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Lawyers, other representatives, expert(s), tribunal’s secretary

Final Award

INTRODUCTION

I PRELIMINARY MATTERS

[1].
A. Parties and Counsel: The parties to this arbitration are identified in the caption and on the attached Service List.
[2].
B. Arbitrators: (The arbitrators, or a majority of them, are referred to herein as "The Arbitrators" or "the Panel"):
[3].
Hon. Dickran Tevrizian (Ret.)
JAMS
555 W. Fifth Street,
32nd floor,
Los Angeles, CA 90013
213-253-9732 (telephone)
dtevrizian@jamsadr.com

Hon. Patricia Collins (Ret.)
ADR Services, Inc.
915 Wilshire Blvd.
Suite 1900
Los Angeles, CA 90017
213-683-1600
judgecollins@adrservices.org

Hon. Eric E. Younger (Ret.)
ADR Services, Inc.
915 Wilshire Blvd.
Suite 1900
Los Angeles, CA 90017
213-683-1600
eric@theyoungers.net

[4].
C. Agreement to Arbitrate: The arbitration clause in case no. 50-20-1300-1142, between Toyota Tsusho America, Inc. and Scott Vollero is contained in the Shareholders' Agreement dated May 16, 2011. The arbitration was ordered on November 7, 2013, pursuant to the Federal Arbitration Act ("FAA"), by the United States District Court for the Central District of California Case No. SACV 13-1077AG ("Order"). The Order referred the former case to Arbitration.

A related matter, ICDR Case No. 72-20-1300-1067, between ELV Components Recycling and Scott Vollero, et al., is subject to an arbitration clause contained in the Assets Purchase Agreement dated May 16, 2011 between those parties. While the instant case and that case, in which Hon. Eric E. Younger is the sole Arbitrator, have been consolidated for certain purposes, including discovery and some briefing and testimony, the latter case (No. 72-20-1300-1067) will be resolved after the completion of this matter.

[5].
D. Pleadings and Arbitrability: The claims in case no. 50-20-1300-1142 were originally stated in the Demand for Arbitration dated November 26, 2013 filed by Claimant, Toyota Tsusho America, Inc., but those claims were limited (see below) in its February 23, 2015 Pre-Trial Memorandum of Law. The Answer and Counterclaims of Respondent and Cross-Claimant, Scott Vollero, the Answer of Cross-Respondent ELV Components Recycling, Inc.; and the Answer of Cross-Respondent, Toyota Tsusho America, Inc. round out the pleadings. All the existing claims are arbitrable.
[6].
E. Applicable Law and Rules: As to claims 1 and 2, federal substantive law applies. As to the remaining (fraud) claim, the substantive law of California applies. The applicable Commercial Arbitration Rules of the American Arbitration Association also apply to the entire case.
[7].
F. Place of Arbitration: Los Angeles, California.
[8].
G. Dates of Arbitration Hearing: March 2 through 12, 2015
[9].
H. Reported by: Michelle Milan Fulmer, CSR 6942, RPR, CRR and Janet M. Taylor, CSR 9463, RMR CRR
[10].
I. Bifurcation: The parties agreed to bifurcate the issues of any award of attorneys’ fees and costs to the prevailing party pursuant to the Shareholders’ Agreement section 9.08 (Arbitration) and Section 9.09 (Legal Fees).
[11].
J. Punitive Damages Prohibited: Pursuant to Section 9.08, an award of punitive damages is not permissible in this Arbitration Proceeding.
[12].
K. Neutral Arbitrators: All Arbitrators served as neutrals.

