Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, No. BC344790, Terry A. Green, Judge.
Quintana Law Group, Andres F. Quintana and John M. Houkom for Defendants and Appellants Frank Mayor, Janice Doyle and AIM Group, LLC.
Law Office of Bruce Adelstein and Bruce Adelstein; Anaya Law Group and Alana Anaya for Defendant and Appellant David Allegra.
Boren, Osher & Luftman and Jeremy J. Osher for Plaintiff and Respondent.
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
I. INTRODUCTION
Defendants David Allegra, Frank Mayor, Janice Doyle and AIM Group, LLC (AIM), appeal from a March 18, 2010 judgment confirming the final arbitration award and supplemental arbitration award (together the “arbitration award”) made by the arbitrator. Defendants Mayor, Doyle and AIM contend the trial court erred in confirming the arbitration award by (1) failing to change the party receiving the award from plaintiff EFund Capital Partners, LLC (EFund) to RAP Technologies, Inc. (RAP) -- the real party in interest for plaintiff’s derivative claims; (2) failing to strike the award of attorney’s fees; and, in the alternative, failing to allow defendants Doyle and AIM to recover attorney’s fees. Defendant Allegra separately challenges the arbitrator’s authority to make a supplemental award of attorney’s fees after issuance of a final arbitration award. We affirm the trial court’s judgment.
Any further reference to “defendants” is intended to include defendants Mayor, Doyle, AIM and Allegra. Where necessary, reference to one defendant standing alone is done by that defendant’s name only.
II. BACKGROUND
A. Strategic Relationship Agreement
On April 15, 2004, plaintiff entered into a strategic relationship agreement with RAP. Under the strategic relationship agreement, plaintiff agreed to provide RAP with capital and restructuring services. In return, plaintiff received a 40 percent equity interest in RAP and the right to appoint three of the five RAP board of directors. The agreement contains the following arbitration clause: “Any dispute or other disagreement arising from or out of this Consulting Agreement shall be submitted to arbitration under the rules of the American Arbitration Association and the decision of the arbiter(s) shall be enforceable in any court having jurisdiction thereof. Arbitration shall occur only in Los Angeles, CA. The interpretation and the enforcement of this Agreement shall be governed by California Law as applied to residents of the State of California relating to contracts executed in and to be performed solely within the State of California. In the event any dispute is arbitrated, the prevailing Party (as determined by the arbiter(s)) shall be entitled to recovery [of] that Party’s reasonable attorney’s fees incurred (as determined by the arbitrator(s)).”
B. Pre-Arbitration Court Proceedings
On May 14, 2006, plaintiff filed a second amended complaint asserting a direct claim of conspiracy to defraud against Mayor, Doyle, AIM, Allegra and Robert Pless. Plaintiff also asserted shareholder derivative claims on behalf of RAP for breach of fiduciary duty, intentional interference with contractual relations, conversion and declaratory relief against various defendants.
Plaintiff settled with defendants Robert Pless, Abacus America, Inc., PowWeb, Inc. and Integrated Tech, Inc. before the arbitrator conducted the first evidentiary hearing.
On June 19, 2006, defendants brought a motion to compel arbitration. The trial court denied the motion and defendants appealed the ruling. This court reversed the order denying the motion to compel arbitration and remanded the case. (EFund Capital Partners v. Pless (2007) 150 Cal.App.4th 1311, 1331.) On remand, the trial court ordered the parties to arbitration on October 3, 2007.
C. Proceedings Before The Arbitrator
The parties stipulated to the appointment of retired Justice John Zebrowski as the arbitrator. During the arbitration, defendants submitted a letter brief to the arbitrator seeking dismissal of the derivative claims on the ground that plaintiff did not have standing to pursue its derivative claims as the result of the suspension of the nominal defendant RAP by the California Secretary of State. After extensive briefing by the parties, the arbitrator denied the motion to dismiss the derivative claims without prejudice on March 20, 2008. The arbitrator noted, “The evidence reflects that Nominal Defendant RAP has recently been suspended. As noted above, causes of action 4 through 8 are derivative claims which must be pursued for the benefit of Nominal Defendant RAP. Hence unless RAP’s suspension is cured and its corporate powers revived, the proper ruling might be that derivative claims presently being prosecuted by [p]laintiff EFund on behalf of RAP may not be prosecuted.”
