Opinion
H051224
11-21-2024
SYLVIA WIKLER FINGER et al., Plaintiffs and Respondents, v. MARY ANN LOEB, Defendant and Appellant.
NOT TO BE PUBLISHED
Santa Cruz County Super. Ct. No. 22CV01046.
BROMBERG, J.
Mary Ann Loeb appeals an order confirming an arbitration award against her. Loeb entered into a contract to sell a property in Santa Cruz but later tried to rescind the contract because the real estate agent involved in the transaction did not provide an initial disclosure form that she contends was statutorily required. The arbitrator agreed the agent did not provide the form. Nonetheless, the arbitrator denied Loeb's request to rescind the purchase contract because before the contract was executed the agent gave Loeb the information she contends the form would have disclosed-including that the agent was acting as a dual agent-and therefore Loeb had actual knowledge of that information in entering into the contract. Loeb petitioned to vacate, but the trial court confirmed the award.
Loeb argues on appeal that the arbitration award should be vacated because the arbitrator exceeded his powers in refusing to grant rescission. We disagree. Arbitration awards are generally not reviewable for legal or factual error (Moncharsch v. Heily & Blase (1992) 3 Cal.4th 1, 6 (Moncharsch)) and may be vacated for violating public policy or a statutory right only if the awards violate a "clear expression of illegality or public policy." (Id. at p. 32; see Ling v. P.F. Chiang's China Bistro (2016) 245 Cal.App.4th 1242, 1252 (Ling), overruled on other grounds Naranjo v. Spectrum Security Services, Inc. (2022) 13 Cal.5th 93, 112-113.) As explained below, Loeb has not shown violation of any statutory right or clearly expressed public policy. Indeed, as the arbitrator recognized, the only case to consider the situation presented by the facts before us, Huijers v. Demarrais (1992) 11 Cal.App.4th 676 (Huijers), denied rescission. We conclude that the arbitrator did not exceed his powers in doing the same here and affirm the judgment confirming the arbitration award.
I. Background
A. The Real Estate Agency Disclosure Statute
In 1986, the Legislature enacted legislation (the "Real Estate Agency Disclosure Statute" or "Statute") requiring real estate agents to make certain disclosures. (Stats. 1986, ch. 785; see also Stats. 1995, ch.428, §§ 2-13 [amending the Statute and moving it to Civ. Code, §§ 2079.13 to 2079.24].) (Subsequent undesignated statutory references are to the Civil Code.) The Statute's stated purpose was to require real estate agents to disclose agency relationships in simple and comprehensible terms to consumers involved in residential real estate transactions and to provide for confidentiality for certain information provided to dual agents-that is, agents representing both buyer and seller. (Stats. 1986, ch. 785, § 3, subd. (b) & (f); see also Horiike v. Coldwell Banker Residential Brokerage Co. (2016) 1 Cal.5th 1024, 1029-1030 [discussing dual agency].)
The Statute requires real estate agents to make an initial informational disclosure to their clients using a form entitled "Disclosure Regarding Real Estate Agency Relationships." (§ 2079.16, capitalization omitted.) This initial disclosure form, the contents of which the Statute dictates, describes the duties of seller's agents, buyer's agents, and dual agents, including that an agent may act as a dual agent representing both the seller and buyer only with the knowledge and consent of both. (§ 2079.16.) Agents are required to give sellers the initial disclosure form "before entering into the listing agreement" (§ 2079.14, subd. (a)(1)), and they are required to give the same form to buyers "as soon as practicable before execution of the buyer's offer to purchase" (§ 2079.14, subd. (a)(2)). In addition, agents providing the initial disclosure form are required to obtain a signed acknowledgment of receipt of the form (§ 2079.14, subd. (a)(2)) or to execute a written declaration that their client refused to sign such an acknowledgment (id., § 2079.15).
