Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County No. BC331865, James C. Chalfant, Judge.
John P. DeGomez for Defendant and Appellant.
Jonathan G. Gabriel for Plaintiff and Respondent.
WOODS, J.
Gangi Builders, Inc. (Gangi) appeals from the court’s order denying its petition to vacate (and confirming) an arbitration award for Bow Tile Corp. (Bow Tile) concerning a dispute over a construction contract. Gangi argues the trial court should have vacated the arbitration award under Code of Civil Procedure section 1286.2, subdivision (a)(4) because the arbitrator exceeded his authority in considering claims and awarding damages beyond those sought in the original complaint and in the demand for arbitration Bow Tile submitted to the American Arbitration Association (AAA). We do not agree. As the lower court observed in ruling on the petition, the arbitrator’s award does not appear to have exceeded either the authority conveyed to the arbitrator under the broad arbitration clause in the parties’ subcontract, nor does it exceed the scope of the parties’ equally broad stipulation to arbitrate filed in the underlying action. In addition, Gangi has not carried its burden to demonstrate that Bow Tile narrowed its claim in the submission to AAA such that the subsequent award exceeded the scope of the submission or that the arbitrator violated AAA rules in a manner that would show he exceeded his authority. Consequently, we affirm.
All statutory references are to the Code of Civil Procedure unless otherwise indicated.
FACTUAL AND PROCEDURAL HISTORY
This dispute involves the general contractor Gangi and a subcontractor Bow Tile, who provided tile and paving work for the construction of a 67-unit condominium project in South Pasadena (the Project). The construction subcontract executed in 2003 indicates a contract amount of $322,000 for the tile and paving work. The subcontract also contained an arbitration clause which provided, in pertinent part: “If any controversy shall arise between contractor and subcontractor regarding anything pertaining to this agreement which the parties do not promptly adjust and determine . . . the controversy shall be submitted to and determined by arbitration . . . under the Construction Industry Arbitration Rules of the American Arbitration Association [AAA].”
In February 2005, Bow Tile recorded a mechanics lien for ceramic tile work on the Project in an amount of $135,929; an exhibit attached to the mechanic’s lien indicates the amount sought was for work performed on “Courtyard A.” Thereafter in April 2005, Bow Tile filed a complaint for breach of contract, and foreclosure on the mechanic’s lien. The complaint sought breach of contract damages in the amount of $135,929 for services performed and goods provided under the subcontract.
It appears that the subcontract also anticipated Bow Tile would provide the tile and paver work for Courtyards B and C of the Project, but after the underlying construction dispute arose, Bow Tile never completed that work.
In June 2005, the parties stipulated to stay the civil action and submit to binding arbitration. Specifically, the parties stipulated “that this action pursuant to CCP 1281.5 be stayed pending binding arbitration of any issue, question, or dispute which is claimed to be arbitrable under the agreement and which is relevant to this action.” The court issued a stay of the civil action.
In January 2006, Bow Tile submitted a demand for arbitration with AAA. The demand listed the amount sought as $135,929 and described the nature of the dispute as: “Respondent breached the Agreement. They have failed and/or refused to pay the amount which is due, owing and unpaid. The claim amount represents the sum owed to the Claimant for services performed and/or goods delivered per the contract.” The matter proceeded to arbitration before an arbitrator selected by the court. During the arbitration, the arbitrator sought evidence and testimony from the Project’s architect. At that point, Gangi requested, over Bow Tile’s objection, to keep the transcript of the proceedings involving the architect and the “reasoned” section of the arbitrator’s award confidential and sealed. The arbitrator granted Gangi’s request and the confidentiality order required the transcript and the reasoned part of the arbitrator’s award would not be disclosed without a signed stipulation of parties’ counsel and the architect witness.
