Cal. Union Square L.People v. Saks & Co. LLC ( 2020 )

Filed 6/11/20
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
CALIFORNIA UNION
SQUARE L.P.,
Plaintiff and Appellant, A158015
v. (City & County of San
SAKS & COMPANY LLC, Francisco Super. Ct.
No. CPF-17-515528)
Defendant and
Respondent.
This matter comes to this court after landlord/appellant California
Union Square L.P. (Union Square) and tenant/respondent Saks Company
L.L.C. (Saks) participated in two arbitration proceedings regarding the rent
Saks should pay for a building it leased from Union Square. The trial court
vacated the first arbitration award (in favor of Union Square) and confirmed
the second arbitration award (in favor of Saks). Union Square contends the
trial court erred in vacating the first arbitration award. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Union Square owns a 131,000-square foot building at 384 Post Street in
San Francisco (384 Post). In 1991, Saks entered into a lease (Lease) to
operate a department store at 384 Post. The Lease provides Saks an initial
25-year lease period followed by five successive options to renew for a period
of 10 years each. It requires base rent to be set at “ ‘Fair Market Rent’ . . .
[which] mean[s] the open market rental value of [384 Post] for first-class
1
retail use compatible with the then current standard in Union Square taking
into account the size of [384 Post].” The Lease further provides that, if the
parties are unable to agree to the rent amount, they are to submit the issue
to arbitration in accordance with the provisions of section 3.1 of the Lease
(Section 3.1).
Section 3.1 sets forth the arbitrator’s authority in determining fair
market rent: “The arbitrator shall have the right to consult experts and
competent authorities with factual information or evidence pertaining to the
matter to be determined by them, but any such consultation shall be made in
the presence of both parties with full right on their part to cross-examine. . . .
The arbitrator shall have no power to modify the provisions of this Lease.”
Section 3.1 also provides for what is known as “ ‘baseball ’ arbitration,” in
which each party proposes its own rent determination to the arbitrator and
the arbitrator “select[s] which of the two determinations proposed by the
parties most closely approximates [the arbitrator’s] determination of [rent].
The arbitrator shall have no right to propose a middle ground or any
modification of either of the two proposed resolutions.”
In January 2016, Saks exercised its option to renew the Lease for
10 years, to commence February 1, 2017. The parties were unable to agree
on rent and selected arbitrator Jan Kleczewski to resolve their dispute. The
arbitration agreement set forth the arbitration process and scope of
Kleczewski’s role as arbitrator as follows: “As the neutral arbitrator, the
scope of my work will include review [of] the parties[’] Opening Briefs and
Reply Briefs, inspection of the subject property, inspection of the party
experts’ lease comparables, conducting the arbitration hearing in accordance
2
with the Arbitration Process as set forth by the parties, review of the Closing
Briefs, and finally ruling on fair market rent.”1
Thereafter, the parties submitted their opening and reply briefs,
accompanied Kleczewski on a site visit to 384 Post, and participated in an
arbitration hearing from January 23 to 25, 2017, during which they
presented documentary and testimonial evidence and argument and
conducted cross-examination in accordance with a streamlined 16-hour
process set forth in the arbitration agreement.2 After the close of evidence,
Union Square asked the arbitrator to receive certain evidence and Saks’
attorney objected, stating no additional evidence should be allowed because
Saks would not have the opportunity to rebut the evidence. The arbitrator
1 While not dispositive, we note the draft arbitration agreement initially
circulated by Kleczewski included the following: “The scope of my work also
includes performance of due diligence and other analysis as I consider
necessary to support my determination.” Saks’ attorney objected and asked
that this sentence be removed to ensure the arbitrator’s analysis and decision
would be confined to evidence presented by the parties and to ensure the
arbitrator’s role was consistent with Section 3.1, which provides that any
“consultation” of “factual information or evidence” must be made “in the
presence of both parties with full right on their part to cross-examine.”
Counsel for Union Square agreed to remove the language and so informed
Kleczewski. Kleczewski deleted this sentence and circulated a revised
agreement, which the parties signed.
