Trilogy Capital Partners, LLC v. Killian

Trilogy Capital Partners, LLC v. Killian, 2015 NCBC 103.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF MECKLENBURG 15 CVS 7763

TRILOGY CAPITAL PARTNERS, LLC; )
DAVID L. HAUSER; ROBERT S. LILIEN AS )
TRUSTEE OF THE ANDREAS BECHTLER )
CHARITABLE REMAINDER UNITRUST U/A )
DATED MARCH 9, 1998; and ROBERT S. )
LILIEN AS TRUSTEE OF THE HANS C. )
BECHTLER TRUST U/A DATED )
DECEMBER 27, 1979, )
Claimants, )
)
v. ) OPINION AND ORDER
)
RAY A. KILLIAN, JR.; ALAN C. SIMONINI; )
and KILLIAN/SIMONINI, LLC, )
Respondents. )
)
)
RAY A. KILLIAN, JR.; ALAN C. SIMONINI; )
SIMONINI BUILDERS, INC.; SIMONINI )
BUILDERS OF NORTH CAROLINA, LLC; )
SIMONINI BUILDERS OF SOUTH )
CAROLINA, INC., and KILLIAN/SIMONINI, )
LLC DERIVATIVELY ON BEHALF OF )
WESTMORELAND LAKE, LLC, )
Third-Party Claimants, )
)
v. )
)
TRILOGY CAPITAL PARTNERS, LLC; )
CLASSICA HOMES, LLC; ROBERT S. )
LILIEN; and WESTMORELAND LAKE, LLC, )
Third-Party Respondents. )

THIS CAUSE was designated a mandatory complex business case by Order of the

Chief Justice of the North Carolina Supreme Court pursuant to N.C. Gen. Stat. § 7A-45.4(b)

(hereinafter, references to the North Carolina General Statutes will be to “G.S.”), and

assigned to the undersigned Special Superior Court Judge for Complex Business Cases.
THIS MATTER comes before the Court on Claimants’ Motion to Confirm Arbitration

Award (“Motion to Confirm”) pursuant to G.S. § 1-569.22, and on Killian and Simonini’s

Motion to Vacate Arbitration Award (“Motion to Vacate”) pursuant to G.S. § 1-569.23(a)

(collectively, “Motions”). On September 9, 2015, the Court held a hearing on the Motions.

THE COURT, having considered the Motions, the briefs in support and opposition

thereof, the arguments of counsel, and other appropriate matters of record, FINDS and

CONCLUDES as stated herein:

Nexsen Pruet, LLC, by James C. Smith, Esq., and Jonathan E. Schulz, Esq., for
Claimants.

Rayburn Copper & Durham, P.A., by C. Richard Rayburn, Jr. Esq., David S. Melin,
Esq., for Movants.

McGuire, Judge.

A. FACTS AND PROCEDURAL BACKGROUND

1. Claimants are Trilogy Capital Partners, LLC, a North Carolina limited

liability company; David L. Hauser; Robert S. Lilien as trustee of the Andreas H. Bechtler

Charitable Remainder Unitrust under an agreement dated March 9, 1998; and Robert S.

Lilien as trustee of the Hans C. Bechtler Trust under an agreement dated December 27, 1979

(herein, the Court will refer to the Claimants collectively as “Trilogy”).

2. Respondents1 are Ray A. Killian (“Killian”), Alan C. Simonini (“Simonini”) and

Killian/Simonini, LLC (“K/S, LLC”), a North Carolina limited liability company. Killian and

Simonini (collectively, “Movants”) were the principals of K/S, LLC. K/S, LLC apparently was

a real estate development construction company.

