Judge Teresa A. Beaudet, Case Number: 23STCP03468, Date: 2024-05-03 Tentative Ruling

On September 19, 2023, Petitioner Ken-Lar, LLC (“Petitioner”) filed the instant Petition to Correct Contractual Arbitration Award (“Petition”) against Respondent Chestnut Holdings, Inc. On June 14, 2023, an arbitration award was made requiring Petitioner to pay $1,438,218.64. (Pet., ¶ 8.)

Petitioner seeks to correct the arbitration award made on June 14, 2023. On October 16, 2023, Respondent Chestnut Holdings of New York, Inc. (“Respondent”) filed a response to the Petition.

“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.) “A response to a petition under this chapter may request the court to dismiss the petition or to confirm, correct or vacate the award.” ((Id., § 1285.2.)

“A petition under this chapter shall: (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. (b) Set forth the names of the arbitrators. (c) Set forth or have attached a copy of the award and the written opinion of the arbitrators, if any.” ((Id., § 1285.4.) Code of Civil Procedure section 1286.6 provides as follows:

“Subject to Section 1286.8, the court, unless it vacates the award pursuant to Section 1286.2, shall correct the award and confirm it as corrected if the court determines that:

(a) There was an evident miscalculation of figures or an evident mistake in the description of any person, thing or property referred to in the award;

(b) The arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted; or

(a) A petition or response requesting that the award be corrected has been duly served and filed; or

(b) A petition or response requesting that the award be vacated has been duly served and filed and;

(2) All petitioners and respondents have been given reasonable notice that the court will be requested at the hearing to correct the award or that the court on its own motion has determined to correct the award and all petitioners and respondents have been given an opportunity to show why the award should not be corrected.”

Petitioner and Respondent entered into a written agreement to arbitrate on or about September 2, 2021. (Pet, ¶ 4(a).)

The instant petition attaches a copy of the underlying agreement to arbitrate. (Pet., ¶ 4, Attachment 4(b)).[1]

The Petition alleges that “[t]he dispute arises from an agreement to purchase a mixed-use residential/commercial building. Buyer and Respondent Chestnut Holdings, Inc. alleges that Seller and Petitioner Ken-Lar, LLC kept a $1 million security deposit made by Respondent on the property after the deal fell through, in violation of the agreement.” (Pet, ¶ 5.)

The Honorable Richard A. Stone (Ret.) of Signature Resolution was appointed as arbitrator, and the arbitration hearing was conducted on June 20-24, 2022. (Pet, ¶¶ 6-7.) The arbitration award was made on June 14, 2023, and requires Petitioner to pay $1,438,218.64. (Pet., ¶ 8.) The Petition attaches a copy of the arbitration award. (Pet, ¶ 8(c), Attachment 8(c).)

In the Petition, Petitioner asserts that the Court should correct the arbitration award and enter judgment according to the corrected award, because the arbitrator exceeded his authority. (Pet, ¶ 10.) The Petition indicates that the facts supporting the grounds for correcting the award are included in Attachment 10b(2). (Pet, ¶ 10(b)(2).)

“Based upon the testimony of the parties and witnesses, the documentary evidence and the arguments of counsel, the Arbitrator finds in favor of the Claimant and against the Respondent. The Arbitrator will award Claimant the $1,000,000.00 security deposit (see ¶3.A.) plus interest (counsel stipulated to the interest which has been paid). In addition, the Arbitrator finds Claimant to be the prevailing party in this action and pursuant to the Agreement (¶34), the Claimant is entitled to reasonable costs and fees which were both the subject of an additional ruling.

In that ruling, the Arbitrator awarded attorney’s fees of $247,500.00 and costs of $190,718.64. The Arbitrator specifically ruled that fees (and costs) incurred in the Kansas Action would be properly before the Johnson County District Court.

Therefore, the total award to the Claimant (without interest which I have been advised has already been paid) is $1,438,218.64.” (Pet, ¶ 8(c), Attachment 8(c).)

Petitioner asserts that here, the arbitrator exceeded his powers by including certain “Disputed Fees” in the arbitration award. (Petition, Attachment 10(b)(2)[2], p. 7:6-7.)

Exhibit “D” to Petitioner’s Appendix of Evidence is Chestnut Holdings, Inc.’s Memorandum of Costs. (Petitioner’s Ex. D.) The Memorandum of Costs claims a total of $190,718.64 in costs. (Petitioner’s Ex. D, p. 87.) The Memorandum of Costs claims $40,950.00 in “Witness Fees” paid to Cojito Realty Partners. (Petitioner’s Ex. D, p. 87, Item 8; p. 91.) The Memorandum Costs also claims $124,213.45 in “Other” costs. (Petitioner’s Ex. D, p. 87, Item 16.) The “Other” costs include $116,450.00 paid for “Signature Resolution Charges.” (Petitioner’s Ex. D, p. 94.)

Petitioner refers to the $40,950.00 in “Witness Fees” and $116,450.00 paid for “Signature Resolution Charges” jointly as the “Disputed Fees.”