On July 15, 2008, the arbitrator held a hearing to consider defendants’ motion to dismiss the derivative claims based on RAP’s suspension. In the July 16, 2008 Arbitration Management Order No. 2, the arbitrator determined that “the issue of whether the derivative claims must be dismissed due to the suspension of the corporate powers of RAP may be revisited at the time of evidentiary hearing.” The arbitration management order further states: “After substantial court proceedings, this matter was ordered to arbitration. The proper course may be for this arbitration proceeding to generate an award on the merits. Assuming a plaintiff’s award on the derivative claims, a petition to confirm the award as a judgment might then follow. At that time, the corporate suspension issue can be revisited in court. On the other hand, if the derivative claims are rejected, they will be concluded.”
After conducting extensive evidentiary hearings, the arbitrator issued a final arbitration award on July 13, 2009. The arbitrator found in favor of Doyle because she had no personal liability as “an employee with no discretionary authority, acting on behalf of her employer pursuant to instructions.” The arbitrator noted AIM funded RAP after plaintiff stopped funding RAP but did not address AIM’s liability.
The arbitrator found plaintiff had performed its obligations under the strategic relationship agreement and became a RAP shareholder. The arbitrator also found: (1) “Mayor and Allegra caused essentially the only significant asset of RAP (i.e., the LoanVibe program and its source code) to be transferred to MAP[, Inc.]”; (2) “[t]he transfer of RAP’s assets to MAP was wrongful on a theory either of conversion or breach of fiduciary duty”; (3) “[t]o the extent that Efund failed to recoup its investment in RAP or to gain profits from RAP, the cause of that failure was not the transfer of assets from RAP to MAP, but rather market realities”; (4) “Mayor and Allegra caused RAP’s assets, which Efund had an equitable interest in via Efund’s shareholder status, to be misappropriated and integrated and inextricably commingled into the assets of MAP”; and (5) there was “a de facto or equitable merger of RAP into MAP.”
MAP, Inc. is hereafter referred to as “MAP.”
The arbitrator found practical problems in returning the LoanVibe program and source code to RAP because RAP was suspended and would need to be revived, the LoanVibe source code no longer existed in the form it existed in late 2005, and remnants of the LoanVibe progam/source code were intermingled with a MAP program. The court also found problems with “the alternative of a monetary award to compensate RAP for the taking of its LoanVibe program and/or source code in late 2005” because RAP was suspended and “the value of LoanVibe as a business asset as of late 2005 was doubtful, either low or zero.”
The arbitrator determined “[t]he most appropriate remedy available is therefore to declare the existence of an equitable merger of RAP into MAP, caused by Mayor’s and Allegra’s misappropriation of RAP’s assets and the use of those assets to obtain and/or enhance an interest in MAP, and to award Efund its rightful share of MAP stock.” The arbitrator rejected “[t]he alternative remedy championed by Mayor and Allegra, of simply denying relief to Efund, [because it] would condone the misappropriation of RAP’s assets by Mayor and Allegra.” The arbitrator awarded compensatory damages to plaintiff by imposing a constructive trust on Mayor and Allegra’s interest in MAP and giving plaintiff 60 percent of Mayor’s interest in MAP and 50 percent of Allegra’s interest in MAP. The arbitrator denied plaintiff’s punitive damages claim against Allegra and Mayor. The final arbitration award states: “All other claims are denied. [¶] This hearing is now closed and the award final, except to the extent that a [c]ourt may order that any proceedings necessary to enforce the constructive trust award should proceed within the context of this arbitration, in which case the undersigned arbitrator will conclude whatever proceedings may be necessary.”
