Opinion
B290873 B291497
05-18-2020
HERBALCURE CORPORATION et al., Plaintiffs and Respondents, v. JASON A. DETAMORE et al., Defendants and Appellants. JASON A. DETAMORE et al., Plaintiffs and Appellants, v. SURESH C. JAIN et al., Defendants and Respondents.
Fisher & Wolfe, David R. Fisher, and Daniel S. Jonathan for Defendants and Appellants Advanced Pain Solutions, Inc., Jason A. Detamore, and Lisa M. Detamore. Grodsky & Olecki, Allen B. Grodsky and Courtney Puristsky for Plaintiffs and Respondents Herbalcure Corporation and Peter J. Tejera.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. Nos. SS026213) (Los Angeles County Super. Ct. No. BC622437) APPEAL from judgments of the Superior Court of Los Angeles County. Gerald Rosenberg, Judge. Affirmed. Fisher & Wolfe, David R. Fisher, and Daniel S. Jonathan for Defendants and Appellants Advanced Pain Solutions, Inc., Jason A. Detamore, and Lisa M. Detamore. Grodsky & Olecki, Allen B. Grodsky and Courtney Puristsky for Plaintiffs and Respondents Herbalcure Corporation and Peter J. Tejera.
____________________
Jason and Lisa Detamore, who own Advanced Pain Solutions, Inc. (APS), fraudulently induced Herbalcure Corporation (Herbalcure) and its owner, Peter Tejera, to enter into a joint venture agreement. After the fraud was revealed and the relationship soured, Herbalcure, APS, and their respective owners submitted numerous claims to binding arbitration. The arbitrator concluded there was never a valid joint venture agreement and ordered the parties revert to the same position in which they found themselves prior to the start of their business relationship. The trial court granted Herbalcure and Tejera's motions to confirm the award. On appeal, the Detarmores and APS contend the arbitrator exceeded his powers by deciding issues not submitted to arbitration and outside the scope of the parties' arbitration agreement. We disagree and affirm.
FACTUAL AND PROCEDURAL BACKGROUND
In 2007, Tejera formed Herbalcure, which distributed cannabis to clients based on a consulting model. Soon after, the City of Los Angeles issued the Medical Marijuana Interim Control Ordinance (ICO), which placed a temporary moratorium on the opening of new cannabis dispensaries. Because Herbalcure was formed before the ICO, it was considered to have "pre-ICO status" and was therefore allowed to continue doing business.
In 2009, the Detamores formed APS, which operated a retail cannabis dispensary called Grace. APS operated Grace out of a building leased by the Detamores.
In 2013, Los Angeles voters approved Proposition D (Prop D), which further regulated cannabis businesses. To comply with Prop D, Herbalcure was required to move locations and transition from a consulting model to a retail model. APS's location and retail model complied with Prop D, but it could continue operating only if it partnered with a company with pre-ICO status.
Given their complementary needs, Herbalcure and APS discussed forming a joint venture. APS was interested in Herbalcure's pre-ICO status, and Herbalcure was interested in APS's lease and retail store. During these discussions, the Detamores represented to Tejera that their lease was good through May 2019, and they provided him a copy of the lease as proof. The Detamores knew, however, their lease actually expired in May 2014 and the document given to Tejera had been forged.
In July 2013, the parties entered into a Joint Venture Operating Agreement (JVA), under which they would evenly share ownership and profits of a joint project, which they called Grace by Herbalcure. Herbalcure agreed to "provide the joint venture with the license to legally dispense, cultivate and sell medical marijuana" in Los Angeles. APS, in turn, agreed to manage the day-to-day operations of Grace by Herbalcure.
The joint venture turned out to be problematic for everyone involved. In early 2014, Jason Detamore casually told Tejera the lease had been forged to get him to sign on with APS. Tejera later accused the Detamores of double accounting, inflating the costs of goods, and skimming profits. The Detamores accused Tejera of attempting to take over their family business.
