Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County, Super. Ct. No. MS005953, Frank Y. Jackson, Judge.
Nevers, Palazzo, Maddux & Packard, and Michael S. Wildermuth for Plaintiff and Appellant.
Law Offices of Lawrence S. Strauss and Lawrence S. Strauss for Defendant and Respondent.
KLEIN, P. J.
Plaintiff and appellant Doctor’s Associates, Inc. (DAI) appeals a judgment confirming an arbitration award in favor of defendant and respondent Sharanjit S. Nat (Nat).
The essential issue presented is whether the arbitrator exceeded his powers so as to require vacation of the arbitration award.
For the reasons set forth below, we reject DAI’s contentions and affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
DAI is the owner of proprietary and other rights and interest in the Subway® trademark, service marks and goodwill. Nat was the franchisee of two Subway sandwich shops. In 2005, DAI alleged that Nat had underreported his gross sales and otherwise breached the applicable franchise agreements in the two stores.
This appeal solely concerns store 10215 in the Antelope Valley Mall in Palmdale. Nat has sold the franchise in the other store, located in Village Plaza.
1. The first arbitration; the consent award and entry of judgment thereon.
In accordance with paragraph 10c of the franchise agreements, the dispute between DAI and Nat proceeded to binding arbitration in accordance with the Expedited Procedures of the Commercial Arbitration Rules of the American Arbitration Association.
A hearing in the matter was convened on May 3, 2006. At the hearing, the parties settled their dispute. The terms of the settlement were set forth in a consent award dated June 15, 2006. The consent award required, inter alia, that Nat sell the franchise location in Antelope Valley Mall no later than August 31, 2006. It also required DAI’s agent, OhCal Foods, Inc., to “assist [Nat] in finding a buyer in good faith” and that DAI, through its law department, to “monitor the situation to ensure that [OhCal] is cooperating with [Nat].”
On September 21, 2006, DAI filed a petition in the superior court to confirm the consent award as a final judgment.
Nat filed opposition papers as well as a “cross-complaint” for breach of contract, fraud, tortious interference with prospective economic advantage and declaratory relief. The gravamen of the cross-complaint was that from July through August 30, 2006, DAI and OhCal refused to approve Sun McGuinness as a purchaser of Nat’s store, despite the fact she already had been approved as a franchisee by DAI and OhCal and presently operated another Subway restaurant.
In its reply, DAI argued Nat failed to satisfy the limited grounds under which the court may refuse to confirm, and instead vacate or correct an award. DAI pointed out there was no arbitration hearing because the parties had settled their issues and had entered into a consent award, akin to a stipulated judgment, and therefore Nat was not deprived of a fair hearing. DAI further argued “[i]f [Nat] requires the adjudication of issues that occurred after the Consent Award was issued, the proper forum for such adjudication is before the arbitrator and not this Court.” (Italics added.)
On December 5, 2006, the trial court granted DAI’s petition to confirm the consent arbitration award. The judgment, which was entered December 12, 2006, struck Nat’s cross-complaint and confirmed the consent award. In accordance with the consent award, the judgment includes the following provisions: the franchise agreement and Nat’s rights to operate thereunder terminated as of August 31, 2006; if DAI proves to a later tribunal that Nat failed to comply with the post-termination requirements under the franchise agreement (relating to continued use of Subway® trademark, service marks and goodwill) Nat shall pay $250 per calendar day that the noncompliance persists; and if DAI proves to a later tribunal that Nat violated the franchise agreement’s one-year non-complete provision, Nat shall pay $10,000 per violative business plus eight percent of all sales thereof.
2. The second arbitration.
On December 8, 2006, Nat, dissatisfied with the outcome of the proceeding confirming the consent arbitration award, filed a new demand for arbitration with American Dispute Resolution Center, Inc. (ADRC). Nat alleged that DAI fraudulently and in bad faith prevented him from selling the store and that DAI obtained confirmation of the consent award as a first step in evicting him from the premises and taking his store without fair compensation. Nat reiterated his earlier allegations from the cross-complaint that DAI improperly refused to approve McGuinness as a purchaser, even though she had been approved as a franchisee and operated another Subway restaurant.
DAI filed a letter brief with ADRC seeking to dismiss the new arbitration demand. DAI argued, inter alia, Nat was barred from challenging the consent award after DAI already had obtained judgment on the award from the superior court, which judgment became final on January 5, 2007. DAI also filed a counterclaim for $70,000 in damages, in the event its motion to dismiss were denied.
On February 28, 2007, the arbitrator denied DAI’s motion to dismiss Nat’s demand for arbitration. A new arbitration hearing was held on August 28, 2007.
a. The award rendered in the second arbitration.