On July 17, 2009, Allegra’s counsel sent an e-mail to arbitration case manager requesting a briefing schedule for attorney’s fees stating, “Also, from my reading of the award, it appears that the respondents are the prevailing party, will a briefing schedule be set for motions for attorneys[’] fees and costs? Please have Judge Zebrowski clarify this matter for me.” On August 7, 2009, plaintiff submitted an application for an award of attorney’s fees and costs. Mayor, Doyle and AIM opposed plaintiff’s request for attorney’s fees and costs, arguing that arbitral finality and the “American Rule” dictate that EFund should pay its own attorney’s fees and to the extent that any attorney’s fees and costs are awarded, they should be awarded to defendants, who prevailed on EFund’s actual claims. Defendants also submitted a separate application for attorney’s fees and costs, asserting they were the prevailing parties and thus were entitled to reasonable attorney’s fees pursuant to the strategic relationship agreement and the Commercial Arbitration Rules of the American Arbitration Association.
On October 21, 2009, the arbitrator made a supplemental arbitration award in which he awarded plaintiff $175,000 in fees and costs against Mayor and Allegra. The arbitrator noted that the final arbitration award did not contain an award of attorney’s fees to either side, but that subsequently, both sides presented an application for attorney’s fees. The arbitrator identified two “foundational procedural questions” that arose because defendants contended arbitral finality barred the award of fees yet at the same time sought attorney’s fees. “First, arbitration is a contractual process. By presenting to the arbitrator a request for fees in their own favor, [defendants] were arguably agreeing that the arbitrator was empowered to consider an award of fees. This could be construed either as an application of the initial arbitration agreement, or as a new or follow-on agreement to submit the fee issue to the arbitrator. A second question was what was the effect of [defendants’] contradictory application for fees in their favor coupled with an argument that arbitral finality barred any award of fees. Was this simply a matter of arguing in the alternative, or did it constitute an estoppel?”
The arbitrator found that “[b]y seeking both an award of fees and arguing that a fee award was barred, [defendants] positioned themselves to be able to argue against the bar of arbitral finality if fees were awarded to [defendants], while arguing in favor of arbitral finality if fees were awarded to [plaintiff].” The arbitrator resolved the “procedural tangle” in the following fashion: “The pending cross-applications will be resolved on the assumption that the procedural posture of this matter taken in its totality is such that a determination may properly be made on the fee issue submitted by the recent briefing. If this assumption is correct, then an application can be made to confirm the fee ruling below as part of the arbitration award. Alternatively, if the [c]ourt decides that determination of the issue of fees is beyond the purview of this arbitration on this procedural record, then the [c]ourt can simply vacate or decline to enforce the fee award, which award is easily severable from the determination previously made regarding transfer of stock to [plaintiff].”
On November 19, 2009, plaintiff filed a petition for an order confirming the arbitration award. Defendants filed a response to plaintiff’s petition and petitioned to correct the arbitration award pursuant to Code of Civil Procedure section 1286.6. Mayor, Doyle and AIM also filed a motion to dismiss plaintiff’s derivative claims for lack of standing on December 24, 2010. The trial court granted plaintiff’s petition to confirm the arbitration award and denied defendants’ petition to correct the arbitration award and their motion to dismiss the derivative claims. The trial court entered judgment on March 18, 2010. Defendants timely filed notices of appeal.
Unless otherwise specified, all further statutory references are to the Code of Civil Procedure.
III. DISCUSSSION
A. Plaintiff’s Suspended Corporate Status
Mayor, Doyle and AIM claim plaintiff is no longer in good standing in Delaware, its state of incorporation, and is not qualified to do business in California, a situation that predates the entry of the March 18, 2010 judgment. They assert plaintiff was not entitled to obtain confirmation of the arbitration award and lacks the capacity to oppose defendants’ contentions on appeal.
