Opinion
B228877
10-25-2011
DAVID LOZANO, INC., Plaintiff and Respondent, v. BARRY BOROWITZ, INC., et al., Defendants and Appellants.
Luce, Forward, Hamilton & Scripps, John C. Kirkland, Vicky N. Pham and Theona Zhordania for Defendants and Appellants. Blecher & Collins, Maryann R. Marzano, William C. Hsu and Kristen M. Peters for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC422905)
APPEAL from a judgment of the Superior Court for Los Angeles County. Amy D. Hogue, Judge. Affirmed.
Luce, Forward, Hamilton & Scripps, John C. Kirkland, Vicky N. Pham and Theona Zhordania for Defendants and Appellants.
Blecher & Collins, Maryann R. Marzano, William C. Hsu and Kristen M. Peters for Plaintiff and Respondent.
The parties engaged in a contractual arbitration. The arbitrator issued a final award, but after receiving one party's request for a correction, he issued a modified final award. The trial court confirmed the modified final award. Appellants contend the arbitrator exceeded his powers by modifying the final award. We disagree and affirm the trial court's ruling.
FACTUAL AND PROCEDURAL BACKGROUND
In September 2009, David Lozano, Inc. (respondent) filed a complaint against Erik Clark, Barry Borowitz, their respective related corporate entities, and Borowitz, Lozano, & Clark LLP (collectively appellants). The suit arose out of respondent's claim that appellants wrongfully ousted respondent from their partnership. Appellants successfully moved to compel arbitration. The parties proceeded to arbitrate their claims before the American Arbitration Association (AAA). While the arbitration was pending, appellants made an offer to compromise pursuant to Code of Civil Procedure section 998 (998 offer). Appellants offered to "allow judgment to be entered against them, jointly and severally, in total amount of $300,001.00, plus allowable costs and prejudgment interest as of the date hereof, as full and complete satisfaction of all claims in the above-captioned action and cross-action." Respondent accepted the 998 offer.
Respondent filed a motion requesting the arbitrator calculate and fix costs and prejudgment interest as of the date the 998 offer was tendered. Respondent argued attorneys' fees should be included as a cost item. Respondent also separately moved for attorneys' fees and costs incurred after the date the 998 offer was tendered. Appellant Borowitz, Lozano & Clark LLP (BLC) opposed both of respondent's motions and filed its own motion seeking attorneys' fees and costs. BLC argued it was the prevailing party under Code of Civil Procedure section 1032 and the parties' partnership agreement, thus only it was entitled to costs. BLC further asserted respondent had acted in bad faith during the course of the litigation and awarding costs to respondent would be inequitable.
On May 25, 2010, the arbitrator issued a "final arbitration award." The award stated, in relevant part: "Accordingly, having considered the documents and pleadings submitted and the arguments of the parties, the Arbitrator finds as follows:
(1) The motions for attorneys' fees by Claimant and Counterclaimant are denied, in that such fees were included in the Claim and Counterclaim and, therefore, settled by the offer and acceptance of the settlement pursuant to CCP 998; Costs and interest were specifically excluded in the CCP 998 Offer, therefore:
(2) Lozano is awarded prejudgment interest in the total amount of $4,142.16, calculated at the rate of $57.53 per day from March 15, 2010 through May 25, 2010;
(3) Lozano is awarded the following costs:
• Expert fees of $3,692.00; andThe total amount of costs, therefore, awarded to Lozano is $4,535.84.
• Other actual costs of $843.84.
(4) In accordance with the 998 Offer, judgment is to be entered in favor of Lozano and against Claimant and Counterclaimant-Respondent Borowitz, Lozano & Clark, LLP, and Counterclaimant-Respondents Barry Borowitz, Inc., Erik Clark, Inc., Barry E. Borowitz and M. Eric Clark, jointly and severally, in the total amount of $300,001.00, plus $4,535.84 in allowable costs and $4,142.16 in prejudgment interest.
(5) Pursuant to the partnership agreement, all of the expenses of arbitration are recoverable as costs, therefore:
The administrative filing and case service fees of the AAA, totaling $11,250.00, shall be borne as follows: Entirely by Borowitz, Lozano & Clark, LLP;
The fees and expenses of the Arbitrator, totaling $20,380.00, shall be borne as follows: Entirely by Borowitz, Lozano & Clark, LLP;
Therefore, Borowitz, Lozano & Clark, LLP shall reimburse David Lozano, Inc. the sum of $18,190.00, representing that portion of said fees and expenses in excess of the apportioned costs previously incurred by David Lozano, Inc.
