Arbitration/Vacatur: Arbitrator’s Award Bearing Some Rational Relationship To Contract And Breach Meant Arbitrator Did Not Exceed His Powers
The Party Allowed To Keep A $500,000 Deposit Was The Appellant
SSIC, LLC, the seller of a mobile home park with serious financial problems, received an arbitral award allowing seller to keep a $500,000 deposit from buyer Kleege. Not content with retaining the deposit, the seller appealed, arguing that a contractual provision was unambiguous, and that the arbitrator exceeded his powers by failing to provide additional monetary relief as required. Kleege v. SSIC, LLC, D064077 (4/1 Sept. 30, 2014) (Huffman, McConnell, Aaron) (unpublished).
However, the arbitrator did take into consideration that the real estate deal was “doomed from the start”; that in substance, buyer purchased for $500,000 “the opportunity to negotiate a purchase of the mobile home park”, while working through various problems; that both parties were in breach of obligations; and, that each party overlooked the other’s breaches, hoping against hope the problems with the deal could be straightened out.
In essence, seller was arguing that the arbitrator made an error of fact or law – and that’s not a case where the arbitrator exceeds his powers. Here, the arbitrator’s award passed muster, because it bore “some rational relationship to the contract and the breach.” Advanced Micro Devices, Inc. v. Intel Corp., 9 Cal.4th 362, 381 (1994).
Affirmed.
Arbitration/Correction by Arbitrator/Fees: Arbitrator Exceeded Power By Substantively Revising Final Award
Also, JAMS Rules Did Not Enlarge Arbitrator’s Powers To Correct Final Award.
Cooper v. Lavely & Singer, Case No. B251508 (2/4 Sept. 26, 2014) (Manella, Epstein, Willhite) (published) offers a very instructive discussion about correction of an arbitration award. Perhaps the best lesson here is for arbitrators – be careful about issuing dicey final awards that may require further tinkering.
The key statutory provisions at issue in Cooper are: CCP section 1286.2, providing grounds for vacating an award by the court; section 1286.6, providing grounds for the court to correct an award; and, section 1284 providing grounds for an arbitrator to correct an award – which, however, precludes an arbitrator from making a substantive change that affects the merits of the final decision. See CCP sections 1284 and 1286.6(b), which work in tandem.
In an attorney fee dispute between client Cooper and law firm Lavely & Singer, the arbitrator issued a Final Award declaring the law firm the prevailing party, but denying fees to it, because it appeared that the law firm had represented itself in the litigation. However, after Lavely & Singer submitted a motion for "correction, modification and/or reconsideration of the Final Award," the arbitrator concluded that reconsideration was proper, and issued a Revised Final Award, incorporating the Final Award, and including attorney’s fees.
The problem here is that "Section 1284 prohibits substantive amendments to final awards to include new awards of attorney fees." Section 1284 allows an arbitrator latitude to make other types of changes, where, for example, there is a miscalculation of figures, or the award is imperfect as to form. And there is even a further nonstatutory amendment doctrine, allowing the arbitrator to amend an award to include rulings on mistakenly omitted issues. Because the Revised Final Award here purported to eliminate substantive errors in the Final Award, it simply couldn’t be shoe-horned into any of the narrow exceptions that allow for amendment by the arbitrator.
However, the parties had agreed to be governed by JAMS rules, leaving as a “key issue . . . whether the parties . . . expanded the scope of the arbitrator’s ability to modify a final award beyond that granted by section 1284.” After all, some of the CCP rules governing arbitration can be governed by agreement of the parties, and whereas other rules will always, as a matter of policy, take priority over a private agreement. The JAMS rules, however, contain the further provision that “If any of these Rules . . . is determined to be in conflict with a provision of applicable law, the provision of law will govern over the Rule in conflict . . . “ Therefore, the Court of Appeal is able to conclude here, on these facts, that by agreeing to arbitrate under JAMS rules, the parties “did not attempt to modify section 1284 to permit substantive revisions of an award that was final for purposes of that statute . . . “
Here, the arbitrator, hamstrung by the earlier issuance of a Final Award, would have had more flexibility if an Interim Award had been issued.
So in the end, trial court erred by denying Cooper’s petition to vacate the fee award contained in the Revised Final Award. Thus, Lively & Singer is the prevailing party – but it doesn’t get attorney’s fees incurred in the arbitration.
COMMENT: By concluding here that the parties, by agreeing to JAMS rules, did not intend to modify section 1284, the Court leaves it for another day to decide whether section 1284 could be modified by agreement of the parties to devise a more flexible procedure for correcting an award.
Arbitration/Correction of Award/1286.6: Arbitrator Did Not Exceed Her Powers In Calculating Damages, Where Appellant Was Ordered To Produce Documentation Of Manufacturing Costs And Failed To Do So
Maxim of Equity: “No one can take advantage of his own wrong.” (Civ. Code, section 3517).
Defendant/Appellant Donn Zellet appealed from a judgment confirming an arbitration award for $376,418 in damages, contending the arbitrator exceeded her powers in grossly miscalculating damages, and the superior court erred in not correcting the award. Clark v. Zellet, Case No. B251728 (2/6 Sept. 22, 2014) (Yegan, Gilbert, Perren) (unpublished).
Zellet argued the superior court should have subtracted plaintiff’s manufacturing cost from plaintiff’s unit cost for items sold. “The argument fails because Zellet was ordered to produce records of the manufacturing and production costs but refused to do so.” True, contract damages must be clearly ascertainable. But: “The corollary to this rule is that ‘[o]ne whose conduct has rendered difficult the ascertainment of . . . damages cannot escape liability because the damages could not be measured with exactness. [Citations.]” Zinn v. Ex-Cell-O Corp., 24 Cal.2d 290, 297-298 (1944).
