Opinion
A167279
01-29-2024
BARBARA L. MEYER et al., Plaintiffs and Respondents, v. HEALTH BUILDINGS CONSTRUCTION GROUP, INC. et al., Defendants and Appellants.
NOT TO BE PUBLISHED
(Napa County Super. Ct. No. 22CV001152)
Fujisaki, J.
Healthy Buildings Construction Group, Inc. (HBCG), Healthy Buildings Management Group, Inc. (HBMG), and Robert Massaro (collectively appellants) appeal after the trial court confirmed an arbitration award in favor of Napa Creek Village, LLC (NCV), Barbara L. Meyer, and United States Fire Insurance Company (U.S. Fire) (collectively respondents). Appellants contend the court erred in denying their request to vacate the award on the grounds that the arbitrator (1) failed to disclose grounds for disqualification; (2) substantially prejudiced appellants' rights by refusing to permit Massaro to testify as a rebuttal witness, and to postpone the arbitration hearing on good cause shown; and (3) exceeded her powers by awarding damages based on appellants' privileged conduct of recording of mechanic's liens. We will affirm the judgment.
Factual and Procedural Background
The following facts are taken primarily from the arbitration award (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 367, fn. 1 [arbitrator's findings of fact taken as correct without examination of arbitration record]) and are intended to provide a general overview of the case. Additional facts pertinent to the specific issues on appeal are set forth in the corresponding sections of the Discussion, post.
In 2014, Meyer and Massaro formed NCV as a single-purpose entity to facilitate the development of a multifamily residential condominium complex in Napa (hereafter the project). The sole managing member of NCV was Thriving Communities, LLC (Thriving Communities), of which Meyer and Massaro were comanaging members. NCV hired HBMG as the architect and project manager and HBCG as the general contractor. Massaro was the chief executive officer of HBCG and HBMG (collectively the HB entities).
From its outset, the project suffered from financing delays. To continue work on the project as NCV sought to obtain a construction loan, Meyer invested additional equity in the project. As a condition of said investment, Meyer and Massaro agreed to amend the Thriving Communities operating agreement (TCOA) to permit Meyer to take "Capital Member control" from Massaro if certain triggering events occurred. In 2018, New Resource Bank (later acquired by Amalgamated Bank) agreed to extend a $11.5 million construction loan, with a project completion deadline of January 18, 2019.
Construction of the project was hindered by various factors, including heavy rains and wildfires. Although the bank approved an increased budget and schedule extension until December 28, 2019, the project remained incomplete by the extended deadline, resulting in a default on the construction loan. Amalgamated Bank offered to modify the loan so that construction could continue, but Massaro refused to sign a personal guaranty, and thus, the loan remained in default.
Meyer invoked her right under the amended TCOA to remove Massaro from management and to take over as operations manager. NCV then terminated the construction contracts with the HB entities.
After the contract terminations, the HB entities issued invoices claiming over $600,000 in unpaid work and recorded mechanic's liens against the project property. Appellants refused to allow the City of Napa to release the project plans to NCV. They also removed equipment and other materials from the project site and had the power shut off without warning. NCV could not purchase bonds to release the HB entities' liens because the bonding companies were reluctant to bond the liens due to Massaro's association with both the lienors and the owner of the project.
A. NCV Commences Arbitration
In April 2020, Meyer commenced arbitration on behalf of NCV, asserting 15 causes of action for breach of fiduciary duty (against Massaro); interference with NCV's contractual relations with Amalgamated Bank, investors, and subcontractors (against appellants); interference with NCV's prospective economic relations (against appellants); fraud and concealment (against appellants); conversion of tools, equipment, materials, and NCV funds (against Massaro); violation of Health and Safety Code section 19851 (against HBMG); disassociation of Massaro under Corporations Code section 17706.02 (against Massaro); breach of the construction contract (against HBCG); professional negligence (against HBCG); breach of the Professional Services Agreement (PSA) (against HBMG); and professional negligence (against HBMG). The claims were based on allegations that appellants engaged in tortious conduct and breached their contractual and professional obligations to NCV by fraudulently overbilling NCV, manipulating the books for the project, misusing and converting NCV's assets and property, failing to follow approved plans, and undermining the project by obstructing NCV's access to and use of the project plans and other materials.
Appellants filed an answer and counterclaims alleging, among other things, wrongful termination of the construction contracts, fraudulent misrepresentation, and outstanding compensation for their work.
In June 2020, the arbitral tribunal appointed an emergency arbitrator who granted respondents' request for emergency relief. Appellants were ordered to provide copies of the drawings and plans for the project and to generally refrain from conduct intended to harm or interfere with the project. In an amended complaint filed later in the arbitration, respondents alleged that appellants continued to interfere with the project in violation of the emergency order.
B. The HB Entities' Parallel Lawsuit
Meanwhile, the HB entities each filed a complaint in the trial court (case numbers 20CV00621 [the '621 action] and 20CV000622 [the '622 action]) against Meyer and NCV for foreclosure of their mechanic's liens, breach of contract, common count for work, labor, and materials furnished, and quantum meruit.
Meyer and NCV petitioned to compel arbitration of the '621 and '622 actions, and the trial court granted the petitions in substantial part, compelling the parties to arbitrate the claims for breach of contract, common count, and quantum meruit, "and, as to the lien foreclosure claims, 'all issues relating to the existence and nature of the alleged obligation underlying the lien . . . together with issues relating to the amount of that lien[.]'" The court stayed the lien foreclosure claims pending the outcome of arbitration.
