Judge: Mark V. Mooney, Case: 22STCP02586, Date: 2022-10-12 Tentative Ruling
Case Number: 22STCP02586 Hearing Date: October 12, 2022 Dept: 68
TENTATIVE RULING:
PETITION
OF NOBLE HOUSE TO CORRECT OR VACATE THE ARBITRATION AWARD: DENIED
PETITION
OF CRI TO CONFIRM THE ARBITRATION AWARD: GRANTED
DISCUSSION
At issue in these two competing
petitions is whether the award of attorney fees by the arbitrator can be upheld
on review.
Legal Standard
“The
scope of judicial review of arbitration awards is extremely narrow. Courts may
not review the merits of the controversy, the sufficiency of the evidence
supporting the award, or the validity of the arbitrator's reasoning.... Indeed, with limited exceptions, ‘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.’” (Dept. of Personnel Admin. v.
Cal. Correctional Peace Officers Ass'n (2007) 152 Cal.App.4th 1193, 1200. Accord California
School Employees Assn. v. Bonita Unif. School Dist. (2008) 163 Cal.App.4th 387, 406-07.) The only grounds for judicial
review of an arbitration award are: “(a) the award was procured by
corruption, fraud or other means; (b) there was corruption in the arbitrator;
(c) the rights of the party were substantially prejudiced by misconduct of a
neutral arbitrator; (d) the arbitrator exceeded … powers and the award cannot
be corrected without affecting the merits of the decision upon the controversy submitted;
(e) the rights of the party were substantially prejudiced by the refusal of the
arbitrator to postpone the hearing; or (f) there was a disclosure or
disqualification issue….” (Allstate Ins. Co. v. Sup. Ct. (2006) 142
Cal.App.4th 356, 362-63 (citing, e.g., CCP §1286.2); SWAB Financial
v. E*Trade Securities (2007) 150 Cal.App.4th 1181, 1201.)
Arbitration is a private arrangement whereby the parties have bargained for an
arbitrator to exercise his or her “flexibility, creativity, and sense of
fairness” in selecting a particular remedy. Advanced Micro Devices, Inc. v.
Intel Corp. (1994) 9 Cal.Rptr.2d 581. However, arbitrators are constrained
by the bounds of the arbitration agreement and a party may successfully
challenge an arbitration award if the relief granted was in violation of
specific restrictions in the arbitration agreement. Id.
Analysis
The Court grants CRI’s motion to confirm the arbitration
award and denies Noble House’s motion to vacate or correct the award. The
arbitrator’s decision was rationally based on CA caselaw and did not result in
substantial injustice to Noble House.
It was Reasonable for the
Arbitrator to Conclude that the SRA Provided for Attorney Fees
Given the strong deference owed to the arbitrator on
determinations of fact and law, the court finds that section 9 of the SRA can
reasonably be construed as an attorney fees provision. Therefore, the court disagrees
with Noble House that the SRA did not contain an attorney fees provision.
Here,
the provisions at issue are reproduced below:
9. Indemnification.
9.1 Distributor shall defend, indemnify and hold harmless the
Representative from and against any loss, liability, claim or damage (including
reasonable attorney’s fees and costs) relating to or arising from a willful
breach of this Agreement by Distributor.
9.2 The Representative shall defend, indemnify and hold harmless
Distributor, its officers, directors, members, employees and agents from and
against any loss, liability, claim or damage (including reasonable attorney’s
fees and costs) relating to or arising from (i) any claim or allegation in
connection with the marketing of the Products by the Representative and (ii) a
breach of this Agreement by the Representative.
9.3 The foregoing indemnities are conditioned on (i) prompt
written notice by the party seeking indemnification; (ii) cooperation in the
defense of the claim, demand or action; and (iii) the obtaining of the prior
written approval of the indemnifying party of any settlement or offer of
settlement.
