California Mediation and Arbitration

Arbitration/Scope: Coverage And Policy Interpretation Disputes Are Beyond Scope Of Agreement To Arbitrate Appraisal Dispute

Court Of Appeal Affirms Order Denying Policy Holder’s Petition To Compel Arbitration Of Appraisal Dispute.

      Despite countervailing considerations that favor arbitration, California courts continue to deny petitions to compel arbitration for the simplest of reasons:  the dispute is beyond the scope of the arbitration agreement.  Such was the case in Moghtader v. Travelers Commercial Insurance Company, B254173 (2/8 Dec. 4, 2014) (Rubin, Flier, Grimes) (unpublished).

     After Dr. Moghtader’s two-level exterior deck on his Hollywood Hills home was damaged by fire, he and his attorney entered into a to-and-fro with his insurance company, Travelers, to get the repair costs paid.  Evidently, the insurance company refused to cover costs related to expensive steel support beams allegedly required by a change in city building codes.

      Fire insurance policies in California include a provision requiring the parties to participate in an appraisal when they cannot agree on the amount of loss of covered items.  Ins. Code, sections 2070, 2071.  The appraisal provision is an agreement for contractual arbitration.  At loggerheads, Dr. Moghtader petitioned to arbitrate.  (Note on usage:  The first known use of “loggerheads” in print is in Francis Kirkman's, The English Rogue, 1680:  "They frequently quarrell'd about their Sicilian wenches, and indeed... they seem... to be worth the going to Logger-heads for.")

     The trial court denied his petition, and the Court of Appeal affirmed, explaining:  “In essence Moghtader wants to convert an agreement to appraise valuation disputes into an agreement to also resolve policy interpretation disputes by having the trial court resolve the latter when ruling on a petition to compel arbitration.”  Put another way, the coverage dispute was beyond the scope of the arbitration agreement.

     The ultimate outcome remains to be seen, as Dr. Moghtader has sued his insurance company.

Scope Of Arbitration: Dispute Was Outside Scope Of Arbitration Provision Relating To Conflicts Of Interest, As Court Of Appeal Refuses To “Handcuff” Parties To Position Taken In Discovery

Plaintiffs Manage To Distance Themselves From Discovery Response, Allowing Them To Avoid Having To Arbitrate Their Malpractice Claims.

     By a deft interrogatory, Defendant tried to corner Plaintiffs into having to arbitrate their malpractice claims in LADT, LLC v. Greenberg Traurig, LLP, B246649 (2/1 Nov. 25, 2014) (Miller, Rothschild, Johnson) (unpublished).

     The gravamen of Plaintiffs’ claim was that Greenberg Traurig drafted real estate documents “in a sloppy, ambiguous, inconsistent, incomprehensible manner that led to costly litigation and multimillion-dollar judgments against some of the plaintiffs.”

     Greenberg, Traurig zinged Plaintiffs with an interrogatory, asking if they contended the law firm “had an unwaived conflict of interest in its representation”.  Plaintiffs swallowed the bait and answered, “Yes.”  Plaintiffs’ answer set them up for Greenberg Traurig’s motion to compel arbitration, because Plaintiffs had signed a Conflict Waiver and Arbitration Letter including an arbitration clause.  The trial court, however, denied the motion to compel, and the law firm appealed.

     Affirmed.

     Why?  The arbitration provision only applied to claims arising from or relating to the Conflict Disclosure and Waiver Agreement.  Even though Plaintiffs answered the interrogatory by contending that there was an unwaivable conflict, Plaintiffs were able to nimbly distance themselves from their discovery response, “saying in essence that, even though such a conflict existed, they were not pursuing any claim based on any conflict of interest.”   

      Put another way, the gravamen of Plaintiffs’ claim – malpractice – was simply outside the scope of the narrow arbitration agreement once Plaintiffs clarified that they were not pursuing a claim based on conflict of interest.

Gateway Issues: A Primer On Arbitrability

Richard Chernick, Esq. of JAMS Has Written “A Primer On Arbitrability”.

     I have posted frequently about “gateway” arbitrability issues, including recent developments concerning gateway arbitrability issues in class and representative actions, and distinctions between substantive and procedural gateway arbitrability issues.  See my posts of November 17, 2014, and October 13, 2014.  In fact, “Gateway Issues” is one of this blawg’s sidebar categories.