Petitioner notes that the Memorandum of Costs states, “Expert fees (per Code of Civil Procedure section 998),” in connection with the claimed $40,950.00 in costs for Cojito Realty Partners. (Petitioner’s Ex. D, p. 91.) Petitioner asserts that “Respondent included that line item with full knowledge that Chestnut never served a 998 offer.” (Petition, Attachment 10(b)(2), p. 5:19-20.) Petitioner also cites to Code of Civil Procedure section 1033.5, subdivision (b)(1), which provides that “[t]he following items are not allowable as costs, except when expressly authorized by law: (1) Fees of experts not ordered by the court.”

As to the claimed $116,450.00 in costs for “Signature Resolution Charges,” Petitioner asserts that “there was nothing in the agreement of the parties allowing for an award of the arbitration fees.” (Petition, Attachment 10(b)(2), p. 6:14-15.) Petitioner cites to, inter alia, Code of Civil Procedure section 1284.2, which provides that “[u]nless the arbitration agreement otherwise provides or the parties to the arbitration otherwise agree, each party to the arbitration shall pay his pro rata share of the expenses and fees of the neutral arbitrator, together with other expenses of the arbitration incurred or approved by the neutral arbitrator, not including counsel fees or witness fees or other expenses incurred by a party for his own benefit.”

Respondent asserts in its response to the Petition that the arbitrator’s award of costs is not reviewable. In Cohen v. TNP 2008 Participating Notes Program, LLC (2019) 31 Cal.App.5th 840, 868-869, cited by Respondent, the Court of Appeal noted that “[a]rbitrators may exceed their powers when they act in a manner not authorized by the contract or by law, act without subject matter jurisdiction, decide an issue that was not submitted to arbitration, arbitrarily remake the contract, uphold an illegal contract, issue an award that violates a well-defined public policy, issue an award that violates a statutory right, fashion a remedy that is not rationally related to the contract, or select a remedy not authorized by law. However, [a]rbitrators do not ordinarily exceed their contractually created powers simply by reaching an erroneous conclusion on a contested issue of law or fact, and arbitral awards may not ordinarily be vacated because of such error.” (Internal quotations and citations omitted.)

The Cohen Court further noted that “a court may correct or vacate an arbitration award where the arbitrator exceeds his or her authority under the arbitration agreement or a submission to arbitration. Thus, [a]n exception to the general rule assigning broad powers to the arbitrator[] arises when the parties have, in either the contract or an agreed submission to arbitration, explicitly and unambiguously limited those powers.” (Cohen v. TNP 2008 Participating Notes Program, LLC, supra, 31 Cal.App.5th at p. 873 [internal quotations and citations omitted].) The Cohen Court noted that “[a]s the Supreme Court in Moore explained, ‘Where the entitlement of a party to attorney fees under Civil Code section 1717 is within the scope of the issues submitted for binding arbitration, the arbitrators do not ‘exceed[ ] their powers’ [citations], as we have understood that narrow limitation on arbitral finality, by denying the party’s request for fees, even where such a denial order would be reversible legal error if made by a court in civil litigation.’…Similarly, where a party submits the issue of attorneys’ fees to the arbitrator, the party cannot argue the arbitrator exceeded his powers within the meaning of section 1286.6, subdivision (b), by deciding the issue, even if the arbitrator decided it incorrectly…Thus, ‘where an arbitrator’s denial of fees to a prevailing party rests on the arbitrator’s interpretation of a contractual provision within the scope of the issues submitted for binding arbitration, the arbitrator has not ‘exceeded [his or her] powers.’…” (Id. at p. 876.)

Respondent provides a copy of the contract underlying the dispute in this action, and notes that Section 34 of the agreement provides, “ATTORNEY FEES: In any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorneys fees and costs from the non-prevailing Buyer or Seller, except as provided in paragraph 31A.” (Steinberg Decl., ¶ 2, Ex. A.) Respondent asserts that this fee provision “contains nothing that could be construed as an ‘express and unambiguous’ limitation on the Arbitrator’s remedial authority.” (Response at p. 5:20-21.) Respondent asserts that “[w]ith no definition of ‘costs’ and no express limitation on the Arbitrator’s power to award costs, the Arbitrator was within his authority to make such findings, and those findings are not reviewable.” (Response at pp. 5:28-6:2.)

In the reply, Petitioner asserts that “Respondent argues…that in this case the parties did not expressly and unambiguously limit the arbitrator’s authority. But that is exactly what the parties did when they expressly agreed to be bound by Signature’s rules. Those rules unequivocally provide that absent an agreement to the contrary or as otherwise required by law, each party shall be responsible for its pro rata share of the fees.” (Reply at p. 2:13-17, emphasis omitted.) The Court notes that Petitioner does not appear to provide evidence of Signature Resolution’s rules in connection with the Petition. Rather, Petitioner cites to the attachment to the Petition, which states, inter alia, “Signature Rule 6(a) provides: ‘Absent an agreement to the contrary, or as otherwise required by law, each Pary [sic] and their counsel shall be responsible for its pro rata share of Signature’s fees, costs and changes in the most current schedule.’” (Petition, Attachment 10(b)(2), p. 6:7-10.) But in any event, Petitioner does not appear to address Section 34 of the parties’ agreement, which, as discussed, states, “[i]n any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorneys fees and costs from the non-prevailing Buyer or Seller, except as provided in paragraph 31A.” (Steinberg Decl., ¶ 2, Ex. A.) The Court agrees with Respondent that Section 34 of the agreement “does not define ‘costs’ in any manner,” or “in a manner that expressly and unambiguously precluded the Arbitrator from awarding expert fees and arbitration fees to the prevailing party.” (Response at p. 5:23-25.)