According to Gangi on the fourth day of the nine-day arbitration, the arbitrator gave Bow Tile leave to amend its claim. Gangi claims that Bow Tile never submitted an amendment. Nonetheless, at the end of the proceedings, Bow Tile apparently sought $272,000 in damages in its closing brief. Thereafter, the arbitrator issued a tentative award which reflected an increase in the amount of damages ($108,000 -- one-third of the subcontract base amount (of $322,000), plus $85,680 for three signed change orders for Courtyard A Phase as well as “lost profits” ($10,700) and “overhead” ($2,140) for Courtyards B & C.) Gangi objected to the tentative award, apparently arguing that the arbitrator’s award was beyond the scope of the claim submitted and that it had not been provided proper notice of the new claim as required by the AAA rules, R-6. The parties argued and briefed the application of AAA Rule R-6, and according to Bow Tile, it took the position that it had not added a “new claim,” but had instead increased the amount sought on the original claim which did not require additional notice under AAA Rule R-6. The arbitrator apparently adopted Bow Tile’s view; the arbitrator explained its analysis in the sealed “reasoned portion” of the award. The May 2007 final award of the arbitrator again reflected $108,000 -- one-third of the subcontract base amount (of $322,000), plus $85,680 for three signed change orders for Courtyard A Phase as well as “lost profits” ($10,700) and “overhead” ($2,140) for Courtyards B & C. The award also reflected deductions of $54,460 for Gangi’s counterclaim and $34,280 for payments received by Bow Tile, and thus the final award for Bow Tile totaled $117,780. The arbitrator’s rationale for the award was provided in the reasoned section of the award, and pursuant to the confidentiality agreement, that part of the award was sealed.
The record before this court does not contain any of the parties’ written submissions in the arbitration or transcript of proceedings before the arbitrator. Thus, the description of the proceedings and submissions is gleaned from the representations in the trial court made by counsel.
AAA Rule R-6 provides: “A party may at any time prior to the close of the hearing increase or decrease the amount of its claim or counterclaim. Any new or different claim or counterclaim, as opposed to an increase or decrease in the amount of a pending claim or counterclaim, shall be made in writing and filed with the AAA, and a copy shall be mailed to the other party, who shall have a period of ten calendar days from the date of such mailing within which to file an answer with the AAA.”
Thereafter, in June 2007, Bow Tile filed a petition to confirm the arbitration award. Gangi filed a petition to vacate the award. In its petition, Gangi argued, among other things, that the arbitrator exceeded the scope of his powers under section 1286.2, subdivision (a)(4) and violated AAA Rule R-6. Gangi asserted the arbitrator’s award reflected consideration of a claim exceeding the original $135,929 sought and included an award of lost profits and overhead for phases of the Project (Courtyards B and C) that Bow Tile never completed and were beyond the scope of the original claim submitted to arbitration.
During the hearing on the petitions, the court complained that it was unable to fully assess Gangi’s claim because of the confidentiality agreement in the arbitration—“there is no possibility that I can vacate the arbitration award without knowing what the arbitrator did and what his reasoning was.” At that point, Gangi’s counsel offered to lift the confidentiality aspect of the proceedings and have an in camera review. In response, Bow Tile’s counsel pointed out that even if it agreed to such a proposal, the third-party architect, who was not before the court, would also have to agree to the disclosure. The trial court thereafter observed that in view of the confidentiality agreement, it could only review what was before it, and that while the court had some sympathy for Gangi’s arguments, Gangi had not met its burden to show the arbitrator exceeded his authority. The court further noted the amount ultimately awarded was less than originally sought and there was no proof that the arbitrator had acted in excess of his authority by using faulty methodology. The court denied the petition to vacate and granted the petition to confirm the award, commenting: “I can’t say there is no possible justification [for the arbitrator’s actions] because you did submit the entire breach of contract issue to arbitration. [¶] What happened in the arbitration may have narrowed what was initially submitted to the arbitration, and narrowed in such a way that the arbitrator exceeded his powers by considering more. But I don’t know that for certain. [¶] I don’t – you haven’t met your burden of proof on that because I don’t know what the arbitrator says and I can’t conclude that just from the face that the initial claim was 135,000 for work performed and that the tentative included lost profits on courtyards where they didn’t do any work; that that necessarily must mean that the arbitrator erred. I cannot reach that conclusion.”
