Swenson et al v. Bushman Investment Properties, Ltd. et al

Filing 78

ORDER granting in part and denying in part 27 Motion to Confirm Arbitration Award ; finding as moot 47 Motion for Leave to File Motion to Strike; granting in part and denying in part 49 Motion to Vacate Arbitration Award ; denying 57 Motion to Vacate Arbitration Award. Signed by Judge Edward J. Lodge. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (dks)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
In the matter of:
DOUGLAS L. SWENSON, JEREMY
SWENSON, and DAVID SWENSON,
Petitioners,

Case No. 10-cv-00175-EJL
MEMORANDUM DECISION AND
ORDER

v.
BUSHMAN INVESTMENT
PROPERTIES, LTD., a Utah limited
partnership, HOLMAN DBSI
ARAPAHOE, LLC, a Utah limited
liability company, JOHN M. CLAYTOR,
as co-executor of the Estate of William
M. Claytor, CHARLEY A. SIMMONS,
SHIRLEY A. SIMMONS, LINDA
GRANA, WILLIAM J. MURPHY, and
JOSEPH KLEM AND ANNA KLEM
2003 REVOCABLE TRUST,
Respondents.

INTRODUCTION
In January 2012, an arbitrator awarded the respondents in this case approximately
$458,000 in damages plus an additional $2.27 million in “potential prospective” damages
if certain contingencies occur. The respondents move to confirm the arbitration award
(Dkt. 27), and the petitioners move to vacate it. (Dkts. 49, 57). The motions have been

MEMORANDUM DECISION AND ORDER - 1

fully briefed and the Court has determined oral argument would not assist the decisionmaking process. The Court will therefore decide the motions without a hearing. For the
reasons explained below, the Court will vacate one ambiguous portion of the award and
remand that portion to the arbitrator for clarification. The Court will confirm the award in
all other respects.
BACKGROUND
The respondents are a group of real estate investors. In the fall of 2008, they
purchased fractional interests in a piece of vacant land in Arapahoe County, Colorado
from a business known as DBSI E-470 East LLC. At the time, DBSI E-470 was a wholly
owned and managed subsidiary of DBSI, Inc. DBSI, Inc., in turn, was a real estate
investment company based in Boise, Idaho. Petitioner Douglas Swenson is the former
president, CEO, and majority owner of DBSI, Inc. His sons, petitioners Jeremy and
David Swenson, were employees of a DBSI affiliate called DBSI Realty.
The investors originally sued DBSI E-470 and the Swensons in March 2009 in
federal district court in Colorado. The claims against DBSI E-470 were stayed because
that entity had filed bankruptcy in November 2008. The Colorado district court
concluded it lacked jurisdiction to compel arbitration in Idaho, but ordered the Swensons
to commence an action in Idaho seeking to compel arbitration. This action ensued.
In July 2010, this Court ordered the parties to commence binding arbitration. See
Dkt. 19. The arbitrator conducted an evidentiary hearing from June 27 through July 1,
2011 and issued an interim award in September 2011, finding all three Swensons liable
for breach of contract, and finding Douglas Swenson liable for fraud. In December 2011,

MEMORANDUM DECISION AND ORDER - 2

the arbitrator issued his final damages award, and then modified that award in January
2012.
ANALYSIS
Before reaching the merits of the pending motions, the Court must resolve two
threshold arguments. First, the investors argue that the Swensons’ motions to vacate were
not timely filed. Second, the investors argue that the arbitrator’s award is not subject to
judicial review because the parties expressly waived that right in their arbitration
agreement.
The Court easily rejects the first argument – the motions to vacate were timely
filed. The Court also rejects the second argument, though this presents a closer question.
As explained below, although the parties waived all rights to appeal, they did not waive
the right to have this Court conduct a limited judicial review of the arbitration award
under the Federal Arbitration Act.
A.

Timeliness of Motion to Vacate
The deadline for moving to vacate an arbitration award is three months after the

arbitrator issues the award. 9 U.S.C. § 12. The investors argue that the clock started
ticking in September 2011, when the arbitrator issued his interim award – meaning that
the three-month period would have expired in December 2011, well before the Swensons
filed their February 2012 motions. The Swensons argue that the three-month period did
not begin to run until January 2012, when the arbitrator modified his December 2011
final award. The interim award related to liability; the final award dealt with damages.

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Ninth Circuit law is clear on this point. An interim award “may be deemed final
for functus officio purposes if the award states it is final, and if the arbitrator intended the
award to be final.” Bosack v. Soward, 586 F. 3d 1096, 1103 (9th Cir. 2009). Here, the
interim award does not state it is final and there is no indication that the arbitrator
intended it to be final. Rather, at the conclusion of the hearing, the arbitrator stated that
he was keeping the hearing open until “we deal with interim award issues, attorneys’ fees,
interests, those types of things.” Arbitration Hearing Transcript, Ex. C. to Ostrovsky
Dec., Dkt. 48-1, at 1336:13-23; see also id. at 43:3-7; 1333:19-22. Additionally, there is
no evidence that the parties believed the interim award was final. The Swensons’
motions to vacate were therefore timely filed.
The investors’ citation to various non-binding authorities does not change this
conclusion. Relying on these authorities, the investors argue that if arbitration
proceedings are bifurcated into liability and damages phases, an interim award
adjudicating liability is final. See Reply, Dkt. 45, at 7 (citing, among other cases, Nat’l
Mut. Ins. Co. v. First State Ins. Co., 213 F. Supp. 2d 10, 16-17 (D. Mass 2002)). But
these cases recognized that the arbitrator and the parties must understand that the ruling
on liability was a final award. See, e.g, id. (citing Providence Journal Co. v. Providence
Newspaper Guild, 271 F.3d 16 (1st Cir. 2001)); McGregor Van De Moere, Inc. v.
Paychex, Inc., 927 F. Supp. 616, 618 (W.D.N.Y. 1996) (“nothing in the record that even
remotely suggests that the parties and the panel itself believed that the panel’s decision on
liability would be anything less than final.”). Again, there is no indication in this case
that the parties and the arbitrator understood the interim award to be the final award.

MEMORANDUM DECISION AND ORDER - 4

B.

