Judge: Anne Richardson, Case: 23STCP03462, Date: 2024-03-08 Tentative Ruling

DEPARTMENT 40 - JUDGE ANNE RICHARDSON - LAW AND MOTION RULINGS
The Court issues tentative rulings on certain motions.The tentative ruling will not become the final ruling until the hearing [see CRC 3.1308(a)(2)]. If the parties wish to submit on the tentative ruling and avoid a court appearance, all counsel must agree and choose which counsel will give notice. That counsel must 1) email Dept 40 by 8:30 a.m. on the day of the hearing (smcdept40@lacourt.org) with a copy to the other party(ies) and state that all parties will submit on the tentative ruling, and 2) serve notice of the ruling on all parties. If any party declines to submit on the tentative ruling, then no email is necessary and all parties should appear at the hearing in person or by Court Call. 

Case Number: 23STCP03462    Hearing Date: March 8, 2024    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

On September 19, 2023, Petitioners/Cross-Respondents Robert Schumann (Schumann), and Real Estate West, Inc. (REW) filed a petition to vacate a July 25, 2023, contractual arbitration award based upon a prior October 18, 2022, settlement agreement between the parties. The settlement agreement is based on a prior arbitration proceeding between the parties and award for Respondents/Cross-Petitioners Robert Y. Greenberg and M. Susan Greenberg (the Trustees), as Trustees of the Greenberg Family Trust dated May 3, 1998 (the Trust; collectively with the Trustee, Greenberg). That arbitration proceeding arose in the context of a breach of a promissory note for a loan made by Greenberg to Schumann and REW, as secured by Schumann’s and REW’s interest in non-party Manhattan StandHomes, LLC (the LLC), with the arbitrator finding in favor of Greenberg on August 21, 2022, and the parties subsequently executing a settlement agreement for their dispute on October 18, 2022. The July 25, 2023 final arbitration award ordered and declared that the Trustee own 100% of Schumann and REW’s interest in the LLC based on Schumann’s and REW’s default on the settlement agreement.

The petition to vacate challenges the July 25, 2023, arbitrator award made by Max Loeterman in favor of the Trustees as against Schumann and REW on the grounds that the arbitrator exceeded his or her authority—made a ruling contrary to Commercial Code section 9620, subdivision (c)—and that the award cannot be fairly corrected.

On November 1, 2023, Schumann and REW filed a notice of acknowledgement of receipt of Schumann and REW’s petition to vacate as of October 28, 2023.

On November 7, 2023, the Trustees filed a combined (1) opposition to Schumann and REW’s petition to vacate and (2) request to grant a concurrently filed petition to confirm the arbitration award based on the arbitrator’s reasoning.

The Trustees’ opposition argues that the arbitrator did not commit a clear error of law that supports granting Schumann and REW’s petition for various reasons: (1) the arbitrator did not deny Schumann and REW a hearing on the merits of their statutory rights; (2) California authorities holding that an arbitrator’s erroneous interpretation or application of the facts or law support a petition to vacate an arbitration award are premised on a denial of a hearing related to those rights; (3) the arbitrator did in fact consider section 9620, subdivision (c), with Schumann and REW having made the same arguments now made before the Court to the arbitrator, and the arbitrator making an express determination as to that statute; and (4) the arbitrator’s section 9620 determination was in favor of the Trustees and reasoned that Schumann and REW consented to strict foreclosure pursuant to section 9620 in light of Schumann and REW’s prior default on the secured note from which the proceedings between the parties arose.

On November 8, 2023, the Trustees filed a notice of errata to note incorrect citations to evidence in the joint opposition and request to grant the petition to confirm.

On December 1, 2023, Schumann and REW filed an opposition to the petition to confirm arbitration award, which simply incorporates the petition to vacate as its opposition to the petition to confirm.

On January 9, 2024, the parties filed a joint status conference statement indicating that the parties agree that all issues in this matter have been fully briefed and that all relevant evidence has been submitted and that the parties decided to forgo discovery and jointly requested a date for oral argument and a final ruling.

