Opinion
B160618.
7-30-2003
JUDY L. NAGLER, Plaintiff and Respondent, v. HARTMAN GROUP, INC. et al., Defendants and Appellants.
Christie Gaumer and Ronald P. Kaplan for Defendants and Appellants. Law Offices of Harold J. Light, Harold J. Light and Bruce A. Gilbert for Plaintiff and Respondent.
I. introduction
This appeal arises from an arbitration of a contract dispute involving the sale of the outstanding corporate stock of US Boys Inc. by plaintiff Judy L. Nagler to defendants, Hartman Group, Inc. and David Harkham. In connection with the stock sale, Mr. Harkham personally guaranteed a payment of a debt in the sum of $ 1,050,000 owed by defendant to plaintiff. Defendants appeal from a judgment confirming the arbitration award in plaintiffs favor. Defendants further appeal from an order refusing to vacate or correct the award. On appeal, defendants contend: the arbitrator erroneously refused to continue the arbitration hearing; the arbitrator committed misconduct; and the award must be reduced to delete the reference to arbitrator fees. Plaintiff contends that we should impose monetary sanctions for a frivolous appeal. We affirm the orders under review and impose monetary sanctions jointly and severally against defendants and their counsel.
For purposes of clarity and brevity, Hartman Group, Inc. will be referred to as defendant. Mr. Harkham will be referred to by his surname. When referring to Hartman Group, Inc. and Mr. Harkham collectively, they will be referred to as defendants.
II. background
On April 26, 2002, the arbitrator awarded plaintiff the sum of $ 1,623,236.83 which consisted of $ 1,207,249.15 in damages and $ 415,987.68 in fees and costs. The latter sum of $ 415,987.68 consisted of $ 368,531 for reasonable attorney fees and $ 47,456.68 for fees advanced by plaintiff for the arbitrators total compensation of $ 59,656.68. Thereafter, plaintiff filed a petition to confirm the award and for entry of judgment. Defendants responded to the petition by seeking to vacate the award on the grounds the arbitrator erroneously refused to grant two continuances and his rulings created serious prejudice to defendants. Defendants also requested the trial court to correct the award to delete the arbitrators fees as an item of cost.
On June 3, 2002, the trial court ruled defendants had failed to demonstrate that their rights were substantially prejudiced by the arbitrators rulings and the claim that the expenses should be shared pro rata is without merit given the parties arbitration agreement which was governed by the Commercial Arbitration Rules of the American Arbitration Association. The trial court confirmed the final award and entered judgment against defendants and in favor of plaintiff in the amount of $ 1,623,236.83. This timely appeal followed.
All further references to rules are to the Commercial Arbitration Rules of the American Arbitration Association unless otherwise indicated.
III. discussion
Our Supreme Court has held, "In light of the strong public policy in favor of private arbitration, judicial review of an arbitrators award is quite limited." (Board of Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th 269, 275, 914 P.2d 193; Marsch v. Williams (1994) 23 Cal.App.4th 238, 243.) The parties to a private arbitration impliedly agree that the arbitrators decision will be binding and final. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9, 832 P.2d 899; Corona v. Amherst Partners (2003) 107 Cal.App.4th 701, 705.) As a general rule the merits of a dispute, the sufficiency of the evidence, or the validity of the arbitrators reasoning will not be reviewed. (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 11; Reed v. Mutual Service Corp. (2003) 106 Cal.App.4th 1359, 1365.) Moreover, with narrow exceptions, an arbitrators decision cannot be reviewed for errors of law or fact even if the mistake appears on the face of the award and causes substantial injustice. (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at pp. 6, 11, 27-28; Marsch v. Williams, supra, 23 Cal.App.4th at p. 244.) Subject to exceptional cases, judicial review is limited to those situations enumerated in Code of Civil Procedure section 1286.2 to vacate an award or section 1286.6 to correct it. (Konig v. Fair Employment & Housing Com. (2002) 28 Cal.4th 743, 754; Board of Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th 269, 276, 914 P.2d 193.)