2 The agreement was very specific about the arbitration procedure. The
parties were to exchange opening briefs within three weeks of appointing the
arbitrator, exchange reply briefs containing “no new evidence” one week
later, and conduct a site visit of 384 Post within one week thereafter,
“accompanied by up to 2 non-lawyer representatives and 1 lawyer
representative from each party.” Each party had a specified number of hours
for testimony, cross-examination, and argument, and 10 business days after
the hearing to submit closing briefs; the arbitrator has 15 business days
thereafter to issue his award.
3
agreed with Saks, stating the evidence was closed and no new evidence would
be considered.
The parties exchanged their closing briefs on February 8, 2017. Union
Square submitted with its closing brief a valuation report from its expert that
it had not introduced at the hearing. Saks again objected and Union Square
responded that its report did not constitute new evidence because it did not
contain new information.
On February 15, Kleczewski sent an email to the parties, stating:
“Gentlemen, [¶] I am largely recovered from a flu I came down with on
Sunday, which delayed my response to the [parties’ correspondence regarding
whether Union Square’s report constitutes new evidence]. Today I am flying
to Los Angeles to look at Beverly Hills properties presented in testimony, and
on Thursday [tomorrow] I am taking a trip to Manhattan to look at properties
that were discussed in testimony in terms of sales volumes. I will be
considering the correspondence during my travels.” Union Square’s attorney
responded, “Thank you Jan. Glad you are recovered. Safe travels.” Saks’
attorney did not respond.
On February 27, Kleczewski ruled in favor of Union Square on the
issue of whether he would receive Union Square’s report into evidence.
Kleczewski reiterated that “no new evidence should be presented after the
close of the arbitration hearing” but stated the report was proper closing
argument—and not new evidence—because it was essentially a summary of
what had already been presented at the hearing.
Kleczewski issued his award (the Award) on March 2, 2017. He noted
that Union Square’s rent determination was $13,917,364 and Saks’ rent
determination was $6,250,000; the midpoint was therefore $10,083,682.
Kleczewski’s own fair market rent determination was approximately
4
$10.9 million—higher than the parties’ midpoint. Thus, pursuant to the
principles of “baseball” arbitration, he ruled the annual rent for the new lease
term would be $13,917,364.
Kleczewski conducted the following work in reaching his decision: “As
the neutral arbitrator, the scope of my work included review of the lease,
review of the party’s Opening and Reply Briefs, presiding over the three-day
arbitration hearing . . . and review of each party’s Closing Briefs. I inspected
the property with party representatives in attendance on January 5, 2017. I
also informally toured the property on multiple other occasions. I inspected
the party experts’ lease comparables, which included travel to Beverly Hills
to inspect the Saks store there. Although no lease comparables were used by
either party in New York, [3] [Union Square’s] expert introduced data on total
annual rent for various store leases on Fifth Avenue. I traveled to
Manhattan to look at these, and visited the Saks store on Fifth Avenue as
well.”
Kleczewski explained how he reached his rent determination, stating,
among other things, that 384 Post’s multi-level space could be used in
manners other than sales space, such as “putting a restaurant on the top
floor, as Saks has done on Fifth Avenue [in New York].” He also found higher
rent is justified in Union Square because of the marketing value of
maintaining a store in a premium location. He used Coach New York as an
example, stating: “While the arbitrator fully understands that Fifth Avenue
[New York] retail leases are not comparable to Union Square, it is instructive
to know that you can find recent retail leases there for spaces much smaller
3 Saks’ expert used Barney’s and Old Navy in San Francisco and the
Saks store in Beverly Hills as lease comparables; Union Square’s expert used
Macy’s, Apple, Victoria’s Secret, and several other San Francisco stores as
lease comparables.
5
than 384 Post that leased for upwards of $20 million a year, such as the new
Coach 3-level, approximate 24,000 [square foot] flagship store [in Manhattan]
that the arbitrator visited. While Manhattan tourism is on a much higher
magnitude than Union Square, it is unlikely that sales alone support that
level of rent.”
Union Square filed a motion in the superior court to confirm the Award.
Saks filed a motion to vacate the Award on the grounds that Kleczewski:
(1) violated the arbitration agreement’s limitations on conducting his own
due diligence and investigation by visiting certain properties in New York;
(2) failed to disclose a conflict of interest that was revealed after the Award
was issued; and (3) erred in allowing Union Square to submit a previously
undisclosed report after the close of evidence. Saks argued it had no
forewarning Kleczewski would obtain new evidence in New York and rely on
that evidence in reaching his decision.
