Harshad & Nasir Corp. v. Global Sign Systems, No. B269429 (D2d1 Aug. 15, 2107)
The posture here is pretty odd. SignCo sued BurgerCo over $100k in unpaid invoices. The case went all the way through discovery, but three weeks before trial, the parties agreed to arbitrate whatever amounts BurgerCo owed SignCo for services rendered, with the arbitrator to act as if he were a superior court judge subject to the Code, and that the arbitrator’s award would be reviewed just as if it were the judgment of the superior court. Basically, they agreed to an arbitration that had all of the characteristics of a judicial reference.
Something weird happened during the arbitration, which was supposed to be resolved in a one-day hearing within twenty days of the arbitrator’s appointment, with a decision within ninety days thereafter. SignCo.’s claims apparently morphed into an allegation that BurgerCo totally breached some larger agreement to perform all of BurgerCo’s sign work—an oral/email hybrid contract that apparently had never been reduced to a formal writing. Five years later, after a number of shaky-seeming interim rulings, the arbitrator awarded $1 million in damages, mostly in the form of lost profits, $1.1 million in costs and attorneys fees, and $700k in prejudgment interest. The arbitrator also added a number of BurgerCo’s Franchisees as debtors on the judgment.
The trial court confirmed the award against BurgerCo but vacated the award against the Franchisees. It also denied everyone’s requests to get post-award attorneys’ fees, but held that such fees could be awarded in the discretion of the arbitrator. Everyone appealed.
The Court of Appeal’s discussion begins by dropping a footnote complaining that SignCo’s brief lacks proper citations to the record under CRC 8.204(a)(1)(C). Which is never a good sign in appellate practice. If you get this footnote complaining about your brief—which seems to be popping up a lot lately—consider it a kind of judicial foreshadowing.
Regardless, the first question is the standard of review. Generally, arbitration awards are reviewed under a very differential standard, which does not permit a court to upset an award based on factual or legal error alone. But under the California Supreme Court’s decision in Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal. 4th 1334, 1360 (2008), parties to an arbitration agreement can contract around that rule by declining to give the arbitrator any authority to make factual or legal errors. Which is what the parties did here, albeit using language a little different than Cable Connection. So the trial court should have reviewed, and the Court of Appeal can review, the merits of the ruling.
And on the merits, the problem is that the evidence the work that was subject to the alleged oral contract was anticipated to be performed over eighteen to thirty-six months. Which means the statute of frauds under Civil Code § 1624(a) applied. There was basically no evidence that BurgerCo actually hired SignCo to do the work—everything pointed to BurgerCo’s merely permitting SignCo to do estimates and make a proposal. But even if it did, there was no writing signed by BurgerCo to satisfy the statute. So to the extent that the award exceeded the claim for upaid work that was actually performed it was in error. Moreover, because the ruling is based on the complete absence of substantial evidence, no remand or new arbitration can be had—BergerCo is entitled to judgment.
Moreover, the arbitration agreement here was also unusual in that it was entered post-dispute. The parties agreed to arbitrate the claims that were about to go to trial—claims about nonpayment for work that SignCo had already performed for BurgerCo. It said nothing about claims for lost profits for a breach of a much larger contract for unperformed future work. So the arbitrator never had the authority to reach the issue in the first place.
Nor did the arbitrator have any basis to add in the Franchisees. Like the lost profits claim, nothing in the parties’ agreement to send the case to arbitrator gave the arbitrator the authority to add judgment debtors who had never been joined in the case.
As for the denials of the fee awards, those orders aren’t technically appealable because they weren’t final—the trial court said that it was up to the arbitrator to decide them. But in extraordinary situations the Court of Appeal can treat an unripe appeal as a writ, which it did so here. And given that all of the fee awards were premised on SignCo’s assertion of the arbitrator’s power to award post-arbitration fees to SignCo as a prevailing party, there was no longer any basis for an award.
Affirmed in part, reversed in part, writ granted.
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