California Mediation and Arbitration

Arbitration: Parties Are Entitled To Prejudgment Interest During Time The Trial Court Vacated Arbitration Award In Their Favor And Reinstatement Of The Award

 

Issue of First Impression in California

     Tenzera, Inc. v. Osterman, B228189 (2^nd Dist. Div. 3 April 19, 2012) presents “what appears to be an issue of first impression in California.” That issue is whether prevailing parties in an arbitration “are entitled to prejudgment interest between the time the trial court vacated the arbitration award in their favor and our reinstatement of the award in the previous appeal in this case.”

     Before an earlier appeal (Tenzera I), the trial court had vacated the arbitration award in favor of the Ostermans as to all parties, even though the company, Tenzera, Inc., did not seek to vacate the award. In Tenzera I, the Court of Appeal held the trial court should have modified the award to reflect that only the company was liable. On remand, the trial court did not award interest that would have accrued during the pendency of the appeal in Tenzera I, reasoning that during this appeal, the company was “prevented by law” from paying the arbitration award.

     Not so said the Court of Appeal this time around. A prevailing party in arbitration is entitled to prejudgment interest as of the date of the final award to entry of judgment. Thoughout the appeal in Tenzera I, “damages were certain and there was no dispute between the parties concerning the basis of computing those damages.” Nor was the company “prevented by law” from paying – that exception is very narrowly construed, and did not apply under the facts here.

     The opinion was authored by Justice Aldrich. It is certified for partial publication – the unpublished part pertains to attorney’s fees, and the published party pertains to the prejudgment interest “issue of first impression”.

Illegality/Enforceability: Arbitration Agreement with Unlicensed Contractor May Still Be Enforceable

 

Fifth District Finds That The Contract Containing the Arbitration Clause Is Not Automatically Unenforceable

     With limited exceptions, an unlicensed contractor will find it impossible to collect payment, and may also have to disgorge payments already made. Can an award in favor of the client of an unlicensed contractor be set aside on the grounds of illegality? Our next case, Templo Calvario Spanish Assembly of God v. Gardner, 198 Cal.App.4th 509, 129 Cal.Rptr.3d 574 (2011), answers “no,” at least not when it is the unlicensed contractor trying to avoid the arbitration award.

     In Templo Calvario, the dispute between the church and the unlicensed contractor who had agreed to construct the church was subject to an arbitration clause. The arbitrator’s award required the unlicensed contractor to disgorge its fees. The trial court sided with the view that the contract with the unlicensed contractor could not be enforced, because void and illegal, and granted the contractor’s petition to vacate the award.

     The church appealed, and the Court of Appeal reversed the order that had vacated the award. Relying on MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc., 36 Cal.4th 412, 30 Cal.Rptr.3d 755 (2005) (MW Erectors), the court held that the contract containing the arbitration provision was not automatically illegal and void just because the contractor was unlicensed. MW Erectors had held that a contract entered into by an unlicensed contractor was not void under circumstances where the contractor became licensed during the course of its work.

     The Court of Appeal was not persuaded by the California Supreme Court holding in an older case, Loving & Evans v. Blick, 33 Cal.2d 603 (1949) (Loving & Evans). In Loving & Evans, the Supreme Court held that an arbitration clause could not be relied upon by the unlicensed contractor to compel arbitration. Loving & Evans is distinguishable, because in that case, it was the unlicensed contractor seeking to take advantage of the illegality of the provision to compel arbitration, and the Supreme Court refused to allow that. But the Court of Appeal noted that the Supreme Court, in MW Erectors, described Loving & Evans as not a “modern case,” implicitly overruling the holding that a contract containing the arbitration provision was void ab initio, just because the contractor was unlicensed.