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
Section 1286.2 provides: "(a) Subject to Section 1286.4, the court shall vacate the award if the court determines any of the following: [P] (1) The award was procured by corruption, fraud or other undue means. [P] (2) There was corruption in any of the arbitrators. [P] (3) The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator. [P] (4) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted. [P] (5) The rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title. [P] (6) An arbitrator making the award either: (A) failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware; or (B) was subject to disqualification upon grounds specified in Section 1281.91 but failed upon receipt of timely demand to disqualify himself or herself as required by that provision. However, this subdivision does not apply to arbitration proceedings conducted under a collective bargaining agreement between employers and employees or between their respective representatives. [P] (b) Petitions to vacate an arbitration award pursuant to Section 1285 are subject to the provisions of Section 128.7."
Section 1286.6 provides: "Subject to Section 1286.8, the court, unless it vacates the award pursuant to Section 1286.2, shall correct the award and confirm it as corrected if the court determines that: [P] (a) There was an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award; [P] (b) The arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted; or [P] (c) The award is imperfect in a matter of form, not affecting the merits of the controversy."
A. The Continuance Requests
Section 1286.2, subdivision (a)(5) states that the court shall vacate the award if it finds: "The rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title." Defendants claim the arbitrator erroneously refused to grant continuances on two occasions.
1. The September 12, 2001, Request
The first request was made on September 12, 2001, the date the arbitration was scheduled to begin. Defendants argue that defense counsel, Christie Gaumer, was not prepared to proceed with the arbitration because this was the date after the attacks on New York City and Washington, D. C. Ms. Gaumer declared that: she could not enter her office which was located in downtown Los Angeles on September 11, 2001; the office building was closed; she was not fully prepared on September 12, 2001; she had anticipated preparing Mr. Harkham to begin his testimony on September 11, 2001 but was unable to do so; when she appeared at the arbitration on September 12, 2001, the arbitrator denied her continuance request; after concluding an analysis of exhibits, she was forced to prepare a witness to begin the arbitration; she wanted to call Mr. Harkham first but his testimony was anticipated to last for several days; she was forced to call an accountant out of order; and the stress of the terrorist attack caused her to feel "unable to perform."
Plaintiffs counsel, Harold J. Light, declared: Ms. Murphy refused to "agree to any discovery"; eventually, it became necessary for the arbitrator to intervene to resolve the discovery dispute; on September 1, 2000, during a telephonic preliminary hearing before the arbitrator, Ms. Murphy agreed to produce documents pursuant to an inspection demand and to answer 35 interrogatories; Ms. Murphys agreement to produce documents and answer interrogatories only occurred after the arbitrator, John H. Brinsley, indicated during the September 1, 2000, telephonic preliminary hearing he would direct that all documents be filed at his office; it was agreed that each party was to exchange document demands and interrogatories; and the parties were to produce documents on or before October 13, 2000, and answer interrogatories by November 17, 2000. In November 2000, prior to the production of the documents, Ms. Gaumer began to represent defendants. After Ms. Gaumer became involved in the case, plaintiff was required to bring a discovery motion. Because of the discovery delays, the parties did not agree on an arbitration date until May 1, 2001. During the week before the scheduled arbitration, Ms. Gaumer requested a continuance because of a jury trial that was starting the next week. The arbitrator continued the arbitration to the week of July 25, 2001. The week before the rescheduled proceedings in July 2001, defendants requested a second continuance based on Mr. Harkhams health. The hearing was continued to September 11, 12, and 13, 2001. The dates were changed to September 12 and 13, 2001.
On September 11, 2001, Mr. Harkham sent a letter via facsimile transmission to Mr. Light. Mr. Harkham stated he would be unable to appear for the September 12 and 13 arbitration. Ms. Gaumer advised Mr. Light that she had not spoken to Mr. Harkham before the September 11, 2001, letter was transmitted. Ms. Gaumer never indicated that any psychological issues would impact her ability to represent her clients.
Because of the September 11, 2001, attacks, the arbitrator requested that only counsel appear on September 12, 2001, for purposes of discussing stipulations and objections to exhibits. At that time, Ms. Gaumer raised the issue of her inability to perform because of the attacks.