1 K/S, LLC is not a party to the Motion to Vacate before this Court, which was filed only by Killian

and Simonini individually. K/S, LLC is a “Respondent” in the underlying AAA arbitration, and is
named as a Respondent in the caption of this civil action.
3. Between 2005 and May 16, 2008, Trilogy and K/S, LLC entered into

relationships with four residential real estate projects located in or near Charlotte, North

Carolina (collectively, the “Projects”). Each of the Projects was owned by a separate limited

liability company – Bellmore Hall, LLC (“Bellmore”), the Pavilion of Huntersville, LLC

(“Pavilion”), Westmoreland Lake, LLC (“Westmoreland”), and Christenbury Land

Investments, LLC (“Christenbury”)2 (collectively, “the LLCs”). Each of the LLCs was

governed by a written operating agreement (collectively referred to herein as the “Operating

Agreements”).3 Trilogy and K/S, LLC were the members of Bellmore, Pavillion, and

Westmoreland. Killian and Simonini were the Managers of the LLCs. Killian and Simonini

each signed the Operating Agreements solely for purposes of certain obligations each

assumed under the agreements, but they were not individually members of the LLCs.

4. The basic business deal between the parties regarding these four Projects was

as follows: (1) Trilogy contributed 100% of the initial capital required by the LLCs, (2) K/S,

LLC obtained land development loans from various banks to be used to acquire and develop

the properties, (3) If the LLCs needed additional capital in order to continue their activities,

pay their debts and obligations, or complete their projects, then K/S, LLC agreed to contribute

100% of any such additional capital, and Killian and Simonini personally, and jointly and

severally, guaranteed the obligations of K/S, LLC to make the additional capital

2 The Christenbury project was slightly different. In Christenbury, there were two developers, K/S
and Provident Development Group, Inc. (“PDG”). Under the Christenbury Operating Agreement, K/S
agreed to contribute 50% of the additional capital needed, and PDG agreed to contribute the other
50%. Killian and Simonini personally guaranteed K/S’s 50% obligation, and Thomas D. Waters
personally guaranteed PDG’s 50% obligation.
3 The parties have indicated that the Operating Agreements for at least three of the LLCs (Bellmore,

Pavillion and Westmoreland) were identical. Accordingly, the Court has relied upon the “Operating
Agreement of Bellmore Hall, LLC” that the parties placed in the record for citation and quotation
references.
contributions. Specifically, the Operating Agreements provided as follows regarding

additional capital contributions for the LLCs:

5.1. Capital Contributions of Members.

(b) Additional Capital Contributions.

(i) If there should occur any cost overrun, revenue shortfall or other
adverse economic factor affecting the Company, the Company shall attempt to
satisfy such shortfall using proceeds from the Land Development Loans. To
the extent such cost overrun, revenue shortfall or other economic factor
affecting the Company cannot be satisfied using such loan proceeds or to the
extent it is not a budgeted expense under the Project Pro-Forma (taking into
account any and all contingency line items) (individually, “Financial Shortfall”
and collectively, “Financial Shortfalls”), then if any Capital Contributions in
addition to those indicated in Section 5.1(a) are required for the Company to
continue its activities, pay its debts and obligations as they become due, or
complete the Project (such completion, as determined in good faith by all of the
Members), Trilogy shall have the right but not the obligation to contribute to
the Company the capital so required (each, an “Elective Capital Contribution”).

(ii) In the event Trilogy does not make an Elective Capital Contribution
within fifteen (15) days following the date the Managers provide written notice
to the Members of the amount of additional capital needed under this Section
5.1(b), then K/S agrees to contribute to the Company one hundred percent
(100%) of the capital needed (each, a “Required Capital Contribution”). Any
such Required Capital Contributions shall be made within thirty (30) days
after the date on which the Managers provide written notice to the Members
of the amount of additional capital needed under this Section (“Due Date”).
Killian and Simonini hereby unconditionally, jointly and severally, guarantee
the obligation of K/S to make Required Capital Contributions.