Gangi timely appeals.
DISCUSSION
On appeal, Gangi argues the trial court erred in confirming the arbitration award because the arbitrator exceeded his powers under section 1286.2, subdivision (a)(4) in issuing the award. Gangi asserts the authority of the arbitrator was limited to Bow Tile’s claim for work and services performed as expressed in the original complaint and in the demand for arbitration submitted to AAA. Gangi maintains the relief awarded was thusly confined to work performed on Courtyard “A” and in an amount no greater than $135,992. Gangi points out the arbitrator gave Bow Tile leave to file an amended claim for other work on the Project, but that Bow Tile never submitted a new claim pursuant to AAA Rule R-6. Gangi contends that in failing to properly amend the claim and serve notice of the amendment under the AAA rules, Bow Tile waived any right to additional damages on the new claims. Nonetheless, according to Gangi the arbitrator considered the additional claims and an amount of damages well above the $135,929 originally sought as reflected in the tentative and final award of the arbitrator. To that end, Bow Tile was awarded “lost profits” for Courtyards B and C work. Thus, Gangi argues the arbitrator exceeded the scope of his authority, when he failed to require Bow Tile to comply with the due process notice requirements in AAA Rule R-6 in adding new claims. As we shall explain, the trial court properly confirmed the arbitration award.
Gangi also characterizes the arbitrator’s conduct as amounting to “extrinsic fraud, corruption and undue means” under section 1286.2, subdivision (a)(1). Nonetheless, Gangi’s argument under section 1286.2, subdivision (a)(1) is that the arbitrator exceeded his powers under section 1286.2, subdivision (a)(4) when he refused to require respondent to amend its claim in accord with AAA Rule R-6.
The California Supreme Court has held that subject to limited exceptions: “[I]t is the general rule that, ‘The merits of the controversy between the parties [to a private arbitration agreement] are not subject to judicial review.’ [Citations.] More specifically, courts will not review the validity of the arbitrator’s reasoning. [Citations.] Further, a court may not review the sufficiency of the evidence supporting an arbitrator’s award. [Citations.] [¶] 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; see Jones v. Humanscale Corp. (2005) 130 Cal.App.4th 401, 407-408.)
Section 1286.2, subdivision (a)(4) is an exception to the general rule precluding judicial review of arbitration awards with respect to arbitrators who act in excess of their contractual authority. The Supreme Court has explained: “It is well settled that ‘arbitrators do not exceed their powers merely because they assign an erroneous reason for their decision.’” (O’Malley v. Petroleum Maintenance Co. (1957) 48 Cal.2d 107, 111.) A contrary holding would permit the exception to swallow the rule of limited judicial review; a litigant could always contend the arbitrator erred and thus exceeded his powers. “It is within the ‘powers’ of the arbitrator to resolve the entire ‘merits’ of the ‘controversy submitted’ by the parties. (§ 1286.2, subd. (d); 1286.6, subd. (b), (c).) . . . [T]he ‘merits’ include all the contested issues of law and fact submitted to the arbitrator for decision. The arbitrator’s resolution of these issues is what the parties bargained for in the arbitration agreement.” (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 28; accord, Moshonov v. Walsh (2000) 22 Cal.4th 771, 775 [“[A]rbitrators do not ‘exceed[ ] their powers’ . . . merely by rendering an erroneous decision on a legal or factual issue, so long as the issue was within the scope of the controversy submitted to the arbitrators”].)
Code of Civil Procedure 1286.2, subdivision (a)(4) provides that the trial court shall vacate the award if “[t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.”