II OVERVIEW of the FACTS of the CASE

A. Catalytic Converters, PGMs and the Early TAI-Vollero Relationship

[13].
A catalytic converter is an emission control device on an automobile that uses certain Platinum Group Metals ("PGMs"—mainly platinum, palladium, and rhodium) as catalysts to induce chemical reactions that reduce the amount of pollutants in exhaust. Catalytic converters contain varying amounts of PGM catalyst applied to a ceramic substrate structure core (known as a "biscuit") enclosed in a steel case that is connected to the automobile’s exhaust system. Because PGMs function as catalysts, these precious metals are not consumed in the chemical reactions that take place in the converter and PGMs retain their value and can be recovered and reused again and again. A collector of scrap converters can re-sell them whole or it can "de-can" them (cut open their shells) and sell the catalysts to a precious metal refinery.
[14].
Respondent, Scott Vollero ("Vollero"), had worked in the scrap converter recycling business through his company Autocats, Inc. ("Autocats")1 for a number of years and had established a business relationship with Claimant, Toyota Tsusho America, Inc. ("TAI"). Vollero/Autocats would acquire used catalytic converters from many sources and de-can them, selling the PGM catalyst to TAI, among other purchasers.
[15].
From 2000 to 2011, TAI purchased the PGM coated cores ("biscuits") contained in catalytic converters from Autocats, becoming Autocats’ primary customer during these years. During this same period, Mr. Vollero’s specialized knowledge and experience in this aspect of the automobile recycling business became well-known to TAI. TAI came to view Vollero as the "best in breed" in this business.
[16].
The acquisition of used catalytic converters by recycling is capital intensive. Large amounts of money must be advanced to a network of independent buyers to acquire the used catalytic converters from auto wrecking yards, muffler shops, automobile repair facilities and the like. The independent buyers are often not particularly responsible or substantial business people, and they sometimes default on obligations, go bankrupt or disappear altogether; this issue dictates some unusual controls on cash, but those controls do not always prevent losses. TAI provided most of Autocats’ working capital during the same 2000-11 time period through a line of credit that financed Autocats’ purchase of used or scrap converters from a network of smaller collectors with which Vollero/Autocats had established relationships. In this scenario, TAI advanced money but had little control of what happened to it and little certainty over whether it would ever get it back, and this may have been an additional incentive for the joint venture transaction which would follow.
[17].
After Autocats acquired the scrap or used catalytic converters, they would de-can them and remove the biscuits, selling them to TAI, which then extracted and resold the precious metals. The value of the extracted PGM content received by TAI was then credited to the Autocats’ line of credit extended to it by TAI. This in turn enabled Autocats to draw additional funds to purchase more scrap converters and the recycling process—of both PGMs and TAI’s money—continued.
[18].
In addition to the TAI/Autocats/ Vollero business model described, Autocats also sold a smaller percentage of usually lower value whole uncut scrap catalytic converters, to customers other than TAI.
[19].
It was Vollero's specialized knowledge and experience in valuing and pricing the catalytic converters for purchase and sale in the recycling business that allowed Autocats to establish itself in this industry (as well as its outstanding four million dollar line of credit to Autocats) which drew the interest and attention of TAI.

B. Joining Forces

[20].
Beginning in 2008, TAI and Vollero began discussing a possible joint venture by which they would combine TAI's resources with Vollero's experience and knowledge of the scrap catalytic converter industry to form a new converter collection entity. Due to the state of the economy and the fluctuations in prices of precious metals, negotiations proceeded intermittently for a few years before an arrangement was consummated in the spring of 2011. Pursuant to an Assets Purchase Agreement dated as of May 16, 2011, TAI acquired, through a new subsidiary corporation, ELV Components Recycling Inc. ("ELV"), certain assets of Autocats. ELV was a corporation formed and funded in December 2010 by TAI for the purpose of collecting and selling scrap catalytic converter and/or extracting their precious metals content. Autocats and Vollero were then paid a total of $4.4 million for certain assets of Autocats to be integrated into ELV. TAI loaned ELV the funds for the transaction.
[21].
Of the $4.4 million purchase price, less than $400,000 was specifically allocated to the purchase of Autocats’ hard assets. The balance of the purchase price paid by ELV was allocated to Autocats’ goodwill. Vollero himself received an initial payment of $2.7 million with the balance to be held in escrow to be distributed at specific times (anniversary dates) as set forth in the Assets Purchase Agreement.
[22].
As part of the transaction, TAI agreed to make Vollero an executive vice president of ELV and allowed Vollero to purchase a 20% ownership interest in ELV for $400,000, using proceeds from the $4.4 million purchase price. When the Assets Purchase transaction was consummated, TAI owned 80% of ELV and Vollero owned the remaining 20%. ELV was capitalized at $2 million (TAI $1,600,000 and Vollero $400,000). Vollero also entered into a separate Employment Agreement with ELV, pursuant to which he agreed to work for ELV for five years. ELV also hired several other former Autocats’ employees, including its plant manager, Dennis McElroy.

C. Major Changes in Business Operations and Unprofitability

[23].
ELV was unprofitable from the very start as the new venture struggled. One major problem that developed was the inability to develop banking2 relationships which manage and track cash advances made to a network of catalytic converter collectors to purchase the needed scrap product. This in turn caused ELV to fail to generate sufficient cash flow, requiring TAI to loan more cash to ELV to keep it afloat.
[24].
In addition, ELV made significant changes from the way Autocats had operated in the past:
[25].
First, an almost-entirely new workforce was required to be put into place because many of the Autocats’ production or floor employees could not be hired on because of immigration issues. Second, due to equipment safety issues, ELV had to make changes to the machinery used to cut open the scrap converters to extract their contents.
[26].
Third, the modifications of the de-canners or cutters resulted in a significant decrease in the precious metals’ dust (a valuable commodity) that was recaptured.
[27].
Fourth, space and environmental concerns caused ELV to relocate its facilities.
[28].
Fifth, ELV decided to discontinue doing business with an entity known as A-l, which purchased whole uncanned catalytic converters of low grade. These low grade converters had proved to be a profitable line of business in the past for Autocats.
[29].
Sixth, ELV’s new management made the decision to discontinue the acquisition and resale of "cores"3—scrap starters, alternators, air compressors, and other recyclable automotive parts which contain no PGM content, but in which business Autocats had profitably engaged in the past.
[30].
Seventh, ELV had considerable difficulties in keeping its key management positions filled: In two years, it changed presidents and (twice) controllers.
[31].
Eighth, ELV began downsizing its "buyer network;" though TAI’s senior vice-president, Arthur Harrison, would testify on March 11 that these people are "the life blood of the business." ELV started with close to 30 buyers and, as of the time of the Arbitration hearing, had three left.