C. Foreclosure Action by Amalgamated Bank and Sale of the Project
In June 2020, Amalgamated Bank sent NCV a notice of default identifying three defaults: (1) the cessation of construction and failure to meet the December 28, 2019, completion date; (2) the" 'allowance'" of five mechanic's liens to be recorded on the project property, "along with the commencement of two related litigation matters (i.e., the HB [entities'] suits to enforce their mechanic's liens);" and (3) violation of negative covenants in the loan documents for incurring debt without the bank's prior written consent.
In September 2020, Amalgamated Bank filed an action in the trial court to foreclose on the project property. The court appointed a receiver and authorized Meyer to sell the project, conditioned on NCV obtaining release bonds at 125 percent of the mechanic's lien amounts. In April 2021, after NCV recorded release bonds issued by U.S. Fire with respect to the HB entities, NCV sold the project for $12.2 million to OCM Investment Company, resulting in a total loss to NCV's investors.
D. The Arbitration Proceedings
Gilda R. Turitz was appointed the neutral arbitrator in the case. The evidentiary hearings were initially scheduled to begin in June 2021, but Turitz granted appellants' request to postpone the hearings until September 20, 2021. As we discuss more fully below, shortly before the continued hearing date, appellants moved for further postponement of the hearings, but Turitz found good cause to be lacking and denied the motion.
The evidentiary hearings were held on various dates between September 20, 2021, and November 19, 2021.
In September 2022, Turitz issued a detailed written arbitration award finding respondents to be the prevailing parties. We now summarize certain key findings.
According to Turitz, the two invoices issued by the HB entities after the termination of their construction contracts were invalid. Appellants did not have a good faith basis to prepare them and record the related mechanic's liens because the invoices were based on superseded contract provisions. Massaro breached his fiduciary duties to NCV and its members (including Meyer) by issuing the invoices and "obscur[ing] financial transparency into the Project" in various ways-e.g., rejecting Meyer's request to retain an independent construction accountant, failing to disclose his hiring of Jae Carranza "while she was working as the Bank's inspector (through [a third party]) on the Project to support HBCG's requests for bank draws on the construction loan, in a clear conflict of interest." In Turitz's view, Massaro's conduct regarding the invoices "alone [was] sufficient" to support liability for breach of fiduciary duty.
Turitz further found that appellants violated the emergency arbitrator's ruling and tortiously interfered with NCV's contractual relationships with Amalgamated Bank, investors, subcontractors, and others by attempting to undermine Meyer's authority to act and negotiate the construction loan, making disparaging comments, and encouraging subcontractors and vendors to file lien notices on the project property.
On the fraud and concealment claim, Turitz found that appellants concealed or failed to disclose departures from the approved plans and known labor problems, and that Massaro misrepresented the project's passing of inspections and adherence to plans and promulgated rules. Massaro also concealed from both Meyer and Amalgamated Bank that he had hired "Carranza, the [third party] inspector purportedly doing independent inspections to support HB's draw requests to the Bank, in an obvious conflict of interest [citation]." Appellants' "most egregious acts in the financial area concern[ed] the supposed accrual of unbudgeted and off-book fees that resulted in the invalid invoices that set off the chain of events leading to the Project's demise."
On the conversion claim, Turitz found that HBCG wrongfully held NCV funds and exercised dominion over project equipment in derogation of NCV's express contractual right to possession. Turitz further found that Massaro's willful and persistent material breaches of fiduciary duty supported his removal as a member of Thriving Communities under Corporations Code section 17706.02, subdivision (e)(1)-(3).
On the breach of contract claim against HBCG, Turitz found that HBCG's poor workmanship constituted a material breach of the construction contract, and that HBCG breached the implied covenant of good faith and fair dealing in demanding payment pursuant to the HBCG invoice, improperly crediting the amount of NCV's funds to that invoice, recording the corresponding lien, and failing to turn over project equipment. For the same reasons, Turitz found that HBCG's performance fell below the standard of care for a general contractor on the negligence claim. Likewise, HBMG was found to have breached the PSA by withholding the project plans, tendering the invoice for fees to which it was not entitled, and recording the mechanic's lien.
Turitz found against respondents on their claims for tortious interference with prospective economic advantage and violation of Health and Safety Code section 19851.
Turitz awarded NCV $3.5 million in compensatory damages, Meyer $2.9 million in compensatory damages, $1.1 million in punitive damages to respondents, and $2.4 million in attorney fees. Turitz further found that appellants failed to prove their claims and counterclaims.
E. Trial Court Proceedings
Respondents petitioned to confirm the final arbitration award by initiating a new case in the trial court, case No. 22CV001152 (hereafter the '1152 action). Respondents also filed substantially identical petitions in each of the '621 and '622 actions. In response to the petitions, appellants asked the trial court to vacate the arbitration award.
The trial court ordered the '621, '622, and '1152 actions consolidated, denied appellants' request to vacate the arbitration award, and granted respondents' petition to confirm it. The court then entered judgment for respondents, and appellants appealed.
