Opinion
G036146
9-4-2008
GREENBROOK@CERRITOS, LLC, Plaintiff and Respondent, v. DEL RAY BUILDERS, INC., et al. Defendants and Appellants.
Ross, Dixon & Bell, Mohammed K. Ghods, Jennifer Mathis, Aaron K. Kim and Thomas H. Prouty, for Defendants and Appellants. Hartnett Law Group and Patrick M. Hartnett for Plaintiff and Respondent.
Not to be Published
Del Ray Builders, Inc., appeals from an order denying its petition to vacate an arbitration award. Del Ray contends the court erred because the evidence demonstrated the arbitrator was biased; he improperly excluded evidence favorable to Del Ray; and he exceeded his powers by awarding punitive damages against Del Ray. In a consolidated appeal, Del Ray, Eugene Levert and Richere Levert challenge the order amending the judgment to add Eugene Levert and Richere Levert as alter egos of Del Ray on the judgment. That second appeal raises no distinct issues, but instead asserts that if the judgment against Del Ray is reversed the order amending the judgment must be reversed as well.
We affirm. Punitive damages were a proper remedy for what the arbitrator concluded was Del Rays intentional bad faith conduct designed to "extort" money from its joint venture partner. Moreover, the fact that Greenbrooks claims against Del Ray arose out of the parties joint venture "contract" does not mean that Greenbrook was restricted to recovering only traditional "contract" damages. This particular contract gave rise to fiduciary duties, the intentional breach of which justifies an award of punitive damages. Finally, even if the prospect of punitive damages could not be fairly inferred in Greenbrooks initial claim based upon the breaches alleged and the nature of the contract between the parties, Del Ray was certainly on notice, prior to the commencement of the hearing, that such damages were being pursued by Greenbrook. Del Ray was in no way prejudiced by the lack of a formal "amendment" to Greenbrooks claim.
Additionally, the punitive damage award did not violate constitutional standards. Although Del Ray contends Greenbrooks compensatory damages were awarded solely for "breach of contract," and that consequently the ratio between the tort compensatory damages (0), and the punitive damages ($300,000) is incalculably (and thus impermissibly) high, we reject the premise. As we have already noted, the arbitrator concluded that Del Rays breaches of contract were also tortious, because they amounted to willful breaches of fiduciary duty. Thus, the proper ratio to evaluate is the one between Greenbrooks compensatory damages ($163,117) and its punitive damages ($300,000). That ratio is entirely within constitutional parameters.
Del Rays final attack on the punitive damages award — that the award exceeded the arbitrators powers because it was unsupported by any evidence of Del Rays financial condition — is not reviewable. In essence, Del Ray is asking us to assess the sufficiency of the evidence to support the arbitrators decision, which we cannot do.
Del Rays contentions regarding arbitrator bias, and its assertion the arbitrator improperly excluded material evidence in its favor, fare no better. Stated plainly, none of the three incidents relied upon by Del Ray, each of which are presented without significant context, is sufficient to raise the specter of arbitral bias. And in light of the arbitrators conclusion the arbitration was limited to claims involving the parties joint venture agreement or the particular properties expressly identified in their claims — a decision wholly within the purview of his powers — Del Ray was not prejudiced by the arbitrators refusal to hear evidence pertaining solely to other disputes.
FACTS
Respondent Greenbrook@Cerritos, LLC, is a custom home developer, and Del Ray is a contractor. In June of 2003, the parties entered into a "Memo of Understanding" (MOU) between Del Ray, identified as "general contractor partner," and Greenbrook as "owner," for the construction of two properties in Fullerton. The substantive provisions of the MOU provided that Del Ray would provide general contractor services "and other related services" described in an exhibit to the MOU, and in exchange would receive compensation equal to 13.5 percent of the construction cost, disbursed based upon percentage of completion, plus 15 percent of the profit realized at the close of sale on each home.
In addition to regular construction-related tasks, the exhibit specifies that Del Ray is obligated to "[w]ork with sales agency to give price quotes and sales options," and be "[p]resent with buyers to sign a final walk-thru at closing."