Despite their acrimonious relationship, the parties still needed one another in order to comply with Prop D, so they tried to preserve the joint venture through additional agreements. In January 2014, Herbalcure and APS signed an amendment to the JVA that put Herbalcure and Tejera in charge of operating Grace by Herbalcure. The parties subsequently participated in an informal mediation, which resulted in several additional agreements regarding the operations of Grace by Herbalcure. The parties' relationship nevertheless continued to deteriorate.
In August 2016, Grace by Herbalcure was raided by the police. Tejera shut down the retail store and informed the Detamores reopening it could expose everyone to civil and criminal liability. Tejera also told the Detamores that APS could not operate using Herbalcure's pre-ICO status.
The Detamores ignored Tejera's warnings and continued operating the retail store until they were evicted by their landlord. They then moved locations and continued operating under Herbalcure's pre-ICO status, claiming they were free to do so until the joint venture was dissolved.
Herbalcure's Demand for Arbitration
Herbalcure filed with JAMS a demand for arbitration to resolve its disputes with APS. Herbalcure's statement of claim primarily concerned allegations that the Detamores induced it to enter into the JVA by knowingly making false representations regarding their lease. Herbalcure asserted causes of action for fraud, dissolution of joint venture, accounting, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, and conversion. It sought in relief, among other things, dissolution of the joint venture, compensatory damages in excess of $1 million, and "such other and further relief as the Arbitrator may deem just and proper."
APS refused to arbitrate, and Herbalcure filed in Santa Monica Superior Court a petition to compel arbitration. The petition was premised on an arbitration clause in the JVA providing "[a]ny controversies of [sic] disputes arising out of or relating to the Agreement shall be resolved by binding arbitration in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association." The trial court granted the petition.
The Detamores' Complaint
Shortly after Herbalcure filed its demand for arbitration, the Detamores filed a complaint in Los Angeles Superior Court against Herbalcure and Tejera. The trial court granted Herbalcure and Tejera's motion to compel arbitration of the claims.
The complaint is not in the appellate record, so we do not know what claims the Detamores asserted.
APS and the Detamores subsequently filed their own statement of claim with JAMS. They asserted sixteen causes of action against Herbalcure and Tejera, including a request for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing. The claims were premised on the JVA as well as the parties' various agreements subsequent to the JVA.
In their request for declaratory relief, APS and the Detamores alleged there was a controversy "regarding whether the subject contracts and agreements are binding and enforceable, which [APS and the Detamores] contend they are, and [Herbalcure and Tejera] contend are not." They specifically requested a "judicial determination of the respective parties' rights and duties" under the contracts. APS and the Detamores further alleged Herbalcure and Tejera breached several of the parties' "binding written contracts" as well as the covenant of good faith and fair dealing implied in the parties' "written and oral contracts."
The Arbitration
The arbitrator held a three-day evidentiary hearing to consider all the claims between the parties. In his 15-page award, the arbitrator explained the parties' main concern was whether Herbalcure's pre-ICO status was an asset of their joint venture, which raised the fundamental question of whether the parties had a valid joint venture agreement. The arbitrator concluded they did not.
First, the arbitrator found the JVA was not valid or enforceable given it was the "result of the fraudulent scheme engaged in by [APS and the Detamores] to doctor the Lease and induce Herbalcure and Tejera to enter into a business relationship with them." He then considered whether the parties' actions subsequent to the JVA evidenced an intention to form a joint venture. The arbitrator focused on four written agreements between the parties, including an amendment to the JVA, as well as text messages purporting to reflect additional oral agreements. He found these agreements were simply an effort to address the fact that the lease had been doctored, and there was no "simple way to determine the terms of any agreement that might apply to the relationship between the parties because the terms were consistently changing."
The arbitrator also briefly discussed the parties' general working relationship, noting they seemed to be trying to "salvage their own businesses, rather than operating a joint venture to do business together and achieve a common goal. . . . [T]hey were, in a way, just stuck with each other following the passage of and uncertainties associated with Prop D's requirements."