Mr. Light requested that the motion to continue be heard on the record. The September 13, 2001, hearing transcript provides the following information: Ms. Gaumer stated that Mr. Harkham had been upset about his two children that lived in New York; Mr. Harkham eventually found out that they were uninjured by the attacks; Ms. Gaumer stated that she was so emotionally upset about the incidents that she had to seek counseling on the evening of September 12, 2001; she requested a continuance because the events brought back memories of childhood experiences; she felt unable to prepare Mr. Harkham as a witness or to present evidence due to her emotional state; and she denied attempting to delay the proceeding.
The arbitrator indicated that he wanted to conclude the matter by the end of September 2001. He noted that the parties had spent September 12, 2001, reviewing exhibits which would continue for most of the remainder of September 13, 2001. However, in light of Ms. Gaumers arguments, the arbitrator decided to grant her continuance request. The arbitrator stated that he would not require her to present any evidence on September 13, 2001. The arbitrator subsequently stated the parties agreed to continue the arbitration to September 21, 24, and 25, 2001. Ms. Gaumer specifically agreed to the continuance.
Thus, the record shows that, contrary to defendants arguments, Ms. Gaumers request to continue the hearing was granted due to her emotional distress claims. The arbitrator indicated that counsel did not have to present any evidence on September 13, 2001. The arbitrator then continued the matter to September 21, 2001. Defendants, nevertheless (and frankly inexplicably) continue to argue that the award should be vacated due to the arbitrators failure to continue the hearing. This claim is frivolous.
In addition, at oral argument, defense counsel argued that no continuance was granted on September 13, 2001; hence, she saw no need to mention it in her declaration filed in superior court or before us in the opening brief. But the truth is a continuance was sought and granted on September 13, 2001. On September 13, 2001, the arbitrator explicitly noted that defendants were seeking to continue the hearing. Further, defense counsel identified reasons which constituted good cause to continue the hearing. The arbitrator eventually ruled: "So were obviously going to have to reschedule the hearing. Were going to have to continue the hearing." The contention raised at oral argument that no continuance was granted on September 13, 2001, is untrue and frivolous.
2. The October 17, 2001, Continuance Request
The second continuance request was made on October 17, 2001. At the conclusion of the proceedings on October 12, 2001, the matter had been set for hearing on October 18 and October 19, 2001. Plaintiffs counsel was cross-examining Mr. Harkham when the hearing was adjourned to October 18, 2001. The second continuance request was made prior to the October 18 session, so that Mr. Harkham could attend to issues caused by a close friends illness. Mr. Harkham had testified on September 17, 18, and 19, and October 11 and 12, 2001. However, Mr. Harkham did not appear at the October 18, 2001, session.
On October 17, 2001, the arbitrator denied defendants continuance request so that Mr. Harkham could visit a sick friend who was having "minor surgery." Mr. Harkham chose to visit the friend and did not attend the October 18, 2001 hearing. Based on Mr. Harkhams absence and Ms. Gaumers election not to put on another witness out of order, she chose not to proceed. The arbitrator then deemed the defendants case closed.
Defendants argue that the arbitrators refusal to grant a continuance to allow Mr. Harkham to visit a sick friend resulted in severe prejudice. Ms. Gaumer declared that the rulings prevented Sean Foley and Trinka Pham, the US Boys, Inc. computer specialist and controller respectively, from testifying. Neither claim has any merit whatsoever. First, the arbitrator acted well within his discretion in finding no good cause existed to continue the arbitration based on Mr. Harkham friends "minor surgery." (§ 1282.2; subd. (b).) Second, the record amply demonstrates that Mr. Harkhams decision to visit the sick friend had no impact on the ability of Ms. Gaumer to present the alleged essential third-party witnesses. Rather, as Ms. Gaumers declaration filed in the trial court aptly demonstrates, it was her decision (based on Mr. Harkhams absence) not to put on another witness out of order and without his assistance. It was only then that the arbitrator deemed defendants case closed. Mr. Harkham apparently decided that the sick friends business affairs were more important than his own and chose to visit the ailing individual rather than attend the October 18, 2001 hearing. Rule 31 specifically authorizes the arbitrator to proceed in Mr. Harkhams absence. Rule 31 provides in part, "Unless the law provides to the contrary, the arbitration may proceed in the absence of any party or representative who, after due notice, fails to be present or fails to obtain a postponement . . . ." No abuse of discretion occurred.
