Judge Thomas D. Long, Case Number: 22STCV17035, Date: 2023-09-14 Tentative Ruling

On May 24, 2022, Plaintiff Montana Marketing & Sales, Inc. filed this action against Defendants Rosa Saenz and Bertha Saenz. Defendants later filed a cross-complaint. On September 15, 2022, the Court granted Plaintiff’s motion to compel arbitration.

On May 31, 2023, Arbitrator Robert Mann of ADR Services Inc. issued a written award that awarded nothing to Plaintiff and voided Plaintiff’s mechanic’s lien. Defendants were also awarded $25,000.00 from Plaintiff.

On June 28, 2023, Plaintiff filed a motion to vacate the arbitration award. On August 22, 2023, Defendants filed an opposition.

On August 10, 2023, Defendants filed a petition to confirm the arbitration award. On August 22, 2023, Plaintiff filed an opposition.

A party may petition the court to confirm, correct, or vacate an arbitration award, and a response to a petition may request that the court dismiss the petition or confirm, correct, or vacate the award. (Code Civ. Proc., §§ 1285, 1285.2.) The petition or response must set forth (1) the substance of or have attached a copy of the agreement to arbitrate, (2) the names of the arbitrators, and (3) the award and the written opinion of the arbitrators, or attach a copy. (Code Civ. Proc., §§ 1285.4, 1285.6.) The court must either confirm the award as made, correct the award and confirm it as corrected, vacate the award, or dismiss the proceeding. (Code Civ. Proc., § 1286.)

Under the California Arbitration Act (“CAA”), the court must vacate the award if it determines that (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; or (6) an arbitrator making the award failed to make required disclosures or failed to disqualify himself. (Code Civ. Proc., § 1286.2, subd. (a).)

Under the Federal Arbitration Act (“FAA”), the Court may vacate an arbitration award only (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. (9 U.S.C. § 10(a).)

Preliminarily, Plaintiff argues that the April 24, 2023 hearing “was a mediation and NOT an arbitration.” (Motion to Vacate, Attachment 10(c)2 at p. 1.) Plaintiff provides no evidence to support this position. Instead, Defendants provide evidence that the Arbitrator was appointed via Rank and Strike letters to ADR Services. (Opposition to Vacate, Parker Decl. ¶ 2.) During a telephonic arbitration management conference, the Arbitrator suggested a hybrid mediation-arbitration approach and outlined that the mediation/arbitration would have specific guidelines as to how the mediation-arbitration would be conducted. (Opposition to Vacate, Parker Decl. ¶ 3.) In later calls, Plaintiff’s counsel reaffirmed his agreement to proceed in this manner. (Opposition to Vacate, Parker Decl. ¶¶ 4-5.)

On April 6, 2023, the Arbitrator issued a revised scheduling order setting forth the procedure. (Opposition to Vacate, Parker Decl. ¶ 6 & Ex. B.) Notedly, the order stated, “In the event that the mediator/arbitrator determines that the matter cannot be settled . . . the matter shall be submitted for decision by the mediator/arbitrator . . . . After that occurs, the matter will be submitted for decision. The mediator/arbitrator will issue a reasoned Award within 30 days. The parties have agreed that: (1) the Rules of Evidence shall not apply to the proceeding; (2) the mediator/arbitrator shall be entitled to make an award under the broad equitable principles in Moncharsh v. Heily & Blasé . . . .” (Opposition to Vacate, Parker Decl., Ex. B, ¶ 3(e).)

On April 18, 2023, Plaintiff’s counsel signed a stipulation. (Opposition to Vacate, Parker Decl., Ex. A.) In the stipulation, “The parties have agreed that Robert S. Mann, Esq. will make a binding decision if the mediation portion of the med/arb does not settle on April 24th, 2023.” Opposition to Vacate, Parker Decl., Ex. A, ¶ 2.) The parties also stipulated “that the Parties waive the right to seek disqualification of Robert S. Mann, Esq. as a binding decision-maker by reason of participation in the med/arb.” (Opposition to Vacate, Parker Decl., Ex. A, ¶ 5.)

Eliminating all doubt that the parties intended for the proceeding to be a binding arbitration, they also stipulated “that the binding decision made by Robert S. Mann, Esq. may include findings of fact received in the mediation and that the binding decision may be confirmed by petitioning the court pursuant to C.C.P. Section 1285.” (Opposition to Vacate, Parker Decl., Ex. A, ¶ 7.)

Plaintiff argued that the stipulation is not executed by both parties. (Reply to Vacate at p. 4.) However, it does not deny that its counsel indeed signed it and agreed to the terms, or that its counsel was aware of how the proceedings would occur. Plaintiff contends that “[n]owhere in this alleged stipulation does it state that Mr. Mann would be permitted to hear hours of witness testimony without allowing the plaintiff to hear it, cross-examine the witnesses and to present evidence of its own to refute any such testimony.” (Reply to Vacate at p. 5.) However, the revised scheduling order—issued before Plaintiff’s counsel signed the stipulation—sets forth these terms. (Opposition to Vacate, Parker Decl., Ex. B, ¶ 3(e).)

Accordingly, the May 31, 2023 award is indeed a binding arbitration award that can be confirmed.

Plaintiff seeks to vacate the award on three grounds: (1) the misconduct of a neutral arbitrator substantially prejudiced petitioner’s rights; (2) the arbitrator exceeded his or her authority, and the award cannot be fairly corrected; and (3) the arbitrator unfairly refused to postpone the hearing or to hear evidence useful to settle the dispute. (Motion to Vacate, ¶ 10(c).)