In addition, Respondent assert that “the Arbitrator’s non-reviewable legal decision is also correct.” (Response at p. 6:7.) As set forth above, with respect to the claimed $40,950.00 in costs for Cojito Realty Partners, Petitioner cites to Code of Civil Procedure section 1033.5, subdivision (b)(1), which provides that “[t]he following items are not allowable as costs, except when expressly authorized by law: (1) Fees of experts not ordered by the court.” In the response, Respondent cites to the arbitrator’s March 6, 2023 Order on Motion for Attorney’s Fees. (Steinberg Decl., ¶ 4, Ex. C.) The March 6, 2023 Order cites to Knight, et al., Cal. Prac. Guide Alt. Disp. Res. Ch. 5-I (The Rutter Group 2023) ¶ 5:434.2, which provides, inter alia, “CCP costs provisions not applicable: Allocation of costs in arbitration proceedings is governed by the parties’ agreement or the rules governing the arbitration proceeding. The provisions of the Code of Civil Procedure for allocation of costs of suit (CCP § 1032 et seq.) do not control arbitration awards. [See Britz, Inc. v. Alfa-Laval Food & Dairy Co. (1995) 34 CA4th 1085, 1106, 40 CR2d 700, 712, fn. 9; Austin v. Allstate Ins. Co. (1993) 16 CA4th 1812, 1815, 21 CR2d 56, 57 (uninsured motorist arbitration)].”

In addition, as set forth above, as to the claimed $116,450.00 in costs for “Signature Resolution Charges,” Petitioner asserts that “there was nothing in the agreement of the parties allowing for an award of the arbitration fees.” (Petition, Attachment 10(b)(2), p. 6:14-15.)[3] Respondent counters that “[t]he Fee Provision imposed no limit on the Arbitrator’s authority to award ‘costs’ to Chestnut.” (Response at p. 2:26-27.) As discussed, Section 34 of the parties’ underlying agreement provides, “ATTORNEY FEES: In any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorneys fees and costs from the non-prevailing Buyer or Seller, except as provided in paragraph 31A.” (Steinberg Decl., ¶ 2, Ex. A.)

In light of the foregoing, the Court does not find that Petitioner has shown that the arbitrator “exceeded their powers.” (Code Civ. Proc., § 1286.6, subd. (b).)

Lastly, Respondent argues that it should be awarded additional fees. Respondent’s counsel states that “[t]he Final Award granted Chestnut its fees incurred in Los Angeles Superior Court and arbitration through January 26, 2023. Since then, Chestnut has incurred approximately $19,160 in additional fees, including in responding to Ken-Lar’s Petition to Correct.” (Steinberg Decl., ¶ 6.) Respondent states that “[w]hen the Court rules on Ken-Lar’s Petition, and Chestnut asserts the Court should deny the relief requested, Chestnut will request all to [sic] be reimbursed all fees incurred from the date of the Final Award forward that are compensable under the Fee Provision.” (Response at p. 7:4-7.) However, Respondent does not appear to cite any legal authority supporting such request for fees. (See Response at p. 7:1-7.) Thus, the Court denies Respondent’s request for “additional fees.”

Based on the foregoing, Petitioner’s petition to correct contractual arbitration award is denied.

[1]Attachment 4(b) to the Petition is a “Stipulation to Stay the Action Pending Arbitration; and Order” in Chestnut Holdings, Inc. v. Ken-Lar, LLC, et al., Case No. 21STCV25936.

[2]The Court notes that page 28 of the Petition states “Attachments 10(b)(1), 10(b)(2), 10(b)(3), and 10(g).” The Court refers to this Attachment as Attachment 10(b)(2) herein.

[3]As set forth above, Petitioner cites to Code of Civil Procedure section 1284.2, which provides that “[u]nless the arbitration agreement otherwise provides or the parties to the arbitration otherwise agree, each party to the arbitration shall pay his pro rata share of the expenses and fees of the neutral arbitrator, together with other expenses of the arbitration incurred or approved by the neutral arbitrator, not including counsel fees or witness fees or other expenses incurred by a party for his own benefit.”

KEN-LAR, LLC, Petitioner, vs. CHESTNUT HOLDINGS, INC., Respondent.	Case No.:	23STCP03468
	Hearing Date:	May 3, 2024
	Hearing Time:	10:00 a.m.
	[TENTATIVE] ORDER RE: PETITION TO CORRECT CONTRACTUAL ARBITRATION AWARD

Superior Court of California

County of Los Angeles

Department 50