Judge: Salvatore Sirna, Case: KC069617, Date: 2025-02-10 Tentative Ruling
The Court may change tentative rulings at any time. Therefore, counsel are advised to check this website periodically to determine whether any changes or updates have been made to the tentative ruling. Counsel may submit on a tentative ruling by calling the clerk in Department G at (909) 802-1104 prior to 8:30 a.m. the morning of the hearing.
Case Number: KC069617 Hearing Date: February 10, 2025 Dept: G
Defendants John Petrov and JPM Industries, Inc.’s
Petition to Vacate Audit Report
Respondent: Plaintiff Anthony Ferro
Plaintiff Anthony Ferro’s Petition to Confirm Arbitration Award
Respondent: Defendants John Petrov and JPM Industries, Inc.
TENTATIVE RULING
Defendants John Petrov and JPM Industries, Inc.’s Petition to Vacate Audit Report is DENIED.
Plaintiff Anthony Ferro’s Petition to Confirm Arbitration Award is GRANTED.
BACKGROUND
This is a breach of contract action. On September 14, 2017, Plaintiff Anthony Ferro filed a complaint against Defendants John Petrov; LP Industries, Inc. (LP Industries); Stephanie Harrison; Michelle Petrov; JPM Industries, Inc. (JPM Industries), and Does 1-50, alleging the following causes of action: (1) breach of contract, (2) breach of fiduciary duty, (3) violation of Business and Professions Code section 17200; (4) conversion, (5) suppression of fact, (6) interference with prospective economic advantage, (7) accounting, (8) conspiracy, and (9) declaratory relief.
On February 11, 2019, Ferro filed a notice of settlement. Pursuant to the settlement agreement, the parties’ dispute over accounting would be resolved in arbitration before a certified public accountant (CPA).
On February 22, 2019, Ferro dismissed LP Industries, Harrison, and Michelle Petrov.
On November 12, 2024, John Petrov and JPM Industries filed the present petition to vacate the audit report.
On December 23, 2024, Ferro filed the present petition to confirm the arbitration award.
A hearing on these petitions is set for February 10, 2025.
ANALYSIS
John Petrov and JPM Industries petition the court to vacate the arbitrator’s final audit report on the grounds that the arbitrator engaged in conduct that caused substantial prejudice to their rights and exceeded the arbitrator’s powers. Ferro petitions the court to confirm the arbitration decision. For the following reasons, the court DENIES John Petrov and JPM Industries’ petition and GRANTS Ferro’s petition.
Legal Standard
“Any party to an arbitration in which an award has been made may petition the court to confirm, correct or vacate the award.” (Code Civ. Proc., § 1285.) Such a petition must “(a) [s]et forth the substance of or have attached a copy of the agreement to arbitrate unless the petitioner denies the existence of such an agreement[;] (b) [s]et forth the names of the arbitrators[; and] (c) [s]et forth or have attached a copy of the award and the written opinion of the arbitrators, if any.” (Code Civ. Proc., § 1285.4.) The petition must also “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.)
After being served with the petition, respondents have ten (10) days to serve and file a response or thirty (30) days if the petition was served outside California via mail pursuant to Code of Civil Procedure section 1290.4, subdivision (b)(2). (Code Civ. Proc., § 1290.6.) “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 proceeding.” (Code Civ. Proc., § 1286.)
“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.” (Department of Personnel Administration v. California Correctional Peace Officers Assn. (2007) 152 Cal.App.4th 1193, 1200.) “[W]ith 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.’” (Ibid, quoting Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 6.)
Discussion
Procedural Issues
As an initial matter, each party raises procedural issues with the other party’s filings. In opposition to the petition to vacate by John Petrov and JPM Industries, Ferro argues the petition is untimely because John Petrov and JPM Industries failed to file it within 100 days pursuant to Code of Civil Procedure sections 1288 and 1288.2. (Opp. to Petition to Vacate (PTV), p. 2:2-6, 6:17-7:17.) Code of Civil Procedure section 1288 states “[a] petition to vacate an award or to correct an award shall be served and filed not later than 100 days after the date of the service of a signed copy of the award on the petitioner.” Code of Civil Procedure section 1288.2 also requires that “[a] response requesting that an award be vacated or that an award be corrected shall be served and filed not later than 100 days after the date of service of a signed copy of the award.”