Court Authority to Review the Arbitration Award
The arbitration award is also subject to limited judicial review under the Federal

Arbitration Act, despite the parties’ agreement that the arbitration award would be “final
and binding” and their more specific waiver of appellate rights. The arbitration clause
reads as follows:
7.18 Arbitration of Disputes.
7.18.1 All Claims Subject to Arbitration. Any dispute,
controversy or other claim arising under, out of or relating to this
Agreement or any of the transactions, contemplated hereby, or
any amendment thereof, or the breach or interpretation hereof or
thereof, shall be determined and settled by binding arbitration in
Boise, Idaho in accordance with Idaho law, and the rules and
procedures of the American Arbitration Association. The
substantially prevailing party shall be entitled to an award of its
reasonable costs and expenses, including but not limited to
attorney's fees and costs. Any award rendered therein shall be
final and binding on each and all of the parties thereto and their
personal representatives, and judgment may be entered thereon
in any court of competent jurisdiction.
7.18.2 Waiver of Legal Rights. By initialing in the space below,
the parties acknowledge and agree to have any dispute arising out
of the matters included in this Section 7 decided by neutral
arbitration as provided under Idaho law and that they are waiving
any rights that may possess to have the dispute litigated in a court
or by jury trial. The parties further acknowledge and agree that
they are waiving their judicial rights to discovery and appeals
except to the extent such rights are specifically included in this
section. If either part refuses to submit to arbitration after
execution of this Agreement and initialing below, such party may
be compelled to arbitrate under the authority of Idaho law. Each
party’s agreement to this section is voluntary. The parties have
read and understand the foregoing and agree to submit disputes
arising out of the matters included in this section to neutral
arbitration.
Purchase Agreement, Dkt. 52-4 (emphasis added).

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The effect of this clause is not entirely clear. The Ninth Circuit has not squarely
addressed whether a clause such as this eliminates judicial review under § 10(a) of the
Federal Arbitration Act. It has twice indicated – albeit in dicta – that parties to an
arbitration agreement can waive judicial review of the arbitrator’s decision if they clearly
state their intent to do so. In Kyocera Corp. v. Prudential-Bach Trade Services, Inc., 341
F.3d 987, 1000 (9th Cir. 2003) (en banc), an en banc panel of the Ninth Circuit held that
parties could not expand federal review of an arbitration award beyond what 9 U.S.C. §
10(a) provides. But in reaching that decision, the court stated that “the decision to
contract for a narrower standard of review than the courts generally apply in the absence
of a statutory command is a decision that may be less troublesome than the attempt to
contract for a broader standard of review than that authorized by Congress, although we
need not resolve that question here.” Id. at 998 n.16.
In an earlier decision, Aerojet-General Corp. v. American Arbitration Association,
478 F.2d 248, 251 (9th Cir. 1973), the Ninth Circuit observed that “[w]hile it has been
held that parties to an arbitration can agree to eliminate all court review of the
proceedings, the intention to do so must clearly appear.” In that case, the court held that a
clause providing that the arbitration was to be “final and binding” did not show clear
intent to eliminate judicial review of the arbitrator’s decision. See also Bown v. Amoco
Pipeline Co., 254 F.3d 925, 931 (10th Cir. 2001) (citing Aerojet for the proposition that
parties may eliminate judicial review by contract so long as their intention to do so is
clear and unequivocal).

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At least two other circuits, by contrast, have rejected the notion that parties can
agree to waive all judicial review of arbitration awards. See Hoeft v. MVL Group, 343
F.3d 57, 64 (2d Cir. 2003); Rollins, Inc. v. Black, 167 Fed. Appx. 789 (11th Cir. Feb. 17,
2006) (unpublished disposition). In Hoeft v. MVL Group, 343 F.3d 57, the Second
Circuit held that the “the freedom to contract, like any freedom, has its limits.” Id. at 64.
It reasoned that allowing parties to opt out of all judicial review would eviscerate the
careful balance Congress had reached between encouraging arbitration and monitoring its
basic fairness. Id.
Similarly, in Rollins Inc. v. Black, 167 Fed. Appx. 798 (11th Cir. Feb. 17, 2006)
(unpublished decision), the Eleventh Circuit concluded that “a ‘binding, final and nonappealable’ arbitral award does not mean that the award cannot be reviewed. It simply
means that the parties have agreed to relinquish their right to appeal the merits of their
dispute; it does not mean the parties relinquish their right to appeal an award resulting
from an arbitrator’s abuse of authority, bias or manifest disregard of the law.” Id. at 799
n.1.
Swensons relies on the Second Circuit’s Hoeft decision to argue that this Court
should review the arbitrator’s decision. In view of the Ninth Circuit’s dicta in Kyocera
and Aerojet, however, reliance on Hoeft is improper. See Hoeft, 343 F.3d at 64
(describing Aerojet as one of the “far more scarce” decision that appear willing to narrow
the scope of review of an arbitration award); accord Kim-C1, LLC v. Valent Biosciences
Corp., 756 F. Supp. 2d 1258, 1266 (E.D. Cal. 2010) (“Since Aerojet acknowledges that
parties may eliminate or restrict court review of arbitration proceedings, the Court does

MEMORANDUM DECISION AND ORDER - 7

not believe it can follow Hoeft.”). Rather, under Aerojet and Kyocera, the key question is
whether § 7.18 of the parties’ agreement (quoted above) is sufficiently clear to show that
the parties intended to eliminate all judicial review.
The Court determines that because the parties did not use the word “review” (as
opposed to “appeal”) or otherwise plainly state that they wished to eliminate judicial
review under the Federal Arbitration Act, this Court has the authority to conduct such a
review. This decision is in accord with other decisions that focus on the word “review”
(or variations thereof) in determining the parties’ intent in this regard. In Kim-C1, LLC v.
Valent Biosciences Corp., 756 F. Supp. 2d 1258, 1266 (E.D. Cal. 2010), for example, the
Court held that the parties adequately expressed their intent to eliminate judicial review
by agreeing that the arbitrator’s rulings were “non-reviewable” in addition to being final
and non-appealable. Additionally, in Communications Consultant Inc. v. Nextel
Communications of the Mid-Atlantic, Inc., 146 Fed. Appx. 550, 552-53 (3d Cir. July 15,
2005) (unpublished decision), the Third Circuit enforced a clause stating that “[t]he
decision of the arbitrators shall be final and unreviewable for error of law or legal
reasoning of any kind and may be enforced in any court having jurisdiction of the
parties.” Id. (emphasis added). The Nextel Court explained that “[i]n the presence of
such language, the only permissible basis upon which a litigant may challenge the panel’s
award is if the litigant can show that the panel’s actions were influenced by ‘corruption,
fraud, or partiality,’ or that the panel failed to provide a hearing to consider each party's
views prior to issuing its decision.” Id.

MEMORANDUM DECISION AND ORDER - 8

Here, the parties did not plainly state that the arbitrator’s decision would be
completely unreviewable. More specifically, they did not clearly and unequivocally
foreclose review of this Court’s limited, highly deferential review of the arbitration award
in accordance with the Federal Arbitration Act. This Court will therefore consider the
merits of the motions to vacate.
C.

