Monday, March 23, 2026
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Court of Appeal:
Judgment After Arbitral Award May Be Axed Due to Standing
Majority Says Purported Lack of Authority of Trial Court to Confirm Arbitrator’s Decision May Be Raised for First Time on Appeal, Drawing Dissent Over Limited Judicial Role in Overseeing Arbitration
By Kimber Cooley, associate editor
A divided Div. Three of the Fourth District Court of Appeal on Friday vacated a $21 million judgment based on an arbitral award due to purported standing deficiencies not raised in the trial court, asserting that the rule that jurisdiction can be raised at any time takes precedence over principles concerning the limited judicial role in overseeing arbitration proceedings.
The question was raised after defendants in a fiduciary duty dispute asserted that the plaintiffs, purported representatives of a capital fund, did not have legal authority to file the complaint on the entity’s behalf. The issue was raised and dismissed in the arbitration proceedings but was not brought up in the trial court when the award was confirmed.
Justice Maurice Sanchez authored Friday’s unpublished opinion, joined in by Acting Presiding Justice Eileen C. Moore, and Orange Superior Court Judge Julianne Bancroft, sitting by assignment, dissented. Sanchez declared that “the matter is remanded with directions to the trial court” to “vacate its order[s] compelling arbitration…[and]…confirming the arbitration award” as well as requiring “factual findings regarding…standing.”
He wrote:
“This case represents the collision of two basic tenets of the law: The first is that jurisdiction is never waived and can be raised at any time, including for the first time on appeal. The second is that an arbitration award can only be challenged on very limited grounds and must be upheld if those grounds do not exist, even if the award is based on an error of law. The majority opinion follows the first tenet, and the dissent the second.”
Standing Deficiencies
Asserting standing deficiencies were Todd A. Mikles, Sovereign Capital Management Group Inc., and Sovereign Strategic Mortgage Fund LLC. They claimed that Tyrone Wynfield filed a complaint against them in 2017 on behalf of NNN Capital Fund I LLC (referred to in the opinion as “Cap Fund”) without legal authority to act for the company.
Cap Fund was formed in 2008 to provide short-term financing to borrowers for real estate syndications. By 2011, Mikles was appointed president of the company in the wake of financial difficulties due to some nonperforming, outstanding, and unsecured loans.
Mikles arranged for Sovereign Capital Management Fund, which he controlled, to purchase the underperforming notes at a discount. In December 2015, the company was dissolved, and the assets were distributed to the members.
One member, Tyrone Wynfield, was unhappy with the management of the fund and purported to conduct a vote to appoint himself “liquidating trustee.” He claims that he was elected by a majority vote by way of a ballot that provides:
“By my signature below I vote…that…Tye Wynfield be appointed Liquidating Trustee by the court for NNN CAPITAL FUND I, LLC…to wind up the Company’s affairs….The liquidating trustees shall have full power and authority to pursue any and all Company assets, claims, choses in action and remedies….”
New Liquidating Trustee
No court appointment followed the members’ vote. After his 2019 death, his widow, Mary Jo Saul, asserted that she was the new “liquidating trustee” and pointed to another vote purportedly held in March 2020 allegedly elevating her to the position; the election included votes of members who were not qualified to vote under the company’s operating agreement and an examination of the ballots revealed that she received less than a majority share of support.
In September 2018, an Orange County Superior Court Judge ordered the case to arbitration. On Jan. 5, 2021, Cap Fund, under the direction of Saul, initiated arbitration with the American Arbitration Association.
An arbitrator concluded that Wyndfield and Saul had standing to bring suit and issued an award for more than $21 million in compensatory and punitive damages in March 2024. On June 3, 2024, Orange Superior Court Judge David J. Hesseltine confirmed the award.
No Jurisdiction
Saying that “[i]f Wynfield and Saul were not qualified to file suit on Cap Fund’s behalf, they lacked standing, and…neither the trial court nor the arbitrator had jurisdiction over the suit,” Sanchez remarked:
“Appellants contend that neither Wynfield nor Saul were properly elected as ‘liquidating trustees’ authorized to sue on Cap Fund’s behalf. First, the explicit terms of the ballots sent to members stated that the vote was to seek appointment by the court of liquidating trustees. However, Wynfield and Saul never obtained court approval before declaring themselves ‘liquidating trustees.’ Second, if Wynfield and Saul were not elected by a majority of the members qualified to vote per the terms of the operating agreement, any such vote was invalid.”
The jurist added:
“[T]he trial court must make a factual determination on remand and resolve whether Wynfield and/or Saul had standing to file suit on Cap Fund’s behalf. If the court determines Wynfield and Saul lacked standing, and no authorized representative of the company may be substituted, the court would lack jurisdiction to adjudicate the case….A lack of subject matter jurisdiction would similarly prevent the court from adjudicating any motion to compel arbitration.”
Limited Review
Addressing the contention that arbitration awards are subject to only limited judicial review, he acknowledged that “an arbitrator’s decision is not generally reviewable for errors of fact or law, even if the error appears on the face of the award and causes substantial injustice.” However, he said:
“[A]n arbitration award is subject to judicial review ‘on the grounds set forth in [Code of Civil Procedure] sections 1286.2 (to vacate) and 1286.6 (for correction).’…Code of Civil Procedure section 1286.2 sets forth the bases on which a court ‘shall’ vacate an arbitration award, including if it determines ‘the arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.’…An arbitrator exceeds his powers when he acts without subject matter jurisdiction.”
As to waiver, he declared that “appellants’ failure to challenge the arbitrator’s authority in the trial court does not waive the issue.”
Bancroft’s View
Bancroft wrote:
“The majority’s opinion would vacate a judgment after a final, binding arbitration award based on the aggrieved party’s contention that the other party did not have standing. The practical result of the majority’s decision will be to require the trial court to conduct an evidentiary hearing on the plaintiff’s standing in every case before ordering the matter to arbitration on the defendant’s request. This is neither practical nor legally required.”
She added:
“When a jury or court sitting as a finder of fact determines after trial that one party to the proceeding lacked standing, the court’s interim orders are not subject to be vacated because it did not determine the parties’ standing at the outset of the case. The result should be no different when the matter has been sent to contractual arbitration at the request of the party who now seeks a second bite at the apple.”
Saying that “jurisdiction was not raised for the first time on appeal,” she noted that “the issue was…decided in arbitration by the duly appointed arbitrator” and declared:
“The trial court did not err in confirming the arbitration award and entering judgment thereon. It had no obligation to sua sponte consider standing, much less conduct an evidentiary hearing on that issue.”
The case is NNN Capital Fund I LLC v. Mikles, G064487.
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