Based on these findings, the arbitrator ordered the parties "revert back to the same position in which they found themselves prior to the initiation of their business relationship, as if there had never been a joint venture. Herbalcure will retain its pre-ICO status free and clear of any claims from APS and/or the Detamores. The Detamores will operate their marijuana store without a pre-ICO license."
Herbalcure and Tejera subsequently moved to have the arbitration award confirmed in both the Los Angeles and Santa Monica Superior Court cases. APS and the Detamores opposed the motions and moved to vacate the award. Their sole argument was that the arbitrator divested himself of jurisdiction by finding invalid the JVA, which contained the arbitration agreement. The trial court rejected the argument, confirmed the award, and entered judgment on the arbitration award in both cases.
APS and the Detamores (together, Appellants) timely appealed the judgments in both cases, which we consolidated at the parties' request.
DISCUSSION
Appellants contend the arbitrator exceeded his powers by deciding issues not submitted to arbitration and beyond the scope of the arbitration agreement. We disagree.
Appellants have abandoned their sole argument raised below, which was the arbitrator divested himself of jurisdiction when he declared the JVA void. This alone is reason to affirm the judgments. We review the trial court's decision, not the arbitrator's award. By abandoning the sole issue raised in the trial court, Appellants implicitly concede the court ruled correctly. More importantly, they forfeited their arguments on appeal by failing to raise them in the trial court. (Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909, 920, fn. 3; Delaney v. Dahl (2002) 99 Cal.App.4th 647, 660.) For whatever reason, Herbalcure and Tejera do not raise this as an issue, so we will exercise our discretion to consider the merits of Appellants' arguments.
I. Relevant Law
In general, judicial review of an arbitration award is extremely limited. As the California Supreme Court explained in Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, "an arbitrator's decision is not generally reviewable for errors of fact or law, whether or not such error appears on the face of the award and causes substantial injustice to the parties." (Id. at p. 6.)
A court may, however, vacate an arbitration award when the "arbitrator[] exceeded [his] powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted." (Code Civ. Proc., § 1286.2, subd. (a)(4).) An arbitrator exceeds his powers when he acts in a manner not authorized by contract or by law, including by deciding an issue that was not submitted to arbitration or falls outside the scope of the parties' arbitration agreement. (Jordan v. California Department of Motor Vehicles (2002) 100 Cal.App.4th 431, 443; Pacific Crown Distributors v. Brotherhood of Teamsters (1986) 183 Cal.App.3d 1138, 1143.) Courts, however, "should generally defer to an arbitrator's finding that determination of a particular question is within the scope of his or her contractual authority." (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 372.)
"In determining whether an arbitrator exceeded his powers, we review the trial court's decision de novo, but we must give substantial deference to the arbitrator's own assessment of his contractual authority." (Jordan v. California Department of Motor Vehicles, supra, 100 Cal.App.4th at pp. 443-444.)
II. The Arbitrator Did Not Exceed His Powers In Declaring the JVA Void
Appellants contend the arbitrator exceeded his powers by determining the JVA was not a valid contract. According to Appellants, none of the parties submitted that issue to the arbitrator. Instead, they claim, the parties agreed the JVA was effective and the purpose of arbitration was simply to determine how the assets of the joint venture should be distributed after its dissolution.
Appellants' arguments are directly refuted by their own statement of claim, in which they asserted there was a controversy between the parties regarding whether their contracts, including the JVA, "are binding and enforceable, which [APS and the Detamores] contend they are, and [Herbalcure and Tejera] contend are not." Appellants also specifically requested a "judicial determination of the respective parties' rights and duties" under those contracts. The arbitrator did precisely what Appellants requested of him.