D. Writing Off Goodwill

[32].
In December 2012, as ELV’s financial performance continued to be poor, its outside auditors and management determined that indicators of "impairment" of the value of the goodwill it had purchased from Autocats existed, and accounting principles required the application of a "goodwill impairment test." The results of this accounting test required ELV to write-off the entire value of the goodwill it purchased from Autocats, in the sum of $4 million, as of the end of 2012. This write-off was reflected on the March 31, 2013 audited financial statement of ELV.

E. Vollero’s Past Discovered

[33].
Early in 2013, Anthony Dowgwilla, a long-time TAI employee who had been dispatched to help out at ELV, discovered information which led to an investigation of certain apparently illegal activities previously conducted by Vollero and some other Autocats’ employees. They had, it was learned, manufactured and imported counterfeit catalytic converters in and from China in the past (prior to the close of the sale-to-ELV transaction).
[34].
Vollero, after initial denials, ultimately admitted (in his deposition in this case) that, commencing in 2008, he worked with a college friend residing in China, John Mion, to obtain the counterfeits. Mr. Mion had contracted with a Chinese company to manufacture counterfeit catalytic converters which would contain little or no PGM content and therefore have little or no real value. Vollero further admitted that, at his direction, certain Autocats’ employees imported approximately 30,000 of these counterfeit units with a plan to sell them to a customer, A-l, which only purchased whole used converters, as opposed to uncanned ones. Vollero mixed counterfeit units with authentic units to sell to A-l in bulk. A-l paid Autocats on a price-per-unit basis rather than by content of the precious metals that were reclaimed after the refining process took place. Vollero's expressed motivation for engaging in this scheme was to get back at A-l for an ongoing business feud, but the Panel is more-than-skeptical that this was his only purpose (as opposed, for instance, to bringing in revenue) or that he only sold them to A-l.
[35].
The counterfeit catalytic converters were not sold to the general public, automobile repair stations or part facilities. Nor, importantly, were they sold to TAI.4

F. Terminations

[36].
After the discovery of Vollero’s illicit conduct and after TAI’s investigation of it, both Vollero and McElroy were terminated by ELV. Vollero was terminated from ELV effective June 13, 2013 for breach of his Employment Agreement with ELV and ELV directed the escrow agent not to release to Vollero the remaining final installment payment of approximately $876,424 due under the Assets Purchase Agreement and Escrow Agreement.
[37].
Very significantly, the write-off of ELV's goodwill occurred several months before it learned about Vollero’s counterfeit converter activity and terminated him, and was solely because of ELV’s financial performance.

III PLEADINGS

[38].
The Claim in this Arbitration is brought by TAI and is against Vollero, as respondent. Mr. Vollero’s Counter-Claim is against TAI and ELV.
[39].
TAI’s original Demand for Arbitration, dated November 26, 2013, had contained six claims for relief, but, on February 23, 2015, Claimant’s Pre-Trial Memorandum of Law announced an intention to proceed only on three of them, as follows:
[40].
First - Violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §1962 (c)
[41].
Second - Conspiring to Violate RICO, 18 U.S.C. §1962 (d)
[42].
Third - Fraud
[43].
On December 19, 2013, Respondent Vollero filed an Answer and asserted the following Counter-Claims against TAI and ELV:

First - Breach of Fiduciary Duty

Second - Declaratory Relief

Third - Breach of Contract

Fourth - Breach of Implied Covenant of Good Faith and Fair Dealing

Fifth - Equitable Indemnity

Sixth - Invasion of Privacy

Seventh - Civil Code §1708.8 (Invasion of Privacy)

Eighth - Declaratory Relief

[44].
TAI’s Complaint alleges, among other things, that Vollero operated a criminal enterprise through a pattern of racketeering involving the sale of counterfeit catalytic converters and defrauded TAI in failing to disclose Autocats’ involvement with the sale of counterfeit catalytic converters. TAI contends that as a proximate result of the alleged fraudulent conduct it has been damaged by having paid an inflated purchase price for illusory corporate goodwill and incurred the formation costs of ELV and attorneys’ fees in investigating and prosecuting these claims. Vollero’s claims include allegations of breach of fiduciary duty in mismanagement that favors the majority shareholder’s interests over the interests of the minority shareholder. He also seeks a Declaration that TAI must release to Vollero the remaining funds in escrow, which constitute the balance of the purchase price. He has withdrawn Claims Nos. 6 and 7.
[45].
At the Arbitration hearing, each side called witnesses and cross-examined opposing witnesses and offered documentary evidence. Upon simultaneous written briefs submitted to the Arbitration Panel, the issues were submitted for decision.

