Defendant and appellant Columbus Club, Inc., entered into an agreement to lease an assembly hall to plaintiff and respondent Hoso Foods, Inc. (Hoso). When Hoso learned that city ordinances precluded it from
We reverse. The award must be vacated pursuant to Code of Civil Procedure section 1286.2, subdivision (a)(4), because the arbitrator exceeded his powers by limiting appellant's representation at the arbitration to an individual who had been sued personally, was not appellant's choice of representative, was not involved in significant aspects of the transaction and was dismissed from the action at the conclusion of the hearing. The arbitrator's conduct deprived appellant of a fair hearing.
Appellant is a nonprofit California corporation affiliated with the Knights of Columbus Glendale Council, a philanthropic Catholic men's association. As the Knights of Columbus rules prohibit a council from owning property, appellant was formed approximately 60 years ago to own and operate an assembly hall (Hall) located in the City of Glendale. Hoso is a California corporation that operates as a catering and banquet business.
In March 2002, appellant and Hoso entered into a written lease agreement whereby Hoso agreed to lease the Hall from appellant. The parties executed a standard industrial lease together with a 26-point addendum (Lease). In May 2002, the parties entered into two additional Lease addenda—the first being a personal guaranty by Hoso indemnifying appellant for $75,000 of work to be performed on the premises, and the second reflecting a temporary reduction in rent pending the construction. Daniel Rodela, appellant's president, signed the Lease and addenda on appellant's behalf.
In the Lease, appellant warranted "that the Premises, in its state existing on the date that the Lease term commences, but without regard to the use for which Lessee will use the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term commencement date." Hoso intended to remodel the interior and exterior of the Hall in order to use it for catered events. In several different provisions of the Lease, Hoso acknowledged that it assumed responsibility for complying with all applicable laws and regulations in connection with its intended use of the Hall. For example, paragraph 6.3(b) of
According to Hoso, notwithstanding these provisions, during the Lease negotiations appellant represented that there were no time or other restrictions on the Hall, even though it knew or should have known that the Glendale Municipal Code precluded that location from being leased for the purpose of conducting a banquet hall and remaining open to the public past midnight. Moreover, appellant failed to disclose that Hoso could not operate using appellant's existing liquor license. After the Lease was signed, Hoso made numerous improvements to the Hall with appellant's knowledge. But when Hoso held its first catered event in February 2004, Glendale police officers informed it that the Hall could not be operated after 12:30 a.m. Hoso then learned that it could not operate using appellant's liquor license. The parties were unsuccessful in obtaining a variance and, ultimately, Hoso was unable to use the Hall for its intended purpose.
Hoso filed its initial complaint against appellant and Rodela in April 2005 and the operative first amended complaint in June 2005; it alleged causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, conspiracy, intentional misrepresentation, concealment, rescission and fraud. It sought $310,000 damages for remodeling the Hall and suffering a loss of business, plus general and other damages according to proof. Appellant and Rodela answered, specifically denying the allegations and asserting multiple affirmative defenses.
In October 2007, the parties stipulated to submit the matter to binding arbitration and, in turn, vacate the November 2007 trial date. According to appellant, as a condition of arbitration, Hoso's counsel verbally agreed to dismiss Rodela from the action. Hoso's counsel, however, later averred that although there were discussions concerning Rodela's dismissal, "[n]o such language is contained in said Stipulation and there was never a conclusive
During the arbitration, Rodela was the only representative permitted to participate in the proceedings on appellant's behalf. He was not dismissed from the action until after his testimony on the last day of the arbitration. Witnesses on Hoso's behalf testified that during Lease negotiations appellant represented Hoso could lease the Hall without any restrictions on appellant's liquor license and without any restrictions on the duration of time of each event. Appellant's representatives testified that they were unaware of the liquor license restrictions and did not recall discussing the time restrictions. An expert for Hoso presented a report that calculated $1,212,733 as Hoso's net loss of profits from January 2004 to December 2007. The arbitrator overruled appellant's objection to the report, which was based on Hoso's failure to disclose the document as part of its exhibit exchange preceding the arbitration.
The arbitrator issued his award on January 26, 2009, ruling in favor of Hoso on all claims except conspiracy and rescission. He awarded Hoso $342,662 for reconstruction of the premises, $808,467 for loss of earnings, $78,178 for attorney fees and $33,828 for costs and expenses, for a total of $1,263,135.
In April 2009, Hoso filed a petition to confirm the arbitration award. Concurrently, appellant filed a petition to vacate the award. It argued that the arbitrator exceeded his powers by awarding inconsistent and mutually exclusive remedies, impermissibly enforcing an illegal contract, and conducting a procedurally unfair arbitration by excluding any party representative except Rodela and unfairly limiting appellant in the presentation of its case. The parties opposed each other's petitions.
