Opinion
NOT TO BE PUBLISHED
APPEAL from the Superior Court of Riverside County No. INC076493 Randall Donald White, Judge.
Sheppard, Mullin, Richter & Hampton, Michael D. Stewart and Isaiah Z. Weedn for Defendant and Appellant.
Guralnick & Gilliland, Robert J. Gilliland, Jr.; Hollins Schechter, Jeffrey R. Gillette, and Desiree A. Telep for Plaintiff and Respondent.
OPINION
King, J.
I. INTRODUCTION
Appellant Stradella Investments, Inc. (Stradella) owned an interest in certain real property that it desired to sell. Respondent Ronald Schwartz (Schwartz) is a real estate broker. Stradella and Schwartz entered into a “Finder’s Fee Agreement” (FFA) concerning the property, which included a provision for the arbitration of disputes. The property was subsequently sold to a third party with whom Schwartz had discussed a sale of the property. When Stradella did not pay a finder’s fee to Schwartz, Schwartz commenced arbitration proceedings. The arbitrator found that Stradella had breached the FFA and awarded Schwartz $997,500, plus interest and costs. The award was confirmed by the Riverside County Superior Court. Stradella appealed.
Stradella contends that the trial court erred in confirming the award because: (1) the award enforces an illegal oral real estate broker services contract; (2) the award violates public policy; (3) the award results in substantial injustice to Stradella; and (4) the trial court failed to conduct a de novo review of the arbitrator’s award. We reject these contentions and affirm.
II. SUMMARY OF FACTS AND PROCEDURAL HISTORY
Stradella held a 60 percent interest in certain real property in Rancho Mirage, California (the property), and desired to enter “into a venture and/or loan arrangement with a third party” regarding the property. On November 3, 2004, Schwartz and Stradella entered into the FFA. The FFA provided that Schwartz is entitled to a finder’s fee in consideration for Schwartz introducing Stradella to an “Investor,” as defined in the FFA. The FFA defines an investor as an entity specifically identified on a schedule attached to the FFA. Initially, the only entity identified as an investor was “Sun Cal Companies.”
The FFA includes an arbitration clause whereby the parties agreed to resolve any dispute between them through “final and binding arbitration” administered by J.A.M.S./Endispute (JAMS).
The arbitration clause provides: “Arbitration. Any dispute, controversy or claim between the parties hereto, including without limitation those arising out of, related to, or connected with this Agreement, its interpretation or the breach thereof, shall be settled by final and binding arbitration in accordance with the Rules of Practice and Procedure for the Arbitration of Commercial Disputes of Endispute, Inc., doing business as J.A.M.S./Endispute (‘J.A.M.S.’), as amended from time to time. Any party to this Agreement may bring an action, including a summary or expedited proceeding, to compel arbitration of any controversy or claim to which this Agreement applies in any court having jurisdiction over such action. Judgment upon the award entered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitration shall be conducted in the County of Los Angeles, California, and administered by J.A.M.S. who will appoint an arbitrator. All arbitration hearings will be commenced within sixty (60) days from the demand for arbitration; further, the arbitrator shall only, upon a showing of cause, be permitted to extend the commencement of such hearing for up to an additional thirty (30) days.”
On January 4, 2005, the parties agreed to add “Sunrise Company” (Sunrise) and another entity as investors. Stradella’s president, Abdol Rashid Boroumand, told Schwartz that he had previously contacted Sunrise regarding a possible sale or development of the property, but that Sunrise was difficult to deal with. Boroumand felt that a deal with Sunrise could not be reached, but said that Schwartz could try to make a deal with Sunrise within the terms of the FFA.
Schwartz knew a Sunrise executive and contacted him. That executive advised Schwartz to contact Randall Bone, the president of Sunrise. Schwartz was also told that Bone had attempted to make a deal with Boroumand, but Bone felt that a deal would never happen.
Schwartz contacted Bone by telephone on January 28, 2005. The telephone call lasted approximately 37 minutes. They discussed the structure of a possible deal regarding a sale of the property to Sunrise. Bone told Schwartz that he would prepare a proposal for Schwartz to give to Boroumand. Bone told Schwartz he would contact him in a few weeks. After the conversation with Bone, Schwartz called Boroumand and told him about the conversation.
