Judge: Deborah C. Servino, Case: 30-2022-01267436, Date: 2022-10-07 Tentative Ruling

The Petition to Confirm Contractual Appraisal Award (“Petition”), brought by Petitioners Seaside Dining Group, Inc., Ocean Restaurant Group, Inc., Rising Valley Restaurants, LLC, Farmhouse Foods Group, LLC, Humble Food Group, LLC and Legacy Diners, LLC, is dismissed.  

“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.)  Code of Civil Procedure section 1285.4 sets forth the required contents of a petition to confirm, correct, or vacate the arbitration award.

Within this Petition, Petitioners seek confirmation of an appraisal award, pursuant to Code of Civil Procedure section 1286.  Code Civil Procedure section 1286 provides that an arbitration award shall be confirmed, unless it is vacated or corrected.  

“‘[A]greements providing for valuations, appraisals and similar proceedings’ are within the definition of ‘agreements’ subject to the arbitration statute (§ 1280, subd. (a)), and it is fundamental to the policies implicit in that statute that such agreements are to be given full force and effect.” (Helzel v. Superior Court (1981) 123 Cal.App.3d 652, 659 [citing Code Civ. Proc., § 1280, subd. (a)].)  Notably, “[t]he term ‘appraisals’ was added to the Arbitration Act in 1961 to expressly extend the coverage of the statute to appraisal proceedings.” (Lambert v. Carneghi (2008) 158 Cal.App.4th 1120, 1130.)  “[T]he 1961 statute erased the judicial distinction between agreements to arbitrate disputes and agreements providing for independent examinations by way of valuations, appraisals and similar proceedings, such as audits, and brought such agreements within the arbitration law.” (Coopers & Lybrand v. Superior Court (1989) 212 Cal.App.3d 524, 534.)  Additionally, “[b]ecause the parties to an arbitration may dispense with a formal hearing and the taking of evidence, the absence of such elements does not impair the status of a proceeding as an arbitration.” (Ibid.)

However, “a mere agreement for a binding valuation is not per se an agreement to submit to arbitration.” (Id. at p. 537.) “Something more is required, particularly in view of the consequences, including immunity, which flow from the label of arbitration.” (Ibid.) Coopers & Lybrand v. Superior Court explained:

Further, if arbitration is what is intended by the parties, the entire applicable statutory scheme comes into play.  Arbitration is provided for in the Code of Civil Procedure not only in sections 1280, subdivision (a), and 1280.1, but throughout title 9 of part III of the code.  These sections govern, inter alia, the conduct of arbitration hearings (§ 1282.2), the time for making the award (§ 1283.8), court confirmation of the award (§ 1286), and grounds for vacating the award (§ 1286.2).

We recognize that section 1282 et seq. sets forth procedures for the conduct of arbitration proceedings and that parties are free to ‘otherwise provide by an agreement’ (§§ 1282, 1282.2) and thereby dispense with a formal hearing and the taking of evidence.  While parties to an arbitration are free to proceed solely by way of an audit, the mere fact parties agree to an independent binding audit does not establish they agreed to an arbitration and that they elected to dispense with the statutory guidelines.

(Id. at pp. 537-538.) The court in Coopers & Lybrand v. Superior Court went on to find that the appraisal provision was ambiguous and that “it cannot be said as a matter of law that the provision . . . for a binding audit constitutes an agreement for arbitration within the meaning of section 1280, subdivision (a).” (Id. at p. 539.) 

The agreements in the instant matter are analogous to the appraisal provision in Coopers & Lybrand v. Superior Court. The agreement discussed in Coopers provided: “The Audit shall be a conclusive determination of the matters covered thereby and shall be binding upon the parties and shall not be contested by any of them . . .” (Id. at p. 537.) Here, the parties do not dispute that all relevant Buy Sell Agreements had a Valuation and Purchase Price section (§ III), which provided in relevant part that if there was no agreed fair market value of the stock or membership interests, then the “fair market value” of the stock or membership interests would be determined by the Company’s or Corporation’s certified professional accountant (“CPA”). (Grieve Decl., at ¶¶ 2 & 3, Exh. 1 [Legacy Diners, LLC Members’ Buy-Sell Agreement and Humble Food Group, LLC Members’ Buy-Sell Agreement], Exh. 2 [Seaside Dining Group, Inc. Stockholders’ Amended & Restated Buy-Sell Agreement, Ocean Restaurant Group, Inc. Stockholders’ Amended & Restated Buy-Sell Agreement, Rising Valley Restaurants, Members’ Amended & Restated Buy-Sell Agreement, Farmhouse Foods Group, LLC Members’ Amended & Restated Buy-Sell Agreement].)  The provisions at issue in this case merely provide for the acceptance of the fair market valuation by each company’s or corporation’s CPA. Consequently, the language alone does not establish an agreement to arbitrate, as contemplated by Code of Civil Procedure section 1280.  Instead, “[s]omething more is required, particularly in view of the consequences, including immunity, which flow from the label of arbitration.”  (Coopers & Lybrand v. Superior Court, supra, 212 Cal.App.3d at p. 537.)

