Judge Deborah C. Servino, Case 30-2019-01062973 2023-08-18 Tentative Ruling

Judge: Deborah C. Servino, Case: 30-2019-01062973, Date: 2023-08-18 Tentative Ruling

Defendant/Cross-Complainant Oakshire Trading Co., LLC ("Oakshire") petitions to confirm the Final Award issued on May 5, 2023. (ROA 118.) Plaintiff/Cross-Defendant Tear Drip Juice Co. ("Tear Drip") petitions to correct the award, for evident miscalculation and an award of attorney’s fees that “exceed the arbitrator’s authority.” (ROA 110, 126.) Oakshire's petition to confirm arbitration award, is granted. Tear Drip's petitions to correct arbitration award, are denied.

Procedural Issues

The court treats Tear Drip’s second petition to correct arbitration award (ROA 126) as a response to Oakshire’s petition to confirm award. (Code Civ. Proc., § 1285.2.) The court notes that both sides failed to file timely responses. (Code Civ. Proc., § 1290.6 [response shall be served and filed within 10 days after service of the petition]; see Law Finance Group, LLC v. Key (2023) 14 Cal.5th 932, 946 [deadlines under Code of Civil Procedure section 1290.6, on the one hand, and 1288 and 1288.2, on the other hand, do not supersede each other—both deadlines must be met].) Nevertheless, because no one has objected to the oppositions, and because an untimely response does not deprive this court of jurisdiction in the fundamental sense, the court finds any objection has been waived. (See Law Finance Group, LLC, supra, 14 Cal.5th at 951, 956; Cal. Rules of Court, rule 3.1300(d) [court has discretion to consider, or to not consider, a late-filed paper].)

Merits

The general rule for judicial review of arbitration awards is that “[t]he merits of the controversy between the parties are not subject to judicial review.” (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11, citations omitted.) As such, “an arbitrator’s decision is not generally reviewable for errors of fact or law, whether or not such error appears on the face of the award and causes substantial injustice to the parties.” (Id. at p. 6.) “Although the parties to an arbitration agreement accept some risk of an erroneous decision by the arbitrator, ‘the Legislature has reduced the risk to the parties of such a decision by providing for judicial review in circumstances involving serious problems with the award itself, or with the fairness of the arbitration process.’” (Haworth v. Superior Court (2010) 50 Cal.4th 372, 380, citation omitted.)

Code of Civil Procedure section 1286.6 provides the grounds for correction of an award. But, it does so “in very narrow terms.” (Elliott & Ten Eyck Partnership v. City of Long Beach (1997) 57 Cal.App.4th 495, 502.) Subject to section 1286.8, the court

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

(Code Civ. Proc., § 1286.6.)

Section 1286.8 states, in relevant part, that the court may not correct an award unless the petition or response requesting a correction has been duly served and filed. (Code Civ. Proc., § 1286.8, subd. (a).) However, as explained, above, the failure to “duly serve and file” the petition or response does not deprive the court of jurisdiction to hear the petition or response in a “fundamental sense.” (Law Finance Group, LLC v. Key, supra, 14 Cal.5th at p. 951 [condition of section 1286.4, that court may not vacate an award unless the petition or response requesting that award be vacated has been duly served and filed, “does not, in short, speak with the clarity necessary to overcome the presumption that statutory deadlines do not limit the courts' fundamental jurisdiction”].)

On the other hand, a petition to confirm an arbitration award “shall be heard in a summary way in the manner and upon the notice provided by law for the making and hearing of motions, except that not less than 10 days' notice of the date set for the hearing on the petition shall be given.” (Code Civ. Proc., § 1290.2.) The petition shall (1) set forth the substance of the arbitration agreement or attach a copy thereof, (2) set forth the name of the arbitrator(s), and (3) set forth or attach a copy of the award and the written opinion of the arbitrator(s), if any. (Code Civ. Proc., § 1285.4.) If a petition to confirm is duly filed, and unless the arbitration award is corrected or vacated, “the court shall confirm the award as made.” (Code Civ. Proc., § 1286.) “If an award is confirmed, judgment shall be entered in conformity therewith.” (Code Civ. Proc., § 1287.4.)

