Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County No. SC086741, John H. Reid, Judge.
Cox, Castle & Nicholson, Frederick H. Kranz and Alicia N. Vaz for Defendants and Appellants.
Weis & Hunt, Thomas J. Weiss and Hyrum K. Hunt for Plaintiffs and Respondents.
ALDRICH, J.
I.
INTRODUCTION
The underlying matter in this case involves a dispute between homeowners (appellants Michael Osterman and Lonnie Osterman) and a contractor (respondent Tenzera, Inc.) which was hired to install tile, stone, and marble. Although an arbitration agreement was executed by the Ostermans and Tenzera, Inc., the arbitrator brought into the arbitration the corporation’s principals, respondents Bruno Tenzera and Ivan Tenzera, and rendered an award against Tenzera, Inc. as well as the principals.
For the sake of convenience and to avoid confusion, we hereinafter refer to Bruno Tenzera and Ivan Tenzera by their first names. We mean no disrespect thereby.
This is an appeal from the trial court’s order vacating the arbitration award. We hold the trial court correctly concluded that the arbitrator exceeded his authority by bringing in Bruno and Ivan as parties to the arbitration and in imposing an award against them, as individuals. We also hold the trial court erred in vacating the award in its entirety. Rather, the court should have vacated the arbitration award as to Bruno and Ivan, but not as to Tenzera, Inc.
We remand to the trial court with directions that it is to modify the award by vacating it as to Bruno and Ivan, and confirming the award in favor of the Ostermans with regard to liability against Tenzera, Inc. On remand, the trial court may, upon proper motions, address Tenzera, Inc.’s argument that the arbitrator should not have awarded the Ostermans costs and attorney fees, and address the Ostermans’ argument that they were entitled to interest. Further, the trial court may entertain other post trial motions appropriately filed.
II.
FACTUAL AND PROCEDURAL BACKGROUND
A. The underlying facts.
On September 20, 2004, the Ostermans entered into a written contract with Tenzera, Inc. to install tile, stone, and marble in their home. The contract called for a payment of $60,975. Thereafter, the Ostermans believed Tenzera, Inc. failed to perform by, among other things, improperly installing materials, failing to seal and protect the floor tiles, and defectively installing pool tiles. The Ostermans did not tender to Tenzera, Inc. all sums to which the corporation believed it was entitled.
Ivan and his son Bruno were the principals of Tenzera, Inc. Bruno was Tenzera, Inc.’s president, chief executive officer, and responsible managing officer. Ivan was an officer of the corporation.
B. The complaint and the stipulation to arbitrate.
In July 2005, Tenzera, Inc. filed a mechanic’s lien.
On August 25, 2005, Tenzera, Inc. filed a complaint against the Ostermans for breach of contract, foreclosure of mechanic’s lien, and quantum meruit. In addition to other relief, Tenzera, Inc. requested $19,144.50 in compensatory damages.
The Ostermans filed a cross-complaint against Tenzera, Inc. for breach of contract, negligence and conversion. The cross-complaint included allegations against Roe defendants.
On March 13, 2006, Tenzera, Inc. and the Ostermans stipulated to submit the dispute to binding arbitration. The stipulation read in pertinent part: “IT IS HEREBY STIPULATED by and between plaintiff and cross-defendant Tenzera, Inc. (‘Tenzera’) and defendants and cross-complainants Michael Osterman and Lonnie Osterman... that: [¶] 1. The action filed by Tenzera... and the cross-action filed by Michael and Lonnie Osterman... shall be submitted to binding arbitration before a retired judge of the Superior Court in accordance with the provisions of California Code of Civil Procedure Sections 1280-1294.2.” The stipulation was executed by Bruno as president of Tenzera, Inc., an attorney representing Tenzera, Inc., Michael Osterman, Lonnie Osterman, and an attorney representing the Ostermans.
