Opinion
G053065
05-15-2017
maxIT HEALTHCARE HOLDINGS, INC. et al., Plaintiffs, Cross-defendants and Respondents v. ACUMEN TECHNOLOGY SOLUTIONS FOR HEALTHCARE, LLC et al., Defendants, Cross-complainants and Appellants.
Pepper Hamilton and Jeffrey M. Goldman for Defendants, Cross-complainants and Appellants. Rutan & Tucker, Robert C. Braun, Clifford E. Frieden, Chelsea A. Epps and Gerard M. Mooney, Jr., for Plaintiffs, Cross-defendants and Respondents.
ORDER MODIFYING OPINION; NO CHANGE IN JUDGMENT
It is ordered that the opinion filed herein on May 15, 2017, be modified. The first paragraph on page 3 is amended and restated to read as follows:
"Due to a scrivener's error concerning the definition of the term 'Company,' the APA mistakenly based the Warrant rights on the gross profits of maxIT Inc., rather than on the gross profits of the assets acquired from Acumen. As a result of the scrivener's error, the number of shares which could be purchased under the Warrant was significantly overstated. The arbitrator found, 'This was a mutual mistake, in that it was contrary to the joint expressed intent of the contracting parties.'"
This modification deletes footnote 2 on page 3 and, as a result, all subsequent footnotes shall be renumbered accordingly.
This modification does not change the judgment.
THOMPSON, J. WE CONCUR: ARONSON, ACTING P. J. IKOLA, J.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2012-00570133) OPINION Appeal from a judgment of the Superior Court of Orange County, Sheila Fell, Judge. Affirmed. Pepper Hamilton and Jeffrey M. Goldman for Defendants, Cross-complainants and Appellants. Rutan & Tucker, Robert C. Braun, Clifford E. Frieden, Chelsea A. Epps and Gerard M. Mooney, Jr., for Plaintiffs, Cross-defendants and Respondents.
This appeal from a judgment confirming an arbitration award requires us to determine whether the contractual arbitrator exceeded his "powers" (Code Civ. Proc., § 1286.2, subd. (a)(4)) by awarding nothing on a breach of contract claim.
Defendants, cross-complainants, and appellants Acumen Technology Solutions for Healthcare, LLC (Acumen), J. Dale Ragone, and Robert B. Goetzinger (collectively Defendants) contend the arbitrator exceeded his powers by fashioning a remedy prohibited by the contract and not available in a court of law.
Plaintiffs, cross-defendants, and respondents maxIT Healthcare Holdings, Inc. (maxIT Inc.) and maxIT Healthcare, LLC (individually maxIT LLC, and together with maxIT Inc., Plaintiffs or maxIT ) claim the arbitrator did not exceed his powers, since the remedy was not prohibited by the contract and was available in a court of law.
We agree the arbitrator did not exceed his powers and affirm.
FACTS
These facts are from the arbitrator's final award and we take his findings as correct without examining the record of the arbitration hearings. (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 367, fn. 1 (Advanced Micro).)
The parties entered into an Asset Purchase Agreement (APA) pursuant to which maxIT LLC purchased the assets of Acumen. The agreed upon purchase price had three components: (a) a $1 million cash payment to be made at the closing; (b) an earn-out of up to $2.6 million, to be based on the gross profits generated by the acquired assets during the first year after the closing; and (c) a Warrant (Warrant) that entitled Acumen to purchase a number of shares of maxIT Inc. common stock, at a specified price, to be exercised upon any future change in control of MaxIt Inc. or maxIT LLC. The number of maxIT Inc. shares which Acumen could purchase under the Warrant was to be calculated based on the gross profits generated by the "Company" during the year before the change of control.
Due to a scrivener's error, the term "Company" as used in the Warrant was mistakenly defined to mean maxIT Inc., the parent entity, instead of maxIT LLC, the subsidiary entity. As a result, the number of shares to be purchased under the Warrant was tied to the gross profits of the parent, instead of the subsidiary which was purchasing the assets of Acumen. The arbitrator found, "This was a mutual mistake, in that it was contrary to the joint expressed intent of the contracting parties."
Using the gross profits of maxIT Inc. instead of maxIT LLC would have given Acumen the right to purchase an additional 17,500 shares worth $898,100.
