INTRODUCTION

This case now comes before this court for the second time. It arises out of the 2017 purchase by Appellant Entravision Communications Corp. (Entravision) of a digital media advertising business from respondent Future Energy Overseas Group, Inc. The parties to the transaction had agreed to use a form of alternative dispute resolution (ADR) to resolve disputes arising out of an Earn-Out Agreement that was part of the transaction by referring them to an accounting firm for resolution. When disputes arose, the parties disagreed about which of them should be referred to the accounting firm for resolution and which, if any, should be decided in the trial court. In the first appeal, this court remanded the case to the trial court with instructions that the court should grant Entravision’s motion to compel ADR, identify the specific issues subject to the ADR provision, and stay court proceedings as to those issues. (Future Energy Overseas Group, Inc. v. Entravision Communications Corp. (Sept. 24,

2 2021, No. B308533) 2021 Cal.App.Unpub. LEXIS 6088, at *1–*18 (Future Energy I) [nonpub. opn.].)1 On remand, the trial court started from the premise that a disputed item that encompassed any legal question should be resolved in its entirety by the court. We now conclude that all but two of the disputed items still at issue encompass at least one question of fact within the accounting firm’s expertise, and that those questions, though not necessarily the disputed items as a whole, should be answered by the accounting firm. Accordingly, we reverse in part and remand for additional proceedings consistent with this opinion.

BACKGROUND

A. The Parties’ Transaction and the Earn-Out Agreement In 2017, Entravision acquired a group of affiliated companies that provided digital-media advertising services (collectively, Headway) from several individuals and corporate affiliates.2 One of the sellers, Future Energy, was

1 We cite the unpublished opinion in Future Energy I as relevant to the law of the case doctrine. (See Cal. Rules of Court, rule 8.1115(b)(1) [prior unpublished opinions may be cited as law of the case].) 2 Entravision made this acquisition through its subsidiary, appellant Headway Spain Digital Technology Services, S.L.U. For the sake of simplicity, we refer to both entities as Entravision.

3 designated the sellers’ representative, authorized to represent the sellers in matters relating to the transaction’s governing documents. As part of the transaction, the parties executed an “Earn-Out Agreement,” under which Entravision was to pay the sellers additional sums for each year in 2017–2019 (referred to in the agreement as Periods 1–3) in which Headway achieved specified financial targets. If Headway reached certain performance thresholds for the entire three-year period, the agreement provided for an “Overachievement Bonus.” Under the Earn-Out Agreement, Entravision was to provide a yearly statement setting forth its calculations of the business’s performance and the payment to which it believed the sellers were entitled. In determining Headway’s operating expenses, Entravision was to apply “GAAP,” defined as “U.S. Generally Accepted Accounting Principles as consistently applied by [Entravision].” The Earn-Out Agreement specified various categories to be included in or excluded from operating expenses. For instance, section 1(mm)(iv) of the agreement provided that “expenses relating to marketing and public relations related to Company Products and Services to the extent consistent with the historical operations of the Business” were to be included in operating expenses, and section 1(mm)(vii) provided that expenses relating to accounting, bookkeeping, and financial reporting were to be included. Conversely, section 1(mm)(xiv) of the Agreement excluded expenses for audits and financial statements in accordance with GAAP,

4 section 1(mm)(xi) excluded general allocation of corporate overhead to Headway, and section 1(mm)(xix) excluded interest on loans by Entravision to Headway to the extent such loans do not exceed the amount of cash dividends by Headway to Entravision. If Future Energy disagreed with Entravision’s Earn- Out statement, it was to submit a list of “‘Disputed Items’” to Entravision, specifying the basis for each item. Section 2(c) of the agreement stated: “If the parties are unable to resolve any Disputed Items . . . , then such Disputed Items shall be submitted to [an] Accounting Firm . . . which shall be jointly engaged by [Entravision] and [Future Energy] and shall act as an expert in accounting and not an arbitrator to promptly review the Earn-Out Statement and resolve the Disputed Items. . . . In resolving any Disputed Item, the Accounting Firm . . . will base its determination solely on written materials submitted by [Entravision] and [Future Energy] (and not on any independent review).”

