A real estate investor entered into a real estate partnership agreement with an income property owner to invest money in a project. Under the agreement, the owner was to make annual payments to return the investor’s money. An arbitration provision in the agreement required disputes to be submitted to arbitration. The owner breached the agreement by failing to pay as agreed, and the investor learned of the owner’s financial hardship. The investor’s claims were submitted to arbitration. Prior to the arbitrator issuing an award, the investor sought a court-ordered attachment of the owner’s properties, claiming any money the arbitrator awarded to the investor would be uncollectable without an attachment of the owner’s current assets since the owner’s financial hardship suggested the owner was insolvent. The owner claimed the investor did not have the right to an attachment of his assets since the investor did not prove the owner was insolvent. A California court of appeals held an investor in a real estate partnership due money from a partner who owns property but appears to be insolvent is entitled to attach that property while arbitration proceedings are pending and prior to the issuance of an award since any money award the arbitrator may issue the investor would otherwise be uncollectable. [California Retail Portfolio Fund GMBH & Co. KG v. Hopkins Real Estate Group (2011) 193 CA4th 849]

Editor’s note – This case corners a weakness of the arbitration process. Due to the owner’s insolvency, the owner was judgment proof in the event of a money award. Arbitration forced the investor into litigation to have a court preserve assets to recover on getting a money award in arbitration. [For more information on the arbitration process see the March 2011 first tuesday article, Bargaining for justice: arbitration and the loss of judicial review.]