In this case, the arbitrator submitted a written report to the parties by email on June 20, 2024, that was entitled “Summary of Findings.” (PTV, Creyaufmiller Decl., ¶ 6, Ex. B.) Ferro argues the 100-day deadline should be calculated from this date and expired on September 28, 2024, while the present petition was filed on November 12, 2024. But Ferro’s argument overlooks the fact that this deadline runs from the time a signed copy of the award is served. Here, the summary of findings submitted to the parties is missing the arbitrator’s signature. Thus, the court finds that the 100-day limit has not yet begun to accrue.
In opposition to Ferro’s petition to confirm the arbitration award, John Petrov and JPM Industries argue Ferro’s petition is defective because it fails to include a copy of their petition as required by Code of Civil Procedure section 1285.4. (Opp. to Petition to Confirm (PTC), p. 5:14-25.) Pursuant to Code of Civil Procedure section 1285.4, a petition must “(a) [s]et forth the substance of or have attached a copy of the agreement to arbitrate unless the petitioner denies the existence of such an agreement[;] (b) [s]et forth the names of the arbitrators[; and] (c) [s]et forth or have attached a copy of the award and the written opinion of the arbitrators, if any.”
The court finds this argument without merit since Ferro’s petition meets these code requirements. To the extent they suggest a petition cannot be formatted as a motion, John Petrov and JPM Industries fail to provide any supporting legal authority for this claim.
John Petrov and JPM Industries also argue Ferro’s petition is defective because Ferro failed to timely respond to their petition pursuant to Code of Civil Procedure sections 1290 and 1290.6. (PTC Opp., p. 5:26-6:10.) Code of Civil Procedure section 1290 establishes that “[t]he allegations of a petition are deemed to be admitted by a respondent duly served therewith unless a response is duly served and filed.” Code of Civil Procedure section 1290.6 provides that “[a] response shall be served and filed within 10 days after service of the petition except that if the petition is served in the manner provided in paragraph (2) of subdivision (b) of Section 1290.4, the response shall be served and filed within 30 days after service of the petition. The time provided in this section for serving and filing a response may be extended by an agreement in writing between the parties to the court proceeding or, for good cause, by order of the court.” A petition must be served in accordance with the requirements of the arbitration agreement. (Code Civ. Proc., § 1290.4, subd. (a).) If the arbitration agreement lacks such requirements, then service must be effected in a manner specified by Code of Civil Procedure section 1290.4, subdivisions (b) and (c).
Here, the arbitration provision in the settlement agreement does not include any reference to service requirements for petitions to vacate or confirm arbitration award. (PTV, Creyaufmiller Decl., Ex. A.) Because Ferro has already appeared in this action as the plaintiff, “service shall be made in the manner provided in Chapter 5 (commencing with Section 1010) of Title 14 of Part 2 of [the Code of Civil Procedure].” (Code Civ. Proc., § 1290.4, subd. (c).) One such approved manner of service is by electronic service. (Code Civ. Proc., § 1010, 1010.6.) Thus, the court finds the service by John Petrov and JPM Industries of their petition on Ferro’s counsel by email on November 11, 2024, was appropriate. Pursuant to Code of Civil Procedure sections 1290.6 and 1010.6, subdivision (a)(3)(B), the deadline for Ferro to file a response to their petition is ten (10) days plus two (2) court days after the date of service.
Because Ferro did not file a response until January 27, 2025, Ferro failed to file a timely response. Nonetheless, the court has the discretion “to consider late-filed opposition papers for good cause if there is no undue prejudice to the moving party.” (Correia v. NB Bank Electric, Inc. (2019) 32 Cal.App.5th 602, 613.) This discretion is exercised “under ‘the strong policy of the law favoring the disposition of cases on the merits . . . .” (Ibid, quoting Juarez v. Wash Depot Holdings, Inc. (2018) 24 Cal.App.5th 1197, 1202.) In light of this policy and in absence of any prejudice to petitioners, the court determines there is good cause for the court to consider Ferro’s response.