Discussion
"Judicial review of an arbitrator's award is very limited because of the strong public policy in favor of private arbitration. [Citations.] As a general rule, the courts may not review an arbitrator's decision for errors of fact or law. [Citation.] A contractual arbitration agreement gives the arbitrator the power to decide the historical facts, the relevant law and the interpretation and validity of the contract. [Citations.] Inherent in this power is the possibility the arbitrator may make legal or factual errors. [Citation.] An arbitration award ordinarily will not be vacated due to such error because the arbitrator's resolution of the issues is what the parties bargained for." (Cotchett, Pitre & McCarthy v. Universal Paragon Corp. (2010) 187 Cal.App.4th 1405, 1416 (Cotchett).) Thus, "it is the general rule that, with narrow exceptions, an arbitrator's decision cannot be reviewed for errors of fact or law." (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11 (Moncharsh).)
Statutory exceptions to this general rule are set forth in Code of Civil Procedure section 1286.2, subdivision (a), which provides in pertinent part that a court "shall" vacate an arbitration award if it finds any of the following: "[t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted" (§ 1286.2, subd. (a)(4)); "[t]he rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy" (id., subd. (a)(5)); and the arbitrator "failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware" (id., subd. (a)(6)(A)). The statute does not provide" 'a back door to Moncharsh through which parties may routinely test the validity of legal theories of arbitrators.' [Citation.] Instead, it was designed as a 'safety valve in private arbitration that permits a court to intercede when an arbitrator has prevented a party from fairly presenting its case.'" (Heimlich v. Shivji (2019) 7 Cal.5th 350, 368 (Heimlich).)
Further unspecified statutory references are to the Code of Civil Procedure.
We review a trial court's order confirming an arbitration award de novo and its determinations of any disputed factual issues for substantial evidence. (Douglass v. Serenivision, Inc. (2018) 20 Cal.App.5th 376, 386.)
A. Failure to Disclose Grounds for Disqualification
Appellants contend the arbitration award should be vacated because Turitz failed to disclose grounds for her disqualification. (§ 1286.2, subd. (a)(6)(A).) Specifically, she was the defendant in a 2020 legal malpractice action in which the plaintiff alleged that Turitz lacked impartiality as a neutral arbitrator. (See Mohazzabi v. Turitz, San Mateo Superior Court, case No. 20CIV4463 (Mohazzabi).) We conclude the issue was forfeited, and in any event, it is meritless.
1. Forfeiture
Respondents contend, and we agree, that appellants forfeited this argument by failing to present it in both the arbitration and the trial court proceedings below. (See Mossman v. City of Oakdale (2009) 170 Cal.App.4th 83, 93 [party cannot remain silent during arbitration and claim entitlement to relief on appeal]; Newton v. Clemons (2003) 110 Cal.App.4th 1, 11 [reviewing court will ordinarily not consider claims made for first time on appeal which could have been but were not presented to trial court].) Although appellants state in their opening brief that they first learned about Mohazzabi after the judgment in this case, their reply brief acknowledges that "this information is incorrect" and that they could have presented this argument to the arbitrator and/or the trial court but failed to do so. In any event, we will exercise our discretion to reach the forfeited issue because it appears to involve a legal question based on uncontroverted facts. (Esparza v. KS Industries, L.P. (2017) 13 Cal.App.5th 1228, 1237-1238.)
2. Analysis
In private arbitrations, proposed neutral arbitrators must disclose within 10 calendar days of notice of the proposed appointment "all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial." (§ 1281.9, subd. (a).) "Section 1281.9 provides a nonexhaustive list of matters to be disclosed [citation], and includes, the 'existence of any ground specified in Section 170.1 for disqualification of a judge,' . . . [citation]. Section 170.1, subdivision (a)(6)(A)(iii) mandates disqualification when a 'person aware of the facts might reasonably entertain a doubt that the judge would be able to be impartial.'" (Malek Media Group, LLC v. AXQG Corp. (2020) 58 Cal.App.5th 817, 827-828 (Malek).)
"Courts apply an objective test in determining whether under section 1281.9, subdivision (a) neutral arbitrators must disclose matters that could reasonably cause a person aware of the facts to entertain a doubt that the proposed arbitrator would be impartial. [Citation.] The 'objective test . . . focuses on a reasonable person's perception of bias and does not require actual bias.' [Citation.] Accordingly, we are not concerned with the subjective question of whether the arbitrator was actually biased, but whether an objective, reasonable person aware of the facts reasonably could entertain a doubt that he could be impartial in the case. [Citation.] [¶] The reasonable person under this objective test' "is not someone who is 'hypersensitive or unduly suspicious,' but rather is a 'well-informed, thoughtful observer.'" .... "An impression of possible bias in the arbitration context means that one could reasonably form a belief that an arbitrator was biased for or against a party for a particular reason."' [Citation.] In this context,' "[i]mpartiality" entails the "absence of bias or prejudice in favor of, or against, particular parties or classes of parties, as well as maintenance of an open mind."' [Citation.] The 'appearance-of-partiality "standard 'must not be so broadly construed that it becomes, in effect, presumptive, so that recusal is mandated upon the merest unsubstantiated suggestion of personal bias or prejudice.'" '" (Malek, supra, 58 Cal.App.5th at p. 828.)