Union Square opposed Saks’ motion to vacate the Award and filed a
three-page declaration from Kleczewski in support of its position that the
Award should be confirmed. Kleczewski declared as to Saks’ conflict of
interest claim that he was “unaware of any existing or past relationship with
the parties or their affiliates, their counsel or their experts that would
preclude [him] from being impartial. . . .” Kleczewski did not respond to
Saks’ other two claims—that he should not have visited the New York
properties and should not have admitted Union Square’s report into evidence.
As to the New York trip, Union Square argued Saks was not prejudiced by
the trip and that Saks also waived the claim by not objecting when
Kleczewski mentioned in his email that he was going to go to New York.
After a hearing on the parties’ motions, the trial court issued a written
order granting Saks’ motion to vacate the Award and denying Union Square’s
6
motion to confirm the Award. The court found it significant that the parties
carefully defined the scope of the arbitrator’s authority before commencing
arbitration and “specifically removed language from a prior draft
objectionable to [Saks] which allowed the Arbitrator to perform his own ‘due
diligence and other analysis.’ ” The court found Kleczewski violated that
agreement by visiting certain New York properties and also found the visit
influenced his decision. “Specifically, the Award discussed the potential
value of alternate uses for the subject property other than retail sales,
including ‘putting a restaurant on the top floor, as Saks has done on Fifth
Avenue [New York].’ ” The court noted the Award shows Kleczewski also
relied on his inspection of Coach’s New York store in reaching a higher rent
determination.
The trial court continued: “ ‘The scope of arbitration is . . . a matter of
agreement between the parties.’ [Citations.] Here, the parties had taken
pains to specifically define what the Arbitrator could, and could not, consider
in determining the fair market rent and agreed that the Arbitrator would be
limited to inspection of the subject property and the parties’ experts’ lease
comparables.” “Based on the language cited above [which shows the New
York visit influenced the Award], along with the fact that [the] arbitrator
visited the New York properties, in contravention of the Agreement, the
Court has to conclude that the Arbitrator . . . [¶] . . . exceeded the authority
given to him by consent of the parties, which warrants vacatur of the Award.”
The court vacated the Award and ordered the parties to participate in a
second arbitration before a different arbitrator.
7
Union Square filed a petition for a writ of mandate seeking an order
from this court directing the trial court to confirm the Award.4 It argued
Saks forfeited its objection to Kleczewski’s trip to New York, the trial court
should have given more deference to Kleczewski’s interpretation of the
arbitration agreement that he was allowed to visit the properties in New
York, and Saks was not prejudiced by the New York trip. After inviting full
briefing, we summarily denied Union Square’s petition.
Thereafter, the parties participated in a second arbitration hearing
before a different arbitrator who found in favor of Saks (the Second Award).
Union Square filed a motion to vacate the Second Award, and Saks moved to
confirm the Second Award. After a hearing on the motions, the court denied
Union Square’s motion to vacate the Second Award, granted Saks’ motion to
confirm the Second Award, and entered judgment in favor of Saks.
Union Square timely appealed and challenges only the trial court’s
order vacating Kleczewski’s award. (Code Civ. Proc., § 1294.2 [upon an
appeal from a judgment confirming an arbitration award, the appellate court
“may review the decision and any intermediate ruling, proceeding, order or
decision which involves the merits or necessarily affects the . . . judgment
appealed from].”) Union Square does not challenge the court's subsequent
order confirming the second arbitration award.
DISCUSSION
Union Square contends the trial court erred in vacating the first
arbitration award because: (1) the court failed to “defer to the arbitrator’s
reasonable reading of the arbitration agreement” that it was within his
4 Because the trial court vacated the Award, there was no judgment from
which Union Square could appeal at that time. (Code Civ. Proc., § 1294,
subd. (c) [order granting a motion to vacate an arbitration award is not
appealable].)
8
authority to visit the New York properties; (2) the New York trip did not
prejudicially affect the Award; and (3) Saks forfeited its objection to the New
York trip.