Following a hearing on both petitions, the trial court granted the petition to confirm and denied the petition to vacate the award. It found that appellant failed to establish any ground under Code of Civil Procedure section 1286.2
This appeal followed.
On the other hand, arbitration procedures that interfere with a party's right to a fair hearing are reviewable on appeal. As explained in Azteca Construction, Inc. v. ADR Consulting, Inc. (2004) 121 Cal.App.4th 1156, 1165 [18 Cal.Rptr.3d 142]: "Precisely because arbitrators wield such mighty and largely unchecked power, the Legislature has taken an increasingly more active role in protecting the fairness of the process. [Citation.]" (See also Haworth v. Superior Court (2010) 50 Cal.4th 372, 395 [112 Cal.Rptr.3d 853, 235 P.3d 152] (dis. opn. of Werdegar, J.) [explaining that while the finality of arbitration awards is an important principle, "[a]n equally vital principle, however, is that with such limited judicial review the arbitration system must have—and must be seen to have—sufficient integrity that parties can be confident they will receive a fair hearing and an impartial decision from the arbitrator"].) Because the rules of evidence and judicial procedure do not apply to arbitration proceedings absent the parties' agreement, "[a]rbitration procedures violate the common law right to a fair hearing `only in the
In this action, Hoso brought all its claims against both appellant and Rodela individually. Though it is disputed whether a "conclusive agreement" was reached, the parties discussed that Hoso would dismiss Rodela from the action as a condition of appellant's agreement to submit the matter to binding arbitration. Though appellant's counsel requested Rodela's dismissal when the arbitration commenced, Hoso's counsel stated that he wanted to hear Rodela's testimony before he would consider agreeing to dismiss him. Over appellant's counsel's objection, Rodela remained as a party in the action throughout the arbitration proceedings until the arbitrator dismissed him on the final day of the arbitration after he testified. Throughout the arbitration, Rodela was the only individual permitted to participate in the proceedings on appellant's behalf. Notwithstanding appellant's desire to have a representative other than Rodela, no other individual was permitted to represent appellant during the arbitration. Specifically, Eugene Tefft, appellant's secretary who participated in the Lease negotiations on appellant's behalf but was not named in the action as an individual, was precluded from attending the arbitration except when he testified on the last day of the proceedings.
We conclude that the arbitrator exceeded his powers by limiting appellant to Rodela as its representative during the arbitration proceedings and that the limitation precluded the possibility of appellant receiving a fair hearing. Nothing in either the Code of Civil Procedure provisions governing arbitration proceedings or the American Arbitration Association's (AAA) Commercial Arbitration Rules suggests that an arbitrator has the power to preclude a corporate party from designating a representative to attend the arbitration proceedings. To the contrary, section 1282.2, subdivision (d), provides that "[t]he parties to the arbitration are entitled to be heard, to present evidence and to cross-examine witnesses appearing at the hearing...." More to the point, rule 23 of the AAA Commercial Arbitration Rules (rule 23) restricts the arbitrator's ability to exclude a party from the proceedings, providing: "Any person having a direct interest in the arbitration is entitled to attend hearings. The arbitrator shall otherwise have the power to require the exclusion of any witness, other than a party or other essential person, during the testimony of any other witness. It shall be discretionary with the arbitrator to determine the propriety of the attendance of any other person other than a party and its representatives."
The record established that appellant was prevented from having a representative other than Rodela attend the arbitration. Both appellant's counsel and Tefft declared that no one other than Rodela was permitted to attend the arbitration on appellant's behalf. Tefft specifically declared: "I was not allowed to be present during any actual proceedings except when I testified in the afternoon on the fourth day of the arbitration. Nor was anyone else from the Columbus Club allowed to be present during the arbitration." By precluding appellant from having its own representative attend the arbitration, the arbitrator exceeded the authority accorded him under rule 23.
Nor are we persuaded that the arbitrator's conduct is unreviewable because there is no evidence in the record that appellant formally moved to request the presence of a representative in addition to Rodela. Again, nothing in either the statutes or applicable rules governing arbitration proceedings mandates that such a motion be made. Rather, rule 23 accords "[a]ny person having a direct interest in the arbitration" the entitlement to attend the arbitration proceedings. Moreover, the undisputed evidence in the record demonstrated that the arbitrator limited the arbitration participants. Appellant's counsel declared that beyond Rodela "no other officer or representative of Columbus Club was permitted to participate in or observe the proceedings other than during each person's own testimony." Consistent with counsel's declaration, Tefft averred that no one "else from the Columbus Club [was] allowed to be present during the arbitration," even though "[t]he Columbus Club wanted someone other than Mr. Rodela present during the arbitration." The logical inference we draw from Tefft's declaration is that the only way he would not have been "allowed" to be present is if the arbitrator excluded him.