(iii) Killian and Simonini, jointly and severally agree to cause K/S to make
such Required Capital Contributions, and such obligation shall include, but
not be limited to, making cash capital contributions to K/S to enable K/S to
make the Required Capital Contributions. This obligation is intended to be
the personal, individual, and unconditional guarantees of Killian and
Simonini, jointly and severally of the Required Capital Contribution
obligations of K/S. This personal obligation by Killian and Simonini, jointly
and severally, is for the benefit of Trilogy and may be enforced by Trilogy,
without prejudice to any other course of action elected by Trilogy (including
the furnishing of such needed additional capital on an interim basis by Special
Capital Contribution or otherwise). The personal promises and guarantees in
this paragraph are not for the benefit of any other third party and are not
enforceable by any such party (other than Trilogy).
5. The Operating Agreements also provided in Section 7.2(b) that after all debts

and expenses of the LLCs were paid, any remaining cash was to be distributed in the

following order: first, a “preferred return” on the Trilogy’s initial capital contributions;

second, a return of the Trilogy’s unreimbursed capital contributions; third, a return of any

capital contributed by K/S, LLC and Killian and Simonini; and fourth, any remaining cash

distributed to the members in accordance with their respective profit sharing percentage

interests.

6. Each of the four Operating Agreements also contained identical arbitration

agreements, which provided in Section 12.12 that:

Any dispute or controversy arising out of or relating to this Agreement shall
be determined and settled by arbitration in the City of Charlotte, North
Carolina, in accordance with then prevailing Commercial Arbitration Rules of
the American Arbitration Association. The award rendered by the
arbitrator(s) shall be final and conclusive. The expenses of the arbitration
shall be borne equally by the parties to the arbitration, provided that each
party shall pay for and bear the cost of its own experts and legal counsel.

7. In 2008, the U.S economy entered the Great Recession, during which credit

markets drastically contracted, and the market for residential real estate was impacted

significantly. The rate of builder lot take-downs for each of the Projects was severely affected.

The decrease in builder activity reduced the expected profits for the Projects. As a result of

the Recession, the value of the lots in Bellmore and Pavilion declined below the amount

necessary to pay the respective acquisition and development loans for those two Projects, and

the loans went into default.

8. When the acquisition and development loans for each of the four Projects went

into default, K/S, LLC’s contractual obligations to contribute additional capital and Killian

and Simonini’ s guarantee were triggered.4 It is undisputed that neither K/S, LLC nor Killian

4 Mem. Supp. Mot. Confirm 5.
and Simonini made the capital contribution,5 and the Bellmore and Pavilion projects

completely collapsed. To pay off the Bellmore and Pavilion loans would have required

Respondents to make “additional capital contributions in the amount[s] of $5,538,835 and

$2,200,000, respectively.”6

9. Subsequently, the LLCs reached settlements with the banks and dissolved the

Bellmore and Pavilion projects. The Westmoreland and Christenbury projects were

completed through the creation of a new construction company to buy lots and repay the

banks on a substantially elongated repayment schedule. Nevertheless, Trilogy contends that

it received a “significantly reduced [ ] amount of money” on the Westmoreland and

Christenbury projects than it would have received had Respondents made the capital

contributions.7

10. On December 26, 2013, Trilogy filed their Statement of Claims with the

American Arbitration Association (“AAA”) in Charlotte, North Carolina. On July 11, 2014,

Trilogy filed an Amended Statement of Claims with the AAA. Subsequently, an arbitration

hearing was held before the parties’ designated Arbitrator, Jeffrey J. Davis, from January 12

to January 16, 2015. The parties agreed that the Arbitrator would provide an unreasoned

award. At the hearing, Trilogy presented evidence regarding its projected losses from the

failures of the four Projects, including lost preferred returns provided for in the Operating

Agreements and the loss of the return of Trilogy’s original capital contribution. Trilogy also

presented evidence that the amount of the capital contribution that it contends K/S, LLC and

Killian and Simonini as personal guarantors were required to make to the LLCs was

$7,738,000.00.