I. Standards
Arbitration awards are generally subject to narrow judicial review
because of the strong public policy in favor of arbitration as a speedy and
relatively inexpensive means of dispute resolution. (Moncharsh v. Heily &
Blasé (1992) 3 Cal. 4th 1, 9 (Moncharsh).) Thus, courts will not review the
merits of the controversy, the validity of the arbitrator’s reasoning, or the
sufficiency of the evidence supporting the arbitrator’s award. (Id. at p. 11.)
Typically, an arbitrator’s factual and legal errors are also not reviewable
because the arbitrator’s (as opposed to the court’s) resolution of the disputed
issues “ ‘ “is what the parties bargained for in the arbitration agreement.” ’
[Citation.]” (Gueyffier v. Ann Summers, Ltd. (2008) 43 Cal. 4th 1179, 1184;
accord, Moncharsh, supra, 3 Cal.4th at p. 12.)
There is, however, a statutory safety valve, Code of Civil Procedure
section 1286.25, which provides that courts “shall vacate” awards that are the
product of procedural irregularities. (Moncharsh, supra, 3 Cal.4th at p. 33;
Hall v. Superior Court (1993) 18 Cal. App. 4th 427, 438–439.) “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.]” (Azteca Construction, Inc. v. ADR
Consulting, Inc. (2004) 121 Cal. App. 4th 1156, 1165; see also Haworth v.
Superior Court (2010) 50 Cal. 4th 372, 395 (dis. opn. of Werdegar, J.) [finality
of arbitration awards is an important principle but “[a]n equally vital
principle . . . is that with such limited judicial review the arbitration system
5 All further statutory references are to the Code of Civil Procedure.
9
must have . . . sufficient integrity that parties can be confident they will
receive a fair hearing and an impartial decision from the arbitrator”].) To
that end, and as relevant in this case, section 1286.2 subdivision (a)(4)
provides that a court “shall vacate the [arbitration] award if the court
determines . . . [¶] . . . [¶] [t]he arbitrators exceeded their powers and the
award cannot be corrected without affecting the merits of the decision upon
the controversy submitted.”
Arbitrators may exceed their powers when they act in a manner that is
not authorized by the arbitration agreement. (O’Flaherty v. Belgum (2004)
115 Cal. App. 4th 1044, 1055–1056 (O’Flaherty); Advanced Micro Devices, Inc.
v. Intel Corp. (1994) 9 Cal. 4th 362, 375 (Advanced Micro Devices).) In
determining whether an arbitrator exceeded his or her powers, we look to the
parties’ arbitration agreement to see if and how it limited the arbitrator’s
authority because arbitrators have no powers beyond those conferred upon
them by the arbitration agreement; their powers “ ‘ “derive from, and are
limited by, the agreement to arbitrate.” ’ ” (Greenspan v. LADT LLC (2010)
185 Cal. App. 4th 1413, 1437; Moncharsh, supra, 3 Cal.4th at p. 8.)
“ ‘To confirm an arbitration award in excess of the powers granted by
an arbitration agreement would destroy the very purpose of arbitration and
be contrary to the sound policy of encouraging the settlement of private
disputes by the voluntary agreement of the parties.’ ” (Cobler v. Stanley,
Barber, Southard, Brown & Associates (1990) 217 Cal. App. 3d 518, 532
[vacating arbitration award where agreement did not permit determination
by arbitrator of emotional distress claims].) Where an arbitrator acts “in
excess of his [or her] power and jurisdiction, the warnings . . . concerning the
limitations on judicial power over arbitration awards are not applicable.”
(O’Flaherty, supra, 115 Cal.App.4th at p. 1061.)
10
In Bonshire v. Thompson (1997) 52 Cal. App. 4th 803, 806, for example,
the court vacated an arbitration award because the arbitrator exceeded his
powers in considering extrinsic evidence in violation of the parties’ agreement
that no extrinsic evidence “ ‘may be introduced in any judicial or arbitration
proceeding.’ ” Similarly, in California Faculty Assn. v. Superior Court (1998)
63 Cal. App. 4th 935, 952, the court vacated an arbitration award because the
arbitrator, in determining whether the grievant-faculty member was properly
denied tenure, “failed to adhere to the specific restrictions and limitations
imposed on him by the parties and engaged in a decision-making process
which exceeded his authority.” The court emphasized that the parties had
“taken pains to define the issue to be arbitrated” and had agreed to limit the
arbitrator’s authority. (Id. at p. 946.)