The arbitrator's conduct prejudiced appellant, as limiting appellant to Rodela as its representative operated to deny appellant a fair hearing. (See Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 826, fn. 23 [171 Cal.Rptr. 604, 623 P.2d 165] [petition to vacate is proper where, in the course of arbitration proceedings, a party is "denied a fair opportunity to present his position"].) Although neither we nor the parties were able to locate any decisions construing the effect of a violation of rule 23, case law interpreting Evidence Code section 777 provides some guidance.
Here, likewise, appellant suffered obvious prejudice from the absence of an independent representative. Hoso's representative, Hovsep Kvryan, testified that at some point during the approximate one-year Lease negotiations, "Defendant and Defendant's Representatives" told him that Hoso could lease the premises without any liquor license restrictions or restrictions on the duration of time for each event. Although Rodela signed the Lease on appellant's behalf, he testified that he was not involved in drafting the Lease or the Lease addenda. Rodela therefore had no way to dispute Kvryan's testimony or to assist counsel in cross-examining Kvryan. Indeed, Rodela failed to recall any conversations with Hoso about the use of the liquor license or time restrictions on catered events. Rodela testified that Tefft was the most knowledgeable individual about the Lease. Consistent with Rodela's testimony, Tefft testified that he drafted the Lease and the addenda. He also testified that he was present at all Lease negotiations and was unaware of any restrictions on the transfer of appellant's liquor license.
For these reasons, the motion to confirm the arbitration award should have been denied and the motion to vacate should have been granted.
The judgment is reversed. The matter is remanded to the trial court with directions to vacate the order confirming the arbitration award, to grant the
Boren, P. J., concurred.
I dissent.
The majority concludes that the arbitrator exceeded his authority by precluding appellant from having an independent representative present during the arbitration hearing as the basis for reversing the trial court's order confirming the arbitration and the order denying the request to vacate that award. I disagree with the majority both in the inferences drawn from the limited record and in their determination that those inferences are sufficient to support their conclusion.
As the majority opinion correctly notes, ordinarily errors of fact or law made by an arbitrator are not reviewable and a court may not vacate an award that it disagrees with or believes is erroneous. (Gueyffier v. Ann Summers, Ltd. (2008) 43 Cal.4th 1179, 1184 [77 Cal.Rptr.3d 613, 184 P.3d 739].) While they conclude that here the arbitrator exceeded his authority, in my view the exclusion of all representatives of appellant, other than Daniel Rodela, from the arbitration hearing is at most an error of law which does not rise to the level of an act in excess of the power of the arbitrator, and is more likely not an error at all.
There is no dispute that at the time of the arbitration hearing, Rodela was the president of appellant and named as an individual defendant who attended the arbitration hearing with Attorney Steven L. Szocs, counsel for both appellant and Rodela. Indeed Rodela had signed the stipulation to participate in binding arbitration twice, once on behalf of appellant and once on behalf of himself. However there is a question in the record whether there was ever a request that someone other than Rodela attend the hearing as the representative of appellant or whether there was merely a standard order excluding witnesses from the testimony of other witnesses during the hearing.
While it is unclear what procedural rules controlled the arbitration hearing,
While the majority finds that there is no requirement that a request be made to have a particular corporate representative attend an arbitration hearing, how is an arbitrator to even know that a particular corporate officer who is also a percipient witness (such as Tefft) even desired to replace the president as the representative of appellant? Thus it can easily be concluded from this factual scenario that Tefft attended the arbitration as a witness; that all witnesses were excluded, in routine fashion, while others testified; and nobody sought to seat Tefft as the representative of appellant given that Rodela was there anyway. Clearly this was an act of the arbitrator's discretion and was by no means an act in excess of an arbitrator's authority. However, even assuming the arbitrator made a specific ruling excluding Tefft from the hearing as the corporate representative, it was at most an error of law— seating the improper corporate representative—and not reviewable under usual rules of arbitration review.
The majority also asserts that the failure to have Tefft as the corporate representative was prejudicial to appellant, depriving it of a fair hearing. Again I disagree. Citing People ex rel. Curtis v. Peters (1983) 143 Cal.App.3d 597 [192 Cal.Rptr. 70], the majority suggests that the prejudice that was found when a public entity was not allowed to seat any representative during the court proceeding is somehow the same circumstance as here where Rodela was present even if Tefft was in fact the preferred representative. I suggest Curtis is inapposite. Indeed there was no prejudice to appellant as the arbitrator had the opportunity to listen to the testimony of Tefft, which presumably included all that he knew about the circumstances involving the
In summary, I find insufficient facts in the record to conclude that the arbitrator even excluded Tefft; that Rodela's interest was in any way in conflict with that of appellant; that appellant suffered any prejudice by being represented at arbitration by Rodela; and that the arbitrator acted in excess of his power by excluding witnesses resulting in an unfair arbitration hearing. Therefore I would affirm the trial court's orders confirming the arbitration award and denying the request to vacate the arbitration award.