This Final Award is in full settlement of all claims submitted to this Arbitration. All claims not expressly granted herein are hereby denied." (Italics added.)
On May 26, 2010, counsel for respondent notified the AAA by e-mail that there appeared to be a "typographical error" in the award. Counsel indicated that in the arbitrator's finding regarding costs and interest, "I believe the word [the arbitrator] intended to use was 'included' and the not [sic] word 'excluded.'" On June 3, 2010, counsel e-mailed again to "confirm and restate that pursuant to Cal. Code of Civil Procedure sections 1284 and 1286.6(c), respondent-counterclaimant Lozano requests that the Final Award be corrected so that on page 2, line 28, the word 'excluded' is replaced with the word 'included.' Lozano submits this is a typographical error that does not affect the merits of the controversy or the substantive terms of the Final Award."
On June 16, 2010, counsel for BLC responded that it did "not believe it is a typographical error, and does not believe that any change in the award is permissible under AAA rules or applicable law."
On June 17, 2010, the arbitrator issued a "modified final arbitration award." In the modified award, the challenged line regarding costs and interest was changed to read: "Payment of costs and prejudgment interest in addition to the cash offer of $300,001.00 was specifically provided for in the CCP 998 Offer, therefore . . ." The numbers set forth in the original award were unchanged and there were no other changes to the award. In a short memo, the arbitrator indicated he modified the original award to clarify what may have been an ambiguity. He explained that in the original award,
"[t]he word 'excluded' was used to differentiate that finding from the finding on page 2 . . . regarding attorneys' fees, wherein it was found that the money offer of $300,001.00 included attorneys' fees and, therefore, additional payment in that regard to the Respondent/Counterclaimant could not be awarded. The CCP 998 offer specifically provided for the settlement of all claims for '. . . the total amount of $300,001.00 plus allowable costs and prejudgment interest as of the date hereof . . .' This offer provided for the payment of an additional amount for costs and prejudgment interest to the Respondent/Counterclaimant, and this offer was accepted; therefore, costs and prejudgment interest are included in the Award. [¶] This was, of course, the intended meaning of the original wording of the Final Arbitration Award, and that Award is being modified only for the purpose of clarifying any possible ambiguity."
In July 2010, respondent petitioned the trial court to confirm the modified final award. Appellants opposed the confirmation petition. Appellants contended the arbitrator exceeded his powers in modifying the arbitration award. In October 2010, the trial court confirmed the modified final arbitration award. This appeal followed.
Appellants also initially argued respondent did not properly serve the petition to confirm the award. The trial court allowed respondent to perfect service of the petition.
DISCUSSION
Appellants contend the trial court erred in confirming the modified final arbitration award because the arbitrator exceeded his powers in modifying the original award. We find no error.
"In determining whether the arbitrator exceeded his powers . . . we review the superior court's decision de novo, but we 'pay substantial deference to an arbitrator's determination of his own authority.' [Citation.]" (Roehl v. Ritchie (2007) 147 Cal.App.4th 338, 347.)
Under California law, an arbitrator may correct an arbitration award under limited circumstances. Code of Civil Procedure sections 1284 and 1286.6 provide that the arbitrator may correct an award only if "[t]here was an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award," or "[t]he award is imperfect in a matter of form, not affecting the merits of the controversy." (Code Civ. Proc., § 1286.6, subds. (a), (c).) "[A]part from those statutory exceptions, an arbitrator may not correct an award that he or she intended on the ground that he or she later determined a factual or legal error had been made in the award." (Century City Medical Plaza v. Sperling, Issacs & Eisenberg (2001) 86 Cal.App.4th 865, 877 (Century City).)
To come within the statutory exceptions, a miscalculation to be corrected must appear on the face of the award. An arbitrator may correct an imperfection in an award only if it is a non-substantive matter of form. (Century City, supra, 86 Cal.App.4th at p. 877; Severtson v. Williams Construction Co. (1985) 173 Cal.App.3d 86, 94 (Severtson).)