We review de novo the question whether the arbitrator “exceeded his
powers,” but we must give “substantial deference to the arbitrator’s own
assessment of his contractual authority.” (Advanced Micro Devices, Inc.,
supra, 9 Cal.4th at pp. 373, 378.)
II. Excess of Powers
The Lease placed limitations on Kleczewski’s authority. He had no
power to modify that or any other term of the Lease and could “consult expert
and competent authorities with factual information or evidence” only if he did
so “in the presence of both parties with full right on their part to cross-
examine.” Thus, when Kleczewski proposed in the draft arbitration
agreement that he be allowed to “perform[] . . . due diligence and other
analysis as I consider necessary to support my determination,” the parties
removed that term. Counsel for Union Square explained to Kleczewski as
follows: “With respect to . . . whether you could consult other experts or
competent authorities or your consideration of comparable lease data not
11
provided by the parties, the Landlord would not object to you doing so as long
as the parties had the opportunity to confront any such evidence or experts at
the hearing, but our understanding is that the Tenant disagrees. To avoid
dispute, we have removed that language[.]”
Kleczewski acknowledged he read and reviewed the Lease and agreed
to delete the language regarding conducting his own due diligence and
analysis. The language was then deleted from the final draft of the
arbitration agreement executed by the parties, which reads as follows: “[T]he
scope of my work will include review [of] the parties[’] Opening Briefs and
Reply Briefs, inspection of the subject property, inspection of the party
experts’ lease comparables, conducting the arbitration hearing in accordance
with the Arbitration Process as set forth by the parties, review of the Closing
Briefs, and finally ruling on fair market rent.” The agreement also included
a specific, streamlined arbitration procedure with multiple deadlines, time
limitations, and other restrictions for the parties and the arbitrator to follow,
one of which was that the parties’ reply briefs could not include any new
evidence not mentioned in the opening briefs. In other words, the parties
took pains to define the narrow scope of the arbitrator’s duties, and there
should have been no question at any time during the proceedings that
Kleczewski’s powers were limited to the above tasks, including evaluating
only facts and evidence presented to him “in the presence of both parties with
full right on their part to cross-examine” and not conducting his own “due
diligence and other analysis.”
Because the arbitration agreement specifically described the two
categories of properties the arbitrator may inspect—(1) “the subject property”
and (2) “the party experts’ lease comparables”—and there were no properties
in New York that fell into either category, the trial court determined
12
Kleczewski violated the arbitration agreement and exceeded his powers by
visiting properties outside the scope of his authority as arbitrator. Union
Square challenges that determination, arguing that although the arbitration
agreement mentioned two categories of properties, it also contained language
stating Kleczewski’s “ ‘work will include’ ” “inspection of the subject property
[and] the party experts’ lease comparables.” According to Union Square, the
word “include” shows the arbitration agreement simply set forth some of
Kleczewski’s duties and was not all inclusive. In other words, the agreement
did not “bar [Kleczewski] from taking any other particular steps,” including
inspecting “properties that were discussed at the hearing and in the parties’
briefs. . . .” In making this argument, Union Square emphasizes that courts
must give substantial deference to an arbitrator’s assessment of the scope his
own powers.
Giving Kleczewski the substantial deference that is due, we conclude
he did not exceed his powers by visiting New York for the limited purpose of
“look[ing] at properties that were discussed in testimony in terms of sales
volumes.” Even if we may have reached a different conclusion if we were
determining the arbitrator’s powers in the first instance, “the deference due
an [arbitrator] . . . requires a court to refrain from substituting its judgment
for the arbitrator’s in determining the contractual scope of [the arbitrator’s]
powers. [Citations.]” (Advanced Micro Devices, supra, 9 Cal.4th at p. 372.)