Herbalcure also put the issue of the validity of the JVA before the arbitrator. The basis of its fraud claim was an allegation that the Detamores knowingly made false representations to induce it to enter into the JVA. When consent to a contract is induced by fraud, as Herbalcure alleged here, the contract is voidable. (Duffens v. Valenti (2008) 161 Cal.App.4th 434, 450.) Although Hebalcure did not explicitly request such a finding, it did ask for "such other and further relief as the Arbitrator may deem just and proper." Clearly, the arbitrator thought it just and proper to declare the JVA void.
Appellants make much of the fact that the arbitrator did not rescind the JVA, but instead found it was "not a valid and enforceable contract between the parties." It is not self-evident, and Appellants do not explain, why this distinction is meaningful to the issues before us.
Appellants' reliance on Delta Lines, Inc. v. International Brotherhood of Teamsters (1977) 66 Cal.App.3d 960 (Delta Lines), is misplaced. In that case, a trucking company and one of its drivers stipulated that an arbitrator would decide a single question: whether the trucking company had just cause for discharging the driver. (Id. at p. 964.) The arbitrator, however, declined to decide that issue after finding the trucking company had violated the driver's privacy. (Id. at p. 965.) The court vacated the award, explaining the arbitrator exceeded his powers by issuing an award "completely beyond the confines of the sole issue submitted for arbitration." (Id. at p. 968.)
Here, in contrast, the parties did not stipulate to the precise issues the arbitrator could decide. Instead, their only agreement regarding the scope of arbitration is found in the JVA, which broadly provides the arbitrator may resolve "[a]ny controversies of [sic] disputes arising out of or relating to the Agreement." As Appellants seem to acknowledge, the validity of the JVA certainly falls within that provision. Moreover, as discussed above, the parties submitted claims to the arbitrator that raised, directly or indirectly, the issue of the validity of the JVA. As a result, unlike in Delta Lines, the arbitrator's award did not go beyond the confines of the issues submitted for arbitration.
Appellants' reliance on Totem Marine Tug & Barge, Inc. v. North American Towing, Inc. (5th Cir. 1979) 607 F.2d 649, is similarly misplaced. In that case, the court overturned an arbitration award where the claimant sought only "return expenses" and conceded "charter hire" was not at issue, but the arbitrator nonetheless awarded charter hire as damages. (Id. at pp. 651-652.) Here, in contrast, Herbalcure never conceded the issue of the validity of the JVA; nor did it seek specific remedies to the exclusion of others.
III. The Arbitrator Did Not Exceed His Powers By Considering Whether the Parties Formed a Joint Venture Apart from the JVA
Appellants next argue the arbitrator exceeded his powers by considering whether the parties' agreements and working relationship subsequent to the JVA formed a joint venture. They contend the issue was not before the arbitrator and did not fall within the scope of the parties' arbitration agreement.
Once again, Appellants' own statement of claim refutes their argument that the issue was not before the arbitrator. Appellants detailed in their statement of claim numerous written and oral agreements made subsequent to the JVA, and they specifically sought declarations regarding their duties and obligations under those agreements. The arbitrator did precisely what they requested: he examined the various written and oral agreements and determined their legal significance as they pertained to the disputes before him.
Even if Appellants had not raised the issue in their statement of claim, the arbitrator had the power to consider it. " 'Under the rule of broad construction an arbitrator is authorized to determine all questions which he needs to determine in order to resolve the controversy submitted to him, and the arbitrator himself decides which questions need to be determined.' [Citations.]" (Van Tassel v. Superior Court of Fresno County (1974) 12 Cal.3d 624, 627, overruled on other grounds by Bouton v. USAA Casualty Ins. Co. (2008) 43 Cal.4th 1190.) "Although the parties, by agreement, can certainly exclude specific questions from arbitration, in the absence of such restriction an arbitrator has the power to decide the submitted matter on any legal or factual basis, whether or not any party has relied upon that particular basis." (Moshonov v. Walsh (2000) 22 Cal.4th 771, 777.)
