DATO, J.
MCB Joint Ventures, LLC (MCB) agreed to subcontract certain electrical work to Bergelectric Corp. (Berg) in connection with a naval hospital construction project. After Berg completed its work, the parties disputed the amount of Berg's final payment under their contract. They submitted the dispute to binding arbitration, and the arbitrator rendered an award in Berg's favor, which the trial court confirmed.
On appeal, MCB asserts that the parties' contract was illegal and/or violated public policy, that Berg waived its right to arbitrate a portion of their payment dispute, and that the arbitrator exceeded his powers by awarding attorney fees to Berg. For reasons we explain, the trial court did not err in confirming the arbitration award. Accordingly, we affirm the order.
In September 2010, Clark/McCarthy (Clark) entered into an agreement with the United States government for the design and construction of a hospital at United States Marine Corps Base Camp Pendleton in Oceanside, California. In February 2011, Clark signed an agreement with Berg to subcontract electrical work for the hospital project to Berg (the Clark-Berg Agreement). Under the Clark-Berg Agreement, Clark agreed to pay Berg $45,880,730, less an amount carved out to ensure that some of the electrical work would be awarded to a business that would help Clark meet its small business goals set by the government in connection with the hospital project. To that end, the Clark-Berg Agreement stated: "This Subcontract includes a fixed amount of . . . $26,258,000[] that will be set-aside to be awarded to Small Business, Small Disadvantaged Business, HUB-Zone, Veteran-Owned Business, and Service Disabled Veteran-Owned Business." (Boldface omitted.)
In order to meet its small business participation goals, Clark had to contract directly with a small business subcontractor, i.e., as a "first tier subcontractor." Clark thus entered into a subcontract with MCB in August 2012 (the Clark-MCB Agreement). As material inducement to Clark's signing the contract, MCB warranted that its participation in the Clark-MCB Agreement met the "small business," "small disadvantaged business," "veteran-owned small business," and "service-disabled veteran-owned small business" categories for purposes of the federal acquisition regulations. (Capitalization omitted.) Under the Clark-MCB Agreement, Clark agreed to pay MCB $7,943,567 for its "low voltage" electrical work; however, MCB could not bond nearly $8 million in electrical work. For Clark to get the small business credit, MCB had to perform at least 20 percent of the contract value itself, or $1,624,677, and MCB could subcontract the remaining work.
In August 2012, MCB subcontracted about $6.4 million of low voltage electrical work it could not perform and bond itself under the Clark-MCB Agreement to Berg (the MCB-Berg Subcontract). Under the MCB-Berg Subcontract, Berg agreed to perform work, submit applications for payment to MCB, and receive progress payments. Section 12.11 of the MCB-Berg Subcontract describes a contract completion and final payment process (closeout process). It states in pertinent part:
The parties agreed to mediate "any claim arising out of or related to [the MCB-Berg Subcontract] other than those waived in [the] Agreement[.]" The arbitration provision states as follows, in part:
Finally, the parties agreed to be governed by the substantive law of California:
MCB and Berg entered into two other agreements related to the MCB-Berg Subcontract: (1) the "Bonding and Accounts Payable Agreement," in which MCB agreed to reimburse Berg for $155,756 in payment and performance bonds furnished by Berg's surety for MCB's work; and (2) the "Joint Check Agreement," in which Clark agreed to issue joint checks to MCB and Berg for progress payments requested by Berg under the MCB-Berg Subcontract. The Bonding and Accounts Payable Agreement contained an attorney fees provision and referenced both the MCB-Berg Subcontract as well as the Joint Check Agreement.
By June 2014, Berg had completed its work under the MCB-Berg Subcontract and was trying to collect final payment from MCB under the contract. Berg sent MCB a demand letter showing $317,004 as the "contract balance due." Berg's collection efforts were not successful. Subsequently, in preparation for legal action, Berg more thoroughly reviewed its accounting and discovered it had mistakenly not billed MCB almost $326,000. In total, Berg believed it was owed $642,999.