    Richard Chernick, Vice President and Managing Director of JAMS’ arbitration practice, has a concise Primer on Arbitrability available on line.  Here is the link.

Vacatur: Arbitrator’s Consideration Of Theory Allegedly Not Asserted In Complaint Was No Ground To Vacate Award

Arbitrator Did Not Exceed Powers Or Commit Misconduct.

     We see many cases in which a party seeks to vacate an award on the grounds the arbitrator exceeded his or her powers.  This is usually an uphill battle, as it was in our next case.

     The plaintiff received an arbitrator’s award in the amount of $524,069.86 for architectural services, and confirmed the award.  Defendants contended the trial court erred in declining to vacate the award, and appealed. Dighe v. Dutt, B248363 (2/1 Oct. 29, 2014) (Chavez, Boren, Hoffstadt) (unpublished).

     Appellants argued that the trial court erred in determining the arbitrator didn’t exceed his powers in granting the award based on a theory of implied-in-fact contract, when no such theory was asserted in the complaint, and furthermore, and also argued that the arbitrator’s act of considering the unpleaded theory constituted misconduct under CCP 1286.2(a)(3).  The Court of Appeal rejected appellant’s arguments.

     The arbitration clause was brought enough to include claims “arising out of or relating to” the agreement – language broad enough to include an implied-in-fact agreement.  And the complaint sought money owed for professional services – a claim not necessarily limited to the written contracts.  As for the “misconduct” argument, the Court of Appeal observed, “[a]ppellants cite no authority. . . “

     Affirmed.

Arbitration/Vacatur/Public Policy: Arbitrator Did Not Exceed Powers By Not Providing For Greater Inspection Of Documents

Arbitrator Did Not Exceed Jurisdiction Because Awards Ruling On Access To Records Did Not Violate Public Policy.

     Sometimes the Court’s weariness with a dispute drips onto the page as in this description of an appeal from judgments entered after the trial court denied petitions “to vacate the most recent arbitration awards in a decade-long dispute pitting plaintiff against his brothers . . . “  One can hear the justices collectively sigh in a footnote reciting that the arbitrator “had issued awards concerning the parties in July 2005, September 2006, August 2008, May 2009, July 2010, and March 2011.”

     Plaintiff had filed two petitions to vacate two 2012 awards. Plaintiff’s petitions failed, and so plaintiff appealed. The plaintiff’s chief argument on appeal was that the arbitrator had exceeded its powers by denying him a right to a complete review and inspection of records of various business entities. 

     However, the parties had submitted their entire dispute to the arbitrator, agreeing to arbitrate the disclosure of the entities’ documents.  The submission agreement also covered future disputes over access to documents.  And “parties may submit for decision issues they were not contractually compelled to submit to arbitration,” in which event courts look to “both the contract and to the scope of the submissions to determine the arbitrator’s authority.”  Porter v. Golden Eagle Ins. Co., 43 Cal. App.4th 1282, 1291 (1996).  By submitting the access issue to the arbitrator in 2009, the plaintiff recognized the arbitrator’s ongoing jurisdiction over the entities’ document production obligation.

     Plaintiff had one last argument:  failure to allow further access to documentation ran contrary to public policy, and therefore provided a ground for vacating the arbitrator’s award.  Not so, said the Court of Appeal – plaintiff had been receiving copies, and whether he received copies or originals was not a public policy issue. 

     The Court of Appeal also noted that “plaintiff cites us to no case or statute that makes an ‘explicit expression of public policy’ “ behind the Corporation Code’s requirements of access to books and records.  Perhaps so, though you and I can probably think of a host of public policy reasons for requiring that shareholders and partners shoud have access to business records. 

      The affirmance was penned by Justice Aldrich.  Soroudi v. Heritage Group Associates, B245590 (2/3 Oct. 21, 2014) (unpublished).  

      NOTE:  This is the second time I have reported on a case in which the arbitral forum was a Beth Din, a Jewish rabbinical court.

