Filed 9/25/17 Blum Plaza v. Mayhew CA6

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SIXTH APPELLATE DISTRICT

BLUM PLAZA, LLC et al., Plaintiffs and Respondents, v. ROSANNE MAYHEW et al., Defendants and Appellants.

H043395 (Santa Clara County Super. Ct. No. 1-15-CV-286800)

Appellant Rosanne Mayhew, M.D., dba For Women By Women, a California Corporation, (Mayhew) appeals from a judgment confirming an arbitration award to respondents Blum Plaza, LLC and Sheldon R. Blum, Trustee of the 1998 Sheldon R. Blum Family Trust. Finding no prejudicial error by the arbitrator, we will affirm.

I. Factual and Procedural Background

Blum Plaza is a two-story building in San Jose owned by the 1998 Sheldon R. Blum Family Trust (the Trust) and managed by Blum Plaza, LLC (the LLC) (collectively, respondents). Sheldon R. Blum (Blum)[1] is the sole trustee of the Trust and the sole member of the LLC.

Mayhew is a practicing physician who, in early 2014, was looking to relocate her medical office. In the spring of 2014, Mayhew and Blum entered into lease negotiations for Suite 200 in Blum Plaza. At that time, Blum was in the process of remodeling Suite 200 and other suites in the building. In the course of the negotiations, Mayhew informed Blum of her specific needs, including wiring and venting for her medical equipment, and the renovation plans were adjusted to accommodate Mayhew’s requirements.

Mayhew and the LLC entered into a Lease in May 2014 without having agreed upon the details of the ongoing renovation, such as flooring and cabinetry. The Lease called for a five-year, one-month term commencing “upon substantial completion of improvements and delivery of Premises to Lessee” at a monthly rent of $4,303.75. The Lease set forth an agreement to “resolve any and all claims, disputes, disagreements and/or demands arising from or in any way related to this Lease Agreement, either by Mediation or Binding Arbitration utilizing JAMS (Judicial Arbitration Mediation Services) in Santa Clara County.”

Conflicts regarding the renovations ensued. A dispute over whether the improvements had been substantially completed, such that the Lease term should commence, prompted Mayhew to file a Demand for Arbitration against the LLC in August 2014. The LLC counter-claimed, alleging Mayhew had breached the Lease. On October 27, 2014, Mayhew’s attorney sent Blum a letter purporting to terminate and rescind the Lease.

The arbitration hearing, conducted pursuant to the JAMS Streamlined Arbitration Rules and Procedures (JAMS Streamlined Rules), took place over the course of nine days in March and April, 2015. Towards the conclusion of that hearing, on April 17, 2015, the LLC moved to add Blum as trustee for the Trust “as a party Respondent/Counter-Claimant immediately after the name BLUM PLAZA, LLC wherever that name appears in the pleadings and in these proceedings” pursuant to Code of Civil Procedure sections 367 and 473, subdivision (a)(1).[2] In support of its motion, the LCC argued that the Trust was the real party in interest and the LLC was its agent. The arbitrator granted the motion, adding the Trust as a party.[3] Following post-hearing briefing, the matter was deemed submitted for decision on June 26, 2015.

The arbitrator issued a Partial Final Award on July 16, 2015. In it, the arbitrator rejected Mayhew’s claims and concluded she had breached the Lease by repudiating it and not paying rent after improvements were completed and possession was delivered in October 2014. Among the unsuccessful arguments Mayhew advanced was that the Lease was invalid because the LLC—the named “Lessor”—did not own Blum Plaza or have written authority from the owner, the Trust, to enter into transactions requiring a writing. The arbitrator rejected that argument, reasoning that “when a principal (the Family Trust) does not object to a contract being made by its agent (the LLC), a third party to that contract (Mayhew) is in no position to raise the issue of the lack of written authority for the agent’s contract.” The arbitrator awarded the LLC and the Trust $36,388.85 in damages for unpaid rent from October 2014 through July 2015. The arbitrator indicated that “nine months should have been a sufficient time for Blum to find a new tenant for Suite 200, and to thereby mitigate his income loss for the balance of the Lease term.” But, the Partial Final Award stated that Blum could “apply for further rent-loss damages before the conclusion of this arbitration proceeding.”

On July 22, 2015, Mayhew requested that the arbitrator vacate or correct the Partial Final Award. The arbitrator denied that request on the ground that he lacked the authority to vacate or substantively change the Partial Final Award as requested.

In early September 2015, respondents filed with the arbitrator a Petition for Additional Rent Loss Damages. Following briefing on that issue, the arbitrator issued an Order on Rent Loss Damages and a Final Award on October 1, 2015. The Order on Rent Loss Damages noted that respondents had submitted a declaration from Blum stating that the premises had not been re-rented and likely would not have a new tenant before December 2015. Mayhew offered no countervailing evidence. Accordingly, the arbitrator awarded respondents additional lost rent damages through the date of the Final Award, October 1, 2015. The Final Award awarded respondents $48,631.49 in lost rent damages and $37,634.86 in costs, for a total award of $86,266.35.

