Fidelity National Title Co. v. Mehta CA2/1 ( 2023 )

Filed 6/27/23 Fidelity National Title Co. v. Mehta CA2/1
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
FIDELITY NATIONAL TITLE B309988
COMPANY,
(Los Angeles County
Plaintiff, Super. Ct. No. BC711264)
v.
KUSUM MEHTA et al.,
Defendants and Appellants;
DEVONSHIRE SILVER PLAZA,
LLC,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of
Los Angeles County, Holly J. Fujie, Judge. Reversed in part
with directions.
Peter D. Gordon and Associates, Peter D. Gordon and
Andrew Schoettle for Defendant and Appellant Kusum Mehta.
John Schlanger for Defendant and Appellant John Gupta.
Cozen O’Connor, Frank Gooch III and Matthew E. Lewitz
for Defendant and Appellant Devonshire Silver Plaza LLC.
Defendants and appellants Kusum Mehta and John
Gupta, and defendant and cross-appellant Devonshire Silver
Plaza, LLC (Devonshire) arbitrated a breach of contract dispute
regarding the purchase agreement between Devonshire and
Mehta (executed by Mehta’s agent, Gupta). The arbitrator
decided all claims in Devonshire’s favor, and awarded Devonshire
the $70,000 earnest money deposit Mehta had placed in escrow,
consequential damages, and attorney fees. Pursuant to Code
of Civil Procedure section 1286.6, subdivision (b),1 the trial court
“corrected” the arbitration award by removing the consequential
damages, because the trial court concluded the arbitrator had
acted in excess of his powers under the purchase agreement by
awarding them. The trial court otherwise confirmed the award,
and entered judgment against Mehta and Gupta based thereon.
All three parties appeal from that judgment. Devonshire
challenges the judgment to the extent it does not include the
consequential damages initially awarded by the arbitrator,
arguing the court erred in correcting the award to remove them.
Mehta and Gupta challenge the judgment to the extent it awards
Devonshire attorney fees, which they argue the arbitrator did not
have the power to grant under the purchase agreement. They
contend the court erred in declining their request below that the
court correct this aspect of the award.
As to Devonshire’s cross-appeal, we hold the trial court
should have included the arbitrator’s grant of consequential
damages in the judgment. As to Mehta and Gupta’s appeals, we
hold the court properly included the arbitrator’s grant of attorney
1Subsequent unspecified statutory references are to the
Code of Civil Procedure.
2
fees in the judgment. Accordingly, the order confirming the
arbitration award and the subsequent judgment are vacated,
and we instruct the court, upon remand, to enter a new order
and a new judgment consistent with this opinion.
FACTS AND PROCEEDINGS BELOW
A. The Purchase Agreement Between Mehta
and Devonshire
On February 6, 2018, Devonshire and Mehta entered
into an agreement (the purchase agreement), pursuant to
which Mehta was to buy a shopping center from Devonshire for
$2,650,000. Gupta served as Mehta’s agent in connection with
the purchase agreement and transaction. Gupta signed Mehta’s
name to many of the necessary documents to the transaction that
did not require notarization, including the purchase agreement.
The purchase agreement requires that, within two days
of the agreement’s effective date, Mehta place into escrow an
earnest money deposit of $70,000. The agreement requires the
earnest money deposit to “remain in escrow . . . until removal
of the inspection contingencies,” at which point it should be
released to Devonshire and credited towards Mehta’s payment
of the purchase price. In the event of a “default” by Devonshire,
the deposit would be released back to Mehta, but in the event
that “[Mehta] defaults on [the] agreement after removal of
contingencies, [Mehta’s] deposit is non-refundable and is forfeited
to [Devonshire,]” and Devonshire “shall be released from its
obligations to sell the property.” (Capitalization omitted.)
The purchase agreement also addresses the damages
Devonshire could seek as the remedy for any “default in [Mehta’s]
purchase obligations.” Specifically, it provides that Devonshire
3
and Mehta “agree that it would be impracticable or extremely
difficult to fix actual damages in the event of a default by
[Mehta]” and that “under the agreement, not caused by any
breach by [Devonshire], [Devonshire] . . . shall retain [Mehta’s]
deposit . . . as liquidated damages, which shall be [Devonshire’s]
sole and exclusive remedy in law or at equity for [Mehta’s]
default.” (Capitalization omitted.)