On or about October 9, 2007, the second arbitrator issued his award addressing each of Nat’s claims as well as DAI’s counterclaim.
On Nat’s first cause of action, the arbitrator found “no basis to conclude that [DAI], through its agent OhCal, did not act in good faith prior to August 31, 2006.” With respect to McGuinness, a prospective buyer of the business, the arbitrator found a reasonable explanation was given as to why McGuinness was not accepted and that reason did not appear to be pretextual. However, “[t]that conclusion does not end the inquiry on the First Cause of Action . . . . The evidence was clear that [DAI] was prepared to allow Nat to sell his restaurant even after August 31, 2006. Mr. Hobert testified that he was aware of Nat’s efforts to sell his restaurant after August 31, 2006 and understood that he was selling it for his own benefit despite the fact that the Consent Award provided that the franchise terminated on August 31, 2006. [DAI] also confirmed to Mr. Hobert in several emails that a sale by Nat after August 31, 2006 was acceptable to it. In fact, in its post hearing brief on ‘good faith’ [DAI] notes that Nat ‘was allowed generous additional time to sell his store in order to mitigate his losses.’ Based on [DAI’s] conduct, the Arbitrator finds that [DAI] waived the August 31, 2006 deadline for Nat to sell his franchise. While [DAI] expressly reserved its right to seek damages for Nat’s holdover beyond August 31, 2006, it never objected to his efforts to sell the franchise after that day. Nor did [DAI] ever tell Nat that he had no right to sell his franchise. Instead, it knowingly encouraged him to do so.
“The reason for providing such encouragement is plain from the e-mails between [DAI] and OhCal. [DAI] faced substantial penalties from the landlord if it took over Nat’s restaurant and let it go ‘dark.’ While OhCal could run the restaurant for [DAI], . . . OhCal had little experience in doing so. Thus, it was in [DAI’s] best interest to allow Nat to continue to operate the restaurant until a new buyer was found. . . . Having accepted the benefit of Nat continuing to operate the restaurant while a new buyer was located, [DAI] waived its right to claim that Nat’s right to sell his restaurant terminated on August 31, 2006. [¶] Because Nat, with [DAI’s] consent and encouragement, maintained his right to sell his restaurant after August 31, 2006, [DAI] continued to have an obligation to assist Nat in good faith in selling his restaurant.
“[DAI] met this obligation until Nat reached an agreement to sell his restaurant to Mr. Chopra in February, 2007, for $79,000. At that point, [DAI] notified Nat that any sale to Mr. Chopra was conditioned on Nat signing a release of any claims against [DAI]. The Consent Award does not require such a release as a condition for sale. Nor were there any other documents offered by [DAI] to prove that Nat had such an obligation. . . . . [¶] When Nat refused to sign the release, [DAI] took back his store and then immediately sold it to Mr. Chopra for the price Nat negotiated, $79,000. Not only did [DAI] keep the proceeds of this transaction, it also kept a $3750 transfer fee Nat had paid to [DAI] in contemplation of his sale to Mr. Chopra. It also retained Nat’s restaurant equipment, which the parties agree is properly valued at $11,080. Finally, because [DAI] took over Nat’s restaurant on February 20, 2007 it received and kept the benefits of 8 days of the February rent of $4893 that Nat had paid.
“The Arbitrator finds that [DAI’s] refusal to consent to the transfer to Mr. Chopra in February, 2007 was a breach of [DAI’s] obligations to assist in the sale of the restaurant in ‘good faith.’ Unlike its earlier actions, its decision on the Chopra sale was designed to deprive Nat of the intended benefit of the bargain by demanding additional consideration, a release, to which [DAI] proved no entitlement. Nat is entitled to damages for that breach in the amount of the sale price -- $79,000. . . .
“In addition, Nat is entitled to the $11,080 for equipment and $1424 for the portion of the February rent that covered [DAI’s] occupancy of the premises in February.” (Italics added.)
The arbitrator rejected DAI’s counterclaim and awarded Nat $91,054 in actual damages for the Chopra sale, equipment and rent, plus interest, for a total of $97,248.42.
b. Superior court proceedings on the second award.
On November 9, 2007, DAI filed a petition in the superior court to vacate the arbitration award. DAI contended the award was contrary to the final judgment issued December 12, 2006 confirming the prior consent arbitration award; the new award was an improper attempt by the arbitrator to modify, correct or alter the previous award; the arbitrator lacked jurisdiction to decide matters that post-dated the termination of the franchise agreement; the new award was not within the scope of the original agreement; and the new award decided issues and provided remedies that were not raised by Nat’s demand for arbitration.