We conclude Turitz was not required to disclose the Mohazzabi matter during the arbitration proceeding in question. Mohazzabi involved a completely unrelated arbitration with no overlapping or even tangentially related parties, persons, facts, or issues. Appellants cite no authority supporting their contention that the mere allegation of Turitz's bias by a party who appeared before her in an unrelated matter would raise a reasonable doubt of her impartiality in this case. (Cf. Mt. Holyoke Homes, L.P. v. Jeffer Mangels Butler & Mitchell, LLP (2013) 219 Cal.App.4th 1299, 1315 [arbitrator in a legal malpractice arbitration should have disclosed that he previously named a partner in the defendant's law firm as a reference on his resume]; Betz v. Pankow (1993) 16 Cal.App.4th 931, 936 [arbitrator should have disclosed he was partner in law firm representing several business entities in which respondent was an owner].)
The plaintiff (Mohazzabi) was involved in arbitration with his bank over a disputed $20,000 withdrawal from his account. In later suing Turitz for legal malpractice, Mohazzabi alleged that Turitz, in her role as arbitrator, showed "extreme bias," failed to follow California law, and failed to disclose a financial relationship with the bank, as well as her ties to a nonprofit organization. Turitz successfully demurred to the initial and amended complaints on the ground of arbitral immunity, and judgment was entered against Mohazzabi in August 2021. In 2023, Division Four of this court affirmed the judgment in an unpublished decision. (Mohazzabi v. Turitz (Mar. 27, 2023, A163725) [nonpub. opn.].)
As the court in Malek stressed," '[t]he arbitrator cannot reasonably be expected to identify and disclose all events in the arbitrator's past, including those not connected to the parties, the facts, or the issues in controversy, that conceivably might cause a party to prefer another arbitrator.'" (Malek, supra, 58 Cal.App.5th at pp. 829-830; see also Haworth v. Superior Court (2010) 50 Cal.4th 372, 390 [former judge was not required as arbitrator to disclose prior public censure for creating courtroom environment of improper discussions of sex and race]; Rebmann v. Rohde (2011) 196 Cal.App.4th 1283, 1292 [arbitrator was not required to disclose connections to Holocaust and Judaism in commercial arbitration case involving corporate party controlled by descendants of German World War II officers].) That Mohazzabi overlapped in time with the arbitration in this case makes no difference. A disinterested observer would reasonably take into account that arbitrators, like judges, may at any given time be subjected to accusations of bias by nonprevailing parties in other cases.
Appellants nevertheless maintain that disclosure of the Mohazzabi matter was required because "a finder of fact never determined that the allegations of misconduct were false" and Turiz "never denied the allegations against her, only argu[ing] that she was legally immune from liability." This misguided argument reflects the viewpoint of "a hypersensitive or unduly suspicious litigant rather than a well-informed, thoughtful observer." (Malek, supra, 58 Cal.App.5th at pp. 830-831.) It is precisely because Mohazzabi involved unproven allegations that never advanced beyond the initial pleading stage before being dismissed that a disinterested, objective, and well-informed observer would refrain from jumping to conclusions about Turitz's partiality in an unrelated case.
In sum, a reasonable person could not reasonably form a belief that Turitz was biased for respondents or against appellants simply because she was accused of bias in an unrelated litigation involving no overlapping persons, facts, entities, or issues. As such, Turitz's failure to disclose the Mohazzabi matter did not require vacatur of the arbitration award under section 1286.2, subdivision (a)(6)(A).
B. Refusal to Hear Material Evidence
Appellants contend they were "substantially prejudiced" by Turitz's refusal to hear "evidence material to the controversy" (§ 1286.2, subd. (a)(5))-namely, rebuttal testimony from Massaro. According to appellants, Massaro could have provided critical testimony in response to matters raised during respondents' examinations of Meyer, Stephen Hohenrieder (chief executive officer of Meyer Family Enterprises, LLC), Nelsen Dougherty (successor general contractor on the project), and David Leventhal (a project investor).
We first address respondents' arguments that there is no record of Turitz's refusal to hear Massaro's rebuttal testimony, and accordingly, appellants have waived any argument that Massaro should have been allowed to testify on rebuttal.
As the record reflects, Turitz set forth the general rules and procedures for the evidentiary hearings on September 19, 2021, the day before the hearings were set to begin. Under "Procedural Order for Evidentiary Hearing" (hereafter the September 19 procedural order), the parties and Turitz agreed in pertinent part that" '[e]ach witness will be presented only once,'" with Massaro being called as the first witness and examined first by his own counsel. Notwithstanding the "only once" language, the September 19 procedural order also contemplated that the parties may present a "rebuttal case," provided they advise the opposing side each morning of the anticipated witness line-up for the following day and reconfirm the line-up when the day adjourned.
As evidence of Turitz's refusal to hear rebuttal testimony, appellants point to the declaration of their arbitration counsel, Eugene Ashley, submitted in the trial court. Ashley states that "[w]hile the hearing was ongoing and not yet concluded," he "advised" Turitz and counsel for respondents of his "request to recall Mr. Massaro . . . as a rebuttal witness. Arbitrator said she would not allow this because she had ordered each witness was to testify once, which was supported by [respondents'] counsel." Appellants concede the "request was not put on the record," but they contend it was "logical" not to do so because Turitz had already denied the request.