The arbitrator explained: "Before the parties' asset purchase agreement was drafted, they agreed to set forth their mutual intent in a written Letter of Intent. Although not itself a binding contract, the parties' Letter of Intent is the parties' mutual declaration to each other of their intent and their expectation it would be included in the final deal. . . . Acumen's expressed statement of its intent remained unchanged through the drafting and signing of the asset purchase documents. [¶] . . . [¶] The outward expression of the Acumen entity's intent is not changed by an undisclosed, unexpressed contrary understanding Mr. Ragone, an Acumen officer, may have had. He testified that his state of mind was a non-specific 'understanding' or 'impression' or 'assumption' never outwardly expressed as the entity's intent. This was insufficient to alter the Acumen entity's expressed intent. [¶] The parties expressed intent was reasonable. [Warrant rights] would understandably be tied to performance of what was purchased, the potential earn-out could reasonably be performed [over the year prior to the change of control], and an Acumen assets tie would incentivize [Defendants]. A performance tie to [MaxIT Inc.'s] overall profits, however, would be commercially unusual, and the earn-out would be fully performed within weeks - an unlikely intention of the parties. [¶] In short, the parties chose to set forth their mutual intent in their duly executed Letter of Intent. . . . The Acumen entity's expressed intent is stated in the Letter of Intent, unchanged by the undisclosed state-of-mind understanding of one of its officers."
PROCEDURAL HISTORY
After the closing maxIT discovered the scrivener's error and asked Acumen to execute an amendment to the Warrant to correct it. Acumen refused, asserting there had been no mistake. This litigation ensued.
Plaintiffs filed a complaint against Defendants in the superior court, seeking to reform the scrivener's error in the Warrant, and seeking a declaration of the parties' rights and obligations under the APA, including the Warrant. Defendants filed an answer and a cross-complaint asserting breach of contract, declaratory relief and unjust enrichment claims. The parties then stipulated to binding arbitration under the JAMS Rules of Comprehensive Arbitration as required by the APA, and they agreed to stay the superior court action.
Defendants moved for a "summary disposition" of Plaintiffs' complaint, contending the no-modification clause in the APA precluded reformation, and the matter was not arbitrable. The arbitrator ultimately agreed with Defendants and issued an Interim Award (Interim Award) which held that under existing law, the motion was well taken, and dismissal of Plaintiffs' complaint was compelled.
The no-modification clause, section 8.4(b) of the APA (Section 8.4(b)), stated: "The arbitrator shall not have any power to alter, amend, modify or change any of the terms of this Agreement nor to grant any remedy which is either prohibited by the terms of this Agreement, or not available in a court of law."
Following the Interim Award, Plaintiffs filed an amended answer to Defendants' cross-complaint which, in relevant part, expanded the allegations of their mistake affirmative defense. As amended, it alleged Defendants' cross-complaint was barred in toto, because the relief Defendants sought was dependent upon enforcement of the scrivener's error in the Warrant. It further alleged, "The erroneous definition [of the term "Company" in the Warrant] must be disregarded because it does not express the actual bargain of the parties."
Defendants filed a "challenge" to certain of Plaintiffs' affirmative defenses, including the mistake defense. Defendants argued: "[A] maxIT's affirmative defenses are unavailable, because maxIT cannot simply reformulate its barred 'reformation' relief as affirmative defenses . . . . [;] [B] Each and every affirmative defense is unavailable, because the arbitrator cannot fashion a remedy under the circumstances. . . . [;] [C] Some of the affirmative defenses are unavailable, regardless of the fact that they are duplicative of the reformation claim. . . . [;] [D] The parol evidence rule bars the introduction of extrinsic evidence necessary to prove most of the affirmative defenses. . . . [; and] [E) Assuming the arbitrator refuses to permit maxIT to proceed with its affirmative defenses, damages should be assessed. . . ." (Some capitalization omitted.)
After extensive briefing and oral argument, the arbitrator overruled the challenge in a nine-page order (Challenge Order). The arbitrator thoroughly analyzed and rejected Defendants' arguments, reargued in this appeal, that Plaintiffs' mistake defense was: "a repackaged effort at reformation" and an "impermissible change under the no-modification provision" in Section 8.4(b); contrary to paragraph 9 of the Warrant which stated it could only "'be changed, waived, discharged or terminated'" by a signed writing; and contrary to paragraph 15 of the Warrant which provided maxIT would not, "'avoid or seek to avoid the observance or performance of any of the terms of this Warrant. . . .'" The arbitrator explained, "there are at least two, and possibly more, alternative theories under which the Warrant may not be enforceable as drafted . . . ."