5 Killian and Simonini claim that they nevertheless “contributed approximately $442,000 to satisfy

liabilities of Bellmore and $667,000 to satisfy liabilities of Pavilion.” (Br. Supp. Mot. Vacate 4).
6 Reply Br. Supp. Mot. Vacate 2.
7 Mem. Supp. Mot. Confirm 6.
11. On January 26, 2015, the Arbitrator issued his Award of Arbitrator. Because

the Award of Arbitrator incorrectly indicated that the parties had waived oral hearings, the

Arbitrator issued a Corrected Award of Arbitrator on January 28, 2015 (hereinafter, the

“Award”). The Award read in full as follows:

I, THE UNDERSIGNED ARBITRATOR, having been designated in
accordance with the arbitration agreement entered into by the above-named
parties, and having been duly sworn, hereby correct the Award in this matter
pursuant to Rule 50 of the Commercial Rules of the American Arbitration
Association, to reflect that hearings were not waived, but rather were held on
January 12, 13, 14, 15, and 16, 2015, and submissions were made thereafter
through January 20, 2015. Having heard the evidence and arguments, and
having fully reviewed and considered the written documents submitted to me,
do hereby, AWARD, as follows:

Claimant Trilogy Partners, LLC shall recover of Respondents Ray A.
Killian, Jr., Alan C. Simonini, and Killian/Simonini, LLC, jointly and severally,
the sum of Four Million, One Hundred Eighty One Thousand, Seven Hundred
Forty Dollars, ($4,181,740.00).

All other claims and counterclaims, including Claimants’ request for
attorney fees, are denied.

The administrative fees of the American Arbitration Association
totaling $18,800.00 are to be borne as incurred, and the compensation of the
arbitrator totaling $21,907.50 is to borne as incurred.

This award is in full settlement of all claims submitted to this
Arbitration. All claims not expressly granted herein are hereby denied.

12. On April 23, 2015, Killian and Simonini filed the Motion to Vacate. K/S, LLC

is not a party to the Motion to Vacate and does not challenge the Award. Trilogy has filed a

response in opposition to the Motion to Vacate.

13. On June 9, 2015, Trilogy filed its Motion to Confirm. Killian and Simonini

have filed a response in opposition to the Motion to Confirm.

14. The Motions have been fully briefed and argued and are ripe for determination.

B. DISCUSSION AND ANALYSIS.
The Applicable Law.

15. This proceeding is governed by the North Carolina Revised Uniform

Arbitration Act, G.S. § 1-569.1 et seq. The confirmation of an arbitration award is subject to

G.S. § 1-569.22, which states:

After a party to an arbitration receives notice of an award, the party may make
a motion to the court for an order confirming the award. Upon motion of a party
for an order confirming the award, the court shall issue a confirming order
unless the award is modified or corrected pursuant to G.S. 1-569.20 or G.S. 1-
569.24 or is vacated pursuant to G.S. 1-569.23.

16. G.S. § 1-569.23(a)(4) provides that a court may vacate an arbitrator’s award

when, inter alia, “[a]n arbitrator exceeded the arbitrator’s powers.”

17. “Judicial review of an arbitration award is severely limited in order to

encourage the use of arbitration and in turn avoid expensive and lengthy litigation.” First

Union Sec., Inc. v. Lorelli, 168 N.C. App. 398, 400 (2005). The “foundation of the arbitration

process is that by mutual consent the parties have entered into an abbreviated adjudicative

process.” Turner v. Nicholson Props., Inc., 80 N.C. App. 208, 211 (1986) (internal quotation

marks omitted). Accordingly, “an arbitration award is ordinarily presumed to be valid,”

Faison & Gillespie v. Lorant, 187 N.C. App. 567, 572 (2007), and the general rule is that

“errors of law or fact, or an erroneous decision of matters submitted to arbitration, are

insufficient to invalidate an award fairly and honestly made.” Turner, 80 N.C. App. at 21.