Third, the evidence defendants sought to introduce concerning computer down time was, in fact, presented through the affidavit of Mr. Foley, the US Boys, Inc. computer specialist. Section 1286.2, subdivision (a)(5) provides that an award may be vacated if the court determines the partys rights were substantially prejudiced by the arbitrators refusal to hear evidence material to the controversy. The obligation to hear evidence under this section does not mean that it must be orally presented or that live testimony is required. (Schlessinger v. Rosenfeld, Meyer & Susman (1995) 40 Cal.App.4th 1096, 1105; see Lewis v. Superior Court (1999) 19 Cal.4th 1232, 1248, 970 P.2d 872; Gonzales v. Interinsurance Exchange (1978) 84 Cal. App. 3d 58, 63, 148 Cal. Rptr. 282.) It also does not require that the testimony be subject to cross-examination. (Schlessinger v. Rosenfeld, Meyer & Susman , supra, 40 Cal.App.4th at p. 1105; see Buxton v. Lynaugh (5th Cir. 1989) 879 F.2d 140, 145.) Accordingly, section 1286.2, subdivision (a)(5) was satisfied when the arbitrator admitted the declaration at defendants request.
The parties agreed to arbitration under the American Arbitration Association rules. Rule 22 authorizes an arbitrator to hold a preliminary hearing to clarify the issues. Rule 32 sets forth the method for conducting a hearing and examining witnesses. However, rule 32 also gives the arbitrator discretion to vary the procedure. Rule 34 specifically permits an arbitrator to "receive and consider the evidence of witnesses by declaration." Mr. Foleys declarations on the proffered testimony were admitted into evidence. Because Mr. Foleys declaration concerning the proffered testimony was admitted into evidence, the claim of prejudicial error is meritless.
Fourth, defendants argument that Ms. Pham was barred from testifying based on the denial of the continuance request is without merit. At the hearing, the arbitrator queried of Ms. Gaumer: "Well, you indicated you had only one more witness, Mr. Foley; is that right?" To which Ms. Gaumer replied, "Yes." The arbitrator then expressly queried: "Not Ms. Pham?" Ms. Gaumer unequivocally replied: "Not Ms. Pham. Mr. Foley. Mr. Foley can testify . . . ." Thus, the arbitration hearing transcript shows that Ms. Gaumer stated Ms. Pham would not be called to testify. It is frivolous to argue on appeal the arbitrator prevented Ms. Pham from testifying.
B. The Bias Claim
Defendants claim the arbitrator was biased against them. In the case of an arbitrator, the Court of Appeal has defined bias as follows, "To support a claim of bias, a party must demonstrate the arbitrator had an interest in the subject matter of the arbitration or a preexisting business or social relationship with one of the parties which would color the arbitrators judgment." (Luster v. Collins (1993) 15 Cal.App.4th 1338, 1345; see Reed v. Mutual Service Corp., supra, 106 Cal.App.4th at p. 1371.) Citing Pacific etc. Conference of United Methodist Church v. Superior Court (1978) 82 Cal. App. 3d 72, 86, 147 Cal. Rptr. 44, in Reed v. Mutual Service Corp., supra, 106 Cal.App.4th at page 1371, an arbitration case, the Court of Appeal defined bias in a slightly different way, "Bias exists where the judge evidences a "predisposition to decide . . . an issue in a certain way, which does not leave the mind perfectly open to conviction.""
Defendants had the burden of establishing facts to support their position that the arbitrator was biased. (Reed v. Mutual Service Corp., supra, 106 Cal.App.4th at p. 1371; Betz v. Pankow (1993) 16 Cal.App.4th 919, 926.)
