Judge Gary Y. Tanaka, Case 21TRCV00731 2023-01-30 Tentative Ruling

LOS ANGELES SUPERIOR COURT – SOUTHWEST DISTRICT

Honorable Gary Y. Tanaka Monday, January 30, 2023

Department B Calendar No. 4

Plaintiff filed the Complaint on October 9, 2020. Fisker, Inc. is an electric vehicle automaker. The individual Defendants are the co-founders of Fisker Inc. Henrik Fisker is the Chief Executive Officer of Fisker Inc. and Dr. Geeta Fisker is the Chief Financial Officer of Fisker Inc. In 2016, Plaintiff provided consulting services to Fisker Inc., and, from 2017 until 2019, Plaintiff was an employee of Fisker Inc. Defendants failed to honor their stock purchase agreement and on May 23, 2019, Plaintiff was forced to resign.

Plaintiff pleads the following causes of action: 1) fraudulent inducement; 2) intentional misrepresentation; 3) promissory fraud; 4) negligent misrepresentation; 5) conversion; 6) declaratory relief; 7) quantum meruit; 8) unjust enrichment; 9) constructive fraud; 10) breach of contract; 11) constructive trust; 12) discrimination in violation of the Fair Employment and Housing Act (FEHA); 13) harassment in violation of FEHA; 14) retaliation in violation of FEHA; and 15) successor liability.

On November 19, 2020, Defendants’ motion to compel arbitration was granted. On July 7, 2022, an interim arbitration award was entered by arbitrator Hon. James A. Steele. On August 11, 2022, Judge Steele issued his second interim arbitration award. On October 4, 2022, Judge Steele issued his third and final arbitration award.

“Any party to an arbitration in which an award has been made may petition the court to confirm, correct or vacate the award. The petition shall name as respondents all parties to the arbitration and may name as respondents any other persons bound by the arbitration award.” Code Civ. Proc., § 1285. The procedure by which a prevailing party obtains an enforceable judgment, upon the completion of the arbitration, is to petition to confirm the award. CCP § 1286; Loeb v. Record (2008) 162 Cal.App.4th 431, 450.

Service of this petition must meet the requirements of CCP § 1290.4. CCP § 1290.4 states, in relevant part:

“(a) A copy of the petition and a written notice of the time and place of the hearing thereof and any other papers upon which the petition is based shall be served in the manner provided in the arbitration agreement for the service of such petition and notice.

(c) If the arbitration agreement does not provide the manner in which such service shall be made and the person on whom service is to be made has previously appeared in the proceeding or has previously been served in accordance with subdivision (b) of this section, service shall be made in the manner provided in Chapter 5 (commencing with Section 1010) of Title 14 of Part 2 of this code.” Code Civ. Proc., § 1290.4.

(a) Set forth the substance of or have attached a copy of the agreement to arbitrate unless the petitioner denies the existence of such an agreement.

“(a) Subject to Section 1286.4, the court shall vacate the award if the court determines any of the following:

(3) The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator.

(4) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.

(5) The 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 or by other conduct of the arbitrators contrary to the provisions of this title.

(6) An arbitrator making the award either: (A) failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware; or (B) was subject to disqualification upon grounds specified in Section 1281.91 but failed upon receipt of timely demand to disqualify himself or herself as required by that provision. However, this subdivision does not apply to arbitration proceedings conducted under a collective bargaining agreement between employers and employees or between their respective representatives.

(b) Petitions to vacate an arbitration award pursuant to Section 1285 are subject to the provisions of Section 128.7.1.”

“It is well settled that arbitrators do not exceed their powers merely because they assign an erroneous reason for their decision. A contrary holding would permit the exception to swallow the rule of limited judicial review; a litigant could always contend the arbitrator erred and thus exceeded his powers.” Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 28 (internal citations and quotations omitted). “[I]t is within the “powers” of the arbitrator to resolve the entire “merits” of the “controversy submitted” by the parties. Obviously, the “merits” include all the contested issues of law and fact submitted to the arbitrator for decision. The arbitrator's resolution of these issues is what the parties bargained for in the arbitration agreement.” Id. (internal citation omitted).

Judicial review of an arbitration award is limited. Limiting grounds for judicial review effectuates the parties’ agreement award be final and it reflects the view that arbitrators may base their decisions on “broad principles of justice and equity” … “paths neither marked nor traceable by judicial review.” Id. at 11. Generally, errors of law committed by the arbitrator are not grounds for challenging the arbitrator's award. Id. The rationale for this is because the parties contracted that the arbitrator's decision, right or wrong, would be conclusive and the risk of arbitral error has been reduced by statutory provisions allowing courts to vacate or correct for “serious problems with the award itself or with the fairness of the arbitral process.” Id. at 12.

On October 27, 2022, Plaintiff filed a motion to confirm arbitration award. Plaintiff moves to confirm the arbitration award in his favor. Plaintiff requests judgment in the amount of $6,495,627. Plaintiff has properly served the motion to confirm arbitration award and provided notice of the hearing date. In the underlying arbitration, the arbitrator made certain rulings and awarded the sum noted above in favor of Plaintiff. (Decl., Christopher Mader, dated Oct. 27, 2022, Exs. A, I, H.)

