Harper v. Business Advisors

Filed 8/10/06 Harper v. Business Advisors CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, Jay M. Bloom, Judge. Reversed.

Business Advisors Employees Retirement Trust (BAERT), by its trustee George Newman, and the Harper Family Trust (HFT), by its trustee Billie Joe Harper, submitted a dispute to arbitration. The arbitrator awarded HFT $81,500 against Business Advisors, Inc. (BAI); the award did not mention BAERT. Harper, individually and as trustee of HFT, petitioned the trial court for confirmation of the award against BAI and Newman, individually and as trustee of BAERT. BAERT opposed the petition, arguing the arbitrator exceeded his power and, in any case, improperly corrected or supplemented an original award. BAERT also argued the arbitrator misdesignated the parties to the award. The trial court confirmed the award as requested and entered judgment in favor of Harper, individually and as trustee of HFT, and against BAI and Newman, individually and as trustee of BAERT (collectively appellants). Appellants appeal the judgment, arguing the trial court erred in confirming the award and in failing to correct miscalculations and an erroneousness designation of parties in the award and judgment.^[1]

BACKGROUND

A. Arbitration

BAERT and HFT by letter to an arbitration service dated December 31, 2003, confirmed their agreement to settle a dispute in arbitration. The letter stated: "The issue is whether or not a lease existed on a piece of property once owned by [HFT] and now owned by BAERT. And, if such a lease existed, did it survive the various transfers of ownership of the property and subsequent agreements between these two parties."

The letter indicated the "direct parties" involved were BAERT and HFT. The letter stated BAERT would be represented by George Newman, trustee of BAERT, and HFT would be represented by John Poortinga, CPA and advisor to HFT. It appears neither Newman nor Poortinga are attorneys.

In an arbitration award dated April 21, 2004, the arbitrator, retired judge Ronald Johnson, concluded BAI owed HFT $26,000. This amount was based on $5,000 for five months' rental value of "the house" conveyed by HFT to BAERT and $21,000 for 14 months' rental value of the "storage yard and shop."

A "final award" dated May 11, 2004, held BAI owed HFT $26,000. This award noted that pursuant to the arbitrator's order of April 21, 2004, the parties submitted additional information and calculations. Based on those additional materials, the arbitrator held that BAI owed HFT a "balance of $81,500."

An "amended final award" dated May 26, 2004, held HFT owed BAI $26,000. This award again found BAI owed HFT a balance of $81,500, but corrected an apparent clerical error in the April 21, 2004, and May 11, 2004, awards, which incorrectly held BAI owed HFT $26,000 rather than that HFT owed BAI $26,000. The prior awards had the parties reversed with regard to the $26,000 debt. The May 26, 2004 amended final award also corrected another clerical error in the first two awards concerning which parties Newman and Poortinga represented.

The proof of service attached to the amended final award styles the matter as "Harper Family Trust v. Business Advisors, Inc., Employees Retirement Trust." It was served on George Newman. There is no mention in the proof of service of BAI.

B. Petition for Confirmation of Arbitration Award

On July 27, 2004, Harper, individually and as trustee of HFT, petitioned the trial court to confirm the May 26, 2004 amended final award. The petition listed respondents as BAI and George Newman, individually and as trustee of BAERT. The petition sought confirmation of the arbitrator's $81,500 award.

C. Motion to Vacate Arbitration Award

On October 28, 2004, the date for hearing on the petition, counsel for BAI appeared, stating he had been hired two days before and requesting a continuance to review the matter and file a response to the petition. The trial court granted those requests.

On November 5, 2004, appellants filed a response to the petition and a request to vacate or correct the arbitration award. They first argued the arbitrator exceeded his power. Citing the party's letter to the arbitration service, they argued the arbitration was limited to whether a lease existed on the subject property and, if so, whether it survived the various transfers of that property's ownership and agreements between the parties.

Appellants further argued the arbitrator exceeded his power when he considered an amount HFT claimed BAERT owed on a loan due at the time of the arbitration. They stated the arbitrator never asked the parties to brief or present evidence on that issue and, further, that none of the arbitrator's later awards dealing with that issue stated the amount of the loan or how the arbitrator calculated it.

Appellants also asked the court to correct the arbitration award by changing the designations and names of the parties. They pointed out that the parties to the arbitration were BAERT and HFT but the amended final award held BAI owed HFT $81,500.

D. Decision by the Trial Court

After a hearing on the matter, the trial court confirmed the arbitrator's May 26, 2004 amended final award. The court first concluded the request to vacate or correct the amended final award was untimely. The court found, in any event, there were no grounds to vacate or correct the amended final award. The court concluded that although the scope of the arbitration was at first limited, the parties agreed to expand the proceeding to include the issues on which the arbitrator eventually ruled. The court noted there was no objection made by appellants to the arbitrator considering the additional evidence submitted on those expanded issues.