It is also true, however, that, as the Supreme Court held in Moncharsh: “In cases involving private arbitration, ‘[t]he scope of arbitration is . . . a matter of agreement between the parties’ [citation], and ‘“[t]he powers of an arbitrator are limited and circumscribed by the agreement or stipulation of submission.”’ [Citation.]” (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at pp. 8-9; see Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 830.) The parties may agree to limit or restrict an arbitrator’s authority and powers. (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 375; see Ajida Technologies, Inc. v. Roos Instruments, Inc. (2001) 87 Cal.App.4th 534, 541.) “The powers of arbitrators derive from, and are limited by, the agreement to arbitrate. (Moncharsh [v. Heily & Blase], supra, 3 Cal.4th at p. 8.) ‘Although . . . section 1286.2 permits the court to vacate an award that exceeds the arbitrator’s powers, the deference due an arbitrator’s decision on the merits of the controversy requires a court to refrain from substituting its judgment for the arbitrator’s in determining the contractual scope of those powers. [Citations.]’ (Advanced Micro Devices, Inc. v. Intel Corp., supra, 9 Cal.4th at p. 372.)” (Jordan v. Department of Motor Vehicles (2002) 100 Cal.App.4th 431, 444.) We must, however, uphold the parties’ express agreement to restrict the arbitrator’s authority. (Advanced Micro Devices, Inc. v. Intel Corp., supra, 9 Cal.4th at pp. 375-376; California Faculty Assn. v. Superior Court (1998) 63 Cal.App.4th 935, 944.)
In Advanced Micro Devices, Inc. v. Intel Corp., supra, 9 Cal.4th at pages 372-383, the Supreme Court delineated the limited scope of judicial review of an arbitrator’s power as described in Moncharsh. At issue in Advanced Micro Devices, Inc. was whether the arbitrator exceeded his authority in fashioning a contract breach remedy. The parties had agreed to binding arbitration of disagreements arising under their contract. The arbitrator’s powers were described in the arbitration clause thusly, “‘The Arbitrator may grant any remedy or relief which the Arbitrator deems just and equitable and within the scope of the agreement of the parties, including, but not limited to, specific performance of a contract.’” (Id. at p. 368.) Further, the arbitrator was instructed, “‘[T]o interpret and apply these Rules insofar as they relate to his powers and duties.’” (Id. at pp. 368-369.) The Supreme Court explained: “California law allows a court to correct or vacate a contractual arbitration award if the arbitrators ‘exceeded their powers.’ (. . . § 1286.2, subd. (d), 1286.6, subd. (b).) In Moncharsh v. Heily & Blase[, supra,] 3 Cal.4th [at page] 28, we held arbitrators do not exceed their powers merely by erroneously deciding a contested issue of law or fact; we did not, however, have occasion there to further delineate the standard for measuring the scope of the arbitrators’ authority. This case requires us to decide the standard by which courts are to determine whether a contractual arbitrator has exceeded his or her powers in awarding relief for a breach of contract.” (Advanced Micro Devices, Inc. v. Intel Corp., supra, 9 Cal.4th at p. 366.) The Supreme Court held: “We conclude that, in the absence of more specific restrictions in the arbitration agreement, the submission or the rules of arbitration, the remedy an arbitrator fashions does not exceed his or her powers if it bears a rational relationship to the underlying contract as interpreted, expressly or impliedly, by the arbitrator and to the breach of contract found, expressly or impliedly, by the arbitrator.” (Id. at p. 367; italics added.) The Supreme Court noted, however, “[A]rbitrators may not award remedies expressly forbidden by the arbitration agreement or submission . . . .” (Id. at p. 381.) The Supreme Court cautioned, “It follows that parties entering into commercial contracts with arbitration clauses, if they wish the arbitrator’s remedial authority to be specially restricted, would be well advised to set out such limitations explicitly and unambiguously in the arbitration clause.” (Id. at p. 383; see Taylor v. Van-Catlin Construction (2005) 130 Cal.App.4th 1061, 1066.)