The purchase agreement also contains an agreement that
final and binding arbitration be the parties’ sole and exclusive
means of resolving “[a]ll disputes arising between [them] with
respect to the subject matter of [the] purchase agreement or the
transaction contemplated herein (including but not limited to the
parties’ rights to the deposit or the payment of commissions as
provided herein).” (Capitalization omitted.) It further provides
that “[a]ny party who fails or refuses to submit to arbitration
following a demand by the other party shall bear all costs and
expenses, including attorneys’ fees, incurred by such other party
in compelling arbitration.” The purchase agreement does not
have a separate provision addressing the general availability of
attorney fees for a prevailing party in arbitration.2
Nor does the arbitration provision further address what the
arbitrator may or may not award as relief in such arbitration. It
2 The only two references to attorney fees in the purchase
agreement are in the aforementioned portion of the arbitration
provision and a provision, not implicated by the instant appeal,
governing “release and indemnity” (capitalization omitted),
in which Mehta waives her right to recover any kind of relief
from Devonshire, including “reasonable attorneys’ fees,” that
“may arise on account of or in any way be connected with . . .
ownership . . . of the property.” (Capitalization omitted.)
4
does, however, require that the arbitrator conduct the arbitration
“in accordance with [ADR Services, Inc.’s (ADR)] arbitration
rules,” which provide that “[t]he arbitrator may grant any
remedy or relief that the arbitrator deems just and equitable and
within the scope of the agreement of the parties.”
As to the scope of the arbitrator’s authority, the
arbitration provision provides that “[t]he arbitrator shall apply
the provisions of this purchase agreement without varying
therefrom, and shall not have the power to add to, modify, or
change any of the provisions hereof.” (Capitalization omitted.)
B. Failure of Escrow and Mehta’s Refusal to
Release Deposit
Mehta placed a $70,000 deposit in escrow at Fidelity
National Title (Fidelity) as the purchase agreement requires.
Mehta did not, however, deposit the remainder of the purchase
price by the March 15, 2018 escrow deadline (or at any time
thereafter).3 On March 16, 2018, Devonshire instructed Fidelity
to cancel escrow and deliver the $70,000 deposit to Devonshire.
Fidelity required written releases from Mehta, Gupta, and
Devonshire in order to deliver the deposit to Devonshire.
Mehta and Gupta refused to provide Fidelity with the requested
releases, and thus Fidelity retained the deposit in escrow.
3 Mehta attributes this to “Mehta [being] in India and
there [being] not enough time to have the agreement notarized
in the [United States] Embassy there.” Mehta attempted
three days before escrow was to close “to substitute . . . Gupta
or his company as the purchaser of the property” to address her
inability to execute the documents, but this “was unacceptable
to Devonshire.”
5
C. Devonshire’s Arbitration Demand and Related
Court Proceedings
On April 11, 2018, Devonshire filed with ADR a demand
for arbitration against Mehta and Gupta, Fidelity, and the law
firm and real estate agent Devonshire hired to list the property
for sale (Brandon J. Michaels and Marcus & Millichap Real
Estate Investment Services, Inc, hereinafter the Marcus &
Millichap parties), seeking release of the deposit based on
Mehta’s “default and failure to perform obligations under the
purchase agreement.” (Capitalization omitted.)
On June 22, 2018, Fidelity filed an interpleader action in
the superior court against Devonshire, Mehta, Gupta, and the
Marcus & Millichap parties regarding the $70,000 deposit.
On September 7, 2018, Mehta and Gupta filed a cross-
complaint in the interpleader action, asserting causes of action
for breach of contract and fraud against Devonshire and the
Marcus & Millichap parties, and seeking specific performance
by Devonshire under the purchase agreement. Due to the filing
of the interpleader action and the cross-complaint against
Devonshire filed therein, ADR held all proceedings regarding
Devonshire’s arbitration demand in informal abeyance.
On November 7, 2018, Devonshire filed a motion to
compel arbitration, to stay proceedings in the interpleader
action pending completion of arbitration, and to recover its
attorney fees incurred in bringing the motion to compel. On
February 20, 2019, the court granted Devonshire’s motion to
compel and awarded Devonshire attorney fees in the amount
of $7,010.00. This grant of attorney fees is not challenged on
appeal.