After defendants raised the issue of plaintiff’s corporate suspension in its opening brief, plaintiff revived its corporate powers in Delaware and applied for a Certificate of Qualification with the California Secretary of State. Plaintiff’s revival of its corporate powers in Delaware validates the procedural steps taken on its behalf while under suspension and allows it to proceed with this appeal. (Rooney v. Vermont Investment Corp. (1973) 10 Cal.3d 351, 359; Peacock Hill Assn. v. Peacock Lagoon Constr. Co. (1972) 8 Cal.3d 369, 373).
We grant plaintiff EFund’s request for judicial notice of the certificate of revival and the certificate of good standing for Efund. (Evid. Code, §§ 452, subd. (c), 459, subd. (a); El Escorial Owners’ Assn. v. DLC Plastering, Inc. (2007) 154 Cal.App.4th 1337, 1350 [taking judicial notice of certificate of revivor certifying corporation was now “in good standing”]; Associated Builders & Contractors, Inc. v. San Francisco Airports Com. (1999) 21 Cal.4th 352, 375, fn. 4.)
B. Standard of Review
The scope of judicial review of arbitration awards is very narrow, “generally limited to the statutory grounds for vacating (§1286.2) or correcting (§1286.6) an award.” (Moshonov v. Walsh (2000) 22 Cal.4th 771, 775). Courts may not vacate or correct an arbitration award based on an arbitrator’s legal or factual error, “even an error appearing on the face of the award.” (Ibid.) “[A]rbitrators do not ‘exceed [ ]their powers’ within the meaning of section 1286.2, subdivision (d) and section 1286.6, subdivision (b) 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.” (Ibid.)When determining whether an arbitrator exceeded his powers, this court reviews the trial court’s decision de novo, but must give “substantial deference to the arbitrator’s own assessment of his contractual authority.” (O’Flaherty v. Belgum (2004) 115 Cal.App.4th 1044, 1056, quoting Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376, fn. 9.)
C. Correction of Arbitration Award
Defendants contend the trial court erred by failing to correct the arbitration award because the arbitrator exceeded his powers. Under section 1286.6, subdivision (b), the court “shall correct the award and confirm it as corrected if the court determines that: … [t]he arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted.”
1. Functus Officio Doctrine
Allegra contends the trial court should have corrected the arbitration award to strike the supplemental arbitration award because the arbitrator did not have authority to enter such an award once he issued the final arbitration award. Allegra argues the issuance of the final arbitration award terminates the power of the arbitrator to act under the doctrine of functus officio. It has been recognized that under the functus officio doctrine, an arbitrator’s act of making an award terminates the arbitrator’s legal authority. (Moshonov v. Walsh, supra, 22 Cal.4th at p. 781, fn. 1, conc. opn. of Kennard, J.) Functus officio is applied to prevent arbitrators from changing their award based on the courts’ unwillingness “to permit one who is not a judicial officer and who acts informally and sporadically, to re-examine a final decision which he has already rendered, because of the potential evil of outside communication and unilateral influence which might affect a new conclusion.” (International Brotherhood of Teamsters v. Silver State Disposal Service, Inc. (1997) 109 F.3d 1409, 1411; 2 Domke, Commercial Arbitration (rev. ed. 2010) § 26.1.) “[H]owever, this principle is limited by three exceptions: It has been recognized in common law arbitration that an arbitrator can correct a mistake which is apparent on the face of his award, complete an arbitration if the award is not complete, and clarify an ambiguity in the award.” (International Brotherhood of Teamsters v. Silver State Disposal Service, Inc., supra, 109 F.3d at p. 1411 .)
Plaintiff argues defendants failure to raise the functus officio doctrine in the arbitration or trial court results in a waiver of the related claim on appeal. But, defendants arguments below that the arbitrator’s award was final and not subject to supplementation, were sufficient to preserve the functus officio contention for appeal. (See e.g., Adams v. Pacific Bell Directory (2003)111 Cal.App.4th 93, 100.)