Malek, which involved similar facts, is instructive as to appellants' failure to provide an adequate appellate record. On appeal from the confirmation of an arbitration award, the appellant in Malek (MMG) argued that the arbitrator prejudicially denied them the opportunity to present testimony from a witness (Stephen Epacs). (Malek, supra, 58 Cal.App.5th at p. 824.) The Court of Appeal found "no basis in the record for the contention that the arbitrator refused to hear his testimony." (Id. at p. 831.) As the court explained, "MMG has not cited anything in the record showing that it attempted to call Epacs as a witness. If MMG believed Epacs was a material witness, MMG's counsel had a duty to preserve that issue for appeal. [Citation.] Instead, we are left with hearsay statements from MMG's counsel, Malek, and Ulrich that the arbitrator said he would not hear Epac's testimony in an off-the-record conversation. MMG's self-serving hearsay statements are insufficient to show that it attempted to call Epacs as a witness." (Ibid.)
We reach the same conclusion here. It is fundamental that a judgment is presumed correct, and that an appellant thus bears the burden of demonstrating error on an adequate record. (Ballard v. Uribe (1986) 41 Cal.3d 564, 574; Nellie Gail Ranch Owners Assn. v. McMullin (2016) 4 Cal.App.5th 982, 996.) Here, there is no record of the arbitrator's denial of a formal request by appellants to recall Massaro for rebuttal testimony other than the self-serving hearsay statement of appellants' counsel, which is insufficient to meet appellants' burden. (Malek, supra, 58 Cal.App.5th at p. 831.)
The inadequacy of the record in this regard is reinforced by the arbitrator's hearing reports documenting each day's testimony. According to the reports, the examination of Massaro began on September 20, 2021, and continued on and off over the course of several days before he "was excused, subject to recall for the reasons stated on the record." (Italics added.) Massaro's excusal "subject to recall" is inconsistent with the inference that the arbitrator shut down any and all possibility of recalling Massaro as a rebuttal witness based on the "only once" language of the September 19 procedural order. The hearing reports further reflect that once appellants rested their case, Turitz confirmed that appellants had no further evidence or witnesses, stating, "So let me just ask you if you have any other proof to offer or witnesses to be heard, just to be clear." Ashley responded, "No." Although appellants contend it was futile at this point to repeat their off-the-record request, they provide no justification for failing to make a record of their request and the arbitrator's ruling thereon. (See Malek, supra, 58 Cal.App.5th at p. 831; Comerica Bank v. Howsam (2012) 208 Cal.App.4th 790, 829 ["to challenge an award in court, a litigant must have raised the point before the arbitrator"].)
Appellants do not attempt to explain or provide a record to clarify what "reasons stated on the record" permitted recalling Massaro after his excusal.
For these reasons, we agree with respondents that the record is inadequate to show the arbitrator's refusal to hear Massaro's rebuttal testimony, and that appellants waived any claim of error from an off-the-record ruling by failing to preserve their objection during the arbitration.
C. Refusal to Postpone Hearing
Appellants contend they were "substantially prejudiced" by the arbitrator's refusal "to postpone the hearing upon sufficient cause being shown." (§ 1286.2, subd. (a)(5).) We find neither an abuse of discretion nor substantial prejudice from Turitz's refusal to postpone the hearing.
1. Additional Background Facts
After the close of discovery in or around May 2021, both sides filed discovery motions, and appellants additionally moved for a continuance of the evidentiary hearing then scheduled for June 7, 2021. Turitz issued an order compelling certain discovery and continuing the arbitration hearing to September 20, 2021.
A week later, appellants sent a discovery meet and confer letter to respondents claiming certain documents were lacking from their document production. The parties engaged in meet and confer efforts in May and June 2021. On June 14, 2021, respondents gave a detailed response to appellants' inquiries, but appellants did not respond "until four weeks later, on July 12, 2021, when they provided their list of specific discovery subjects that became a focus of the following 30 days of meet and confer."
In August 2021, respondents began producing additional documents. According to appellants, this "eve of trial 'document dump'" included hundreds of emails and attachments from the accounts of Richard Dunn, the project's construction manager, and Paul Sannella, who was hired after the HB contracts were terminated to review the project expenditures for misuse of funds; communications ghostwritten by Hohenrieder on behalf of Meyer to send to investors and stakeholders; First Republic Bank records; redlined drafts of the TCOA; and approximately 100 calendar entries for meetings related to the project.
Appellants filed a" 'Motion to Compel Immediate Compliance with Discovery Obligations, Reopen Discovery, and Continue the Arbitration Hearing Date, or in the Alternative to Order Issue Sanctions.'" Turitz denied the motion, finding no good cause to postpone the hearing and reopen discovery.
2. Analysis
"[A] party seeking a continuance of arbitration may later have the arbitration award vacated only if the court finds the denial of the continuance imposed upon the moving party a procedural disadvantage in the arbitration due to its scheduling." (Panoche Energy Center, LLC v. Pacific Gas &Electric Co. (2016) 1 Cal.App.5th 68, 106.) This inquiry involves two steps. "First, the trial court must determine whether the arbitrator abused his or her discretion by refusing to postpone the hearing upon sufficient cause being shown. Second, if there was an abuse of discretion, the trial court must determine whether the moving party suffered substantial prejudice as a result." (SWAB Financial, LLC v. E*Trade Securities, LLC (2007) 150 Cal.App.4th 1181, 1198 (SWAB).)