The Legal Standard
The Federal Arbitration Act authorizes district courts to enforce or vacate an

arbitration award entered pursuant to a contractual arbitration agreement between parties.
9 U.S.C. §§ 9-11. Judicial review of arbitration awards is limited and highly deferential.
See Sheet Metal Workers Int’l Ass’n v. Arizona Mechanical & Stainless, Inc., 863 F.2d
647, 653 (9th Cir.1988). The Act sets out specific grounds a court may vacate an
arbitration award, including:
(1) where the award was procured by corruption, fraud, or undue
means;
(2) where there was evident partiality or corruption in the arbitrators, or
either of them;
(3) where the arbitrators were guilty of misconduct in refusing to
postpone the hearing, upon sufficient cause shown, or in refusing to
hear evidence pertinent and material to the controversy; or of any
other misbehavior by which the rights of any party have been
prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly
executed them that a mutual, final, and definite award upon the
subject matter submitted was not made.
9 U.S.C. § 10(a). In addition to these statutory grounds, courts may vacate an arbitration
award that is irrational or exhibits a “manifest disregard of the law.” Todd Shipyards

MEMORANDUM DECISION AND ORDER - 9

Corp. v. Cunard Line, Ltd., 943 F.2d 1056, 1060 (9th Cir. 1991). Manifest disregard of
the law is more than error, however. As noted in Collins v. D.R. Horton, Inc., 505 F.3d
874 (9th Cir. 2007), courts “may not reverse an arbitration award even in the face of an
erroneous interpretation of the law.” Id. at 879. Similarly, erroneous findings of fact are
not grounds for vacating an arbitration award. French v. Merrill Lynch, Pierce, Fenner &
Smith, 784 F.2d 902, 906 (9th Cir. 1986). Rather, to demonstrate manifest disregard, a
moving party must show that the arbitrators “understand and correctly state the law, but
proceed to disregard the same.” San Martine Compania De Navegacion, S.A. v.
Saguenay Terminals Ltd., 293 F.2d 796, 801 (9th Cir. 1961); see also generally U.S. Life
Ins. Co. v. Superior Nat’l Ins. Co., 591 F.3d 1167, 1173 (9th Cir. 2010) (party seeking
vacatur must establish grounds for vacating arbitration award).
D.

Manifest Disregard of the Law
The great majority of the Swenson’s arguments are aimed at showing that the

arbitrator manifestly disregarded the law. All three Swenson defendants argue that the
arbitrator manifestly disregarded the law by piercing the corporate veil and holding them
personally liable for contractual obligations of DBSI entities. Douglas Swenson
additionally argues that the arbitrator manifestly disregarded governing law by: (1)
“excusing” the investors from proving various elements of fraud, (2) “flagrantly”
violating his Fifth Amendment rights against self-incrimination; and (3) awarding
“potential prospective” damages to the investors.
Before addressing these specific arguments, the Court observes a global problem
with the Swensons’ motions: They fail to appreciate the governing standard. Their key

MEMORANDUM DECISION AND ORDER - 10

argument is that the arbitrator manifestly disregarded Idaho law, but in actuality, they
typically argue that the arbitrator committed factual or legal errors and effectively ask this
Court to reweigh or reinterpret the evidence. The Court will not engage in such an
exercise, nor is it permitted to do so. The arbitrator did what he was supposed to do, and
although the Swensons are unhappy with the result, they fail to demonstrate any manifest
disregard of the law.
1. The Corporate Veil
The Court will now turn to the Swensons’ specific arguments, beginning with the veilpiercing argument. The real estate investment contracts at issue in the arbitration were
between the investors and DBSI E-470. The arbitrator found all three Swensons liable for
DBSI E-470’s contractual breaches by piercing the corporate veil.
Douglas Swenson argues that the arbitrator “manifestly disregarded” Idaho law by
piercing the corporate veil without evidence that he commingled his personal funds with
corporate funds. This argument has two flaws. First, the arbitrator found that there was
commingling. Interim Award, at 11. Second, commingling is not required to pierce the
corporate veil. The Idaho Supreme Court recently set forth the applicable legal standard
as follows:
“To warrant casting aside the legal fiction of distinct corporate
existence . . . it must . . . be shown that there is such a unity of interest
and ownership that the individuality of such corporation and such
person has ceased; and it must further appear from the facts that the
observance of the fiction of separate existence would, under the
circumstances, sanction a fraud or promote injustice.”
Maron v. Wyreless Sys., Inc., 114 P.3d 974, 986 (Idaho 2005) (citation omitted). As this

MEMORANDUM DECISION AND ORDER - 11

passage reveals, there is no commingling requirement. Swenson’s citation to a Ninth
Circuit case – Katzir’s Floor & Home Design, Inc. v. M-MLS.com, 394 F.3d 1143 (9th
Cir. 2004) – is unavailing. Katzir did not apply Idaho law; it applied California law.
Moreover, the California authority Katzir relied upon did not state that commingling is a
prerequisite to piercing the corporate veil and the Ninth Circuit did not so interpret that
authority. See Tomaselli v. Transamerica Ins. Co., 31 Cal. Rptr. 2d 433 (Ct. App. 1994).
Rather, the cited California case explained that courts may consider various factors –
including commingling – in determining whether to pierce the corporate veil. Id. Idaho
courts have similarly noted that several factors may be considered when deciding whether
to pierce the corporate veil, but that such factors “are not exclusive because the conditions
under which a corporate entity may be disregarded vary according to the circumstances of
the case.” Hutchison v. Anderson, 950 P.2d 1275, 1279 (Idaho Ct. App. 1997).
Swenson’s commingling argument thus lacks merit.
Douglas Swenson also takes issue with the fact that his sons were not owners of
any DBSI entity. As noted, to pierce the corporate veil, there must be a “unity of interest
and ownership” between the individual and the entity. Idaho courts, however, have not
squarely addressed whether an individual must be shareholder to be potentially liable for
corporate debts. Other courts, however, have pierced the corporate veil as to nonshareholders, even in the face of the same language – “unity of interest and ownership.”
For example, in Fontana v. TLD Builders, Inc., 840 N.E. 2d 767, 501-02 (Ill. Ct. App.
2005), the court explained that its decision to hold a non-shareholder liable for corporate
debts “is consistent with decisions of courts in other jurisdictions that have considered the