18. “If the dispute is within the scope of the arbitration agreement, then the court

must confirm the award unless one of the statutory grounds for vacating or modifying the

award exists.” Carteret Cnty. v. United Contractors of Kinston, Inc., 120 N.C. App. 336, 346

(1995). However, “[b]efore the award can be vacated on the grounds that the arbitrator[]

exceeded [his] authority, the record must objectively disclose that the arbitrator[] did exceed

[his] authority in some respect.” G.I. Wilson Bldg. Co. v. Thorneburg Hosiery Co., 85 N.C.

App. 684, 689 (1987).
19. With regard to the scope of the arbitrator’s authority, all “claims submitted to

the arbitrator may be decided by him.” Faison & Gillespie, 187 N.C. App. at 573. In

“determin[ing] whether the parties agreed to submit a particular dispute or claim to

arbitration, [courts] must look at the language in the agreement, viz., the arbitration clause,

and ascertain whether the claims fall within its scope.” Rodgers Builders, Inc. v. McQueen,

76 N.C. App. 16, 23-24 (1985). “In so doing, any doubts concerning the scope of arbitrable

issues should be resolved in favor of arbitration” because “public policy in this State, like

federal policy, favors arbitration.” Id. at 24.

Killian’s and Simonini’s Contentions.

20. Movants Killian and Simonini move to vacate the Award pursuant to G.S. § 1-

569.23(a)(4) on the grounds that the Arbitrator exceeded his authority. Movants contend

that, under the Operating Agreements and the applicable law, the Arbitrator had the

authority to award only the amounts that Respondents failed to contribute as additional

capital contributions to the LLCs. Movants contend that the Arbitrator awarded Trilogy

consequential or expectation damages. Movants argue that while the Award does not

expressly so state it is related to expectation damages, the amount of $4,181,740 awarded by

the Arbitrator must have been for Trilogy’s expectation damages since it is exactly the sum

of the amounts Trilogy sought for lost distributions and return of its capital contributions on

the Bellmore and Pavilion projects.8 Movants do not contend in this action that the

Arbitrator’s award was not reached fairly and honestly or that the Arbitrator did not have

8 In its Analysis of Damages presented at the arbitration hearing, Trilogy claimed to have “net

damages” from the Bellmore project of $2,695,740 and $1,486,600 from the Pavilion project.
the authority to decide the claim itself, but only that he lacked the authority to award the

type of damages awarded.9

21. Movants argue that the Arbitrator exceeded his authority because the

arbitration clauses in the Operating Agreements do not expressly provide authority for an

arbitrator to award “lost capital, lost profits, or consequential damages.”10 Movants further

contend that Section 5.1 (b) obligates Movants to make only the additional capital

contribution, and does not suggest that they are responsible for any other payments to, or

damages suffered by, the LLCs or any other members. Movants argue that other provisions

in the Operating Agreements, including Sections 5.4, 7.1, 8.4, and 12.2, “negate any inference

that [Trilogy’s] Initial Capital Contribution and Preferred Return may be a recoverable

damage.”11

22. In support of this argument, Movants rely heavily on FCR Greensboro, Inc. v.

C&M Investments of High Point, Inc., 119 N.C. App. 575 (1995). In FCR Greensboro, the

plaintiff entered into a lease agreement with the defendant under which the defendant was

to build and lease a facility to the plaintiff. The agreement, as amended, expressly provided

that the facility would be completed and ready for occupancy by June 15, 1993, and that the

defendant would be liable to the plaintiff for “$750 per day as liquidated damages for ‘any

delay past the completion date.’” Id. at 575-76. It was undisputed that the defendant delayed

commencing the construction work, and the project was not completed on time. The

defendant refused to pay the liquidated damages, and the plaintiff commenced an arbitration.

The arbitrator awarded the $750 per day liquidated damages to the plaintiff not only for the

9 Movants assert that “the issues that were properly within the Arbitrator’s powers to determine

were: (a) was there an obligation on the part of [Respondents] to make a capital contribution to the
Projects LLCs; (b) was there a breach of that obligation; and (c) how much K/S LLC should have
contributed to the Project LLC’s as an Additional Capital Contribution.” Br. Supp. Mot. Vacate 1.
10 Id.
11 Id. at 8.
time period after the completion deadline, but also for the time period that the defendant

delayed in starting construction. Id. at 576. The trial court confirmed the arbitration award.