TOYOTA TSUSHO AMERICA, INC.’S CLAIM

I AWARD

[46].
The Award is in favor of respondent Scott Vollero and against claimant Toyota Tsusho America, Inc.

II FINDINGS of FACT and DISCUSSION

[47].
The findings and legal analysis which follow are necessary to the Award, and are the result of the weighing of the evidence, both oral and written and the Panel’s determinations as to credibility, relevance and meeting of the parties’ respective burdens of proof.

A. A Note on Scott Vollero

[48].
The potential for its Award’s appearing to endorse, or at least excuse, Scott Vollero’s scheme to counterfeit converters was of great concern to each Arbitrator. Vollero’s scheme was despicable, fraudulent in its intent and doubtless criminal. He was completely dishonest and has now admitted that.
[49].
But the Panel was formed by the parties objectively to go where the law and the facts of this case take it, not to decide who it likes or whose conduct it approves. This is not a criminal case, so punishing Vollero is not its objective and, unlike in a criminal case, the conduct must produce injury in order to be actionable.

B. Proximate Cause of Damages

1. Vollero’s Prior Fraudulent Activity Did Not Proximately Cause TAI Any Damage

[50].
Scott Vollero and Sino Scrap, Inc.’s Arbitration Brief5 opened so dramatically and surprisingly that one wondered if he/she were looking at the wrong document. It began: "Scott Vollero engaged in a brazen scheme to import and sell counterfeit catalytic converters...."
[51].
A few lines later came the almost-equally dramatic "None of this cost claimants a dime."
[52].
This language was drafted and filed prior to the arbitration hearing, and it was a simple, clear and concise roadmap to the defense.
[53].
More importantly, it was correct.
[54].
The evidence claimant’s able counsel produced in two weeks of hearing and thousands of documents never overcame it.
[55].
The Panel’s view that TAI never demonstrated that Vollero’s counterfeiting activities proximately caused any damage to ELV or TAI pervades nearly every aspect of this Award, so it is discussed first.
[56].
Respondent’s brief6 puts the requirements well:

Proximate cause requires a direct link between the fraud (or in this case, omission) and the damages sustained. See, e.g., Las Palmas Associates v. Las Palmas Center Associates, 235 Cal. App. 3d 1220 (1991) ("To recover damages for fraud, a plaintiff must have sustained damages proximately caused by the misrepresentation. [Citation] A damage award for fraud will be reversed where the injury is not related to the misrepresentation. [Citation]"). In other words, TAI must show that its damages were directly caused by Mr. Vollero’s wrongdoing. And... TAI has not and could not have met that burden.

To prove actionable fraud, TAI would have to show that it relied on the misrepresentation or omission, and, for purposes of this discussion, the Panel will assume that it did and that it would not have purchased Autocats if TAI knew of the prior counterfeiting7 and would adopt all of the findings described in the dissent under "I. The Counterfeiting Activity." But that assumption is not enough to merge the concepts of reliance and proximate cause or permit recovery without the latter: "Assuming... a claimant's reliance on the actionable misrepresentation, no liability attaches if the damages sustained were otherwise inevitable or due to unrelated causes." (Goehring v. Chapman University (2004) 121 Cal.App.4th 353, 365, 17 Cal.Rptr.3d 39, citing Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 60, 248 Cal.Rptr. 217.) The law remains that "reliance and proximate causation are distinguishable,..." (OCM Principal Opportunities Fund, L.P. v. CIBC World Markets Corp. (2007) 157 Cal.App.4th 835, 870, 68 Cal.Rptr.3d 828) See also Gold v Los Angeles Democratic League (1975) 49 Cal.App.3d 365, 374, 122 Cal.Rptr. 732, which holds "[t]o state a cause of action at law based upon fraud,... the plaintiff must allege not only reliance but that, by reason of the fraud, he has suffered pecuniary damage in some amount." Clearly, in addition to reliance, TAI must prove that Vollero’s omission caused damages.8

[57].
It is important to an understanding of this Award that it does not discuss "preponderance of the evidence" or "burden of proof’ and these absences are not happenstance:
[58].
There was no evidence of proximately caused damage.
[59].
TAI argues that "it never would have done this deal if it had known [Vollero] was a criminal." It contends consequently that it is "entitled to the return of the $4.4 million it paid for a worthless investment in a criminal." (TAI brief, p. 2). While, as noted above, we assume, without deciding, that TAI would indeed not have made the deal, it must prove all of the elements of fraud, including damages resulting from the fraud. TAI has not presented any evidence that Vollero’s counterfeiting impacted the value of ELV. Calling its investment worthless is not enough to establish a claim for fraud, TAI was required to prove that the fraud devalued its investment through admissible evidence. (See Gonsalves v.Hodgson (1951) 38 Cal.2d 91, 237 P.2d 656.) TAI has failed to present evidence to show that Vollero’s counterfeiting caused any loss to, or diminution in the value of, ELV. "Misrepresentation, even maliciously committed, does not support a cause of action unless the plaintiff suffered consequential damages. (citations omitted) And the damages suffered must be referable to, and caused by, the fraud. (citations omitted)." Conrad v Bank of America (1996) 45 Cal.App.4th 133, 159. "Deception without loss is not actionable." Creative Ventures LLC v. Jim Ward Ass., (2011) 195 CaI.App.4th 1430, 1444, citing Goehring v. Chapman University (2004) 121 Cal.App.4th 353, 364.9

