Too Late to Vacate

Bacall v. Shumway, No. B32787 (D2d8 Mar. 16, 2021)

An arbitrator partially cancelled a contract after finding that some of the services provided under it included the unlicensed practice of law because Attorney let his license lapse during the period of performance. In moving to vacate the award, Attorney and his company argue that the arbitrator violated public policy in making that finding—this exceeding his authority—and committed misconduct by failing to consider arguments related to costs and fees. The trial court rejected those arguments, and now the Court of Appeal does too.

On the authority point, Attorney points to a line of cases where courts have vacated arbitral awards premised on the enforcement of contracts that would be illegal under California law. (Much like this recent case, where the Court of Appeal vacated an award declining to void a non-compete.) But the facts here are the other way—the arbitrator declined to enforce the contract because it was partially illegal. So the same policy isn’t implicated.  

On the misconduct, Attorney seems to have blew the Arbitrator’s deadline to respond to Client’s fee request. After the award issued, Attorney requested to file an opposition. The Arbitrator considered the late opposition to be a request to modify the award and—under the applicable AAA Commercial Rules—ruled that he lacked the authority to re-determine an issue that had already been decided. Although Attorney tries to frame the issue as a refusal to consider evidence, it’s really not. Attorney had a chance to oppose the fee request. The fact that he blew the deadline did not mean that the arbitrator committed misconduct meriting vacation of the award under Code of Civil Procedure 1281.2 in rejecting the late arguments.

Affirmed.

Some Stuff About Arbitration Awards

EHM Prods., Inc. v. Starline Tours of Hollywood, Inc., No. B281594 (Mar. 28, 2018)

This short opinion about arbitration awards seems pretty straightforward. But when you scratch the surface there’s a bunch of interesting stuff going on.

Re-Do Provision in Arb Agrement Enforced

Condon v. Daland Nissan, Inc., No. A145613 (D1d1 Nov. 29, 2016) 

The Parties’ arbitration agreement contains a provision that permits a de novo arbitration before a three-arbitrator panel if a single arbitrator gives an award of $0 or over $100k. Plaintiff wins $180k, but the arbitral body refuses to constitute a de novo panel based on the fact that it doesn’t have appellate rules. On confirmation of the award, the superior court similarly declines to order a de novo arbitration. 

But they were both wrong.
 
The parties agreed to a de novo arbitration (not an arbitration appeal) if the original results fell outside an agreed band. The original arbitration did, in fact, result in an award over the band. The fact that the arbitral body didn’t have specific appellate rules doesn’t brook otherwise. So the trial court erred in refusing to compel the parties to use the de novo procedure they had agreed to.

Affirmed.

Arb Judgment Survives Illegality Challenge

Epic Medical Mgm’t LLC v. Paquette, No. B261541 (D2d8 Jan. 28, 2016)

A doctor and his practice management company got into a dispute that went to arbitration. The management company won. But the doctor moved to vacate the award on the grounds that the contract, as interpreted by the arbitrator, was an illegal kickback agreement for patient referrals, and thus that it was beyond the arbitrator’s power to award any damages based on it. The doctor also claimed that the arbitrator’s interpretation created a brand new agreement, which was beyond her power, and that she improperly limited the doctor’s testimony. The trial court denied the motion and the Court of Appeal affirms.
 
So far as the “new agreement” claim goes, arbitrators generally don’t have the power to invent new agreements between the parties. But they can interpret existing agreements, including by finding that the parties orally modified written agreements or that their conduct evidenced implied consent to changes in terms. Which is what happened here. The arbitrator found that the parties implicitly agreed to a payment structure that was different than that in the written agreement. Indeed, they acted in accord with that change for three years. So that’s not a grounds to vacate.
 
As to the point about illegality, California recognizes an extremely limited exception to the enforceability of arbitration awards when enforcing the award would contravene a strong statutory or public policy to the extent it overcomes the presumption in favor of arbitration of disputes. (E.g., confirming an arbitrator’s injunction to enforce a California non-compete.) The doctor points to Business & Professions Code § 650(a), which prohibits patient referral fees for doctors. But § 650(b) has an exception for fee splits between doctors and management companies commensurate with the value of the services provided. Since that is basically what the award in this case did, it isn’t subject to the exception.
 