Here, Kleczewski stated he was going to go to Manhattan to “look at
properties that were discussed in testimony in terms of sales volumes.” In
doing so, he apparently believed this act was authorized by the terms of the
arbitration agreement. And, in fact, it appears Union Square did mention
several New York properties at the hearing, including Nike, Under Armour,
and Coach, to show that companies pay high rent, not because it is justified
13
by high sales volumes, but because of the value of having a presence in a
premium location such as Manhattan. Because Union Square discussed
these properties at the arbitration hearing, we presume Saks had the
opportunity to rebut evidence regarding these properties or cross-examine
witnesses who testified regarding these properties. Because Kleczewski’s
visit to properties “discussed in testimony in terms of sales volumes” was
arguably within the scope of his powers as arbitrator, we conclude he did not
exceed his powers by visiting those specified properties.
We reach a different conclusion, however, when it comes to Saks’s
flagship store on Fifth Avenue in New York (Saks New York), which was not
“the subject property,” was not a party expert’s lease comparable, and was
not “discussed in testimony in terms of sales volumes.” In fact, Saks New
York was never even mentioned by either party at any time during the entire
three-day arbitration hearing. Union Square does not dispute this, and does
not cite to anything in the hearing transcript indicating Saks New York was
ever discussed “in terms of sales volumes” or mentioned for any other reason.
Union Square argues Kleczewski was nevertheless authorized to
inspect Saks New York because Union Square mentioned the store in its
closing brief when it stated, “ ‘Saks itself has already recognized the value of
adding a restaurant to its properties, as with its café at its New York
flagship.’ ” However, the parties were in agreement that no new information
would be submitted after the close of evidence, and they had carefully limited
Kleczewski’s authority to reviewing facts or evidence that both parties had
the opportunity to rebut/cross-examine. Thus, the fact that Union Square
may have, for the first time in its closing brief, included one sentence
mentioning Saks New York does not support its position that this act—which
appears to have been in violation of the rule against presenting new
14
information after the close of evidence—brought Kleczewski’s inspection and
analysis of Saks New York within the scope of his authority.
Union Square also asserts Kleczewski was authorized to inspect Saks
New York because Union Square submitted “an article discussing Saks New
York at length.” This assertion is not supported by the record. The portion of
the record Union Square cites does not contain any “at length” discussion (or
any discussion at all) about Saks New York; instead, it only discusses the
importance of a company’s “brand” as the reason Saks benefits from having a
store in a premier location, and the opinion of an individual that department
stores are not “dead” despite what “[p]eople say.” We fail to see how any of
this information provides support for Union Square’s position that an
inspection of Saks New York was within the scope of Kleczewski’s powers.
Even considering the deference to be given to an arbitrator’s
determination of his powers, we conclude Kleczewski exceeded the powers
granted him by the parties’ agreement when he conducted his own
investigation and inspection of a property that was not even mentioned at the
hearing.
III. Prejudice
Union Square argues that vacating the Award is still improper because
Saks was not prejudiced by Kleczewski’s inspection of any of the New York
properties, including Saks New York. We disagree. Courts have held an
award must be vacated when the arbitrator’s act in excess of his powers
“potentially affected” the damage award or other aspects of the award.
(O’Flaherty, supra, 115 Cal.App.4th at p. 1064.) Thus, in O’Flaherty, the
court vacated an arbitration award “[b]ecause [it could not] say what effect
[the arbitrator’s act in excess of his powers] had on the award.” (Id. at
p. 1063.) Similarly, in Handy v. First Interstate Bank (1993) 13 Cal. App. 4th
15
917, 928, the court vacated the arbitration award, stating “we cannot say” the
award was not affected by the arbitrator’s act in excess of his powers.
We conclude Kleczewski’s inspection of Saks New York and his
evaluation of what Saks did with another one of its own properties, at the
very least, “potentially affected” his rent determination. Kleczewski went
beyond just looking at properties “that were discussed in testimony in terms
of sales volumes” when he inspected Saks New York. Not only did he go
beyond looking at properties discussed in testimony, but the Award shows
Kleczewski explicitly relied on his inspection of Saks New York in reaching
his rent determination, essentially stating that a higher rent amount was
justified because Saks New York had placed a restaurant on the top floor of
its New York flagship store and could do the same for its San Francisco store.
