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Jay Bharat Developers, Inc. v. Jim Minidis

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION TWO
Sep 7, 2011
B219498 (Cal. Ct. App. Sep. 7, 2011)

Opinion

B219498

09-07-2011

JAY BHARAT DEVELOPERS, INC., et al., Plaintiffs and Appellants, v. JIM MINIDIS et al., Defendants and Respondents.

Cummins & White and James W. Denison for Plaintiffs and Appellants. Lewis Brisbois Bisgaard & Smith and Leo A. Bautista for Defendants and Respondents.


NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. No. BC336287)

APPEAL from a judgment of the Superior Court of Los Angeles County. Michael C. Solner, Judge. Affirmed.

Cummins & White and James W. Denison for Plaintiffs and Appellants.

Lewis Brisbois Bisgaard & Smith and Leo A. Bautista for Defendants and Respondents.

This is the second appeal involving these parties. This time, appellants Jay Bharat Developers, Inc. (Jay Bharat), Jay Bharat Resorts, Inc., Bipin Morari (Morari), and Chandrakant Patel (Patel) challenge a trial court order confirming an arbitration award entered against them and in favor of respondents Jim Minidis, Lynn Minidis, RedBrick Pizza Worldwide, Inc. (RedBrick Pizza), and RedBrick Pizza, Inc. They assign several errors to the trial court's order. First, appellants contend that the arbitrator exceeded his authority by deciding trademark issues that were expressly excluded by the parties' arbitration agreement. Second, they argue that respondents were judicially stopped from arbitrating the trademark issues. Third, they claim that the arbitrator was not authorized to grant respondents an award of attorney fees on their trademark claims. Finally, appellants assert that the trial court judgment is erroneous because it is silent as to Patel.

We are not convinced by appellants' arguments. Accordingly, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

The Parties' Arbitration Agreement

As set forth in our prior opinion, Jay Bharat Developers, Inc. v. Minidis (2008) 167 Cal.App.4th 437 (Jay Bharat), appellants and respondents were parties to a franchise agreement. (Id. at p. 440.) The franchise agreement contains an arbitration clause requiring arbitration of all claims "arising out of or relating to [the franchise agreement] or its breach, including without limitation, any claim that [the franchise agreement] is invalid, illegal or otherwise voidable or void," except for those claims (discussed below) specifically excluded. According to the franchise agreement, arbitration shall take place "before an arbitrator referred by [Franchise Arbitration and Mediation Services [(FAM)] and selected by the parties in accordance with FAM's referral procedures and Arbitrator Referral Guidelines. If FAM is unable to refer suitable arbitrators to arbitrate the dispute, then the dispute will be arbitrated under the rules of the American Arbitration Association (AAA) in accordance with its Commercial Arbitration Rules."

Pursuant to paragraph 12.02, the following disputes are not subject to arbitration: "(a) Any dispute relating to (i) Master Franchisee's use of the Brand, or any other mark in which Franchisor or any of its affiliates has an interest; (ii) acts which otherwise violate Master Franchisee's obligations under Article III of this agreement; or (iii) conduct which is alleged to otherwise infringe the intellectual property rights of either party or any of their affiliates. [¶] . . . [¶] (d) Any dispute by either party, other than those enumerated above, in which temporary or preliminary injunctive relief is reasonably available and sought, but only to the extent of proceedings for such relief."

The Complaint

On July 8, 2005, appellants initiated a lawsuit against respondents, alleging 11 causes of action. (Jay Bharat, supra, 167 Cal.App.4th at p. 441.) In particular, appellants averred that respondents fraudulently induced them to enter into the franchise agreement by failing to disclose pending litigation in the franchise offering circular and by misrepresenting that they could adequately train and support franchisees, had sufficient vendor contacts, and ownership of the trademark rights pertaining to the RedBrick Pizza brand. (Ibid.) Appellants later filed a first amended complaint, with largely similar allegations and claims. (Ibid.)