C. Proceedings before the arbitrator.
1. The amendment request.
On December 15, 2006, the Ostermans formerly requested that the arbitrator permit them to amend their cross-complaint by substituting Bruno and Ivan into the case as Roe cross-defendants. Even though neither Bruno nor Ivan had signed the contract for services or the stipulation to arbitrate in their individual capacities, the Ostermans argued that Bruno and Ivan could be brought into the arbitration because nonsignatories to an arbitration agreement may be compelled to arbitrate and it was appropriate to include Bruno and Ivan in the arbitration as they were the principals and agents of Tenzera, Inc.
Tenzera, Inc. opposed the Ostermans’ request to add Bruno and Ivan as parties to the arbitration.
In March 2007, the arbitrator ruled that the Roe “amendment should be permitted to add the names of nonsignatories to the stipulation for arbitration, i.e., Ivan and Bruno Tenzera.” The arbitrator reasoned that Ivan and Bruno were “intimately involved in the conduct that led to this litigation,” were agents of the corporate entity and thus, were bound by the terms of the arbitration agreement.
2. The arbitrator’s award.
After more than two weeks of hearings and proceedings, the arbitrator issued a lengthy arbitration award that was served on March 25, 2008. On April 24, 2008, the arbitrator corrected a mathematical error in the award. In the corrected award, the arbitrator awarded the Ostermans $426,047.72 and found Tenzera, Inc., Bruno, and Ivan, jointly and severally liable. The arbitrator held that the Ostermans were the prevailing parties and Tenzera, Inc. was liable for attorney fees and costs totaling $181,000. With regard to fees and costs, the arbitrator held that “[n]either Bruno Tenzera nor Ivan Tenzera are personally liable for either fees or costs inasmuch as they were not parties to the contract containing the fees provision or the Stipulation to Binding Arbitration containing the fees and costs provisions.”
D. Further proceedings in the superior court.
On May 28, 2008, the Ostermans filed and served in the superior court a petition to confirm arbitration award. They also requested interest.
On July 3, 2008, Bruno and Ivan filed and served a petition to vacate the arbitration award as to them based upon the fact that they were not parties to the arbitration agreement. They argued that only the court, and not the arbitrator, had the jurisdiction to determine who was a party to an arbitration and the arbitrator had usurped that judicial function by making Bruno and Ivan parties to the arbitration.
Additionally, on July 31, 2008, Tenzera, Inc., Bruno, and Ivan filed and served an opposition to the petition to confirm the award. In the opposition, Tenzera, Inc., Bruno, and Ivan challenged the amount of the award only insofar as it had awarded expert attorney fees as costs. The Ostermans’ request for interest was also questioned. In the opposition, Bruno and Ivan, but not Tenzera, Inc., repeated their argument that the award should be vacated as to them.
On July 31, 2008, the Ostermans filed and served an opposition to the petition to vacate the arbitration award.
On August 6, 2008, the Ostermans filed a reply in support of their petition to confirm the arbitration award.
The petitions were heard on August 13, 2008. Counsel for the Ostermans pointed out that the petition to vacate was limited in scope as it did not seek to vacate the award in its entirety, i.e., it did not ask that the award be vacated as to the corporate entity Tenzera, Inc. As counsel noted, the petition to vacate the award discussed only Bruno and Ivan. The Ostermans asserted that if the trial court granted the request to vacate, the court should limit the relief to that which was requested.
The trial court denied the Ostermans’ petition to confirm arbitration award. The trial court granted the petition to vacate the arbitration award as to all respondents, Tenzera, Inc., Bruno, and Ivan. The trial court held that the arbitrator exceeded his powers in ordering that Bruno and Ivan were to participate in the arbitration in their individual capacities because the trial court, and not an arbitrator, had jurisdiction to determine who was a proper party to an arbitration. The trial court declined to limit its ruling and refused to vacate the award only as to Bruno and Ivan stating that it did not have the ability to vacate the award “piecemeal.”
The Ostermans appeal from the August 13, 2008 order. We affirm in part and reverse in part.
III.
DISCUSSION
A. The trial court correctly held that the arbitrator exceeded his authority by ordering Bruno and Ivan to participate in the arbitration as individuals.
The Ostermans contend the trial court erred in holding that the arbitrator had exceeded his jurisdiction by making Bruno and Ivan parties to the arbitration. This contention is not persuasive.