Union Square points out that other department stores with top-floor
restaurants were also mentioned at the hearing and that Kleczewski’s
inspection of Saks New York therefore made no difference. However, as
Union Square suggested when it mentioned Saks New York for the first time
in its closing brief, the fact that “Saks itself” placed a restaurant on its own
property was potentially strong evidence to support a finding that Saks
acknowledged the value of adding a restaurant to it stores and was capable of
doing so in San Francisco. This was evidence Saks was entitled to—but was
not given the opportunity to—rebut, either by cross-examining witnesses or
by providing its own testimony, evidence, argument and/or explanation. This
was a fairly close case in which Kleczewski’s own rent determination was not
hugely above the midpoint of the parties’ respective rent determinations.
Under the circumstances of this case, we cannot say that Kleczewski’s
inspection of Saks New York did not impact his decision.
16
Union Square alternatively argues that instead of vacating the Award,
we should simply correct it to take out any references to Saks New York (and
any other properties Kleczewski should not have visited) and confirm the
Award as corrected. Union Square asserts that “[w]here an arbitrator’s
award includes material beyond the proper scope, a court may simply order it
deleted if it would not affect the decision’s bottom line.” This argument is
based on the very questionable premise that Kleczewski’s inspection of Saks
New York did “not affect the decision’s bottom line.” Because this is not a
case in which we can “correct” the Award simply by deleting references to
Saks New York, we decline to correct and confirm the Award. (See Handy v.
First Interstate Bank, supra, 13 Cal.App.4th at p. 928 [court refused to
correct and confirm the arbitration award where the arbitrator’s error
potentially infected the award in a way that the award could not be corrected
without affecting the merits of the decision].)
IV. Waiver/Forfeiture
Finally, we address Union Square’s argument that Saks forfeited its
objection to Kleczewski’s New York trip by not responding to his email. We
reject this argument because Saks could not have known that, in addition to
visiting identified properties, Kleczewski was also going to inspect Saks New
York and rely on information obtained from that inspection in violation of the
arbitration agreement.6
6 Although the terms “forfeiture” and “waiver” are often used
interchangeably, forfeiture is the failure to make a timely assertion of a right
(Reid v. Google, Inc. (2010) 50 Cal. 4th 512, 521, fn. 3) and is the proper term
to use when referring to “ ‘the loss of the right to raise an issue on appeal due
to the failure to pursue it in the trial court’ ” (Porterville Citizens for
Responsible Hillside Development v. City of Porterville (2007) 157 Cal. App. 4th
885, 912). Waiver, on the other hand, is the intentional relinquishment or
abandonment of a known right (Reid v. Google, Inc., supra, 50 Cal.4th at
p. 521, fn. 3) and is often used when the claim involves a statutory or
17
As noted, Kleczewski stated in his email that he was on his way to
Manhattan for the limited purpose of “look[ing] at properties discussed in
testimony in terms of sales volumes.” He did not say he would be visiting
Saks New York or any other properties that were not discussed or even
mentioned at the hearing. He did not indicate he would be obtaining new
evidence that the parties would not have the opportunity to rebut, or that he
would be using that evidence to support his rent determination. It was not
until the issuance of the Award that the parties learned he had inspected
Saks New York and used information obtained during that inspection to
support his decision.
Moreover, regarding the properties Kleczewski said he was going to
visit, we note Saks Beverly Hills was a lease comparable and that there were
several Manhattan properties such as Coach New York that were “discussed
in testimony in terms of sales volumes,” with each party having the
opportunity to present or rebut evidence regarding those properties. Thus, in
light of the substantial deference given to arbitrators regarding the scope of
their powers, Saks may have reasonably believed that Kleczewski’s
inspection of Saks Beverly Hills and the Manhattan properties that were
discussed at the hearing was encompassed within the scope of his duties as
arbitrator, and that any objection to the trip would be futile. (Duronslet v.
Kamps (2012) 203 Cal. App. 4th 717, 727 [party will be excused from objecting
where objection would be futile].)
important right; in such a case, a party will not be found to have waived that
right unless it was voluntary, knowing, and done with adequate awareness of
the relevant circumstances and likely consequences (Pinela v. Neiman
Marcus Group, Inc. (2015) 238 Cal. App. 4th 227, 252). Saks clearly did not
“waive” a statutory right, but we conclude that even under the less stringent
standards of forfeiture, Saks adequately preserved its claim that Kleczewski
exceeded his powers by visiting Saks New York.