The arbitrator ruled that declining to enforce the scrivener's error would not violate the no-modification clause, but enforcing it "would yield an extraordinary or absurd construction of the parties' contract, normally contrary to the rules of contract construction." Thus, "the concept of a scrivener's error may be considered and, if appropriate as a result of that mistake the [APA] could be avoided or the Arbitrator could decline to enforce the Warrant as drafted."
The matter then proceeded to arbitration on Defendants' cross-complaint for breach of contract, declaratory relief and unjust enrichment, and on Plaintiffs amended answer, including their mistake defense. The parties submitted prehearing briefs and responses, which included further analyses of the arbitrator's powers, the effect of the no-modification clause, and the mistake defense.
The arbitration hearing itself lasted seven days. After considering all of the evidence, briefing and arguments, the arbitrator issued a 15-page final award (Final Award), which incorporated some of the findings from the earlier rulings by the arbitrator, including the Interim Award and the Challenge Order.
The Final Award resolved, "[t]he central issue[,] . . . whether or not there was a mistake in drafting the parties' Warrant, what the Arbitrator should do or is permitted to do about any mistake, and whether additional sums are payable by maxIT to Acumen beyond what has already been paid under maxIT's construction of the Warrant."
The arbitrator found "by clear and convincing evidence that a mistake occurred." It was "a mutual mistake, in that it was contrary to the joint expressed intent of the contracting parties. There was an expressed meeting of the minds in the contracting parties' Letter of Intent, but the final document in its written form did not express what the contracting parties intended." It was all "due to an attorney's drafting mix-up in the document definition of the word 'company.'"
The arbitrator analyzed all of the cases cited (many of which are again relied on by Defendants in this appeal) and reiterated nonenforcement of the scrivener's error was independent of a reformation remedy and was not prohibited by the no-modification clause. The arbitrator ruled, "nullifying the entire contract for lack of consent is not an appropriate remedy here." The arbitrator explained: "The Warrant . . . is only a part of the parties' detailed and fully-executed asset purchase agreement. The parties' agreed severability clauses (asset purchase agreement para. 8.5; Warrant para. 16) preclude any need to treat the entire contract as void."
The arbitrator further explained that declining to enforce the mistaken Warrant provision was consistent with Civil Code section 1640 [error in writing may be disregarded] and the parties' "expressed intention." And again, Defendants had been "fully paid the amount due under the parties' pre-mistake stated intent." Consequently, "The Arbitrator decline[d] to enforce an unintended scrivener's error by ordering further payment under the parties' Warrant as mistakenly drafted."
All told, the arbitrator concluded Defendants were not entitled to any relief on their cross-complaint, other than declaratory relief. For that reason, the arbitrator made the following final ruling:
"1. No party shall recover from any other party.
"2. Each party shall bear its own attorney fees, costs and expenses.
"3. This Final Award resolves all claims between the parties . . . ."
Next Plaintiffs filed a petition for an order confirming the Final Award and for entry of judgment thereon in the superior court. Defendants filed opposition to the petition to confirm, together with a request for an order vacating the Final Award. Plaintiffs filed opposition to the request to vacate, and Defendants filed a reply.
The superior court heard oral argument and took the matter under submission. After considering all of the briefing and arguments, the court issued a minute order which granted Plaintiffs' petition to confirm, denied Defendants' petition to vacate, and ordered that the Final Award, "as written, shall become the Judgment of the Court." In relevant part the court explained, "The merits of [the Final Award] are not subject to attack here."
The court later entered judgment in favor of Plaintiffs and against Defendants in conformity with the Final Award, and awarded Plaintiffs the costs they had incurred in bringing the petition to confirm. Defendants filed a timely notice of appeal from the judgment.
DISCUSSION
1. The Final Award is Not Subject to Judicial Review for Error.
"[A]rbitral finality is a core component of the parties' agreement to submit to arbitration." (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 10 (Moncharsh).) "Thus, . . . it is the general rule that, 'The merits of the controversy between the parties are not subject to judicial review.' [Citations.] More specifically, courts will not review the validity of the arbitrator's reasoning." (Id. at p. 11.) Likewise, "it is the general rule that, with narrow exceptions, an arbitrator's decision cannot be reviewed for errors of fact or law." (Ibid.; see also Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909, 916 (Richey).)
