Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County, No. 06CC02588, James P. Gray, Judge.
Law Offices of Scott E. Schutzman, Scott E. Schutzman and Lee W. Chen for Plaintiffs and Appellants.
Hamburg, Karic, Edwards & Martin LLP, Steven S. Karic and Fredric R. Brandfon for Defendant and Respondent.
OPINION
O’LEARY, J.
Albert R. Reda and Seamless Wi-Fi, Inc., a corporation formerly known as Internet Business’s International, Inc. (and hereafter referred to as IBI), appeal from a judgment confirming an arbitration award in favor of Globalist Internet Technologies, Inc. (Globalist). Reda and IBI contend the arbitration award should have been vacated because the arbitrator committed misconduct by excluding certain evidence and exceeded his powers. (Code Civ. Proc., § 1286.2, subds. (a)(3) & (4).) We find no error and affirm the judgment.
FACTS
1. The Original Litigation
Globalist successfully sued Reda, IBI, and Iron Horse Holdings, Inc. (Iron Horse), a company that held an ownership interest in IBI, for breach of contract and fraud arising out of the sale of two Internet Web sites by Globalist to IBI and Iron Horse. The final judgment awarded Globalist compensatory damages of $136,799.86 against Reda, IBI, and Iron Horse jointly and severally, and punitive damages of $136,799.86 against Reda and IBI. On May 4, 2005, we filed an opinion reversing the award of punitive damages against Reda only, but otherwise affirming the judgment. (Globalist Internet Technologies, Inc. v. Iron Horse Holdings Inc., et al. (May 4, 2005, G032813) [nonpub. opn.] (Globalist).) On the same date, we also filed our opinion affirming a judgment in favor of Soreena Salari (owner of Globalist), and his attorneys, in a malicious prosecution action filed against them by Reda (Reda v. Salari et al. (May 4, 2005, G033971) [nonpub. opn.] (Reda)), following a successful “anti-SLAPP” motion. (Code Civ. Proc., § 425.16.)
2. Settlement Negotiations
While the Globalist and Reda appeals were pending in this court, the parties were engaged in mediation before retired Judge William Sheffield. The parties involved in the mediation included Globalist, Solari, Reda, IBI, Iron Horse, Lou Cherry, and James Wilson. In our opinion in Globalist, we explained that Cherry was Reda’s partner in IBI and chairman of IBI’s board of directors; Wilson was president of Iron Horse. (Globalist, supra, G032813, typed opn. pp. 2-3.) On February 7, 2005, a handwritten stipulation for settlement was signed by the parties. The copies of that document contained in the appellant’s appendix are largely illegible, but the terms included that Reda would pay Globalist $75,000, Cherry would pay Globalist $25,000, and Wilson would assist in effectuating the sale of three “Iron Horse [p]roperties . . . for [Globalist’s] benefit[,]” and Globalist would release its claims. The task of drafting a settlement and release agreement was given to Reda and IBI’s attorney.
3. Current Complaint/Stipulation for Binding Arbitration/Arbitration Award
In January 2006, Reda and IBI filed the instant action against Globalist for breach of contract seeking specific performance of the February 7, 2005, stipulation for settlement. In September 2006, Reda, IBI, and Globalist stipulated to submit the dispute concerning the enforceability of the stipulation for settlement to binding arbitration before Judge Sheffield. The arbitration took place, but there is no evidentiary record from the proceedings.
The written arbitration award was signed on April 17, 2007. The arbitrator summed up the settlement dispute as follows: “Reda argues Globalist breached the settlement agreement by its failure to perform. Globalist contends it failed to perform, inter alia, because it (through Solari) was not informed before Solari signed the stipulation that the three properties to be transferred to it by Iron Horse . . . were in foreclosure.”
The arbitrator originally signed a decision on March 6, 2007, which omitted mention of IBI. The corrected award signed on April 17 clarified it was binding on Reda and IBI.