1. The Arbitrator Did Not Commit Prejudicial Misconduct During The Proceedings.

Plaintiff argues that the Arbitrator committed prejudicial misconduct when he heard Defendants’ testimony in the absence of Plaintiff and its counsel, then returned to Plaintiff to summarize what he heard from Defendants. (Motion to Vacate, Attachment 10(c)2 at p. 2; Motion to Vacate, Florentin Decl. ¶ 2; Reply to Vacate at p. 2.) Plaintiff’s counsel demanded to hear testimony directly from Defendants, to cross-examine them, and to offer rebuttal testimony. The Arbitrator agreed to do so only if Defendants were willing to schedule another day of hearing. (Motion to Vacate, Florentin Decl. ¶ 3.) Defendants were unwilling, so the session concluded. (Motion to Vacate, Florentin Decl. ¶ 3.)

“The mediation was conducted as a typical virtual (ZOOM) mediation usually is. The mediator would go from room to room and listen to each of the parties testimonies and allegations.” (Motion to Vacate, Florentin Decl. 2.) The alleged failure to allow Plaintiff to hear testimony, cross-exam, and offer rebuttal evidence occurred at the end of the day, when the Arbitrator had been with Defendants from 3:30 p.m. to 5:30 p.m. (Motion to Vacate, Florentin Decl. ¶ 2.) The April 6, 2023 revised scheduling order provides for a one-day session from 9:00 a.m. to 5:00 p.m. (Opposition to Vacate, Parker Decl., Ex. B, ¶¶ 1-2.) Therefore, the failure to require a second day of testimony is not unreasonable or unfair.

Additionally, the Arbitrator made clear that he would “confer with the parties separately,” and “[i]t is understood that any information communicated to the mediator/arbitrator in a separate caucus with the parties may be communicated by the mediator/arbitrator to the other party.” (Opposition to Vacate, Parker Decl., Ex. B, ¶ 3(e).) Plaintiff’s counsel signed a stipulation acknowledging that the Arbitrator “may have come to certain conclusions and made certain statements regarding facts, law and credibility” and his determinations “might be influenced by confidential information or other information she may have received in the mediation,” so the parties “stipulate and agree to waive the right to seek to vacate any binding decision on this basis.” (Opposition to Vacate, Parker Decl., Ex. A, ¶¶ 3, 6.)

With respect to Plaintiff’s additional argument that the Arbitrator did not hear the evidence under oath (Reply to Vacate at p. 3), “[t]he parties have agreed that . . . the Rules of Evidence shall not apply to the proceeding.” (Opposition to Vacate, Parker Decl., Ex. B, ¶ 3(e).)

2. The Arbitrator’s Ex Parte Communication To Communicate A Possible Mediator’s Proposal Was Not Misconduct.

On April 25, 2023, the Arbitrator sent an email to Plaintiff’s counsel. (Motion to Vacate, Florentin Decl., Ex. A.) The Arbitrator stated his concerns about the facts of the case, and “[a]ll of this leads me to believe that perhaps some form of mediator’s proposal might be a good way to resolve this case. [¶] How would you react if I were to say that I might be considering a proposal whereby [Defendants] pay [Plaintiff] something like $20,000 to resolve this case?”

About an hour later, Plaintiff’s counsel responded. He stated Plaintiff’s bottom-line number of $40,000, but “I will urge my clients to accept whatever proposal you put forward.”

According to Plaintiff, “[i]t is reasonable to presume that the same type of mediator communication was conducted with the opposing party’s attorney.” (Motion to Vacate, Attachment 10(c)2 at pp. 2-3; see Reply to Vacate at p. 3.) It is therefore unclear “to what extent information was exchanged on an ex-parte basis with the defendants’ counsel and what may have transpired to cause the ‘neutral’ to change his position so substantially AFTER the hearing.” (Reply to Vacate at p. 3.) Plaintiff argues that this communication is a violation of “the 2023 Rules of Court Standard 14 which bar ex-parte communication with an arbitrator and that plaintiff has been prejudiced as a result.” (Reply to Vacate at p. 3.)

The Arbitrator contacted Plaintiff’s counsel in his capacity as a mediator before the binding arbitration award. He stated that he was considering “some form of mediator’s proposal.” This is part of the process of the agreed-upon mediation. Only after “the mediator/arbitrator determines that the matter cannot be settled” would “the matter will be submitted for decision.” (Opposition to Vacate, Parker Decl., Ex. B, ¶ 3(e).)

Plaintiff provides no evidence, other than the fact that the final award differed from the potential mediator’s proposal, to prove or even suggest prejudicial misconduct. Additionally, the potential mediator’s proposal was communicated one day after the hearing, and the award did not issue until over one month later. (See Opposition to Vacate, Parker Decl., Ex. C.) A change in the award over this time period, when issuing a seven-page reasoned decision, is not evidence of prejudicial misconduct.

Defendants are ordered to submit a proposed judgment that is consistent with the arbitration award within ten days.

A Non-Appearance Case Review Re: Submission of Proposed Judgment is scheduled for 10/04/2023 (October 4, 2023) at 9:00 a.m.

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. If all parties in the case submit on the tentative ruling, no appearances before the Court are required unless a companion hearing (for example, a Case Management Conference) is also on calendar.

Hon. Thomas D. Long

Judge of the Superior Court