6
D. Arbitration Proceedings
The parties resumed proceedings on Devonshire’s
arbitration demand before a single arbitrator at ADR.
Devonshire’s amended arbitration demand alleged several
claims, including a breach of contract claim against Mehta
and fraudulent inducement and conspiracy to defraud claims
against Mehta and Gupta. Devonshire identified as breaches
of the purchase agreement Mehta’s failure “to timely close the
transaction for the purchase of the property” and Mehta’s refusal
to execute a release authorizing transfer of the $70,000 deposit.
As to the fraud-based claims, Devonshire alleged that “Mehta
and Gupta fraudulently induced [Devonshire] to enter into the
[purchase] agreement with the intent to have . . . Mehta back
out of the transaction to buy the property and . . . assign the
[purchase] agreement to . . . Gupta.” (Capitalization omitted.)
Devonshire alleged that “the purpose of this action was to
tie up the property and prevent other purchasers from buying
the property” (capitalization omitted) and to facilitate Gupta’s
stepping into the transaction, “knowing that . . . Gupta, in light
of his background and description as being called the ‘worst
slumlord in Los Angeles,’ who has significant multiple six-figure
judgments entered against him, would not be creditworthy,
and could not qualify for a loan to purchase the property.”
(Capitalization omitted.)
The relief Devonshire sought in its arbitration demand
consisted of (a) the $70,000 deposit in escrow; (b) over $550,000
in consequential damages, primarily loss of income, because
Mehta’s breach of contract and Mehta and Gupta’s fraud
rendered Devonshire “unable to lease the stores located at the
property” for a period of time (capitalization omitted); (c) punitive
7
damages; and (d) attorney fees resulting from the negotiation
and drafting of transaction-related documents and Gupta and
Mehta’s refusal to release the deposit.
Mehta and Gupta submitted a joint “answer, affirmative
defenses and counterclaim” (capitalization omitted), and later
Mehta submitted an “amended demand.” In neither of these
documents did Mehta and Gupta assert any affirmative defenses
based on, or otherwise reference, any contractual limitations
on Devonshire’s ability to recover attorney fees beyond those
incurred in connection with compelling arbitration. Gupta
and Mehta’s counterclaims for breach of contract and fraud-
concealment sought return of the $70,000 deposit, consequential
damages, and attorney fees incurred during the arbitration.
Mehta also alleged a cause of action for specific performance,
seeking a forced sale of the property to her and the “costs of suit.”
E. Arbitration Award
The arbitrator held a three-day hearing. Shortly after
commencement of the arbitration hearing, the claims by and
against the Marcus & Millichap parties were resolved.
The arbitrator ultimately issued an award in Devonshire’s
favor and against Mehta and Gupta in all respects.4 The
arbitrator concluded that Mehta and Gupta had failed to meet
their burden of proof on their cross-claims, and dismissed the
cross-claims without awarding them any relief. The arbitrator
concluded Devonshire had met its burden of proof as to both
its fraud claim against Mehta and Gupta and its breach of
4 Mehta and Gupta filed a written request that the
arbitrator modify the award by removing any grant of attorney
fees to Devonshire. The arbitrator denied the request.
8
contract action against Mehta, and awarded the following relief
to Devonshire: (1) $70,000 “based on [the liquidated damages
provision] of [the purchase agreement]”; (2) $267,973.31 “for
lost rents due to the actions of [Mehta and Gupta] in failing
to perform under the terms of the purchase . . . agreement”
(capitalization omitted); (3) $107,183.62 for triple net expenses
Devonshire “incurred and was not able to pass along to tenants
because [Mehta and Gupta’s] actions prevented them from
entering into new leases” and (4) “$167,315.94 in attorneys fees,
together with $16,450.00 in costs.”5
The arbitrator addressed his grant of lost rents and
expenses as consequential damages in some detail in the award.