The cross petitions are now before the Court.

Petitions to Vacate or Confirm Arbitration Award

I. Legal Standard

“Regardless of the particular relief granted, any arbitrator’s award is enforceable only when confirmed as a judgment of the superior court. [Citation.]” (O’Hare v. Municipal Resource Consultants (2003) 107 Cal.App.4th 267, 278.) “Once a petition to confirm an award is filed, the superior court must select one of only four courses of action: It may confirm the award, correct and confirm it, vacate it, or dismiss the petition. [Citation.]” (EHM Productions, Inc. v. Starline Tours of Hollywood, Inc. (2018) 21 Cal.App.5th 1058, 1063 (EHM Productions).)

“It is well settled that the scope of judicial review of arbitration awards is extremely narrow. [Citations.]” (California Faculty Assn. v. Superior Court (1998) 63 Cal.App.4th 935, 943.) “Neither the trial court, nor the appellate court, may ‘review the merits of the dispute, the sufficiency of the evidence, or the arbitrator’s reasoning, nor may we correct or review an award because of an arbitrator’s legal or factual error, even if it appears on the award’s face. Instead, we restrict our review to whether the award should be vacated under the grounds listed in section 1286.2. [Citations.]’” (EHM Productions, supra, 21 Cal.App.5th at pp. 1063-1064, final brackets in original, fn. omitted.)

Only where both (1) the arbitrator abused his or her discretion and (2) there was resulting prejudice, can a trial court properly vacate an arbitration award. (See SWAB Financial, LLC v. E*Trade Securities, LLC (2007) 150 Cal.App.4th 1181, 1198.)

“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.)

II. Order Vacating or Correcting Arbitration Award: DENIED [Petition to Vacate Arbitration Award]; GRANTED [Petition to Confirm Arbitration Award].

A. Procedural Requirements

1. Local Standard

“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.) “A petition under this chapter shall” “(a) [s]et forth the substance of or have attached a copy of the agreement to arbitrate unless the petitioner denies the existence of such an agreement,” “(b) [s]et forth names of the arbitrators,” and “(c) [s]et forth or have attached a copy of the award and the written opinion of the arbitrators, if any.” (Code Civ. Proc. § 1285.4.)

2. Analysis

Here, Schumann and REW’s petition to vacate (a) attaches a copy of the arbitration clause in the parties’ October 18, 2022 settlement agreement (Vacate Petition, § 4.b., citing Vacate Petition, Exhibits, Ex. 2, p. 17, § 22), (b) sets forth the name of the arbitrator (Vacate Petition, § 6 [Max Loeterman]), and (c) attaches a copy of the arbitration awards at issue (Vacate Petition, Exhibits, Exs. 6-7 [interim and final arbitration awards]).

B. Vacating Arbitration Award

1. Local Standard

“Subject to Section 1286.4, the court shall vacate the award if the court determines any of the following:

(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.”

(Code Civ. Proc., § 1286.2, subd. (a).)

“In cases involving private arbitration, ‘[t]he scope of arbitration is … a matter of agreement between the parties’ [citation], and ‘“[t]he powers of an arbitrator are limited and circumscribed by the agreement or stipulation of submission. [Citation.]’” (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 8 (Moncharsh).) “Arbitrators are not obliged to read contracts literally, and an award may not be vacated merely because the court is unable to find the relief granted was authorized by a specific term of the contract. [Citation.] The remedy awarded, however, must bear some rational relationship to the contract and the breach. The required link may be to the contractual terms as actually interpreted by the arbitrator (if the arbitrator has made that interpretation known), to an interpretation implied in the award itself, or to a plausible theory of the contract’s general subject matter, framework or intent. [Citation.] The award must be related in a rational manner to the breach (as expressly or impliedly found by the arbitrator).” (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 381, emphasis added, fn. Omitted (Advanced Micro Devices).)