1. The Failure to Raise Bias In the Trial Court
The bias issue was not raised in the trial court. Relying on Catchpole v. Brannon (1995) 36 Cal.App.4th 237, 244, defendants argue that the issue of bias may be raised for the first time on appeal. Catchpole held a claim of judicial bias based on gender could be raised for the first time on appeal. (Id. at p. 244.) In so holding, the Court of Appeal argued: "Few more daunting responsibilities could be imposed on counsel than the duty to confront a judge with his or her alleged . . . bias in presiding at trial. The risk of offending the court and the doubt whether the problem could be cured by objection might discourage the assertion of even meritorious claims. Requiring the issue to be raised at trial would therefore have the unjust effect of insulating judges from accountability for bias. [Citation.]" (Ibid.) The theory articulated in Catchpole was that a lawyer would be unwilling to confront a judge with an allegation of gender bias.
However, this theory has no application here. This case does not involve an argument that defendants should have raised the question of bias before the arbitrator. The theory discussed in Catchpole is therefore inapplicable. Rather, plaintiff argues that the issue has been waived because of the failure to raise the bias issue, not before the arbitrator, but in superior court. The question of whether an award must be set aside because of arbitrator bias is a factual issue resolved in the first instance by the trial court. (Reed v. Mutual Service Corp., supra, 106 Cal.App.4th at pp. 1365, 1370-1371; Betz v. Pankow, supra, 16 Cal.App.4th at p. 926; Figi v. New Hampshire Ins. Co. (1980) 108 Cal. App. 3d 772, 776, 166 Cal. Rptr. 774.) In Britz, Inc. v. Alfa-Laval Food & Dairy Co. (1995) 34 Cal.App.4th 1085, 1102, the Court of Appeal held, "[A] trial court considering a petition to confirm or vacate an arbitration award is required to determine, de novo, whether the circumstances disclose a reasonable impression of arbitrator bias, when that issue is properly raised by a party to the arbitration." Because defendants are claiming arbitrator bias, they had the burden of establishing facts in the trial court supporting their position. (Reed v. Mutual Service Corp., supra, 106 Cal.App.4th at pp. 1370-1371; Figi v. New Hampshire Ins. Co., supra, 108 Cal. App. 3d at p. 776.) No claim or showing of any actual or potential bias by the arbitrator was presented in the trial court. Defendants failure to raise the issue before the trial court waives the issue.
In any event, defendants are not entitled to any relief on the theory the arbitrator was biased. Defendants argue bias was shown because: the arbitrator applied improper legal standards in failing to consider defendants defenses; the arbitrator rushed defendants case and allowed plaintiff time to improperly cross-examine a witness; and the arbitrator relied on improper credibility (or character) evidence. These arguments are not facts establishing that bias arose from some outside source collateral to the proceeding. Instead, the arguments demonstrate that defendants are seeking to indirectly challenge the legal and evidentiary rulings of the court by characterizing the contentions as arbitrator bias. Even assuming the decision was based on any error of law or fact, judicial intervention to correct the error is unavailable. (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at pp. 10-11, 28; Sy First Family Ltd. Partnership v. Cheung (1999) 70 Cal.App.4th 1334, 1346.) Due to the extremely limited grounds for judicial review, the rule is that an arbitrator may make a binding award, which must be judicially enforced even though the award conflicts with substantive law. (Reed v. Mutual Service Corp., supra, 106 Cal.App.4th at p. 1365; State Farm Mut. Auto. Ins. Co. v. Guleserian (1972) 28 Cal. App. 3d 397, 402, 104 Cal. Rptr. 683.) None of the grounds, which defendants have incorrectly characterized as arbitrator bias, establish a basis for judicial review. They all concern alleged legal and factual errors, which defendants have improperly attempted to characterize as arbitrator bias. As shown below, however, even if the claims are deemed to be grounds for relief, they are meritless.
2. The Defenses to Plaintiffs Claim
Defendants contend, "The arbitrator applied improper legal standards in failing to consider [defendants] defenses." Defendants argue the arbitrator improperly viewed plaintiffs case as being established by the mere introduction of the promissory note and Mr. Harkhams guaranty. Hence, defendants reason that the arbitrator rejected any notion of the existence of contractual defenses. Section 1286.2, subdivision (a)(5) provides that an award may be vacated if the court determines the partys rights were substantially prejudiced by the arbitrators refusal to hear evidence material to the controversy. This section ensures that a party will not be unfairly deprived of a fair opportunity to present his or her side of the dispute. (Moncharsh v. Heily & Blase , supra, 3 Cal.4th at p. 13; Schlessinger v. Rosenfeld, Meyer & Susman, supra, 40 Cal.App.4th at p. 1110.)