These narrow exceptions "provide limited grounds for judicial review . . . ." (Richey, supra, 60 Cal.4th at p. 916.) One such exception requires the court to vacate the arbitration award if: "The arbitrators exceeded their 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), (section 1282(a)(4)),1286.6, subd. (b) [If same then court shall correct award].) These exceptions plainly do not apply in this case.
"'"[A]n arbitrator exceeds his powers when he acts in a manner not authorized by the contract or by law."'" (Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413, 1437 (Greenspan).) "'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.'" (O'Flaherty v. Belgum (2004) 115 Cal.App.4th 1044, 1056 (O'Flaherty); citing Advanced Micro, supra, Cal.4th at p. 376, fn. 9, and Greenspan, supra, 185 Cal.App.4th at p. 1437.)
The arbitrator essentially did three things in the Final Award. He interpreted the APA, including the Warrant, and declared Plaintiff's interpretation was correct. Based on that interpretation, he concluded Defendants had failed to prove their breach of contract claim against Plaintiffs. Consequently, he ruled Defendants were not entitled to any damages and awarded them nothing on their cross-complaint.
"Interpretation of the contract underlying this dispute being within the matter submitted to arbitration, such an interpretation could amount, at most, to an error of law on a submitted issue, which . . . is not in excess of the arbitrator's powers within the meaning of [Code of Civil Procedure] sections 1286.2 and 1286.6." (Moshonov v. Walsh (2000) 22 Cal.4th 771, 779.) Also, the arbitrator's rulings all concerned matters submitted to arbitration and amount, at most, to errors of fact or law. Hence, the Final Award cannot be reviewed for error. (Richey, supra, 60 Cal.4th at pp. 916-917.)
Defendants resist this conclusion on the grounds the arbitrator exceeded his powers by acting in a manner not authorized by the APA. They again argue the arbitrator granted a remedy which was expressly prohibited by the terms of the APA and the Warrant, and which was not available in a court of law, all in violation of the no-modification clause set out in Section 8.4(b). These arguments were considered and rejected by the arbitrator and the court below. We reject them too.
Preliminarily, we note all of Defendants arguments are founded upon the premise the arbitrator granted a remedy. We question the validity of this premise, even though the Final Award used the word. A remedy is: "The means of enforcing a right or preventing or redressing a wrong; legal or equitable relief." (Black's Law Dict. (10th ed. 2014) p. 1485, col. 1.) Here the arbitrator concluded Defendants had no rights to enforce and no wrongs to redress, so he awarded them no legal or equitable relief. Awarding nothing for a breach of contract that never happened is not a remedy. 2. The Arbitrator Did Not Grant a Remedy Which Was Prohibited by the APA.
"A remedy is anything a court can do for a litigant who has been wronged or is about to be wronged. The two most common remedies are judgments that plaintiffs are entitled to collect sums of money from defendants (damages) and orders to defendants to refrain from their wrongful conduct or to undo its consequences (injunctions). The court decides whether the litigant has been wronged under the substantive law that governs primary rights and duties; it conducts its inquiry in accordance with the procedural law. The law of remedies falls somewhere in between procedure and primary substantive rights. Remedies are substantive, but they are distinct from the rest of the substantive law, and sometimes their details blur into procedure. . . ." (Laycock, Modern American Remedies (4th ed. 2010) p. 1.)
Even if the arbitrator did grant a remedy, it was not prohibited by Section 8.4(b). Defendants reliance on Gueyffier v. Ann Summers, Ltd. (2008) 43 Cal.4th 1179 (Gueyffier), O'Flaherty, supra, 115 Cal.App.4th 1044, and J.C. Gury Co. v. Nippon Carbide Industries (USA) Inc. (2007) 152 Cal.App.4th 1300 (Gury) is misplaced. In those cases, unlike here, the arbitrator found a breach of contract and awarded damages.
According to the general rule, "Absent an express and unambiguous limitation in the contract or the submission to arbitration, an arbitrator has the authority to find the facts, interpret the contract, and award any relief rationally related to his or her factual findings and contractual interpretation." (Gueyffier, supra, 43 Cal.4th at p. 1182.) Gueyffier is closely comparable to our case and supports the Final Award.