Like the trial court, we find no abuse of discretion on the arbitrator's part. "Abuse of discretion is arbitrary determination, capriciousness or 'whimsical thinking'" which" 'exceeds the bounds of reason.'" (City of Fresno v. California Highway Com. (1981) 118 Cal.App.3d 687, 700.) Here, the record reflects a sound decision by the arbitrator in denying what would have been the second continuance of the evidentiary hearing. In addition to highlighting appellants' failure to account for their "unexplained four-week delay" during the meet and confer process, Turitz explained that she had already continued the hearing from May to September 2021 for incomplete discovery, and that the parties had agreed on the September 20, 2021, hearing date in conjunction with the first continuance.
And as Turitz further elaborated, appellants failed to identify "any documents with specificity that are so relevant and material to the outcome of the case that justify re-opening any depositions so close to the Hearing date. To do so would necessarily cause delay; indeed, [appellants] have asked for a ninety day continuance. Assuming the documents they refer to in the Motion were significant enough to [appellants] to include them on [appellants'] exhibit list, they will be able to question Ms. Meyer and Mr. Hohenreider on such documents at the Hearing. To allow the re-opening of depositions now would disrupt all parties' pre-hearing preparations and increase costs."
Based on the foregoing, we conclude the arbitrator reasonably denied the continuance request. And because there was no abuse of discretion, we need not reach the second question of whether appellants suffered substantial prejudice as a result. (SWAB, supra, 150 Cal.App.4th at p. 1198.) In any event, appellants fail to identify any necessary discovery that they were unable to obtain due to Turitz's refusal to postpone the hearing and reopen discovery. Nor do they account for the "unexplained four-week delay" during the meet and confer process or dispute that they had ample opportunities to examine Meyer, Hohenrieder, and Dunn regarding the late document production at the arbitration hearings.
In sum, Turitz's refusal to postpone the arbitration hearing was neither an abuse of discretion nor substantially prejudicial to appellants.
D. Exceeding Arbitral Powers
Appellants contend the arbitrator exceeded her powers by awarding damages based on appellants' privileged conduct of recording mechanic's liens.
1. Threshold Matters
We begin by addressing two threshold matters. First, respondents maintain that appellants "waived" any claim of error based on the litigation privilege by "ignoring the controlling authority and legal principle set forth in" LiMandri v. Judkins (1997) 52 Cal.App.4th 326 (LiMandri); failing to "meaningfully develop" the issue (e.g., devoting only three paragraphs in their posthearing arbitration brief to the litigation privilege); and failing to plead privilege as an affirmative defense in their answer to the complaint. (Boldface omitted.) We conclude otherwise.
To avoid waiving an argument on appeal, a party must bring the matter to the attention of the trial court and the opposing party in the proceedings below. (People v. Williams (1999) 20 Cal.4th 119, 128.) Appellants must also present the issue on appeal with cogent legal argument and citations to authority. (Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th 939, 956.) Here, appellants adequately brought the litigation privilege issue to the attention of the arbitrator in their posthearing arbitration brief and to the trial court in their response to the petition to confirm the arbitration award. Appellants' failure to address the LiMandri decision in their opening brief, however relevant that authority may be, is not tantamount to the complete absence of supporting legal authority such that we may treat the issue as waived.
Likewise, appellants did not forfeit the litigation privilege issue by failing to plead privilege as an affirmative defense. Though the general rule in civil litigation is that a privilege must be pleaded as an affirmative defense in order to avoid waiver (California Academy of Sciences v. County of Fresno (1987) 192 Cal.App.3d 1436, 1442), an exception lies where the complaint alleges facts indicating applicability of a privilege defense (Cruey v. Gannett Co. (1998) 64 Cal.App.4th 356, 367). That exception applies here because respondents' complaint and amended complaint in arbitration alleged that appellants' recording of mechanic's liens was a breach of the construction contracts.
Respondents next contend Turitz's rejection of, or even failure to address, the litigation privilege defense is not reviewable on appeal because even if her decision was erroneous, it was entirely within her powers under the arbitration agreement to determine whether the privilege applied. As previously discussed, although reviewing courts do not review an arbitrator's decision for errors of law (Moncharsh, supra, 3 Cal.4th at p. 11), section 1286.2, subdivision (a)(4), provides for limited judicial review to determine whether the arbitrator exceeded his or her powers. "An arbitrator may exceed her powers within the meaning of this section by issuing an award that violates an explicit legislative expression of public policy." (Cotchett, supra, 187 Cal.App.4th at pp. 1416-1417.) Here, appellants contend Turitz exceeded her powers because the arbitration award is inconsistent with public policies underlying the litigation privilege and the statutory scheme authorizing laborers to record mechanic's liens. As such, we will review the matter under section 1286.2, subdivision (a)(4).
2. Analysis
In order to demonstrate that an arbitrator exceeded his or her powers by issuing an award that violates public policy, the "public policy so contravened must be a 'well-defined and dominant' public policy as 'ascertained "by reference to the laws and legal precedents and not from general considerations of supposed public interests." '" (Honchariw v. FJM Private Mortgage Fund, LLC (2022) 83 Cal.App.5th 893, 899 (Honchariw).)" 'Absent a clear expression of illegality or public policy undermining [the] strong presumption in favor of private arbitration, an arbitral award should ordinarily stand immune from judicial scrutiny.'" (Cotchett, supra, 187 Cal.App.4th at p. 1417.) "The normal rule of limited judicial review cannot be avoided except in those rare cases where 'according finality to the arbitrator's decision would be incompatible with the protection of a statutory right' or where the award contravenes 'an explicit legislative expression of public policy.'" (City of Palo Alto v. Service Employees Internat. Union (1999) 77 Cal.App.4th 327, 334.)