Nat opposed the motion to vacate and requested confirmation of the award.
On January 29, 2008, the matter was heard and taken under submission. On February 20, 2008, the trial court denied DAI’s petition to vacate the award.
On or about March 7, 2008, Nat filed a petition to confirm the arbitration award. DAI opposed confirmation, reiterating its arguments that the arbitrator exceeded his powers.
On May 27, 2008, the matter came on for hearing. The trial court (Judge Frank Jackson) granted the petition to confirm the arbitration award, noting that the grounds being asserted by DAI in its opposition to the request for confirmation, e.g., that the arbitrator exceeded his powers, previously had been rejected by Judge Baker, who denied DAI’s petition to vacate said arbitration award.
On May 27, 2008, the trial court entered judgment confirming the $97,248.42 arbitration award in favor of Nat. On June 17, 2008, DAI filed a timely notice of appeal from the judgment.
CONTENTIONS
DAI contends: the trial court erred in denying the petition to vacate the arbitration award because the arbitrator exceeded his powers by crafting an award that directly contradicts the final judgment; the trial court should have vacated the arbitration award because the award is beyond the scope of the agreement to arbitrate contained in the terminated franchise agreement; and DAI did not waive its right to challenge the new arbitration.
DISCUSSION
1. No merit to DAI’s contention the second arbitrator exceeded his powers by crafting an award which directly contradicted the final judgment.
Section 1286.2 provides in relevant part: “[T]he court shall vacate the award if the court determines any of the following: [¶] . . . [¶] (4) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.”
DAI contends the trial court erred in denying its petition to vacate the arbitration award because the second arbitrator exceeded his powers by crafting an award that directly contradicts the judgment confirming the consent arbitration award. DAI cites the provision in the earlier judgment that “The Franchise Agreement and [Nat’s] rights to operate thereunder are terminated as of August 31, 2006.” Therefore, according to DAI, there was no agreement to arbitrate that survived the termination date, and Nat had no rights that survived the termination of the franchise agreement.
DAI’s arguments in this regard are unpersuasive.
First, DAI specifically invited a second arbitration to address the issues raised in Nat’s cross-complaint, wherein Nat alleged DAI breached the settlement agreement by failing to act in good faith in accordance with the settlement agreement. DAI argued below, in opposition to the cross-complaint which Nat filed following the first arbitration: “If [Nat] requires the adjudication of issues that occurred after the Consent Award was issued, the proper forum for such adjudication is before the arbitrator and not this Court.” (Italics added.)
Thereafter, the matter proceeded to a second arbitration. The second arbitrator determined DAI waived the August 31, 2006 deadline for Nat to sell his store. To reiterate, the second arbitrator found “The evidence was clear that [DAI] was prepared to allow Nat to sell his restaurant even after August 31, 2006. Mr. Hobert testified that he was aware of Nat’s efforts to sell his restaurant after August 31, 2006 and understood that he was selling it for his own benefit despite the fact that the Consent Award provided that the franchise terminated on August 31, 2006. [DAI] also confirmed to Mr. Hobert in several emails that a sale by Nat after August 31, 2006 was acceptable to it. In fact, in its post hearing brief on ‘good faith’ [DAI] notes that Nat ‘was allowed generous additional time to sell his store in order to mitigate his losses.’ Based on [DAI’s] conduct, the Arbitrator finds that [DAI] waived the August 31, 2006 deadline for Nat to sell his franchise. . . . [DAI] . . . never objected to [Nat’s] efforts to sell the franchise after that day. Nor did [DAI] ever tell Nat that he had no right to sell his franchise. Instead, it knowingly encouraged him to do so.
“The reason for providing such encouragement is plain from the e-mails between [DAI] and OhCal. [DAI] faced substantial penalties from the landlord if it took over Nat’s restaurant and let it go ‘dark.’ While OhCal could run the restaurant for [DAI], . . . OhCal had little experience in doing so. Thus, it was in [DAI’s] best interest to allow Nat to continue to operate the restaurant until a new buyer was found. . . . Having accepted the benefit of Nat continuing to operate the restaurant while a new buyer was located, [DAI] waived its right to claim that Nat’s right to sell his restaurant terminated on August 31, 2006. [¶] Because Nat, with [DAI’s] consent and encouragement, maintained his right to sell his restaurant after August 31, 2006, [DAI] continued to have an obligation to assist Nat in good faith in selling his restaurant.” (Italics added.)
In sum, the second arbitrator determined DAI waived the August 31, 2006 termination date set forth in the consent award and judgment. Therefore, DAI’s obligation under the consent award and judgment to assist Nat “in finding a buyer in good faith” persisted beyond August 31, 2006.