In Gueyffier the arbitrator excused performance of a notice requirement in the contract. The defendant there, like Defendants here, argued that by excusing performance the arbitrator violated a no-modification clause. The Supreme Court disagreed, holding excuse was not the same as a change or modification. (Id. at pp. 1185-1186.) The court explained: "While the contract limitation on arbitral powers to change the parties' agreement was explicit, it did not unambiguously prohibit the arbitrator from excusing performance of a contractual condition where the arbitrator concluded performance would have been an idle act. . . . [T]o excuse performance of a contract term in a specific factual setting is not, in ordinary usage at least, to 'modif[y] or change[]' the term. The no-modification clause did not 'explicitly and unambiguously' ([Advanced Micro], supra, 9 Cal.4th at p. 383) bar the arbitrator from deciding that [the disputed] provision was inapplicable on the facts of the case as he found them." (Gueyffier, supra, 43 Cal.4th at p. 1185, italics & fn. omitted.)
The no-modification clause in Gueyffier stated: "'In no event may the material provisions of this Agreement . . . be modified or changed by the arbitrator at any arbitration hearing.'" (Gueyffier, supra, 43 Cal.4th at p. 1183.)
In short, "the arbitrator did no more than exercise" his "power to decide when particular clauses of the contract applied." (Gueyffier, supra, 43 Cal.4th at pp. 1185, 1186.) The same is true here. Refusing to enforce the scrivener's error in the Warrant is similar to excusing the notice requirement in Gueyffier. While the two things are not exactly the same, we see no meaningful difference between them. Thus, we reject Defendants' attempt to distinguish Gueyffier on this ground, and conclude the Final Award did not change, modify, or alter the APA.
We are also not persuaded by Defendants' contention Gueyffier is distinguishable because the no-modification provision there lacked the further restriction in Section 8.4(b) which barred the arbitrator here from granting a remedy prohibited by the APA or not available in a court of law. Defendants assert the remedy in Gueyffier did not violate the contract, due to the absence of such an express limit.
But the same can be said here. Nothing in the APA prohibited the arbitrator from declining to enforce the scrivener's error in the Warrant. Further it does not matter that the no-modification provision in Gueyffier lacked the further restriction of Section 8.4(b). The remedy chosen by the arbitrator was not expressly prohibited by the APA and, as discussed below, it would not be barred in a court of law.
Defendants also observe there is no provision in the APA allowing the arbitrator to forbear from enforcing the scrivener's error in the Warrant. But this claim turns the rule on its head. No such provision is required. Again, the law provides the arbitrator may create or impose any remedy that is not expressly barred.
Gueyffier noted that had the parties wanted to prohibit an arbitrator from excusing performance they could have included such a provision in the contract, but they did not do so. (Gueyffier, supra, 43 Cal.4th. at p. 1185, fn. 3.) Defendants admit the parties could have done so here too, but claim it was unnecessary because Section 8.4(b) barred the arbitrator from "exercising 'any power' to fashion 'any remedy' that would be inconsistent with or contrary to" their rights under the APA.
Still Section 8.4(b) did not prohibit the arbitrator from fashioning a remedy inconsistent with or contrary to Defendants' rights under the APA. It only stated the arbitrator could not grant a remedy "prohibited by the terms of this Agreement." It did not expressly and unambiguously bar the arbitrator from awarding Defendants nothing.
Defendants also rely heavily on O'Flaherty as support for their contrary interpretation of Section 8.4(b). O'Flaherty involved partnership dissolution and the arbitrator required the withdrawing partners to forfeit their capital accounts. This remedy was specifically prohibited by law, as well as the partnership agreement, which contained a provision nearly identical to Section 8.4(b). The court vacated the award, holding that because the arbitration agreement expressly barred the arbitrator from awarding any remedy either barred by the agreement or "'not available in a court of law,'" he had exceeded his powers. (O'Flaherty, supra, 115 Cal.App.4th at pp. 1047, 1061.)
Contrary to Defendants' claims, O'Flaherty did not interpret the no-modification clause as barring the arbitrator from "exercising 'any power' to fashion 'any remedy' that would be inconsistent with or contrary to" Defendants' rights. O'Flaherty merely concluded the arbitrator's acts were "inconsistent with the provisions of the partnership agreement." (O'Flaherty, supra, 115 Cal.App.4th at p. 1061; accord Gueyffier, supra, 43 Cal.4th at p. 1187].) Here, by contrast, the APA contains no explicit or unambiguous prohibition against non-enforcement of a mistake.