The modified final award in this case was permissible under California law. The arbitrator's modification to the award corrected an imperfection in a matter of form that did not affect the merits of the controversy. (Code Civ. Proc., § 1286.6, subd. (c).) The change concerned the arbitrator's choice of words in describing the award of costs and interest. Although the original award stated the 998 offer "excluded" costs and interests, and the modified award stated payment of costs and interests was "provided for" in the 998 offer, this change in wording did not affect the award of costs and interest. The arbitrator awarded respondent the same dollar amount of costs and interest, and in the same allocations, in both versions of the award.
We also note that the request for a correction and the arbitrator's corrected decision were timely under Code of Civil Procedure section 1284.
If the original award had not included the specific dollar amounts and allocations of the costs and interest the arbitrator was awarding, perhaps appellants would have a more convincing argument. But as it is, their contention that the arbitrator impermissibly reconsidered its original award and made a substantive revision, " 'adding an element of damages not covered' -costs and interests - in the original award," is not persuasive. The original award explicitly awarded costs and interest, despite its rather confusing explanatory language that the 998 offer "specifically excluded" costs and interest.The costs and interest the arbitrator awarded in the original award did not change in the modified award. In the abstract, a wording revision of "specifically excluded" to "specifically provided for," with respect to costs would seem meaningful. But when viewed in the context of the actual award at issue in this case, it is apparent the change was entirely non-substantive. It did not reveal a reconsidered or new interpretation of the 998 offer.
In their appellate briefing, appellants ignore that the original award set forth the specific amounts the arbitrator was awarding in costs in interest.
This case thus significantly differs from the two cases upon which appellants rely: Severtson, and Landis v. Pinkertons, Inc. (2004) 122 Cal.App.4th 985 (Landis). In Severtson, the arbitrator issued an award in favor of property owners in a dispute against their contractor. The major item of damages was $15,000 to correct the exterior siding of a single-family dwelling. (Severtson, supra, 173 Cal.App.3d at p. 90.) The property owners asked the arbitrator to correct the award. The arbitrator subsequently amended the award and increased the award of damages to the property owners. (Ibid.) The arbitrator explained in a declaration that after receiving the application to correct, he reviewed the hearing testimony and determined one witness's testimony had a different meaning than he originally thought. (Id. at p. 92.) On appeal, the court concluded the arbitrator's amended award was not a statutorily permissible correction of an evident miscalculation. (Id. at pp. 94-95.) There was "no evident miscalculation," and "[a]n examination of the original award and accompanying letter would not reveal any miscalculation, but a deliberate choice rejecting certain items of evidence." (Id. at p. 93.) That the arbitrator had rejected that evidence due to a mistake of fact was not a permissible ground for correction. The court concluded that in reconsidering the evidence and accepting testimony he had previously rejected, even if by mistake, the resulting modification to the award " 'was no mere recalculation, but a revision in substance, adding an element of damages not covered . . . in the award as rendered.' [Citation.]" (Id. at p. 95.)
In this case there was no purported miscalculation. And, unlike the arbitrator's revisions in Severtson, here the arbitrator's modifications did not change the amount of costs or interest awarded to respondent. The arbitrator did not reconsider its interpretation of the 998 offer, he merely changed his choice of words describing the 998 offer, reaching the exact same result. The original award granted costs and interest to respondent. The modified award did the same. It did not add an element of damages not covered in the original award.
In Landis, the arbitrator changed his award to correct a legal error. The arbitrator's original award included economic damages and an award of general damages for emotional distress. (Landis, supra, 122 Cal.App.4th at p. 988.) The defendants requested that the arbitrator correct the award on the grounds that the plaintiff had not sought emotional distress damages in the complaint and the award was not authorized by law. (Ibid.) The arbitrator granted the defendants' motion to strike the award of emotional distress damages and issued an amended award to that effect. (Id. at pp. 988-989.) On appeal, the Landis court concluded the arbitrator improperly amended the award to correct an error of law. (Id. at p. 992.)
The modified award in this case did not purport to correct an error of law. While the arbitrator in Landis reconsidered his original award and struck an emotional distress damages award as a result, here the arbitrator awarded the same costs and interest in both versions of the award. Nothing indicates or even suggests the arbitrator reconsidered the merits of the original award. Appellants' reliance on Landis is therefore misplaced. The federal cases appellants cite to support their argument are equally inapposite. (E.g., ARW Exploration Corp. v. Aguirre (10th Cir. 1995) 45 F.3d 1455, 1463 [court would not disturb arbitrator's award based on party's argument that arbitrator should have computed damages differently]; In re Rollins, Inc. (Black) (M.D. Fla. 2004) 552 F.Supp.2d 1318, 1325 [arbitrators' modification reversing the panel's earlier conclusions on three counts was not a scrivener's error], revd. in part sub nom. Rollins, Inc. v. Black (11th Cir. 2006) 167 Fed.Appx. 798.)