Thus, the scope of judicial review of arbitration awards is “extremely narrow.” (Ajida Technologies, Inc. v. Roos Instruments, Inc., supra, 87 Cal.App.4th at p. 541.) In assessing whether a private arbitrator has exceeded his or her powers, we afford substantial deference towards the arbitrator’s determination of his contractual authority as granted in the agreement to arbitrate and this court draws every reasonable inference to support the award. (Jones v. Humanscale Corporation (2005) 130 Cal.App.4th 401, 408; Ajida Technologies, Inc. v. Roos Instruments, Inc., supra, 87 Cal.App.4th at p. 541.) Nonetheless, whether the arbitrator exceeded his power is a question of law; accordingly, our review of the judgment confirming the arbitration award is de novo. (Advanced Micro Devices, Inc. v. Intel Corp., supra, 9 Cal.4th at p. 376, fn. 9; Kahn v. Chetcuti (2002) 101 Cal.App.4th 61, 65; Ajida Technologies, Inc. v. Roos Instruments, Inc., supra, 87 Cal.App.4th at p. 541; California Faculty Assn. v. Superior Court, supra, 63 Cal.App.4th at p. 945.) With these principles in mind we turn to the merits of Gangi’s contentions on appeal, namely that the arbitrator exceeded his authority in the award.
In determining whether the arbitrator exceeded the scope of his power in this case, we first look to the parties’ agreement to see whether it placed any limitations on the arbitrator’s authority. It did not. The parties’ subcontract’s arbitration clause is very broad providing the arbitrator with the nearly limitless authority to determine “any controversy” between Gangi and Bow Tile regarding “anything pertaining to this agreement,” i.e., the subcontract. Similarly broad is the parties’ subsequent stipulation (to stay this action and) to arbitrate, in which they agreed to “binding arbitration of any issue, question, or dispute” claimed to be “arbitrable under the agreement and which is relevant to this action.” Nothing in the arbitration clause, the stipulation or in the civil complaint limited Bow Tile’s recovery to breach of contract damages only for Courtyard A and/or for $135,929. While the complaint did seek to foreclose on the mechanic’s lien for work performed on Courtyard A for $135,929, Bow Tile also alleged a generic breach of contract claim and a common count in the complaint. In addition to seeking $135,929 in damages, Bow Tile also prayed for “reasonable value of goods and services; and any other and further relief the court considers proper.” Given the latitude afforded the arbitrator under the contract arbitration clause, the stipulation to arbitrate and the breadth of claims pled, we do not find that the subsequent arbitration award, even as characterized by Gangi, shows the arbitrator acted in excess of his powers.
Notwithstanding this analysis, the question remains, however, whether the award exceeded the scope of the claim ultimately submitted to the arbitrator. “Even where the parties’ original contract included a broad arbitration clause, the arbitrator’s powers may be restricted by the limitation of issues submitted.” (Advanced Micro Devices, Inc. v. Intel Corp., supra, 9 Cal.4th at p. 382.) Thusly, Gangi claims that what was ultimately submitted to the arbitrator narrowed the arbitrator’s authority. Gangi argues the demand for arbitration submitted to AAA limited the arbitrator to awarding no more than $135,922 for a claim described in the demand as: “Respondent breached the Agreement. They have failed and/or refused to pay the amount, which is due, owing and unpaid. The claim amount represents the sum owed to the Claimant for services performed and/or goods delivered per the contract.” Consequently Gangi asserts that this language precluded the arbitrator from awarding damages for “lost profits” and overhead for Courtyards B and C. Gangi has not convinced us to adopt its view of the AAA submission. There is another reasonable interpretation of the AAA submission not as narrow as Gangi posits. While the submission clearly seeks an award for the work already performed—ostensibly that performed in connection with Courtyard A—the AAA submission is not expressly limited to damages incurred in connection with Courtyard A. Moreover, it makes no mention of the mechanic’s lien, which is the only document that identifies damages incurred for Courtyard A.
Thus, the initial AAA submission does not necessarily foreclose the arbitrator’s consideration and an award of additional contract damages generally flowing from the breach of the contract, including lost profits and overhead for work that was anticipated under the contract that would have been performed but for the breach. Furthermore, as the trial court pointed out, the final award was less than $135,929 and thus on its face the award did not exceed that sought in the original submission demand.