We review de novo whether an arbitration award should have been vacated on the ground of exceeding powers. (Ahdout v. Hekmatjah (2013) 213 Cal.App.4th 21, 33.)
As a general matter, there is no question that well-defined public policies underlie both the statutory right to record mechanic's liens and the litigation privilege. Our state Constitution "enshrines a right to record a mechanic's lien," and Civil Code sections 8000 to 9566 embody "a comprehensive statutory scheme to resolve payment disputes in public and private construction projects," the primary goal of which "is to protect a laborer or material supplier who improves an owner's property by assuring payment for the value of the work done." (RGC Gaslamp, LLC v. Ehmcke Sheet Metal Co., Inc. (2020) 56 Cal.App.5th 413, 422 (RGC Gaslamp); see Civ. Code, § 8400, subds. (a), (f) [granting "lien right" under chapter].)
The litigation privilege of Civil Code section 47, subdivision (b), is "absolute in nature" and applies to all torts except malicious prosecution. (Silberg v. Anderson (1990) 50 Cal.3d 205, 215-216 (Silberg).) The privilege "furthers 'the vital public policy of affording free access to the courts and facilitating the crucial functions of the finder of fact.'" (Jacob B. v. County of Shasta (2007) 40 Cal.4th 948, 962.)
The litigation privilege applies to communications that are made in judicial or quasi-judicial proceedings by litigants or other participants authorized by law to achieve the objects of the litigation, and that have some connection or logical relation to the action. (Silberg, supra, 50 Cal.3d at p. 212.)
The applicability of the litigation privilege depends on whether the gravamen of the action is communicative conduct. (Aghaian v. Minassian (2020) 59 Cal.App.5th 447, 457 (Aghaian).) For instance, courts have held that the litigation privilege bars claims for slander/disparagement of title arising from the recording of mechanic's liens. (See, e.g., RGC Gaslamp, supra, 56 Cal.App.5th at p. 426 [slander of title claim based on filing of mechanic's lien barred by litigation privilege because filing of lien "is a necessary prerequisite to bringing a foreclosure action"]; Frank Pisano &Associates v. Taggert (1972) 29 Cal.App.3d 1, 24-25 (Frank Pisano) [claim for wrongful disparagement of title was barred because filing of mechanic's lien claim in conjunction with judicial proceeding was absolutely privileged].)
However, the litigation privilege '" 'does not privilege tortious courses of conduct.'"' (Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232, 1248, citing Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 350, quoting LiMandri, supra, 52 Cal.App.4th at p. 345.) This is true even if the tortious course of conduct involves communicative conduct made in a judicial proceeding. The controlling authority on this issue is LiMandri. There, the plaintiffs (Deddehs) in an environmental contamination action borrowed money from lender Security Trust Co. (Security) and granted Security a lien against their share of any judgment or settlement proceeds obtained in the pending action. (LiMandri, at p. 334.) Security's attorney (Judkins) contacted the Deddehs' attorney (LiMandri) and asked about settlement prospects without disclosing the existence of Security's lien. (Ibid.) Judkins then filed a notice of lien in the state court action stating that proceeds from the action shall be paid directly to Security. (Ibid.) The state court action eventually settled, but due to Security's lien, the Deddehs were required to bring an interpleader action in federal court and deposit their share of the settlement funds, tying up the fees owed to LiMandri under his contingency contract with the Deddehs. (Id. at p. 335.) LiMandri sued Judkins for, among other claims, intentional interference with contractual relations. (Ibid.) Reversing judgment in favor of Judkins, the Court of Appeal held that the contractual interference claim was not barred by the litigation privilege simply because the notice of lien was filed in a judicial proceeding. (Id. at pp. 344-348.)
As LiMandri explained, Civil Code "[s]ection 47, subdivision (b)(2), does not bar LiMandri's cause of action for intentional interference with contractual relations because it is based upon an alleged tortious course of conduct, including Judkins's preparing and having the Deddehs execute documents creating Security's security interest in the Deddehs' gross share of the Signal Landmark settlement proceeds and [Judkins's] refusal to concede the superiority of LiMandri's contractual lien. While the isolated act of filing Security's notice of lien was communicative, it was only one act in the overall course of conduct alleged in LiMandri's third cause of action." (LiMandri, supra, 52 Cal.App.4th at p. 345.)
Here, the arbitrator's award contains several references to the recording of the HB entities' two mechanic's liens. Critically however, the acts of recording of the mechanic's liens were among a much broader and far-reaching course of tortious conduct by appellants that led to the project's demise and the arbitration award in favor of respondents. As the trial court aptly noted, the arbitration award is independently supported by the other wrongful acts, including appellants' proffer of the fraudulent invoices, their withholding of the project plans and equipment, and their disparaging of Meyer to the bank, investors, and others. Thus, in light of LiMandri, we conclude the general public policies underlying the litigation privilege and mechanic's lien statutes are not implicated here. (See Honchariw, supra, 83 Cal.App.5th at p. 899 [public policies for purposes of § 1286.2, subd. (a)(4), must be ascertained by reference to legal precedents].)
