Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Los Angeles County No. BC292133, Paul Gutman, Judge.
Law Office of Carol L. Vallely and Carol L. Vallely for Cross-complainant and Respondent.
Jasdeep S. Ahluwalia for Cross-defendants and Appellants.
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
SUMMARY
Appellants Anil Sagar, Deepak Sagar, and Jimmy Colabawalla appeal from a judgment entered in favor of Hitesh Patel following binding arbitration. Appellants argue the arbitrator exceeded his powers by awarding Patel attorney’s fees. We conclude that the arbitrator’s powers included deciding whether Patel was entitled to attorney’s fees, which he sought in his cross-complaint. The parties’ agreement to submit the matter to binding arbitration expressly provided for arbitration of the entire dispute between the parties, without limitation. Even if the arbitrator made an error of fact or law, his decision to award attorney’s fees was within his powers and is not subject to judicial review.
BACKGROUND AND PROCEDURAL HISTORY
Cross-complainant/respondent Hitesh Patel and cross-defendants/appellants Anil Sagar, Deepak Sagar, and Jimmy Colabawalla formed a partnership in 1994 to own and operate a stationery store. The partnership agreement provided that profits and losses would be split equally among the four partners. The Sagar brothers made capital contributions of $65,000 (Deepak) and $29,500 (Anil). Patel worked in the business as its full-time manager. He received a monthly salary of $2000. Colabawalla acted as the accountant for the business and received a monthly salary of about $468. The parties incorporated their business in 1998. Each partner became a corporate officer and received an equal number of shares of stock.
The business made money from 1995 through 1998. From 1999 through 2002, it lost more and more money. From 1996 through 2002, the business distributed $143,503.53 to Anil Sagar, $23,278.76 to Deepak Sagar, and $16,537.17 to Colabawalla. Patel received no distribution. In addition, Anil Sagar used business revenues to pay $24,500 against a personal line of credit.
Patel stopped working at the store in March 2000.
Patel and the cross-defendants were sued by Devani-Khetani, Inc., from which the partners sublet the business premises. Devani-Khetani had itself been sued for unpaid rent by EYP Realty, LLC. Patel filed a cross-complaint against the Sagars; Colabawalla; Paper Solutions & Office Supplies, Inc. (the parties’ corporation); Paper Innovations (a partnership); Devani-Khetani, Inc.; Sanjay Khetani; and EYP Realty. Patel’s cross-complaint alleged causes of action for breach of contract against all cross-defendants except EYP; fraud against Khetani and Devani-Khetani; fraudulent transfer against the Sagars, Colabawalla, and Khetani; conspiracy against the Sagars, Colabawalla, and Khetani; breach of oral contract against the Sagars, Colabawalla, Khetani, Paper Innovations, and Paper Solutions & Office Supplies; imposition of a constructive trust against the Sagars, Colabawalla, Khetani, Paper Innovations, and Paper Solutions & Office Supplies; rescission of the lease and agreement to sell it to the partnership based on false representations by all cross-defendants; and breach of the implied covenant of good faith and fair dealing against all cross-defendants. Patel sought compensatory and punitive damages, a constructive trust, rescission, declaratory relief, and “costs, expenses, disbursements and attorney fees as permitted by law and/or equity.”
Patel also purported to assert the cause of action against Rajesh Devani, who was not listed in the caption as a cross-defendant. The record does not indicate whether he was substituted as a Doe defendant.
As far as the Appellants’ Appendix reveals, only the Sagars and Colabawalla answered Patel’s cross-complaint.
During mediation, Patel and appellants agreed to submit the claims raised in the cross-complaint to binding arbitration. Their written stipulation stated, in pertinent part, “Patel and the Sagar Parties reserve all their rights one against the other. They will dismiss their x-complaint against 1 another tolling the statute of limitations as of the date of the underlying litigation. Their disputes will be resolved in binding arbitration.”
The parties selected Judge David Perez (retired) to serve as the sole arbitrator. Following a three-day arbitration, Judge Perez issued an interim award in Patel’s favor for $100,402.98. The award requested additional briefing regarding Patel’s entitlement to attorney’s fees, indemnity, and/or punitive damages. The parties submitted supplemental briefs. Patel argued he was entitled to attorney’s fees as “consequential damages” resulting from the appellants’ actions in breach of their fiduciary duties, and under Civil Code section 1021.6 because he was entitled to implied indemnity. The appellants argued Patel was not entitled to attorney’s fees because neither the partnership agreement nor any applicable statute provided for such fees.