The Parties are Ordered to Arbitration

Respondents moved to compel arbitration pursuant to the franchise agreement. (Jay Bharat, supra, 167 Cal.App.4th at p. 441.) Over appellants' opposition, on November 21, 2005, the trial court granted the motion and ordered the case to arbitration. (Ibid.)

Arbitration Proceedings Commence

Consistent with the trial court's order, Jay Bharat, Jay Bharat Resorts, Inc., and Morari filed a demand for arbitration with FAM against respondents. RedBrick Pizza filed a counter-demand for arbitration with FAM against appellants.

The parties proceeded to select an arbitrator through FAM and to schedule arbitration. However, on September 28, 2006, the trial court disqualified the arbitrator due to an appearance of potential conflicts of interest involving a disclosed witness.

RedBrick Pizza Terminates the Franchise Agreement; Cross-Complaint; Preliminary Injunction

On August 25, 2006, RedBrick Pizza terminated Jay Bharat's franchise agreement. (Jay Bharat, supra, 167 Cal.App.4th at p. 441.) Because it believed that Jay Bharat was refusing to honor the termination, RedBrick Pizza filed a cross-complaint against Jay Bharat, Morari, and Patel, asserting claims for trademark infringement, unfair competition, false designation of origin under the Lanham Act, false advertising and unfair competition under Business and Professions Code section 17200, and intentional and negligent interference with economic relations. (Jay Bharat, supra, 167 Cal.App.4th at p. 441.) RedBrick Pizza alleged, inter alia, that Jay Bharat refused to honor the termination of the franchise agreement and continued to receive royalties from its former franchisees and withhold them from RedBrick Pizza. (Ibid.)

The cross-complaint was accompanied by a motion for a preliminary injunction, which the trial court granted on March 21, 2007. (Jay Bharat, supra, 167 Cal.App.4th at p. 442.) On September 11, 2008, we affirmed the trial court's order. (Id. at pp. 440, 447.)

Arbitration Proceedings Anew; JAMS Rules Apply

Meanwhile, on April 24, 2007, the trial court appointed the Honorable Richard C. Neal (Ret.) as arbitrator.

On June 15, 2007, the parties participated in a telephone conference with Justice Neal in which they discussed scheduling and procedural issues for the arbitration. Following the telephone conference, Justice Neal issued a scheduling order, confirming that the arbitration was scheduled for March 31, 2008, through April 11, 2008. The scheduling order also provided that the JAMS Comprehensive Arbitration Rules would apply unless counsel mutually agreed to other rules.

Thereafter, on July 6, 2007, the parties executed a stipulation, agreeing that the parties could file amended demands for arbitration, or amended counter-demands, by June 20, 2007, and that any responses were due by August 10, 2007.

Amended Demands for Arbitration; Parties' Responses to the Amended Demands

Pursuant to the parties' stipulation, on July 20, 2007, plaintiffs filed an amended demand for arbitration. Also on July 20, 2007, RedBrick Pizza filed its amended counter-demand for arbitration, which, among other things, added claims for "Infringement of Registered Trademark" and "Unfair Competition and False Designation of Origin." These causes of action were identified on the cover page of the amended counter-demand and were pled in extensive detail in the document.

On August 10, 2007, appellants responded to RedBrick Pizza's amended counter-demand. In their response, appellants did not object to the inclusion of the trademark claims. Instead, they responded to the claims with affirmative allegations contesting the substance of those claims. The response further pleaded nine affirmative defenses to the trademark claims.

RedBrick Pizza's Motion for Summary Adjudication of Its Trademark Claims in Arbitration

On December 3, 2007, RedBrick Pizza filed a motion for summary adjudication of the issue of whether Jay Bharat infringed RedBrick Pizza's trademark rights. Although appellants opposed the motion, they neither objected to the arbitrability of the trademark claims nor to the arbitrator's authority to decide the issue.

This motion was later withdrawn.