Here, the court finds there are no grounds for correction of the final award. Tear Drip first contends there was an “evident miscalculation” on the face of the award, because “the amount by which Oakshire’s damages have been offset was miscalculated and the statement on page 9, line 27 that ‘[t]he excess inventory should have produced additional profit of $142,064.75’ is incorrect. The $142,064.75 is the cost of the excess inventory, not the profit that should haven [sic] been produced on that excess inventory.” (Tear Drip Pet., at p. 5 [ROA 110].) As explained in the award, the arbitrator found Oakshire “proved its damages claim of $316,282.95.” (Award, at p. 7.) However, the arbitrator also found that Oakshire’s subsidiary had accumulated certain excess product each month, which caused “manufacturing costs in excess of the amount required to produce sales in each month.” (Award at p. 8, emphasis added.) While there was “nothing wrong” with accumulating excess inventory, “when the relationship ended, there should have been an accounting to reconcile for the excess production of inventory, as Oakshire was only allowed to deduct from gross revenue ‘the costs of goods sold.’” (Award, at p. 8, emphasis added.) Further, even “[if] Tear Drip were not entitled to an offset for the double payment of inventory, Oakshire would be unjustly enriched.” (Award, at p. 9 [“including the inventory costs already deducted from the gross sales in the monthly reports, allows Oakshire to double dip on that excess inventory”].)

The arbitrator made it clear that the offset was for the cost of the excess inventory that had already been charged against Tear Drip in the monthly invoices. Despite the repeated references to “cost” in the Award, Tear Drip’s argument rests on the single reference to its “profit share” in the Award, where the arbitrator states, “Oakshire’s claimed damages are subject to offset by Tear Drip’s profit share in the excess inventory charged by Oakshire from August of 2015 through May of 2016.” (Award, at p. 8.) Tear Drip claims it is evident the arbitrator intended to offset Oakshire’s damages with the “profit share” that Tear Drip would have received had the excess inventory been sold. Under this theory, Tear Drip would receive an offset of $836,761.38. (Tear Drip Pet., at pp. 6-7.) The arbitrator rejected this argument, as does this court. (Arbitrator's Ruling Denying App. to Correct, at p. 2.) When read in context, it is clear that the arbitrator intended to offset Oakshire’s damages with the costs of manufacturing the excess inventory, as repeatedly stated in the Award, and not the profit share that Tear Drip would have received if the excess inventory had been sold. No evident miscalculation exists. To the extent the offset should have been based on the profit share that Tear Drip would have received had the excess inventory been sold, that is not an issue that is subject to review.

Second, Tear Drip contends the arbitrator exceeded his authority in issuing the Final Award, which included an award of attorney's fees, because it was issued beyond the temporal restrictions provided for by the Judicate West Arbitration Rules and statute. (Opp., at pp. 4-10 [ROA 131]; Pet. to Correct Arb. Award re: Attorneys Fees, at pp. 4-10 [ROA 126].) The court finds that the Award issued on December 15, 2022, was not an expression of the “final award” within the meaning of Code of Civil Procedure section 1283.4. An award under section 1283.4 “shall include a determination of all the questions submitted to the arbitrators the decision of which is necessary in order to determine the controversy.”

The issue of attorney's fees was submitted to the arbitrator pursuant the Stipulation and Order that states, the parties “submit this matter to binding arbitration, specifically, binding arbitration of all causes of action of the Complaint and all causes of action of the Cross Complaint . . . with the Court retaining jurisdiction to enter judgment based on the award or statement of decision of the arbitrator.” (Stipulation and Order, at p. 4 [ROA 89].) Under each of its causes of action in the Complaint, Tear Drip requested attorney's fees. (Compl., at ¶¶ 18, 25, 38, 45, 55, 64, 74 [ROA 2].) Tear Drip repeated the request for attorney fees under each cause of action in its prayer section of the Complaint. Oakshire, in its Cross-Complaint, also prayed “for attorney’s fees if recoverable pursuant to contract or statute.” (Cross-Complaint, at p. 5 [ROA 10].) Under these circumstances, the arbitrator had the power to decide the entire matter of recovery of attorney's fees in connection with the submitted claims. (Moore v. First Bank of San Luis Obispo (2000) 22 Cal.4th 782, 786 [“By agreement of the contracting parties, the fee question was within the arbitrators' powers to decide. Both plaintiffs and defendant prayed for fees in their complaints.”]; Moshonov v. Walsh (2000) 22 Cal.4th 771, 776, fn. omitted [arbitrator was expressly empowered to decide issue of prevailing party and attorney’s fees where “all parties had prayed for fees in their various pleadings” and then “submitted ‘this matter’ to binding arbitration, without any pertinent limitation on the issues to be arbitrated”].)