Schwartz made several calls to Bone over the next several months, but Bone never returned the calls. During this time, Schwartz spoke with Boroumand about options for selling the property. Boroumand never mentioned to Schwartz that he had been in contact with Bone and Sunrise.
In March 2006, Schwartz read in a newspaper that Stradella’s interest in the property had been sold to Sunrise.
Schwartz filed a Statement of Claim (Claim) with JAMS to recover damages from Stradella for breach of contract, anticipatory breach of contract, and fraud. In February 2008, the arbitrator issued a final award in which he found that Schwartz proved his claims of breach of contract and anticipatory breach of contract, and failed to prove his claim of fraud. Schwartz was awarded compensatory damages in the amount of $997,500, plus interest and costs.
III. STANDARD OF REVIEW
We review the trial court’s order confirming the arbitrator’s award (not the arbitration award) de novo. (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376, fn. 9; Lindenstadt v. Staff Builders, Inc. (1997) 55 Cal.App.4th 882, 892, fn. 7 (Lindenstadt).)
Judicial review of the arbitrator’s award is extremely limited. Generally, courts may not review the merits of the controversy between the parties, the validity of the arbitrator’s reasoning, or the sufficiency of the evidence supporting an arbitrator’s award. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11 (Moncharsh); Lindenstadt, supra, 55 Cal.App.4th at p. 889.) “[W]ith narrow exceptions, an arbitrator’s decision cannot be reviewed for errors of fact or law.” (Moncharsh, supra, at p. 11.) Even “the existence of an error of law apparent on the face of the award that causes substantial injustice does not provide grounds for judicial review.” (Id. at p. 33.) “Finally, the normal rule of limited judicial review may not be avoided by a claim that a provision of the contract, construed or applied by the arbitrator, is ‘illegal,’ except in rare cases when according finality to the arbitrator’s decision would be incompatible with the protection of a statutory right.” (Ibid.)
However, courts will conduct a de novo review of an award for the purpose of determining whether “the entire contract or transaction was illegal.” (Moncharsh, supra, 3 Cal.4th at p. 32, citing Loving & Evans v. Blick (1949) 33 Cal.2d 603 (Loving) & All Points Traders, Inc. v. Barrington Associates (1989) 211 Cal.App.3d 723; Lindenstadt, supra, 55 Cal.App.4th at pp. 888-889.) This exception is merely an application of the statutory basis for vacating an award when the arbitrator has exceeded his or her power. (Loving, supra, at pp. 609-610; see Code Civ. Proc., § 1286.2, subd. (a)(4) [court may vacate award when “the arbitrator exceeded his or her power and the award cannot be corrected without affecting the merits of the decision”].) As the Loving court explained: “It seems clear that the power of the arbitrator to determine the rights of the parties is dependent upon the existence of a valid contract under which such rights might arise. [Citations.] In the absence of a valid contract no such rights can arise and no power can be conferred upon the arbitrator to determine such nonexistent rights. The question of the validity of the basic contract being essentially a judicial question, it remains such whether it is presented in a proceeding ‘for an order directing... arbitration’... or in a proceeding ‘for an order confirming’ or ‘vacating an award’....” (Loving, supra, at p. 610.)
IV. ANALYSIS
A. Because the Arbitration Award is Based upon the FFA, We Do Not Review the Legality of an Alleged Oral Broker’s Commission Contract
Stradella contends that the arbitrator’s award cannot be confirmed because it is based upon an unenforceable oral contract for a real estate broker’s commission. (See, e.g., Phillippe v. Shapell Industries (1987) 43 Cal.3d 1247, 1258 [an oral agreement for a real estate broker’s commission agreement is invalid under statute of frauds].) Schwartz argues that the award is based on the enforceable written FFA. The arguments raise two distinct issues: (1) if we assume that there was a separate oral contract as well as the FFA, as asserted by Stradella, which contract provides the basis for the arbitrator’s award?; and (2) is the contract that provides the basis for the award a legal and enforceable contract? The first issue—the identification of the contract that provides the basis for recovery—is a factual determination beyond the scope of judicial review. The second issue—the legality of that contract—is subject to de novo review by the courts.