Arbitration/Agents/Nonsignatories/Scope: Executives Sued As Agents Of Company Entitled To Take Advantage Of Arbitration Provision In Contract Between Company And Shareholder

     Plaintiff Alston, the founder of GB, brought a private equity firm into GB in exchange for the firm’s investment in GB to help build the company.  Fast forward -- Alston is terminated by GB as a director, and sues GB and two executives, alleging misrepresentation, declaratory relief, defamation, interference, and wrongful termination.  Because Alston has an arbitration agreement with GB, defendants successfully move to compel arbitration.  Arbitration does not go well for Alston, who unsuccessfully petitions to vacate an adverse award.  Alston timely appeals from judgment, arguing the trial court erred by sending the entire case to arbitration.   Alston v. Hoge, A139778 (1/1 July 29, 2014) (Margulies, Dondero, Banke) (unpublished).

     Alston’s chief argument on appeal is that the executives, who are not signatories to his agreement with GB, cannot enforce the arbitration agreement.  However, the Court of Appeal disagrees, relying on the principle, “that agents of a signatory party, sued in that capacity by another party to an agreement, are entitled to the benefit of the agreement’s arbitration provisions.” 

      The remaining issue was whether the scope of the arbitration agreement was sufficiently broad to cover all of Alston’s claims.  Yes:  “The arbitration agreement in this case covered all claims, disputes, and controversies of any nature arising out of or relating to (1) the Agreement; (2) the interpretation, enforcement, breach, performance, or execution of the Agreement; and (3) Alston’s ‘relationship’ with GB or the termination of that relationship.”

     A simple affirmance of the judgment.

Arbitration/Standard of Review: Arbitrator Acted Within Power Under Arbitration Clause In Awarding Fees, But Sanctions Award Is Denied As Appeal Was Not Wholly Frivolous

Standard Of Review Pretty Much Ordained The Result Here, And Nothing Was Changed By Appealing

     This is one of those “Cain v. Abel” disputes, in which beneficiaries/brothers (Douglas and Martin Buser), fought over their parents’ family trust.  It appears Douglas fought tooth and nail, but unsuccessfully, getting hit with attorney’s fees assessed against his share of the trust estate, and monetary sanctions for his pursuit of an unmeritorious renewed motion or reconsideration petition.  Buser v. Buser, D63381 (4th Dist. Div. 1 July 3, 2014) (Huffman, McIntyre, Aaron) (unpublished).  Nothing was changed by Douglas’ appeal, except that Martin failed to get appellate sanctions, because the Court could not say that Douglas’ appeal was wholly frivolous.

     The battling brothers had agreed to a settlement that included a broad arbitration provision, which settlement the trial court enforced, sending the disputed matters to arbitration.  Because the brothers’ dispute was resolved with an arbitration award, the losing brother, Douglas, had a tough row to hoe to try and show the arbitrator exceeded his powers.  As the Court made clear:

"’Our review of an arbitration award requires us to extend to it every intendment of validity and the party claiming error has the burden of supporting his contention.’ (Ibid., citing Cobler v. Stanley, Barber, Southard, Brown & Associates (1990) 217 Cal.App.3d 518, 526 (Cobler).)  It is well accepted ‘ “ ‘[t]he powers of an arbitrator are limited and circumscribed by the agreement or stipulation of submission.’”’”

Arbitration/Scope: Arbitration Provision In Operating Agreement Of LLC Investment Vehicle Does Not Govern Relationship Between Investors And Investment Advisor

 

Basis For The Wrongs Alleged By Plaintiffs Was A Separate Investment Services Agreement Containing No Arbitration Provision

     Stephen Goldberg and Victoria Pynchon sued their investment advisors, Coggins Company, for breach of contract, professional negligence, and other claims relating to a real estate investment gone sour in Wildomar Investors, LLC. Among other things, Plaintiffs alleged that Defendants had an undisclosed interest in the LLC, resulting in a possible conflict of interest, and that Defendants mislead Plaintiffs into believing that they had purchased one investment unit, while concealing that Plaintiffs had purchased two units in the LLC.  Defendants petitioned to compel arbitration, based on a broadly worded arbitration provision in the LLC operating agreement.  The trial court denied the petition on the grounds that “defendants’ allegedly deceptive investment actions arose out of the investment services agreement, and not the Wildomar operating agreement.”  Defendants appealed. Goldberg v. The Coggins Company, Case No. B245236 (2nd Dist. Div. 2 Sept. 14, 2013) (Chavez, J., author 3:0) (unpublished).

     The Court of Appeal agreed with the trial court that the wrongs alleged by the investors were governed by the investment services agreement, which lacked an arbitration provision, rather than the the LLC operating agreement, which contained the arbitration provision.  The investment services agreement and the LLC operating agreement “involved separate enterprises, separate risks, and separate contractual relationships.”

