Judge: Armen Tamzarian, Case: 23STCP03007, Date: 2024-01-26 Tentative Ruling

Case Number: 23STCP03007    Hearing Date: January 26, 2024    Dept: 52

Petitioner Clare | Matrix’s Petition to Vacate Contractual Arbitration Award; Respondent 2644 SM Partners LP’s Cross-Petition to Confirm Arbitration Award

Petitioner Clare | Matrix (Clare) petitions to vacate the arbitration award against it.  Respondent 2644 SM Partners LP (2644) petitions to confirm the arbitration award.  “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 proceedings.”  (CCP § 1286.) 

Real Party in Interest

            Petitioner Clare contends respondent 2644 fails to show it is the real party in interest and therefore lacks capacity to respond to the petition or file a cross-petition.  Clare’s argument relies on the premise that 2644’s partnership has expired.  This argument conflates two issues: whether respondent has the capacity to act in this proceeding, as opposed to whether it is the real party in interest.  2644 is the real party in interest.  Clare filed this petition against it.  The arbitration award is in 2644’s favor.  This proceeding directly affects its rights. 

            Respondent 2644’s response and cross-petition are proper.  “Any person named as a respondent in a petition may file a response thereto.”  (§ 1290.)  “A response to a petition under this chapter may request the court to dismiss the petition or to confirm, correct or vacate the award.”  (§ 1285.2.)  2644 was named as a respondent in the petition.  It was therefore permitted to respond, including by requesting to confirm the award.  Moreover, assuming respondent’s partnership has expired, a dissolved partnership still exists for the purpose of winding up, which permits a partner “to prosecute and defend actions and proceedings, whether civil, criminal, or administrative” and to “settle disputes by mediation or arbitration, and perform other necessary acts.”  (Corp. Code, § 16803(c).) 

Grounds for Vacating Award

Courts have limited authority to vacate an arbitration award.  “A court’s power to correct or vacate an erroneous arbitration award is closely circumscribed.”  (Heimlich v. Shivji (2019) 7 Cal.5th 350, 367 (Heimlich).)  “An arbitrator’s legal or factual error in determining which party prevailed may not be reversed.”  (Ibid.)  “It is within the power of the arbitrator to make a mistake either legally or factually.  When parties opt for the forum of arbitration they agree to be bound by the decision of that forum knowing that arbitrators, like judges, are fallible.”  (Id. at p. 370, internal quotes and alterations omitted.)  “The party seeking to vacate an arbitration award bears the burden of establishing that one of the six grounds listed in section 1286.2 applies and that the party was prejudiced by the arbitrator’s error.”  (Royal Alliance Associates, Inc. v. Liebhaber (2016) 2 Cal.App.5th 1092, 1106.)

Clare argues the award against it was procured by undue means (§ 1286.2(a)(1)), the arbitrator exceeded her authority (id., subd. (a)(4)), the arbitrator committed misconduct that substantially prejudiced petitioner’s rights (id., subd. (a)(3)), and the arbitrator refused to hear evidence material to the controversy (id., subd. (a)(5)).  Clare makes three arguments in support of these grounds, without fully delineating which arguments concern which basis for vacatur.

1. Refusal to Continue Hearing

First, Clare argues the arbitrator refused to continue the arbitration hearing.  Section 1286.2(a)(5) provides that “the court shall vacate the award if … “[t]he 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.”  (CCP § 1286.2(a)(5).) 

Clare requested to continue the arbitration hearing by 90 days for three reasons: (1) 2644 purportedly failed to comply with the scheduling order regarding discovery, (2) Clare’s lead counsel had a serious eye injury and surgery, and (3) Clare “is under significant financial stress and needs time to be able to pay the arbitration fees.”  (Petition, Ex. C.)  After the final status conference, the arbitrator found that Clare had not paid its share of fees as required and therefore entered its default.  (Id., Ex. F, p. 2.)  The arbitrator then denied Clare’s request for a continuance as moot.  (Ibid.)

The arbitrator did not refuse to hear material evidence.  Assuming she did so, that refusal did not substantially prejudice Clare.  No material evidence could have affected the arbitrator’s decision to enter Clare’s default.  Evidence on the substantive dispute was irrelevant to the arbitrator’s order.  The arbitrator properly relied solely on the undisputed procedural fact that Clare had not paid its share of arbitration costs.  (Petition, Ex. F, p. 2.)   

Assuming Clare showed good cause to continue the hearing, the arbitrator’s refusal to postpone the hearing did not substantially prejudice Clare.  “Courts will not intervene in an arbitrator’s decision not to postpone a hearing if any reasonable basis for it exists.”  (El Dorado School Dist. No. 15 v. Continental Cas. Co. (8th Cir. 2001) 247 F.3d 843, 848 [applying analogous provision in FAA for vacatur when “arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown”].)    

The arbitrator’s order entering default was unrelated to the date of the hearing—which never occurred.  Clare requested to continue the deadline to pay fees, not just to continue the hearing.  (Petition, Ex. C.)  Those two things are different.  The arbitrator’s order entering the default states, “The parties do not dispute that [Clare] did not pay its share of fees and that Claimant advanced the sum of $19,350 on behalf of [Clare].”  (Petition, Ex. F.)  Section 1286.2(a)(5) applies if the arbitrator refuses “to postpone the hearing upon sufficient cause being shown therefor.”  It does not apply if the arbitrator refuses to extend a party’s deadline to pay.  Once Clare failed to pay the fees, it defaulted.  As the arbitrator concluded, there was no longer any need for a hearing.

