Superior Court of California 

County of Los Angeles – West District  

Beverly Hills Courthouse / Department 205 

 

 

BACKGROUND 

 

  This is a breach of contract case.  Petitioner Eden Reforestration Projects (“Eden”) entered into an agreement with Respondent Aspiration Partners Inc. (“Aspiration”) whereby Aspiration would pay Eden $16 million to plant 5 billion trees over a 20 year period in developing countries.   

Aspiration entered into a separate contract with Eden’s wholly owned subsidiary, Petitioner Compassionate Carbon, requiring Compassionate Carbon to deliver carbon credits.  Aspiration was required to pre-pay Compassionate Carbon $6 million for its carbon credits.   

Aspiration defaulted on its obligations under the contract with Eden.  By February 2023, Aspiration was $3.9 million in default.  The parties negotiated a settlement to resolve their disputes.   

The very first draft of the Settlement Agreement identified Compassionate Carbon as a party: “This Settlement Agreement … is entered into … between and amongst Aspiration Partners, Inc. and Aspiration, Inc., including all predecessors and successors in interest and/or any related or affiliated entities (“Aspiration”) and Eden Reforestration Projects, including without limitation, Compassionate Carbon and including all predecessors and successors in interest and/or any related or affiliated entities (“Eden”), (hereafter, collectively the ‘Parties’).”    (Ex. 9 to Hosie Decl. (emphasis added).) 

From this first draft forward, Compassionate Carbon was explicitly called out as a settling party in six subsequent drafts.  In addition, the drafts always stated that all affiliates and related parties would be released, as is typical in release provisions in settlement agreements. 

In the Settlement Agreement, Eden agreed to forego $16 million in exchange for $3.9 million in payments by Aspiration, plus a mutual release, which included a release of Aspiration’s claims against Compassionate Carbon.  The parties signed the Settlement Agreement.   

A dispute arose over the Settlement Agreement.  Aspiration argued that it had not intended to release its claims against Compassionate Carbon and that Eden had “slipped” Compassionate Carbon into the Settlement Agreement at the last minute and acted fraudulently.  Aspiration refused to make any future payments under the Settlement Agreement.   

The Settlement Agreement provided for the resolution of disputes “arising from or relating to” it by JAMS arbitration.  Petitioners commenced an arbitration of the dispute by filing a demand with JAMS.  The Hon. Kirk H. Nakamura (Ret.) was appointed as the arbitrator.  Petitioners filed a motion for summary judgment, which the Arbitrator granted.  (See Attachment 8(c) to Petition.)   

The Arbitrator concluded that (1) Respondents breached the Settlement Agreement by not making a $1,000,000 settlement payment, (2) Respondents repudiated the Settlement Agreement and thereby anticipatorily breached the Settlement Agreement and $1,376,271.19 is the discounted accelerated payment sum due under the Settlement Agreement, (3) the $1,000,000 past due sum is a sum certain and thus Petitioners are entitled to pre-award prejudgment interest on that sum which totals $10,958.90, and (4) Respondents are liable for all arbitration costs.  (Id.)  The Arbitrator also granted judgment in favor of Petitioners on their declaratory relief claim.  (Id.) 

On December 15, 2023, the Arbitrator issued the Award, and JAMS served the Award on the parties on December 5, 2023.  No request to correct the Award was made by any party.      

This hearing is on Petitioners’ motion to confirm the arbitration award and Specially Appearing Respondent Aspiration Partners, Inc.’s motion to vacate the arbitration award.  Petitioners argue that the award should be confirmed pursuant to Code Civ. Proc. § 1285.2.  Meanwhile, Respondent argues that the Settlement Agreement is illegal because it conferred a benefit on Compassionate Carbon, in violation of “the most fundamental premises of nonprofit law”, and therefore, the arbitrator had no power to uphold the Settlement Agreement, and the resulting arbitration award should be vacated.   

DISCUSSION 

 

Motion to Vacate Arbitration Award 

 

Respondent argues that the Settlement Agreement is illegal, and therefore, the arbitration award should be vacated.  The Court concludes that Respondent waived the issue of illegality by failing to raise it before submitting to arbitration.   

A party claiming the entire contract is illegal must raise the illegality question prior to participating in the arbitration process, and raising it before the arbitrator is no substitute.  (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1,¿30.)  “Moncharsh held that if a party believes the entire contractual agreement or a provision for arbitration is illegal, it must oppose arbitration on this basis before participating in the process or forfeit the claim…A contrary rule might tempt a party to ‘play games’ with the arbitration and not raise the issue of illegality until and unless it lost.”¿¿(Cummings v. Future Nissan (2005) 128 Cal.App.4th 321, 328.) 

“The forfeiture rule exists to avoid the waste of scarce dispute resolution resources, and to thwart game-playing litigants who would conceal an ace up their sleeves for use in the event of an adverse outcome. The proper criterion for dividing the sheep from the goats (Matthew 25:32) is a litigant’s knowledge of a defense to the jurisdiction of the arbitrator.¿Those who are aware of a basis for finding the arbitration process invalid must raise it at the outset or as soon as they learn of it so that prompt judicial resolution may take place before wasting the time of the adjudicator(s) and the parties.  If a trial court compels arbitration nonetheless, the party resisting arbitration may seek review of the ruling on appeal from an order that confirms the award.  If the arbitration process is found to be invalid, the responsibility for a waste of resources would then lie with the trial court, not the litigant, and there has not been any hidden trump card.  On the other side of the line, a party who knowingly participates in the arbitration process without disclosing a ground for declaring it invalid is properly cast into the outer darkness of forfeiture.”  (Cummings, 128 Cal.App.4th at 328-329)¿(unconscionability argument waived by plaintiff as grounds to vacate arbitration award where she failed to raise it in opposition to motion to compel arbitration).)  