Respondents filed a petition to confirm the arbitration award in the superior court. Mayhew moved to vacate or correct the arbitrator’s Final Award. The court below granted the petition to confirm and denied the motion to vacate or correct on January 7, 2016. The court entered judgment in respondents’ favor in the amount of $89,278.72 (including prejudgment interest and costs) on January 27, 2016. Mayhew timely appealed.

II. Discussion[4]

A. Legal Principles

“t is the general rule that, with narrow exceptions, an arbitrator’s decision cannot be reviewed for errors of fact or law.” ([i]Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11.) Judicial review of private arbitration awards is limited “to those cases in which there exists a statutory ground to vacate or correct the award.” (Id. at p. 28.) Section 1286.2 sets forth the grounds for vacation of an arbitrator’s award, while section 1286.6 provides grounds for correction of an arbitration award. Pertinent to this appeal, both provisions allow for review if the arbitrator exceeded the scope of his or her authority. (§ 1286.2, subd. (a)(4) [“the court shall vacate the award if the court determines . . . [¶] (4) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.”]; § 1286.6, subd. (b) [“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: . . . [¶] (b) The arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted”].) An arbitrator exceeds his or her powers by, for example, issuing an award that violates “ ‘specific restrictions’ (1) ‘in the arbitration agreement’; (2) ‘the submission’ of the claim to the arbitrator; or (3) ‘the rules of arbitration.’ ” (Emerald Aero, LLC v. Kaplan (2017) 9 Cal.App.5th 1125, 1140.) By contrast, “arbitrators do not ‘exceed[ ] their powers’ within the meaning of section 1286.2 . . . and section 1286.6, subdivision (b) merely by rendering an erroneous decision on a legal or factual issue, so long as the issue was within the scope of the controversy submitted to the arbitrators.” (Moshonov v. Walsh (2000) 22 Cal.4th 771, 775.)

On appeal, we review the superior court’s decision to confirm the arbitration award de novo, “but we ‘pay substantial deference to an arbitrator’s determination of his own authority.’ ” (Roehl v. Ritchie (2007) 147 Cal.App.4th 338, 347 (Roehl).)

B. The Arbitrator Did Not Exceed His Authority by Accepting New Evidence and Awarding Additional Damages After Issuing the Partial Final Award

Mayhew claims the JAMS Streamlined Rules prohibited the arbitrator from accepting new evidence and awarding additional lost rent damages after issuing the Partial Final Award. Her argument is two-fold; we address each contention in turn.

First, Mayhew challenges the acceptance of new evidence on the ground that the arbitration hearing was closed and not subject to being reopened. For that argument, she relies on Rule 17(h) of the JAMS Streamlined Rules, which states: “f post-Hearing briefs are to be submitted, the Hearing shall be deemed closed upon receipt by the Arbitrator of such briefs.” In Mayhew’s view, because the parties submitted post-hearing briefs in June 2015, the hearing had long been closed when the arbitrator accepted additional evidence of lost rent damages in September 2015, making the acceptance of that evidence improper. While Rule 17(i) permits the arbitrator to reopen the hearing “[a]t any time [i]before the Award is rendered . . . for good cause shown,” Mayhew contends that rule did not authorize the arbitrator to reopen the hearing after he issued the Partial Final Award. (Italics added.)

Rule 17, subdivisions (h) and (i) must be read in light of the JAMS Streamlined Rules as a whole, which give the arbitrator broad authority and procedural flexibility. Specifically, Rule 8(a) empowers the arbitrator to “resolve disputes about the interpretation and applicability of these Rules and conduct of the Arbitration Hearing” and provides that his or her “resolution of the issue . . . shall be final.” Rule 17(a) states: “The Arbitrator will ordinarily conduct the Arbitration Hearing in the manner set forth in these Rules. The Arbitrator may vary these procedures if it is determined to be reasonable and appropriate to do so.” Here, the arbitrator reopened the hearing after issuing the Partial Final Award, either because he interpreted Rule 17(i) as authorizing him to do so or because he exercised his Rule 17(a) authority to vary the procedure set forth in Rule 17(i).[5] Either way, he acted within his authority under the JAMS Streamlined Rules.