2. What Did Damage TAI?

[60].
Given an express finding of a lack of proximate cause, it is arguably not necessary for the Panel to discuss what did cause the damage, but some of the cases (E.g, Goehring, at 365) suggest the importance of "unrelated causes." The substantial evidence of TAI’s woes in its ELV adventure, already listed in the "Major Changes in Business Operations and Unprofitability" subsection above, can be recapped and expanded on a bit as follows:
[61].
What was probably TAI’s most profound problem occurred before it ever invested in ELV, when TAI’s own executives "sold" its board of directors on business volume projections (ex. 10016) which were—to be charitable—utter nonsense. They gave their Board projections that the Autocats’ business would triple when taken over by a Toyota entity! Being less charitable, the Arbitrators note that Messrs Haraguchi and Saada (assistant vice president and general manager of TAI) intentionally misrepresented those projections to their own company, and the Panel cannot escape the belief that others knew of the misrepresentations.
[62].
Exhibit 10253, for example, finds Mr. Neyens, TAI’s vice president in charge of business development writing that "Haraguchi is more interested in just getting a deal done and doesn't seem to care if it's a good deal for TAI." And the false projections to "get the deal done" were clearly a very "big deal." Mr. Neyens stressed that "developing forecasts for any business is the most difficult and critical part of any valuation exercise." (Ex. 10154)
[63].
Amazingly, Mr. Saada himself would testify (on March 9) that none of the potential suppliers listed in the marketing strategy (ex. 10016) ever wound up selling any converters to ELV!
[64].
But the several other problems listed in the "Major Changes in Business Operations and Unprofitability" subsection would arise as ELV began to operate in an "only in L.A." scenario, apparently TAI’s managers did not reasonably anticipate that employees who spend their days cutting open parts from the undersides of used cars might not have pristine documentation of their immigration status. Laudable (and legally-required) though Toyota’s insistence on "going by the book" may have been, ELV’s firing virtually all of its shop floor employees and replacing them with "temps" (whose papers were good, but whose job skills were not) caused major production disruptions. (There was evidence to the effect that management was forewarned of this issue, but did not attempt to develop a trained workforce to deal with it.)
[65].
The floor employees were not the only ones changed, though: In its first two years, ELV changed presidents once and controllers twice.
[66].
Production disruptions were made considerably worse by TAI’s determination to improve machinery guarding and safety. The Panel would also call this laudable corporate behavior, were it not for then-ELV president Haraguchi’s later—and secret—determination to go back to using the machines already declared unsafe and covering up this use. Whatever the merits of the safety issues, they caused considerable additional production delays, as did relocation from Autocats’ former facilities.
[67].
Collection of the dust left over from harvesting PGMs from converters was an issue about which most of us would not have thought, but the dust is valuable, and ELV may have squandered as much as a million dollars worth of it. (Vollero would testify on March 4 regarding several documents about dust (e.g., ex. 10484).)
[68].
ELV’s managers also unaccountably decided to discontinue doing business with A-l (ironically, the same company targeted by Vollero’s counterfeit scheme of several years earlier), which purchased whole uncanned catalytic converters of low grade. These low grade converters had proved to be a profitable line of business for Autocats in the past.
[69].
ELV’s new management also decided to discontinue the acquisition and resale of cores—scrap starters, alternators, air compressors, and other recyclable automotive parts which contain no PGM content, but which had been a source of profit in the Autocats days.
[70].
Finally, the virtual elimination of its buyer network, "the life blood of the business," seems to have had a dramatic impact on ELV’s business prospects.