18
Union Square suggests that even if Saks could not have known that
Kleczewski would be visiting Saks New York, Saks could have “expressed
concern” or asked questions about the trip, thereby prompting Kleczewski to
either cancel his trip, visit the properties anyway but not “rely on [them] at
all in the final award,” or “clarified that the purpose of the trip was not to
gather forbidden evidence that neither party had discussed. . . .” While, in
retrospect, it may have been prudent for either party to ask for more details,
there was very limited time for them to do so as Kleczewski did not say
anything about visiting any properties until the day he was already en route
to those locations. Moreover, Kleczewski had already specified that his trip
was for the limited purpose of visiting one comparable in Beverly Hills and
other “properties that were discussed in testimony in terms of sales volumes.”
Thus, Kleczewski’s trip, as represented, appeared to be permissible. Under
these circumstances, the failure to “express[] concern” or ask questions did
not amount to forfeiture of the right to object to Kleczewski’s inspection of
Saks New York.
Union Square cites to J.C. Gury Co. v. Nippon Carbide Indus. (USA)
Inc. (2007) 152 Cal. App. 4th 1300, 1304, in which the court found a party
waived/forfeited its claim that the arbitrator exceeded his powers. There,
Nippon Carbide challenged an arbitration award on the ground the arbitrator
exceeded his powers by deciding an issue the parties had agreed the
arbitrator would not have the authority to decide. (Ibid.) The court,
however, noted that during the arbitration proceedings, “both parties
unequivocally submitted the issue . . . to arbitration” and Nippon Carbide
never objected to the arbitrator deciding the issue. (Id. at p. 1306) The court
held that “while the arbitration clause limited the scope of the arbitrator’s
19
power, the conduct of the parties at the arbitration proceeding operated to
waive that limitation.” (Id. at p. 1304)
Here, in contrast, the parties were clear from the outset that
Kleczewski would not be authorized to perform his own due diligence. Saks
objected when Kleczewski proposed that he be allowed to do so, and the
objection resulted in a revised arbitration agreement, which Kleczewski
agreed to and the parties signed. In addition, counsel for Union Square
specifically referenced the section in the Lease that discussed the arbitrator’s
limited powers, and Kleczewski acknowledged he read and reviewed the
Lease. Later, when Union Square asked to present a report to Kleczewski
after the close of evidence, Saks objected—and Kleczewski agreed—that no
new information would be allowed after the close of evidence. Given the
parties’ and Kleczewski’s repeated acknowledgement of the limits on
Kleczewski’s powers, Saks’ lack of response to Kleczewski’s email did not
constitute either a waiver or forfeiture of its objection to Kleczewski’s
inspection of Saks New York and his reliance on information obtained during
that inspection.7
DISPOSITION
The trial court’s orders vacating the first arbitration award and
confirming the second arbitration award are affirmed. Respondent shall
recover its costs on appeal.
7 Because we affirm on the ground the arbitrator exceeded his powers,
we will not address the other arguments Saks raised below, including the
conflict of interest issue the parties discuss in their appellate briefs. Further,
we affirm the trial court's order confirming the second arbitration award
because, as noted, apart from seeking reversal of the order vacating
Kleczewski's award, Union Square identifies no other basis for challenging
the validity of the second arbitration award.
20
_________________________
Petrou, J.
WE CONCUR:
_________________________
Siggins, P.J.
_________________________
Fujisaki, J.
A158015
21
Trial Court: San Francisco County Superior Court
Trial Judge: Hon. Charles F. Haines
Counsel: Orrick, Herrington & Sutcliffe, Brian P. Goldman, Samuel
T. Harbourt, William A. Molinkski, David P. Faud and
Benjamin F. Aiken; Moskovitz Appellate Team, Myron
Moskovitz and William Stein for Plaintiff and Appellant.
Allen Matkins Leck Gamble Mallory & Natisis, Anthony J.
Oliva, Marissa M. Dennis, Stacey A. Villagomez and
Marshall C. Wallace for Defendant and Respondent.
22