“An appellate court reviews a determination of whether an arbitrator has exceeded his or her powers de novo, but displays substantial deference towards the arbitrator’s determination of his or her contractual authority. [Citations.]” (Jones v. Humanscale Corp. (2005) 130 Cal.App.4th 401, 408.)
There is no dispute that in some circumstances nonsignatories may be bound by an agreement to arbitrate. (Smith v. Microskills San Diego L.P. (2007) 153 Cal.App.4th 892, 896-897; Gravillis v. Coldwell Banker Residential Brokerage Co. (2006) 143 Cal.App.4th 761, 772, fn. 3; Keller Construction Co. v. Kashani (1990) 220 Cal.App.3d 222, 227.) However, as we said almost 20 years ago in American Builder’s Assn. v. Au-Yang (1990) 226 Cal.App.3d 170, 179 (American Builder’s), it is for the court and not the arbitrator to decide the question as to whether a nonsignatory can be bound by an agreement to arbitrate.
In American Builder’s we held that “nothwithstanding an arbitrator’s broad authority to resolve questions presented by a controversy, an arbitrator has no power to determine the rights and obligations of one who is not a party to the arbitration agreement. [Citation.] The question of whether a nonsignatory is a party to an arbitration agreement is one for the trial court in the first instance.” (American Builder’s, supra, 226 Cal.App.3d at p. 179, fn. omitted; accord, Smith v. Microskills San Diego L.P., supra, 153 Cal.App.4th at p. 900; Unimart v. Superior Court (1969) 1 Cal.App.3d 1039, 1045, 1047-1048.) If an arbitrator decides that a nonsignatory is to be made a party to an arbitration, the arbitrator exceeds his or her authority and the award is to be vacated. (American Builder’s, supra, at p. 179; City of Hope v. Bryan Cave, L.L.P. (2002) 102 Cal.App.4th 1356, 1369; Code Civ. Proc., § 1286.2; cf. Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 84; Litton Financial Printing Div. v. NLRB (1991) 501 U.S. 190, 208 [“Whether or not a [party] is bound to arbitrate, as well as what issues it must arbitrate, is a matter to be determined by the court, and a party cannot be forced to ‘arbitrate the arbitrability question.’ ”].)
Code of Civil Procedure section 1286.2, subdivision (a)(4) reads:
Here, the arbitrator exceeded his jurisdiction by ruling that Bruno and Ivan were to be made parties to the arbitration and thus, the trial court properly vacated the award insofar as it related to Bruno and Ivan. We now turn to whether the trial court correctly vacated the entire award.
B. The trial court erred in vacating the entire award.
We agree with the Ostermans that the trial court should not have vacated the award as to Tenzera, Inc.
“Any party to an arbitration in which an award has been made may petition the court to confirm, correct or vacate the award.” (Code Civ. Proc., § 1285.) Additionally, “[a] response to a petition under this chapter may request the court to dismiss the petition or to confirm, correct or vacate the award.” (Code Civ. Proc., § 1285.2)
A trial court may, upon petition or as requested in response to a petition to confirm, modify or correct an arbitration award where there was an evident mistake in describing a person referred to in the award or the arbitrator exceeded his or her powers and the award can be corrected without affecting the merits of the decision. Additionally, an arbitration award shall be vacated where an arbitrator exceeded his or her authority and the award cannot be corrected without affecting the merits of the decision. (Code Civ. Proc., §§ 1285, 1285.2, 1285.8, 1286, 1286.2, subd. (a)(4), 1286.6, 1286.8; Gueyffier v. Ann Summers, Ltd. (2008) 43 Cal.4th 1179, 1184; Jones v. Humanscale Corp., supra, 130 Cal.App.4th at p. 408.)
Code of Civil Procedure sections 1285.8, 1286.4, and 1286.8 require certain procedures be followed before a trial court can vacate or correct an award. Section 1285.8 requires a “petition to correct or vacate an award, or a response requesting such relief,... set forth the grounds on which the request for such relief is based.” Sections 1286.4 and 1286.8 require proper notice, filing, and service of petitions to vacate and petitions to correct an award and require those opposing such requests be given an opportunity to show why the award should not be vacated or corrected.