The arbitrator ruled against Reda and IBI. He concluded Reda had repudiated the stipulation for settlement. The parties intended there would be a more elaborate settlement agreement drafted by the parties—the February 7, 2005, stipulation for settlement was not meant to be the final agreement, nor did the parties treat it as being “firm.” Between February 28 and May 3, 2005, various drafts of a more complex settlement agreement were going back and forth between counsel, adding and deleting proposals as to final settlement terms. On March 17, Globalist’s attorney advised Reda that because Solari had not been informed as to the extent to which the Iron Horse properties were encumbered, the proposed cash payments from Reda and Cherry were unacceptable. After the decisions in the Globalist and Reda appeals were filed on May 4, the parties began “rethinking how the decision[s] may impact their respective settlement desires.” On May 26, Reda offered Globalist “‘$20,000 to settle all claims[,]’” but Globalist did not accept and “[a]t this point any potential settlement possibilities had vanished.” In August, Reda offered $25,000 as a settlement amount. The arbitrator concluded Reda’s $20,000 offer constituted a rejection of the stipulation for settlement.
As a separate reason for ruling against Reda and IBI, the arbitrator also found specific performance of the February 7, 2005, stipulation for settlement was not appropriate under the circumstances. To obtain specific performance, a plaintiff must be able to deliver to the defendant “all he would obtain in the contract.” The three properties Iron Horse was supposed to transfer to Globalist were no longer under its control, and thus beyond the power of Iron Horse, Reda, or any other parties to the stipulation to transfer to Globalist.
4. Motions to Vacate and Confirm Arbitration Award
Reda and IBI filed a motion to vacate the arbitrator’s award because of misconduct. (§ 1286.2, subd. (a)(3).) They asserted the arbitrator improperly excluded the testimony of Jennifer Friend, an attorney who represented Iron Horse and IBI in the mediation leading to the February 7, 2005, stipulation for settlement. Friend would have testified that during the mediation, Solari was told about the financially distressed condition of the three Iron Horse properties. The arbitrator excluded Friend’s testimony under the mediation privilege contained in Evidence Code section 1119. But he permitted another of Reda and IBI’s witnesses, Stacy Safion, to give testimony to the same effect (i.e., about Solari’s knowledge of the financial condition of the properties) because it was based on information obtained outside of the mediation. Reda asserted excluding Friend’s testimony was misconduct because the mediation privilege “serves no purpose” when a litigant is lying about what transpired in the mediation.
Reda and IBI also asserted the arbitrator exceeded his powers (§ 1286.2, subd. (a)(4)), by concluding specific performance of the stipulation for settlement was not an appropriate remedy due to Iron Horse’s inability to perform. Reda and IBI argued that because Iron Horse was not a party to the current action, its inability to perform the contract was outside the scope of the arbitration.
Globalist filed a motion to confirm the arbitration award. The trial court denied Reda and IBI’s motion and granted Globalist’s. A judgment was entered in Globalist’s favor awarding Reda and IBI nothing on their complaint and awarding Globalist costs.
DISCUSSION
Reda and IBI contend the trial court erred by confirming the arbitration award. They argue the trial court was required to vacate the award under Code of Civil Procedure section 1286.2. We conclude no grounds for disturbing the arbitrator’s award have been shown.
1. Judicial Review of Arbitration Awards
The arbitration agreement provided “[the] arbitration award shall be binding on the parties and final.” Arbitration awards are “final and conclusive because the parties have agreed that it be so.” (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 10 (Moncharsh).) “This expectation of finality strongly informs the parties’ choice of an arbitral forum over a judicial one. The arbitrator’s decision should be the end, not the beginning, of the dispute. [Citation.]” (Ibid.)
To ensure an arbitration decision is final and conclusive, only limited judicial review is available. Courts may not review the merits of the controversy, the validity of the arbitrator’s reasoning, or the sufficiency of the evidence. (Moncharsh, supra, 3 Cal.4th at p. 11.) The rule is that “with narrow exceptions, an arbitrator’s decision cannot be reviewed for errors of fact or law[,]” even if the error appears on the face of the award and causes substantial injustice. (Id. at pp. 6, 11.) “[A]n award reached by an arbitrator pursuant to a contractual agreement to arbitrate is not subject to judicial review except on the grounds set forth in [Code of Civil Procedure] sections 1286.2 (to vacate) and 1286.6 (for correction).” (Id. at p. 33.)