Defendants oppose the motion to confirm arbitration and filed its own petition to vacate the arbitration award on the grounds that the arbitrator exceeded his powers by awarding Plaintiff 23,530 shares of stock ultimately valued at approximately $6 million based on a grant of stock options. However, Defendants contend that there was no agreement for stock options to support this portion of the award. In addition, Defendants oppose the motion to confirm the award to the extent that Plaintiff seeks pre-judgment interest.

“Arbitration awards are final and conclusive because the parties have agreed they should be so. This expectation of finality strongly informs the parties' choice of an arbitral forum over a judicial one. The arbitrator's decision should be the end, not the beginning, of the dispute. To ensure the arbitration decision is final and conclusive, only limited judicial review is available. Courts may not review the merits of the controversy, the validity of the arbitrator's reasoning, or the sufficiency of the evidence. Indeed, an arbitrator's decision is not generally reviewable for errors of fact or law, even if the error appears on the face of the award and causes substantial injustice. [A]n award reached by an arbitrator pursuant to a contractual agreement to arbitrate is not subject to judicial review except on the grounds set forth in [Code of Civil Procedure] sections 1286.2 (to vacate) and 1286.6 (for correction). [¶] Code of Civil Procedure section 1286.2 sets forth the bases on which a court “shall” vacate an arbitration award. A court shall vacate an award if it determines [t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted. An arbitrator exceeds his powers when he acts without subject matter jurisdiction, decides an issue that was not submitted to arbitration, arbitrarily remakes the contract, upholds an illegal contract, issues an award that violates a well-defined public policy, issues an award that violates a statutory right, fashions a remedy that is not rationally related to the contract, or selects a remedy not authorized by law. In other words, an arbitrator exceeds his powers when he acts in a manner not authorized by the contract or by law.” Jordan v. California Dept. of Motor Vehicles (2002) 100 Cal.App.4th 431, 443 (internal citations and quotations omitted).

The Court finds that Defendants fail to meet their burden to show that the arbitrator exceeded his powers. Defendant’s petition to vacate arbitration award essentially acts as an attempt to relitigate a key issue in the arbitration which is expressly forbidden under well-founded authority noted above. There is no showing made by Defendants of the elements noted above in Jordan regarding the manner in which an arbitrator can be shown to have acted in excess of his powers. There is no showing that Judge Steele acted without subject matter jurisdiction. The issue of the disputed stock options was clearly an issue that was submitted to arbitration. The arbitrator did not “remake” the contract. In fact, in the second interim arbitration award, Judge Steele clarified that he was not relying on the original 2016 employment agreement, but, instead upon a separate agreement effectuated after the 2016 agreement.

Judge Steele held, as follows: “Implicit in this finding is that Dr. Albano was granted 23,530 stock options in a separate arrangement, outside of the options granted in the initial Employment Agreement or future employment-related option grants. In summary, Dr. Albano was hired by Fisker and although a transfer of his solid state battery patent would have been included along with an assignment of intellectual property, it was not. It was clearly documented as a “carve out” as demonstrated by Dr. Albano during the hearings. The exercise of the options for an additional 23,530 shares occurred on or about January 12, 2017. Some confusion is understandable, given that the initial Employment Agreement also granted Dr. Albano 23,530 stock options. To clarify, therefore, the Arbitrator found that Dr. Albano was due: (1) the value of the 69,445 unexercised stock options that both parties acknowledge were his at the time of his termination; and (2) the value of the 23,530 stock options that Dr. Albano was granted on or around January 12, 2017 and exercised at or about that same time (the “January Options”). Furthermore, unlike the options granted incident to his employment, which were the subject of Board action in December 2016, the January Options were not subject to a vesting schedule.” (Plaintiff’s Ex. H, pages 2-3.) Had Judge Steele actually relied upon the 2016 employment agreement, certainly, an argument could have been made that he “remade” the terms of the contract since, by the terms of that contract the stock options had not vested. Defendants argue that Judge Steele “invented” the (new) contract. However, Judge Steele heard evidence from both parties regarding this contract and made a determination that such a contract existed. That Defendants deny the existence of this contract is not in dispute, but, clearly, Judge Steele had authority to determine that a contract was entered into by the parties and that Defendants breached that contract. This Court cannot usurp the decision-making process of the arbitrator by imposing a decision that this second contract did or did not exist.

There is no showing that the contract is illegal, and that the award violates public policy or a statutory right. Finally, Judge Steele did not fashion a remedy that is not rationally related to the contract, nor did he select a remedy not authorized by law. Essentially, Defendants dispute the existence of this contract. However, Judge Steele determined, after hearing the evidence, that this contract did exist. The instant Court, therefore, cannot make a finding that the arbitrator acted in excess of his powers. The instant Court may or may not seriously disagree with the arbitrator’s findings, but it has no power to vacate the arbitration award under these facts. To do so would undermine the extensive policy reasons noted above regarding the instant Court’s limited powers of judicial review.

Therefore, the Court finds that the arbitrator did not exceed his power and authority in determining the issues presented in the arbitration demand and outlined in the arbitration award. The Court does find, however, that the arbitrator denied Plaintiff’s request for pre-judgment interest. (Defendants’ Exs. 25-26.) Thus, to the extent that Plaintiff requests that the Court “confirm” that portion of the award, that request must be denied.

Thus, Plaintiff’s Motion to Confirm Arbitration Award is granted, in part. The Arbitration Award is confirmed as is, without any addition of pre-judgment interest, which was not a part of the arbitration award.

Plaintiff is ordered to file and serve a proposed judgment in conformity with this Court’s ruling and is ordered to give notice of this ruling.