2.  JAMS Rule 31(b)

            Second, Clare argues entering its default was improper under JAMS Rule 31(b).  That rule provides, “JAMS requires that the Parties deposit the fees and expenses for the Arbitration from time to time during the course of the proceedings and prior to the Hearing.  The Arbitrator may preclude a Party that has failed to deposit its pro rata or agreed-upon-share of the fees and expenses from offering evidence of any affirmative claim at the Hearing.”  Clare contends the arbitrator erred by precluding it not only from offering evidence of affirmative claims, but also from defending itself against 2644’s claims. 

            Assuming the arbitrator applied this rule incorrectly, Clare does not establish that doing so is a basis for vacating the award under any provision of section 1286.2.  At most, the arbitrator erred in interpreting the JAMS rules.  It was “within the power of the arbitrator to make a mistake either legally or factually” and does not constitute grounds for vacatur.  (Heimlich, supra, 7 Cal.5th at p. 370.)

            Moreover, the parties’ arbitration agreement includes a separate provision for default (discussed below).  “The contract between the parties is the source of the arbitrator’s authority.”  (Bonshire v. Thompson (1997) 52 Cal.App.4th 803, 809.)  JAMS Rule 31(b) does not exclusively govern a defaulting party’s rights.

            3. Lease Provision for Default

            Finally, Clare argues entering its default was improper under the parties’ lease agreement.  That agreement provides, “The Arbitrator’s fees and costs shall be paid by the non-prevailing party as determined by the Arbitrator in his discretion.  …  The failure of either party to advance their portion of the arbitration costs or to proceed promptly with the arbitration or to answer the arbitration claim shall result in their default and waiver of the right to further contest or prosecute the arbitration, and the award (including legal fees) shall be awarded to the other party by the Arbitrator.”  (Petition, Attachment 4(b), Lease, § 29.34.3.6.)  Clare contends this provision only permits entering default when a party fails to pay “the arbitration costs,” which does not include “[t]he Arbitrator’s fees.”

The court rejects this argument for three reasons.  First, as with the prior argument, Clare does not establish that misinterpreting this provision constitutes grounds for vacating the award under any provision of section 1286.2.  At most, the arbitrator erred in interpreting the contract.  It was “within the power of the arbitrator to make a mistake either legally or factually” and does not constitute grounds for vacatur.  (Heimlich, supra, 7 Cal.5th at p. 370.)

Second, Clare forfeited or waived this argument by not raising it with the arbitrator.  “In order to challenge an award in court, a litigant must have raised the point before the arbitrator.”  (Comerica Bank v. Howsam (2012) 208 Cal.App.4th 790, 829; accord Mossman v. City of Oakdale (2009) 170 Cal.App.4th 83, 93.) 

The record does not show petitioner ever presented this argument to the arbitrator.  Neither petitioner’s request to continue (Petition, Ex. C), its reply to respondent’s opposition to that request (id., Ex. D), its objection to the order of default (id., Ex. G), nor its objection to respondent’s request for prejudgment interest (id., Ex. H) raises this argument about the distinction between “[t]he Arbitrator’s fees and costs” and “the arbitration costs.”  Moreover, the arbitrator’s order entering the default states, “The parties do not dispute that Respondent did not pay its share of fees and that Claimant advanced the sum of $19,350 on behalf of Respondent.”  (Petition, Ex. F.) 

Third, the court rejects this argument on the merits.  There is no substantive distinction between “Arbitration costs and fees” and “the arbitration costs.”  “Fees” of all kinds are generally an element of costs in civil proceedings.  (See CCP § 1033.5, subds. (a)(1), (a)(3)(B), (a)(5), (a)(7), & (a)(10)-(a)(15).)  Section 1033.5, subdivision (c)(5)(A) also provides, “If a statute of this state refers to the award of ‘costs and attorney’s fees,’ attorney’s fees are an item and component of the costs to be awarded.” 

In arbitration, the arbitrator’s fees are analogous to various other fees as an element of costs in civil proceedings.  The reasonable interpretation of “the arbitration costs” is that it includes the arbitrator’s fees—which are generally the lion’s share of any arbitration provider’s bill.

Purported Error in Amount

            Clare also argues 2644 admits the award is erroneous because its cross-petition states the award should be reduced.  Respondent’s cross-petition states, “Since [the final award], JAMS has refunded to 2644 SM Partners the amount of $31,549.73, such that the Final Arbitration Award should be reduced by this amount.”  (Cross-Petition, ¶ 44.)  Clare does not show (or argue) that any such error in the amount constitutes grounds for vacating the award under section 1286.2. 

Clare makes the self-defeating argument that 2644 did not petition to correct the award to reduce it by the above amount.  Respondent indeed petitioned to confirm the award, not to correct it.  But confirming the award instead of correcting it will result in judgment against Clare for more money than 2644 seeks.

Moreover, the refund from JAMS is substantively a credit toward the judgment.  If respondent seeks to enforce the full amount of the judgment despite receiving a refund, petitioner has a remedy under the Enforcement of Judgments Law.  (CCP § 724.110.) 

Disposition

            Petitioner Clare | Matrix’s petition to vacate arbitration award is denied.  Respondent 2644 SM Partners LP’s cross-petition to confirm arbitration award is granted.  The final award issued by arbitrator Hon. Elizabeth A. White (Ret.) is hereby confirmed. 

Respondent 2644 SM Partners LP shall submit a proposed judgment for the court’s signature forthwith.  The court hereby sets an order to show cause re: entry of judgment for February 28, 2024, at 8:30 a.m.