Neither O'Flaherty nor Gueyffier involved any mistake issue either.
We also reject Defendants' contention in a footnote that nonenforcement of the scrivener's error in the Warrant was, "'inconsistent with'" the integration clause in the APA. This is a factual argument (i.e., whether the APA superseded the terms of the letter of intent) which is contrary to the arbitrator's finding as to the parties' intent. However, we "may not review for sufficiency the evidence supporting an arbitrator's award." (Advanced Micro, supra, 9 Cal.4th at p. 367, fn. 1.)
All of the same is true regarding paragraph 15 of the Warrant, which barred Plaintiffs from seeking to avoid compliance with the terms of the Warrant and required them to act in good faith to carry out those terms. The arbitrator ruled that since the scrivener's error in the Warrant "infects consent to the contract's share price provision, that same mistake and lack of consent would avoid the no-contest provision in Paragraph 15." (Civ. Code, § 1567 [consent not free when based on mistake].)
Defendants assert Gury also supports their contention the arbitrator's nonenforcement of the scrivener's error in the Warrant violated Section 8.4(b). In Gury, the contract contained a warranty disclaimer stating the plaintiff's sole remedy for nonconforming products was replacement. (Gury, supra, 152 Cal.App.4th at p. Id. at p. 1303, fn. 1.) The arbitrator awarded money damages to the plaintiff, finding the warranty disclaimer unconscionable. (Id. at pp. 1303, 1304.)
The defendant in Gury challenged the award, claiming it violated a provision that withheld from the arbitrator "'the power to change, modify or alter any expressed condition, term or provision of this Contract or to grant an award which has such effect . . . ." (Gury, supra, 152 Cal.App.4th at p. 1305.) The court affirmed the arbitrator's award, because the defendant allowed the arbitrator to decide the issue without objection. It noted, however, in dicta, "it [was] difficult to disagree" the unconscionability finding modified, changed, or altered the contract. (Ibid.)
Based on the dicta in Gury, Defendants again argue failure to enforce Section 8.4(b) is a change, claiming it makes no difference why the Warrant was not enforced. Again we are not persuaded. Gury offhandedly made its observation the remedy changed the contract in violation of the no-modification clause. As the arbitrator here noted, the Gury court did so without analysis or citation to any authority. Further, as the arbitrator here also observed, Gury was different in that refusal to enforce based on unconscionability was an actual change to the provision barring such relief; whereas here the arbitrator merely did not enforce the mistake.
Defendants maintain this is a distinction without a difference. Not so. The arbitrator in this case did not decline to enforce a contract term to which the parties had actually consented. As the arbitrator found, the parties never agreed to the Warrant as written, because of the scrivener's error.
Plus, as Plaintiffs point out, there is a difference between the two no-modification provisions. The Gury provision eliminated the arbitrator's power to issue a remedy that had "the effect" of modifying, altering, or changing an express term of the contract and the court relied on it. (Gury, supra, 152 Cal.App.4th at p. 1305.) This is much broader than the language in Section 8.4(b) which, as noted, contains no unambiguous and express prohibition against refusing to enforce the Warrant as drafted.
In sum, Defendants have not cited to nor have we found any case which supports their argument that Section 8.4(b) prohibited the arbitrator from declining to enforce the scrivener's error in the Warrant. Instead, the arbitrator was allowed to fashion a remedy reasonably related to and not expressly prohibited by the APA. Since non-enforcement was not expressly prohibited, the arbitrator "'enjoy[ed] the authority to fashion relief [he] consider[ed] just and fair . . . [because] the remedy [was] rationally derived from the contract and the breach.'" (Cooper v. Lavely & Singer Professional Corp. (2014) 230 Cal.App.4th 1, 17.) 3. The Arbitrator Did Not Grant a Remedy Which Was Not Available in a Court of Law.
Section 8.4(b) also prohibited the arbitrator from granting any remedy, "not available in a court of law." Defendants claim declining to enforce the scrivener's error in the Warrant was a remedy which would not be available in a court of law, because Plaintiffs had no right to reformation. Defendants further argue the mistake affirmative defense would not be available in a court of law, because Plaintiffs never rescinded the APA and they received the benefits of the APA. We disagree with both arguments. Reformation would be available in a court of law, and Plaintiffs would have the right to assert the mutual mistake defense as well.
a. Reformation Would Be Available in a Court of Law.