Furthermore, even if the allegations of John Petrov and JPM Industries’ petition were deemed admitted pursuant to Code of Civil Procedure section 1290, that would not automatically justify denial of Ferro’s petition. Instead, “the allegations ‘deemed admitted’ when a petition to vacate is not timely opposed are only the factual allegations of the petition, not the legal conclusions pleaded. The admission of factual allegations does not require courts to grant an unopposed petition. Rather, courts still have the power and duty to draw their own legal conclusions and confirm, correct, or vacate the award, or dismiss the petition, as appropriate [Citation].” (Taheri Law Group, A.P.C. v. Sorokurs (2009) 176 Cal.App.4th 956, 962.)
Last, in their opposition to Ferro’s petition, John Petrov and JPM Industries argue the petition is improper because there is no proper arbitration award to confirm. They first argue it does not qualify because it is an audit report, not an “award.” (PTC Opp., p. 6:10-17.) But they fail to provide any legal analysis to establish why an audit report does not qualify as an arbitration award pursuant to the CAA. John Petrov and JPM Industries next argue that the audit report does not constitute an arbitration award pursuant to Code of Civil Procedure section 1283.4 because it was not signed by the arbitrator and does not decide all necessary issues presented. (PTC Opp., p. 6:5-9:16.)
Code of Civil Procedure section 1283.4 establishes the requirements for the form and contents of an arbitration award which are as follows: “[t]he award shall be in writing and signed by the arbitrators concurring therein. It shall include a determination of all the questions submitted to the arbitrators the decision of which is necessary in order to determine the controversy.” But once confirmation proceedings have been initiated for an arbitration award, “the court’s choices are limited to the following: (1) confirming the award; (2) correcting the award and confirming it as corrected; (3) vacating the award or (4) dismissing the proceedings.” (Murry v. Civil Service Emp. Ins. Co. (1967) 254 Cal.App.2d 796, 800.)
A court may only vacate an award on the following grounds:
“(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.
(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.” (Code Civ. Proc., § 1286.2, subd. (a).)
As to the issue of the missing signature, only Code of Civil Procedure section 1286.2, subdivision (a)(3) is applicable. John Petrov and JPM Industries fail to explain, however, how the arbitrator’s failure to sign the audit report substantially prejudices them. (See United Brotherhood of Carpenters ect., Local 642 v. Demello (1972) 22 Cal.App.3d 838, 840 [holding missing signatures on arbitration award did not render it invalid where there was no prejudice demonstrated].) Thus, the court is not persuaded that the arbitrator’s failure to sign the audit report is material or prejudicial.
The court addresses the arguments by John Petrov and JPM Industries regarding the completeness of the audit report in the last section of this ruling.
Ex Parte Communications
John Petrov and JPM Industries contend Ferro engaged in ex parte communications with the arbitrator and provided documents in breach of the arbitration agreement. (PTV, p. 7:26-9:6.)
The arbitration provision requires as follows in relevant part:
“Each side, through counsel, will provide the
Neutral with all documentation the Neutral deems necessary to perform the
Audit, which documentation shall include all project documentation produced in
discovery on the Project as well as all electronic Quickbooks files and data
pertaining to the Project, and more specifically, any and all ‘locked’,
unaltered and/or accountant's copy of Quickbooks files for the Project as
maintained and entered, unaltered, at the time (‘QB files’). By execution of
this agreement, each side affirms under penalty of perjury that the original
(and where applicable ‘locked’ using this software feature), unaltered,
unmodified, contemporaneous QB files are the versions that they will provide to
counsel to then provide to the Neutral. The QB files provided to the Neutral
shall be confidential and copies shall not be provided to anyone other than the
Neutral. All other documentation provided to the Neutral shall be
concurrently provided to opposing counsel. Should additional information or
documentation be required by the Neutral, a request for same will be made to
both counsel, and the documentation/response shall be provided to the extent
that it exists. If a response is not given within ten (10) business days and/or
there is no documentation or source material to support an expense entry and/or
it does not relate to the Agreements or the Project, the Neutral shall
disregard the entry.” (PTV,
Creyaufmiller Decl., Ex. A, § 1(d).)
The arbitration provision also states “[o]ther than as expressly set forth herein, there will be no ex parte communications with the Neutral. Any information provided to the Neutral by any party shall also be provided to all other parties and only through their counsel.” (PTV, Creyaufmiller Decl., Ex. A, § 1(f).)
