Thursday, April 23, 2009
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Court Reverses Arbitration Award in Bell Gardens Bicycle Club Case
Upholds Decision Denying Government’s Motion to Vacate, but Overturns Ruling Confirming Award
By STEVEN M. ELLIS, Staff Writer
A Ninth Circuit U.S. Court of Appeals panel yesterday reversed confirmation of an arbitration award for part-owners of the Bell Gardens Bicycle Club, who claimed the government mismanaged the casino after seizing it in the course of a money laundering investigation.
Holding the $93 million award was not in manifest disregard of the law, the panel denied the government’s request to vacate, but concluded the district judge lacked authority to confirm the award because the government did not waive its sovereign immunity.
Park Place Associates Ltd. obtained the award against the government in 2004 pursuant to a joint venture agreement with fellow co-owner LCP Associates, whose interest in the casino was seized in 1990 after the government learned LCP financed more than $12 million of the initial investment using proceeds from a drug-trafficking ring.
RICO Prosecutions
During the course of Racketeer Influenced and Corrupt Organizations Act prosecutions in the Southern District of Florida, the government obtained a controlling interest in LCP and the casino, and managed the club through court-appointed trustees until selling its interest in 1999.
However, Park Place claimed the government engaged in “gross mismanagement” reducing the club’s value, and after obtaining the arbitration award in proceedings in which the government declined to participate, requested confirmation before the Central District of California.
Writing for the panel, Judge Jay S. Bybee observed:
“The events at issue span twenty years, resulted in congressional hearings, and involve litigation in three circuits. We are not sure if the appropriate literary metaphor belongs to Tolstoy or to Kafka.”
Park Place entered into the agreement with LCP in 1983 to develop, own and operate the casino, a legal card-playing club in Bell Gardens, one of only five cities in Los Angeles County to permit casino gambling.
The agreement provided for mandatory arbitration of controversies in Los Angeles County, that an award would be “final and binding,” and that judgment could be entered on an arbitration award “in any court of competent jurisdiction in the State of California.”
Forfeiture Proceedings
When the government initiated forfeiture proceedings in the Southern District of Florida, Park Place disputed the action and brought separate proceedings seeking recovery for the government’s post-forfeiture conduct.
In June 1997, Park Place served an arbitration demand, but later sought to hold its demand in abeyance after the government sought to preclude arbitration.
The following year, Park Place sued the government in the Central District of California seeking over $150 million in damages, but Judge Dickran M. Tevrizian dismissed all but four contract claims.
The judge opined the Court of Federal Claims held exclusive jurisdiction over the remaining claims and directed Park Place to file there, but that court determined it lacked subject matter jurisdiction, because the government was not a party to the contract.
The Federal Circuit Court of Appeals reversed on appeal, holding the government had elected to step into LCP’s shoes as a general partner.
In 2003, Park Place filed a $100 million arbitration demand, but the Court of Federal Claims—citing a lack of ability to compel, arrest or enforce arbitration, as well as the provision in the arbitration clause calling for entry of an award by a court “in the State of California”—again reasoned it lacked subject matter jurisdiction.
Sovereign Immunity
The Federal Circuit—which hears appeal from the Court of Federal Claims—in May 2004 then declined to enjoin arbitration pending an appeal, and rejected the government’s argument that it had not waived its sovereign immunity as to binding arbitration
Meanwhile, the month earlier, a 10-day arbitration hearing took place in Los Angeles in which the government declined to participate, and the panel awarded Park Place $93,612,892.
Park Place first sought confirmation before the Court of Federal Claims, which the government opposed with a motion to vacate, but the court denied the former, reasoning that only a district court could confirm an arbitration award against the government, and that the agreement limited relief to that from a court in California.
After the Federal Circuit declined an appeal, the government filed its own complaint and motion to vacate before the Central District of California, and Park Place followed with another motion to confirm. Tevrizian, however, granted Park Place’s motion and denied the government’s motion.
Both sides appealed, but Bybee opined that Tevrizian’s order denying the motion to vacate was correct because the award did not demonstrate manifest disregard of the law.
Noting that Park Place’s request to hold its 1997 arbitration before the Southern District of Florida in abeyance while it pursued litigation in California neither waived the demand nor prejudiced the government, Bybee wrote that the Federal Tort Claims Act’s statute of limitations—rather than a shorter state statute—was applicable.
He also rejected the government’s assertion that California partnership law precluding enforcement of an arbitration award against a general partner where creditors have not first attempted to collect against the partnership barred Park Place’s recovery, commenting that the law did not apply to recovery sought by a partner.
Authority Lacking
But Bybee concluded that Tevrizian lacked authority to confirm the award because neither the government’s assent to the partnership agreement, Congress’s enactment of the Administrative Procedure Act nor government’s motion to vacate the award waived sovereign immunity.
The judge further noted that the sole remaining ground by which government might have waived its immunity—the Tucker Act—granted exclusive jurisdiction to Court of Federal Claims.
“We recognize that the Federal Circuit has seemingly suggested, albeit in a somewhat opaque disposition, that neither it nor the Court of Federal Claims may confirm the arbitration award,” he said. “We express no opinion on whether this decision was correct, but we acknowledge the frustrating nature of this result for Park Place….
“Although we sympathize with Park Place’s apparent jurisdictional predicament, we simply cannot waive sovereign immunity where Congress has not, and we cannot exercise jurisdiction where none exists.”
Judges Barry G. Silverman and Kim McLane Wardlaw joined Bybee in his opinion.
The case is United States v. Park Place Associates, Ltd., 05-56235.
Copyright 2009, Metropolitan News Company