In the instant case, the final arbitration award was silent on the issue of attorney’s fees because the parties did not brief it. However, under the strategic relationship agreement, the parties agreed that the prevailing party would be entitled to attorney’s fees as determined by the arbitrator. The arbitration provision in the agreement provides, “In the event any dispute is arbitrated, the prevailing [p]arty (as determined by the arbiter(s)) shall be entitled to recovery [of] that [p]arty’s reasonable attorney’s fees incurred (as determined by the arbitrator(s)).”
Because the final arbitration award omitted any mention of attorney’s fees, the parties were unclear on whether the arbitrator had fully executed his function. In this regard, counsel for Allegra sent an e-mail to the arbitration case manager stating, “[F]rom my reading of the award, it appears that the respondents are the prevailing party, will a briefing schedule be set for motions for attorneys[’] fees and costs? Please have Judge Zebrowski clarify this matter for me.” The parties subsequently submitted petitions for attorney’s fees and costs to the arbitrator, which suggest the parties were in doubt as to the completeness of the final arbitration award. Because the arbitrator did not complete the arbitration award by adjudicating the attorney’s fees issue in his final arbitration award, the functus officio doctrine did not bar the arbitrator from supplementing the final arbitration award.
Allegra also contends there is no need to defer to the arbitrator’s decision on his jurisdiction to enter the supplemental arbitration award because the arbitrator never ruled on it. Allegra’s assertion hinges on the following: (1) the arbitrator’s preliminary ruling, where the arbitrator noted, “[t]his state of events could be construed as an agreement to have fees and costs decided at this juncture or, alternatively, as a circumstance in which [defendants] are estopped to rely on arbitral finality inasmuch as [defendants] themselves have applied for fees and costs”; and (2) language in the supplemental arbitration award, which states, “[t]he pending cross-applications will be resolved on the assumption that the procedural posture of this matter taken in its totality is such that a determination may be made on the fee issue.” (Emphasis added.) It is unnecessary for us to decide whether the arbitrator ruled on his jurisdiction to enter the supplemental arbitration award because the arbitrator had authority to award attorney’s fees under the strategic relationship agreement.
2. Arbitral Finality
Defendants contend the trial court should have corrected the arbitration award by striking the supplemental arbitration award because the final arbitration award cannot be modified under the doctrine of arbitral finality, and the American Rule dictates that each party bear its own attorney’s fees and costs. Mayor, Doyle and AIM further argue that, should this court allow the award of attorney’s fees to the prevailing party, Doyle and AIM are “the rightfully prevailing parties.” We disagree.
“[I]t is the general rule that parties to a private arbitration impliedly agree that the arbitrator’s decision will be both binding and final.” (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.) Because the parties’ expectation of finality informs their choice of an arbitral forum over a judicial forum, “[e]xpanding the availability of judicial review of such decisions ‘would tend to deprive the parties to the arbitration agreement of the very advantages the process is intended to produce.’” (Id. at p. 10.) “Ensuring arbitral finality thus requires that judicial intervention in the arbitration process be minimized.” (Ibid.) Accordingly, under the principle of arbitral finality, the courts cannot correct an arbitration award to grant a party its attorney’s fees where the fee question was within the arbitrator’s powers. (Moore v. First Bank of San Luis Obispo (2000) 22 Cal.4th 782, 786.)
Defendants contend that similar to the Moore case, the arbitrator did not designate plaintiff as the prevailing party in the final arbitration award; thus, arbitral finality requires the trial court to strike the supplemental award of attorney’s fees. In addition, Allegra relies on Moshonov v. Walsh, supra, 22 Cal.4th at pages 775-779, for the proposition that once the arbitrator enters a final arbitration award, the final award precludes the trial court from reviewing the decision under arbitral finality. Defendants’ reliance on Moshonov and Moore is misplaced.
In Moshonov, the arbitrator found the defendants were the prevailing parties but were not entitled to attorney’s fees because the underlying contract did not provide for attorney fees on the tort claims alleged against defendants. (Moshonov v. Walsh, supra, 22 Cal.4th at p. 775.) The California Supreme Court held that under the principle of arbitral finality, the arbitration award could not be judicially corrected to award defendants their attorney’s fees. (Id. at 776.) “Interpretation of the contract underlying this dispute being within the matter submitted to arbitration, such an interpretation could amount, at most, to an error of law on a submitted issue, which we have held is not in excess of the arbitrator’s powers within the meaning of section 1286.2 and 1286.6.” (Id. at p. 779.)