MEMORANDUM DECISION AND ORDER - 12

issue and have concluded that equitable ownership in a corporation, demonstrated by
control exercised by an individual sought to be held liable for corporate debts, may satisfy
the “unity of interest and ownership’ element of piercing the corporate veil.”1
Here, the arbitrator concluded that David and Jeremy Swenson were part of an
“insider” group that controlled DBSI entities. See Interim Award, Dkt. 52-1, at 10
(“According to the Examiner, all three Respondents were considered ‘Insiders.’ During
this period, the Insiders received direct or indirect cash payments (transfers) of over $75
million.”) (internal citation to bankruptcy examiner’s report omitted). Given that Idaho
courts have not squarely addressed whether non-shareholders may be liable for corporate
debts, it cannot be said that the arbitrator “manifestly disregarded” Idaho law in
determining that non-shareholders Jeremy and David Swenson could be personally liable
Fontana string-cited the following cases in support of its holding: Freeman v. Complex
Computing Co., 119 F.3d 1044, 1051 (2d Cir. 1997) (“New York courts have recognized for
veil-piercing purposes the doctrine of equitable ownership, under which an individual who
exercises sufficient control over the corporation may be deemed an ‘equitable owner’,
notwithstanding the fact that the individual is not a shareholder of the corporation”); Lally v.
Catskill Airways, Inc., 603 N.Y.S. 2d 619, 645 (N.Y. App. Div. 1993) (nonshareholder defendant
may be, “in reality,” the equitable owner of a corporation where the nonshareholder defendant
“exercise[s] considerable authority over [the corporation] . . . to the point of completely
disregarding the corporate form and acting as though [its] assets [are] his alone to manage and
distribute”); In re MacDonald, 114 B.R. 326, 332–33 (D. Mass. 1990) (piercing the corporate
veil in bankruptcy case to establish debtor as the equitable owner of corporate stock that
ostensibly was owned by debtor’s father, and therefore finding stock subject to turnover order);
Angelo Tomasso, Inc. v. Armor Construction & Paving, Inc., 447 A.2d 406, 412 (Conn. 1982)
(“[S]tock ownership, while important, is not a prerequisite to piercing the corporate veil but is
merely one factor to be considered in evaluating the entire situation. . . . Thus, while the usual
case does involve a director, officer or shareholder of a corporation, the lack thereof, in an
unusual case such as this, would not prevent us from imposing liability upon an individual by
piercing the corporate veil if the evidence demonstrated the requisite level of control and
otherwise satisfied the instrumentality or other applicable test”); Establissement Tomis v.
Shearson Hayden Stone, Inc., 459 F. Supp. 1355, 1366, n.13 (S.D.N.Y.1978) (declining to find
that under no set of circumstances could defendant husband be shown to be an alter ego of
corporation simply because 100% of the corporation's stock was held in his wife's name instead
of his).
1

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for the entity’s debts. “[T]o rise to the level of manifest disregard the governing law
alleged to have been ignored by the arbitrators must be well defined, explicit, and clearly
applicable.” Collins, 505 F.3d at 879.
The Swensons next complain that the arbitrator incorrectly concluded that once the
corporate veil was pierced as to Douglas Swenson, he was free to find David and Jeremy
individually liable as well. In fact, it appears that the arbitrator relied on his earlier
conclusion that David and Jeremy were part of the “insider” group that controlled DBSI
entities. The arbitrator stated that “[o]nce the corporate shield has been pierced, it no
longer provides protection for the other Respondents David and Jeremy Swenson who
were ‘insiders.’ The Arbitrator infers, finds, and concludes, based on the evidence, that
they were actively involved with their father in aiding him in operating the Control Group
Companies as his own personal business.” Interim Award, at 12 (emphasis added).
Granted, this statement is not the most artful. After all, the arbitrator must
conclude that the Swenson sons operated the business as their own business (not their
fathers’). But, at worst, the arbitrator misapplied Idaho law in this regard. He did not
“manifestly disregard” Idaho law. Further, as explained above, there are grounds for
finding non-shareholders liable for corporate debts based on their asserted control over
the company, and the arbitrator laid the foundation for such a holding.
Finally, the Court rejects Douglas Swenson’s argument that the arbitrator inverted
the burden of proof on the veil-piercing issue. Here, Swenson points out that when the
arbitrator discussed piercing the corporate veil, he “noted that the Swensons offered no
evidence that any DBSI Group of Companies, including DBSI E-470 adhered to any

MEMORANDUM DECISION AND ORDER - 14

corporate record keeping formalities.” Douglas Swenson Mot. to Vacate Memo., Dkt. 50,
at 15. Based on this observation by the arbitrator, Swenson strings together two illogical
conclusions: (1) that the arbitrator required Swenson to offer such evidence; and (2) that
by imposing such a requirement, the arbitrator inverted the burden of proof.
This is not a fair reading of the interim award. The arbitrator initially stated that
the investors “had established the elements required to pierce the corporate veil” and then
went on to support that conclusion with various facts in a five-page, single-spaced section
of the interim award. See Interim Award, at 7, 7-12. Just because the arbitrator observed
that the DBSI companies had failed to observe corporate formalities within that
discussion does not mean that he inverted the burden of proof. 2 There was no such error,
much less a manifest disregard of the law.
2. Fraud
Douglas Swenson next argues that the arbitrator manifestly disregarded Idaho law
by excusing the investors from proving three elements of their fraud claim – falsity,
intent, and reliance. See Douglas Swenson Mot. Memo., Dkt. 50, at 3
The elements of fraud are: (1) a statement or a representation of fact; (2) its
falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity; (5) the speaker’s
intent that there be reliance; (6) the hearer’s ignorance of the falsity of the statement; (7)
reliance by the hearer; (8) justifiable reliance; and (9) resultant injury. Mannos v. Moss,
155 P.3d 1166, 1170 (Idaho 2007).
2 Related to this argument, Swenson points out that the arbitrator made a factual error. That is, the arbitrator found that “the DBSI Group of
Companies, including DBSI E-470 East LLC” failed to offer basic corporate documents into evidence, such as articles of incorporation, bylaws, and the like into
evidence. See Interim Award, 11. In fact, the Swensons did present such evidence at the arbitration. But this error is not fatal. The arbitrator set forth numerous
other facts supporting his decision to pierce the corporate veil. Further, as already noted, factual errors are not grounds for vacating an arbitration award.

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a. Falsity
Regarding the first element – falsity of the statement made – the arbitrator
concluded that “[m]ultiple misrepresentations were made in the Investment Summary and
Private Placement memorandum.” Interim Award, at 13. He identified three “key”
misrepresentations:
(1) The entire property would be debt free, no liens would be placed
on the property.
(2) A land manager would place a portion of the investors’ money
into escrow for accountable reserves for payment of land
management fees, insurance and real estate taxes.
(3) Investors would receive quarterly option payments beginning
Oct 15, 2008.
Id.
Swenson argues that none of these statements relate to an existing fact and
therefore cannot form the basis of a proper fraud action.
As a general rule, fraud cannot be based upon future promissory statements, or
upon the mere failure to perform a promise or an agreement to do something in the future.
See, e.g., Gillespie v. Mountain Park Estates, L.L.C., 132 P.3d 428, 431 (Idaho 2006).
The allegedly false misrepresentation must concern past or existing material facts. Id.
However, Idaho courts recognize two exceptions to this general rule: 1) if the speaker
made the promise without any intent to keep it but only to induce action upon the part of
the promisee; and 2) if the promise was accompanied by false statements of existing fact
which showed the promisor’s ability to perform the promise. Id.