In a declaration, counsel for John Petrov and JPM Industries states Ferro provided the arbitrator “with certain documents which were not project documents but rather were [Ferro]’s own analysis of the Project documents” without providing a copy of these documents to John Petrov and JPM Industries. (PTV, Creyaufmiller Decl., ¶ 11.) John Petrov and JPM Industries’ counsel also states “something was provided to the Auditor” in June 2020. (PTV, Creyaufmiller Decl., ¶ 11.) In support of this claim, counsel provides a copy of an email between counsel and the arbitrator that was sent on February 8, 2021. (PTV, Creyaufmiller Decl., Ex. F, e.p. 90.) In the email, the arbitrator mentions receiving an email from Ferro’s counsel on June 30, 2020 with nine attachments. (PTV, Creyaufmiller Decl., Ex. F, e.p. 90.)
However, even if Ferro violated the arbitration provision’s prohibition on ex parte communications, that alone is insufficient to vacate the arbitration award since John Petrov and JPM Industries must establish how the alleged misconduct “substantially prejudiced” their rights. (Code Civ. Proc., § 1286.2, subd. (a)(3).) Here, they have failed to do so. Neither counsel’s declaration nor the email chain referenced in Exhibit F contain any evidence of John Petrov and JPM Industries objecting to the alleged ex parte communication, objecting to the alleged documents provided in the June 2020 email, or requesting copies of such documents. (PTV, Creyaufmiller Decl., Ex. F.) Absent such an objection and absent any refusal by Ferro or the arbitrator to provide these documents, the court does not find persuasive the argument by John Petrov and JPM Industries that this communication substantially prejudiced them. Further, to the extent John Petrov and JPM Industries also claim the arbitrator engaged in telephonic ex parte communications with Ferro, they fail to explain how these telephonic communications caused substantial prejudice. (PTV, p. 9:1-6.)
Sufficiency of the Audit Report
Next, John Petrov and JPM Industries maintain the arbitrator failed to properly perform a complete audit. (PTV, p. 10:5-26; PTC Opp., p. 8:4-23.) “[I]t is the general rule that, with narrow exceptions, an arbitrator’s decision cannot be reviewed for errors of fact or law.” (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11.) Thus, courts do not “review the validity of the arbitrator's reasoning” or consider “the sufficiency of the evidence supporting an arbitrator’s award.” (Id., at p. 11.) A court’s judicial review of an arbitration award is limited to the statutory grounds for vacating an award pursuant to Code of Civil Procedure section 1286.2 and the grounds for correcting an award pursuant to Code of Civil Procedure section 1286.6. (Id., at p. 33.)
Here, John Petrov and JPM Industries maintain the arbitrator erroneously made a total of six adjustments or reductions. (PTV, p. 10:27-16:8.) They maintain the arbitrator also failed to comply with generally accepted accounting principles as mandated by the arbitration provision and provide a declaration of another CPA in support of this claim. (PTV, p. 10:16-26; Castillo Decl.) Last, they maintain the audit report fails to incorporate previous payments made by John Petrov and JPM Industries to Ferro. (PTC Opp., p. 8:4-23.) But while they list of a series of purported errors by the arbitrator, they fail to explain how they were substantially prejudiced by these errors.
Instead, it appears they are attempting to argue the existence of the errors alone provides grounds for the court to vacate the audit report. But on their own, legal, or factual errors do not provide proper grounds for reversal, even if they result in “substantial injustice.” (Marsch v. Williams (1994) 23 Cal.App.4th 238, 243-244.) And to the extent John Petrov and JPM Industries may suggest these errors are evidence of the arbitrator exceeding the arbitrator’s powers, “[a]n arbitrator does not exceed his or her powers by making a legal or factual error or by giving erroneous reasons for an award.” (Harris v. Sandro (2002) 96 Cal.App.4th 1310, 1313.) Thus, the court finds the challenge by John Petrov and JPM Industries to the sufficiency of the audit report fails.
Accordingly, the court DENIES John Petrov and JPM Industries’ petition and GRANTS Ferro’s petition.
CONCLUSION
Based on the foregoing, John Petrov and JPM Industries’ petition to vacate the audit report is DENIED.
Furthermore, Ferro’s petition to confirm arbitration award is GRANTED.