3. Proximate Cause in RICO Actions

[71].
The basic RICO statute is 18 U.S.C. §1962. It proscribes the now-well-known "pattern of racketeering activity" upon which claimant places emphasis and also, at subsection (d), makes it "unlawful for any person to conspire to violate any of [its] provisions...."
[72].
18 U.S.C. §1964 (c) states that (c) "[a]ny person injured in his business or property by reason of a violation of section 1962" has civil remedies, including even treble damages. "[B]y reason of’ is another way of saying "proximately caused by."
[73].
The 2002 Ninth Circuit case of Chaset v. Fleer/Skybox International, LP (300 F.3d 1083, 1086) could not be much stronger for respondent here, holding, as it does that a plaintiff who fails to demonstrate proximate cause lacks standing even to sue.
[74].
While the Arbitrators here have tried to avoid the "long quote" a bane of good legal writers— Chaset's language and the citations it includes comprehensively resolves any question about a proximate cause requirement in a RICO case

To prevail on a civil RICO claim, a plaintiff must prove that the defendant engaged in (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity and, additionally, must establish that (5) the defendant caused injury to plaintiffs business or property. 18 U.S.C. §§ 1962(c), 1964(c). The "fifth element includes two related components. First, a civil RICO plaintiff must show that his injury was proximately caused by the [prohibited] conduct. Second, the plaintiff must show that he has suffered a concrete financial loss." Fireman’s Fund Ins. Co. v. Stites, 258 F.3d 1016, 1021 (9th Cir. 2001) (citation omitted). * * * Congress enacted RICO "to combat organized crime, not to provide a federal cause of action and treble damages" for personal injuries. Id. at 786.

Therefore, "a RICO plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property by [reason of] the conduct constituting the violation.'" Holmes v. Securities Investor Prot. Corp., 503 U.S. 258,279, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992) (O'Connor, J., concurring) (alteration in original) (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985)). Moreover, the defendant's violation of § 1962 must be the proximate cause of plaintiffs injury. Id. at 265-68, 112 S.Ct. 1311.

[75].
Even assuming the sale of counterfeit converters constituted a pattern of racketeering activity, the scheme for their sale was neither aimed at, nor anticipated to injure, TAI and certainly did not injure TAI. Nor is there evidence it continued after the merger.
[76].
Claimant’s "Conspiracy to Commit RICO" allegation is more obscure, though the simplest thing to say about it is that there is even less evidence of proximate cause than in the case of the RICO allegation itself. Quite apart from not causing TAI harm, the scheme to build and sell fake converters, while perhaps having Vollero, Mion and their other connections in China as "conspirators," was long before ELV was even formed and before any Toyota entity had any relationship to Vollero, other than as a buyer of PGMs.
[77].
However much the Arbitrators may disapprove of the 2008 Vollero scheme, it is impossible to consider TAI (or ELV) as having been a victim of it. Lerner v. Fleet Bank, N.A. 318 F.3d 113, 124 (2d Cir. 2003) states "we have repeatedly emphasized that the reasonably foreseeable victims of a RICO violation are the targets, competitors and intended victims of the racketeering enterprise." (Several cites omitted.) Federal cases seem to differ on the issue of whether one can be criminally liable for a conspiracy to violate RICO without an underlying RICO substantive violation. (See, e.g, United States v. Fernandez, 388 F.3d 1199, 1231 (9th Cir. 2004).) This issue makes more sense in that criminal context than it does here because discussions of criminal cases focus on predicate acts, underlying substantive crimes and the like.

4. Proximate Cause in Fraud Actions

[78].
Claimant does not argue that there was "actual fraud" (see Civil Code §1572) in this case. Instead, it contends that Vollero made a "fraudulent omission." TAI is correct in asserting that, ‘[u]nder California law, the elements of a common-law claim for fraudulent omission are:

(1) the defendant concealed or suppressed a material fact;

(2) the defendant was under a duty to disclose the fact to the plaintiff;

(3) the defendant intentionally concealed or suppressed the fact with intent to defraud the plaintiff;

(4) the plaintiff was unaware of the fact and would have acted differently10 if she had known of the concealed or suppressed fact; and

(5) the plaintiff sustained damage as a result of the concealment or suppression." (Claimant’s brief, p. 28)

[79].
Even if the Arbitrators concede, for the sake of argument, the first four factors, the "damage as a result of the concealment" issue remains, and is insurmountable for TAI.
[80].
California’s Civil Code, at § 3343, also speaks of the proximate cause issue. It speaks of the recovery of damages in fraud cases, but requires they "shall be recoverable only if and only to the extent that all of the following apply: * * * (iii) Any loss of profits for which damages are sought under this paragraph have been proximately caused by the fraud and the defrauded party's reliance on it." ( § 33439a)(4).)
[81].
While the discussion and citations in B. 1., "Vollero’s Prior Fraudulent Activity Did Not Proximately Cause TAI Any Damage" above were intended as a general discussion of proximate cause, the material cited there all comes from fraud cases.