Where a court determines that a person or entity was improperly added as a party to an arbitration, the trial court is to dismiss the proceeding as to that person or entity. (Code Civ. Proc., § 1287.2 [“The court shall dismiss the proceeding under this chapter as to any person named as a respondent if the court determines that such person was not bound by the arbitration award and was not a party to the arbitration.”].) This authority to dismiss the proceeding as to certain individuals or entities is consistent with the trial court’s power to correct an award: “A court has the power to correct an arbitration award when ‘[a] petition or response requesting that the award be vacated has been duly served and filed and: [¶]... All petitioners and respondents are before the court....’ (Code Civ. Proc., § 1286.8, subd. (b)(1).)” (Jones v. Humanscale Corp., supra, 130 Cal.App.4th at p. 412.)
Here, the Ostermans were not given notice that there was a request that the superior court vacate the award in its entirety, i.e., the Ostermans were not notified that respondents were seeking to vacate the award as to Tenzera, Inc., as well as to Bruno and Ivan. Rather, the arguments in the petition to vacate the award were limited in nature. The relief requested was only as to Bruno and Ivan. The petition stated at the beginning: “[t]his is a petition and motion by Ivan Tenzera and Bruno Tenzera to vacate an arbitration award against them in the amount of $426,047.72.” (Italics added.) The summary of the petition stated that “[b]y this petition... filed in response to the motion of the Ostermans to confirm the award, Ivan Tenzera and Bruno Tenzera seek an order vacating the award as to them, pursuant to Code of Civil Procedure, Section 1286.2(a)(4)....” (Italics added.) In the argument section, the petition stated, “[t]hus, the law is overwhelmingly clear that the arbitrator usurped the judicial function of a court in enforcing the arbitration agreement against Ivan and Bruno Tenzera.” (Italics added.) The theories presented in the petition related only to the liability of Bruno and Ivan. It was contended that the individual parties (Bruno and Ivan) were not third-party beneficiaries of the arbitration agreement, the corporation was not an agent of the individuals, and the corporation could not act for the individuals. In its conclusion, the petition pointed to numerous reasons that “[t]he arbitration award against Ivan Tenzera and Bruno Tenzera should be vacated.” (Italics added.) The petition asked that the trial court refuse to enforce the award against Bruno and Ivan. The petition contained no arguments that the award should be vacated as to Tenzera, Inc.
Likewise, the opposition to the Ostermans’ petition to confirm the arbitration award was limited in its scope. It never requested that the award be vacated as to Tenzera, Inc. It stated that the petition “to confirm the arbitration award is opposed in its entirety by respondents Bruno Tenzera and Ivan Tenzera, who were not parties to the arbitration agreement, and were not and are not parties to this action, and are making their own... petition to vacate the award as to them.” (Italics added.)
We acknowledge that the petition to vacate was filed by the attorney representing the corporate entity (Tenzera, Inc.) and Bruno and Ivan, and its introduction stated: “Tenzera, Inc., and... Ivan Tenzera and Bruno Tenzera will petition and move the court for an order vacating the arbitration award rendered in this matter.” However, this did not change the argument presented, which was explicit – the petition to vacate asked the trial court to vacate the arbitration award only as to Bruno and Ivan.
Because respondents sought to vacate the arbitration award only as to Bruno and Ivan, the trial court had no authority to grant additional relief. Code of Civil Procedure sections 1285.8, 1286.4 and 1286.8 mandate that before a trial court vacates or corrects an award, proper notice of the relief requested must be given. That was not done here. Therefore, the proper remedy was for the trial court to vacate the award as to Bruno and Ivan, and confirm the award as to Tenzera, Inc., as long as such a modification would not affect the merits of the controversy. (Code Civ. Proc., §§ 1286.2, 1285.8, 1286.6.)