Second, Mayhew construes the Order on Rent Loss Damages as an improper amendment to the Partial Final Award. As she notes, Rule 19(i) authorizes the arbitrator to “correct any computational, typographical or other similar error” in a Partial Final Award in a certain timeframe. Mayhew contends the Order on Rent Loss Damages violated Rule 19(i) because it did not merely correct an error. We agree that the Order on Rent Loss Damages did not comply with Rule 19(i). But it did not have to. The Order on Rent Loss Damages did not modify the Partial Final Award. Rather, it addressed an issue explicitly left open by that award—damages accrued between the issuance of the Partial Final Award in July and the issuance of the Final Award in October. Courts have read the California Arbitration Act (§ 1280, et seq.) as permitting arbitrators to issue incremental or successive awards, so long as they do not correct or modify the terms of an earlier award. (Roehl, supra, 147 Cal.App.4th at p. 351; Hightower v. Superior Court (2001) 86 Cal.App.4th 1415, 1434-39.) That is precisely what the arbitrator did here. Moreover, JAMS Streamlined Rule 19(c) contemplates such incremental or successive awards, stating: “n addition to a Final Award or Partial Final Award, the Arbitrator may make other decisions, including interim or partial rulings, orders and Awards.”

For the foregoing reasons, we conclude the arbitrator did not exceed his authority in connection with the Order on Rent Loss Damages.

[i]C. The Arbitrator Exceeded His Authority by Adding the Trust as a Party to the Arbitration, But That Error Was Not Prejudicial

Mayhew contends the arbitrator lacked the authority to determine that the Trust, a nonsignatory to the Lease containing the agreement to arbitrate, was entitled to join the arbitration proceeding.[6] Respondents say Mayhew knew the Trust owned Blum Plaza prior to the arbitration, such that she should have joined the Trust as a party to the arbitration and is estopped from complaining about its addition as a party. For the reasons discussed below, we agree with Mayhew that the arbitrator exceeded his authority by adding the Trust as a party to the arbitration. However, she fails to show she was prejudiced by that error, as she must to obtain reversal of the trial court’s order and vacatur or correction of the arbitration award.

“It is settled that the question of whether a nonsignatory to an arbitration agreement may enforce the arbitration provisions is one that must be decided by the court on the basis of the facts found prior to any arbitration going forward.” (Valley Casework, Inc. v. Comfort Construction, Inc. (1999) 76 Cal.App.4th 1013, 1020 (Valley Casework); American Builder’s Assn. v. Au-Yang (1990) 226 Cal.App.3d 170, 179 [court, not arbitrator, must determine “whether an arbitration provision [is] operative against a nonsignatory . . . .”]; Unimart v. Superior Court (1969) 1 Cal.App.3d 1039, 1048 [“Whether [an arbitration] agreement may be applied to [a] third party is [a] factual question . . . to be decided in a proper court proceeding and not by the arbitrator”].) The rationale underlying this rule is that “ ‘[a]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.’ ” (Id. at p. 1045.) It follows, therefore, that a nonsignatory may voluntarily submit to arbitration. (Lovret v. Seyfarth (1972) 22 Cal.App.3d 841, 859.) But, in that circumstance, any adverse party also must consent to arbitrating with the nonsignatory before the arbitration can move forward. (Valley Casework, supra, 76 Cal.App.4th 1013 [where arbitration agreement existed between subcontractor and general contractor, subcontractor could not be compelled to arbitrate with general contractor’s subrogee, a nonparty to the arbitration agreement, even though subrogee submitted to arbitration].)

Here, the arbitrator added the Trust, a nonsignatory to the arbitration agreement, as a party to the arbitration without Mayhew’s express consent. In doing so, he effectively determined that Mayhew had agreed to submit any dispute with the Trust to arbitration. That determination should have been left to the court; in making it, the arbitrator overstepped his authority.

But that does not end our inquiry. A “party seeking to vacate an arbitration award [not only] bears the burden of establishing that one of the six grounds listed in section 1286.2 applies[, but also] that the party was prejudiced by the arbitrator’s error.” (Royal Alliance Associates, Inc. v. Liebhaber (2016) 2 Cal.App.5th 1092, 1106; Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909, 920 [arbitration order stands, despite error by arbitrator that “could serve as a basis for vacating [the] arbitration award, [where] plaintiff has not shown that the error was prejudicial”]; Davey Tree Surgery Co. v. International Brotherhood of Electrical Workers (1976) 65 Cal.App.3d 440, 450 [“an award will not be vacated for any error that does not prejudice the rights of the party complaining”].) It is equally appropriate to require a showing of harm before correcting an arbitration award. While Mayhew offers a number of theories as to how the addition of the Trust as a party harmed her, none withstands scrutiny.

Mayhew contends “the prejudice is obvious – the Trust was simultaneously added to the proceedings and deemed an undisclosed principal and found to be a prevailing party with entitlement to damages and costs.” It is unclear whether, by referencing the arbitrator’s determination that the LLC entered into the Lease as an agent for the Trust, Mayhew is challenging the arbitrator’s authority to make that factual determination. It is likewise unclear whether she is taking the position that the arbitrator could not have made that determination without first adding the Trust as a party (i.e., that the Trust was an indispensable party). Both arguments, to the extent she seeks to advance them, are forfeited because they are unsupported by “reasoned argument and citation to authority.” (Tellez v. Rich Voss Trucking, Inc. (2015) 240 Cal.App.4th 1052, 1066.)