In the Interim Award, the arbitrator found he could not reform the APA, based on the language of Section 8.04 and the "sparse case law on the legal effect of such a provision . . . ." Thus, Defendants argue Section 8.4(b) barred any reformation relief, even in a court proceeding. This is incorrect.
The arbitrator noted, however, "reformation to fix a scrivener's error" seemed proper because it would not be changing an agreement but correcting one "to prevent a change." He pointed out the court in Gueyffier stated, in dicta, the "no-modification provision would have been effective to bar an actual change or modification." Gueyffier, supra, 43 Cal.4th at p. 1185, italics added.) Reformation to correct a mutual mistake would not change the parties' intended agreement.
On its face Section 8.4(b) only applies to the arbitrator. Defendants direct us to nothing in the APA that states or even suggests a court could not reform the APA. Moreover, a court has the authority to, "reform the writing to conform with the mutual understanding of the parties at the time they entered into it, if such an understanding exists." (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524 (Hess).)
Defendants also aver Plaintiffs are not entitled to reformation, because they accepted the benefits of the APA and thereby ratified it. But this is nothing more than another challenge to the arbitrator's factual and legal findings. The Final Award states: "It would not likely be held that maxIT ratified a mistake when it sold the business and accepted the sale benefits. The entity's ratification of documents and transactions did not ratify away the existing dispute already in litigation and acknowledged by Acumen . . . ." Yet again, we may not review the arbitrator's findings on appeal. (Advanced Micro, supra, 9 Cal.4th at p. 366.)
b. Mutual Mistake Would Be an Available Defense in a Court of Law.
Defendants claim that without a right to reform, Plaintiffs may not seek a remedy based on a mutual mistake. This claim falls because, the assumption underlying it—that Plaintiffs have no right to reformation—is false, as explained above.
In any event, case law is to the contrary. For example in Hess, supra, 27 Cal.4th 516, our Supreme Court stated: "To raise mutual mistake as a defense, the aggrieved party does not have to ask 'for a reformation of the contract or' have 'the same reformed.' [Citation.] The party need only allege and prove mutual mistake in order to avoid enforcement of the erroneous terms. [Citations.]" (Id. at p. 525; see California Packing Corp. v. Larsen (1921) 187 Cal. 610, 612 [same].)
Finally, we reject Defendants' reliance on Bradbury v. Higginson (1914) 167 Cal. 553, for the proposition that a remedy based on mutual mistake is unavailable unless there has been reformation or evidence supporting reformation. (Id. at pp. 556-557.) Among other things, it conflicts with Hess, a much more recent case, and we agree with the reasoning in Hess.
In fine, we conclude the Final Award did not violate the no-modification provision in Section 8.4(b) which prohibited the arbitrator from issuing a remedy "not available in a court of law." It follows the arbitrator did not exceed his powers, the exception under section 1282(a)(4) does not apply, and the general rule does apply. "'The merits of the controversy between the parties are not subject to judicial review.' [Citations.]" (Moncharsh, supra, 3 Cal.4th at p. 11.) 4. The Final Award Can Be Corrected Without Affecting the Merits of the Decision.
Alternatively, even if the arbitrator had exceeded his powers and granted a remedy which was expressly prohibited by the terms of the APA, and which was not available in a court of law, all in violation of the no-modification clause set out in Section 8.4(b), the Final Award can "be corrected without affecting the merits of the decision upon the controversy submitted." (Code Civ. Proc., § 1286.2, subd. (a)(4)); see Santa Monica College Faculty Assn. v. Santa Monica Community College Dist. (2015) 243 Cal.App.4th 538, 546, fn. 3.) Leaving aside all of the arbitrator's findings and conclusions regarding the "remedy," the fact remains that Defendants did not prove their breach of contract claim and, as a result, they are not entitled to anything from Plaintiffs.
CONCLUSION
Because the disputed issue of contractual interpretation—whether a scrivener's error in the Warrant was a mutual mistake that was contrary to the joint expressed intent of the contracting parties—was committed to final adjudication by the arbitrator, rather than the courts, we decline, as did the trial court, to consider the issue on the merits. Regardless of whether the arbitrator's contractual interpretation and related rulings were legally correct, they were final and binding by agreement of the parties.
DISPOSITION
The judgment is affirmed. Plaintiffs are entitled to their costs on appeal.
THOMPSON, J. WE CONCUR: ARONSON, ACTING P. J. IKOLA, J.