B. The Parties’ Disputes and Future Energy’s Complaint A series of disputes later arose about the sellers’ entitlement to payments under the Earn-Out Agreement. After Period 1, the parties agreed that the sellers were entitled to the maximum earn-out payment, and Entravision made a partial payment of that amount. In May 2019, however, Entravision claimed it had discovered undisclosed accounting deficiencies that caused it to conclude that the

5 sellers were not entitled to payments for Periods 1 and 2. Entravision provided an Earn-Out statement for Period 2, reflecting its determination that Headway had not met the specified performance thresholds. Future Energy responded with Disputed Items challenging Entravision’s Earn-Out statement for Period 2. In the Disputed Items, Future Energy asserted objections based on GAAP, specific provisions in the Earn-Out Agreement, alleged agreements subsequent to the Earn-Out Agreement, or some combination of the foregoing. In February 2020, after the parties failed to resolve their differences, Future Energy, in its capacity as the sellers’ representative, filed this action against Entravision. The complaint asserted breach of contract and fraudulent misrepresentation, among other claims, and sought the remainder of the Earn-Out payment for Period 1, the maximum payments for Periods 2 and 3, and the maximum overachievement bonus, among other prayers for relief. Future Energy alleged, inter alia, that Headway had met the performance thresholds for all three periods and the overachievement bonus. The complaint included allegations that were not based on accounting principles. For example, Future Energy asserted that at a November 2018 meeting, the parties entered into an “oral and implied contract” regarding the treatment of certain operating expenses for purposes of the Period 2 Earn-Out calculation. It claimed Entravision had breached this contract. Additionally, Future Energy

6 asserted that if the sellers were not entitled to the Period 2 Earn-Out payment, Entravision had knowingly or recklessly misrepresented that they would be and used those misrepresentations in extracting certain concessions from the sellers.

C. Entravision’s Motion to Compel ADR as to Period 2 and the Period 3 Disputed Items In response to Future Energy’s complaint, Entravision moved to compel ADR as to 17 Period 2 Disputed Items and to stay the litigation.3 Future Energy opposed this motion, contending, inter alia, that the Earn-Out Agreement’s ADR provision covered only accounting issues and thus did not reach most of the Disputed Items. In its reply, Entravision asserted that the ADR provision mandated that all 17 Disputed Items be resolved by an accounting firm, regardless of their nature. Alternatively, Entravision claimed that the Disputed Items all presented issues within an accounting firm’s expertise. In the interim, Entravision issued a Period 3 Earn-Out statement concluding that the sellers were not entitled to an Earn-Out payment. Future Energy again disputed Entravision’s calculations and provided another set of

3 Entravision’s motion addressed Period 3 and the overachievement bonus only to assert that they were not yet ripe for resolution, as Entravision had not yet issued its Earn-Out statement for Period 3.

7 Disputed Items, raising similar objections to those made as to Period 2. The parties ultimately failed to resolve their differences as to Period 3 as well, but Entravision did not file a new motion to compel ADR targeting Period 3 Disputed Items before the trial court’s ruling on its motion as to Period 2.

D. The Trial Court’s Initial Ruling and the Prior Appeal Following a hearing on Entravision’s motion to compel ADR as to Period 2, the trial court determined that the Earn-Out Agreement’s ADR provision was not a traditional arbitration clause and that the action involved many non- accounting issues that were not subject to the ADR provision. The court stated it was denying the motion to compel but also that non-arbitrable claims would be litigated first, and the remaining accounting issues could then be referred to the accounting firm. The court did not specify the issues it determined were subject to the ADR provision and did not address Entravision’s request to stay the litigation as to issues subject to ADR. Entravision appealed. In Future Energy I, this court reversed in part the trial court’s order, concluding that the court validly exercised its discretion to delay the ADR process pending adjudication of non-arbitrable issues but erred in failing to grant the motion to compel ADR, identify the specific issues subject to ADR, and stay court proceedings as to those issues. (Future Energy I, supra, 2021 Cal.App.Unpub. LEXIS at *2.)