Here, the record does not support defendants argument the arbitrator refused to consider defenses to plaintiffs case. Rather, defendants were permitted to fairly present their side of the case. The arbitrator stated (at the beginning of the arbitration) that the existence of the note and guaranty were prima facie evidence of plaintiffs case. However, the arbitrator never stated that the existence of a prima facie case disproved any of the defenses or counterclaims. Defendants concede they consistently and thoroughly raised their defenses and counterclaims to plaintiffs case. Defendants presented the testimony of a certified public accountant, Jon Stein. Mr. Stein testified at length that defendants had been defrauded by the sale. In addition, Mr. Harkham testified extensively about the alleged fraud claims. In ruling on plaintiffs motion for judgment following the presentation of defendants case, the arbitrator stated: "As to the claims relating to Mr. Kapelas departure and consequent loss of sales, [defendants] have presented sufficient evidence to create reasonable inferences that warrant a complete exploration of all of the facts. Mr. Kapela was a long-time, key employee, who left US Boys and obtained immediate employment very shortly after the closing. He was a highly paid salesperson and sales manager, with relationships with Victoria Secret and Express. Unresolved questions include: why Mr. Kapela left; what the sellers, the other employees and the sellers agent, Mr. Rogers, knew about his plans; when they knew them; why Mr. Kapelas planned departure (if known) was not revealed before the closing; whether the sellers deliberately concealed Mr. Kapelas plans (so as not to "rock the boat") and told their other employees to do likewise; and whether Mr. Kapelas continued presence would have alleviated the problems encountered by US Boys after the sale. [P] There are similar unresolved questions regarding the loss of business from the Limited Group, including: when did the issues relating to quality and perceived child labor violations first surface; how close contact did sellers and their employees maintain with the various companies under the Limited umbrella; what was their course of dealing; what did the sellers, their employees and Mr. Rogers know; when did they know it . . .; and why were these issues not revealed (again, if known to the sellers) before the closing." The arbitrator did not bar the introduction of relevant evidence and gave defendants a fair opportunity to present their case. Defendants claims to the contrary in the face of the record is not only totally lacking in merit but frivolous.
3. Cross-Examination
Defendants cannot prevail on the contention the arbitrator was biased because he "rushed" their case and allowed plaintiff "virtually unlimited cross-examination" of Mr. Harkham. Defendants conclude that the arbitrators consideration of the evidence under such circumstances could not have been equal. In support of their position, defendants have cited numerous examples of alleged inappropriate conduct by the arbitrator in the manner in which Mr. Harkhams testimony was given on direct and by cross-examination. We reject defendants contention which amounts to nothing more than disagreement with the arbitrator about the manner in which he conducted the proceedings. Section 1282.2 provides in part: "Unless the arbitration agreement otherwise provides, or unless the parties to the arbitration otherwise provide by an agreement which is not contrary to the arbitration agreement as made or as modified by all the parties thereto: [P] . . . [P] (c) The neutral arbitrator shall . . . rule on the admission and exclusion of evidence and on questions of hearing procedure and shall exercise all powers related to the conduct of the hearing. [P] (d) The parties to the arbitration are entitled to be heard, to present evidence and to cross-examine witnesses appearing at the hearing, but rules of evidence and rules of judicial procedure need not be observed. On request of any party to the arbitration, the testimony of witnesses shall be given under oath."
In this case, the arbitrator did nothing more than control the proceedings. Specifically, the arbitrator had a right to control the manner in which the witnesses testified on direct examination and by cross-examination. Defendants disagreement with the arbitrators manner of controlling the proceedings is not a basis for vacating the award.