Here, the arbitrator considered the nature of the parties' relationship subsequent to the JVA in the context of deciding their respective interests in Herbalcure's pre-ICO status, which Appellants seem to concede was an issue properly before the arbitrator. Because Appellants claimed the pre-ICO status was an asset of a joint venture, the arbitrator reasonably concluded it was necessary to decide whether a joint venture existed. That determination, in turn, required a broad examination of the JVA as well as the parties' subsequent agreements. (See Ramirez v. Long Beach Unified School Dist. (2002) 105 Cal.App.4th 182, 193 [a joint venture requires an agreement between the parties].) Moreover, because a joint venture can be inferred from the parties' acts, the arbitrator also had to examine their general working relationship. (See Pellegrini v. Weiss (2008) 165 Cal.App.4th 515, 525 ["A joint venture agreement may be informal or oral."]; Rickless v. Temple (1970) 4 Cal.App.3d 869, 893 ["a joint venture may be assumed as a reasonable deduction from the acts and declarations of the parties"].) The arbitrator did not exceed his powers in doing so.
There is also no merit to Appellants' claim that issues related to the parties' post-JVA agreements and general working relationship were beyond the scope of the arbitration agreement. The parties agreed to follow the Commercial Arbitration Rules of the American Arbitration Association (AAA), which authorized the arbitrator to "rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." (AAA Commercial Arbitration Rules, rule R-7; see Dream Theater, Inc. v. Dream Theater (2004) 124 Cal.App.4th 547, 557 [parties' agreement to follow AAA Commercial Arbitration Rules provided "clear and unmistakable evidence of the intent that the arbitrator will decide whether a Contested Claim is arbitrable"]; see also Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233, 243 [who decides arbitrability "is a matter of party agreement"].) Because the parties allowed the arbitrator to determine his own jurisdiction, we may overturn his decision on the issue only if "wholly groundless." (Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413, 1442-1443; see McCarroll v. Los Angeles County Dist. Council of Carpenters (1957) 49 Cal.2d 45, 65 [where the parties agree the arbitrator shall determine arbitrability, the court must allow him to do so unless the claim of arbitrability is wholly groundless].)
On our own motion, we take judicial notice of the version of the AAA Commercial Arbitration Rules in effect during the parties' arbitration. (Evid. Code, § 452, subd. (h); Emerald Aero, LLC v. Kaplan (2017) 9 Cal.App.5th 1125, 1132, fn. 5.)
" '[T]he decision as to whether a contractual arbitration clause covers a particular dispute rests substantially on whether the clause in question is "broad" or "narrow." ' " (Rice v. Downs (2016) 248 Cal.App.4th 175, 186.) The JVA's arbitration clause is broad, covering "[a]ny controversies of [sic] disputes arising out of or relating to the Agreement." (See id. at p. 186 [a broad clause includes language such as " ' "any claim arising from or related to this agreement" ' "].) Such broad language encompasses extracontractual disputes between the parties so long as they have their roots in the relationship that was created by the contract. (Howard v. Goldbloom (2018) 30 Cal.App.5th 659, 664.)
Here, any dispute over whether the parties' post-JVA agreements and working relationship created a joint venture clearly had its roots in the relationship created by the JVA. The parties' entire working relationship during the relevant period was inextricably intertwined with and shaped by the JVA. Indeed, but for the JVA, the parties would have had no working relationship at all. As the arbitrator observed, moreover, the parties' various post-JVA agreements arose out of the JVA in that they were efforts to address the fact that it was procured through fraud. The parties even explicitly referred to one of those agreements as an amendment to the JVA. Under these circumstances, the arbitrator's implicit decision that he had jurisdiction over issues related to the parties' post-JVA agreements and working relationship was not wholly groundless.
For the first time in their reply brief, Appellants claim the Detamores were not subject to arbitration because they were not parties to the JVA. The argument is untimely, and we decline to consider it. (See Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764.) --------
DISPOSITION
The judgments are affirmed. Respondents are awarded costs on appeal.
BIGELOW, P. J. WE CONCUR:
GRIMES, J.
WILEY, J.