The Statute also separately requires real estate agents to disclose their relationship to the buyers and sellers. "As soon as practicable," a seller's agent must disclose to the seller "whether the seller's agent is acting in the real property transaction as the seller's agent, or as a dual agent representing both the buyer and seller." (§ 2079.17, subd. (b).) Similarly, "[a]s soon as practicable," a buyer's agent must disclose to the buyer and seller "whether the agent is acting in the real property transaction as the buyer's agent, or as a dual agent representing both the buyer and the seller." (§ 2079.17, subd. (a).) In addition, both buyer's and seller's agents are required to confirm who they are representing in any contract to purchase and sell real property or in a separate writing acknowledged by the agent, buyer, and seller. (§ 2079.17, subd. (a) & (b); see also id., § 2079.17, subd. (c) [specifying form and content of confirmation].) Finally, the Statute prohibits dual agents from disclosing "confidential information," which is defined to include facts concerning a client's "financial position, motivations, bargaining position, or other personal information that may impact price." (Id., § 2079.21, subds. (a), (b) & (c).)
The Statute does not specify what relief is available if an agent violates its requirements.
B. The Purchase Contract
Loeb owned two properties in Santa Cruz. In 2021, she asked Danny Alvarez, the real estate agent through whom she purchased the properties, to list the properties. However, Loeb did not sign a listing agreement, and Alvarez did not give her an initial disclosure form.
On December 6, 2021, David Finger and Silvia Wikler Finger, as trustees of the D & S Finger Family Trust (the Fingers), made an offer for one of the properties listed by Loeb. The offer included the confirmation required by the Statute that Alvarez was acting as a dual agent representing both Loeb and the Fingers.
On December 7, 2021, Loeb made a counteroffer increasing the purchase price by $150,000, which the Fingers accepted the same day. The counteroffer contained the Fingers' earlier offer, including the page containing the confirmation of Alvarez's dual agency, which Loeb initialed on the counteroffer. In addition, the counteroffer contained a page, which Loeb signed, entitled "Possible Representation of More than One Buyer or Seller- Disclosure and Consent" describing the duties of seller's, buyer's, and dual agents as well as stating that Alvarez and his employer were acting on behalf of both the seller and buyer. Finally, right above Loeb's signature, this page stated that the "Seller . . . acknowledges reading and understanding this Possible Representation of More Than One Buyer-Disclosure and Consent and agrees to the agency possibilities disclosed." (Boldface omitted.)
On January 3, 2022, a little less than a month after the Fingers accepted her counteroffer, Loeb's lawyer provided notice that Loeb intended to rescind the purchase contract. As grounds for rescission, Loeb listed, among other things, Alvarez's failure to provide an initial disclosure form.
C. The Arbitration
In May 2022, after the Fingers petitioned to compel arbitration, the parties agreed to binding arbitration. Nine months later, in February 2023, the arbitrator issued an interim award. Noting that Loeb had signed the page of the counteroffer entitled "Possible Representation of More than One Buyer or Seller-Disclosure and Consent," which "did disclose that Alvarez was representing both parties," the arbitrator found that "[t]he weight of the evidence is that Loeb was aware of the dual agency at the time she made the counter-offer to the Fingers."
The arbitrator also found Alvarez failed to provide Loeb with an initial disclosure form. However, he rejected Loeb's assertion that because of this failure she was entitled to rescind the purchase contract even though she had actual knowledge of the dual agency. Relying on Huijers v. DeMarrais, supra, 11 Cal.App.4th 676, the arbitrator concluded that "[b]ecause Loeb actually knew of the dual agency when she signed the counteroffer, the contract is not automatically voidable." The arbitrator also found that the Loeb was aware of the duties of dual agents and fiduciaries. Accordingly, the arbitrator concluded that Loeb was not entitled to rescind the purchase contract. Finally, the arbitrator concluded that Loeb had not shown any ground for not enforcing the contract or refusing to award specific performance.
Accordingly, the arbitrator awarded the Fingers specific performance of the purchase contract as well as $130,965 in damages due to delay in consummating the purchase. In April 2023, the arbitrator issued a final award adding $135,311.02 in attorney fees and costs.