8 Reviewing the scope of the ADR provision de novo, this court rejected Entravision’s argument that the ADR provision encompassed all Disputed Items “no matter whether they involved accounting or legal issues.” This court held that, based on the provision’s language, the accounting firm was to address “only those issues that could be resolved through the application of accounting principles.” (Id. at *13, fn. 8.) We further stated that, “[o]n remand, the court should identify those Disputed Items (or portions thereof) that raise accounting issues and are thus subject to the ADR provision. The court should then stay the litigation as to those issues . . . .” (Id. at *19.) We explained that the litigation of “non- arbitrable, legal issues” could proceed in court. (Ibid.)

E. Subsequent Proceedings in the Trial Court Following the issuance of the opinion in Future Energy I, the parties submitted briefing to the trial court addressing the arbitrability of individual Period 2 Disputed Items.4 On November 4, 2021, the trial court issued a minute order identifying the Disputed Items subject to ADR and concluding that most were not. On January 12, 2022, the trial court vacated the November 4, 2021, order because it had been issued before the remittitur and reissued it as of that date. The court concluded that three of the 17 Period 2

4 Future Energy conceded that three of these Disputed Items were subject to ADR, while Entravision conceded that two must be litigated in court.

9 Disputed Items were subject to ADR, as conceded by Future Energy, but that the remaining Disputed Items were “not to be handled by an accountant as they pertain to legal issues including contract interpretation, fraud determination and contract enforceability.” In the interim, Entravision moved to compel ADR as to 21 Period 3 Disputed Items. Future Energy conceded that seven of the Disputed Items were subject to ADR, while Entravision conceded that two must be litigated in court.5 The trial court concluded that seven of the 21 Period 3 Disputed Items were subject to ADR as conceded by Future Energy, but that none of the remaining Disputed Items were “to be handled by an accountant as they pertain to legal issues including contract interpretation, fraud determination and contract enforceability.” In addition, the court decided to allow ADR to proceed first and stayed the litigation pending the accounting firm’s resolution of the accounting issues. Entravision appealed both the January 12, 2022, order as to Period 2 and the January 25, 2022, order as to Period 3.

5 In its filings, Entravision included the declaration of accounting expert Greggory Peat, who opined, inter alia, that most of the 12 remaining Period 3 Disputed Items involved “the kind of accounting issues that accounting practitioners have the expertise to resolve, and are regularly called on to resolve in practice.”

10

DISCUSSION

In this appeal, Entravision challenges the trial court’s denial of ADR as to a total of 22 of the Disputed Items arising out of the Earn-Out statements for Periods 2 and 3. Entravision argues that all 22 involve accounting issues subject to ADR. Future Energy disputes that and also contends that Entravision’s appeal as to Period 2 should be dismissed because the January 12, 2022, order was not appealable. As discussed below, we find no procedural infirmity in the Period 2 appeal. Moreover, we conclude that 20 of the 22 Disputed Items present at least one question of fact within the expertise of the accounting firm and that these questions, though not necessarily the entire Disputed Item to which each pertains, are subject to resolution by the accounting firm.

A. Appealability of the Period 2 Order An order denying a motion to compel arbitration, in whole or in part, is appealable. (See Code of Civil Procedure section 1294, subd. (a).) The court’s January 12, 2022, order identifying which Period 2 Disputed Items were subject to ADR amounted to a denial of the motion to compel as to the remaining Disputed Items. The January 12, 2022, order was accordingly appealable. (See, e.g., In re Marriage of Loya (1987) 189 Cal.App.3d 1636, 1638 [“it is not the label but rather the substance and effect of a court’s judgment or order which determines whether or not it is appealable”].)

11 B. The Merits 1. Governing Principles Code of Civil Procedure section 1281.2 requires a court to order arbitration of a particular controversy if it determines that an agreement to arbitrate it exists. (Ibid.) The statute embraces not only traditional arbitrations but also alternative forms of dispute resolution, such as valuations, appraisals, and audits, in which an independent expert resolves specific questions of fact. (See id., § 1280, subd. (a); Coopers & Lybrand v. Superior Court (1989) 212 Cal.App.3d 524, 534.) These proceedings have been characterized as “a special form of limited arbitration.” (Doan v. State Farm General Ins. Co. (2011) 195 Cal.App.4th 1082, 1094 (Doan).) The powers of a neutral accountant, appraiser, or similar expert in such a proceeding are “far more limited” than those of an arbitrator. (Doan, supra, 195 Cal.App.4th at 1094, citing Jefferson Insurance Co. v. Superior Court (1970) 3 Cal.3d 398, 402 (Jefferson Insurance).) The expert is tasked with deciding factual questions within his or her expertise, not with construing statutes, interpreting contracts, or deciding other legal questions. (See ibid.; Jefferson Insurance, supra, 3 Cal.3d at 403 [“‘the function of appraisers [in insurance ADR proceeding] is to determine the amount of damage resulting to various items submitted for their consideration. It is certainly not their function to resolve questions of coverage and interpret provisions of the policy’”].)

