Opinion
B157328
7-30-2003
MKRTICH BANDIKIAN, Plaintiff and Appellant, v. TOROS ZORENKELIAN et al., Defendants and Respondents.
Procopio, Cory, Hargreaves & Savitch and Monique Candor, for Defendant and Appellant. Yeznik O. Kazandjian, for Defendants and Respondents.
This appeal arises out of the unsuccessful sale of two gas stations. An arbitrator found in favor of the sellers and awarded them liquidated damages. The buyer appeals the trial courts confirmation of the arbitration award. Finding no issue subject to judicial review, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
On October 15, 1999, Bandikian and the Zorenkelians entered a business purchase agreement (Agreement) using the standard California Association of Realtors form. Under the terms of the Agreement, Bandikian promised to pay $ 700,000 for the purchase of two Toros AM/PM Mini Market, one located at 2800 Foothill Boulevard and the other at 3706 East Foothill Boulevard. Bandikian also promised to deposit $ 80,000 towards the purchase price. Under the terms of the Agreement, the sale was contingent upon each of the following: (1) "Buyers obtaining prior to the escrow closing date, Sellers landlords consent to the assignment of Sellers existing lease, on terms acceptable to Buyer and Sellers landlord;" (2) "Buyer obtaining, prior to the escrow closing date a new lease with Sellers landlord, on terms acceptable to Buyer, to become effective concurrently with the Close of Escrow"; and (3) ARCOs acceptance of Buyer.
The Agreement contained the following liquidated damages clause: "If Buyer fails to complete this purchase by reason of any default of Buyer, Seller shall retain, as liquidated damages for breach of contract, the deposit actually paid. Buyer and Seller agree that this amount is a reasonable sum given that it is impractical or extremely difficult to establish the amount of damages that would actually be suffered by Seller in the event Buyer were to breach this Agreement." "$ 20,000" was written in handwriting next to the liquidated damage provision. Both parties initialed the provision.
The parties also initialed an arbitration provision, which provided: "Buyer and Seller agree that any dispute or claim in Law or equity arising between them out of this Agreement or any resulting transaction, which is not settled through mediation, shall be decided by neutral, binding arbitration . . . ." The arbitration provision further required that the arbitrator "render an award in accordance with substantive California law."
Escrow instructions dated December 16, 1999 indicated that buyer deposited $ 20,000 for the mini market located at 2800 East Foothill Boulevard and $ 60,000 for the mini market located at 3706 East Foothill Boulevard. Each instruction contained a liquidated damage clause. The clause provided in part that if buyer does not complete the purchase, "seller shall retain the deposit as sellers liquidated damages." Bandikian initialed the liquidated damage clause for the $ 20,000 deposit, but did not initial the liquidated damage clause for the $ 60,000 deposit.
A January 18, 2000 escrow instruction indicates that the transfer of the mini market located at 3706 East Foothill Boulevard shall not take place until, among other things, "ARCOs unconditional written consent is delivered to current franchisee, Toros Zorenkelian, or escrow agent." With respect to the same mini market, the escrow instruction was "amended and/or supplemented" as follows: "Escrow holder is to be no further concerned with the requirement for the written Approval from ARCO of the buyer herein. All contingencies regarding this approval are hereby released." No similar instructions are included in the record for the other mini market.
A document dated February 28, 2000, on ARCO letterhead states, "the franchise transfer to Mkrtich Bandikian has been approved by ARCO." A fax line indicated it was sent March 29, 2000.
The parties agree that prior to February 28, 2000, each party was aware Bandikian had to close escrow by February 28, 2000 in order to avoid the payment of significant capital gains taxes.
Escrow did not close. On May 2, 2000, Bandikian sued the Zorenkelians and Toros Mini Market for breach of contract, breach of implied covenants of good faith and fair dealing, intentional and negligent infliction of mental distress. According to the case history report, the trial court granted the Zorenkelians petition to compel arbitration.
The arbitrator heard testimony and issued an award in favor of the Zorenkelians (Award). According to the Award, "Bandikian was also aware when he signed the Escrow Instructions that releases from the State Board of Equalization and Employment Development Department had to be deposited into the escrow before closing." The Award indicated that "Bandikian set the closing date as March 2, 2000 and was also aware that the terms dictated that possession would be granted on the date of close of escrow." In addition, "Bandikian testified that during January he learned that his last date for the 1031 Exchange was February 28, 2000. He made no request or attempt to advance the closing escrow date of March 2, 2000."