Continuances of the Arbitration

On July 30, 2008, the parties attended another case management telephone conference with Justice Neal to discuss the hearing date. The following day, Justice Neal issued a case management order, noting that the case had "been set twice previously for hearing, first in April 2008, then in September." The order confirmed that the new hearing dates were for October 28, 2008, through October 31, 2008, and November 10, 2008, and further provided that "[n]o further continuances [would] be granted."

On September 5, 2008, over a year after the trademark claims were submitted to arbitration, appellants' counsel submitted a letter to Justice Neal, asserting for the first time that "certain of the claims that [RedBrick Pizza] added by way of its counterclaim [were] specifically excluded from arbitration under the [franchise agreement's] arbitration clause." In their letter, appellants sought to "make clear that they [were] not waiving any arguments regarding [paragraph 12.02 of the franchise agreement], and that they [did] not agree to an adjudication of [RedBrick Pizza's] trademark and other intellectual property claims." Appellants requested that the arbitrator set a briefing schedule so that the arbitrator could "rule on this important issue now." A briefing schedule was set.

Arbitrator Hears Appellants' Motion on the Jurisdictional Issue

Pursuant to the briefing schedule, on September 18, 2008, appellants submitted their motion to the arbitrator to exclude the trademark claims from the arbitration and to continue the arbitration. Appellants argued that the trademark claims were not subject to arbitration under the franchise agreement. They also asserted that RedBrick Pizza should be precluded from pursuing the claim in arbitration because it previously argued to the trial court that the claims were not subject to the arbitration agreement under the franchise agreement.

RedBrick Pizza opposed appellants' motion, arguing that the parties could submit issues to the arbitration that they were not contractually compelled to submit and that the record of the arbitration reflected that the parties had long ago jointly submitted the trademark claims. Alternatively, RedBrick Pizza argued that appellants had waived any objection of the issues and could not now unilaterally withdraw the issue. Finally, RedBrick Pizza contended that there was no basis to invoke the doctrine of judicial estoppel because it had not taken inconsistent positions.

On September 30, 2008, Justice Neal denied appellants' motion, reasoning that the trademark claims had been part of the arbitration since July 2007 and that appellants had participated in numerous motions and conferences and had failed to object, even when submitting an opposition to RedBrick Pizza's motion for summary adjudication of the claims. He found: "Here, [appellants] failed to promptly object, and instead proceeded as though the trademark claims were embraced in the arbitration, first in their pleadings, then in responding to the summary disposition motions. [Appellants] didn't raise any objection before this tribunal until about two weeks ago, with the third trial date set for the arbitration less than five weeks away." The arbitrator thus concluded that appellants "[had] waived [their] objection to arbitration of the trademark claims, and that those claims [were] properly before the tribunal for decision."

Arbitration Hearing

Following the arbitration hearing, the arbitrator issued a 15-page interim award in favor of RedBrick Pizza on all of appellants' claims. Addressing RedBrick Pizza's counterclaims, including the trademark claims, the arbitrator found: "[RedBrick Pizza's] counterclaims for . . . royalties and trademark infringement damages are dependent on the premise that [RedBrick Pizza] properly terminated the [franchise agreement]. [¶] On balance, the arbitrator concludes the answer is 'yes.' The accumulation of defaults, coupled with Morari's disruptive behavior, supported the termination."

Despite these findings, the arbitrator determined that he should invoke his wide power to fashion an equitable remedy under Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 10-11 and awarded no monetary damages to RedBrick Pizza. The arbitrator did conclude, however, that RedBrick Pizza was the prevailing party and "entitled to apply for an award of its attorneys' fees and costs.

Ultimately, the arbitrator awarded RedBrick Pizza $200,000 in attorney fees and costs.