With respect to the first issue, we begin by considering the allegations of Schwartz’s claim. Schwartz alleges, in essence, the following: he and Stradella entered into the FFA; Sunrise was subsequently identified as an “Investor” for purposes of the FFA; Boroumand told Schwartz that Schwartz could pursue Sunrise “to attempt to create a transaction that would satisfy the terms of the [FFA], entitling Schwartz to a finder’s fee”; Schwartz thereafter spoke with Sunrise’s president, Bone, about the property and informed Boroumand of the conversation; Stradella subsequently entered into a purchase and sale agreement with an affiliate of Sunrise; this transaction entitled Schwartz to a finder’s fee under the FFA; based upon the formula in the FFA, the amount of the fee owed to him is $997,500; Stradella failed and refused to pay the finder’s fee due Schwartz under the FFA; and Schwartz is entitled to damages for breach of contract and anticipatory breach of contract for failure to pay the finder’s fee.
We note that Schwartz, as the party asserting a claim, was entitled to plead his case as he saw fit. For example, if the parties did enter into two agreements, one oral and one written, Schwartz could elect to pursue a claim for damages under only the written contract, foregoing any claim he may have based upon the oral contract. In that case, the ultimate question would be: was he entitled to recover damages for breach of the written contract? A breach of the unalleged oral contract would be irrelevant to the case.
Our review of Schwartz’s Claim reveals that the only contract under which he was seeking to recover damages is the FFA. There is nothing to suggest the existence or breach of any different or oral agreement.
Nevertheless, in the arbitration proceeding, Stradella asserted that the case is really about “two agreements: one written and one verbal.” Stradella argued that Schwartz acted as a real estate broker under the purported oral agreement and, because oral agreements for broker’s commissions are not enforceable, Schwartz was therefore not entitled to recover anything. Stradella, not Schwartz, thus injected the issue of a separate, unenforceable oral agreement into the case and placed the question before the arbitrator.
The arbitrator found: Schwartz and Stradella entered into the written FFA, which provided that Schwartz is entitled to a finder’s fee in consideration for Schwartz introducing Stradella to an investor; the parties added Sunrise to the list of potential investors, “qualifying [Schwartz] for a Finder’s Fee under the[FFA]”; Schwartz thereafter contacted Bone to discuss the property, then called Boroumand to relay the substance of his conversation with Bone; Schwartz later learned of the sale of the property to Sunrise. The arbitrator then described Schwartz’s Claim in terms of a demand for a finder’s fee under the FFA. After summarizing the testimony of witnesses, the arbitrator concluded that Schwartz had proved his demand as to his claims for breach of contract and anticipatory breach of contract.
Our review of the written award, in light of the Claim and the “two agreements” defense presented by Stradella, indicates that the arbitrator’s award is unambiguously based upon a breach of the FFA, not an alleged oral agreement.
Stradella argues, however, that the award could not have been based upon the FFA because the FFA calls for Schwartz to introduce Stradella to an investor, and Schwartz could not have possibly introduced Sunrise to Stradella because these parties “were well acquainted with one another and had engaged in negotiations concerning the Property prior to Schwartz’s involvement.” We disagree. Because the parties added Sunrise to the list of investors who could be introduced to Stradella under the FFA even though Stradella and Sunrise had previously become acquainted, “introducing” could be easily construed to encompass activity that would get the two parties talking again. Moreover, if Schwartz’s efforts to get Sunrise and Stradella together was excluded from the scope of the FFA because Sunrise could not be “introduced” to Stradella, the addition of Sunrise as an investor under the FFA would appear to be meaningless. Contracts, however, should be interpreted to avoid such a result, “each clause helping to interpret the other.” (Civ. Code, § 1641.) The FFA could thus be rationally interpreted as encompassing Schwartz’s activity in order to give the agreement the meaning and effect the parties’ intended.
Webster defines introducing to mean (among other definitions) “to lead, bring, conduct, or usher in esp. for the first time... to cause to take part or be involved by introducing... to bring into play....” (Webster’s 3d New Internat. Dict. (1993) p. 1186.) After Stradella and Sunrise had stopped talking with each other, Schwartz arguably brought Sunrise back “into play.”