D. The Petitions
The Fingers subsequently petitioned to confirm the arbitration award, and Loeb petitioned to vacate. Loeb argued that the award should be vacated on four grounds: (1) the award was procured by corruption, (2) the arbitrator was corrupt or biased, (3) Loeb's rights were prejudiced by the arbitrator's misconduct, and (4) the arbitrator exceeded his powers. The trial court rejected each of these arguments and confirmed the award.
Final judgment was entered on June 7, 2023, and three weeks later Loeb filed a timely notice of appeal.
II. Discussion
Loeb appeals the order confirming the arbitration award on the sole ground that the arbitrator exceeded his powers. Loeb argues that because Alvarez, the real estate agent involved in the transaction, did not give her an initial disclosure form, she was entitled to rescind the purchase contract, and in failing to grant this remedy the arbitrator violated "mandatory statutory rights and public policy." We review the trial court's order confirming the arbitration award de novo while affording appropriate deference to the award itself. (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 373-376 & fn. 9.) As explained below, we conclude that the arbitrator did not exceed his powers by refusing to grant rescission.
A. Judicial Review of Arbitration Awards
"[J]udicial review of an arbitrator's award is quite limited." (Board v. Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th 269, 275.) As the Supreme Court has stressed, "it is the general rule that, with narrow exceptions, an arbitrator's decision cannot be reviewed for errors of fact or law." (Moncharsh, supra, 3 Cal.4th at p. 11.) Instead, judicial review of arbitration awards is limited to the grounds specified by statute (id. at p. 12), and therefore such awards may be vacated only on six enumerated grounds (Code Civ. Proc., § 1286.2, subd. (a)(1)-(a)(6)).
Loeb relies on the fourth statutory ground: "The arbitrators exceeded their powers and their award cannot be corrected without affecting the merits of the decision upon the controversy submitted." (Code Civ. Proc., § 1286.2, subd. (a)(4); see also id., § 1286.6, subd. (b) [authorizing correction if "[t]he arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision"].) "It is well settled that 'arbitrators do not exceed their powers merely because they assign an erroneous reason for their decision.'" (Moncharsh, supra, 3 Cal.4th at p. 28.) However, an arbitrator may exceed his or her powers by issuing an award based on a contract that is invalid and unenforceable in its entirety. (Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co. (2018) 6 Cal.5th 59, 78, 80-87; Loving & Evans v. Blick (1949) 33 Cal.2d 603, 610). More pertinently, in "some limited and exceptional circumstances" an arbitrator also may exceed his or her powers when "illegality affects only a portion of the underlying contract." (Moncharsh, supra, 3 Cal.4th at p. 32.)
The partial illegality ground applies only "in rare cases," and the Supreme Court has admonished courts to "be reluctant to invalidate an arbitrator's award" on this ground "[w]ithout an explicit legislative expression of public policy." (Moncharsh, supra, 3 Cal.4th at pp. 32-33; see also ibid. ["Absent a clear expression of illegality or public policy undermining th[e] strong presumption in favor of private arbitration, an arbitral award should ordinarily stand immune from judicial scrutiny."].) Accordingly, an arbitration award generally may be vacated for partial illegality only if the award "violates a party's unwaivable statutory rights or . . . contravenes an explicit legislative expression of public policy." (Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909, 917; see also Ling, supra, 245 Cal.App.4th at p. 1252 [" 'Vacating an arbitration award based on public policy or a statutory right requires an explicit legislative expression of a public policy violated by the award or a conflict with a statutory scheme.' "].)
B. Application
Loeb argues that, by refusing to rescind her purchase contract with the Fingers, the arbitrator violated "important statutory rights under Civil Code sections 2079.13 et seq.," the Real Estate Agency Disclosure Statute, and "California's public policy of protecting consumers from the inherent conflicts of interest that are presented in dual agency situations." In fact, the Statute does not grant any right-automatic, unwaivable, or otherwise-to rescind real estate purchase contracts based on failure to provide an initial disclosure form. Nor is there any explicit legislative expression of a public policy favoring recission for such failures, much less a policy extending to parties entering into a purchase contract with actual knowledge of the information supposedly not disclosed. Indeed, as the arbitrator recognized, only one decision has considered whether to grant rescission for failure to provide an initial disclosure form where the sellers had knowledge of their real estate agent's dual agency, and that decision denied rescission. We conclude that the arbitrator did not exceed his powers in likewise denying rescission here.