Affirmed.
Arbitration/Nonsignatories/Fees: Double Whammy–Judgment Confirming Arbitration Award With Party Who Didn’t Sign Arbitration Agreement Is Reversed And Denial Of Fee Award To Party Who Had Prevailed At Arbitration Is Affirmed
Guerra v. Aurora Loan Services, LLC, HO38331 (6th Dist. Sept. 19, 2014) (Mihara, Elia, Grover) (unpublished).
Chairez and Guerra entered into a “LEASE AGREEMENT with OPTION TO PURCHASE & EXTEND” (agreement) relating to a property at which Chairez and Guerra lived. Chairez borrowed $1.1 million against the property and defaulted on the loan, resulting in nonjudicial foreclosure proceedings by Aurora. Aurora also brought an unlawful detainer action against Guerra, and Guerra successfully moved to compel arbitration under the agreement.
Guerra did well in the arbitration. The arbitrator ordered Aurora to grant the property to him, to cancel the note, to reconvey the deed of trust, and to pay $14K in attorneys fees.
The appeal by Aurora yielded a reversal. Aurora was a nonsignatory to the arbitration agreement between Chairez and Guerra. Aurora was not a beneficiary of the agreement. And the relationship between Chairez and Aurora, i.e., between borrower and lender, was different than the types of relationships such as principal and agent or employer and employee, where the identity of interest is sufficient to bind a nonsignatory to an arbitration agreement. Hence, the trial court erred by ordering arbitration.
Guerra v. Aurora Loan Services, Inc., H038813 (6th Dist. Sept. 19, 2014) (Mihara, Elia, Grover) (unpublished).
Interestingly, on the basis the the Court of Appeal determined that it was improper to compel arbitration – namely, Aurora was a nonsignatory to the arbitration agreement – the trial judge denied attorney’s fees to Guerra, even though he had prevailed in the arbitration. Because the Court of Appeal reversed the judgment confirming the arbitration award (see above), Guerra was not a prevailing party, and therefore the order denying him attorney’s fees was affirmed.
Arbitration/Record: Second District, Div 5 Affirms Order Staying Nonsignatory Plaintiffs’ Attorney Malpractice Claim Until After Arbitration, Based On Defendants’ Failure To Provide An Adequate Record For Appeal
Inadequate Record Is Basis For Affirmance
The trial court orders the signatories to an arbitration agreement to arbitrate, while staying the matter as to the nonsignatory plaintiffs’ sole claim for attorney malpractice. Defendants appeal from the order staying the nonsignatory plaintiffs’ attorney malpractice claim until after arbitration. Defendants appeal. Mouradian v. Jehdian, Case No. B251932 (2/5 Sept. 19, 2014) (Turner, Kriegler, Mink) (unpublished).
“Without a proper record,” explains the Court of Appeal, “we cannot determine what happened [below] . . . In numerous situations, courts have refused to reach the merits of an appellant’s claims where no reporter’s transcript of a pertinent proceeding or a suitable substitute has been provided.”
Affirmed.
Arbitration/Disclosures: Arbitrator’s Failure To Timely Disclose He Attended Memorial Service For Attorney Directly Implicated In Legal Malpractice Claim Results In Reversal Of Order Confirming Award
No Good Deed Goes Unpunished . . .
Here, the Court of Appeal reverses the order affirming the arbitrator’s award because the arbitrator, distinguished retired judge Eli Chernow, failed to timely disclose that he had attended the memorial service for attorney Steven Knowles, who “was directly implicated in the legal malpractice claim” brought by plaintiff. The late Mr. Knowles had been deposed during the course of the arbitration. Though not named as a party, Mr. Knowles had been the initial lead attorney for plaintiff Evans while Mr. Knowles was an attorney with defendant Trope & Trope. Evans v. Trope & Trope, Case No. B252833 (2/5 Sept. 18, 2013) (Turner, with Mink and Mosk concurring) (unpublished).
The Court of Appeal is at pains to point out that Retired Judge Chernow behaved without a display of bias. For example, ”Judge Chernow issued a patient, dignified and courteous admonition concerning Mr. Trope’s conduct,” sometime after the admittedly thick-skinned plaintiff’s attorney complained, “Mr. Trope called me a ‘lying sack of sh-t.’” The Court also is at pains to state, “We are not finding actual bias existed.” Calling the case a “close one,” the Court nevertheless reverses the order confirming the award in favor of Trope & Trope, concluding “attendance at the celebration would cause a person aware of the facts to reasonably entertain a doubt that the Judge Chernow would be able to be impartial.”
However, the Court also holds the arbitration provision is not unconscionable, despite its requirement that the arbitrator must be a retired LASC judge who sat in the family law department and “who is currently active as a reference judicial officer handling family law matters.” Trope & Trope is the most prominent family law firm in Los Angeles, famous for the high profile cases it has handled over the years.
Connect the dots.
And that’s just what Justice Mosk, concurring, does. He believes “the arbitration clause in this case could have been found unconscionable, depending on the facts.” (my italics). “There could be no reason for such a restrictive clause,” explains Justice Mosk, “other than to insure that the arbitrator might well have some likelihood of being retained by or selected by Trope & Trope in the future.” This “repeat player” situation, in which “the arbitrator is likely to be utilized by one of the parties in the future”, seems calculated to give Trope & Trope an advantage. However, Justice Mosk concedes that in this particular case, there is “no evidence as to the effect of such a clause.” Just based on the record, unconscionability simply hasn’t been established.
COMMENT: Justice Mosk’s concurrence leaves open the door for someone to argue, upon a different record, that a similar clause does lead to a substantively unconscionable unfair advantage.