Finally, on the doctor’s testimony, the doctor didn’t provide an offer of proof as to what the excluded testimony would have been and how that would potentially have affected the result. Because the record didn’t reflect that the doctor was prohibited from giving testimony bearing on his liability, vacation of the award isn’t warranted.

Affirmed.

Not So Fundamental When Partners Are Involved

Singerlewak LLP v. Gantman, No. B259722 (D2d8 Jul. 29, 2015*)

Substantive judicial review of the correctness of arbitration decisions is extremely limited. California does, however, recognize a narrow exception to that rule: an award may be vacated as beyond the arbitrator’s power if it contravenes an “explicit legislative expression of public policy.” The rule applies only if the award runs afoul of a very important and very clear public policy of the state that has been codified into statute.

Business & Professions Code § 16600—which prohibits employment non-compete agreements—is probably one of those policies. Ask someone about non-competes. If they know anything at all, they know they are basically not enforceable in California. 

But this case involves the enforcement of a non-compete against a partner departing a partnership. So the merits aren’t controlled by § 16600. They are instead are controlled by a special exception in § 16602, which make non-competes are enforceable against ex-partners, so long as they are reasonable and geographically limited. Given the non-categorical nature of §16602, claims that an arbitrator might have erred in applying § 16602 aren’t so anathema to a state statutory policy to fall within the public policy exception. So the trial court here didn’t have authority to review the substance of the award, and it erred with it decided otherwise.

Reversed.

*This case was decided back in July, by ordered published under Rule of Court 8.1120(c) by the California Supreme Court on Oct. 21, 2015. This is due to a glitch in publication rules, where sometimes the Court of Appeal runs out of time under the rules to order publication while it still technically has jurisdiction over the case. (For instance, if rehearing petitions take a long time before eventually being denied.) Rule 8.1220(c) is a fix. The Court of Appeal sends the decision to the Supreme Court and recommends that they order publication, which is what happened here.

Too Late to Dismiss a Related Case

Mesa Shopping Center v. O’Hill, No. G049205 (D4d3 Dec. 23, 2014)

While an arbitration was pending, plaintiff filed this case seeking ancillary declaratory and injunctive relief. It filed a motion for a preliminary injunction, which was denied. Then the case got stayed while the arbitration proceeded. Soon after the arbitrator ruled for defendants, including an award of about $800,000 in fees and costs under a contractual fee provision, plaintiff voluntarily dismissed this case with prejudice. Thereafter, defendants moved to vacate the dismissal and for an award of fees incurred in the court case. The trial court denied the motion.

An Arbitrator Is Free to Make Legal Errors

Safari Assocs. v. Superior Court, No. D065684 (D4d1 Dec. 2, 2014)

In awarding attorneys’ fees to the plaintiff in a breach-of-contract arbitration, an arbitrator declined to apply the agreement’s definition of prevailing party in favor of that provided in § 1717 of the Civil Code. According to the arbitrator,  the Code trumps any conflicting definition in a private agreement. The defendant moved the superior court to have the award corrected on the basis that the arbitrator exceeded his powers by ignoring the contractual definition in making the award. See Cal. Code Civ. Proc. § 1286.6. The trial court agreed; the award was amended. But the court of appeal here grants a writ reversing that decision. The arbitrator’s decision about the fee award was within the scope of his authority. His decision about what definition of prevailing party applied was, at worst, a legal error that is not subject to review by the court.

Writ granted.

Guilty, Guilty, Guilty!

CB Richard Ellis v. Tera Nova Consultants, No. G049803 (D4d3 Oct. 7, 2014)

During an effort put a defunct LLC’s members on the hook for its debts, the trial court let the jury see an arbitral ruling—complete with reasoning and factual findings—against the LLC that was the basis of those debts. That was error in that it potentially suggested that the defendants—nonparties in the arbitration—might be bound by the award. The ruling was also hearsay. The court, however, finds the mistake harmless. 

There’s also a jury misconduct issue. Two jurors submitted very brief declarations under Evidence Code § 1150 that another juror had said he knew the defendants and that they were “guilty, guilty, guilty.” That juror, however, submitted a detailed declaration saying he did nothing of the sort, and the court finds that it was not an abuse of discretion for the trial court to rely on the detailed declaration to deny a new trial motion. That seems right. But as I’ve said before, our courts really need to get out of this business altogether.

Affirmed.