5. Vollero’s Worthlessness did not impact ELV’s Worth

[82].
TAI’s conduct before learning of Vollero’s counterfeiting is very telling. First, in their Application to the Board to approve the transaction, Saada and Haraguchi do not attribute any appreciable economic or goodwill value to Vollero, let alone the entire $4 million. Instead, Saada and Haraguchi supported the transaction and the proposed price with fabricated and inflated projections predicated only minimally upon Autocats’ then existing business, and largely upon TAI sources. Second, by December 2010, before TAI had a hint of Vollero’s prior wrongdoing, ELV deemed Vollero’s knowledge and expertise worthless, as it wrote off all of the goodwill.
[83].
Admittedly, ELV lost Vollero’s expertise once it fired him. TAI apparently claims, but fails to prove, that losing Vollero’s expertise has caused the loss of their entire $4.4million investment. Importantly, ELV has not folded. More to the point, TAI recognizes ELV’s real value as it continues to invest more capital in its operations. Saada and Haraguchi’s Application to the Board highlighted the multiple benefits of "Newco" to TAI, some of which TAI still derives. (The need to inject this capital into ELV is unrelated to Vollero’s counterfeiting or his lost expertise, but is instead related to factors entirely independent of Vollero.) Even with Vollero, ELV was failing to meet budget, incurring large losses and showing a negative equity position. These "damages" were caused by factors unrelated to the deceit regarding Vollero’s counterfeiting.
[84].
Finally, TAI offered no evidence establishing that Vollero’s criminal history or counterfeiting operation in and of itself proximately caused, or even had some identifiable empirical economic cost, such that it reduced the value of ELV. Of course, TAI did not want to work with a crook and we will assume arguendo they never would have gone forward if they knew he was a crook. But this argument gets them nowhere, as they cannot unwind the deal. Given this limitation, they must prove, how and to what extent this omitted fact results in the loss of value of ELV, an entity that continues to operate and benefit TAI.

6. Factors that Did Injure ELV and/or TAI11

[85].
TAI arguably suffered losses from its investment in ELV and that subsidiary’s poor financial performance in its early years. In addition to the important factors discussed in both the "Major Changes in Business Operations and Unprofitability" and "What Did Damage TAI?" subsections above, two others bear mention:

a. Mismanagement

[86].
Arthur Harrison is, and was, the head of the Metals Division and a senior vice president of TAI since 2008; he is now also president of ELV and is in a good position to know how it has performed since its creation. He testified, on March 11, that there were "so many issues at ELVCR12 it is overwhelming," and they included a "culture of mistrust "among its top management. The Arbitrators take Mr. Harrison at his word, but they need not, as dozens of emails received in evidence emphasize intra-management relationships looking more like a Hollywood divorce than a functioning business entity. A handful is illustrative:

• Exhibit 10166, as recently as 2014, finds one executive calling Haraguchi13 "even worse than" yet another (Okamura), and "being very upset about his attitude;" "he should have been fired." Instead of firing him, TAI made him ELV’s president!

• Exhibit 10021 also speaks of Haraguchi, and says "If [he] is trying to negotiate to go around company policy there will be repercussions."

• Exhibit 10253 says "Haraguchi's communication regarding a TAI negotiating position is completely unacceptable...."

[87].
It cannot be emphasized enough that the dreadful communications between executives involved in the ELV venture were constant and at the very top of the management chain. Some of the messages were "behind the backs of" the executives under discussion, while others freely "copied" extremely unkind remarks to the managers they were about. At the least, they give the reader an unexpected glimpse into management communications relationships in Japan’s largest corporate empire.

• Exhibit 10024, for example, finds Arthur Harrison’s decrying being "sick and tired of being informed after [events]," that "Haraguchi feels absolutely no need to report anything to me," of "unacceptable" communications practices and "continued deceptive practices of this management team [which] are unacceptable to me."

b. The Economy

[88].
While economists generally claim that the worst of the "Great Recession" was over by the time ELV was put together, several of the witnesses indicated that general economic conditions damaged its business. This point was not much explored in the evidence.

c. Is It Certain that TAI Has Been Injured?

[89].
The word "arguably" was used advisedly above in conceding that TAI probably suffered losses because Arthur Harrison opined, in his testimony of March 11, that ELV will be profitable by the fiscal year ending March 31, 2017. While it is beyond the Panel’s purview to speculate about the future of TAI’s investment in ELV, it is certainly possible that it will work out to its advantage.
[90].
Insuring a reliable supply chain in PGMs was a significant reason for the investment, independent of profit motivation, and that would seem to remain a benefit.

d. A Last Tantalizing Question about Vollero’s Impact

[91].
Much has been said in this Award about the causes of ELV’s poor performance (thus far) and its not having been caused by Vollero; all the causes at least began before discovery of his misconduct. TAI does not argue that mismanagement or things like changing line employees, buildings and equipment were caused by Vollero, and the evidence is that Haraguchi et al ignored considerable advice from him.
[92].
So, what if ELV’s fortunes had been better? What if, by early 2013, it was making great profits before the revelations about Vollero’s past? Would he have been fired anyway? Would this Arbitration have gone forward in the complete absence of any operating losses?

SCOTT VOLLERO’S COUNTER-CLAIM

I AWARD

[93].
The Award is in favor of counter-claimant Scott Vollero and against counter-respondents Toyota Tsusho America, Inc. and ELVCR Components Recycling, Inc. and is a declaration that ELVCR must inform the Escrow Agent that any amounts remaining in the Escrow Account—less $120,000—are to be released to Vollero.