Berg's investigation into its accounting revealed the following. Up until about June 2013, the parties utilized "change orders" to adjust their contract values or the timing of performance of work, which was also the conventional way such adjustments were made in construction contracts. In June 2013, however, MCB began adjusting a "schedule of values" (SOV) to reflect a change in contract value, showing it completed a greater percentage of activities in a given billing period than Berg.
When Berg discovered its error, it disavowed the reductions in its contract value. In November 2014, Berg sent documentation of the SOV errors and a revised demand for $642,999, to MCB. MCB did not respond.
Two months later Berg filed a concurrent request for mediation and demand for arbitration with the American Arbitration Association (AAA). It requested $642,999 as the unpaid contract balance, an award of attorney fees and costs, and an additional claim of $9,499. MCB would not commit to mediation, made no objection to arbitrating the additional claim of $9,499, presented several offset claims in its defense, and requested an award of attorney fees.
The arbitration proceeded before arbitrator James G. Ehlers. Testimony was received from five Berg witnesses and one MCB witness; well over 70 documentary exhibits were reviewed. The arbitrator's final award to Berg included the following monetary components:
Berg filed a petition to confirm the arbitration award in San Diego County Superior Court. MCB responded with a petition to vacate the award. The parties filed briefs and declarations in support of their respective petitions. A declaration from MCB's counsel attached a few of the arbitration exhibits but provided no transcript of the witnesses' testimony. After reviewing the papers and considering the arguments of counsel, the trial court granted Berg's petition to confirm the arbitration award and denied MCB's petition to vacate.
MCB filed a timely notice of appeal.
We review de novo a trial court's ruling regarding a petition to confirm or vacate an arbitration award. (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376, fn. 9.)
"[I]t is the general rule that, with narrow exceptions, an arbitrator's decision cannot be reviewed [by a court] for errors of fact or law." (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11 (Moncharsh).) "Ensuring arbitral finality . . . requires that judicial intervention in the arbitration process be minimized. [Citations.] Because the decision to arbitrate grievances evinces the parties' intent to bypass the judicial system and thus avoid potential delays at the trial and appellate levels, arbitral finality is a core component of the parties' agreement to submit to arbitration. Thus, an arbitration decision is final and conclusive because the parties have agreed that it be so. By ensuring that an arbitrator's decision is final and binding, courts simply assure that the parties receive the benefit of their bargain." (Id. at p. 10, italics omitted.)
"[T]he Legislature has reduced the risk to the parties of [an erroneous] decision [by an arbitrator] by providing for judicial review in circumstances involving serious problems with the award itself, or with the fairness of the arbitration process." (Moncharsh, supra, 3 Cal.4th at p. 12.) For example, Code of Civil Procedure
Unless vacated or corrected, a trial court "shall confirm" the arbitration award "as made[.]" (§ 1286.) "In light of these statutory provisions, the residual risk to the parties of an arbitrator's erroneous decision represents an acceptable cost—obtaining the expedience and financial savings that the arbitration process provides—as compared to the judicial process." (Moncharsh, supra, 3 Cal.4th at p. 13.)
"When parties contract to resolve their disputes by private arbitration, their agreement ordinarily contemplates that the arbitrator will have the power to decide any question of contract interpretation, historical fact or general law necessary, in the arbitrator's understanding of the case, to reach a decision. [Citations.] Inherent in that power is the possibility the arbitrator may err in deciding some aspect of the case. Arbitrators 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, for `"[t]he arbitrator's resolution of these issues is what the parties bargained for in the arbitration agreement."'" (Gueyffier v. Ann Summers, Ltd. (2008) 43 Cal.4th 1179, 1184.)
MCB makes several arguments challenging the arbitration award, none of which implicate the fairness of the arbitration process or properly fit within the grounds for vacating an award under section 1286.2, subdivision (a). For instance, MCB contends the disputed subcontract should not be enforced on public policy grounds. Further, although MCB asserts the arbitrator exceeded his powers in various respects, a closer review of MCB's arguments reveals it is merely unsatisfied with how the arbitrator resolved the merits of the parties' dispute. And even if we could review the merits, the appellate record contains neither a transcript of the arbitration hearing nor most of the documentary exhibits introduced during the arbitration. MCB's arguments are untenable in light of the limited record and limited grounds that would justify vacating an arbitration award.
