Judge: Douglas W. Stern, Case: 22STCP02517, Date: 2022-09-07 Tentative Ruling
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Case Number: 22STCP02517 Hearing Date: September 7, 2022 Dept: 52
Tentative Ruling:
Petitioner The Estate of
Etsuko Toguri, by and Through Trustee Kathleen “Miki” Toguri’s Petition to Confirm
Arbitration Award; Respondent The Estate of Osvaldo Pierotti, by and Through
Trustee Anna Marie Pierotti’s Petition to Vacate Arbitration Award
Petitioner The Estate of Etsuko Toguri, by and through
trustee Kathleen “Miki” Toguri and respondent The Estate of Osvaldo Pierotti,
by and through trustee Anna Marie Pierotti, filed competing petitions to
confirm or vacate an 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.)
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.) “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.)
Petitioner argues the award should be
vacated on three grounds.
1. Exceeding the Arbitrator’s Authority
Under CCP § 1286.2(a)(4), courts must
vacate an award when “[t]he arbitrators exceeded their powers and the award cannot
be corrected without affecting the merits of the decision upon the controversy
submitted.”
Respondent contends the arbitrator
exceeded his authority because the award rests on an irrational construction of
the contract. This argument fails for
two reasons.
First, respondent misinterprets the
law. Respondent relies on Advanced
Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, which held only
that the remedy awarded must bear a rational relationship to the
contract. “[T]he remedy an arbitrator fashions does not exceed his or her powers
if it bears a rational relationship to the underlying contract as interpreted,
expressly or impliedly, by the arbitrator and to the breach of contract found,
expressly or impliedly, by the arbitrator.”
(Id. at p. 367.)
“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).” (Id. at p. 381.)
The case did not hold that an arbitrator exceeds his authority by making
an irrational interpretation of a contract’s substantive terms. It did not discuss the issue.
Advanced Micro Devices does not apply because respondent does not argue the remedy
bears no rational relationship to the contract.
Awarding damages is the proper remedy for breach of contract and
fraud. Respondent instead argues the arbitrator
irrationally interpreted the term “insane” as used in the contract. Doing so does not exceed the arbitrator’s
authority and is, at most, a mistake within his power to make.
Second, the arbitrator did not
irrationally interpret the contract. The
partnership agreement provides it must be interpreted according to the law as
it existed when it was made in 1978. Respondent
argues that the arbitrator interpreted the word “insane” under contemporary
standards, not as it meant in 1978. That
interpretation may be a mistake, but it is not irrational.
Moreover, the arbitrator did not interpret
the word “insane” at all. He found only
that respondent Pierotti waived any right to claim insanity as grounds for
dissolving the partnership. “Had Pierotti
raised [insanity] in 2009, when he and Anna visited Toguri and observed her
mental state, or even in 2011, when she was made a ward, after which the
Pierottis dealt only with her guardian, the matter may have had legs. That he did not, precludes Pierotti from
asserting such condition now.” (Award,
p. 12.)
Respondent also argues the arbitrator’s
interpretation of the contract was irrational because the agreement
“unambiguously does not require any partner to give notice of their own
insanity” and instead provides for automatic, immediate dissolution. (Response, p. 19.) Finding waiver is not an interpretation of
the contract. It is a general doctrine
of law applicable to a person’s rights in general. “Waiver is the intentional relinquishment of
a known right after full knowledge of the facts.” (DRG/Beverly Hills, Ltd. v. Chopstix Dim
Sum Cafe & Takeout III, Ltd. (1994) 30 Cal.App.4th 54, 59.)
2. Violation of a Statutory Right
Respondent
next contends the award violates public policy in contravention of Corporations
Code § 16601(7)(B), which provides for automatic dissociation of a partner from
a partnership upon appointment of a guardian or conservator. Respondent relies on Department of
Personnel Administration v. California Correctional Peace Officers Assn. (2007)
152 Cal.App.4th 1193, 1200, which stated that “courts may, indeed must, vacate
an arbitrator’s award when it violates a party’s statutory rights or otherwise
violates a well-defined public policy.”