The North Carolina Court of Appeals reversed the trial court, concluding that the parties’

agreement expressly provided only for liquidated damages for delay in the completion date

and that the plaintiff never requested liquidated damages for the delay in beginning

construction. Accordingly, the Court of Appeals held that the arbitrator “exceeded his

authority by awarding upon a matter not submitted to him.” Id. at 578.

23. In addition, Movants argue that the North Carolina Limited Liability Act12

statutorily limits the remedy for failure to make a capital contribution to payment of that

contribution. G.S. § 57C-3-30(c) provides that “[t]he liability of members, managers,

directors, and executives of a limited liability company formed and existing under this

Chapter shall at all times be determined solely and exclusively by this Chapter and the laws

of this State.” Further, G.S. § 57C-4-02(b) states that “[i]f a member does not make the

required contribution of property or services, the member . . . is obligated, at the option of the

limited liability company, to contribute cash equal to that portion of the value of the stated

contribution that has not been made.” Movants contend that these statutes prohibit the

Arbitrator from awarding consequential or expectation damages, and therefore the Award

was outside of his authority.

24. Movants also contend that Trilogy lacks standing to pursue the claims because

any obligation Killian and Simonini owed was to the LLCs and not Trilogy, and that

consequential damages were not recoverable against Killian and Simonini because they were

12 The Court concludes that this proceeding was commenced by the filing of the arbitration in

December of 2013. Accordingly, the Court applies the former G.S. § 57C to this case, which is G.S. §
57D-11-03(b).
guarantors only of K/S, LLC’s capital contributions so that any award against them would be

limited to the amounts of such contributions.

Trilogy’s Contentions.

25. Trilogy opposes the Motion to Vacate and has moved the Court for an Order

confirming the Arbitrator’s Award. Trilogy argues that the record does not objectively

disclose that the Arbitrator exceeded his authority. The Award is unreasoned, and the

Arbitrator did not explain the nature or calculation of the award of $4,181,740. Trilogy

contends that “this Court could not possibly conclude that the arbitrator exceeded his

authority by awarding consequential damages because there is no way of knowing whether

the arbitrator awarded consequential damages at all.”13 Similarly, Movant’s contention that

the Award consists of damages related only to the Bellmore and Pavilion projects cannot be

objectively determined from the record since Trilogy sought damages related to all four

Projects.

26. Trilogy contends that the Operating Agreements contain broad arbitration

provisions covering “any dispute or controversy” that place no limitations on the Arbitrator’s

authority to make an award. Similarly, the AAA Commercial Arbitration Rules and

Mediation Procedures do not limit the Arbitrator’s authority, as Rule R-47(a), entitled “Scope

of Award” provides that “[t]he arbitrator may grant any remedy or relief that the arbitrator

deems just and equitable and within the scope of the agreement of the parties, including but

not limited to, specific performance of a contract.”

27. Trilogy also asserts that even if the Arbitrator awarded Trilogy consequential

or expectation damages, those damages are “permissible and routine” damages awarded for

breach of contract.14 Section 7.2(b) of the Operating Agreements expressly provides that

13
Mem. Supp. Mot. Confirm 10.
14 Id. at 11.
Trilogy would receive preferred distributions and a return of its capital contributions in the

event that the Projects were successful. Movants breached Section 5.1(b) by failing to make

the capital contributions. This led to the collapse of the Bellmore and Pavilion projects and

frustrated Trilogy’s expectation that it would receive distributions from the LLCs pursuant

to Section 7.2(b). Had K/S, LLC made the contributions, or had Killian and Simonini

complied with their personal guarantees, “the lots in all four projects could have been sold at

reasonable times and at reasonable prices sufficient for Trilogy to receive distributions

pursuant to Section 7.2 of the Operating Agreements.”15

28. Trilogy argues that FCR Greensboro, supra, does not support the Movants’

position. To the contrary, that decision highlights the type of limitation on an arbitrator’s

authority that is missing here. In FCR Greensboro, the agreement at issue expressly

provided for liquidated damages only for the period of delay after the agreed completion date,

and the plaintiff did not request liquidated damages for the delay in starting construction.