In Moore, plaintiffs requested attorney’s fees in an arbitration proceeding. (Moore v. First Bank of San Luis Obispo, supra, 22 Cal.4th at p. 787.) Although the arbitrators awarded plaintiffs the equitable relief they sought, the arbitrators did not designate them as prevailing party and declined to award them attorney’s fees. (Id. at p. 788.) The California Supreme Court held that under the principle of arbitral finality, the arbitrators’ award could not be judicially corrected to award plaintiffs their attorney’s fees. (Id. at p. 786.)
Neither Moshonov nor Moore imposes any limitation on the arbitrator’s authority to supplement the final arbitration award. Rather, both cases affirm the arbitrator’s authority to resolve the issue of attorney fees that was submitted to the arbitrator for decision. “The recovery or nonrecovery of fees being one of the ‘contested issues of law and fact submitted to the arbitrator for decision, ’ the arbitrators’ decision was final and could not be judicially reviewed for error.” (Moore v. First Bank of San Luis Obispo, supra, 22 Cal.4th at p. 787.) Here, the parties submitted the attorney’s fees to the arbitrator by petitioning the arbitrator for attorney’s fees and costs after the issuance of the final arbitration award. Having submitted the attorney’s fees question to the arbitrator, the parties were bound by the arbitrator’s decision. The trial court properly applied the arbitral finality principle by deferring to the arbitrator’s decision to award attorney’s fees to plaintiff as the prevailing party.
Likewise, the trial court’s refusal to correct the award by adding Doyle and AIM as prevailing parties and awarding them attorney’s fees upholds the principle of arbitral finality. Under Moshonov and Moore, the trial court cannot correct the supplemental arbitration award to grant Doyle and AIM their attorney’s fees even if the arbitrator committed a legal or factual error. (Moshonov v. Walsh, supra, 22 Cal.4th at p. 775 [courts may not vacate or correct an arbitration award based on an arbitrator’s legal or factual error, “even an error appearing on the face of the award”]; Moore v. First Bank of San Luis Obispo, supra, 22 Cal.4th at p. 788.)
Mayor, Doyle and AIM further assert the trial court should have corrected the arbitration award by replacing plaintiff EFund with the real party in interest, RAP, as the entity recovering for the alleged conversion and/or breach of fiduciary duty. They contend that, since plaintiff only recovered on the derivative claims of conversion and breach of fiduciary duty, it was improper for the trial court to confirm an arbitration award that provided direct relief to plaintiff. We find the trial court did not err in confirming the arbitration award.
Under the strategic relationship agreement, the parties agreed to submit to arbitration “[a]ny dispute or other disagreement arising from or out of” the agreement. The parties also agreed the arbitration would be governed by the rules of the American Arbitration Association and “the decision of the arbiter(s) shall be enforceable in any court having jurisdiction thereof.” Commercial Arbitration Rule 43 of the American Arbitration Association allows the arbitrator “‘a broad grant of authority to fashion remedies.’” (Advanced Micro Devices, Inc. v. Intel, supra, 9 Cal.4th at p. 383.) Rule 43 provides in part: “The arbitrator may grant any remedy or relief that 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.” (American Arbitration Association, Commercial Arbitration Rules (2009), rule 43.)
“[A]rbitrators, unless expressly restricted by the agreement of the parties, enjoy the authority to fashion relief they consider just and fair under the circumstances existing at the time of arbitration, so long as the remedy may be rationally derived from the contract and the breach.” (Advanced Micro Devices, Inc. v. Intel, supra, 9 Cal.4th at p. 383.) “[A]rbitrators are not generally limited to making their award ‘“on principles of dry law.”’” (Id. at p. 388, quoting Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 11.) Thus, “parties who submit their disputes to arbitration ‘“‘may expect not only to reap the advantages that flow from the use of that nontechnical, summary procedure, but also find themselves bound by an award reached by paths neither marked nor traceable and not subject to judicial review.’ [Citations.]”’” (Ibid.) Indeed, arbitrators “may grant equitable relief that a Court could not.” (Id. at p. 389.)