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Here, the arbitrator made factual conclusions that would support application of the
first exception – that the “speaker made the promise without any intent to keep it but only
to induce action upon the part of the promisee.” Id. The arbitrator concluded that:
Respondent Swenson knew of facts, which would make fulfillment of
the promises contained in the PPM [private placement memorandum]
improbable, if not impossible. He knew he was going to place a lien on
the property, as he signed the lien. He knew certain funds would not be
escrowed in connection with the accountable reserves because his say
was final on all accounting issues and he knew no option payments
would be made because of the companies’ financial problems.
Interim Award, at 18.
Under these circumstances, it cannot be said that the arbitrator “manifestly
disregarded” Idaho law in determining that the investors satisfied the “falsity” element of
their fraud claim.
Swenson, however, complains that the arbitrator relied upon a “superior
knowledge” exception from other jurisdictions to conclude that the investors had satisfied
the falsity element of their fraud claim. See id. at 17. Under this exception,
misrepresentations regarding future events are actionable “‘where the misrepresentation
of a future occurrence is made by one who purports to have superior knowledge of the
matter.’” Id. (quoting Sperry Corp. v. Schaeffer, 394 N.W. 2d 727, 730 (S.D. 1986). The
arbitrator determined that (1) Idaho would recognize this exception; and (2) Swenson had
the requisite special knowledge.
The Court rejects Swenson’s argument that the arbitrator’s reliance upon this
exception deprived them of the right to have Idaho law govern the arbitration
proceedings.

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First, as already explained, Idaho recognizes exceptions to the rule relating
statements of future intent. Indeed, the Idaho Supreme Court long ago observed “[a]s in
many cases the general rule has almost become the exception.” See, e.g., Sharp v. Idaho
Inv. Corp., 504 P.2d 386, 395 (Idaho 1972); see also Cooper v. Wesco Builders, Inc., 253
P.2d 226 (Idaho 1953) (discussing exceptions).
Second, the superior-knowledge exception the arbitrator relied upon shares
theoretical common ground with Idaho’s exception relating to false promises, discussed
above. The basic notion is that the speaker is in a position to know something the hearer
does not – in this case, the speaker allegedly knew he had no intent of making the
promised future event occur.
Third, in Weitzel v. Jukich, 251 P.2d 542, 544 (Idaho 1953), the Idaho Supreme
Court applied some form of the superior-knowledge exception. (The court did not use
these precise terms, but the holding is clear enough and the court cited a superiorknowledge case with approval – Koch v. Rhodes, 188 P. 933, 935 (Mont. 1920)). In
Weitzel, the buyer of a farm sued the seller for, among other things, falsely representing
that the land would yield 350 tons of hay per year. The court rejected the argument that
such a statement constituted “a prophesy or opinion, or . . . something that may or may
not occur at some future time” because the “parties to this transaction did not stand on
equal footing, nor did they have equal means of knowing the truth.” Id. (citing Koch 188
P. 933).
Finally, the Court is not persuaded by Swenson’s argument that the arbitrator
improperly supported the fraud award with speculation regarding Swenson’s religious

MEMORANDUM DECISION AND ORDER - 18

affiliation. Most significantly, the two sentences Swenson complains of could be omitted
entirely from the arbitration award without doing it any harm. In those two sentences, the
arbitrator simply pointed to additional evidence – shared religious affiliation – supporting
his conclusion that some of the claimants trusted Swenson.3 The more significant
findings relative to the falsity element of fraud are set forth later. See Interim Award, at
18 (the arbitrator concludes that, among other things, “Swenson knew of facts, which
would make fulfillment of the promises contained in the PPM improbable, if not
impossible.”).
b. Knowledge & Intent
Swenson’s arguments regarding fraudulent intent also fail. Here, Swenson argues
that there was no direct evidence of his “bad state of mind.” This argument fails to
appreciate that fraudulent intent may be proven by circumstantial evidence. See, e.g.,
Weatherhead v. Griffin, 851 P.2d 993 (Idaho Ct. App. 1992). Lack of direct evidence is
not dispositive.
Swenson also argues that the arbitrator’s finding that Swenson intended to defraud
the investors is fatally inconsistent with his later refusal to award punitive damages. In
the punitive damages phase of the proceedings, the arbitrator sought evidence of
Swenson’s “bad state of mind.” This comports generally with Idaho law, which requires
punitive damages awards to be supported by a “bad act” and a “bad state of mind.” See
The relevant part of the Interim Award states: “Additionally, he [Douglas Swenson]
and Claimants were all members of the same church, the Church of Jesus Christ of Latter Day
Saints and arguably held the same religious beliefs. Claimants testified this common bond and
shared religious beliefs caused them to trust and feel comfortable doing business with Mr.
Swenson and his companies.” Interim Award, at 17 (record citations omitted).
3

MEMORANDUM DECISION AND ORDER - 19

Myers v. Workmen’s Auto. Ins. Co., 95 P.3d 977, 985 (Idaho 2004). The “bad state of
mind” has been described variously as malice, oppression, fraud, gross negligence,
wantonness, deliberateness, or willfulness. See id. at 983.
Theoretically, upon finding that Swenson intended to defraud the investors, the
arbitrator had sufficient proof of Swenson’s bad state of mind. See, e.g., Seiniger Law
Office, P.A. v. N. Pac. Ins. Co., 178 P.3d 606, 615 (Idaho 2008) (the “mental state
required to support an award of punitive damages is ‘an extremely harmful state of mind,
whether that be termed malice, oppression, fraud . . . ’”) (citation omitted; emphasis
added). The arbitrator, however, assumed he needed direct evidence of Swenson’s “bad
state of mind” and, finding no such evidence, he declined to award punitive damages. See
Final Award, Dkt. 52-2, at 6. (“Since the hearing was devoid of any direct evidence of
Mr. Swenson’s bad state of mind and since the Arbitrator cannot draw an adverse
inference concerning Mr. Swenson’s ‘bad state of mind,’ no clear and convincing
evidence has been proven entitling Claimants to an award of punitive damages.”).
The Court rejects Swenson’s argument that arbitrator’s decision not to award
punitive damages necessarily means that the fraud award should be undone. As discussed
earlier, the fraud award was supported by the arbitrator’s factual findings. Certainly, the
arbitrator did not manifestly disregard the law in reaching his finding regarding fraudulent
intent.