Contrary to the trial court’s understanding, it was authorized to vacate the award “piecemeal.” Courts are granted the power to partially vacate an award and may strike portions of an otherwise enforceable award, in the proper circumstance. A trial court properly modifies an award by deleting persons or entities from an arbitration award, rather than vacating the entire award, where the arbitrator never acquired jurisdiction over the individual or entity that should not have been made a party to the arbitration and where such a modification would not affect the merits of the controversy. (Ikerd v. Warren T. Merrill & Sons (1992) 9 Cal.App.4th 1833; NCR Corp. v. Sac-Co., Inc. (6th Cir. 1995) 43 F.3d 1076, 1081.)
The trial court should have modified the award to reflect that Tenzera, Inc. was liable for all damages. This result would not affect the merits of the controversy because the arbitrator found Tenzera, Inc., Bruno, and Ivan jointly and severally liable. This conclusion was also consistent with the petition to vacate that asked that the individuals be stricken from the award, but never made the same request as to the corporate entity. Further, it was proper because there does not appear to be any reason not to confirm the award as to Tenzera, Inc., which was a party to the construction contract and the stipulation to arbitrate.
Respondents argue that the court was correct in striking the entire award because it did not have authority to confirm it only as to Tenzera, Inc. since the Osterman’s motion to confirm was as to all respondents, not some of them. This argument ignores the procedural posture of the case. The trial court had before it respondents’ petition to vacate and their opposition to the petition to confirm. In respondents’ pleadings, they argued that it was appropriate to vacate the award only as to Bruno and Ivan. Therefore, the issue was fully briefed and argued and the trial court could have made an appropriate ruling as to whether the award should be struck as to some, but not all, respondents.
Thus, the trial court erred in vacating the entire award.
C. On remand, the trial court will have the ability to revisit the issues relating to the imposition of the costs, attorney fees and interest.
Because the trial court vacated the arbitration award in its entirety, it did not address the argument raised by Tenzera, Inc. that the arbitrator erred in awarding the Ostermans costs and attorney fees. Additionally, the trial court did not address the Ostermans’ request for interest. Upon proper motions to the trial court upon remand, the trial court may revisit these issues, which we have not addressed.
Further, nothing in this opinion should be construed so as to preclude the trial court from entertaining other properly filed motions, such as a motion by the Ostermans to make Ivan and Bruno parties to the judgment.
IV.
DISPOSITION
The order of the trial court vacating the arbitration award is affirmed in part and reversed in part with directions. On remand, the trial court is to confirm the award in favor of the Ostermans as against Tenzera, Inc. as to liability, to vacate the award as to Bruno Tenzera and Ivan Tenzera, and to conduct other proceedings consistent with this opinion.
The parties are to pay their own costs on appeal.
We concur: KLEIN, P. J. CROSKEY, J.
“(a) Subject to Section 1286.4, the court shall vacate the award if the court determines any of the following:
“...
“(4) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.”
“If a petition or response under this chapter is duly served and filed, the court shall confirm the award as made, whether rendered in this state or another state, unless in accordance with this chapter it corrects the award and confirms it as corrected, vacates the award or dismisses the proceeding.”
Code of Civil Procedure section 1286.6 reads:
“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:
“(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.”
“The court may not vacate an award unless:
“(a) A petition or response requesting that the award be vacated has been duly served and filed; or
“(b) A petition or response requesting that the award be corrected has been duly served and filed and:
“(1) All petitioners and respondents are before the court; or
“(2) All petitioners and respondents have been given reasonable notice that the court will be requested at the hearing to vacate the award or that the court on its own motion has determined to vacate the award and all petitioners and respondents have been given an opportunity to show why the award should not be vacated.”
Code of Civil Procedure section 1286.8 reads:
“The court may not correct an award unless:
“(a) A petition or response requesting that the award be corrected has been duly served and filed; or
“(b) A petition or response requesting that the award be vacated has been duly served and filed and:
“(1) All petitioners and respondents are before the court; or
“(2) All petitioners and respondents have been given reasonable notice that the court will be requested at the hearing to correct the award or that the court on its own motion has determined to correct the award and all petitioners and respondents have been given an opportunity to show why the award should not be corrected.”