The court concluded all parties had a full opportunity to present evidence on the expanded issues. The court also determined there was no miscalculation of the amount owed.

The court stated: "[I]t appears the parties are correctly identified. [Citation.] While there was apparently a mistake in the initial arbitration award, that error was corrected in the Amended Final Award."

A judgment in favor of Harper, individually and as trustee of HFT, against BAI and Newman, individually and as trustee of BAERT, was filed on December 6, 2004.

Appellants filed a notice of appeal of the judgment on January 20, 2005.

E. Postjudgment and Notice of Appeal Proceedings

On January 26, 2005, after the filing of the judgment and the notice of appeal, appellants filed an ex parte request to correct the judgment to conform to the "order." They argued BAERT alone entered into an agreement to arbitrate the dispute concerning HFT's possessory holdover of the property conveyed by HFT to BAERT. BAI and Newman argued the arbitrator, nonetheless, captioned the award referencing only BAI, an entity related to but separate from BAERT. Newman, the trustee of BAERT, is the president of BAI. BAI and Newman argued HFT erroneously sought confirmation of the award against BAI and Newman. BAI and Newman noted that in its order of confirmation the court confirmed the final amended award, an award that referred only to BAI and HFT. BAERT argued the trial court had committed a clerical error and asked it to delete Newman from the judgment as an individual and not identify BAI as a party to the arbitration or judgment.

The trial court denied the motion to correct the judgment. It held it was unclear, given the varying positions of the parties, who should be subject to the corrected judgment. The court also noted the request to correct the judgment did not ask the court to modify an order to have it conform to an earlier order actually entered. Instead, it asked for a new and different order, which the court had no power to make. Thus, the designation of parties against whom judgment had been entered was not a clerical error subject to correction. In any event, the trial court concluded that because a notice of appeal had been filed, it had no jurisdiction to make the requested correction. The court noted the judgment could not be amended by stipulation. It found no clerical error had occurred.

DISCUSSION

Appellants argue the trial court erred in confirming the amended final award and in failing to correct miscalculations and an erroneous naming and designation of parties.

A. Extent of Arbitrator's Power

Appellants argue the arbitrator's award to HFT involving the consideration of set-offs based on a loan between BAERT and HFT and rental value of property exceeded his power. They contend the sole issue submitted to the arbitrator was "whether or not a lease existed on a piece of property once owned by [HFT] and now owed by BAERT. And, if such a lease existed, did it survive the various transfers of ownership of the property and subsequent agreements between these two parties."

Although a court's power to review arbitration awards is very limited, an arbitration award shall be vacated if the "arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted." (Code Civ. Proc., § 1286.2, subd. (a)(4).)^[2]

"We review the trial court's decision concerning whether an arbitrator exceeded his powers de novo, but we give substantial deference to the arbitrator's own assessment of his contractual authority. [Citation.] Any doubts as to the meaning or extent of an arbitration agreement are for the arbitrator, not the court[,] to resolve. [Citation.] 'Although . . . section 1286.2 permits the court to vacate an award that exceeds the arbitrator's powers, the deference due an arbitrator's decision on the merits of the controversy requires a court to refrain from substituting its judgment for the arbitrator's in determining the contractual scope of those powers.' [Citation.]" (Oakland-Alameda County Coliseum Authority v. CC Partners (2002) 101 Cal.App.4th 635, 641-642.)

"Moreover, in reviewing a judgment confirming an arbitration award, we must accept the trial court's findings of fact if substantial evidence supports them, and we must draw every reasonable inference to support the award." (Alexander v. Blue Cross of California (2001) 88 Cal.App.4th 1082, 1087.)

Based on the manner in which the arbitrator dealt with the issues presented and on the declarations of the parties, the trial court concluded that although the parties initially presented a relatively narrow issue, they agreed during arbitration to expand the matter and to submit additional evidence concerning rental value and set-offs. The trial court noted there was no apparent objection to the arbitration progressing in this expanded state.

Although the matter may not have been resolved to appellants' satisfaction, we agree with the trial court that the arbitrator did not exceed his power in considering the issues of rental value and set-offs in his amended final award.