MCB first argues the MCB-Berg Subcontract was illegal and/or violated public policy, rendering the arbitration award void. MCB asserts Clark and Berg were engaged in a scheme to deceive the federal government (i.e., to get Clark more small business credit than it was otherwise entitled to) and the MCB-Berg Subcontract was a "complete[] sham."
We accept for purposes of analysis the general proposition that "`a claim arising out of an illegal transaction is not a proper subject matter for submission to arbitration, and that an award springing out of an illegal contract, which no court can enforce, cannot stand on any higher ground than the contract itself.'" (Loving & Evans v. Blick (1949) 33 Cal.2d 603, 610 [unlicensed contractors could not enforce an arbitration award for their work].) But on this record MCB has not shown the MCB-Berg Subcontract was illegal or violated public policy. There is insufficient evidence to support a finding that Clark and Berg perpetrated a fraud on government contracting officers—the agreements themselves do not establish such a conspiracy or scheme. (Cf. Loving & Evans, at p. 606 [court had the affidavit of respondent's counsel admitting that the respondent was unlicensed].) In fact, the contracts arguably show the opposite—Clark was lawfully endeavoring to meet its small business project goals. For example, attached to the Clark-MCB Agreement were numerous disclosure forms Clark required MCB to complete and submit to the federal government.
Additionally, assuming witness testimony or documentary exhibits supported MCB's claim of illegality, MCB failed to provide an adequate record of the arbitration proceedings. The arbitrator found the MCB-Berg Subcontract was a legitimate contract, under which Berg performed low voltage electrical work that MCB could not perform and bond itself. We have no basis to conclude otherwise. MCB has failed to establish the MCB-Berg Subcontract was illegal or violated public policy.
MCB next argues that only a portion of Berg's claim was properly subject to arbitration because Berg waived its right to claim any amount over $317,004 pursuant to the closeout provision of their MCB-Berg Subcontract. MCB asserts that during the closeout process Berg identified the total unsettled payments it was owed as $317,004 and sent MCB a Civil Code section 8132 "Conditional Waiver and Release on Progress Payment" letter.
In response, Berg argues MCB never paid the $317,004 to trigger any possible waiver, Berg's claim for breach of contract was explicitly excepted from being waived on the "Conditional Waiver" letter and, if any waiver occurred, it was due to MCB's fraud or Berg's mistake, which were issues for the arbitrator to decide. We agree with Berg.
The parties agreed to arbitrate "any claim arising out of or related to [the] Agreement other than those waived in [the] Agreement." (MCB-Berg Subcontract, § 7.1.1.) The parties thus agreed to arbitrate a claim for breach of contract, unless the claim was waived under the terms of the agreement. Further, whether a waiver occurred under the agreement's terms was itself a dispute "related to [the] Agreement" and accordingly, properly subject to arbitration. (See Greenspan v. Ladt, LLC (2010) 185 Cal.App.4th 1413, 1442 (Greenspan) [when parties explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties' intent to delegate such issues to an arbitrator].)
The parties agreed to abide by the AAA Construction Rules, which permits the arbitrator to decide the scope of arbitrable issues. (AAA Construction Rules, R-9(a);
Additionally, we are not privy to what transpired during the evidentiary hearings before the arbitrator, and MCB has not provided a sufficient record of the proceedings. Whether there has been a waiver is usually regarded as a question of fact to be determined by a fact finder. (Old Republic Ins. Co. v. Fsr Brokerage, Inc. (2000) 80 Cal.App.4th 666, 678 [the pivotal issue in a claim of waiver is the intention of the party who allegedly relinquished the known legal right].) On this record, MCB failed to establish Berg's waiver of its right to claim an amount in excess of $317,004.
MCB also argues (1) the arbitrator's award violated Civil Code section 8132; and (2) the arbitrator erred in ruling on MCB's contract defenses, including novation, accord, and satisfaction. As above, MCB's arguments are based on Berg's conduct during the closeout process of identifying only $317,004 in unsettled payments between the parties, which allegedly precluded Berg from claiming any additional amounts. The arbitrator found it was MCB's "intentional manipulation" and "deceit" with respect to the SOV that contributed to Berg's "oversight." In short, the arbitrator found Berg did not agree to accept only $317,004 in satisfaction of its outstanding receivable, but rather that Berg had made a mistake in billing due to MCB's deceptive conduct. MCB has not asserted a valid ground to vacate the arbitrator's award.