II RECAP of PLEADINGS

A. Vollero’s Counter-Claim

[94].
As indicated above, Respondent Vollero filed an Answer and asserted the following Counter-Claims against TAI and ELV (He has dismissed the 6th and 7th):

1st - Breach of Fiduciary Duty

2nd - Declaratory Relief

3rd - Breach of Contract

4th - Breach of Implied Covenant of Good Faith and Fair Dealing

5th - Equitable Indemnity

8th - Declaratory Relief

III FINDINGS of FACT and DISCUSSION

[95].
Most of Counter-Claimant Vollero’s eight causes of action are essentially "defensive" and require little discussion:

5th - Equitable Indemnity

[96].
This claim was contingent upon an adverse finding in TAI’s Claim and requires no further discussion.

1st and 4th - Breach of Fiduciary Duty, Breach of the Implied Covenant of Good Faith and Fair Dealing

[97].
The Panel finds no evidence to support these causes of action: While, strictly speaking, California’s version of the "business judgment rule" only insulates corporate directors from liability for what plaintiffs believe to be poor business decisions, the concept is often expanded by analogy to other business conduct, which should be "accorded a substantial level of deference." (Eg., Etheridge v. Reins Intern. California, Inc. (2009) 172 Cal.App.4th 908, 927, 91 Cal.Rptr.3d 816.)
[98].
While Vollero’s Closing Brief Concerning Cross-Claims Against TAI And ELVCR accurately criticizes many of the TAI and ELV management moves (even being unable to resist including some of the "comedy of errors," such as being unable to store cores for lack of a roof on a shed) these facts are inadequate to show a conflict of interest, managerial self-dealing or a lack of good faith. This Award has dwelled on their being "dumb," and maybe even "incompetent," as Vollero argues, but they were not motivated by ill will toward him.

2nd - Declaratory Relief (as to Vollero’s Conduct Causing No Damage)

[99].
This cause of action is reciprocal to, and duplicative of, Claimant’s case. As such, it requires no action by the Panel.

3rd - Breach of Contract

[100].
ELV’s decisions to exit certain lines of business are covered by the Panel’s expanded view of the business judgment rule, and surely a company cannot be required to stay in an endeavor simply because it listed it in the Shareholders Agreement as an aspect of the "Scope of the Joint Venture" (Article II, §2.01). Interestingly, §2.0l's language is expansive on its abilities to enter other lines of business, but does not expressly give it the power to stop doing something. Such a provision (or lack of one) may even be in violation of the public policy related to a board of directors’ authority.
[101].
Moreover, the allegations are of conduct which would damage all shareholders proportionally to their shareholdings and would, regardless of their merits, be derivative. As a claim on behalf of the corporation, it is beyond the scope of the arbitration clause here.

8th - Declaratory Relief

[102].
Counter-Claimant argues that "Mr. Vollero is therefore entitled to a declaration that ELVCR must inform the Escrow Agent that any amounts remaining in the Escrow Account—less $120,000, which Mr. Vollero agrees should go to ELVCR for an unrelated debt—should be released to Vollero. This amount would be $756,424 (i.e., $876,424 - 120,000).14
[103].
The funds in the Escrow Account were a part of the purchase price for Autocats, and must be released to him in view of the finding that he has no liability on TAI’s claim.
[104].
A claim for declaratory relief in an arbitration is unusual, in that an arbitration award is, itself, rather like a declaration (though it requires court action to become a judgment), but the Panel does not see this cause of action’s unconventionality as a basis for denying the relief sought, as it appears merited by earlier parts of this Award.

COSTS AND ATTORNEYS’ FEES

[105].
California Civil Code §1717 provides for an award of "attorney's fees in addition to other costs" to the "party prevailing on the contract,...." At §(b)(1), however, the statute provides that "[t]he court may also determine that there is no party prevailing on the contract for purposes of this section." This language was added in 1987, and there is neither any case construing it nor any statutory history available explaining the reasons for it.
[106].
The logic of §1717 is completely consistent with traditional views of arbitrators’ abilities to "base their decision upon broad principles of justice and equity,..." (See Moncharsh v. Heily & Blase, (1992) 3 Cal. 4th 1, 10, 10 Cal. Rptr.2d 183.).
[107].
While the panel has determined that TIA has failed to prove its case, Mr. Vollero does not come before the forum with anything approaching clean hands.
[108].
The Arbitrators find that there is no prevailing party and, accordingly, award no costs or fees.
[109].
The administrative fees and expenses of the AAA/ICDR totaling $27,100.00 are to be borne as incurred. The compensation and expenses of Arbitrators totaling $300,092.50 are to be borne as incurred.
[110].
We hereby certify that, for the purposes of Article 1 of the New York Convention of 1958, on the Recognition and Enforcement of Foreign Arbitral Awards, this Final Award was made in Los Angeles, California, United States of America.
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