4. Credibility Evidence
We reject the argument the arbitrator relied on improper credibility (or character) evidence to render the award in favor of plaintiff. Defendants argument is that in "finding against Mr. Harkham," the arbitrator improperly rejected declarations of third-party witnesses concerning the seller misrepresentations and considered evidence of past bad acts by Mr. Harkham. In short, defendants claim the arbitrators factual determinations are incorrect and should be reversed. The argument is not subject to review. (Moncharsh v . Heily & Blase, supra, 3 Cal.4th pp. 6, 11, 27-28;Marsch v. Williams, supra, 23 Cal.App.4th at p. 244.)
C. Arbitration Fees
Defendants also argue that the award should have been corrected to delete the arbitrator fees. As defendants concede, however, the controlling authority in this case is section 1284.2, which states, "Unless the arbitration agreement otherwise provides or the parties to the arbitration otherwise agree, each party to the arbitration shall pay his pro rata share of the expenses and fees of the neutral arbitrator, together with other expenses of the arbitration incurred or approved by the neutral arbitrator, . . ." The three agreements at issue in this case, the stock purchase agreement, the note, and Mr. Harkhams guaranty all provide that the prevailing party is entitled to reimbursement for costs. Moreover, the parties agreed to be bound by the American Arbitration Association rules. Rule 45(c) allows the arbitrator to assess the fees, expenses, and compensation and to apportion them "in such amounts as the arbitrator determines is appropriate." Because defendants agreed to be bound by the AAA rules, the arbitrator could properly apportion the fees to them so that the award should not be corrected. The argument to the contrary is meritless.
D. The Sanctions Motion
Plaintiff has filed a sanctions request from defendants and their counsel for a frivolous appeal. Section 907 provides: "When it appears to the reviewing court that the appeal was frivolous or taken solely for delay, it may add to the costs on appeal such damages as may be just." Rule 27(e)(1) of the California Rules of Court states: "On a partys or its own motion, a Court of Appeal may impose sanctions, including the award or denial of costs, on a party or an attorney for: [P] (A) taking a frivolous appeal or appealing solely to cause delay; . . ." The California Supreme Court has defined a frivolous appeal as follows, "An appeal should be held to be frivolous only when it is prosecuted for an improper motive—to harass the respondent or delay the effect of an adverse judgment—or when it indisputably has no merit—when any reasonable attorney would agree that the appeal is totally and completely without merit." (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 649-650, 183 Cal. Rptr. 508, 646 P.2d 179; Dodge, Warren & Peters Ins. Services, Inc. v. Riley (2003) 105 Cal.App.4th 1414, 1422.)
This appeal indisputably lacks merit. Defendants appealed the judgment confirming the arbitration award against them by asserting the arbitrator failed to grant two continuances which substantially prejudiced their case and he was biased against them. As shown above, defendants made false under oath statements in the trial court and inaccurate statements in the opening and reply briefs that the arbitrator refused to continue the matter following the September 11, 2001, terrorist attacks. This is false because a continuance was in fact granted from September 13, 2001, to September 21, 2001. In addition, the second continuance request made by Mr. Harkham to handle the business affairs of a friend who was having "minor surgery" was without good cause and could be properly denied by the arbitrator. The issues concerning bias are also totally lacking in merit because they raise issues of law and fact regarding the arbitrators rulings on evidentiary matters, including credibility issues. They also were never raised in the trial court. Under all the circumstances including the facts and controlling legal authority, we conclude any reasonable attorney would agree that defendants appeal is totally and completely without merit. (In re Marriage of Flaherty, supra, 31 Cal.3d at p. 650; Pierotti v. Torian (2000) 81 Cal.App.4th 17, 32.)
Furthermore, this appeal has been pursued for the purpose of delay. The litigation of this matter began in December 1999. The petition to compel arbitration was granted on March 22, 2000. The arbitration was scheduled to begin in May of 2001. The arbitrator granted two requests by defendants to continue the arbitration to September 12, 2001. On September 13, 2001, the arbitrator granted defendants a third continuance request. The arbitrator returned the award on April 26, 2002. Plaintiff filed the petition to confirm the award. Defendants opposed the award by falsely claiming that a continuance had been denied and that the arbitrators continuance rulings had resulted in their inability to present evidence. The trial court entered judgment on the award on June 3, 2002. Notice of entry of judgment was served on June 3, 2002. Defendants waited until the sixtieth day after service of the notice of entry of judgment to file a notice of appeal. Despite numerous requests by plaintiff, defendants delayed the preparation of a joint appendix. Oral argument was held over a year after the judgment was entered even though a preference order was issued.