12 2. The Parties’ ADR Agreement Here, the parties’ Earn-Out Agreement contemplates a limited ADR proceeding in which the accounting firm was to “act as an expert in accounting and not an arbitrator,” a phrase commonly used to indicate the parties’ intent that the accountant answer only factual questions pertaining to accounting. (See Penton Business Media Holdings, LLC v. Informa PLC (Del.Ch. 2018) 252 A.3d 445, 460–466.) Nothing in the agreement suggests the parties intended the accounting firm to resolve legal questions such as the correct interpretation of contractual provisions. Entravision nevertheless argues that the accounting firm should be allowed to decide certain matters of contractual interpretation. In Future Energy I, we distinguished “accounting” from “legal issues,” and concluded that litigation of “non- arbitrable, legal issues” between the parties should proceed in court (id. at *19). We agree with Entravision that an accounting expert presiding over a limited ADR proceeding may apply a contractual provision regarding the treatment of certain expenses to a particular set of facts. But an accountant may not settle a dispute over the legal meaning of the provision, a task reserved for the court. (See Jefferson Insurance, supra, 3 Cal.3d at 403; Doan, supra, 195 Cal.App.4th at 1094.) And a Disputed Item should not be withheld in its entirety from the accounting firm’s review merely because a party has raised a legal contention that could affect its disposition.

13 Under certain circumstances, a legal determination might effectively moot an accounting issue. But the mere potential for mootness does not turn an accounting question into a question for the court. (See Code Civ. Proc., § 1281.2.) Instead, the statute grants courts discretion to “delay” arbitration if “the determination of [non-arbitrable] issues may make the arbitration unnecessary.” (Ibid.; accord, Doan, supra, 195 Cal.App.4th at 1100 [“the trial court has discretion to stay an order for arbitration if ‘the adjudication of the nonarbitrable claims in court might make the arbitration unnecessary’”].) As a result of concessions by the parties during the pendency of these proceedings,6 only the following 22 Disputed Items remain at issue: Disputed Items 4, 7, 9, 10, 11, 13, 14, 15, 16 & 17 from Period 2 and Disputed Items 3, 6, 7, 8, 9, 12, 16, 17, 18, 19, 20 & 21 from Period 3.7 In Future Energy I, we applied a de novo standard of review to determine the scope of the parties’ arbitration provision. (See Future Energy I, supra, 2021 Cal.App.Unpub. LEXIS, at *4.) Future Energy now contends the trial court’s denial of

6 The parties agreed in the trial court on the treatment of 14 Disputed Items. And Entravision has chosen not to challenge on appeal the denial of ADR as to two additional Disputed Items. 7 A table provided by Entravision identifying 17 Disputed Items for Period 2, including Future Energy’s objections and Entravision’s responses, is appended below. We refer to a Disputed Item for this period as “Disputed Item 2:[X].” A table of the 21 Disputed Items for Period 3 is also appended below. We refer to Disputed Items for this period as “Disputed Item 3:[X].”