In his final award, Judge Perez found Patel had a right to implied contractual indemnity from appellants against “all judgments in the underlying case . . . .” Judge Perez further found that Patel was “entitled to recovery of his reasonable attorney’s fees and costs as a result of the [appellants’] breach of their fiduciary duties as set forth in the Partnership Agreement and Corporate By-laws . . . .” Judge Perez awarded Patel $42,145.75 for attorney’s fees.
Patel filed a motion to confirm the arbitration award. Appellants’ opposition to the motion asked the court to vacate the award or correct it by deleting the attorney’s fees awarded. Appellants contended in the trial court -- as they do here -- that Judge Perez exceeded his powers as an arbitrator. The trial court confirmed the award and entered judgment.
DISCUSSION
Public policy strongly favors arbitration as a speedy and relatively inexpensive means of dispute resolution. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9 (Moncharsh).) “Because the decision to arbitrate grievances evinces the parties’ intent to bypass the judicial system and thus avoid potential delays at the trial and appellate levels, arbitral finality is a core component of the parties’ agreement to submit to arbitration.” (Id. at p. 10.) Courts therefore indulge every reasonable intendment to give effect to arbitration proceedings. (A.M. Classic Construction, Inc. v. Tri-Build Development Co. (1999) 70 Cal.App.4th 1470, 1474.)
In accordance with these policies, judicial review of arbitration awards is limited to the statutory grounds found in Code of Civil Procedure sections 1286.2 [grounds for vacating an award] and 1286.6 [grounds for correcting an award]. (Moncharsh, supra, 3 Cal.4th at pp. 27-28; Moshonov v. Walsh (2000) 22 Cal.4th 771, 775.) Unless one of the enumerated grounds exists, a court may not vacate or correct an award even if it contains a legal or factual error on its face and results in substantial injustice. (Moshonov v. Walsh, supra, at p. 775; Moncharsh, supra, 3 Cal.4th at pp. 11, 25, 28 .) The party attacking an arbitration award bears the burden of affirmatively establishing the existence of error by a proper record. (Lopes v. Millsap (1992) 6 Cal.App.4th 1679, 1685.)
Code of Civil Procedure section 1286.2, subdivision (a) permits vacation of an arbitration award if “(1) The award was procured by corruption, fraud or other undue means. [¶] (2) There was corruption in any of the arbitrators. [¶] (3) The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator. [¶] (4) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted. [¶] (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. [¶] (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.”
Appellants contend that the arbitrator exceeded his powers by awarding Patel attorney’s fees. They argue the contracts between the parties – the partnership agreement and corporate by-laws – did not contain a provision for attorney’s fees. They further argue that none of the causes of action in the cross-complaint supported an award of statutory attorney’s fees, and the cross-complaint did not plead breach of fiduciary duty or implied indemnification causes of action.
“In determining whether an arbitrator exceeded his powers, we review the trial court’s decision de novo, but we must give substantial deference to the arbitrator’s own assessment of his contractual authority.” (Jordan v. Department of Motor Vehicles (2002) 100 Cal.App.4th 431, 443-444.)
“[I]t is within the ‘powers’ of the arbitrator to resolve the entire ‘merits’ of the ‘controversy submitted’ by the parties. [Citations.] Obviously, the ‘merits’ include all the contested issues of law and fact submitted to the arbitrator for decision. The arbitrator’s resolution of these issues is what the parties bargained for in the arbitration agreement.” (Moncharsh, supra, 3 Cal.4th at p. 28.) Indeed, Code of Civil Procedure section 1283.4 requires the arbitrator’s written award to determine all submitted questions “necessary in order to determine the controversy.” “[I]t is for the arbitrators to determine what issues are ‘necessary’ to the ultimate decision.” (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 372 (AMD).)
The cross-complaint sought recovery of attorney’s fees. Paragraph 26 -- contained in the cause of action for breach of contract regarding the lease -- alleged Patel “was required to hire an attorney to defend himself against the underlying lawsuit,” and sought attorney’s fees as damages. This paragraph was incorporated by reference in every other cause of action. In addition, paragraph 47 -- part of the fraudulent transfer of partnership/corporate assets cause of action -- alleged that it was necessary for Patel “to hire counsel to defend this lawsuit” and apparently requested attorney’s fees as damages. Paragraph 53 also alleged that Patel incurred attorney’s fees and sought recovery of “all attorney’s fees which were incurred as a result of the transaction, [and] for all attorney fees incurred as a result of defending and determining his rights in this lawsuit . . . .” Paragraph 53 was part of the conspiracy claim, which concerned the attempt to open a second store. The prayer of the cross-complaint also included a request for attorney’s fees on all causes of action “as permitted by law and/or equity.”
