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Naco Inc. v. Kermani

California Court of Appeals, Second District, Second Division
Mar 7, 2008
No. B191944 (Cal. Ct. App. Mar. 7, 2008)

Opinion


NACO, INC., Plaintiff and Respondent, v. DAVID KERMANI, Individually and as Trustee, etc., Defendant and Appellant. B191944 California Court of Appeal, Second District, Second Division March 7, 2008

NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Los Angeles County. Los Angeles County Super. Ct. No. BC295482 Conrad Aragon, Judge.

Roger A. S. Manlin for Defendant and Appellant.

Law Offices of James F. Lindsay, James F. Lindsay for Plaintiff and Respondent.

BOREN, P.J.

In this appeal, a party to an arbitration proceeding challenges the trial court’s judgment confirming the arbitration award. Appellant lists numerous reasons why the trial court should have vacated the award. None of the reasons presented by appellant have merit. We affirm the judgment.

FACTS

Respondent Naco, Inc., was a commercial tenant in a building owned by appellant David Kermani. In an addendum to the lease, Naco was given an option to purchase the leased property. Naco believed it exercised the option to purchase in 2000, but Kermani disputed Naco’s exercise of the option. Naco then sued Kermani.

The parties decided to settle the lawsuit and complete the sale of the property. To this end, they entered a settlement agreement in October 2004. The settlement agreement set forth the manner in which the sale would proceed. In the event that any dispute arose “in connection with the interpretation or enforcement” of the settlement agreement, the parties agreed to submit the matter to a mediator.

The parties entered a purchase agreement for the property, with an escrow closing date of January 21, 2005. In December 2004, during escrow, Kermani filed two lawsuits against Naco, one alleging a breach of lease payment provisions, and one for unlawful detainer. In connection with these two lawsuits, Kermani filed notices of lis pendens against the property. In his brief, Kermani concedes that the notices of lis pendens “would prevent funding of a loan and issuance of a title policy.”

In response to Kermani’s lawsuits, Naco made a motion to enforce the settlement agreement, asserting that Kermani filed the lawsuits to prevent the close of escrow. The trial court addressed Naco’s motion on January 19, 2005, finding that Kermani violated the settlement agreement by failing to perform in good faith: Kermani’s notices of lis pendens rendered “impossible” performance of the settlement agreement. Also, Kermani failed without cause to deposit the grant deed into escrow, and he instituted the two lawsuits against Naco in violation of his agreement to submit all disputes to arbitration. At the court’s direction, Kermani withdrew the notices of lis pendens.

On the afternoon of January 21, Kermani’s attorney sent a notice stating that “in the event escrow is not closed as of today, January 21, 2005, escrow is hereby cancelled pursuant to the provisions of the escrow instructions, and the Settlement Agreement . . . and Purchase Agreement . . . .” Naco rejected the notice to cancel escrow as prematurely served and made in bad faith because escrow was about to close and would have closed but for the notice of cancellation. Escrow did not close on January 21. Naco demanded mediation to resolve whether Kermani had breached the settlement agreement.

Kermani filed a petition for arbitration. He asked the arbitrator to decide whether he was entitled to recover a $15,000 deposit Naco made into escrow, because escrow failed to close on time. In a letter to the arbitrator on March 10, 2005, Naco’s attorney wrote that “you are to handle all of the issues arising out of the settlement agreement, including the breach of the settlement agreement by the failure to close escrow on January 21, 2005. . . .” Kermani’s arbitration brief repeated the language in Naco’s March 10 letter regarding the scope of the arbitrable dispute.

The arbitration hearing was conducted over the course of three days. During the proceeding, the parties, their attorneys and the arbitrator signed a “Stipulation For Settlement” in which the parties agreed “to settle all of the disputes between them.” In his award, the arbitrator wrote that the sale of the property had been completed. And “[h]aving considered the evidence of the parties and argument of counsel,” the arbitrator awarded Naco $110,000 in reasonable costs and attorney fees.

Kermani brought a petition to vacate the award. He argued that the arbitrator: refused to determine the issues submitted to him; excluded Kermani’s evidence during the arbitration hearing; refused to make written findings of fact and law; failed to disclose a matter reflecting on his impartiality; procured by undue means Kermani’s agreement to transfer the property to Naco during the arbitration; and exceeded his powers. The trial court denied the petition to vacate, but determined that a “clarification” of the award was required. It returned the matter to the arbitrator for findings as to which party was at fault for the failure of escrow to close on January 21.