14 accounting ADR as to the remaining 22 Disputed Items is reviewable only for abuse of discretion. We disagree. The parties here agreed to accounting ADR as a form of limited arbitration, making the cases upon which Future Energy relies inapposite. Some deal with the court’s discretion to delay, not deny, accounting ADR. (See Alexander v. Farmers Ins. Co. (2013) 219 Cal.App.4th 1183, 1196, fn. 7; Lee v. California Capital Ins. Co. (2015) 237 Cal.App.4th 1154, 1164; Doan, supra, 195 Cal.App.4th at 1100.) Another concerns the court’s authority to appoint an accounting referee in the absence of a contractual ADR provision. (See Walsh v. Jack Rubin & Sons, Inc. (1960) 182 Cal.App.2d 652, 655.) Future Energy asserts that conflicting evidence before the trial court regarding the arbitrability of the remaining Disputed Items warrants the more deferential standard of review. But our review of the record reveals only competing arguments, not conflicting evidence. Accordingly, we decide de novo the arbitrability of the issues presented by the 22 remaining Disputed Items. (See RN Solution, Inc. v. Catholic Healthcare West (2008) 165 Cal.App.4th 1511, 1522 [“We review the scope of an arbitration provision de novo when, as here, that interpretation does not depend on conflicting extrinsic evidence”]; Doan, supra, 195 Cal.App.4th at 1100 [“the rules governing arbitration apply with equal force to insurance appraisals”].)

15 3. Application a. Issues subject to ADR i. GAAP and consistency Several of the Disputed Items present a question of whether the treatment of the relevant expenses complied with GAAP, “as consistently applied by [Entravision].” Whether a particular accounting treatment complied with GAAP and whether it was consistent with prior treatment are questions of fact within an accountant’s expertise. (See Campeau Corp. v. May Dept. Stores Co. (S.D.N.Y. 1989) 723 F.Supp. 224, 228 [accounting ADR provision covered disputes regarding accounting methodology]; Seed Holdings, Inc. v. Jiffy International AS (S.D.N.Y. 2014) 5 F.Supp.3d 565, 584 [whether parties calculations failed to comply with GAAP was “squarely within the scope of arbitrable issues” under accounting ADR provision]; Alliant Techsystems, Inc. v. MidOcean Bushnell Holdings, L.P. (Ch. Apr. 24, 2015, No. 9813-CB) 2015 Del. Ch. LEXIS 118, at *32 [“When it comes to deciding questions of GAAP . . . , accounting firms are particularly well-positioned to do so”].) In connection with many of the Disputed Items that raise GAAP and consistency issues, Future Energy argues that the dispute is over “whether the Agreement allows [Entravision] to classify these items differently in Period 2 [or 3] than it did in Period 1.” However, the dispute here is not over the meaning of the contractual term “GAAP,” which includes the concept of consistency, but over whether

16 Entravision’s accounting practices complied with these established accounting principles. Accordingly, the following matters involving consistency and compliance with GAAP are subject to ADR: • Disputed Items 2:7 and 3:16 - Future Energy’s objections that the classification of certain tax expenses was inconsistent with prior treatment • Disputed Item 2:14 - Future Energy’s objection that the relevant expenses were previously excluded from operating expenses, and Entravision’s contention that exclusion of tax-related expenses would result in an understated EBITDA • Disputed Item 2:15 - Future Energy’s objection that the relevant expenses were previously excluded from operating expenses • Disputed Items 2:16 and 3:21 - Future Energy’s objection that Headway’s bad-debt reserves should be calculated based on the same bad-debt allowance used for Period 1 • Disputed Items 2:17 and 3:19 - Future Energy’s objections that foreign currency losses should be excluded from operating expenses because they (a) did not relate to Headway’s core business and were not within its management’s control, and (b) were previously excluded from operating expenses • Disputed Item 3:3 - Entravision’s contention that including the reversal of the accrual of certain unpaid

17 bonuses would be inconsistent with prior treatment of these payments8 • Disputed Item 3:12 - Future Energy’s objection that the inclusion of the relevant penalties and interest was inconsistent with prior treatment of these expenses • Disputed Item 3:17 - Future Energy’s objection that the relevant expenses were previously excluded from operating expenses • Disputed Item 3:20 - Entravision’s contention that Future Energy’s proposed adjustment would be duplicative ii. Allocation Several of the Disputed Items present a question of whether relevant expenses were properly allocated to Headway or constituted allocation of corporate overhead or marketing expenses unrelated to Headway’s business, which the Earn-Out Agreement prohibited. These matters, too, involve questions of fact within an accountant’s expertise.