1. Statutory Right
Loeb has not shown that she had any right to rescission under the Real Estate Agency Disclosure Statute for violation of the Statute's disclosure requirements. Indeed, it is not even clear that those requirements were violated.
The Statute requires real estate agents to provide sellers an initial disclosure form "before entering into the listing agreement." (§ 2079.14, subd. (a)(1).) However, the arbitrator found that Loeb "had not signed a listing agreement," and Loeb has not challenged that finding. As a consequence, it is unclear that Alvarez had a duty to provide Loeb with an initial disclosure form. In addition, while Loeb asserts that the initial disclosure form informs sellers that a broker is acting as a dual agent, Loeb does not point out anything in the statutorily dictated content of the form doing so, and we do not see any. (See § 2079.16.)
The Statute does require a seller's agent to disclose whether the agent is acting as a dual agent "[a]s soon as practicable" and to confirm that relationship in the purchase contract or a separate writing. (§ 2079.17, subd. (b).) However, Alvarez testified that before the Fingers made their offer he orally informed Loeb that he was acting as a dual agent. In addition, both the offer and the counteroffer contained the confirmation required by the Statute stating that Alvarez was acting as a dual agent. And the counteroffer contained a page, signed by Loeb, that was entitled "Possible Representation of More than One Buyer-Disclosure and Consent" and stated that Alvarez and his employer were acting as a dual agent. Consequently, Alvarez appears to have made all the disclosures required by the Statute.
In any event, even if Alvarez failed to make a required disclosure, nothing in the Statute required the arbitrator to rescind the purchase contract as a remedy for that failure. To the contrary, as Loeb concedes in her reply brief, the Statute does not specify rescission as a remedy for violating its requirements. Indeed, the statute "says nothing about a failure to comply" and is "without a remedy." (Huijers, supra, 11 Cal.App.4th at p. 679.) Accordingly, as Loeb also concedes, the Statute has been interpreted to "leav[e] common law remedies for failure to disclose intact." (Id. at p. 685).
Loeb notes that rescission was mentioned in the Statute's legislative history. But the passage cited by Loeb describes "[c]urrent law," not the then-proposed provisions of the Statute. (Legis. Counsel's Dig., Sen. Conc. Amends to Assem. Bill No. 1034 (19851986 Reg. Sess.), p. 1.) In addition, the passage stated merely that, under current law, "[t]ransactions arising from instances of dual agency or representation are subject to rescission" (ibid., italics added), which leaves open the possibility that rescission may not always be required.
Consequently, Loeb has not shown that there was any violation of the Statute, much less a violation of an unwaivable statutory right.
2. Public Policy
Loeb also contends that the arbitration award violates public policy, but she fails to show the "explicit . . . expression of public policy" required to vacate an arbitration award. (Moncharsh, supra, 3 Cal.4th at p. 32.) Loeb describes at length the dangers posed by the conflicts of interest that dual agencies create and how the Statute was intended to protect against those dangers. But she fails to explain why, in light of these concerns, a seller must be allowed to rescind a purchase contract with an innocent buyer based on an agent's failure to make a statutory disclosure concerning dual agency where, as here, the seller had actual knowledge of the dual agency before signing the contract.
Rescission is not the only remedy available for failure to disclose a dual agency. First, if an agent fails to disclose a dual agency, the agent is barred from recovering commissions from either the buyer or the seller. (See, e.g., L. Bryon Culver & Associates v. Jaoudi Industrial & Trading Corp. (1991) 1 Cal.App.4th 300, 305 ["Unless both principals know of the dual agency at the time of the transaction, the agent cannot recover a commission from either."].) Second, if an agent fails to disclose a dual agency, a principal unaware of the dual agency may sue the agent for any losses suffered because the principal relied on the agent's advice. (Brown v. FSR Brokerage, Inc. (1998) 62 Cal.App.4th 766, 778.) Third, if an agent fails to disclose a dual agency, the agent is subject to discipline by the Real Estate Commissioner, including suspension or revocation of the agent's license. (Bus. & Prof. Code, § 10176, subd. (d).)