The MOU included an arbitration provision, which stated: "Any dispute arising out of the proposed transaction shall be settled by binding arbitration with all rights of discovery and in accordance with the laws of the State of Californias [C]ivil [C]ode section 1280 et seq., and commercial arbitration rules of the American Arbitration Association (AAA) as then in effect and any arbitration will take place in Orange County, California. Proposed arbitration will not be limited to panel members of the AAA."
In December of 2003, Greenbrook filed a demand for arbitration of various disputes which had arisen between the parties. The claim identified the "Nature of Dispute" as "[m]ultiple breaches of contract by [Del Ray]," including "1. Improper recordation of a mechanics lien in July of 2003 when project was not complete and no profit was earned. 2. Improper recordation of mechanics lien in July, 2003 for project supervision amount not earned or due under the Memo of Understanding. 3. Attempted and actual interference with the sale of both homes. 4. Improper recordation of mechanics lien in October, 2003 for project profit not earned or due under the Memo of Understanding. 5. Improper recordation of mechanics lien in October, 2003 for project supervision amount not earned under the Memo of Understanding . . . ."
The claim specified after "Remedy sought" that "[a]t the time of demand, due to the lack of documentation provided by the respondent the claimants damages are not yet certain, however, Claimant believes that the money damages will be between $50,000 and $75,000. In addition, claimant seeks the removal and expungement of the two most recent mechanics lien[s] recorded by the Respondent. Furthermore, Claimant demands that the Respondent obtain and turn over all project warranties, documents, accounting and provide the necessary certificate of insurance from subcontrators as referred [to in] the Memo of Understanding."
In January of 2004, Del Ray responded to Greenbrooks claim by letter, and denied the claims. The letter also asserted a counterclaim, alleging Greenbrook had committed breach of contract, fraud, and intentional and negligent misrepresentation — all based on a conclusory statement suggesting only a breach of contract: i.e., that Del Ray "fully performed under the Memorandum of Understanding, but as of the date of this Denial and Cross-Claim, has not been paid pursuant to the agreement with [Greenbrook.]" As remedies, Del Ray sought only an accounting and "punitive damages." The counterclaim technically sought no compensatory damages.
Thereafter, the scope of both parties claims changed somewhat. In August of 2004, Del Ray filed a formal motion to amend its counterclaim to assert additional claims based upon Greenbrooks alleged wrongful acts in connection with a third property. In September of 2004, after the arbitrator granted Del Rays motion, Greenbrook filed an "answering statement" in which it denied the allegations of the amended claim, asserted various affirmative defenses, and then affirmatively prayed for an award of damages based upon (among other claims) Del Rays "fraud," "slander of title," and "breach of fiduciary obligation."
In Greenbrooks opening arbitration brief, filed a week before the hearing commenced, it specifically asserted that it was entitled to punitive damages, in addition to compensatory damages, based upon Del Rays violation of its fiduciary duties as a partner under the MOU.
Greenbrook reiterated its punitive damage claim in its closing brief submitted on or about March 18, 2005, and again based the request on various wrongful acts amounting to a breach of Del Rays "fiduciary obligations" as a "profit sharing partner" under the MOU. In that brief, Greenbrook sought an award of compensatory damages adding up to nearly $400,000, plus punitive damages of over $1.8 million.
For its part, Del Rays closing brief also sought recovery of "tort damages. . . including punitive damages" against Greenbrook, arguing that Greenbrook had lured it into the deal by promising it the role of "partner," but all the while "never intending to pay the promised profit participation." Despite having omitted compensatory damages from its initial counterclaim, Del Ray sought an award of $500,000 in compensatory damages against Greenbrook, plus $2 million in punitive damages.
Del Rays closing brief not only conceded the existence of a partnership relationship between the parties, but expressly relied upon the fiduciary character of that relationship as a basis of its own claim for punitive damages.
On March 23, 2005, each party filed a reply to the others closing brief. Among other points made, Greenbrooks reply reiterated the basis of its claim for punitive damages. Del Rays reply included a paragraph acknowledging and dismissing Greenbrooks punitive damage claim: "Greenbrooks claims are for breaches of contract only. . . . Again, it did not move to amend its claims to attempt to allege a tort claim at any time in this arbitration proceeding. Without even addressing the utter lack of merit of a potential claim, it has no such claim and, accordingly, no right to attempt to recover punitive damages."