As noted in Lambert v. Carneghi, supra, 158 Cal.App.4th 1120, “although arbitration can take many procedural forms, a dispute resolution procedure is not an arbitration unless there is a third party decision maker, a final and binding decision, and a mechanism to assure a minimal level of impartiality with respect to the rendering of that decision.” (Id. at p. 1130.) Similarly, Cheng-Canindin v. Renaissance Hotel Associates (1996) 50 Cal.App.4th 676, held that the attributes of a true arbitration agreement are “(1) a third party decision maker; (2) a mechanism for ensuring neutrality with respect to the rendering of the decision; (3) a decision maker who is chosen by the parties; (4) an opportunity for both parties to be heard, and (5) a binding decision.” (Id. at pp. 684-685; see Elliot & Ten Eyck Partnership v. City of Long Beach (1997) 57 Cal.App.4th 495, 503.)

Here, Petitioners have not demonstrated a mechanism to assure a minimal level of impartiality or an opportunity for both parties to be heard, as required to constitute an arbitration. The portions of the Buy Sell Agreements relied on by Petitioners contain no provisions which clearly establish the above.  Instead, the Buy Sell Agreements merely provide that the parties “agree to accept the valuation” of the Company’s or Corporation’s CPA.  (Grieve Decl., at ¶¶ 2-3, Exhs. 1 and 2.)  Moreover, arbitration is expressly addressed in Section XIV (Resolution of Disputes) in the relevant Buy Sell Agreements.  (Grieve Decl., at ¶¶ 2-3, Exhs. 1 and 2.)  Thus, the Valuation and Purchase Price section of the Buy Sell Agreements did not constitute agreements for arbitration within the meaning of Code of Civil Procedure section 1280, subdivision (a).      

Petitioners’ reliance upon Louise Gardens of Encino Homeowners’ Assn., Inc. v. Truck Ins. Exchange, Inc. (2000) 82 Cal.App.4th 648 and Devonwood Condominium Owners Assn. v. Farmers Ins. Exchange (2008) 162 Cal.App.4th 1498 is unavailing, to establish the instant appraisals qualify as arbitrations.  The cases are distinguishable because those appraisal proceedings were pursuant to Insurance Code section 2071. (Louise Gardens of Encino Homeowners’ Assn., Inc., supra, 82 Cal.App.4th at p. 652 and Devonwood Condominium Owners Assn. v. Farmers Ins. Exchange, supra, 162 Cal.App.4th at p. 1504.)  “Under standard policy provisions required by Insurance Code section 2071, when there is a disagreement between the insurer and the insured as to the amount of the loss, then either party may demand an appraisal.  Once that demand has been made, then each party shall select a ‘competent and disinterested appraiser’ and then they shall select a ‘competent and disinterested umpire.’ The appraiser shall appraise the loss. If they cannot agree, then they will submit their differences to the umpire.” (Louise Gardens of Encino Homeowners’ Assn., Inc., supra, 82 Cal.App.4th at p. 652.)  An appraisal pursuant to Insurance Code section 2071 constitutes an arbitration. (See, e.g., Lambert v. Carneghi, supra, 158 Cal.App.4th at pp. 1130-1133.)

The subject agreements do not provide a comparable appraisal process.  Similarly, while Helzel v. Superior Court (1981) 123 Cal.App.3d 652, involved a stock purchase agreement, “[t]he parties agreed that the fair market value of the shares would be determined by a two-phase system of appraisals,” which called for separate appraisals by two designated appraisers and the “appointment of a third appraiser,” where agreement could not be reached. (Id. at pp. 657, 659 and 664.) The agreements to accept a valuation by an identified CPA, set forth in the Buy Sell Agreements in the instant matter, are not comparable.  None of the parties have referred to a case in which an agreement to be bound by a single appraisal constituted an arbitration for purposes of Code of Civil Procedure section 1280.  Indeed, authority provided by Petitioners and Real Party in Interest, found the opposite. (Coopers & Lybrand v. Superior Court, supra, 212 Cal.App.3d at p. 539.) 

Petitioners have not demonstrated that the subject appraisal constitutes an arbitration, for purposes of permitting confirmation of an award, pursuant to Code of Civil Procedure section 1286. Accordingly, the Petition is dismissed.  (Code Civ. Proc., § 1286; see Maplebear, Inc. v. Busick  (2018) 26 Cal.App.5th 394, 400; Kaiser Foundation Health Plan, Inc. v. Superior Court (2017) 13 Cal.App.5th 1125, 1143, 1150-1151; Cinel v. Christopher (2012) 203 Cal.App.4th 759, 767.)      

Based upon the ruling, the Court hereby vacates all future hearing dates in this matter. 

Respondents shall give notice of the ruling.