MCB argues the arbitrator exceeded his powers by awarding attorney fees because the MCB-Berg Subcontract did not contain an attorney fee provision and the fee provision contained in the parties' other related contract—the Bonding and Accounts Payable Agreement—did not apply. MCB neglects to inform this court that it requested the arbitrator to make an award of attorney fees and it provided evidence of its counsel's incurred fees.
The arbitrator reasoned he could award attorney fees based on the interrelated nature of the parties' three contracts and the existence of an attorney fee provision in their Bonding and Accounts Payable Agreement. If the arbitrator erred in his analysis, he committed a legal and/or factual error not subject to judicial review, rather than an act exceeding his powers. (Moshonov v. Walsh (2000) 22 Cal.4th 771, 776 [where parties submitted the issue of attorney fees to the arbitrator and both prayed for fees, the arbitrator's decision was not subject to judicial review for error].)
Moreover, as an independent and alternative ground for awarding attorney fees, the arbitrator interpreted the parties' requests for attorney fees as independent authorization for him to award attorney fees and/or a modification of the MCB-Berg Subcontract. MCB's conduct "evinc[ed] an intention to confer upon the arbitrator the power to award attorney's fees." (Thompson v. Jespersen (1990) 222 Cal.App.3d 964, 968; see also AAA Construction Rules, R-45(d)(ii) [arbitrator may make an award of attorney fees "if all parties have requested such an award"].) The MCB-Berg Subcontract did not preclude the arbitrator from making an award of attorney fees, and the parties agreed to abide by the AAA Construction Rules, which permitted the arbitrator to award attorney fees under the circumstances. The arbitrator did not exceed his powers.
Finally, MCB argues the trial court relied on an inapplicable statutory provision in confirming the arbitration award—section 1286.2, subdivision (b). The court correctly set forth the relevant text of section 1286.2, subdivision (a), on the first and second pages of its order, and went on to discuss that MCB had not established a proper basis to vacate the arbitration award. Read in context, the trial court's order contained an obvious and harmless typographical error on the second page of its order where it referenced subdivision (b) rather than subdivision (a) of section 1286.2. The trial court did not rely on an inapplicable statutory provision.
After the conclusion of briefing on appeal, Berg filed a motion for sanctions against MCB, arguing that MCB's briefs violated rules of court and the appeal was objectively frivolous. MCB filed an opposition. We decline to impose sanctions.
Our Supreme Court has cautioned that sanctions should be awarded "most sparingly to deter only the most egregious conduct." (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 651.) "Counsel and their clients have a right to present issues that are arguably correct, even if it is extremely unlikely that they will win on appeal." (Id. at p. 650.) "Thus, an appeal should be held to be frivolous only when it is prosecuted for an improper motive—to harass the respondent or delay the effect of an adverse judgment—or when it indisputably has no merit—when any reasonable attorney would agree that the appeal is totally and completely without merit." (Ibid.)
Here, although MCB's appeal is not meritorious, neither party raised case law that squarely addressed the appellate issues in a similar factual scenario. Thus, we cannot say the appeal was "prosecuted for an improper motive" or that "any reasonable attorney would agree that the appeal is totally and completely without merit." (In re Marriage of Flaherty, supra, 31 Cal.3d at p. 650.) In addition, we do not find MCB's rule violations to be as egregious as those discussed in Pierotti v. Torian (2000) 81 Cal.App.4th 17, 29. However, we remind MCB and its counsel of an appellant's duty to provide an adequate record, present arguments supported by appropriate legal and record citations, and include a summary of significant facts in an opening brief. (Cal. Rules of Court, rule 8.204.)
The order is affirmed. Berg's motion for sanctions is denied. Berg is awarded its costs on appeal.
McCONNELL, P. J. and NARES, J., concurs.