On April 18, 2005, the arbitral forum sent a letter to notify the parties that it was acknowledging receipt of the filing fees for the parties "increased claim amounts, which have been accepted by the arbitrator." The letter went on to explain the arbitrator had ruled that "[a]lthough the nature and extent of these claims has been fully briefed and litigated by the parties, this may be considered a technical change of claims under Rule 6, so I am willing to permit any party hereto who desires to do so to file an `answering statement as a further brief (of not more than 5 pages), directly with the Arbitrator, within 15 days from the date of this letter. No such brief need be filed nor shall any reply thereto be permitted." No such "answering statement" was filed by either party, and the arbitration hearing was declared "closed" on May 4, 2005.
On May 24, 2005, the arbitrator issued his decision. The decision stated that Del Ray had "breached its construction management and supervisory responsibilities . . . to a material degree in numerous respects." Moreover, the arbitrator specifically concluded that Del Ray had acted "in bad faith" when it recorded each of its mechanics liens; that in doing so it had violated its fiduciary duty and intentionally interfered with Greenbrooks prospective economic advantage in connection with the pending sale of the homes; and that its goal was to create "maximum undue leverage to extort money from [Greenbrook] to which [Del Ray] was not entitled." The arbitrator went on to explain that "[a]lthough [Greenbrooks] initial Arbitration Claim sounded simply in `contract, subsequent briefing, as well as the entire hearing hereon, included an extensive specification of additional claims of breach of fiduciary duty, bad faith, and intentional interference with prospective economic advantage, as well as ample evidence to support same. Certainly, [Del Ray] cannot pretend to be `surprised by such claims or contentions, and [Del Ray], itself, was allowed to amend its own claims at the hearing."
Based upon those findings, the arbitrator awarded Greenbrook $ 163,177 in "contract damages," plus $300,000 in punitive damages "[d]ue to the egregious and repeated tortious conduct of Respondent Del Ray, established by clear and convincing evidence."
On June 10, 2005, Greenbrook filed its petition to confirm the arbitration award in the superior court. Over Del Rays opposition, the court granted the petition.
DISCUSSION
We start with the well-established proposition, explained in Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, that under Californias statutory scheme for review of contractual arbitration awards, the grounds for overturning such an award are quite limited. Under Moncharsh, we cannot review the merits of the controversy, the arbitrators reasoning, or the sufficiency of the evidence on which the award is based. (Id. at p. 11.) Indeed, even "an error of law apparent on the face of the award that causes substantial injustice does not provide grounds for judicial review." (Id. at p. 33.) In other words, our system accepts that arbitrators can, and will, make awards which are inconsistent with the statutes and common law precedents that bind our trial courts.
Code of Civil Procedure section 1286.2, subdivision (a) sets forth the limited grounds upon which a court can rely in overturning an arbitration award: "Subject to Section 1286.4, the court shall vacate the award if the court determines any of the following: [¶] (1) The award was procured by corruption, fraud or other undue means. [¶] (2) There was corruption in any of the arbitrators. [¶] (3) The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator. [¶] (4) The arbitrators exceeded their 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. However, this subdivision does not apply to arbitration proceedings conducted under a collective bargaining agreement between employers and employees or between their respective representatives."
Code of Civil Procedure section 1286.6 also allows a court to correct an arbitration award, and confirm it as corrected, "if the court determines that: [¶] (a) There was an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award; [¶] (b) The arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted; or [¶] (c) The award is imperfect in a matter of form, not affecting the merits of the controversy."
Further, although we generally apply a de novo standard in reviewing an order confirming an arbitration award, to the extent the trial courts order rested on its resolution of disputed factual issues, we apply the more deferential substantial evidence test. (Reed v. Mutual Service Corp. (2003) 106 Cal.App.4th 1359, 1364-1365; see also Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376, fn. 9.)