Two cases cited by respondents-Aghaian, supra, 59 Cal.App.5th 447 and Chen v. Berenjian (2019) 33 Cal.App.5th 811 (Chen)-though not based on LiMandri echo its principle that where the gravamen of the action is noncommunicative tortious conduct, the litigation privilege does not bar suit simply because communicative judicial conduct is used to facilitate the wrongdoing. In Aghaian, the defendant allegedly concocted a scheme with his wife to defraud the defendant's creditors (including the plaintiffs) by transferring the defendant's share of residential properties to his wife, who then filed for marital dissolution, leaving the properties solely in her name. (Aghaian, at pp. 452-453.) Concluding the litigation privilege did not bar the plaintiffs' claim for fraudulent transfer, Aghaian held, "it is the transfer of the property, not the sham judicial proceedings used to provide legal cover for the transfer, that constitutes the gravamen of the action." (Id. at p. 458.)
In Chen, the defendant transferred assets to his brother, who initiated a sham lawsuit that resulted in a default and stipulated judgment giving the brother a lien against the defendant's assets that the brother asserted against creditors, including the plaintiff. (Chen, supra, 33 Cal.App.5th at pp. 815-816.) In holding that the litigation privilege did not bar the fraudulent transfer claim, the court held that the acts causing injury to the plaintiff were the agreement to defraud him and the transfer of the assets to the brother by means of executing on the judgment. (Id. at p. 821.) The acts of filing the sham complaint and agreeing to the stipulated judgment, though communicative, were not the gravamen of the fraudulent transfer claim. (Ibid.)
Based on these authorities, we conclude appellants' recording of mechanic's liens served to facilitate a broader tortious course of conduct of interference with the project and NCV's contractual relationships, and thus the arbitration award did not interfere with the public policies underlying the litigation privilege and the mechanic's lien statutes. (See Aghaian, supra, 59 Cal.App.5th at p. 458; Chen, supra, 33 Cal.App.5th at p. 821; LiMandri, supra, 52 Cal.App.4th at p. 345.)
Appellants' attempt to avoid the rule of LiMandri is unavailing. They emphasize that LiMandri involved the filing of a notice of lien, not the recording of a mechanic's lien. We acknowledge that LiMandri distinguished Wilton v. Mountain Wood Homeowners Assn. (1993) 18 Cal.App.4th 565, which held the publication of a homeowners' assessment lien was absolutely privileged. As LiMandri explained, homeowners' assessment liens, " '[l]ike mechanics' liens . . . are permitted by law to achieve the object of litigation. Both types of liens must be filed as a first step in foreclosure actions to remedy defaults, and thus are closely related to judicial proceedings.'" (LiMandri, supra, 52 Cal.App.4th at p. 346, italics added.) In contrast, "[i]t was not necessary for Security to file its notice of lien to create or perfect its contractual lien rights; the notice of lien was filed solely for the purpose of giving notice of those claimed rights.... Security's notice of lien . . . was not a statutory prerequisite to enforcement of that lien or the interpleader action it engendered." (Id. at pp. 346-347.)
But this language appears in a part of LiMandri's rationale setting forth an additional reason the litigation privilege did not bar the contractual interference claim, i.e., because Judkins's filing of the notice of lien was not connected or logically related to the litigation in which it was filed (e.g., the state environmental contamination action) and was not undertaken for the purpose of achieving its objects. (LiMandri, supra, 52 Cal.App.4th at p. 346.) We do not read this portion of LiMandri as affecting its earlier, broader principle that the litigation privilege does not apply to tortious courses of conduct, even if one of the acts is communicative conduct made in a judicial proceeding. (Id. at p. 345.)
Appellants' other cited authorities do not assist them. In Honchariw, supra, 83 Cal.App.5th at pp. 905-906, this court held that an arbitration award enforcing a late-payment fee provision in a mortgage contract should have been vacated under section 1286.2, subdivision (a)(4), because the provision was an unenforceable liquidated damages clause in a consumer contract invalided by Civil Code section 1671. As distinguished from the instant matter, the charging of late fees in Honchariw was not merely one act in a broader course of tortious conduct challenged in arbitration; instead, the legality of the fee was a focus of the arbitration demand. (Honchariw, at p. 898.) Likewise, RGC Gaslamp and Frank Pisano involved claims for slander or wrongful disparagement of title based squarely on the recording of mechanic's liens (RGC Gaslamp, supra, 56 Cal.App.5th at p. 426; Frank Pisano, supra, 29 Cal.App.3d at pp. 24-25), not a tortious course of conduct that merely culminated in the recording of mechanic's liens.
As we have repeatedly emphasized, due to the strong policy in favor of arbitral finality, "an arbitral award should ordinarily stand immune from judicial scrutiny." (Moncharsh, supra, 3 Cal.4th at p. 32 [rejecting judicial review of arbitrator's ruling in favor of arbitral finality where party challenged legality of "a single provision of the overall employment contract"].) In light of LiMandri and analogous legal precedents defining the contours of the public policies in question, we conclude the arbitration award here-which was based on a broad course of tortious conduct facilitated by the recording of two mechanic's liens-is not inconsistent with the public policies underlying the litigation privilege and mechanic's lien laws so as to compel vacatur of the award under section 1286.2, subdivision (a)(4).
Disposition
The judgment is affirmed. Respondents are entitled to their costs on appeal.
WE CONCUR: TUCHER, P.J., RODRIGUEZ, J.