barnes v. Logan, 122 F.3d 820, 823 (9th Cir. 1997)). 10 The Panel based its decision that Milton’s false and misleading statements caused Nikola 11 to incur these legal and profession service fees on relevant testimony. (Doc. 9 at 95 12 n.19). The Court will defer to the Panel’s statements in the Final Award. Comedy Club, 13 553 F.3d at 1288 (A district court’s review of an arbitration award is “both limited and 14 highly deferential”). 15 4. Causation Under Delaware Law 16 Last, Milton argues the Majority’s award of certain legal and professional fees 17 requires vacatur because it failed to conduct the requisite causation assessment. He 18 argues the Panel acknowledges its obligation to do so under of Delaware law, “but failed 19 to prove that specific fees covered by each invoice were attributable to Mr. Milton.” 20 (Doc. 21 at 20). Nikola opposes, arguing Milton mischaracterizes the requirements of 21 Delaware law, which “eschews strict requirements of but-for and proximation cause [] 22 and instead applies a loosened, flexible causation standard [] when assessing damages in 23 breach of fiduciary duty cases, and resolves any doubts as to damages against the 24 tortfeasor.” (Doc. 31 at 19 (citing Doc. 9 at 109). Nikola further maintains the issue of 25 causation was extensively argued, briefed, and thoroughly addressed in the Final Award. 26 (Id. at 18 (citing Doc. 9 at 96–100, 102–110, 126–127)). 27 a. Standard for Manifest Disregard 28 Arbitrators “exceed their powers” under Section 10(a)(4) when the resulting award 1 is in “manifest disregard of the law” or “completely irrational.” Comedy Club, 553 F.3d 2 at 1288. Manifest disregard of the law “means something more than just an error in the 3 law or a failure on the part of the arbitrators to understand or apply the law.” Luong v. 4 Circuit City Stores, Inc., 368 F.3d 1109, 1112 (9th Cir. 2004). Rather, “it must be clear 5 from the record that the arbitrators recognized the applicable law and then ignored it.” 6 Id.; Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 672 n.3 (2010) (“[The 7 standard requires a] showing that the arbitrators ‘knew of the relevant legal principle, 8 appreciated that this principle controlled the outcome of the disputed issue, and 9 nonetheless willfully flouted the governing law by refusing to apply it.”). 10 The manifest disregard standard “afford[s] an extremely limited review authority, 11 a limitation that is designed to preserve due process but not to permit unnecessary public 12 intrusion into private arbitration procedures.” Kyocera Corp., 341 F.3d at 997. “The risk 13 that arbitrators may construe the governing law imperfectly in the course of delivering a 14 decision that attempts in good faith to interpret the relevant law, or may make errors with 15 respect to the evidence on which they base their rulings, is a risk that every party to 16 arbitration assumes, and such legal and factual errors lie far outside the category of 17 conduct embraced by § 10(a)(4).” Id. at 1003. “[T]o demonstrate manifest disregard, the 18 moving party must show that the arbitrator ‘underst[oo]d and correctly state[d] the law, 19 but proceed [ed] to disregard the same.’ ” Bosack, 586 F.3d at 1104 (quoting Collins v. 20 D.R. Horton, Inc., 505 F.3d 874, 879 (9th Cir. 2007)). “Neither erroneous legal 21 conclusions nor unsubstantiated factual findings justify federal court review of an arbitral 22 award.” Id. at 1102. Indeed, “[Section] 10 of the FAA provides no authorization for a 23 merits review.” Biller, 668 F.3d at 664. There “must be some evidence in the record, 24 other than the result, that the arbitrators were aware of the law and intentionally 25 disregarded it.” Bosack, 586 F.3d at 1105 (emphasis added) (citation omitted). 26 b. The Majority’s Analysis 27 Milton concedes in his Motion to Vacate that the Panel, “consistent with Delaware 28 law,” emphasized to Nikola the importance of establishing causation when seeking 1 Damages. (Doc. 21 at 16–17). The Panel certainly did so throughout the Arbitration 2 Hearings. (See Doc. 23-2 at 5 (“At the end of the day, this panel needs to decide if 3 there’s liability, if there’s causation, and if there’s damages. You can’t just put a $ 78 4 million bill in front of us and say we want $78 million. You have to prove that has to do 5 with the breach of fiduciary duty and that it caused damages. So I’m going to leave it at 6 that. It’s your burden of proof.”))); (id. (at 65–66 (“[A]s I mentioned to claimants, when 7 they’re asking for damages based on redacted invoices and there’s a question about 8 whether the work was causally related to Milton’s actions, I think there’s a proof problem 9 that they’re going to have to convince the panel that those invoices were caused by 10 Milton’s actions; therefore, Nikola can get damages. To me there’s a proof problem there 11 with redacted invoices.”))). The Panel also reiterated the standards for causation under 12 Delaware law in the Final Award as follows: “a duty of loyalty breach loosen[s] the 13 stringent requirements of causation and damages. Any uncertainty in awarding damages 14 is resolved against the wrongdoer.” (Doc. 9 at 109 (quoting Hampshire Group, Ltd v. 15 Kuttner, 2010 W.L. 2739995 at *35 (Del. Ch. 2010)). 