MEMORANDUM DECISION AND ORDER - 20

c. Reliance
Nor did the arbitrator manifestly disregard the law regarding reliance. Swenson
says none of the investors (except Susan Holman) testified that they read or relied upon
the investment materials. The investors, however, counter that “the E-470 Investors all
testified they relied on this [the representation that the property would be debt-free] and
other promises in the investment materials.” Opp., Dkt. 61, at 21. Regardless of who is
characterizing the hearing correctly,4 there is other evidence indicating that the investors
read and relied upon the private placement memorandum. The purchase agreement each
investor signed expressly states that the investor read – and was relying upon – statements
made in the private placement memorandum:
Buyer acknowledges that it has received, read and fully understands the
Memorandum and all attachments and exhibits thereto. Buyer
acknowledges that it is basing its decision to invest in the Interest on the
Memorandum and all exhibits and attachments thereto and Buyer has
relied only on the information contained in said materials and has not
relied upon any representations made by any other person. Buyer
recognizes that an investment in the Interest involves substantial risk
and Buyer is fully cognizant of and understands all of the risk factors
related to the purchase of the Interest, including, but not limited to, those
risks set forth in the section of the Memorandum entitled “Risk Factors.”

What actually happened at the hearing is a mystery because the relevant portions of the
hearing transcript are not before the Court. Swenson cites to particular pages of the hearing
transcript, but did not include those pages in the selected portions of the transcript that was
provided to the Court. See Reply, Dkt. 72, at 10 (referring the Court to the hearing transcript at
Exhibit H to the Ostrovsky Dec.); Hearing Transcript, Ex. H to Ostrovsky Dec. (select portions
of transcript do not include cited pages). Typically, the Court would request a supplement, but
in this case, the hearing testimony will not impact the Court’s ruling. As explained, there is
other evidence regarding the investor’s reliance on statements made in the investment materials.
Additionally, it is worth repeating that this Court must confirm arbitral awards even when they
are attributable to “‘erroneous findings of fact or misinterpretations of law.”’ French v. Merrill
Lynch, Pierce, Fenner & Smith, 784 F.2d 902, 906 (9th Cir. 1986) (citation omitted).
4

MEMORANDUM DECISION AND ORDER - 21

Aug. 2008 Purchase Agreement between DBSI E-470 East LLC and William M. Claytor,
Dkt. 52-4, ¶ 6.5.1, at 5; see also Ostrovsky Dec., Dkt. 52, ¶ 9 (indicating that each
claimant signed a substantially identical purchase agreement); see also generally 2
Domke on Commercial Arbitration § 29:9 (“Arbitration proceedings are not constrained
by formal rules of procedure or evidence.”).
The arbitrator attributed statements made in the private placement memorandum to
Douglas Swenson. Under these circumstances, the arbitrator did not “excuse” the
claimants from proving reliance.
Swenson also complains that the arbitrator improperly invoked the doctrine of
“partial reliance.” See Interim Award, at 19-20. Under that doctrine, “the alleged fraud
need not be the sole cause of a party’s reliance; rather reliance may be established by
circumstantial evidence showing that the alleged misrepresentation or concealment
substantially influenced that party’s choice, even though other influences may have
operated as well.” 37 Am. Jur. 2d Fraud & Deceit § 477. Swenson complains first, that
Idaho courts have not expressly adopted this doctrine, and second, that the arbitrator
misapplied the doctrine in any event, finding Swenson liable despite a complete lack of
evidence that the investors relied on statements he made. See Douglas Swenson Motion
to Vacate, Dkt. 50, at 24.
Both components of this argument lack merit. First, by invoking the doctrine of
partial reliance, the arbitrator did not manifestly disregard Idaho law. That Idaho has not
directly addressed this particular doctrine in its limited body of law on reliance does not
mean that it would reject it. More to the point, there is no extant Idaho authority rejecting

MEMORANDUM DECISION AND ORDER - 22

the doctrine of partial reliance. Nor do the Swensons cite Idaho authority that says
misrepresentations must be the sole and only cause for the investors’ reliance. The
arbitrator did not, therefore “manifestly disregard” Idaho law. See Collins, 505 F.3d at
879 (“to rise to the level of manifest disregard the governing law alleged to have been
ignored by the arbitrators must be well defined, explicit, and clearly applicable.”).
Further, Swenson mistakenly concludes that the arbitrator failed to find that the
investors relied on Swenson’s statements. The arbitrator considered statements made in
the private placement memorandum – which he attributed to Douglas Swenson – and then
noted: “While it was proven during the hearing that Claimants relied on statements from
broker dealers, DBSI wholesalers, or other brokers . . . the statements attributed to Mr.
Swenson do not have to be the sole inducements.” Interim Award, at 20 (emphasis
added). Thus, the arbitrator considered Swenson’s statements in his reliance analysis.
1. The Fifth Amendment
Douglas Swenson also argues that the arbitration award must be vacated because
the arbitrator “flagrantly” violated his Fifth Amendment rights against self-incrimination.
The Swensons invoked their Fifth Amendment rights because of a pending criminal
investigation. The arbitrator drew some adverse inferences against them.
The problem with this argument is that it wrongly assumes the arbitrator relied
solely on adverse inferences to find Swenson liable for fraud. See Douglas Swenson Mot.
Memo, Dkt. 50, at 16 (“Without these inferences, the Arbitrator could not have plausibly
found Doug Swenson liable for fraud.”). Stated differently, Swenson presumes there
were evidentiary holes and the arbitrator was forced to rely on adverse inferences to fill

MEMORANDUM DECISION AND ORDER - 23

them. But the arbitrator cited other evidence to support his findings and then, in addition,
drew adverse inferences against the Swensons.
The Court will not delve into all the evidence – nor is it required or permitted to do
so under the limited standard of review explained above. Briefly, however, the Court will
give an example that reveals the flaws in Swenson’s Fifth-Amendment argument.
One of Swenson’s primary complaints is that the arbitrator relied on a bankruptcy
examiner’s report, which was unfavorable to Swenson. Swenson argues the investors
“failed to ask Mr. Swenson any question that would allow the Arbitrator to draw an
adverse inference about the accuracy of the Report, . . . .” Douglas Swenson Mot. to
Vacate Memo., Dkt. 50, at 12. But the arbitrator could accept the accuracy of this report
regardless of whether Swenson testified about the report. Arbitrators may rely on hearsay
evidence and they obviously can reach their own conclusions as to the accuracy of
evidence before them. See generally 2 Domke on Commercial Arbitration §29:9
(“Because common-law rules of evidence do not apply to arbitration proceedings, hearsay
is admissible.”) (footnote citation omitted).
In sum, Swenson’s Fifth Amendment argument lacks merit and provides no
grounds for vacating the arbitration award.