RedBrick Pizza's Petition to Confirm Arbitration Award; Appellants' Petition to Vacate the Award; Judgment

On June 12, 2009, RedBrick Pizza filed a petition to confirm the arbitration award. Appellants opposed the petition and asked that the award be vacated on the grounds that the arbitrator exceeded his powers. Specifically, appellants argued that the arbitrator exceeded his authority by ruling on the trademark claims and/or by finding that RedBrick Pizza was entitled to an award of attorney fees as the prevailing party on its trademark claims. Furthermore, appellants asserted that the arbitrator exceeded his powers by not awarding attorney fees to Patel, who, according to appellants, should have been considered a prevailing party.

RedBrick Pizza responded to appellants' petition to vacate the award, arguing that the parties had submitted the trademark issue to arbitration in their pleadings and that the arbitrator had properly ruled that any objections to arbitrability had long been waived. RedBrick Pizza further contended that the petition to vacate the award was moot because no damages were awarded on the trademark claim and there were no specific attorney fees awarded on the trademark claims. Finally, regarding Patel, RedBrick Pizza pointed out that while the arbitration agreement permitted an award of attorney fees, it did not require such an award.

After entertaining oral argument, the trial court confirmed the arbitration award. Judgment was entered, and this timely appeal ensued.

DISCUSSION

I. Standard of review

The scope of judicial review of arbitration awards is very narrow, "generally limited to the statutory grounds for vacating ([Code Civ. Proc.,] § 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.)

All further statutory references are to the Code of Civil Procedure unless otherwise indicated.

II. The trial court properly confirmed the arbitration award and entered judgment in favor of respondents

The first issue we consider is whether the arbitrator exceeded his authority by deciding the trademark issues, which were excluded from arbitration by the parties' franchise agreement.

As appellants correctly point out, a basic tenet of arbitration law is the principle that arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed to submit. (See Gueyffier v. Ann Summers, Ltd. (2008) 43 Cal.4th 1179, 1185.) That said, "[t]he arbitrator's powers may be expanded or restricted by the scope of the issues submitted to arbitration. (Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413, 1437-1438 (Greenspan).)'"The parties may submit for decision issues they were not contractually compelled to submit to arbitration. In such event, courts look both to the contract and to the scope of the submissions to determine the arbitrator's authority."' [Citations.]" (Kelly Sutherlin McLeod Architecture, Inc. v. Schneickert (2011) 194 Cal.App.4th 519, 529.) The reason for this principle is clear: "'"'". . . Arbitration submissions are usually construed as broadly as possible in order that differences between the parties may be resolved quickly and economically. Under the [principle] 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.' . . ." . . . "If participants in the arbitral process begin to assert all possible legal or procedural defenses in court proceedings before the arbitration itself can go forward, the arbitral wheels would very soon grind to a halt."'" [Citation.]' (Greenspan, supra, 185 Cal.App.4th at p. 1438.)" (Kelly Sutherlin McLeod Architecture, Inc. v. Schneickert, supra, 194 Cal.App.4th at p. 529.)

Here, while the franchise agreement excludes trademark claims from arbitration, the appellate record reflects that the parties unmistakably expanded the scope of arbitration and agreed that the subject trademark claims would be decided by the arbitrator. In its amended counter-demand for arbitration, respondents identified and extensively pleaded its trademark claims against appellants. Appellants responded to the amended counter-demand, raising several affirmative defenses to respondents' claims; they did not, however, object to the arbitration of those claims as excluded by the terms of the franchise agreement.

Respondents spend much time discussing whether the arbitrator had the authority to decide this issue and defending his power to do so. Appellants do not appear to raise this issue until their reply brief. Keeping appellants' argument in mind, we resolve this issue without reference to JAMS rule 11.

Later in the arbitration proceedings, RedBrick Pizza moved for summary adjudication of its trademark infringement claims. Again, appellants opposed the motion on the merits, never objecting to the arbitrability of the issue.

In fact, as noted by the arbitrator when presented with this issue, appellants never raised this question until September 15, 2008, more than a year and a half after the arbitration proceeding had commenced. Under the totality of these circumstances, we conclude that the parties submitted respondents' trademark infringement claims against appellants to the arbitrator.