In view of DAI’s waiver of the August 31, 2006 termination date, there is no merit to DAI’s contention the second arbitrator exceeded his powers in finding “[DAI] continued to have an obligation to assist Nat in good faith in selling his restaurant” after August 31, 2006, and in finding a breach by DAI based on its refusal in February 2007 to consent to the transfer to Chopra.
2. No merit to DAI’s contention the second arbitrator exceeded his powers by deciding issues and providing remedies beyond the scope of the agreement to arbitrate.
DAI contends that even assuming the agreement to arbitrate survived the termination of the franchise agreement, the trial court still should have vacated the award because the arbitrator exceeded his powers. We address DAI’s arguments seriatim.
DAI contends the new arbitration which occurred after the termination of the franchise agreement was not based on the franchise agreement – rather, it was based on a breach of the consent award; however, the consent award does not contain an arbitration provision. Therefore, according to DAI, the second arbitrator lacked authority or jurisdiction to act in the new arbitration.
The argument lacks merit. As discussed above, in opposing the cross-complaint filed by Nat after the consent award, DAI asserted “If [Nat] requires the adjudication of issues that occurred after the Consent Award was issued, the proper forum for such adjudication is before the arbitrator and not this Court.” (Italics added.) When the dispute returned to the arbitral forum, the second arbitrator determined DAI waived the August 31, 2006 termination date so that the contractual relationship continued beyond that date.
Next, DAI contends even if the second arbitrator had the authority to conduct a new arbitration following the termination of the franchise agreement/arbitration agreement, the second arbitrator exceeded his powers in three distinct ways.
First, DAI points out that the 1994 franchise agreement limits damages to $50,000, adjusted for inflation, and the instant award entered by the arbitrator, including interest, was $97,248.42.
Be that as it may, the record establishes DAI waived this limitation as to damages. In opposing Nat’s petition to confirm the second arbitration award, DAI argued the CPI inflation adjustment from September 1994 to September 2007 raised the contractual award limit to about $67,000, well below the $97,248.42 awarded to Nat. However, neither party viewed itself bound by this contractual limit. As indicated, in the second arbitration proceeding, DAI filed a $70,000 counterclaim against Nat, seeking unspecified damages. Because DAI as well as Nat invited an award in excess of the contractual limit, DAI cannot be heard to complain in this regard.
DAI also contends the arbitrator lacked any authority to hear the matter or to enter an award because the franchise agreement provides, at paragraph 10(a), that “Mediation is a condition precedent to arbitration” and here, Nat failed to request or pursue mediation. The problem with DAI’s position is that it failed to raise this objection in its motion to dismiss Nat’s demand for arbitration. Rather than objecting to the second arbitration on the ground Nat had failed to seek mediation, DAI participated in the arbitration, including bringing its own counterclaim for $70,000. DAI, having failed to raise its mediation objection in a timely manner, has waived the issue.
DAI also cites the second arbitrator’s finding that there was no breach and no bad faith by DAI prior to August 31, 2006. DAI asserts the second arbitrator exceeded his powers and violated the terms of the judgment confirming the consent award by finding DAI acted in bad faith after August 31, 2006, based on DAI’s refusal to consent to the sale to Chopra. The argument fails because, as already discussed, the second arbitrator determined DAI waived the August 31, 2006 termination date so that DAI continued to have an obligation to assist Nat in good faith in selling his restaurant beyond that date.
Finally, DAI contends it did not waive its right to challenge the new arbitration because its participation in the matter was not voluntary – DAI only participated in the second arbitration after the second arbitrator denied DAI’s dismissal motion. DAI’s argument does not meet the issue. As discussed, DAI initially argued, in opposition to the cross-complaint filed by Nat, “If [Nat] requires the adjudication of issues that occurred after the Consent Award was issued, the proper forum for such adjudication is before the arbitrator and not this Court.” (Italics added.) Thus, DAI invited a return to the arbitral forum. Further, DAI waived the contractual limit on damages by filing a $70,000 counterclaim against Nat. DAI also waived the issue of mediation being a condition precedent to arbitration by not objecting on that basis to the second arbitration. With respect to the merits, the second arbitrator determined DAI had waived the August 31, 2006 termination date so that its obligation to assist Nat in good faith continued beyond that date. In sum, DAI, having fully recognized the authority of the second arbitrator to rule on the matter, cannot be heard to complain the arbitrator exceeded his powers by ruling in favor of Nat.
DISPOSITION
The judgment confirming the second arbitration award is affirmed. Nat shall recover costs on appeal.
We concur: CROSKEY, J., ALDRICH, J.