MEMORANDUM DECISION AND ORDER - 24

2. The Arbitrator’s “Potential Prospective” Damages Award
Swenson next contends that the arbitrator manifestly disregarded Idaho law by
awarding “potential prospective” damages to the investors. To understand this argument,
it is necessary to summarize the parties’ damages positions at the arbitration as well as the
component parts of the arbitrator’s damages award.
At the arbitration, the investors argued that their entire $2.7 million investment in
the property had been destroyed because the property – which was supposed to be debtfree – was encumbered with a deed of trust and county tax lien. The Swensons argued
that the deed of trust had been partially released, which meant that even if the deed of
trust was foreclosed, the investors would retain their interest in the property – thus getting
exactly what they bargained for.
The arbitrator concluded that the investors were entitled to roughly $458,000,
which represented the amount needed to pay off the tax lien, plus land management costs
the investors had incurred. See Jan. 24, 2012 Decision on Request to Modify Final
Award, Dkt. 52-3, at 3. The arbitrator did not accept the argument that the investors had
lost their entire $2.7 million investment. He concluded that the investors would be
entitled to a damages award for this larger sum only if they actually lost their property
interests due to a foreclosure. So he fashioned a flexible award, which called for a
“potential prospective” damages award against Douglas Swenson, which would be
triggered if the investors lost their interest in the property due to a foreclosure of the deed
of trust or the county tax lien. See Final Award, at 5 (“If Claimants’ interest in the
property is foreclosed as a result of the Deed of Trust or Arapahoe County tax lien,

MEMORANDUM DECISION AND ORDER - 25

Claimants shall be entitled to prospective actual damages from Mr. Swenson in the
amount of $2,729,186.13.[5]”).
Before addressing Swenson’s arguments relating to the alleged deficiencies with
the arbitrator’s award, the Court first observes arbitrators must have a great deal of
flexibility in fashioning remedies if the national policy favoring the settlement of disputes
by arbitration is to have any real substance. See generally Moses H. Cone Mem. Hosp. v.
Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983); United Steelworkers v. Enterprise
Wheel & Car Corp., 363 U.S. 593, 597 (1960).
Despite the arbitrator’s broad authority in this regard, Swenson insists that the
arbitrator’s damages award manifestly disregards Idaho law because prospective damages
may be awarded only if they are “reasonably certain” to occur and the arbitrator did not
conclude that a foreclosure is “reasonably certain” to occur.
This argument misses the mark because it fails to acknowledge a distinction
between the arbitrator’s contingent damages award and a typical prospective damages
award. A typical prospective damages award awards a plaintiff monetary damages now,
based on future events that are reasonably certain to occur. See, e.g., Hummer v. Evans,
923 P.2d 981, 987-88 (Idaho 1996). The arbitrator did not make such an award; that is,
the investors cannot seek to collect the $2.27 million “potential prospective” damages
award now. Rather, if certain events occur (a foreclosure), then the investors would be
entitled to additional damages. So the traditional “reasonable certainty” analysis
In a later decision, the arbitrator reduced this amount to roughly $2.27 million. See
Decision on Request to Modify Final Award, Ex. C to Ostrovsky Dec., Dkt. 52-3, at 3.
5

MEMORANDUM DECISION AND ORDER - 26

Swenson relies upon does not precisely fit here.
Further, at least one other court has upheld an arbitration award that included
contingencies. In Hetherington & Berner, Inc. v. Melvin Pine & Co., 256 F.2d 103, 105,
108 (2d Cir. 1958), the Second Circuit upheld an arbitration award ordering a party to pay
commissions on future orders, if such orders were made. In that case, the court observed
that “[i]f the courts could not adopt such a common sense view of the practical and
equitable determinations of arbitrators regarding future events which are defined as well
as the circumstances permit, the value of commercial arbitration would be very limited.”
Id. at 108. And so it is here. The arbitrator offered a practical solution regarding future
events. The Court therefore declines to vacate the arbitration award based on Swenson’s
reasonable-certainty argument.
The Court also rejects Swenson’s causation arguments as they relate to a potential
foreclosure of the deed of trust or a third party’s (DBSI Real Estate Liquidating Trust)
failure to pay taxes on the property. Swenson’s causation analysis overlooks the fact that
property is encumbered with a deed of trust and a tax lien due to Swenson’s conduct. Put
differently, Swenson is the root cause of the predicament the investors find themselves in.
Thus, it cannot be said that the arbitrator manifestly disregarded “causation” principles in
determining that if the investors lose their property due to these encumbrances, Swenson
caused that loss.
That said, the Court does find ambiguity in the potential prospective damages
award in one isolated respect. Although Swenson argues that the investors could trigger
the potential prospective damages award simply by deciding not to pay their share of the

MEMORANDUM DECISION AND ORDER - 27

tax bill, the decision does not expressly say that. The relevant part of the award begins by
generally providing that the investors would suffer additional damages if they lose their
interest in the property due to a foreclosure:
If the Claimants’ interest in the property is foreclosed as a result of the
Deed of Trust or Arapahoe County tax lien, Claimants shall be entitled to
prospective actual damages from Mr. Swenson in the amount of
$2,729,186.13.
Final Award, at 5. In the very next paragraph, the arbitrator clarifies that the investors
will not suffer any potential prospective damages so long as the deed of trust is not
foreclosed and the DBSI Real Estate Liquidating Trust pays its share of the tax lien:
If Mr. Benjamin’s opinion is correct [i.e., that the investors would not lose
their interest in the real property if the deed of trust is foreclosed], and if
DBSI Real Estate Liquidating Trust pays its share (36.5%) of tax lien,
Claimants will not suffer any recoverable prospective damages and Mr.
Swenson will not be liable to Claimants for these prospective damages.
Id. By negative implication, the above passage provides that the potential, prospective
damages award is triggered in one of two events: (1) the investors lose their interest in
the property due to a foreclosure of the deed of trust; or (2) the DBSI Real Estate
Liquidating Trust fails to pay its share of the tax lien. Thus, as the Court understands this
passage, the potential prospective damages award is not triggered if the investors fail to
pay their share of the tax lien.6 Nonetheless, given that the earlier part of the award more
generally states that the investors will suffer potential prospective damages if the tax lien
is foreclosed, the award is ambiguous. “If an award is ambiguous it cannot be enforced
The arbitrator may have assumed (1) that Swenson would promptly pay the damages
award; and (2) the investors would use the damages award to pay their share of the tax lien.
These assumptions are not, however, expressly stated in the arbitration award.
6

MEMORANDUM DECISION AND ORDER - 28

and, therefore, it should be remanded to the arbitrator.” 2 Domke on Commercial
Arbitration § 33:6 (citing cases). The Court will therefore vacate this isolated portion of
the arbitration award and remand it to the arbitrator for clarification.
E.

