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Bosack v. Soward

October 26, 2009

IN THE MATTER OF THE ARBITRATION BETWEEN, LEONARD BOSACK; SANDY LERNER; CARTESIAN PARTNERS LP; THE LEONARD BOSACK TRUST; THE SANDY LERNER TRUST; RICHARD TROIANO; THE & TRUST; & CAPITAL PARTNERS; THE LEONARD X. BOSACK AND BETTE M. KRUGER CHARITABLE FOUNDATION, INC.; CAPITAL INC, PETITIONERS-APPELLANTS,
v.
DAVID C. SOWARD; & MANAGEMENT COMPANY, RESPONDENTS-APPELLEES.
IN THE MATTER OF THE ARBITRATION BETWEEN, LEONARD BOSACK; SANDY LERNER; CARTESIAN PARTNERS LP; THE LEONARD BOSACK TRUST; THE SANDY LERNER TRUST; RICHARD TROIANO; THE & TRUST; & CAPITAL PARTNERS; THE LEONARD X. BOSACK AND BETTE M. KRUGER CHARITABLE FOUNDATION, INC.; CAPITAL INC, PETITIONERS-APPELLANTS,
v.
DAVID C. SOWARD; & MANAGEMENT COMPANY, RESPONDENTS-APPELLEES.



Appeal from the United States District Court for the Western District of Washington Thomas S. Zilly, Senior District Judge, Presiding D.C. No. 2:07-cv-00574-TSZ

The opinion of the court was delivered by: Thompson, Senior Circuit Judge

FOR PUBLICATION

Argued and Submitted June 4, 2009-Seattle, Washington

Filed July 23, 2009; Amended October 26, 2009

Before: William C. Canby, Jr., David R. Thompson and N. Randy Smith, Circuit Judges.

OPINION

Leonard Bosack ("Bosack") and Sandy Lerner ("Lerner") entered into arbitration with their former financial manager, David C. Soward ("Soward") to resolve multiple disputes arising out of the parties' soured relationship.

The panel of arbitrators ("panel") made several interim awards, one of which was final, and one Final Award. Soward prevailed on his conversion and tort claims, and was awarded substantial compensatory and punitive damages as well as attorney fees and costs. The district court confirmed the award. Bosack and Lerner appeal. We have jurisdiction under 28 U.S.C. § 1291 and we affirm.

BACKGROUND

Bosack and his wife Lerner were the founders of Cisco Systems. They employed Soward as their investment manager. The three formed & Capital Partners, L.P., ("& Capital"). Soward served as the general partner, and Bosack and Lerner were limited partners.

Several years later, Bosack and Soward formed Cartesian, a second partnership, for the purpose of managing Bosack's "high touch" investments. Soward was the general partner of Cartesian; Bosack was a limited partner. A written partnership agreement for Cartesian (the "Wood Agreement") was drafted, but never signed. A decade or so later, Bosack and Lerner began to suspect Soward had breached his fiduciary duties in managing their assets. They discovered that Soward had made undocumented loans to himself and his friends. Soward was removed as the general partner of & Capital, and of Cartesian. Bosack and Lerner then formed SLLB, L.L.C., and it replaced Soward as the general partner of Cartesian.

Soward demanded arbitration, seeking (among other things) a dissolution of Cartesian and an accounting of his partnership interest. Bosack and Lerner participated with Soward in the arbitration proceeding. It lasted two years, during which more than sixty days of hearings were held, more than twenty witnesses testified, and over five hundred exhibits were entered into evidence. Due to the complicated nature of the proceedings, the parties agreed to proceed in stages. The panel entered a series of five interim awards, and then one Final Award.

The results of the awards were mixed. In Interim Award 1, the panel determined that the terms of the Wood Agreement governed the Cartesian partnership, though that agreement had never been signed. The panel determined that Soward breached his fiduciary duties, but that Bosack had no right to remove him as a general partner of Cartesian. Under the terms of the Wood Agreement, the panel held that Soward remained a limited partner in Cartesian after he was removed as the general partner. The panel concluded that the value of Soward's partnership should be calculated as of September 30, 2006. Interim Award 1 was not made final.

Interim Award 2 is not involved in this appeal.

In Interim Award 3, the panel determined the value of Soward's partnership interest was $1,496,391. Award 3 was the only interim award the arbitration panel made final and immediately enforceable.

In Interim Award 4, the panel ruled in favor of Soward on two tort claims. After Bosack removed Soward as the general partner of Cartesian, the panel determined that, under Delaware law, Soward was entitled to an accounting and a prompt distribution of his partnership interest. The panel found that Bosack had breached his fiduciary duties to Soward by failing to provide him with an accounting and distribution, and by improperly taking control of all the Cartesian assets. The panel also found Bosack and Lerner liable for conversion by their improper appropriation of Soward's interest in Cartesian. Damages awarded under Interim Award 4 were subject to a credit for payments made to satisfy Interim Award 3.

In Interim Award 5, the panel ruled that Bosack and Lerner had "acted with malice and oppression," and that Soward was entitled to punitive damages of $10,999,494 against Bosack, and $8,555,162 against Lerner.

Bosack and Lerner moved the district court to vacate Interim Awards 4 and 5, as well as the panel's Hearing Order No. 49 (finding that punitive damages applied). They also asked the district court to vacate the Final Award as to Soward's tort claims and punitive damages, and the award of related costs and attorney fees. The district court denied that motion and confirmed the panel's Final Award, which incorporated its earlier interim awards.

STANDARD OF REVIEW

We review de novo the district court's confirmation of the Final Award entered by the arbitration panel. Comedy Club, Inc. v. Improv West Assocs., 553 F.3d 1277, 1284 (9th Cir. 2009) (hereinafter "Comedy Club II"). Our review is limited by the Federal Arbitration Act ("FAA"), which "enumerates limited grounds on which a federal court may vacate, modify, or correct an arbitral award." Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 994 (9th Cir. 2003). "Neither erroneous legal conclusions nor unsubstantiated factual findings justify federal court review of an arbitral award under the statute, which is unambiguous in this regard." Id. Under § 9 of the FAA*fn1 , "a court 'must' confirm an arbitration award ...


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