By challenging the arbitrator’s award of MAP stock to plaintiff rather than RAP, Mayor, Doyle and AIM call into question the arbitrator’s authority to fashion the relief awarded to plaintiff. The challenge is unavailing because the arbitrator has broad discretion to fashion appropriate remedies.
The California Supreme Court’s decision in Advance Micro is dispositive of the issue. In Advance Micro, defendant sought to correct an arbitration award on the ground that the remedies granted were in excess of the arbitrator’s powers. (Advanced Micro Devices, Inc. v. Intel, supra, 9 Cal.4th at 371.) The parties did not by agreement restrict the arbitrator to remedies available in a court of law; instead, they adopted an American Arbitration Association rule that permitted the arbitrator to grant “‘any remedy or relief which the Arbitrator deems just and equitable and within the scope of the agreement’” (Id. at 389.) Advance Micro held 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 found, expressly or impliedly, by the arbitrator and the breach of contract as interpreted, expressly or impliedly, by the arbitrator.” (Id. at p. 367.)
Similar to the parties in Advanced Micro, here, the parties did not restrict the arbitrator to remedies available in a court of law in the strategic relationship agreement. Likewise, the parties’ arbitration proceedings were governed by the American Arbitration Association rules including rule 43, which authorizes the arbitrator to “grant any remedy or relief that the arbitrator deems just and equitable and within the scope of the agreement of the parties.” In addition, the parties submitted all claims including the derivative claims to the arbitrator. Thus, the parties did not restrict the arbitrator’s authority to fashion the appropriate remedy.
In addition, the remedy fashioned by the arbitrator bore a rational relationship to the underlying strategic relationship agreement and the disputes that arose from that agreement. The arbitrator found that Mayor and Allegra caused RAP’s assets to be misappropriated and inextricably commingled into the assets of MAP; thus, there was a de factoor equitable merger of RAP into MAP. The arbitrator considered returning the LoanVibe program and source code to RAP or awarding compensatory damages but found the following problems: RAP was suspended and would need to be revived; the LoanVibe source code no longer existed in the form it existed in late 2005; and remnants of the LoanVibe progam/source code were intermingled with the MAP program. The arbitrator determined the most appropriate remedy available was to declare the existence of an equitable merger of RAP into MAP and to award plaintiff shares of MAP stock.
The arbitrator’s award of MAP stock to plaintiff, rather than RAP, logically follows from the arbitrator’s finding of de factoor equitable merger because RAP in effect no longer existed as a result of its merger with MAP. Thus, the arbitrator did not exceed his powers in awarding plaintiff relief on the derivative claims of conversion and breach of fiduciary duty. Moreover, even if the arbitrator had made a legal or factual error, the courts are required to defer to the arbitrator’s rulings under California precedent. (Moshonov v. Walsh, supra, 22 Cal.4th at p. 775) [“[A]rbitrators do not ‘exceed[ ]their powers’ within the meaning of section 1286.2, subdivision (d) and section 1286.6, subdivision (b) 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”].) We conclude the trial court correctly confirmed the award under section 1286.
D. Motion to Dismiss Plaintiff’s Derivative Claims
Mayor, Doyle and AIM contend the trial court should have dismissed the derivative claims because (1) plaintiff did not have standing to pursue its derivative claims as a result of RAP’s suspension, and (2) plaintiff did not revive RAP and thus the derivative claims became barred by the applicable statutes of limitations. They argue that under Grosset v. Wenaas (2008) 42 Cal.4th 1100, a plaintiff suing on a derivative claim must maintain its interest in the corporation throughout the pendency of the case. A derivative plaintiff lacks standing to continue litigating the derivative claims once he no longer owns stock in the corporation as a result of a merger. (Id. at 1119.)