According to the arbitrator, "Bandikian testified he inserted the sum of $ 80,000 as a deposit in the Purchase Agreement which sum was later incorporated into the Escrow Agreement as a liquidated damage clause in favor of the seller if the buyer does not complete the purchase." Zorenkelian testified that Bandikian stated "whoever makes a mistake or backs out, the other person gets $ 80,000."
The arbitrator found that Bandikian "created all his own problems by wrongly setting a March 2, 2000 date for the close of escrow, later learning it had to be earlier, February 28th, and doing nothing to amend or even request to amend the escrow closing date, to put the sellers and ARCO on notice of his problem." The arbitrator found Bandikian breached the contract and the Zorenkelians were entitled to damages in the amount of $ 80,000.
The trial court denied Bandikians petition to vacate the arbitration award and granted the Zorenkelians petition to confirm the arbitration award. Bandikian appealed from the judgment.
CONTENTIONS
Bandikian contends the arbitrator exceeded his authority by arbitrarily adding terms to the parties contract and by failing to apply California substantive law as called for by the agreement. Bandikian also contends the arbitration award must be vacated because the arbitrator failed to decide each issue submitted to him and that "exceptional circumstances" warrant vacating the $ 80,000 liquidated damage award.
The Zorenkelians contend that the arbitrator did not exceed his powers and that the amount of liquidated damages was appropriate.
DISCUSSION
Arbitration awards "are subject to extremely narrow judicial review." (Marsch v. Williams (1994) 23 Cal.App.4th 238, 243.) For reasons we shall explain, we find Bandikian raises no issue subject to judicial review.
1. Alleged Additional Contractual Terms
Bandikian argues the arbitrator exceeded his powers by adding terms to the contract that did not exist including (1) written approval from ARCO; (2) changing the closing date from March 2nd to March 6th; and finding that ARCOs presence was necessary at closing. "Having submitted the [contractual interpretation] issue to arbitration, [Appellant] cannot maintain the arbitrators exceeded their powers, within the meaning of section 1286.6, subdivision (b), by deciding it, even if they decided it incorrectly." (Moore v. First Bank of San Luis Obispo (2000) 22 Cal.4th 782, 787, 996 P.2d 706.)
What Bandikian characterizes as additional terms were issues of contract interpretation. Bandikian specifically asked the arbitrator to decide whether Defendants breached the contract, and each of the issues characterizes as excesses of power bear directly on the question. Stated otherwise, the arbitrator did not exceed his powers because he interpreted the Agreement in a manner different from Bandikian. This is not a case where the arbitrator exercised a power expressly prohibited under the terms of the contract. (See Bonshire v. Thompson (1997) 52 Cal.App.4th 803 [vacating arbitration award where the arbitrator relied on extrinsic evidence even though contract expressly prohibited it].)
2. Alleged Failure To Follow California Substantive Law
Bandikian points out that the Agreement requires the arbitrator to follow California law. Based on this requirement, Bandikian argues that if the arbitrator had followed California law, he would not have awarded liquidated damages to the Zorenkelians because they were not prepared to perform all of the terms of the Agreement on March 2, 2000.
Bandikian has not shown that he is entitled to judicial review. Where an arbitration agreement requires the arbitrator to apply a particular law or body of law, "an arbitrators failure to apply such a law is not in excess of an arbitrators powers within the meaning of section 1286.2, subdivision (d)." (Marsch v. Williams (1994) 23 Cal.App.4th 238, 244 [arbitrator did not exceed power by failing to apply California Corporations law even though agreement stated that California law was to control].) A general choice of law provision indicating California law is to apply to a dispute does not indicate "the parties also contemplated an extraordinary level of judicial review." (Id. at p. 245.)
3. Arbitrators Alleged Failure To Consider All Issues Submitted To Him
According to Bandikian, the arbitration award must be vacated because the arbitrator did not decide two issues that were submitted to him. Bandikian argues that the arbitrator failed to decide if Bandikian was entitled to damages as a result of the Zorenkelians refusal to release funds from escrow for over a month and that the arbitrator failed to decide whether ARCOs presence for escrow was necessary.