We also apply a deferential standard when assessing the propriety of the arbitration award itself. "The principle of arbitral finality, the practical demands of deciding on an appropriate remedy for breach, and the prior holdings of this court all dictate that arbitrators, unless expressly restricted by the agreement or the submission to arbitration, have substantial discretion to determine the scope of their contractual authority . . . and that judicial review of their awards must be correspondingly narrow and deferential." (Advanced Micro Devices, Inc. v. Intel Corp., supra, 9 Cal.4th at p. 376.)
With those things in mind, we turn to the parties arguments.
I
Del Rays most fervent contention is that the arbitrators award of punitive damages must be vacated, because the award of such damages exceeded the arbitrators powers. (Code Civ. Proc., § 1282.2, subd. (a)(4).) As set forth in Jordan v. Department of Motor Vehicles (2002) 100 Cal.App.4th 431, 443, there are various situations in which an arbitrator might be found to have exceeded his powers: "[a]n Arbitrator exceeds his powers when he acts without subject matter jurisdiction (National Union Fire Ins. Co. v. Stites Prof. Law Corp. (1991) 235 Cal.App.3d 1718, 1724), decides an issue that was not submitted to arbitration (California Faculty Assn. v. Superior Court (1998) 63 Cal.App.4th 935, 952; Pacific Crown Distributors v. Brotherhood of Teamsters (1986) 183 Cal.App.3d 1138, 1143), arbitrarily remakes the contract (Pacific Gas & Electric Co. v. Superior Court (1993) 15 Cal.App.4th 576, 590), upholds an illegal contract (Loving & Evans v. Blick (1949) 33 Cal.2d 603), issues an award that violates a well-defined public policy (City of Palo Alto v. Service Employees Internat. Union (1999) 77 Cal.App.4th 327, 338-340), issues an award that violates a statutory right (Board of Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th 269, 272), fashions a remedy that is not rationally related to the contract (Advanced Micro Devices, Inc. v. Intel Corp.[, supra,] 9 Cal.4th [at p.] 375), or selects a remedy not authorized by law (Marsch v. Williams (1994) 23 Cal.App.4th 238, 248 [appointing receiver]; Luster v. Collins (1993) 15 Cal.App.4th 1338, 1350 [imposing economic sanctions to enforce award]). In other words, an arbitrator exceeds his powers when he acts in a manner not authorized by the contract or by law." (See also OFlaherty v. Belgum (2004) 115 Cal.App.4th 1044, 1055-1056.)
However, we are also mindful of the deference we must give to the arbitrators exercise of his decision-making power. "The choice of remedy . . . may at times call on any decisionmakers flexibility, creativity and sense of fairness. In private arbitrations, the parties have bargained for the relatively free exercise of those faculties. Arbitrators, unless specifically restricted by the agreement to following legal rules, `"may base their decision upon broad principles of justice and equity . . . ." [Citations.] As early as 1852, this court recognized that, "The arbitrators are not bound to award on principles of dry law, but may decide on principles of equity and good conscience, and make their award ex aequo et bono [according to what is just and good]." [Citation.] (Moncharsh, supra, 3 Cal.4th at pp. 10-11.) Were courts to reevaluate independently the merits of a particular remedy, the parties contractual expectation of a decision according to the arbitrators best judgment would be defeated." (Advanced Micro Devices, Inc. v. Intel Corp., supra, 9 Cal.4th 362, 374-375, fn. omitted.)
Here, Del Ray contends the arbitrators punitive damages award exceeded his powers in three distinct ways. First, Del Ray asserts the arbitrator exceeded his powers simply because Greenbrooks initial arbitration demand had described the nature of the parties dispute as merely "multiple breaches of contract," without mentioning any tort claims, and punitive damages are legally unavailable as a remedy for breach of contract. In Del Rays view, the arbitrator had no authority to assess liability on a tort theory in the absence of a formal demand (or amended claim) specifically alleging such a theory. As a consequence, Del Ray asserts the arbitrators decision to award punitive damages amounted to deciding "an issue that was not submitted to arbitration." We cannot agree.