The arbitration agreement here was extremely broad. The parties agreed that “[t]heir disputes will be resolved in binding arbitration.” They did not impose any restrictions on the arbitrator. Accordingly, the arbitrator was broadly empowered to decide all issues within the scope of the parties’ “disputes.” Patel’s entitlement to attorney’s fees was an element of the parties’ “disputes” because the cross-complaint sought attorneys’ fees in every cause of action. The arbitrator therefore had the power to decide Patel’s entitlement to attorney’s fees, as it was one of the “contested issues of law and fact submitted to the arbitrator for decision.” (Moncharsh, supra, 3 Cal.4th at p. 28.) Even if the arbitrator made a factual or legal error in finding that Patel was legally entitled to attorney’s fees, such an error did not constitute action in excess of the arbitrator’s powers. The issue was within the scope of the controversy submitted to the arbitrator. Arbitrators do not exceed their powers by making legal or factual mistakes or giving erroneous reasons for their decisions. (Id. at pp. 12, 28.) “[C]ourts will not review the validity of the arbitrator’s reasoning” or “ the sufficiency of the evidence supporting an arbitrator’s award.” (Id. at p. 11.)
Even if appellants are correct that neither the contracts between the parties nor any theory pleaded in the cross-complaint entitled Patel to recover attorney’s fees, the point is immaterial. Unless arbitrators are specifically required to act in conformity with rules of law, they “ ‘may base their decision upon broad principles of justice and equity, and in doing so may expressly or impliedly reject a claim that a party might successfully have asserted in a judicial action.’ ” (Moncharsh, supra, 3 Cal.4th at pp. 10-11, quoting Sapp v. Barenfeld (1949) 34 Cal.2d 515, 523.) Arbitrators “ ‘are not bound to award on principles of dry law, but may decide on principles of equity and good conscience, and make their award ex aequo et bono [according to what is just and good].’ ” (Moncharsh, supra, 3 Cal.4th at p. 11, quoting Muldrow v. Norris (1852) 2 Cal. 74, 77.) “ ‘[A] court may not vacate an award because the arbitrator has exceeded the power the court would have, or would have had if the parties had chosen to litigate, rather than arbitrate the dispute. Those who have chosen arbitration as their forum should recognize that arbitration procedures and awards often differ from what may be expected in courts of law.’ ” (AMD, supra, 9 Cal.4th at p. 388, quoting Rochester City School Dist. v. Rochester Teachers Assn. (1977) 41 N.Y.2d 578, emphasis omitted.) “ ‘Parties who stipulate in an agreement that controversies that may arise out of it shall be settled by arbitration, may expect not only to reap the advantages that flow from the use of that nontechnical, summary procedure, but also to find themselves bound by an award reached by paths neither marked nor traceable and not subject to judicial review.’ [Citation.]” (Moncharsh, supra, 3 Cal.4th at p. 11.)
Appellants’ argument about the legal merits of the arbitrator’s award of attorney’s fees is no more than an attempt to obtain judicial review of the validity of the arbitrator’s reasoning or the sufficiency of the evidence supporting the award. Any such judicial review would contravene the purposes of the parties’ agreement to resolve their disputes by binding arbitration and is impermissible.
If appellants wanted to preclude the arbitrator from awarding attorney’s fees to Patel, they should have taken steps to exclude the issue from the scope of arbitration, e.g., by moving to strike the allegations in the cross-complaint seeking fees or by so specifying in the arbitration agreement. Given several requests for attorney’s fees in the cross-complaint and the broadly worded arbitration agreement, the arbitrator had the power to decide the issue. He did not exceed his powers by deciding it adversely to appellants.
DISPOSITION
The judgment is affirmed. Respondent is awarded his costs on appeal.
We concur: COOPER, P.J., FLIER, J.
Section 1286.6 provides that an arbitration award may be corrected if “(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; [¶] (b) The arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted; or [¶] (c) The award is imperfect in a matter of form, not affecting the merits of the controversy.”