Judge: Maurice A. Leiter, Case: 24STCP02615, Date: 2024-11-15 Tentative Ruling

Case Number: 24STCP02615    Hearing Date: November 15, 2024    Dept: 54

Hearing Date: November 15, 2024

Department 54, Judge Maurice A. Leiter

Petition to Confirm Arbitration Award and Cross-Petition to Vacate Arbitration Award

T/R:     THE PETITION TO CONFIRM ARBITRATION AWARD IS GRANTED.

THE CROSS-PETITION TO VACATE ARBITRATION AWARD IS DENIED.

PETITIONER TO NOTICE.

If the parties wish to submit on the tentative, please email the courtroom at SMCdept54@lacourt.org with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing.

The Court considers the moving papers, opposition, reply, and surreply.

Any party to an arbitration in which an award has been made may petition the court to confirm, correct or vacate the award. (CCP § 1285.) Northrup has complied with CCP § 1285.4 as it has set forth the name of the arbitrators, attached documents evidencing an agreement to arbitrate and attached a copy of the arbitration award. Triumph opposes the petition and cross-petitions to vacate the arbitration award on the ground that the arbitrators exceeded their authority under the parties’ agreement.

Any party to an arbitration in which an award has been made may petition the court to confirm, correct or vacate the award.  (CCP § 1285.)  “Except for the very limited grounds set forth in section 1286.2 and 1286.6, awards are immune from judicial review.”  (Cinel v. Christopher (2012) 203 Cal. App. 4th 759, 767, n.5 [citing Moncharsh v. Heily & Blase (1992) 3 Cal. 4th 1, 12–13.)  CCP § 1286.2(a) permits the Court to vacate an arbitration award for any of the following reasons:

(1) The award was procured by corruption, fraud or other undue means.

(2) There was corruption in any of the arbitrators.

(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. . . .

Arbitrators do not “exceed their powers” merely by rendering an erroneous decision on a legal or factual issue.  (Moncharsh, supra at 28.) 

Respondent Triumph asserts that the arbitrators exceeded their authority by rewriting the contract at issue in the dispute and awarding relief not permitted by the contract. The arbitration concerned the parties’ financial responsibilities to remediate environmental contamination at certain properties. Respondent’s predecessor-in-interest purchased these properties from Petitioner in 2000 and entered into an Asset Purchase Agreement. The dispute centers around section 9.8 of this agreement, which provides in pertinent part,

(a) Seller shall not have any financial obligation or liability for Pre-Closing Environmental Liabilities unless the aggregate of all Pre-Closing Environmental Liabilities for which Seller, but for this sentence, would be liable exceeds an amount equal to $7,500,000, in which case Seller's liability shall be for eighty percent (80%) and Buyer's liability shall be for twenty percent (20%) of any such excess over $7,500,000 until the amount of such excess reaches a total amount of$30,000,000, and thereafter Seller shall be liable for 100% of any such excess over $30,000,000. The provisions of Section 9.3 shall be applicable to this Section 9.8. In accordance with the foregoing, Buyer's maximum total liability for Pre-Closing Environmental Liabilities shall be $12,000,000.

...

(c) Buyer acknowledges and agrees that its sole and exclusive remedy with respect to any and all claims against Seller relating to environmental, health and safety matters shall be pursuant to the indemnification provisions set forth in this Section 9.8. In furtherance of the foregoing, Buyer hereby waives, to the fullest extent permitted under applicable law, any and all rights, claims and causes of action it may have against Seller, its officers, directors, employees and agents arising under or based upon any Environmental Law.

...

(e) Notwithstanding any other provision of this Agreement to the contrary, Seller shall have no liability pursuant to this Section 9.8 for Pre-Closing Environmental Liabilities: (i) not made known to Seller by Buyer in a written statement within ten (10) years of the Closing Date setting forth in reasonable detail the nature and extent of each Pre-Closing Environmental Liability covered thereby and (ii) as to Remedial Actions, for which any expenditures are made or costs incurred twenty (20) years or more after the date of Closing; provided, however, that expenditures for Pre-Closing Environmental Liabilities that are not Remedial Actions (e.g., a Third Party Claim based on a common law tort cause of action) are not subject to the 20 year time limit provided in this Section 9.8(e)(ii).