The arbitration provision at issue was not limited to contract disputes. Instead, it is broadly worded to cover "[a]ny dispute arising out of the proposed transaction." Consequently, the arbitrator was certainly authorized by the terms of the agreement to decide tort claims as well as contract claims. Further, even assuming Greenbrooks initial arbitration demand had "sounded simply in `contract," as the arbitrator stated, the "contract" in question was — as both parties asserted — a joint venture agreement giving rise to fiduciary duties. The arbitrator clearly agreed with that assertion, and thus specifically concluded that Del Rays intentional misconduct constituting a breach of the MOU had also breached its fiduciary duties. The intentional breach of such a duty, although founded on a contract, nonetheless supports a claim for punitive damages. (See, e.g., Warren v. Merrill (2006) 143 Cal.App.4th 96; Bardis v. Oates (2004) 119 Cal.App.4th 1.) Once this overlap is properly acknowledged, it can be easily concluded that even Greenbrooks initial "contract" demand was sufficient to support the award of punitive damages in its favor.
But even if that were not true, we would also reject Del Rays attempt to impose a level of formality in this arbitral process which it was clearly not intended to have. Both Greenbrooks and Del Rays initial written "claims" are informal in the extreme, and include few particulars. In fact, Del Rays counterclaim simply listed the names of several causes of action — all of which were supported by a one-sentence assertion that Del Ray had not been paid for the work it had performed under the joint venture agreement. Neither party specified a firm amount of damages requested; Greenbrook offered an estimate but stated its damages were "not yet certain," while Del Ray stated only that it was requesting "an amount to be determined by virtue of discovery." Obviously, the parties understood that these initial written "claims" would reflect only the subject matter of their dispute, with the significant details of their respective assertions to be revealed in the period leading up to the hearing.
That is also how the arbitrator appeared to construe the process, and he would certainly be in the best position to judge. Under the rules of the AAA, once an arbitrator is selected, he is expressly empowered to accept or reject "new or different claims." Thus, when Del Ray asked for permission to include its claims relating to the third property, and thus to expand the subject matter of the arbitration, the arbitrator required a formal amendment to its counterclaim. However, when both parties later sought to increase the amounts of their damage claims in connection with the issues already placed in dispute, the arbitrator allowed it to be done on a less formal basis.
The arbitrators express authority to accept or reject new claims means we are not in a position to second-guess either his means of doing so, or his ultimate conclusion that Greenbrooks punitive damage "claim" was properly before him at the time he rendered his decision. Nor would we otherwise be inclined to do so. As our record demonstrates, even assuming Greenbrooks initial written arbitration demand were strictly construed, and viewed as excluding potential tort liability, Greenbrook was explicitly asserting such liability as early as September of 2004, when it responded to Del Rays amended counterclaim. It also expressly asserted its intention to seek punitive damages in the brief it served prior to the start of the arbitration hearing. Finally, the arbitrator notified the parties, after the presentation of evidence had been completed, but before the hearing was officially closed, that he was accepting the new claims each of them had "fully briefed and litigated, and that each of them had the right to file an "answering statement" to anything they viewed as a "change" in their opponents claims. Neither did.
Del Rays assertion that Greenbrooks answer to the amended counterclaim must be viewed as defensive only, and cannot be effective as a means of asserting affirmative claims, is not persuasive. The only possible "pleading" issue in arbitration proceedings as informal as this is whether the information conveyed was sufficient to put the opposing party on notice of what claims were being asserted. Greenbrooks response to the amended counterclaim was sufficient for that purpose.
Under all of these circumstances, we would independently conclude, as the arbitrator did, that Greenbrooks tort claims, including its request for punitive damages, were properly before him, and that Del Ray was given adequate advance notice of that fact. Consequently, we could not conclude the arbitrator exceeded his powers in including those damages in his award.
Del Rays next argument is that the arbitrator exceeded his powers because the punitive damages award was violative of the constitutional standards restricting the amount of punitive damages which can be awarded in a given case (see State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408, 426). Del Rays theory is that because the arbitrators award of compensatory damages specifies it is "contract damages," the award must be construed as awarding Greenbrook no "tort" damages. And because punitive damages are available only for intentional torts, the ratio between the amount of tort compensatory damages — $0 — and tort punitive damages — $300,000 — reflects an infinitely large ratio between the two, and thus violates constitutional standards.