We agree with respondent that Krautner v. Johnson (1961) 189 Cal.App.2d 717 (Krautner), is instructive. In Krautner, the plaintiffs sought to recover monies allegedly due under a written contract. The arbitrators' original award stated that the plaintiffs had " 'substantially completed the contract' " and were entitled to $3,888.00, the total amount due under the contract. However, the arbitrators subsequently crossed out this statement and replaced it with a finding that the amount of the " 'last payment unpaid under the basic contract was . . . $3,888.00.' " (Id. at p. 718.) The trial court confirmed the award as modified.
We note that Krautner was decided before the California Arbitration Act became effective in September 1991. However, the statute codified the already existing rule prohibiting changes in an arbitration award. (See Elliott & Ten Eyck Partnership v. City of Long Beach (1997) 57 Cal.App.4th 495, 501-502.) Krautner is therefore still relevant.
On appeal, the court rejected the defendant's argument that the arbitrators' modification to the award invalidated it. The court explained: "A change in substance would require vacation of the award [citation] if it resulted in prejudice to either party [citation]. Here, however, the alteration, even if made after furnishing copies to the parties, is one of form only. It would be hypertechnical to hold that it voids the award." (Krautner, supra, at pp. 718-719.) The court also rejected as "wholly without merit" the defendant's contention that "since the 'change' deletes the finding that plaintiffs 'have substantially completed the contract,' it must be construed as a finding that there was no substantial completion." (Id. at p. 719.) The court noted that arbitration does not share the formality of judicial proceedings and arbitrators need not give reasons for their awards.
In Krautner, the arbitration award set forth a specific monetary award to the plaintiffs. The arbitrators' change in the words explaining the monetary amount was a matter of form and was permissible. The same is true in the case at bar. The arbitrator's original award set forth an award of costs and interest. The arbitrator's modified award set forth the same award of costs and interest. The change in the descriptive language preceding the costs and interest award was a matter of form properly subject to correction under Code of Civil Procedure section 1286.6, subdivision (c). (See also Delaney v. Dahl (2002) 99 Cal.App.4th 647 [arbitrator rejected party's claim in the body of the award but inadvertently omitted the party's name from a later relevant paragraph; the arbitrator could properly "amend" the award to include the party's name in the later section].)
On appeal, both sides argue the arbitrator did not "amend" the arbitration award within the meaning of Century City and A.M. Classic Construction, Inc. v. Tri-Build Development Co. (1999) 70 Cal.App.4th 1470. Both cases stand for the proposition that under certain circumstances, the arbitrator may amend an arbitration award to resolve a submitted issue that the arbitrator mistakenly or inadvertently omitted from the original award. We agree with the parties that the arbitrator did make such an amendment in this case.
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In the proceedings below, appellants represented to the court that the arbitrator's modification created a $25,000 or $30,000 change in the award. Appellants have not repeated these numbers on appeal, but they continue to assert the arbitrator's modification caused a substantive change in the award, adding an element of damages that was previously omitted. The record does not support their claim. Both iterations of the arbitrator's award specifically stated the actual dollar amounts he was awarding in costs and interest. It would be nonsensical to interpret the original award so that the language stating that the 998 offer "specifically excluded" costs and interest somehow nullified the actual award of costs and interest that followed, with specific dollar amounts that were repeated in a subsequent paragraph. We are mindful that California policy favors arbitration thus, " 'as a general rule courts will indulge every reasonable intendment to give effect to arbitration proceedings.' [Citation.]" (Toal v. Tardif (2009) 178 Cal.App.4th 1208, 1218.) The arbitrator explained his intentions in modifying the award. He attempted to eliminate a potential ambiguity caused by his choice of words, but he left the substance of the award unchanged. There is no reason for us to reject the arbitrator's explanation since it is clear from the two versions of the award that the arbitrator did not make substantive changes.
The arbitrator did not exceed his powers in issuing the modified final award and the trial court properly confirmed the modified final award.
DISPOSITION
The judgment is affirmed. Respondent is to recover its costs on appeal.
BIGELOW, P. J. We concur:
FLIER, J.
GRIMES, J.