The arbitrator issued a supplemental award after the trial court returned the matter for clarification. The arbitrator pointed out that during the arbitration hearing, the parties stipulated to settle the dispute and immediately transfer the property. As a result of this stipulation to settle, the presentation of evidence was not completed, there was no closing argument, and the arbitrator did not write a factual and legal analysis: the only matter remaining for the arbitrator’s determination was the issue of costs and attorney fees.

To satisfy the trial court’s request for findings, the arbitrator found that Kermani “engaged in a consistent pattern of tactics which had the impact of making Naco’s performance of the terms of their agreements simply impossible. The evidence was clear that Naco’s principal and his wife ‘moved heaven and earth’ to make certain that everything was in order with the escrow (including having funds deposited)”; however, Kermani’s tactics and the escrow company’s procedures caused the escrow to fail to close. Kermani’s timely failure to withdraw the lis pendens was one factor in the equation.

After the arbitrator issued its supplemental award, Kermani filed a second motion to vacate the award. Kermani once again argued that the arbitrator failed to decide specific issues, excluded material evidence, and engaged in prejudicial conduct.

The court denied the petition. The court wrote, “[u]pon further reflection . . . this court concludes that it lacked the authority in the first instance to remand to the arbitral forum for further findings of fact.” The court reviewed case authority and decided that the arbitrator, not the court, had to determine what issues were submitted to arbitration; therefore, “this court should not have substituted its judgment, in declaring what the issues were, for that of the arbitrator.” The court then confirmed the award. Judgment was entered in favor of Naco on May 2, 2006. Kermani appealed from the judgment on June 16, 2006.

Naco sought an award of attorney fees and costs, as the prevailing party. The trial court awarded Naco $108.90 in costs, and $3,000 in attorney fees. An amended judgment was filed on November 8, 2006, reflecting the award of fees and costs to Naco. Kermani appealed from the amended judgment on December 5, 2006. The two appeals have been consolidated.

DISCUSSION

Any party to arbitration may petition the court to confirm, correct or vacate the award. (Code Civ. Proc., § 1285.) The court “shall confirm the award as made,” unless there is a basis for correcting or vacating the award. (§ 1286.) The statutory grounds for vacating an award are: (1) the award was procured by corruption, fraud or other undue means; (2) the arbitrator was corrupt; (3) arbitrator misconduct substantially prejudiced the rights of a party; (4) the arbitrator exceeded his power and the award cannot be corrected without affecting the merits of the decision; (5) the arbitrator refused to postpone a hearing or refused to hear evidence material to the controversy; or (6) the arbitrator failed to disclose a ground for disqualification. (§ 1286.2, subd. (a).)

All further statutory references in this opinion are to the Code of Civil Procedure.

Appeal may be taken after judgment is entered on an arbitration award. (§ 1294, subd. (d).) We are authorized to review the judgment and any intermediate order that involves the merits or necessarily affects the judgment. (§ 1294.2.) “[I]n reviewing a judgment confirming an arbitration award, we must accept the trial court’s findings of fact if substantial evidence supports them, and we must draw every reasonable inference to support the award. [Citation.] On issues concerning whether the 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.” (Alexander v. Blue Cross of California (2001) 88 Cal.App.4th 1082, 1087.) We do not review the arbitrator’s decision for errors of fact or law. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11.)

a. Arbitrator’s Failure To Decide An Issue

Kermani argues that the arbitrator improperly failed to decide who was at fault when escrow did not close on January 21, 2005. The argument fails for several reasons.

First, the issue of fault was decided by the trial court before the arbitration occurred. On January 19, 2005, the trial court found that Kermani rendered performance of the settlement agreement “impossible” when he clouded title by filing two lis pendens and failed “without cause” to deposit the grant deed into escrow.

Second, the arbitrator found that the issue of fault was mooted when the parties stipulated during the arbitration hearing to settle their disputes and complete the sale. An arbitration award need only address matters as “necessary in order to determine the controversy.” (§ 1283.4.) Here, the controversy was resolved when the parties agreed, in writing, “to settle all the disputes between them” by stipulation. We disagree with Kermani’s argument, which is, effectively, that “all” means “some” disputes but not others. We find that it means “all disputes,” without exception.

Before the parties stipulated to complete the sale, Kermani was relying on the nonclosure of escrow as a ground for retaining title to the property and refusing to transfer it to Naco. In his arbitration brief, Kermani wrote that if he was not at fault for the nonclosure of the escrow, then the escrow was automatically cancelled, as he had signaled in his January 21 notice to Naco. Once the parties stipulated to complete the sale during the arbitration hearing, the arbitrator was entitled to conclude that he need not decide who caused the January 21 escrow closing date to be missed, because the sale was proceeding with a new closing date.