There, the arbitrator exceeded his express authority regarding liquidated damages as

provided by the agreement, and decided issues that were not submitted to him. Here, in

contrast, the Operating Agreements do not limit the damages that the Arbitrator can award,

and Trilogy expressly sought consequential and expectation damages in the arbitration.

29. Further, Trilogy argues that G.S. § 57C-4-02(b) does not limit the Arbitrator’s

authority to award consequential and expectation damages. Rather, that statute provides

that “[e]xcept as provided in an operating agreement,” a member’s liability for failure to make

a required capital contribution might be limited to the amount of the unpaid capital

contribution. The Operating Agreements in this case provided that Trilogy would receive

preferred distributions and return of its capital contributions, and the Arbitrator properly

15 Id. at 12.
awarded Trilogy damages based on its expectations of receiving the distributions and return

of capital.

Review of Arbitrator’s Award.

30. The Court’s ability to review the Award in this case is severely curtailed by the

parties’ agreement to accept an unreasoned award from the Arbitrator.16 Consequently, the

Court has no means of objectively determining how the Arbitrator arrived at the amount of

the award. In the arbitration, Trilogy presented evidence of preferred distributions and

return of capital contributions it claims it would have received had the Movants made the

required additional contribution and had the Projects been successfully completed as

planned. Trilogy sought total damages of approximately $12,000,000. The additional capital

contribution that K/S, LLC was required to make, and which Killian and Simonini

guaranteed, was $7,738,835. Ultimately, the Arbitrator awarded Trilogy $4,181,740.

31. While it is true that the figure awarded by the Arbitrator is the sum of the

expectation damages sought by Trilogy for the failure of the Bellmore and Pavilion projects,

that figure also was well within the amount of the additional capital contribution that

Movants concede the Arbitrator had authority to award. The Arbitrator’s authority certainly

included the ability to determine, for any number of reasons including equitable

considerations, that an award of the full amount of the additional capital contribution was

not warranted, but that an award of a lesser amount was proper. In Carteret County, the

Court of Appeals reviewed an arbitrator’s unreasoned award of $700,000 and addressed the

plaintiff’s argument that the amount awarded included consequential and damages that the

arbitrator did not have authority to grant. 120 N.C. App. at 347. The Court held:

[P]laintiff argues the arbitration award impermissibly included consequential
and punitive damages, which it contends are not recoverable. However, we

16 Mem. Supp. Mot. Confirm 10; Rule 46(b) of the AAA Commercial Arbitration Rules and Mediation

Procedures provides the parties with the right to request that the Arbitrator issue a reasoned award.
need not determine whether such damages would be recoverable in this case.
Because the arbitrators did not clarify their award, plaintiff's contention that
the award contains impermissible consequential and punitive damages is
speculation. Even if the award did contain such damages, it would not provide
grounds for vacating the award. "The fact that the relief was such that it could
not or would not be granted by a court of law or equity is not ground for
vacating or refusing to confirm the award."

Id. (citation omitted). The same circumstances exist in this case. Absent an explanation by

the Arbitrator, the conclusion that the Award was for expectation damages, and not for the

additional capital contribution, would be no more than “speculation.” Id.