Evident Partiality
David and Jeremy Swenson have not shown that the arbitration award should be

vacated due to the arbitrator’s “evident impartiality.” 7 An arbitrator acts with evident
partiality either by nondisclosure or actual bias. Lagstein v. Certain Underwriters at
Lloyd’s, 607 F.3d 634, 645-45 (9th Cir. 2010). In nondisclosure cases, the party seeking
vacatur need not demonstrate actual bias. Rather, evident impartiality is shown by
undisclosed facts that create a “‘reasonable impression of partiality.’” Fid. Fed. Bank,
FSB v. Durga Ma Corp., 386 F.3d 1306, 1312 (9th Cir. 2004) (citation omitted) In actual
bias cases, the party alleging evident partiality must establish “specific facts which
indicate improper motives,” and the reviewing court must find actual bias as opposed to
an impression of partiality. Woods v. Saturn Dist. Corp., 78 F.3d 424, 427 (9th Cir.
1996).
Here, there is no allegation that the arbitrator failed to disclose information, so the
actual bias standard applies. The Swensons argue that two key instances show that the
arbitrator was actually biased: First, the arbitrator sobbed when one of the investors
testified she had developed shingles because she was so worried about her investment.
Second, after one of the investors testified that he was a retired bricklayer, the arbitrator
stepped down from the bench to shake his hand.
7 Douglas Swenson does not attack the arbitration award on the grounds that the arbitrator was evidently impartial, though he uses some of the same
facts David and Jeremy use here – namely, that the arbitrator openly sobbed during one of the investors’ testimony – to argue that the arbitrator imperfectly
executed his powers. See Douglas Swenson Mot. to Vacate Memo., Dkt. 50, at 27-30.

MEMORANDUM DECISION AND ORDER - 29

Neither of these events shows improper motive, and the Swensons do not cite any
case authority where similar acts or displays of emotion supported an evident impartiality
finding. Moreover, these facts (the sobbing and the handshaking) must be viewed in
context of the entire arbitration. Arbitration proceedings are often far less formal than
court proceedings, and that was true in this arbitration. The investors indicate that the
arbitrator permitted the witnesses to move freely around the hearing room; he shook
hands with many witnesses; and he engaged in conversations with counsel and the
witnesses, including joking with one of the Swensons’ witnesses. The arbitrator also
frequently praised the Swensons’ attorneys. More substantively, the investors point out
that the arbitrator issued numerous rulings favorable to the Swensons.
As for the display of emotion, the arbitrator broke down sobbing because of a
medical issue – shingles – that had nothing to do with the dispute. He also explained that
he became emotional not because he favored the investor’s testimony, but because the
discussion of shingles reminded him of a friend and former law partner who had died.
Swenson’s counsel did not voice any objection; to the contrary they indicated only that
they understood and that there was no need to apologize for the emotional display. The
Court cannot find evident partiality on these facts.
F.

Imperfect Execution of Powers
Finally, Douglas Swenson raises a variety of different facts to illustrate how

“peculiar” the proceedings were, which is part of a larger effort to show that the arbitrator
imperfectly executed his powers. Specifically, Swenson points to the following:

MEMORANDUM DECISION AND ORDER - 30

(1)

Swenson says that the evidentiary hearing did not “conform to the typical
rules of formality” and the arbitrator often chatted with the witnesses during
breaks in the hearing and interrupted questioning for “jovial interactions”
with the witnesses.

(2)

As already noted, Swenson points out that (a) the arbitrator cried when one
of the investors testified that she developed shingles, and (b) at the
conclusion of one of the investor’s testimony, the arbitrator “literally
walked off the bench to shake his hand.”

(3)

The arbitrator pierced the corporate veil and found David and Jeremy
Swenson liable for breach of contract despite the fact that, at the conclusion
of the evidentiary hearing, he indicated that “so far” he had not seen “a
wealth of evidence” indicating that David and Jeremy Swenson “knew
anything about anything.”

(4)

After the arbitrator issued his interim award, he sought out the Swenson’s
expert at a social function and told the expert about his decision, despite the
fact that the interim award was subject to a confidentiality order the
arbitrator had entered. Later, the arbitrator informed the parties he had
spoken to the expert, but indicated only that he said “hi, nothing more.”

None of these facts show the type of arbitral misconduct necessary to vacate the
award. Swenson’s key complaint relates to the arbitrator’s ex parte contact with the
expert, and the arbitrator’s subsequent failure to accurately disclose the substance of his
discussions with the expert. Although the arbitrator should not have contacted the expert
ex parte, Swenson has failed to demonstrate any resulting prejudice. See Employers Ins.
v. Nat’l Union, 933 F.2d 1481 (9th Cir. 1991) (vacatur inappropriate where party failed to
show prejudice from ex parte contacts); cf. Totem Marine Tug & Barge, Inc. v. N. Am.
Towing, Inc., 607 F.2d 649, 653 (5th Cir.1979) (award vacated in part because the “ex
parte receipt of evidence bearing on this matter constituted ... prejudic[e] to Totem's
rights”).
Similarly, Swenson’s other complaints do not show that the arbitrator exceeded his

MEMORANDUM DECISION AND ORDER - 31

powers. At most, they show that the arbitrator was unusual and that the arbitration was
informal. They also show that the arbitrator may have reached some tentative
conclusions regarding David and Jeremy Swenson and then changed his mind. These are
not reasons for vacating an arbitration award. Further, the Court cannot conclude that the
lack of formality or the arbitrator’s emotional or “unusual” behavior was symptomatic of
some larger, substantive defect.
In sum, the Swensons may not have received the perfect, formal hearing they
expected, but they received a fair one. They had notice, an opportunity to be heard and an
opportunity to present relevant and material evidence. They were entitled to no more.
See Employers Ins., 933 F.2d at 1491.
ORDER
1. Respondents’ Motion to Confirm Arbitration Award (Dkt. 27) is GRANTED
in part and DENIED in part. All portions of the award are confirmed, with the exception
of one isolated portion of the potential prospective damages award. As discussed above,
it is unclear whether the arbitrator intended potential prospective damages to be triggered
if the tax lien is foreclosed based on the investors’ failure to pay their share of the tax
lien. This discrete portion of the award is ambiguous and is vacated and remanded to the
arbitrator for clarification. The award is confirmed in all other respects.
2. Petitioner Douglas L. Swenson’s Motion to Vacate Arbitration Award (Dkt.
50) is GRANTED in part, and DENIED, in part as explained in the preceding paragraph.

MEMORANDUM DECISION AND ORDER - 32

3. Petitioners Jeremy and David Swenson’s Motion to Vacate Arbitration Award
(Dkt. 57) is DENIED.
4. Respondents’ Motion for Leave to File Motion to Strike (Dkt. 47) is MOOT.

DATED: April 27, 2012

Honorable Edward J. Lodge
U. S. District Judge

MEMORANDUM DECISION AND ORDER - 33