Grosset is distinguishable. In Grosset, the derivative claims were litigated in court; here, the derivative claims were decided by the arbitrator pursuant to the arbitration provision of the strategic relationship agreement. Indeed, plaintiff initially sought to litigate the derivative claims in court but was ordered to arbitration because the arbitration provision covered the parties’ dispute including derivative causes of action based on breach of fiduciary duty and conversion. (EFund Capital Partners v. Pless, supra, 150 Cal.App.4th at pp. 1323-1326.) Having compelled the claims into arbitration, defendants cannot now ask the courts to dismiss the derivate claims and in effect vacate the arbitration award. (See e.g., Thibodeau v. Crum (1992) 4 Cal.App.4th 749, 761 [unconfirmed arbitration award has res judicata effect].) No grounds for vacating the arbitration award were presented to the trial court and indeed none existed.
Under section 1286.2, the arbitration award shall be vacated if “(1) The award was procured by corruption, fraud or undue means; (2) There was corruption in any of the arbitrators; (3) The rights of the party was substantially prejudiced by misconduct of a neutral arbitrator; (4) The arbitrators exceeded powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted; (5) The 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 or by other conduct of the arbitrators contrary to the provisions of this title; (6) An arbitrator making the award either: (A) failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware; or (B) was subject to disqualification upon grounds specified in Section 1281.91 but failed upon receipt of timely demand to disqualify himself or herself as required by that provision….”
Mayor, Doyle and AIM also contend the arbitrator did not rule on the issue of whether plaintiff had standing to pursue its derivative claims and expressly left that decision to the trial court. They further assert that the trial court inexplicably refused to rule on the standing issue, instead finding it was an issue for the arbitrator. We find the trial court properly deferred to the arbitrator’s decision because the arbitrator disposed of the corporate suspension issue in the arbitration award.
During the arbitration proceedings, Mayor, Doyle and AIM, vigorously challenged plaintiffs’ standing to pursue the derivative claims. The arbitrator issued a March 2, 2008 ruling dismissing their motion for lack for standing but noting that “unless RAP’s suspension is cured and its corporate powers revived, the proper ruling might be that derivative claims presently being prosecuted by [p]laintiff EFund on behalf of RAP may not be prosecuted.”
The arbitrator again addressed plaintiff’s standing to pursue derivative claims in a July 17, 2009 arbitration management order: “Assuming a plaintiff’s award on the derivative claims, a petition to confirm the award as a judgment might then follow. At that time, the corporate suspension issue can be revisited in court.” However, the arbitrator later disposed of the corporate suspension issue in the final arbitration award by finding there was a de facto or equitable merger of RAP into MAP. The arbitrator declined to return the LoanVibe program and source code or provide compensatory damages to RAP in part because he recognized RAP was suspended and would need to be revived.
By awarding plaintiff relief on the derivative claims of conversion and breach of fiduciary duty notwithstanding RAP’s suspension, the arbitrator implicitly found plaintiff had standing to pursue the derivative claims. Thus, the trial court properly deferred to the arbitrator’s ruling on the standing issue by denying the motions to dismiss the derivative claims.
IV. DISPOSITION
The March 18, 2010 judgment of the trial court is affirmed. Plaintiff is to recover its costs on appeal from defendants.
We concur: ARMSTRONG, Acting P. J., KRIEGLER, J.
However, Allegra waived his res judicata defense by failing to raise it with the arbitrator or the trial court. (Parker v. Walker (1992) 5 Cal.App.4th 1173, 1191[party waived res judicata defense by failing to raise it below]; United Computer Systems, Inc. v. AT&T Corp. (2002) 298 F.3d 756, 763 [“‘[A] res judicata objection based on a prior arbitration proceeding is a legal defense that, in turn, is a component of the dispute on the merits and must be considered by the arbitrator, not the court’”].)