The Award is also reflects the parties' and the arbitrator's understanding that the issue of attorney's fees had been submitted to the arbitrator. “The Arbitrator finds that Tear Drip takes nothing by its Complaint. Oakshire is the prevailing party and is awarded $174,218.20 on its Cross-complaint.” (Award at p. 10, emphasis added). Unless the arbitrator intended to determine the issue of attorney's fees, he would have had no reason to designate Oakshire as “the prevailing party” in the preliminary Award. Even if the arbitrator called it an “Award,” an arbitrator’s “designation of his or her ruling as an ‘award’ does not make it one under section 1283.4.” (Kaiser Foundation Health Plan, Inc. v. Superior Court (2017) 13 Cal.App.5th 1125, 1142.) Aside from designating it an “Award,” there was no language in the Award that indicates it was final or that there were no other issues to be considered. To the contrary, the express finding that Oakshire “is the prevailing party” supports a finding that the Award was intended to be an interim ruling, and not the final adjudication of all the questions submitted to the arbitrator.

Moreover, even if the Award was final for the purpose of section 1283.4, and was later modified or amended by the Final Award, this court follows the holding in Delaney v. Dahl (2002) 99 Cal.App.4th 647. The additional time requirement in Century City Medical Plaza v. Sperling, Isaacs & Eisenberg (2001) 86 Cal.App.4th 865 is not warranted and not necessary to achieve the goals of “ensuring finality of, and limiting judicial intervention in, the arbitration process.” (Delaney v. Dahl (2002) 99 Cal.App.4th 647, 659 [finding that a final award may be amended at any time prior to judicial confirmation of the award]; see also Law Offices of David S. Karton v. Segreto (2009) 176 Cal.App.4th 1, 6 [noting that the Committee on Mandatory Fee Arbitration of the State Bar of California has issued an “Arbitration Advisory,” in which it “recognized the dispute, and chose to follow Delaney”].) Thus, the court rejects Tear Drip’s temporal objection to the confirmation of the Final Award because it is based on Century City Medical Plaza, not Delaney.

Finally, Oakshire’s petition was timely served and filed at least 10 days, and no later than 4 years, after service of the Final Award on the petitioner. The Final Award was issued and served on May 5, 2023. Oakshire’s petition was filed and served on June 8, 2023. At least 10 days’ notice was given for the hearing on August 18, 2023. The Petition (1) sets forth the substance of the arbitration agreement or attaches a copy thereof, (Oakshire Pet., Exh. 1); (2) sets forth the name of the arbitrator, (William J. Caplan, Esq. of Judicate West); and (3) attaches a copy of the Final Award, (Oakshire Pet., Exh. 2). (ROA 118.) No petition to vacate was filed. As explained above, Tear Drip’s petitions to correct the award are denied. Thus, the court grants Oakshire's petition, confirms the award as made, and will enter judgment in conformity with the final award. Oakshire shall submit a proposed judgment for the court’s review and signature.

In connection with these judicial proceedings, Oakshire is awarded its attorney's fees in the reasonable amount of $3,737.50. (Code Civ. Proc., §§ 1285, 1293.2, 1033.5, subd. (a)(10).); Marcus & Millichap Real Estate Investment Brokerage Co. v. Woodman Investment Group (2005) 129 Cal.App.4th 508, 513.)

The hearing on Tear Drip’s second petition to correct arbitration award, set for December 15, 2023, is vacated.

Oakshire shall give notice of the ruling.