In their reply brief, appellants direct us to a portion of a letter to the arbitrator in which they state that "they are not waiving any arguments regarding" paragraph 12.02 of the franchise agreement. The problem for appellants remains the same: This argument was not raised until September 2008, well after the arbitration proceedings had been underway.

It follows that we reject appellants' assertion that they never waived their objection to arbitration of the trademark claims.
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Appellants claim that because respondents previously contended that the intellectual property and injunctive relief claims were outside the scope of the parties' arbitration agreement, it is judicially estopped from contesting this basis for vacating the award. We cannot agree. This issue was inadequately briefed by appellants (Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 852) as they have not shown how either the arbitrator or the trial court should have applied the doctrine to preclude arbitration of respondents' trademark claims.

"'"Judicial estoppel precludes a party from gaining an advantage by taking one position, and then seeking a second advantage by taking an incompatible position. [Citations.] The doctrine's dual goals are to maintain the integrity of the judicial system and to protect parties from opponents' unfair strategies. [Citation.] Application of the doctrine is discretionary."' [Citation.]" (Aguilar v. Lerner (2004) 32 Cal.4th 974, 986.) Judicial estoppel is designed to protect the integrity of the judicial process. (Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 182.) The purpose of judicial estoppel is to prevent a fraud on the court. (Gottlieb v. Kest (2006) 141 Cal.App.4th 110, 131.) "'"'It seems patently wrong to allow a person to abuse the judicial process by first [advocating] one position, and later, if it becomes beneficial, to assert the opposite.'"' [Citations.]"(Gottlieb v. Kest, supra, at p. 131.) Judicial estoppel may apply when "'(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a result of ignorance, fraud, or mistake.' [Citations.]" (Aguilar v. Lerner, supra, 32 Cal.4th at pp. 986-987.)

However, even if all elements are established, judicial estoppel is not invariably applied. (People v. Castillo (2010) 49 Cal.4th 145, 156.) "Because of its harsh consequences, the doctrine should be applied with caution and limited to egregious circumstances." (Gottlieb v. Kest, supra, 141 Cal.App.4th at p. 132.) "'It is an "'extraordinary remed[y] to be invoked when a party's inconsistent behavior will otherwise result in a miscarriage of justice.'"' [Citation.]" (Id. at pp. 130-131.)

Appellants have not demonstrated how respondents engaged in any inconsistent behavior. Even if its arguments in its motion for a preliminary injunction are construed as a representation by RedBrick Pizza that the franchise agreement excluded trademark claims from arbitration, that representation was true at that time. The fact that the parties later decided to expand the scope of their arbitration to include all claims, including the intellectual property claims, does not mean that respondents engaged in inconsistent behavior. And, significantly, there is no evidence or argument that anything respondents did resulted in a miscarriage of justice.

In light of this conclusion, it follows that the arbitrator did not err in awarding attorney fees on respondents' trademark infringement claims.

Finally, appellants contend that the judgment must be vacated as to Patel because the arbitrator never resolved the claims leveled against him. We do not reach this argument as Patel is not an aggrieved party. (Code Civ. Proc., § 902; Alonso v. Hills (1950) 95 Cal.App.2d 778, 781.) No judgment was entered either against or in favor of Patel.

DISPOSITION

The judgment is affirmed. Respondents are entitled to costs on appeal. NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

ASHMANN-GERST, J. We concur:

BOREN, P. J.

DOI TODD, J.


Summaries of

Jay Bharat Developers, Inc. v. Jim Minidis

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION TWO
Sep 7, 2011
B219498 (Cal. Ct. App. Sep. 7, 2011)
Case details for

Jay Bharat Developers, Inc. v. Jim Minidis

Case Details

Full title:JAY BHARAT DEVELOPERS, INC., et al., Plaintiffs and Appellants, v. JIM…

Court:COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION TWO

Date published: Sep 7, 2011

Citations

B219498 (Cal. Ct. App. Sep. 7, 2011)

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