The Court of Appeals in¿ECC Capital Corp. v. Mannatt, Phelps, & Phillips, LP (2017) 9 Cal.App.5th 885¿also interpreted Moncharsh as allowing for waiver of illegality as a defense to confirmation of an arbitration award.  Like Respondent, the plaintiff in ECC Capital moved to vacate the arbitration award against it on grounds that the arbitrator “exceeded his powers and violated a well-defined public policy by enforcing an illegal agreement,” specifically the Rules of Professional Conduct governing attorney conflicts of interest.¿ (Id. at 905-907.)  Citing Moncharsh and Cummings, the Court of Appeals affirmed the trial court’s denial of the motion to vacate based on forfeiture: “Not only did ECC not oppose the motions to compel arbitration on the ground the 2007 engagement agreement was illegal¿or otherwise unenforceable, ECC gave every indication going into the arbitration hearing it was abandoning its previous assertion that Manatt had an undisclosed conflict of interest, and during the hearing, ECC represented it was not going to present any evidence to establish what it now claims as the basis of its illegality argument.” ¿(Id. at 907.) ¿In response to plaintiff's argument that “a claim that a contract is illegal is never waived,” the Court of Appeals stated “[n]ot according to the Supreme Court,” citing¿Moncharsh, 3 Cal.4th at 31.  Allowing the plaintiff to vacate an arbitration award based on illegality only after arbitration was fully completed and the plaintiff was aware of the facts supporting illegality from the outset would “severely undermine the advantages of arbitration.” (Id. at 908.) 

Here, Respondent failed to timely raise illegality of the contract.  Respondent does not provide any explanation for its failure to object to the arbitration and the arbitrator’s jurisdiction based on the illegality of the entire agreement prior to engaging in arbitration.  Instead of promptly raising the issue of the arbitration’s invalidity due to the illegality of the Settlement Agreement, Respondent proceeded with arbitration, “wasting the time of the adjudicator and the parties.”¿ (Cummings, 128 Cal.App.4th at 328-329.) 

Respondent relies upon several cases, all of which are unavailing.  Loving & Evans v. Blick (1949) 33 Cal.2d 603 was decided in 1949, well before Moncharsh and Cummings.  Lindenstadt v. Staff Builders, Inc. (1997) 55 Cal.App.4th 882¿did not discuss Moncharsh’s statements regarding forfeiture or waiver where a party raises illegality of the entire agreement after fully participating in arbitration and in connection with a motion to confirm or vacate an arbitration award.  The holding in South Bay Radiology Medical Associates v. Asher (1990) 220 Cal.App.3d 1074, 1080-1081 that the illegality defense may be raised at any time was disapproved of by the California Supreme Court in Law Finance Group, LLC v. Key (2023) 14 Cal.5th 932, 959 fn. 5.   

In Sheppard, Mullin, Richter & Hampson LLP v. J-M Manufacturing Co., Inc. (2018) 6 Cal.5th 59, 68, the defendant sought to vacate the arbitration award on grounds that the parties' entire engagement agreement was illegal. The defendant had initially raised the same argument in opposition to the plaintiff's motion to compel arbitration.  (Id. at 71.)  The trial court overruled the argument and compelled the parties to arbitration.  (Id.) Under these facts, the defendant could not have been accused of waiving or forfeiting the illegality argument, because it raised it in opposition to the motion to compel arbitration and prior to engaging in arbitration. 

In sum, the Court finds Respondent failed to timely raise the defense of illegality before this Court or to object to the arbitrator’s jurisdiction on that basis.  Respondent therefore forfeited judicial review of the contract’s illegality as grounds to vacate the arbitration award.  Respondent’s motion to vacate is denied.   

Motion to Confirm Arbitration Award 

 

Pursuant to Code Civ. Proc. § 1285, any party to an arbitration award may petition the court to confirm the award.  Section 1285.4 requires that the petition (1) attach a copy of the agreement to arbitrate, (2) identify the arbitrator, and (3) include a copy of the award and any opinion of the arbitrator.  The Petition meets these requirements.   

The Petition is also timely.  Code Civ. Proc. § 1288 provides that a petition to confirm an arbitration award shall be served and filed no later than 4 years after the date of service of a signed copy of the award on the petitioner.  The Award was served on December 5, 2023.  The Petition was filed on December 19, 2023.  December 19 is 14 days after December 5 and well within the 4 year statutory deadline.   

The Petition is also not premature.  Code Civ. Proc. § 1288.4 requires that the petition be filed “at least 10 days after service of the signed copy of the award upon the petitioner.”  Here, the petition was served 14 days after service of the Award.   

For reasons set forth above, the Court concludes there is no basis to vacate the arbitration award.  Accordingly, the Court grants the motion to confirm the arbitration award.   

The Award set forth a figure of $2,390,730.09 which includes damages for breach ($1,000,000), anticipatory breach ($1,376,271.19), pre-award prejudgment interest ($10,958.90) and $3,500 in arbitration costs.   

Since the Award, Petitioners have incurred an additional $3,846.48 in arbitration costs to which they are entitled under the Award.  The Award provides that Petitioners are entitled to reimbursement of all arbitration costs.   

Pursuant to the Award, Petitioners are also entitled to post-award prejudgment interest at the rate of 10% per annum from the date of issuance of the award to the date of judgment.  The Court also grants Petitioners’ request for post-judgment interest at the statutory rate of 10% per annum. 

CONCLUSION 

  For the foregoing reasons, the Court GRANTS the petition to confirm the arbitration award and DENIES the petition to vacate the arbitration award.  Petitioner is to submit a proposed judgment. 

          

DATED:  April 12, 2024            ___________________________ 

Edward B. Moreton, Jr. 

Judge of the Superior Court