We cannot adopt Del Rays stenotic view of the verdict. As we have already explained, the arbitrator concluded that Del Rays misconduct was not only a breach of contract, but also an intentional breach of its fiduciary duties which was designed to create "maximum undue leverage to extort money" from Greenbrook. Thus, the damages awarded were applicable to both breach of contract and that tortious conduct.
"Extort" is a remarkable word choice; the arbitrator obviously found Del Rays acts shocking. When viewed in that light, the ratio between the arbitrators award of compensatory damages ($ 163,000) and punitive damages ($300,000) was well within constitutional limits. (Bardis v. Oates, supra, 119 Cal.App.4th 1, 22-23.)
Del Rays final attack on the arbitrators power to award punitive damages is that the award was legally improper because Greenbrook had presented the arbitrator with no proof of Del Rays net worth. That is not a contention we can review. In essence, Del Ray is arguing nothing more than that we should review the arbitrators decision for lack of substantial evidence to support it. But "[c]ourts may not review the merits of the controversy, the sufficiency of the evidence supporting the award, or the validity of the arbitrators reasoning." (Department of Personnel Administration v. California Correctional Peace Officers Assn. (2007) 152 Cal.App.4th 1193, 1200, citing Moncharsh v. Heily & Blase[, supra,] 3 Cal.4th [at p.] 11.)
Further, even if we were authorized to assess the sufficiency of the evidence to support the arbitrators decision, and even if we did agree the evidence was insufficient to establish Del Rays net worth, there is still the problem that Del Rays argument would amount to an assertion that the arbitrator failed to properly follow the law which governs a trial court in evaluating a claim for punitive damages. But in the absence of an agreement by the parties which expressly requires the arbitrator to apply that law (compare OFlaherty v. Belgum, supra, 115 Cal.App.4th at p. 1049, in which the parties arbitration agreement specifically restricted the arbitrator from awarding any remedy "not available in a court of law"), we cannot entertain arguments that the arbitrators decision exceeded his powers simply because it was legally incorrect. "Before its confirmation, the resulting award possessed the legal status of a private contract. [Citation.] Consequently, the arbitration and award themselves were not governed or constrained by due process, including its elements applicable to judicial proceedings to impose punitive damages." (Rifkind & Sterling, Inc. v. Rifkind (1994) 28 Cal.App.4th 1282, 1291.)
Del Ray contends the Rifkind & Sterling analysis must be viewed as "anecdotal" in the wake of the U.S. Supreme Courts decisions in BMW of N. Am. v. Gore (1996) 517 U.S. 559, 568-569, and State Farm Mut. Auto. Ins. Co. v. Campbell (2003) 538 U.S. 408. We cannot agree. Neither BMW nor State Farm involved arbitrations, and thus neither touched on the issue of an arbitrators (as opposed to a courts) power to rule on a punitive damage claim. Moreover, we are not persuaded by Del Rays assertion that the Rifkind & Sterling analysis, if "tak[en] . . . to its conclusion would mean that an arbitrator could make a $10 billion award of punitive damages, and the impacted citizen would have no recourse. . . ." As Del Ray itself acknowledges, our Supreme Court has ruled that the remedy awarded by an arbitrator "must bear some rational relationship to the contract and the breach." (Advanced Micro Devices v. Intel Corp. (1994) 9 Cal.4th 362, 381.) The award before us certainly demonstrates such a relationship.
Based upon all of the foregoing, we conclude the arbitrator did not act in excess of his power when he awarded $300,000 in punitive damages to Greenbrook.
II
Del Ray also contends the arbitration award should have been vacated on the grounds the arbitrator committed prejudicial misconduct demonstrating he harbored a bias against it (Code Civ. Proc., § 1286.2, subd. (a)(3)), and because he improperly refused to consider evidence that supported Del Rays contention Greenbrook had engaged in other wrongful conduct designed to "burden the joint ventures assets to enhance the value of [other] properties retained solely in the names of Greenbrooks principals." (Code Civ. Proc., § 1286.2, subd. (a)(5).)