Third, in his supplemental award, the arbitrator clearly stated that Kermani was at fault for preventing the close of escrow. Kermani engaged in tactics that made Naco’s performance “impossible,” the arbitrator wrote. Naco, on the other hand, made certain that everything was in order, including having the purchase funds deposited in escrow. Thus, the findings sought by Kermani regarding fault were made by the arbitrator, so there is no basis for vacating the award.

b. Failure To Consider Evidence

Kermani contends that the arbitrator improperly excluded Kermani’s evidence relating to whether he or Naco was responsible for the nonclosure of escrow on January 21. The arbitrator excluded this evidence because the issue was mooted by the parties’ March 21 stipulation to complete the transfer of the property and to close escrow as rapidly as possible. As discussed in the preceding paragraphs, the arbitrator was entitled to conclude that the issue of fault was no longer relevant once the parties stipulated to complete the sale.

We note—and not just in passing—that Kermani’s first petition to vacate was deceptive. Kermani did not attach to his petition a copy of the parties’ written and signed stipulation to settle that was reached during the arbitration hearing. Kermani misled the trial court into believing that the arbitrator inexplicably refused to reach the submitted issues when, in fact, the arbitrator understandably reduced the scope of his decision after the dispute was settled by mutual agreement. Unfortunately, Kermani’s deception was not brought to the attention of the trial court because Naco failed to file a timely opposition to Kermani’s first petition to vacate.

After the trial court returned the matter to the arbitrator for clarification, the arbitrator informed the trial court about the written stipulation in his supplemental award. The arbitrator wrote that the recent court proceedings “came as something of a surprise, because he had assumed the case had been dismissed after its merits had been resolved by a stipulation.”

The record belies Kermani’s claim that he was not allowed to submit evidence regarding fault. Kermani’s attorney declares that during the arbitration hearing, “petitioner Kermani commenced to elicit testimony and submitted evidence to establish that the failure to close escrow on January 21 had nothing whatsoever to do with the failure by Kermani to withdraw the lis pendens . . . but rather was caused solely by the failure of NACO to deposit the required cash balance of the purchase price into escrow until January 24, 2005.” Because Kermani was allowed to submit evidence at the hearing regarding the reasons why escrow failed to close, he has nothing to complain about. Whatever evidence was submitted was sufficient to allow the arbitrator to conclude, in his supplemental award, that Naco deposited the purchase funds into escrow and Kermani impeded the closing of escrow. We cannot review the correctness of the arbitrator’s factual determinations. (Moncharsh v. Heily & Blase, supra,3 Cal.4th at p. 11.)

c. Grounds For Disqualifying The Arbitrator

Kermani contends that the award should be vacated because the arbitrator failed to disclose matters that could cause doubt about his impartiality. The arbitrator disclosed that he had one prior contact with Naco’s attorney, of which he had only a vague recollection. During the hearing, Kermani overheard the arbitrator say to Naco’s attorney, “By the way, I want to thank you for referring a matter to me last week. I will have to take care of you for that.” After the award was rendered and Kermani challenged the arbitrator’s impartiality, the arbitrator disclosed that he had two mediations with Naco’s counsel (in 1999 and 2004) and was involved in a settlement with counsel after this case.

“‘An arbitrator’s failure to disclose information indicative of bias may constitute grounds to vacate the award . . . . [¶] Whether an award is tainted by bias because an arbitrator failure to disclose a particular relationship is a factual determination made by the court reviewing the award. [Citation.] The party claiming bias bears the burden of establishing facts supporting its position. [Citation.] The test is objective, i.e., whether the relationship would create an impression of bias in the mind of a reasonable person.’” (Guseinov v. Burns (2006) 145 Cal.App.4th 944, 957.)

Kermani did not carry his burden of establishing bias in the arbitrator. The arbitrator had two prior contacts with Naco’s counsel, one in 2004 and one in 1999. At the outset, the arbitrator disclosed one prior contact to Kermani’s attorney, noting that he did not recall the substance of his dealings with Naco’s counsel. The 1999 contact did not have to be disclosed because it occurred more than 60 months before the 2005 arbitration between the parties. Thus, the arbitrator’s purported failure to disclose prior compensated arbitrations is not supported by any evidence.