32. Even if the Arbitrator awarded Trilogy contract expectation damages, the

Court is not convinced that it was beyond his authority to grant such damages. First, the

arbitration clauses in the Operating Agreements gave the Arbitrator’s authority over “[a]ny

dispute or controversy arising out of or relating to” the Operating Agreements. Our appellate

courts have held very similar arbitration clauses “to be sufficiently broad to include all claims

arising out of or related to the contract or its breach.” Id. The other provisions of the

Operating Agreements relied upon by Movants do not expressly limit the Arbitrator to

awarding only certain types of damages. Accordingly, the Arbitrator did not exceed the

authority granted under the express terms of the Operating Agreements.

33. While Movants contend that the North Carolina Limited Liability Company

Act limits a member’s liability to payment of agreed upon capital contributions and prohibits

recovery of consequential or expectation damages, it does not prohibit the Arbitrator from

awarding such damages in this proceeding. In fact, G.S. § 1-569.21(c) provides, in pertinent

part, as follows:

[A]n arbitrator may order any remedies the arbitrator considers just and
appropriate under the circumstances of the arbitration proceeding. The fact
that a remedy could not or would not be granted by the court is not a ground
for refusing to confirm an award under G.S. 1-569.22 or for vacating an award
under G.S. 1-569.23” (emphasis added).
Arbitrators “are not bound to decide according to law when acting within the scope of

their authority, being the chosen judges of the parties and a law unto themselves, but may

award according to their notion of justice and without assigning any reason.” Bryson v.

Higdon, 222 N.C. 17, 19-20 (1942); Carteret Cnty., 120 N.C. App. at 347 (citing Bryson,

supra). Having agreed to resolve all disputes under the Operating Agreements by

arbitration, Killian and Simonini vested the Arbitrator with broad equitable authority to

fashion appropriate remedies even if a particular remedy might not be available in a court of

law. Faison & Gillespie, 187 N.C. App. at 578 (“By submitting to arbitration, it is implied

that the arbitrator has the power to order an appropriate remedy, even though the contract

may be silent as to any specific or general relief the arbitrator may grant.”) (citation omitted).

34. In addition, even if the Arbitrator awarded damages outside of those available

under the statute, such an award amounts to no more than an error or law insufficient to

vacate the Award. Id. (“If an arbitrator makes a mistake, either as to law or fact, it is the

misfortune of the party, and there is no help for it. There is no right of appeal, and the Court

has no power to revise the decisions of ‘judges who are of the parties' own choosing.’") (quoting

Patton v. Garrett, 116 N.C. 497, 504 (1895)).

35. Similarly, Movants’ arguments that Trilogy lacked standing to pursue the

claims because any obligation Killian and Simonini owed was to the LLCs themselves and

not to Trilogy,17 and that consequential damages were not recoverable against Killian and

Simonini because they were merely guarantors only of K/S, LLC’s capital contributions,

17 The Court notes that this argument appears to lack merit since Section 5.1(b)(iii) of the Operating

Agreements provides, in pertinent part, “This personal obligation by Killian and Simonini, jointly
and severally, is for the benefit of Trilogy and may be enforced by Trilogy . . . The personal promises
and guarantees in this paragraph are not for the benefit of any other third party and are not
enforceable by any such party (other than Trilogy).” Accordingly, the Killian’s and Simonini’s
guarantees were made to Trilogy, not to the LLCs.
assert errors of law. Even assuming the Arbitrator erred on those issues, it does not provide

this Court with grounds for vacating the Award.

36. The Court concludes that Movants have failed to establish, and the record

before this Court does not objectively disclose, that the Arbitrator exceeded his authority in

making the Award. Accordingly, Killian’s and Simonini’s Motion to Vacate should be

DENIED, and Trilogy’s Motion to Confirm should be GRANTED.

THEREFORE, IT IS ORDERED, based upon the foregoing FINDINGS and

CONCLUSIONS that:

37. Killian’s and Simonini’s Motion to Vacate Arbitration Award is DENIED.

38. Trilogy’s Motion to Confirm Arbitration Award is GRANTED.

SO ORDERED, this the 13th day of November, 2015.

/s/ Gregory P. McGuire
Gregory P. McGuire
Special Superior Court Judge
for Complex Business Cases