We find the claims unpersuasive. "When reviewing a charge of bias, `. . . the litigants necessarily partisan views should not provide the applicable frame of reference. [Citations.] (United Farm Workers of America v. Superior Court (1985) 170 Cal.App.3d 97, 104.) Potential bias and prejudice must clearly be established (Gray v. City of Gustine (1990) 224 Cal.App.3d 621, 632) . . . . Neither strained relations between a judge and an attorney for a party nor `[e]xpressions of opinion uttered by a judge, in what he conceived to be a discharge of his official duties, are . . . evidence of bias or prejudice. [Citation.] (Jack Farenbaugh & Son v. Belmont Construction, Inc. (1987) 194 Cal.App.3d 1023, 1031.)" (Roitz v. Coldwell Banker Residential Brokerage Co. (1998) 62 Cal.App.4th 716, 724, italics added.)
In this case, Del Rays bias claim is based upon two concerns. First, the arbitrator is alleged to have prejudged the case, prior to hearing Del Rays presentation of its case-in-chief, based on two different statements he made. According to Del Ray, the first comment came approximately one and one-half days into what would ultimately be an eight-day hearing. The arbitrator complimented Del Rays counsel, telling him he was doing a "heroic" job. According to Del Ray, that comment suggested the arbitrator had already decided Del Rays case was a lost cause, prior to even hearing the evidence it intended to present in its own case-in-chief. And the second comment came a day or so later, when the arbitrator commented during the hearing that he believed "he already knew what the case was about better than any of the attorneys or parties involved in it." Again, Del Ray contends that such a comment suggests the arbitrator had prejudged the merits of the dispute without even waiting to hear its side.
In our view, Del Ray is reading a lot into two innocuous comments. A compliment paid by the arbitrator to Del Rays counsel in the course of the arbitration suggests merely that the arbitrator was impressed with counsels effort at that point, and implies no judgment, one way or the other, about the merits of the case. Heroic efforts are as likely of success as of failure. And a comment from the arbitrator that he knows what the case is about suggests only that he wanted the parties to keep in mind that he had already handled prehearing matters, and reviewed their briefs and documentary evidence prior to the commencement of the hearing, and it was thus not necessary for them to frame the issues for him. It does not suggest he had already reached a decision on those issues — much less that he favored one sides position over the other.
For example Greenbrooks 20-page arbitration brief, filed prior to the hearing, was accompanied by an additional 40 pages of documentary evidence.
To be clear: the arbitrator did not say "counsel, despite your heroic efforts, your client is going to lose this case in a big way." And he did not say, "I am already more familiar with this case than you will ever be, and no amount of evidence is going to change my views." Those are simply Del Rays assertions of what he actually meant.
But it is impossible for us to assess whether the arbitrators seemingly innocuous comments were just that — or instead might have conveyed some other, more sinister message — because Del Ray has not provided us any information about the context in which they were allegedly made. Del Ray does tell us the location of the "heroic" comment, which was in the mens room, during a break in the hearing; but that conveys no information about what had transpired in the hearing just prior to that break. Perhaps Del Rays counsel had actually made some spectacular point, or cleverly deflected some piece of evidence, which just happened to be in the arbitrators mind when they encountered each other a few minutes later. That context would certainly support the inference that the arbitrator, in that moment, was sincerely impressed by counsels effort — and nothing more. Likewise, if the "I know more about the issues than any of you do" comment had come just after one of the counsel or parties had attempted to mischaracterize the oppositions claims, it would support the inference that the arbitrator was merely trying to discourage such tactics — and nothing more. In the absence of any evidence of such context, which might have easily demonstrated the propriety of the arbitrators remarks, an inference of bias would be rank speculation.