8 In this Disputed Item, Future Energy objected that most of the reversal of these bonuses’ accrual should be included in operating expenses because most of the bonuses did not relate to “Key Employees,” as defined under the Earn-Out Agreement. In addition to its consistency argument, Entravision responded that the reversal was excludable under the Earn-Out Agreement because it related to “Employee Payments,” as defined by the purchase agreement. These contentions all relied solely on the terms of the relevant agreements, raised no factual issue within an accountant’s expertise, and are therefore not subject to the accounting ADR.

18 (Cf. Catalyst Pharma Group, Inc. v. ICON Clinical Research, Inc. (D.Del., Mar. 31, 2010, No. 09-391-SLR) 2010 U.S.Dist. LEXIS 31336, at *5 [“an accountant charged with calculating EBITDA (consistent with the definition of EBITDA in the Purchase Agreement) will review such matters as the appropriate allocation of overhead expenses, bringing to such issues an expertise [the court] do[es] not have”].) The following matters involving allocation issues are subject to

ADR:

• Disputed Items 2:9 and 3:7 - Future Energy’s objection that the relevant marketing or public relations expenses were incurred by Entravision and should not be attributed to Headway • Disputed Items 2:11 and 3:9 - Future Energy’s objections that the inclusion of the relevant consulting fees represented an improper general allocation of corporate overhead • Disputed Item 2:14 - Future Energy’s objection that the inclusion of the relevant expenses represented an improper general allocation of corporate overhead • Disputed Item 3:17 - Future Energy’s objection that the inclusion of expenses for the relevant services represented an improper general allocation of corporate overhead • Disputed Item 3:18 - Future Energy’s objection that the inclusion of the relevant rent and related expenses represented an improper general allocation of corporate overhead

19 iii. Salary of Headway’s Controller Disputed Items 2:10 and 3:8 concern the inclusion of Headway’s controller’s salary in its operating expenses. Future Energy objected that these expenses should be excluded under section 1(mm)(xiv) of the Earn-Out Agreement, as expenses for audits and financial statements. Entravision, on the other hand, claimed that these expenses did not concern audits or financial statements and were properly included under section 1(mm)(vii), because the controller’s duties included accounting, bookkeeping, and financial reporting. This factual dispute regarding the correct classification of these expenses and the scope of the controller’s duties is within an accountant’s expertise.

iv. Bonus Paid to Victor José Ruiz Ortiz In Disputed Item 2:13, Future Energy objected that this bonus should be excluded from operating expenses under section 1(mm)(xxvi) of the Earn-Out Agreement. Entravision responded, inter alia, that this bonus was not given for the purpose described in that provision.9 Whether

9 The version of the agreement in the record does not include section 1(mm)(xxvi), and it appears it may have been part of a subsequent amendment that is not in the record. However, Future Energy does not dispute Entravision’s characterization of this provision.

20 a payment was made for a defined purpose is a factual matter within an accountant’s expertise.

b. Disputed Items not subject to ADR The two remaining Disputed Items present legal issues that may be litigated only in court, such as the existence and enforceability of additional agreements between the parties about certain accounting practices and the correct interpretation of various provisions in the Earn-Out Agreement. i. Disputed Item 2:4 Future Energy’s sole objection in this Disputed Item was that a prior agreement by the parties governed the treatment of the relevant expenses. Accordingly, this Disputed Item presented no accounting-related dispute between the parties.

ii. Disputed Item 3:6 This Disputed Item concerned the inclusion of interest on loans by Entravision to Headway. Future Energy objected that under Section 1(mm)(xix) of the Earn-Out Agreement, interest on such loans must be excluded to the extent those loans do not exceed the amount of cash dividends by Headway to Entravision. Entravision responded that Headway had issued it no cash dividends, and thus the entire amount of interest was properly included in operating expenses. Future Energy has made no claim,

21 either in the Disputed Items before the trial court or on appeal, that Headway had issued qualifying dividends. Accordingly, any remaining dispute regarding this issue presents question of law not subject to ADR.

22

DISPOSITION

The trial court’s orders are reversed in part and affirmed in part. The matter is remanded for further proceedings consistent with this opinion. Entravision shall recover its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

SCADUTO, J. *

We concur:

COLLINS, Acting P.J.

CURREY, J.

* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to Article VI, section 6, of the California Constitution.

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APPENDIX

Period 2 Disputed Items

24 Period 3 Disputed Items