Whether the arbitrator actually employed such a construction of the FFA or was otherwise correct or incorrect in finding that Schwartz’s activity fell within the scope of the FFA is not before us. (See Moncharsh, supra, 3 Cal.4th at p. 12 [“‘it is within the power of the arbitrator to make a mistake either legally or factually’”], quoting That Way Production Co. v. Directors Guild of America, Inc. (1979) 96 Cal.App.3d 960, 965.) We set out the above possible interpretation of the FFA merely to show why we reject Stradella’s argument that the award could not possibly have been based upon the FFA. Not only was it possible for the award to have been based on the FFA, but, viewed in the context of Schwartz’s claim and the court’s implicit rejection of Stradella’s defense, the award clearly was based upon the FFA.
Having determined that the arbitrator’s award was based upon the written FFA, we have no occasion to review the enforceability or legality of the alleged oral agreement. The only contract subject to judicial review is the FFA. Stradella, however, does not dispute the legality and enforceability of the FFA. Before concluding our inquiry, however, we address two cases relied upon by Stradella: Loving, supra, 33 Cal.2d 603 and Lindenstadt, supra, 55 Cal.App.4th 882.
In Loving, Loving & Evans, a partnership, entered into a written contract to repair and remodel Frank Blick’s premises. (Loving, supra, 33 Cal.2d at p. 604.) The contract provided for the arbitration of disputes. (Ibid.) A dispute concerning the amount owed by Blick arose and Loving & Evans submitted the matter to arbitration. Blick asserted as a defense that the partnership could not recover in the absence of proof that it was a duly licensed contractor. (Id. at pp. 604-605.) Indeed, it was undisputed that while one of the partners of Loving & Evans was a licensed contractor, the partnership itself was not so licensed. (Id. at pp. 605-606.) As such, the partnership could not lawfully act in the capacity of a contractor. (Id. at p. 607.) Nevertheless, the arbitrator found in favor of Loving & Evans, and the award was confirmed by the superior court. (Id. at p. 605.)
The California Supreme Court reversed. The court explained that an arbitrator’s power is dependent upon the existence of a valid contract, and such validity is essentially a judicial question. (Loving, supra, 33 Cal.2d at p. 609-610.) In the case before it, “the only evidence before the trial court showed without contradiction that the contract upon which the award was based was illegal and void because of [Loving & Evans’s] failure to comply with the licensing requirements.” (Id. at p. 614, italics added.) Accordingly, the trial court erred in confirming the award. (Id. at pp. 614-615.)
Loving does not help Stradella. In that case, the illegal contract was “the contract upon which the award was based.” (Loving, supra, 33 Cal.2d at p. 614.) If the arbitrator in the present case determined that Schwartz was entitled to damages based upon breach of the alleged oral contract for a broker’s commission (and not based upon a breach of the FFA), then Loving would be relevant. In that situation, we would have a basis for reviewing the legality of the oral contract and, if we determined it was unenforceable, reverse the order confirming the award. As explained above, however, the arbitrator awarded Schwartz damages for breach of the written FFA, the legality of which is not disputed. We have no reason to review the legality of a purported oral contract upon which the award was not based.
In Lindenstadt, plaintiff Glen Lindenstadt sought recovery of finder’s fees from Staff Builder’s, Inc., pursuant to certain written contracts. (Lindenstadt, supra, 55 Cal.App.4th at p. 885.) Staff Builders defended the claims on the ground that Lindenstadt acted as a real estate broker in the subject transactions and could not recover because he was not a licensed real estate broker. (Id. at p. 886.) The arbitrator determined that the written contracts were legal as to some transactions (where Lindenstadt acted merely as a finder) and illegal as to other transactions (where Lindenstadt acted as a real estate broker). (Id. at p. 887.) At a hearing on Lindenstadt’s petition to confirm the award, the trial court stated that it would not review the legality of the contracts de novo because the issue had been litigated in arbitration and decided by the arbitrator. (Id. at p. 888.) The Court of Appeal held that this was the wrong standard of review. (Id. at pp. 885, 892-893.) Relying primarily on the Loving decision, the court held that “the trial court should have reviewed the evidence de novo to determine whether the arbitration award was based on illegal agreements or transactions.” (Lindenstadt, supra, at pp. 888-889, italics added.)