Contrary to Bandikians assertion, the arbitrator did decide ARCOs presence was necessary for escrow to close. The Award indicates the arbitrator was aware of the dispute regarding ARCOs presence because the arbitrator found the Zorenkelians agreement with ARCO "called for the settlement of the food inventory and sales tax to be done by or in the presence of ARCO personnel." The arbitrator also found "the sale requirement of sellers clearance through the State Board of Equalization would only be accomplished through the inventory, which was agreed to be on the day possession changed." Thus, the arbitrator expressly considered the necessity of ARCOs presence.
Bandikian has shown that the arbitrator may not have considered whether the Zorenkelians failed to release the funds in escrow in a timely manner. This, however, is insufficient to show that judicial review is warranted. "The failure to consider it is only an error of judgment that in the absence of fraud or gross misconduct is not subject to judicial review." (Sapp v. Barenfeld (1949) 34 Cal.2d 515, 523, 212 P.2d 233 [rejecting argument that arbitration award must be vacated because arbitrators failed to consider claim of damages for delay in completing building]. "Even if the omission to find as to those items was due to a mistake on the part of the arbitrators, nevertheless the omission was in effect a disallowance of those items, which became final and conclusive when the award was made and proper notice thereof given to the interested parties." (Ibid.)
If the arbitrator failed to consider a necessary issue, Bandikian should have raised this issue before the arbitrator. "Californias contractual arbitration law permits arbitrators to issue an amended award to resolve an issue omitted from the original award through the mistake, inadvertence, or excusable neglect of the arbitrator if the amendment is made before judicial confirmation of the original award, is not inconsistent with other findings on the merits of the controversy, and does not cause demonstrable prejudice to the legitimate interests of any party." (A.M. Classic Construction v. Tri-Build Development Co. (1999) 70 Cal.App.4th 1470, 1478.)
4. Liquidated Damages
Bandikian contends that the amount of the liquidated damages must be vacated because the contract permitted only liquidated damages of $ 20,000. Bandikian argues that he never signed a liquidated damage clause calling for damages of $ 80,000 and therefore the award violates Civil Code section 1677, which requires that a liquidated damage provision in a contract to purchase and sell real property must be separately signed or initialed by each party. Judicial review may be appropriate where "granting finality to an arbitrators decision would be inconsistent with the protection of a partys statutory rights." (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 32, 832 P.2d 899.)
The problem with Bandikians argument is that he cannot show that his statutory rights were violated based on the facts as the arbitrator found them. The arbitrator expressly accepted testimony that Bandikian stated "whoever makes a mistake or backs out, the other person gets $ 80,000.00." This statement, at least arguably, indicates an Bandikians "awareness" he would be liable for $ 80,000.00 if he backed out of the contract. Understanding the consequences of a liquidated damages provision is sufficient to show substantial compliance with the statute. (Allen v. Smith (2002) 94 Cal.App.4th 1270, 1282-1283.)
Bandikian strenuously argues that he did not agree to the $ 80,000 and that he did not make the statement relied on by the arbitrator. However, we cannot reweigh the credibility determinations made by the arbitrator; even if the arbitrator made an error of fact, that is not subject to judicial review. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11, 832 P.2d 899 ["it is the general rule that, with narrow exceptions, an arbitrators decision cannot be reviewed for errors of fact or law."].)
Bandikian has failed to present any argument that overcomes the presumption in favor of the finality of an arbitration award. (See Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 33, 832 P.2d 899.) By voluntarily agreeing to arbitration, the parties bear the risk the arbitrator will make a mistake "in return for a quick, inexpensive, and conclusive resolution of their dispute." (Id. at p. 11.)
DISPOSITION
The judgment confirming the Award is affirmed. Each party to bear his own costs.
We concur: RUBIN, J. BOLAND, J. --------------- Notes: An order denying a petition to vacate an arbitration award is appealable after an award is confirmed. (Mid-Wilshire Associates v. OLeary (1992) 7 Cal.App.4th 1450, 1454.) In his opening brief, Bandikian states that he also appeals from the order denying his motion to vacate. However, the notice of Appeal indicates Bandikian appeals from "the Order and Judgment entered on December 19, 2001 . . . granting Defendants Petition to Confirm Binding Arbitration Award as Judgment." The December 19th order concerns only the petition to confirm, not the petition to vacate.