      Affirmed. 

“Cursed by those whose savings he has squandered and whose trust he has betrayed.”  “Illustration shows a man, probably Charles Sanger Mellen, standing amid a crowd of angry investors who have lost their savings and investments due to mismanagement of the New Haven Railroad.”  Puck, 1913.  Library of Congress.

Arbitration/Scope/Costs: Arbitrator’s Failure To Declare Prevailing Party And Denial Of Statutory Costs To Winner No Ground For Reversal

Arbitration, Law, and Equity

     Our next case reminds me of a hoary legal story.  Clarence Darrow handles a legal matter for William Randolph Hearst, and telegrams him:  “Justice has prevailed.”  Hearst’s reply:  “Appeal immediately!” 

     Appealing an arbitration result is often a long shot, because arbitration is more geared to equity and finality than to legal exactitude.

     The point is brought home in Plummer v. Day/Eisenberg, Case No. G046567 (4^th Dist., Div. 3 Mar. 22, 2013) (Ikola, J., author; 3-0) (unpublished).  The arbitrator’s failure to declare a prevailing party and denial of statutory costs to the winner did not permit a different result.  “An arbitrator does not exceed his or her powers by deciding an issue submitted for arbitration under the arbitration agreement. (Pierotti v. Torian (2000) 81 Cal.App.4th 17, 25 (Pierotti); see also Corona v. Amherst Partners (2003) 107 Cal.App.4th 701, 705 (Corona) [scope of arbitration and powers of arbitrator defined in accordance with agreement].)”  Here, the submission to the arbitrator was broad enough to include the question of costs.  And an error of fact or law is ordinarily not reason enough to reverse a judgment confirming an arbitrator’s award.

     Judgment affirmed. 

     

 

     

Scope of Arbitrator’s Power: Arbitrator Did Not Exceed Scope of His Power When He Denied A Motion For An Uncontested Arbitration

Result Is Dictated By Stipulation to Arbitrate, Weak Record, and Failure To Object Earlier

Wheel of Fortune.  Carol M. Highsmith, photographer.  Between 1980 – 2006.  Library of Congress.

     Plaintiff Jin Gang Zhao was on a bus headed to a casino, when a bus accident occurred, he fell to the floor, and injured his back.  In the ensuing arbitration, Mr. Zhao was awarded $15,000 in damages against a dissolved bus company located in China, and defendant was awarded $26,268.03 in costs.  The Arbitrator apparently rejected the plaintiff’s objection that injury in the bus accident drove plaintiff to drink “Red Sorghum,” a strong Chinese liquor, causing him to suffer liver damage.  Plaintiff appealed confirmation of the arbitration award on the grounds that the stipulation to arbitrate was invalid, and the Arbitrator exceeded the scope of his power by denying plaintiff’s motion for an uncontested arbitration.  Zhao v. Ming Du International Trade, Inc., Case No. B236813 (2nd Dist. Div. 5 January 7, 2013) (Turner, P.J., author) (unpublished).

     The wrinkle here is that the defendant was dissolved and absent from the US, did not sign the stipulation to arbitrate, and did not show up at the hearing.  Because the defendant did not sign the stipulation, plaintiff argued it was invalid.  And because defendant did not show up at the hearing, despite a notice to attend, plaintiff argued that the arbitration should have been tried as an uncontested matter.

     But the Court of Appeal did not agree with plaintiff.  The defendant didn’t sign the stipulation, but its carrier did, and no evidence was offered that plaintiff objected, or that the carrier lacked agency authority.  True, defendant failed to appear for the hearing, but the Court of Appeal explained, “it is clear that the very intention of the stipulation was to have the matter proceed to a contested binding arbitration, otherwise the stipulation itself makes no sense.”  The stipulation provided that the Arbitrator “[i]n his sole discretion” would control proceedings and regulate the order of proof, and determine all questions submitted to the Arbitrator.  Result:  “The arbitrator acted well within the scope of his powers.” 

     Thus, the plaintiff was stuck with the outcome, as the arbitration award was affirmed.

     Of course, the plaintiff and his counsel didn’t have to sign the stipulation to arbitrate, but absent 20/20 hindsight, plaintiff and his counsel could not know the result would be unfavorable.