Noble
House argues that section 9 of the SRA cannot be construed as anything other
than a third-party indemnification provision. Noble House argues that 9.1 and
9.2 are inoperative if the requirements in 9.3 are not met. Moreover, it
contends, 9.3 would have a muddled meaning if it were construed to apply to
anything other than third-party claims. On the other hand, CRI argues that the
mere mention of indemnification in 9.3 does not limit section 9 to third 3rd
party indemnification. Further, it argues, the language in section 9 is much
broader than typical 3rd party indemnification provisions.
Noble
House argues that Alki Partners, LP v. DB Fund Services, LLC supports
its proposition that section 9 of the SRA cannot be construed as an attorney
fees clause. In Alki Partners, the court held that generally, if the
clauses surrounding the disputed clause describe third party liability, the
disputed provision will be deemed a third-party indemnification provision. Alki
Partners, LP v. DB Fund Services, LLC (2016) 4 Cal.App.4th 14,
20.
Here,
unlike surrounding provisions at issue in Alki Partners, section 9 does
not limit itself to third-party indemnification. In fact, as evidenced by
sections 9.1 and 9.2, section 9 explicitly contemplate actions between CRI and
Noble House arising out of breach of the SRA. Specifically, section 9.1 states
that the “Distributor shall… indemnify the Representative from any… damage
(including reasonable attorney’s fees and costs) relating to or arising from a
willful breach of this Agreement by Distributor.” (supra.). This
language contemplates the exact situation that unfolded between Noble House and
CRI. Noble House was found to have willfully breached the SRA and CRI incurred
damages including attorney’s fees and costs relating to or arising out of that
breach. Therefore, the arbitrator’s interpretation of section 9 of the SRA was
reasonable.
Notice of Intent to Seek
Attorney Fees was Proper
Noble House argues that CRI did not adhere to the strict 90-day
notice requirement contained in ADR Rule 6 because CRI did not give notice that
it was seeking attorney fees based on breach of the SRA until five months after
the November 15-17, 2021 arbitration hearing (NH Memorandum of Points and
Authorities pg. 6 lines 2-5.). On the other hand, CRI argues that it notified
Noble House that it was seeking attorney fees as early as August 31, 2020 in
both its demand for arbitration and its arbitration statement. However, Noble
House argues that notice was improper and misleading because it was filed
concurrently with an arbitration statement in which CRI indicated that was
seeking attorney fees pursuant to causes of action unrelated to the contract
theories it eventually prevailed on (NH Memo pg. 8 lines 12-29.). In this arbitration
statement, CRI did not request attorney fees for its contract-related causes of
action.
Noble House analogizes to Emerald Aero, in which
the court held an arbitration award was invalid because the party that received
the award did not request relief in a timely manner. Emerald Aero, 9 Cal
App. 5th at 1140. There, despite the applicable rules requiring
advance notice to the other side at least 14 days before the hearing, the
claimant gave notice just one day ahead of intent to seek punitive damages. Id.
Along with giving last minute notice of intent to seek punitive damages,
the claimant had repeatedly and egregiously failed to provide proper notice
throughout the case on numerous other issues. Id. Conducting a totality
of the circumstances analysis, the Emerald Aero court found this pattern
of failing to provide notice “particularly troubling.” Id. at 1143.
Here, unlike in Emerald Aero, the allegation that
notice is improper is solely because the initial notice of intent to seek
attorney fees contained some ambiguity around whether CRI was generally seeking
attorney fees or seeking them only for certain causes of action. This isolated
ambiguity alone is not enough to overrule the arbitrator’s finding that by
checking the attorney fees boxes on the demand for arbitration and the
arbitration statement more than one year before the arbitration hearing, CRI
provided Noble House with adequate notice of intent to seek attorney fees.
CONCLUSION
The arbitrator reasonably concluded that 1) the SRA
contained an attorney fees provision in the event of breach of the SRA and 2)
that CRI gave adequate notice of intent to seek attorney fees. Given the strong
deference accorded to arbitrators in California, the court grants CRI’s motion
to confirm the Award and denies Noble House’s motion to correct or vacate the
Award.