Plaintiff has requested $ 113,551.00 in sanctions consisting of $ 86,301.00 in interest (per diem interest at the legal rate for loss of use of the money) and $ 27,250 in attorney fees. In determining the appropriate amount of sanctions an appellate court may consider: the amount of attorney fees incurred in defending against the appeal; the amount of the judgment against defendants; the degree of objective frivolousness and delay; and the need to discourage future improper conduct. (DeRose v. Heurlin (2002) 100 Cal.App.4th 158, 182; Pierotti v. Torian, supra, 81 Cal.App.4th at pp. 33-34.)
Plaintiffs counsel submitted a declaration establishing that she has incurred in excess of $ 27,250 in attorney fees defending this appeal. This is sufficient to compensate plaintiff for expenses in defending against a frivolous appeal. The attorney fees are also an appropriate sanction to discourage defendants and their counsel from filing further frivolous appeals. The total amount of the judgment in this case was $ 1,623,236.83 which justifies a substantial sanction award. This is particularly appropriate in this case where defendants have had use of the unpaid sum while an appeal from a judgment confirming an arbitration award was being pursued. The goal of providing a speedy and inexpensive means to resolve the dispute through arbitration has been defeated by the pursuit of this frivolous appeal. (Pierrotti v. Torian, supra, 81 Cal.App.4th at p. 35; Schlessinger v. Rosenfeld, Meyer, & Susman, supra, 40 Cal.App.4th 1105.)
The degree of frivolousness is also very high considering that a substantial portion of the claims were based on false representations by defendants and their counsel as to what actually occurred during the proceedings (e.g., the continuances, the failure to admit evidence concerning third-party witnesses). Moreover, the remaining claims raised in the appeal were based on claims for which there was clearly no basis for legal review. In each argument presented, defendants unconvincingly attempted to recharacterize the issues. The arguments all related to legal and factual matters none of which were even close. Under clear and well-established standards judicial review of an arbitrators award is extremely limited precluding relief even for legal and factual errors of an arbitrator that cause substantial injustice. (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at pp. 11, 33; Reed v. Mutual Service Corp., supra, 106 Cal.App.4th at p. 1365.)
One final thought is in order concerning the sanctions amount. Both sides have submitted appendices containing documents which would otherwise not be properly included therein under the express terms of rule 5.1(b) of the California Rules of Court. At oral argument, it was suggested that perhaps plaintiff should not recover attorney fees for challenging the inclusion of documents outside the scope of rule 5.1(b) of the California Rules of Court by defendants in their appendix. However, it turns out that both sides, without engaging in frivolous conduct, could include the documents in their respective appendices in support of or opposition to the sanctions motion. Therefore, no sanctions will be imposed against either party for having included what would otherwise be documents outside the scope of rule 5.1(b) of the California Rules of Court in their appendices. It is not frivolous to suggest the documents are admissible on the sanctions issue. Further, defendants did not cite to the inadmissible documents in their briefs for any improper purpose.
Accordingly, plaintiffs sanction request for $ 27,500 is reasonable and supported by the record. This amount together with costs on appeal is sufficient to discourage defendants and counsel from such conduct in the future. Sanctions in the amount of $ 27,500 are imposed jointly and severally against defendants, Hartman Group, Inc., US Boys, Inc., and David Harkham, and their counsel Christie Gaumer, jointly and severally. No sanctions are imposed against Ronald Kaplan. Mr. Kaplan merely argued the issue of sanctions. None of his contentions on the sanctions issue were frivolous.
IV. disposition
The judgment is affirmed. Plaintiff, Judy L. Nagler, is awarded her costs on appeal from defendants. Plaintiff is awarded sanctions in the amount of $ 27,500 jointly and severally from defendants, US Boys, Inc. and David Harkham and their counsel Christie Gaumer.
We concur: ARMSTRONG, J., MOSK, J.