16 The following excerpts are non-exclusive examples of how the Majority 17 considered causation under Delaware law: 18 - In reaching our determination, we cannot accept the position that 19 Milton’s falsehoods did not cause the Hindenburg Report. Any doubt that Milton’s falsehoods caused the Hindenburg Report is 20 demolished by the first bullet in the Hindenburg Report itself, which 21 states, “Today we reveal why we believe Nikola is an intricate fraud built on dozens of lies over the course of its Founder and Executive 22 Chairman Trevor Milton’s career.” The second bullet reinforces the 23 point: “We have gathered extensive evidence—including recorded phone calls, text messages, private emails and behind-the-scenes 24 photographs—detailing dozens of false statements by Nikola Founder Trevor Milton. We have never seen this level of deception 25 at a public company especially of this size.” Likewise, the 26 commencement of the class actions on September 15, 2020—only five days after publication of the Hindenburg Report—speaks 27 volumes about the cause of the class actions. For the foregoing 28 reasons, we conclude that Nikola is entitled to recover most of the 1 legal fees (apportioned 97% to 3%, as explained elsewhere) it expended on K&E, Paul Weiss, and Wilenchik to represent Nikola 2 in the class action and derivative litigations, as reflected in the 3 invoices submitted in this Arbitration. (Doc. 9 at 104) (citations omitted). 4 5 - As we have already discussed, on its face, the Hindenburg Report was aimed directly at falsehoods disseminated by Milton and 6 asserted that Nikola was a sham company. In this context, the 7 record evidence establishes direct linkage from Milton’s breaches of fiduciary duty to the publication of the Hindenburg report and to 8 Nikola’s need to retain crisis management expertise to deal with the 9 fallout of Milton’s numerous false and misleading public statements. (Id. at 108–109). 10 - The record demonstrates that [Chief Financial Officer Kim] Brady’s 11 need for separate counsel was caused by Milton’s statements. 12 Accordingly, Milton is responsible for 97% of the bills Nikola paid to King & Spaulding to represent Brady. (Id. at 113). 13 14 Milton is correct that the Majority did not go line by line through the supporting invoices 15 and expressly state whether each fee was attributable to Mr. Milton. (Doc. 21 at 20). 16 But the Majority was not required to do so. Bosack, 586 F.3d at 1104 (“Arbitrators are 17 not required to set forth their reasoning supporting an award. An arbitrators’ ‘award may 18 be made without explanation of their reasons and without a complete record of their 19 proceedings.’”) (quoting Wilko v. Swan, 346 U.S. 427, 436 (1953)). And even if the 20 Majority failed to make explicit findings, “this does not warrant vacatur.” Id. Milton’s 21 assertion that the Majority “simply held” that Mr. Milton was liable for 97% of fees 22 without any analysis is insufficient to meet the extremely high burden to prove an 23 arbitrator disregarded the law. 24 IV. Conclusion 25 In sum, Milton has not demonstrated any circumstance warranting vacatur of the 26 Final Award under Section 10. The Majority’s findings that Milton is 97% responsible 27 for the SEC Fine and certain legal and professional fees represent a plausible 28 interpretation of the Contribution Provision. The Majority’s allocation of fault as to legal 1 || and professional fees does not disregard the applicable procedural rules or Delaware law. The Court must therefore grant Nikola’s Petition to confirm the Final Award under 3|| Section 9. See Stafford, 855 F. App’x at 427. 4 Accordingly, 5 IT IS HEREBY ORDERED that Defendant Trevor R. Milton’s Motion to Vacate 6|| or Modify (Doc. 20) is DENIED. 7 IT IS FURTHER ORDERED that Plaintiff Nikola Corporation’s “Petition for 8 || Confirmation of Arbitration Award and For Entry of Judgement Thereon” (Doc. 1) is GRANTED. The Clerk of the Court is kindly directed to enter judgment on the Award (Doc. 9) under 9 U.S.C. § 13. 11 Dated this 9th day of September, 2024. 12 13 Gum □□ 14 norable'Diang4. Humetewa 15 United States District Judge 16 17 18 19 20 21 22 23 24 25 26 27 28

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