B. Change of Original Award in Arbitration

Appellants also argue the trial court erred in confirming the amended final award because the arbitrator had no power to correct or supplement his original award. An arbitrator's power to amend or correct an award is limited to those available to a court in confirming an award, i.e., an evident miscalculation, an error in form not affecting the substance of the award, etc. (§§ 1284, 1286.6.) In this case, however, based on the factual findings made by the trial court, it was not the intention of the arbitrator or the parties that the arbitration award dated April 21, 2004, was to be the final award. At that time it was the contemplation of the parties that additional material would be submitted to allow the arbitrator to finally resolve the controversy. In effect, therefore, the arbitrator was not correcting or amending an award; he was providing the final award the parties sought.^[3]

C. Designation of Parties

Appellants argue the trial court erred when it concluded it had no jurisdiction, after the filing of their notice of appeal, to correct the judgment by deleting parties not named in the arbitration award. This issue, at the heart of this appeal, has a tortured history in the court below with appellants taking various positions at different times and with the arbitrator, court and parties mistaken about the identity of the parties in the arbitration proceeding.

In resolving this issue, we are faced with imprecision on the part of the parties and, less excusably, the arbitrator; the failure of appellants to timely and clearly make requests and motions for correction; and the resulting confusion all of this created in the minds of the parties and the trial court.

It all began simply enough. Two parties, BAERT and HFT, submitted a controversy to arbitration. For reasons not apparent in the record, the arbitrator in three awards captioned the cases as HFT, Petitioner, versus BAI, Respondent. The body of each of the awards does not mention the parties by name but simply refers to the designations petitioner and respondent. The award contains no explanation for why its designation of parties differs from those who had agreed to submit the matter to arbitration.

To further confuse the situation, the proof of service for the amended final award styles the matter as "Harper Family Trust v. Business Advisors, Inc., Employees Retirement Trust" and the petition to confirm the arbitration award stated the parties to the action were Harper, individually and as trustee of HFT, George Newman, BAI and BAERT.

At the time of the confirmation hearing, the great majority of appellants' arguments dealt with the substance of the award. However, in a single short paragraph at the end of their response, appellants stated the award should be corrected to show a correct designation of parties. Appellants stated BAERT, and not BAI, was the party to the arbitration. Appellants asked any order confirming the award in arbitration correctly reflect the name of the parties and their designations and that Newman not be included as an individual.

At the time of the confirmation order, the trial court devoted only two sentences to the issue of party designation. It found the parties were correctly identified, explaining: "While there was apparently a mistake in the initial arbitration award, that error was corrected in the Amended Final Award."

It is clear the trial court misunderstood the scope of appellants' point. The court apparently was unaware appellants were also complaining about the fundamental issue that the arbitration award named BAI, and not BAERT, as a party, and HFT was seeking an order confirming the arbitration award not just against BAERT but also against BAI and Newman.

Only BAERT and HFT agreed to arbitrate the dispute. There is no indication in the record that other parties, e.g., Newman or BAI, ever agreed to arbitration. Only through a series of errors and laxity of proper procedure did Newman and BAI become part of this arbitration. Neither the arbitrator nor the trial court can impose an arbitration award on a nonparty to the arbitration. (Southern Cal. Pipe Trades Dist. Council No. 16 v. Merritt (1981) 126 Cal.App.3d 530, 536.)

Because of the confusion in this case and the fundamental nature of the error awarding damages against nonparties to the arbitration, we conclude the trial court abused its discretion in refusing to entertain appellants' motion to correct the designations of the parties, especially considering the offered stipulation of HFT to accept an amended judgment naming only Newman as trustee of BAERT.^[4]

DISPOSITION

The judgment confirming the arbitration award is reversed as to BAI and Newman individually and the arbitration award against BAI is vacated. In all other respects the judgment is affirmed. The parties are to bear their own costs on appeal.

BENKE, Acting P. J.

WE CONCUR:

McDONALD, J.

IRION, J.

Publication courtesy of California pro bono legal advice.

Analysis and review provided by La Mesa Real Estate Attorney.

^[1] Appellants, HFT and Harper individually have filed requests to augment the record and, in the alternative, take additional evidence on appeal. The motions are denied.

^[2] All further statutory references are to the Code of Civil Procedure.

^[3] The better practice is to designate preliminary arbitration awards as interim awards.

^[4] We are aware that appellants did not seek correction of the award in arbitration within 100 days of it being served (§ 1288) or within 10 days after service of the petition to confirm (§ 1290.6). In the usual case these time limits are strictly applied. (See Louise Gardens of Encino Homeowners' Assn., Inc. v. Truck Ins. Exchange, Inc. (2000) 82 Cal.App.4th 648, 659-660; Elden v. Superior Court (1997) 53 Cal.App.4th 1497, 1511-1512.) This case, however, is unusual. The confusion engendered by designation of parties in the award and HFT's petition to confirm raised serious questions concerning the identities of the parties and how time limits for filing petitions to correct or responses to petitions applied. In any event, neither the arbitrator nor the court had the power to enter an award or judgment against nonparties to the arbitration.