In light of these remedies, it is unclear how public policy would be served by automatically allowing a seller with actual knowledge of a dual agency to rescind a purchase contract with an innocent buyer when a real estate agent has not complied with the Statute's disclosure requirements. The threat of losing commissions, damages, and suspension or revocation of the agent's license give real estate agents strong incentives to comply with the Statute. In addition, where a seller has actual knowledge of a dual agency, failure to comply with all the Statute's disclosure requirements may cause little or no harm to the seller, while rescission may severely prejudice an innocent buyer. Consequently, we are not persuaded that public policy is served by rescinding a real estate purchase contract because of a real estate agents' failure to make statutory disclosures about which the seller obtains actual knowledge before entering into the contract. Certainly, there is no clear and explicit legislative expression of public policy of the sort needed to justify vacating an arbitration award.
3. Common Law
Loeb also asserts that the common law grants her the right to rescind the purchase contract. As "an arbitrator's decision is not generally reviewable for error of fact or law" (Moncharsh, supra, 3 Cal.4th at p. 6), it is unclear how incorrect application of the common law would justify vacating the arbitration award here. In any event, the arbitrator correctly applied the common law in refusing to rescind the purchase contract in light of Loeb's actual knowledge that Alvarez was acting as a dual agent.
In arguing that she was entitled to rescind the purchase contract, Loeb relies on two Supreme Court decisions: McConnell v. Cowan (1955) 44 Cal.2d 805 (McConnell) and Vice v. Thacker (1947) 30 Cal.2d 84 (Vice). Neither helps. In McConnell, the seller did not attempt to rescind a purchase contract based on an undisclosed dual agency. Instead, the buyer in that case sought, and obtained, one of the remedies described above: a declaration that a real estate agent who failed to disclose a dual agency to the seller was barred from recovering a commission. (McConnell, supra, 44 Cal.2d at p. 807 [noting failure to disclose]; id. at p. 813 [holding agent could not recover commission].) Vice did involve rescission: The seller in that case sought to rescind a purchase contract, albeit for personal rather than real property, based on an agent's failure to disclose a dual agency. (Vice, supra, 30 Cal.2d at pp. 89-90.) However, unlike Loeb, the seller in Vice was unaware of the dual agency. (Id. at p. 87.) Moreover, in upholding rescission of the purchase contract, the Supreme Court stressed this lack of knowledge: "It is the general rule," the Court observed, "that where an agent has assumed to act in a double capacity, a principal who has no knowledge of such dual representation . . . may avoid the transaction." (Id. at p. 90, italics added.) Thus, the Supreme Court's decision in Vice offers no support for rescinding a purchase contract based on failure to disclose a dual agency where, as here, the seller had actual knowledge of the dual agency.
As the arbitrator recognized, the availability of rescission where a seller has notice of a dual agency also was addressed in Huijers v. DeMarrais, supra, 11 Cal.Ap.4th 676. In that case, after being retained by a buyer, a real estate agent entered into a listing agreement with two potential sellers. (Id. at pp. 679-680.) Although the broker violated the Statute by not giving the sellers a written disclosure statement before entering into the listing agreement (id. at pp. 679-680), the broker gave the statement to the sellers at the signing of the purchase contract, and the purchase contract stated that the broker was acting as a dual agent. (Id. at p. 680.) Later the sellers sought to rescind the purchase contract, and the buyers sued for specific performance. (Id. at pp. 680-681.) The sellers argued that the purchase contract should be rescinded because the agent did not provide an initial disclosure form. (Id. at p. 686.) The Court of Appeal disagreed. "This failure to disclose," the court reasoned, "does not in itself relieve the [sellers] from their obligation under the purchase contract . . . because the disclosure statement was ultimately given to them just before they signed the purchase contract." (Ibid. at p. 686; but see id. at pp. 686-687 [noting that the sellers might be entitled to rescission if they were unaware of the information in the initial disclosure form].)