Del Rays second basis for asserting bias is its contention the arbitrator "made Del Ray jump through the hoops of filing a formal motion to amend its counter-claim," while not requiring that Greenbrook "file any motion or take any action whatsoever to [add its claim for punitive damages]." We do not see the two situations as comparable, since Del Rays amendment was an attempt to expand the scope of the case by adding distinct claims relating to the parties dealings in connection with different properties, while Greenbrook was merely arguing for an additional measure of damages for the alleged wrongful conduct already at issue in the arbitration. Given the greater complexity and uncertainty of Del Rays requested amendment claim, the arbitrators decision to treat it more formally than Greenbrooks request for punitive damages was not at all unreasonable.
Moreover, the record demonstrates that the arbitrator actually allowed both parties to increase their claims (and to pay additional filing fees therefore) at the conclusion of the hearing, and expressly notified the parties that either of them could file an "answering statement" to any claims they viewed as having been "changed" in the course of the hearing or by virtue of the opposing parties briefing. Such conduct does not suggest that the arbitrator was playing favorites.
And finally, we consider Del Rays assertion the award must be vacated because its rights "were substantially prejudiced . . . by the refusal of the arbitrator[] to hear evidence material to the controversy . . . ." (Code Civ. Proc., § 1286.2, subd. (a)(5).) In making such a claim, it is Del Rays burden to demonstrate not only that the arbitrator refused to hear the evidence, but that the omission of that evidence was prejudicial to it.
In Hall v. Superior Court (1993) 18 Cal.App.4th 427, the court described the procedure to be followed in assessing such a claim. In Hall, a defendant in the arbitration was found to have liability based upon the partnership relation between him and his codefendant. He argued the award should be vacated because the arbitrator had refused to hear evidence demonstrating that his relationship with the codefendant was not regarded as a partnership in the real estate industry.
The court rejected the argument, concluding the courts exclusion of the evidence had not been prejudicial to him. As the court explained, because "[d]ecisions about materiality cannot be made without familiarity with the issues and evidence in the arbitration," and any requirement that the courts "routinely review the arbitrators decision on materiality before reaching the question of substantial prejudice" would result in "lengthy and costly judicial second-guessing of the arbitrator" (id. at p. 438), the proper approach is to assess the likelihood of prejudice first: "To find substantial prejudice the court must accept, for purposes of analysis, the arbitrators legal theory and conclude that the arbitrator might well have made a different award had the evidence been allowed." (Id. at p. 439.)
In Hall, the arbitrators "legal theory" was that the incidents of partnership are defined by law, and thus evidence relating to defendants subjective understanding of whether his relationship with a codefendant amounted to a "partnership" as understood in the real estate business, was irrelevant to its determination. Consequently, the arbitrators exclusion of that evidence did not prejudice the result of the arbitration.
Here, the arbitrators decision to exclude Del Rays evidence was likewise based upon its determination that the proffered evidence was irrelevant. Specifically, the arbitrator concluded that the only claims in issue were those related to either the two joint venture properties which were governed by the MOU, or the third property which had been included in Del Rays amended claim. Evidence pertaining solely to alleged wrongs unrelated to those properties was deemed irrelevant, and thus inadmissible. The arbitrator did conclude, however, that Del Ray would be allowed to introduce evidence relating to other properties if that evidence reflected "costs which were allegedly charged to or allegedly diverted from/to the [joint venture]."
In this regard, the arbitrators order actually seems to allow Del Ray to do the very thing it complains was denied to it: i.e., to demonstrate that Greenbrook had "burden[ed] the joint ventures assets to enhance the value of [other] properties."
In this context, then, the arbitrators relevant "legal theory" was that the only issues to be decided in the arbitration were those involving the joint venture created by the MOU, or the specific properties identified in the parties claims. Assertions of independent wrongful conduct unrelated to either the joint venture or the specified properties were not at issue. And when we accept, for purposes of a Hall analysis, that theory, we must then conclude the exclusion of the evidence which was unrelated to those issues did not prejudice the outcome of the arbitration. Absent prejudice from the arbitrators exclusion of Del Rays proffered evidence, that exclusion does not qualify as a basis for vacating the award.
The judgment confirming the arbitration award and order amending the judgment to add Eugene Levert and Richere Levert as alter egos of Del Ray are affirmed. Greenbrook is to recover its costs on appeal.
WE CONCUR:
OLEARY, J.
IKOLA, J.