...

(h)(i)(i) Seller shall remain responsible for and shall direct the performance of Remedial Action related to any Pre-Closing Environmental Condition and the costs of such Remedial Action shall be allocated pursuant to subsection (a) of this Section 9.8. In addition, with the written approval of the other party, either party may undertake such Remedial Action as is required under any Environmental Law or otherwise is appropriate. In the event Seller shall no longer desire to direct the performance of Remedial Action for Pre-Closing Environmental Conditions at one or more sites, Seller may request that Buyer direct such performance. Buyer may, at its sole discretion, agree to direct the performance of the Remedial Action, and Buyer and Seller may allocate responsibilities for such direction subject to such terms and conditions as they may determine.

(Pet., Exh. A.)

Petitioner argued that under section 9.8(e), its liability for pre-closing contamination ended 20 years after closing. in 2020. and that Respondent owed Petitioner indemnity for any costs incurred by Petitioner for remediation after 2020.

Respondent argued that subsections (e) (i) and (ii) must be read together to mean that the 20-year limit applied only to remediation of unknown pre-closing contamination. Respondent also argued that under section 9.8(a), Respondent’s total liability for pre-closing contamination was limited to $12,000,000.00 (and was reached several years prior to the subject dispute) and under subsection (c), Petitioner’s remedies were limited to indemnification and excluded remedies such as injunctive relief.

Two arbitrators in a three-member panel found in favor of Petitioner, ruling that Petitioner’s liability expired after 20 years. The majority ordered Respondent to pay $11,464,212.00 in damages to reimburse Petitioner for post-2020 remediation costs. The majority also ordered that Respondent take over all remediation. The third member of the panel issued a lengthy dissent, agreeing with Respondent’s interpretation of the contract. The dissent opined that the majority exceeded their authority as arbitrators by rewriting the contract.

Respondent argues that the award must be vacated because the panel majority exceeded their authority. Respondent asserts that section 9.8 vests all responsibility for remediation with Petitioner under subsection (h)(i)(i) and limits any remedies to indemnification under subsection (c). Respondent asserts that its liability is strictly limited to $12,000,000.00 under subsection (a). Respondent also represents that the Environmental Protection Agency does not allow the transfer of liability for environmental contamination. Respondent contends that these actions by the arbitrators essentially rewrote the parties’ agreement.

Generally, courts do not review the merits of the controversy, the validity of the arbitrator’s reasoning, or the sufficiency of the evidence supporting the arbitrator’s award. (See Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11.) When interpretation of a contract underlying a dispute is “within the matter submitted to arbitration,” even an interpretation that amounts to an error of law does not exceed the arbitrators’ powers within the meaning of section 1286.2. (Moshonov v. Walsh (2000) 22 Cal.4th 771, 779.) Only when an interpretation is “completely irrational” do courts find that an arbitrator has exceeded their authority. (See California Dep’t of Human Res. v. Serv. Emps. Int’l Union, Local 1000 (2012) 209 Cal.App.4th 1420, 1430.)

The arbitrators’ interpretation of the contract is plausible. The contract states there is a 20-year limit to Petitioner’s remediation responsibilities and the arbitrators were within their authority to find this. The arbitrators also were within their authority to award remedies which bear a rational relationship to the contract and the alleged breach. (See Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 367.) The arbitrators did so here, ordering Respondent to comply with their interpretation of the contract and assume responsibility for remediation. The arbitrators’ interpretation was not “completely irrational” and did not exceed their authority.

The petition to confirm arbitration is GRANTED. The cross-petition to vacate arbitration is DENIED.