(Department of Personnel Administration v. California Correctional
Peace Officers Assn. (2007) 152 Cal.App.4th 1193, 1200.)
Respondent’s
reliance on that quote is misplaced. It
is either an incomplete and imprecise statement of the rule or it was later
overruled by the Supreme Court of California.
The more accurate and current statement of the rule is that “[a]rbitrators
may exceed their powers by issuing an award that violates a party’s unwaivable
statutory rights or that contravenes an explicit legislative expression of
public policy.” (Richey v. AutoNation,
Inc. (2015) 60 Cal.4th 909, 916.)
Even
assuming violating a partner’s “right” to automatic dissociation of another
partner from a partnership under Corporations Code § 16601 is grounds for
vacating an arbitration award, that right can be waived. Respondent does not argue or provide any
authority otherwise. The arbitrator
found Pierotti waived any such right.
3. Public Policy — Taxes
Finally,
respondent argues the award violates public policy because it condones Toguri’s
tax evasion. Respondent relies on the
rule that “courts will not ordinarily aid in enforcing an agreement that is
either illegal or against public policy.”
(Birbrower, Montalbano, Condon & Frank v. Superior Court (1998)
17 Cal.4th 119, 138.)
This rule does not apply because any tax evasion had
nothing to do with this award. It is
completely ancillary. It is not part of
the partnership agreement enforced by the award. Any tax evasion results from a separate event:
that Toguri’s reports to “the Superior Court of Justice, Ontario” “never
identified or discussed Property or her partnership as an asset.” (Award, p. 6.)
Moreover, the arbitrator did not find that Toguri
evaded taxes. Respondent relies only on
conjecture. And even if Toguri evaded
any taxes, they were taxes owed to Canada or the province of Ontario. The public policy of the State of California
does not include enforcing tax obligations to Canada or Ontario. In this case in particular, public policy
does not warrant a $30 million windfall for a respondent who defrauded Toguri
merely because Toguri avoided some undetermined—but necessarily far lower—amount
of taxes owed in a foreign country.
In
this section, respondent also includes another argument: “Toguri expressly
represented to a Court that she had no interest in the Partnership or the
Property. … Toguri should not be able to assert on the one hand that she is a
partner to collect a huge windfall, but also disavow her partnership interest
for all other purposes.” (Response, p.
22.)
In
substance, respondent argues for judicial estoppel. The court rejects this argument for two
reasons.
First, judicial estoppel does not apply. “Judicial estoppel is an equitable doctrine,
and its application, even where all necessary elements are present, is
discretionary.” (MW Erectors, Inc. v.
Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412,
422.) “The purpose of judicial estoppel
is to prevent injury to an innocent litigant.” (In re Marriage of Dekker (1993) 17
Cal.App.4th 842, 850.)
It
was within the arbitrator’s discretion not to find Toguri was estopped from
claiming an interest in the property. As
the factfinder, the arbitrator found respondent was anything but innocent. He found Pierotti liable for defrauding
Toguri out of tens of millions of dollars.
He awarded punitive damages based on Pierotti’s intentional “trickery”
and fraud against a vulnerable party.
(Award, p. 17.) No equitable
doctrine intended to protect the innocent can aid respondent.
Second, even if judicial estoppel (or some other
form of estoppel) applied, the arbitrator’s failure to apply it was merely a
mistake. It was within his power to make
such a mistake. It is not grounds for
vacating the award.
Disposition
The final award issued by Hon. Brian R. Van Camp
(Ret.) is hereby confirmed.
CCP § 1287.4 provides, “If an award is confirmed,
judgment shall be entered in conformity therewith.” Petitioner the Estate of Etsuko Toguri, by
and Through Trustee Kathleen “Miki” Toguri, is ordered to file a
proposed judgment for the court’s signature forthwith.