2. Arbitrator Misconduct
Code of Civil Procedure section 1286.2, subdivision (a), sets forth the bases on which a court shall vacate an arbitration award. They include: “(3) The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator[;]” and “(5) The rights of the party were substantially prejudiced by the refusal of the arbitrators . . . to hear evidence material to the controversy . . . .” Reda and IBI contend the arbitrator’s exclusion of the testimony of Friend constituted misconduct that requires vacating the award. We disagree.
Reda and IBI’s evidentiary complaint is nothing more than an impermissible challenge to the arbitrator’s legal reasoning. (See Moncharsh, supra, 3 Cal.4th at p. 11.) But even were it subject to judicial scrutiny (see Hall v. Superior Court (1993) 18 Cal.App.4th 427, 438-439 (Hall) [§ 1286.2 is “a safety valve in private arbitration that permits a court to intercede when an arbitrator has prevented a party from fairly presenting its case”]), it would fail.
Friend’s testimony pertained to statements made during mediation of the underlying dispute. Evidence Code section 1119 bars evidence of “specified communications and writings associated with a mediation ‘absent an express statutory exception.’” (Rojas v. Superior Court (2004) 33 Cal.4th 407, 416.) Reda and IBI have not demonstrated any abuse of discretion by the arbitrator in applying the privilege.
More importantly, to vacate an arbitration award pursuant to section 1286.2, subdivision (a)(3) or (5), the trial court must find a party has been substantially prejudiced. “To find substantial prejudice the court must accept, for purposes of analysis, the arbitrator’s legal theory and conclude that the arbitrator might well have made a different award had the evidence been allowed.” (Hall, supra, 19 Cal.App.4th at p. 439.) Reda and IBI have not shown substantial prejudice. The arbitrator was the same judge who presided over the mediation, so he certainly was aware of what transpired in the mediation sessions. He apparently permitted testimony from another witness about information that had been given to Solari about the financial condition of the properties prior to the mediation. But most importantly, the argument ignores the primary basis for the arbitrator’s decision—the stipulation was not intended to be a final agreement. After it was signed, the parties continued to negotiate the terms and conditions for settlement, and Reda repudiated the original settlement terms when he offered a substantially lower amount of money to settle the dispute.
3. Exceeding Arbitrator’s Powers
Reda and IBI also contend the award must be vacated because the arbitrator exceeded his powers. We disagree.
A court shall vacate an arbitration award if “[t]he 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).) “An arbitrator exceeds his powers when he acts without subject matter jurisdiction [citation], decides an issue that was not submitted to arbitration [citations], arbitrarily remakes the contract [citation], upholds an illegal contract [citation], issues an award that violates a well-defined public policy [citation], issues an award that violates a statutory right [citation], fashions a remedy that is not rationally related to the contract [citation], or selects a remedy not authorized by law [citations]. In other words, an arbitrator exceeds his powers when he acts in a manner not authorized by the contract or by law.” (Jordan v. Department of Motor Vehicles (2002) 100 Cal.App.4th 431, 443.)
Reda and IBI argue the arbitrator exceeded his powers when he concluded Iron Horse’s inability to transfer the three properties to Globalist as originally contemplated made specific performance of the stipulation for settlement inappropriate. They argue the arbitrator had no power to determine the rights and obligations of a nonparty under the contract.
Just as with Reda and IBI’s previous argument, the contention the arbitrator exceeded his powers by declining to compel specific performance due to Iron Horse’s inability to perform its part of the settlement is an attack on the arbitrator’s legal reasoning and not subject to review. (See Harris v. Sandro (2002) 96 Cal.App.4th 1310, 1313-1314.) Furthermore, Reda and IBI completely ignore the primary reason for the arbitrator’s ruling—the stipulation for settlement was not a final enforceable agreement and its terms were repudiated by Reda.
DISPOSITION
The judgment is affirmed. The Respondent is awarded its costs on appeal.
WE CONCUR: SILLS, P. J., ARONSON, J.