With respect to the arbitrator’s appreciation for a referral made by Naco’s counsel, the arbitrator did not recall making any promise to “take care of you” to Naco’s counsel, but stated that if he did make such a remark, it was intended to be humorous inasmuch as it was made in the presence of Kermani and Kermani’s attorney. No reasonable person could construe the arbitrator’s remark as a promise to engage in unethical conduct, given that it was made in front of Kermani. In any event, there is no evidence that the referral had any impact on the outcome of the arbitration, which the parties stipulated to settle.

d. Undue Means And Prejudicial Misconduct

Kermani asserts that his stipulation to settle the dispute and transfer the property to Naco during the pendency of the arbitration was procured by undue means and the prejudicial misconduct of the arbitrator. Kermani argues that he “was induced to transfer the property upon the expectation that a further hearing would be conducted at which an award of damages would be made either to NACO or Kermani.” Kermani complains that the arbitrator never found who was responsible for the nonclosure of escrow on January 21, 2005.

There is no evidence that the arbitrator exerted undue influence in the sense that there was “‘“improper or wrongful constraint, machination, or urgency or persuasion whereby the will of a person is overpowered.”’” (Pour Le Bebe, Inc. v. Guess? Inc. (2003) 112 Cal.App.4th 810, 831.) At most, Kermani’s contention is that he had expectations of a different result, specifically a damages award in favor of one of the parties.

Kermani’s claim is not well taken. The arbitrator, in his supplemental award, found that Kermani was at fault for the nonclosure of escrow because Kermani’s conduct made Naco’s performance impossible. This was the same finding that was made by the trial court on January 19, 2005. Both the arbitrator and the trial court agreed that Kermani was at fault. Under the circumstances, Kermani should be glad that he settled the dispute during the arbitration by transferring the property to Naco, instead of waiting for an award of damages. The damages would have been assessed against Kermani, given the arbitrator’s and the trial court’s findings that Kermani was at fault. The arbitrator’s award to Naco of $110,000 in attorney fees and costs reflects the arbitrator’s conclusion that Kermani was at fault.

e. Scope Of The Arbitrator’s Authority

Kermani contends that the award should be vacated because the arbitrator exceeded the scope of his authority by refusing to prepare a written statement of decision reflecting the factual and legal bases of his decision. The argument is unpersuasive. First, the dispute was settled by stipulation during the arbitration hearing. Once the stipulation was signed, there was no need for the arbitrator to make findings of fact or law. Second, the arbitrator issued a supplemental award finding that Kermani was at fault for the nonclosure of escrow. This was the factual finding that Kermani so eagerly sought. No further findings were required.

Kermani complains that the arbitrator exceeded his authority by directing the escrow company holding the purchase money to disburse $110,000 to Naco and the balance of the funds to Kermani. The point of the arbitration was to resolve issues regarding the sale of the property. During the arbitration, the parties agreed to complete the sale. Funds for the purchase of the property were held in escrow. The award specified how the funds were to be distributed. Once the award was confirmed as a judgment of the court, it became binding upon the parties and their agent, the escrow company. It is absurd for Kermani to argue that the arbitrator should not have directed the release of the purchase money in escrow to the parties, to end the dispute over the sale for once and for all.

Kermani contests a purported award of $30,000 in loan “points” to Naco, made in the arbitrator’s original award. The award does not specify that part of the $110,000 given to Naco was for points, and it would be speculation for us to say that it is. Assuming that the arbitrator did make an award of $30,000 for points incurred during Naco’s thwarted efforts to fund escrow in January 2005, the arbitrator’s award is on the merits and the merits of the dispute cannot be reviewed by the courts for factual or legal errors, even if error appears on the face of the award. (Roehl v. Ritchie (2007) 147 Cal.App.4th 338, 347.)

f. Award Of Attorney Fees

Kermani challenges the trial court’s award of $3,000 in attorney fees to Naco as the prevailing party on Kermani’s second petition to vacate the arbitration award. The award of attorney fees was proper. The court denied Kermani’s motion to vacate, confirmed the arbitration award, and entered judgment for Naco. Naco was clearly the prevailing party.

DISPOSITION

The judgment is affirmed.

We concur: DOI TODD, J., ASHMANN-GERST, J.


Summaries of

Naco Inc. v. Kermani

California Court of Appeals, Second District, Second Division
Mar 7, 2008
No. B191944 (Cal. Ct. App. Mar. 7, 2008)
Case details for

Naco Inc. v. Kermani

Case Details

Full title:NACO, INC., Plaintiff and Respondent, v. DAVID KERMANI, Individually and…

Court:California Court of Appeals, Second District, Second Division

Date published: Mar 7, 2008

Citations

No. B191944 (Cal. Ct. App. Mar. 7, 2008)