Friday, January 28, 2005
C.A. Slashes Lawyer’s Arbitration Award Against Billionaire Ex-Lover
By KENNETH OFGANG, Staff Writer/Appellate Courts
The Court of Appeal for this district yesterday overturned the bulk of a $14.8 million arbitration award in favor of a Santa Barbara lawyer against the billionaire who was his client and lover before their personal and professional relationships disintegrated.
Wendy P. McCaw, whose holdings include the Santa Barbara News-Press, a radio station, and major ownership stakes in Nextel Communications, Inc. and Nextlink Communications, Inc., had challenged the award to Gregory Parker on numerous grounds.
Among other things, she alleged that arbitrator David Eagleson, a retired California Supreme Court justice who has since died, was biased against her because she was slow in paying his fees. But the issue on which she prevailed was far more mundane.
The appeals court’s Div. Six, in an opinion by Presiding Justice Arthur Gilbert, said Santa Barbara Superior Court Judge J. William McLafferty erred in having the arbitration heard by a single arbitrator rather than a panel of three, as called for in one of the two contracts on which the arbitration was based.
Parker met McCaw in 1995 when he represented the prior owner of the Hope Ranch estate in connection with the sale of the property to McCaw. The then-estranged wife of telecommunications entrepreneur Craig McCaw had just moved to the area from Kirkland, Wash..
McCaw’s long-acrimonious divorce proceedings ended in 1997 when she settled for about $500 million, most of it in Nextel and NextLink stock. She and her husband had previously owned McCaw Cellular before selling it to AT&T for $11.5 billion.
McCaw created several entities, including Ampersand Holdings, Inc., to hold and manager her assets. She hired Parker, to whom she later became engaged, as general counsel and chief operating officer of the companies, causing him to leave the Santa Barbara firm where he had been managing partner.
As the business operations grew—McCaw’s net worth was estimated at one point to be in excess of $2.5 billion—it was agreed that another person had to be brought in to perform some of Parker’s responsibilities. McCaw, on Parker’s recommendation, chose Parker’s ex-partner Joseph Cole.
Cole, who earlier this week was named by McCaw as president and publisher of the News-Press, was hired as executive vice president and general counsel of Ampersand and as McCaw’s personal attorney.
Parker, however, remained trustee for the Hope Ranch estate, which became embroiled in litigation with the California Coastal Commission after McCaw sought to void an easement for public access to the beach, granted by the prior owner in exchange for a building permit.
McCaw and Parker later entered into two contracts, an employment agreement and a stock incentive agreement.
The employment agreement provided that Parker would become president of Ampersand at a salary of $700,000 annually, and that he would receive two years’ pay as severance if fired without good cause. The incentive agreement, one of a number given to Ampersand officers, effectively entitled Parker to a share of the appreciation in the value of McCaw’s holdings.
End of Romance
Parker and McCaw ended their engagement around April 1999—Parker told a reporter it was because she did not want to be involved with his young children, which McCaw denied—but continued to work together for nearly a year. McCaw, however, eventually fired him.
Parker claimed entitlement to his severance pay, as well as millions of dollars based on the value of McCaw’s holdings, plus attorney fees. McCaw responded by claiming that Parker exercised undue influence and had a conflict of interest, rendering the contracts invalid.
McCaw demanded arbitration of Parker’s Santa Barbara Superior Court suit, citing the arbitration clauses of the two agreements. Those clauses, however, contained conflicting language.
Both contracts authorized arbitration by the American Arbitration Association, but the employment agreement said that any dispute would be heard in Santa Barbara by a single arbitrator; the stock incentive agreement said a hearing would be held in Los Angeles unless otherwise agreed by the parties, and would take place before three arbitrators.
McLafferty ruled that the issues arising under the two contracts were interrelated and would thus be made the subject of a consolidated proceeding, as provided by the California Arbitration Law. He also ruled that the hearing would take place in Santa Barbara, before a single arbitrator, and that a clause in the agreement barring an award of punitive damages applied only to Parker’s claims against Ampersand and the other business entities and not to claims of tortious conduct by McCaw personally.
Eagleson held that there was no undue influence or professional misconduct by Parker, and that McCaw had been properly advised to seek independent counsel. He questioned the credibility of McCaw and Cole, said that Parker and his witnesses appeared to be telling the truth, and referred to McCaw’s “oppressive” and “despicable” conduct, including the hiring of a public relations expert to attack Parker in the press and the filing of a meritless State Bar complaint.
That award included $1.4 million in severance pay, $9.75 million for breach of the stock incentive agreement, and $100,000 in punitive damages. The remainder was for attorney fees incurred in connection with the arbitration, as well as for fees and costs that Parker incurred personally in defending the Coastal Commission litigation, which was eventually settled.
McLafferty confirmed the award, but the Court of Appeal said the trial judge was in error to the extent the award was predicated on the stock incentive agreement.
By allowing that set of issues to be heard by a single arbitrator, Gilbert wrote, the trial judge had deprived the defendants of a substantial contractual right.
Not only did the contract provide for three arbitrators, the presiding justice explained, it incorporated the Commercial Rules of the AAA, which specify that when the amount in controversy exceeds $1 million, the matter will be heard by three arbitrators unless the contract says otherwise.
The error was prejudicial, Gilbert went on to say, because reasonable persons might have differed as to whether Parker’s right to payment under the incentive agreement had been triggered. Accordingly, the presiding justice said, the award for breach of that agreement, and for attorney fees incurred in litigating that portion of the case, must be vacated.
The panel upheld the remainder of the award to Parker, but awarded McCaw her costs on appeal.
The case is Parker v. McCaw, B167028.
Copyright 2005, Metropolitan News Company