As to the fact that the arbitrator awarded damages to the Trust, Mayhew fails to show that a different result would have been probable if the Trust had not been added as a party. The arbitrator awarded just over 11 months’ rent to the Trust and the LLC jointly after concluding that the LLC acted as the Trust’s agent in leasing the property to Mayhew. “A contract made by an agent for an undisclosed principal is for most purposes the contract of the principal, yet it may also be considered as the contract of the agent. Thus the agent may be sued thereon individually and he himself may sue and recover on the contract as an individual.” (Bank of America v. State Bd. of Equal. (1962) 209 Cal.App.2d 780, 796 (Bank of America).) So the LLC was entitled to enforce the Lease against Mayhew and to recover lost rent damages. Had the arbitrator not added the Trust as a party, he likely would have concluded that the LLC was the prevailing party and awarded the same amount of lost rent damages to it as he did to the LLC and the Trust jointly. The outcome would have been the same from Mayhew’s perspective.

Mayhew suggests that it was improper for the arbitrator to add the Trust as a party rather than substitute the Trust for the LLC. “[T]he law is well settled that [one who contracted with an agent] is not entitled to a judgment against both the principal and the agent,” but rather must elect which party to hold responsible. (Klinger v. Modesto Fruit Co. (1930) 107 Cal.App. 97, 100.) Logic dictates that only the agent or the principal should be permitted to enforce the contract against the contracting party. But, again, no prejudice is shown from the error because “it does not appear that the joinder of the [Trust] as [a] part[y] tended to increase the amount [of damages] awarded.” (Fuentes v. Tucker (1947) 31 Cal.2d 1, 10 [nonprejudicial misjoinder held not reversible].) The arbitrator awarded lost rent damages based on the monthly rent set forth in the Lease. That amount in no way depended on the presence of the Trust as a party and it is not probable that the arbitrator would have awarded a different amount of damages had the Trust not been added as a party.

Finally, Mayhew argues that the amount of costs awarded would have been lower had the Trust not been improperly added as a party. Specifically, she contends that, had the Trust not been added as a party, she would not have been ordered to pay costs associated with “the Arbitrator’s time in reviewing the briefs and issuing orders relating to the addition of the Trust as a party.” Of course, Mayhew tells us elsewhere that there was no order adding the Trust as a party, nor any briefing on the LLC’s motion to add the Trust as a party, so the costs to which she refers were likely de minimis. Regardless, the applicable JAMS Streamlined Rule—Rule 19(e)—does not constrain the arbitrator’s discretion in allocating costs. Nor does the Lease, which states “costs of suit may be awarded to the prevailing party by the Arbitrator.” Here, the arbitrator awarded respondents all of their arbitration costs. Mayhew has not shown that it is reasonably likely that the arbitrator would have awarded the LLC less than its full costs because it filed an unsuccessful motion.

Mayhew also claims that because the arbitrator did not apportion costs between the Trust and the LLC, “there is patent uncertainty as to [the LLC’s] portion of the award.” We disagree. Mayhew fails to show that any of the costs she was ordered to pay were attributable solely to the Trust. She does not, for example, direct us to the Memorandum of Costs respondents filed in the arbitration, and we have not found it in our own review of the record. Given the late date at which the Trust was added as a party, and that it was represented by the same attorneys and advanced the same arguments as the LLC, we cannot reasonably conclude that it incurred any separate costs.

The trial court did not err in confirming the arbitration award despite the arbitrator’s error in adding the Trust as a party because Mayhew had not established that error harmed her.

D. The Award Was Rationally Drawn

An arbitrator must fashion a remedy that “is rationally drawn from the [parties’] contract as [rationally] interpreted” by the arbitrator. (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 377.) Mayhew argues the arbitrator exceeded his powers by choosing a remedy—an award of damages to the LLC—that is not rationally drawn from his finding that the Trust was “the true lessor.”

As discussed above, the arbitrator found that the LLC entered into the Lease as the Trust’s agent. Given that factual finding, either the LLC or the Trust was entitled to enforce the Lease. (Bank of America, supra, 209 Cal.App.2d at p. 796.) Therefore, the award was rationally drawn from the Lease as construed by the arbitrator.

E. Sanctions Motion

The LLC and the Trust have requested sanctions against Mayhew for filing a frivolous appeal. We deny that request. Although we shall affirm the trial court’s judgment, we do not believe Mayhew’s appeal was “totally and completely devoid of merit,” nor is there any evidence it was brought for an improper motive. (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650-651.)

III. Disposition

The judgment is affirmed. The LLC and the Trust shall recover their costs on appeal.

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