The fact that Bow Tile purportedly sought $272,000 damages in its final arbitration brief and the arbitrator considered a damage award greater than $135,929 (though ultimately awarded less) likewise does not prove actions in excess of the arbitrator’s power.
In any event, the initial AAA submission is not necessarily the final word on the scope of the arbitrator’s authority because the AAA rules, specifically R-6, allow the claimant to amend his claim and to increase (or decrease) the amount sought during the arbitration. Accordingly, to determine whether the arbitrator exceeded his authority, we turn to whether Bow Tile amended its submission to add new and/or different claims or instead merely increased the amount sought in connection with the original claims.
Gangi asserts Bow Tile submitted “new” claims that required, under AAA Rule R-6, that Bow Tile submit and timely serve an amended claim. Gangi contends the arbitrator gave Bow Tile an opportunity to amend to add a new claim, but that Bow Tile did not amend, and thus, the arbitrator was without authority to award damages for the “new” claims. Bow Tile argues the claim it submitted did not require an amendment under AAA Rule R-6, but was merely an increase in the amount sought on the original claim, which did not under R-6 require any additional notice. Both parties agreed that this issue of how to characterize the additional damages sought was considered and decided by the arbitrator at the end of the proceedings after the arbitrator issued his tentative decision. Under AAA Rule R-54, the arbitrator was empowered to interpret the AAA rules and here the arbitrator apparently agreed with respondent’s characterization of its claims under R-6. Given the breadth of the arbitration clause in the parties’ subcontract, the stipulation, AAA submission and the authority given the arbitrators to interpret the AAA rules, we cannot say the arbitrator’s interpretation of R-6 is beyond reason so as to demonstrate actions in excess of his authority.
In his reply brief Gangi also argues for the first time the arbitrator exceeded his powers in violation of AAA Rule R-6 because he allowed Bow Tile to increase its claim after the hearing at the end of the proceedings. Consistent with well-established authority, absent justification for failing to present an argument in the opening brief, we will not consider an issue raised for the first time in a reply brief. (Levin v. Ligon (2006) 140 Cal.App.4th 1456, 1486 [“It is elementary that points raised for the first time in a reply brief are not considered by the court”]; see also Campos v. Anderson (1997) 57 Cal.App.4th 784, 794, fn. 3 [same].)
AAA Rule R-54 provides: “The arbitrator shall interpret and apply these rules insofar as they relate to the arbitrator’s powers and duties.”
Even were we convinced we had the authority under section 1286.2, subdivision (a)(4) to review and second guess the arbitrator’s interpretation of R-6, Gangi has not provided a complete record of those proceedings before the arbitrator to prove its contentions with respect to R-6. Simply put Gangi has not carried its burden of proof with respect to its version of the AAA submission. As in the trial court, it is impossible for this court to determine based only on the language of the initial AAA submission and the scant evidence before us that we should adopt Gangi’s positions. It appears the parties briefed and argued the scope of the arbitrator’s authority under the AAA submission at the end of the arbitration when they contested the application of AAA Rule R-6. But this court lacks the benefit of the briefs and the record prepared in connection with the issue, and lacking such evidence we are not required to adopt Gangi’s view in favor of an equally plausible view, which supports the award. Gangi had sufficient time and opportunity to obtain agreement from Bow Tile and the third-party architect to disclose the confidential parts of the arbitration record as well as to submit the other nonconfidential aspects of the record it needed to prove its argument on this issue. Without a record we are prevented from conducting a thorough and meaningful review of the issue. But Gangi failed to make a sufficient record, and its failure to do so is fatal to its arguments here.
In view of all of the foregoing, we conclude the trial court did not err in denying Gangi’s petition to vacate and in granting the petition to confirm the arbitration award.
DISPOSITION
The judgment is affirmed. Respondent is entitled to its costs on appeal.
We concur: PERLUSS, P.J., ZELON, J.