In Lindenstadt, the issue was not the legality of the finder’s fees contracts per se, but rather the legality of Lindenstadt’s conduct in particular transactions. If he engaged in activity that required a real estate broker’s license, then he did so illegally and could not recover compensation. (Lindenstadt, supra, 55 Cal.App.4th at p. 887; see Bus. & Prof. Code, §§ 10130, 10131, 10136.) In the present case, by contrast, Schwartz is a licensed real estate broker. Therefore, even if his conduct with respect to the Stradella-Sunrise transaction constituted activity that required a real estate broker’s license, he could not have acted illegally by engaging in such conduct. He may have acted outside the scope of the FFA, but he did not violate the law by doing so.
The fact that Schwartz did not act illegally must still be distinguished from the possibility that he sought to recover compensation pursuant to an oral agreement. That is, even if Schwartz acted lawfully (because he is a licensed broker), he may still be denied compensation if the right to that compensation arises from an agreement that is not in writing. (Civ. Code, § 1624, subd. (a)(4); Phillippe v. Shapell Industries, supra, 43 Cal.3d at p. 1258.) In contrast to the situation in Lindenstadt, therefore, the critical issue was not whether Schwartz’s conduct was lawful, but whether Schwartz’s right to recover compensation arose from a written (enforceable) agreement or an oral (unenforceable) agreement. If the arbitrator decided that the right to compensation arises from the written enforceable agreement (i.e., the FFA), then there is no question as to the legality of either the contract or the transaction and our inquiry is at an end. If, however, the arbitrator decided that the right to compensation arose from the alleged oral agreement, then we would need to conduct an independent review of its enforceability. As explained above, the right to compensation in this case, as found by the arbitrator, arose from the written FFA. As there is no question as to the legality of the FFA, we do not delve further.
Because the arbitrator’s award was based upon the FFA and there is no contention that the FAA is illegal or unenforceable, the trial court properly confirmed the arbitration award.
B. Stradella’s Public Policy Argument is Without Merit
Under a separate heading in its opening brief, Stradella argues that the arbitrator exceeded his power by making an award that violates public policy. Stradella argues that “Schwartz is not entitled to a broker’s commission because he never had a written broker services agreement with Stradella. The public policy behind this rule of law is so strong that the Final Award, based on an oral broker services agreement, must be vacated.” This argument is substantially identical to its argument that the award is based on an illegal oral broker’s contract, which we addressed in the preceding section. It is rejected for the same reasons.
C. Alleged Substantial Injustice to Stradella is Not a Basis for Denying Confirmation of the Arbitration Award
Stradella next argues that when an error of law appears on the face of the arbitrator’s award and causes substantial injustice, the award may be vacated. For this rule, Stradella refers us to Cobler v. Stanley, Barber, Southard, Brown & Associates (1990) 217 Cal.App.3d 518, 526, which quoted Abbott v. California State Auto. Assn. (1977) 68 Cal.App.3d 763, 770. This rule, however, was rejected and the cases upon which it is based were expressly disapproved on this point in Moncharsh. (Moncharsh, supra, 3 Cal.4th at pp. 27-28, 33; see also Berglund v. Arthroscopic & Laser Surgery Center of San Diego, L.P. (2008) 44 Cal.4th 528, 534 [“arbitrator decisions cannot be judicially reviewed for errors of fact or law even if the error is apparent and causes substantial injustice”].) The argument is without merit.
D. Stradella Has Failed to Show Reversible Error in the Trial Court’s Analysis
Stradella’s last argument is that the trial court failed to conduct the de novo review called for in Loving and Lindenstadt. As discussed above, however, a de novo review is required when the legality of the contract upon which the award was based is an issue. Here, the arbitrator clearly based the award upon the FFA. The legality of that contract is not a disputed issue; and the legality of the alleged oral agreement was not before the trial court. Therefore, the trial court was not required to conduct a de novo review.
V. Disposition
The judgment is affirmed. Respondent shall recover his costs.
We concur: Ramirez P.J. Miller J.