“‘Generally, a decision exceeds the arbitrator’s powers only if it is so utterly irrational that it amounts to an arbitrary remaking of the contract between the parties.” (Id. at p. 377, citations omitted.) Moreover, “[w]here the damage is difficult to determine or measure, the arbitrator enjoys correspondingly broader discretion to fashion a remedy. [Citation.]” (Id. at p. 381.)

2. Analysis

After review, the Court agrees with the Trustees.

Here, a review of the final arbitration award shows that it considered Commercial Code section 9620 and made a determination as to its application, finding in favor of the Trustees by incorporation of the August 21, 2022, order on a motion for summary adjudication granted in favor of the Trustees. (Vacate Petition, Exhibits, Ex. 7, Findings, ¶ 8 [Arbitration Order regarding Schumann’s express consent to using interest in the LLC to satisfy breaches of the note] & Vacate Petition, Exhibits, Ex. 8, Hill Decl., Sub-Ex. 1 [order incorporated into July 25, 2023 final arbitration award].)

The arbitrator otherwise considered whether a default under the settlement agreement took place and whether the Trustees were entitled to relief, finding in their favor. (Vacate Petition, Exhibits, Ex. 7, Findings, ¶¶ 1-16 & Decree, ¶¶ 1-5.)

That award bears a rational relationship to the settlement agreement, for which reason the arbitrator did not exceed his authority by making a ruling so irrational as to amount to an arbitrary remaking of the contract between the parties. (Advanced Micro Devices, supra, 9 Cal.4th at p. 377; see Vacate Petition, Exhibits, Ex. 2, §§ 9 [Events of Default], § 10 [Effect of an Event of Default].)

Moreover, as pointed out by the Trustees, the arbitrator afforded Schumann and REW a hearing as to their statutory rights, considered their arguments, and ruled in favor of the Trustees, and, under similar circumstances, “courts have refused to apply the [Moncharsh] exception … where the sole issue is merely an alleged error in the interpretation or application of the law ….” (Opp’n, pp. 12-13, quoting and comparing SingerLewak LLP v. Gantman (2015) 241 Cal.App.4th 610, 614-615, 620, 625 and Epic Medical Management, LLC v. Paquette (2015) 244 Cal.App.4th 504, 514, comparing Prima Donna Development Corp. v. Wells Fargo Bank, N.A. (2019) 42 Cal.App.5th 22, 45-46, and distinguishing Board of Education v. Round Valley Teachers Assn (1996) 13 Cal.4th 269, 273 and Pearson Dental Supplies v. Superior Court (2010) 48 Cal. 4th 665, 680; see Vacate Petition, Exhibits, Ex. 7, Findings, ¶¶ 1-16 & Decree, ¶¶ 1-5.)

The court notes that Schumann and REW’s opposition to the Trustees’ combined opposition and petition to confirm merely incorporates the arguments of the petition to vacate, which does not convince the Court to make a contrary determination from the one made above. The petition on its face reads as a petition challenging the validity of the arbitrator’s reasoning as to Commercial Code section 9620. (Vacate Petition, Summary, pp. 5-7.)  But, as discussed above, the award bears a rational relationship to the settlement agreement, and even were there an erroneous application of Commercial Code section 9620 by the arbitrator, that would not be a ground for granting Schumann and REW’s petition to vacate.

The Court accordingly DENIES Schumann and REW’s petition to vacate.

The Court also CONFIRMS the arbitration award, as requested by the Trustees' combined opposition and petition to confirm. (Code Civ. Proc. § 1285.2.) 

Conclusion

Petitioners/Cross-Respondents Robert Schumann, and Real Estate West, Inc.’s Petition to Vacate Arbitration Award is DENIED.

Respondents/Cross-Petitioners Robert Y. Greenberg and M. Susan Greenberg, as Trustees of the Greenberg Family Trust dated May 3, 1998’s Petition to Confirm Arbitration Award is GRANTED.