This case is indistinguishable. Like the sellers in Huijers, Loeb contends that she was not given an initial disclosure form. In addition, like the real estate agent in Huijers, her agent disclosed his dual agency before the parties entered into the purchase contract. Indeed, in this case Loeb signed the "Possible Representation of More than One Buyer or Seller-Disclosure and Consent" form disclosing the dual agency, and the arbitrator found that she actually knew of the dual agency as well as the duties of dual agents and fiduciaries when she signed the counteroffer. Thus, Loeb had as much, if not more, knowledge of the dual agency as the sellers in Huijers. Therefore even if Alvarez failed to make the required initial disclosure, under Huijers Loeb was not entitled to rescind her purchase contract with the Fingers.
Notably absent from Loeb's briefs is any attempt to distinguish Huijers. Although the arbitrator relied on Huijers in ruling that her purchase contract was not automatically voidable, and the Fingers discussed the decision at length in their brief on appeal, Loeb only briefly mentions another aspect of Huijers in her opening brief, and fails to mention the decision at all in her reply.
We therefore conclude that Loeb was not entitled under the common law to rescind the purchase contract.
4. Loeb's Authorities
In her reply brief, Loeb points to four cases concluding that arbitration awards exceeded an arbitrator's powers based on the remedies that were either imposed or not imposed. These cases do not help Loeb.
Two of the cases cited by Loeb involved remedies expressly conferred by statute. In Adhout v. Hekmatjah (2013) 213 Cal.App.4th 21 (Adhout), the plaintiff contended that an arbitrator exceeded his authority by failing to order disgorgement of compensation paid to an unlicensed general contractor. (Id. at p. 24.) Because Business and Professions Code section 7031 confers an express statutory right to disgorgement (Bus. & Prof. Code, § 7031, subd. (b) ["Except as provided in subdivision (e), a person who utilizes the services of an unlicensed contractors may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract."]), the Court of Appeal concluded that the trial court should have reviewed the evidence to determine whether disgorgement was required. (Adhout, at p. 39.) In Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83 (Armendariz), overruled on other grounds by AT&T Mobility v. Concepcion (2011) 563 U.S. 333, 339-352), the California Supreme Court held an arbitration agreement unenforceable in part because it waived statutorily granted remedies such as punitive damages and attorneys fees. (Id. at pp. 103-104.) As the Real Estate Agency Disclosure Statute does not grant a right to rescission, and Loeb is seeking a common law remedy, Adhout and Armendariz are inapposite.
The other two cases cited by Loeb are even further afield. In Ling, supra, 245 Cal.App.4th 1242, after denying an employee's claim for overtime and rejecting most of her claim for missed meals, the arbitrator found that the employer prevailed on the meals claim and awarded the employer attorney fees. (Id. at p. 1249.) Because the meal claim was inextricably intertwined with the overtime claim, and under the Labor Code only plaintiffs may recover attorney fees on overtime claims (Lab. Code, § 1194), Ling concluded that the attorney fees award for the meal claim conflicted with the public policy expressed in the Labor Code and exceeded the arbitrator's powers. (Ling, supra, at pp. 1254-1255.) In Jordan v. California Department of Motor Vehicles (2002) 100 Cal.App.4th 431, the Court of Appeal held that an award of $88 million in attorney's fees in a case challenging the constitutionality of certain fees imposed by the state violated public policy and exceeded the arbitrator's powers because it converted the statute authorizing the fees into an unconstitutional gift of funds. (Id. at pp. 449-453.) Here, by contrast, there is no conflict with the public policy expressed in any statute nor any constitutional violation, and therefore Ling and Jordan are also inapposite.
III. Disposition
The order granting the petition to confirm the arbitration award and denying the petition to vacate the award is affirmed. The Fingers are entitled to their reasonable costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)
WE CONCUR: LIE, ACTING P. J., WILSON, J.