He noted that, although the purchase agreement contains a
“liquidated damages clause which purports to limit Devonshire’s
damages to the $70,000 earnest money deposit . . . it was
reasonably foreseeable that there would be consequential
damages in the event of [Mehta and Gupta’s] breach, certainly
beyond the de minimis $70,000 earnest money deposit.” In
considering the amount of consequential damages to award, the
arbitrator noted “Civil Code Section 3300 provides that damages
should consist of the amount which will compensate [Devonshire]
for all detriment proximately caused by [Mehta and Gupta’s]
breach” and that “damages should put [Devonshire] in as good
a position as it would have occupied but for [Mehta and Gupta’s]
breach.” As to lost rents, the arbitrator explained that Mehta
and Gupta’s “filing of a lawsuit for specific performance
established a cloud over the property, and while not technically
5 The award also indicates Devonshire had not established
that Mehta and Gupta’s actions warranted punitive damages.
9
the same as a lis pendens, the disclosure or discovery of the
existence of that lawsuit would certainly have a chilling effect on
another potential purchaser or lessee of the property,” something
the evidence presented at arbitration supported had occurred
with at least one prospective buyer.
F. Confirmation of Arbitration Award
On May 11, 2020, Devonshire filed a petition to confirm
the arbitration award in the superior court. On May 21, 2020,
the day of the statutory deadline for filing a response to such a
petition, Mehta—but not Gupta—filed an ex parte application
seeking an extension of that deadline for Mehta only on the
ground that she had retained new counsel. Transcripts from
the hearing on the petition are not in the record on appeal, but
according to the notice of ruling that Mehta later served, at that
hearing, counsel advised the court that “counsel of record for . . .
[Gupta and Mehta] had asked . . . (on May 21, 2020), to join in
the ex parte application to extend the time for filing a response to
the motion to confirm.” (Capitalization omitted.) Also according
to the notice of ruling, Devonshire withdrew its initial objection
to this request, and the court granted both Gupta and Mehta
an extension. At the court’s direction, Mehta served a notice
of ruling reflecting that the court had extended the deadline
for both Gupta and Mehta to file a response. Devonshire did not
object to the notice of ruling.
By the extended deadline, Mehta filed a “response and
opposition to [the] petition” and Gupta filed a pleading entitled
“response . . . to [the] petition . . . ; request that the arbitration
award be corrected.” (Capitalization omitted.)
Devonshire filed a reply, in which Devonshire did not argue
Gupta’s responsive filing was untimely.
10
The “correct[ion]” Gupta’s responsive pleading sought
was removal of any attorney fees from the award, limitation of
any damages to $70,000, and naming Mehta alone as the party
responsible to pay any award. Although Mehta’s response was
not styled as a request for correction, it argued both that “the
arbitration award . . . should be set aside and rendered void and
unenforceable” and, in the alternative, that any award confirmed
“be limited to the express liquidated damages of $70,000” on the
basis that the arbitrator lacked authority to award attorney fees
and to award damages in excess of $70,000.
The trial court “corrected” the arbitration award by
removing the grant of consequential damages (lost rents and
triple net expenses) the arbitrator had included, and otherwise
confirmed the award.
G. Judgment
Mehta filed a motion for reconsideration of the court’s
order correcting and confirming the award, which Gupta joined.
The court denied the motion. The court entered a “judgment
confirming arbitration award.” (Capitalization omitted.) The
judgment held Mehta and Gupta jointly and severally liable
to Devonshire “[b]ased upon . . . the arbitration . . . between
the parties” for: (1) $70,000.00, to be paid in part out of the
deposit interpleaded into court; (2) attorney fees and costs
Devonshire incurred in arbitration ($167,315.94 and $16,450.00,
respectively); and (3) attorney fees and costs Devonshire incurred
in connection with its petition to confirm the award ($14,476.65).
Consistent with the court’s correction in the order confirming
the award, the judgment did not include any consequential
damages for lost rents or expenses. The judgment also identified
11
Devonshire as the prevailing party in the arbitration on Mehta
and Gupta’s cross-complaint and dismissed the cross-complaint.
DISCUSSION
All parties appeal the judgment resulting from the
court’s order confirming the arbitration award with corrections.
Devonshire’s appeal challenges the judgment to the extent it
does not include the consequential damages reflected in the
arbitration award. Mehta and Gupta’s appeals challenge the
judgment to the extent it contains an award of attorney fees
and costs, which they argued below (as they do on appeal) the
court should have removed from the final judgment. Our review
for both appeals is de novo. (Advanced Micro Devices, Inc. v.
Intel Corp. (1994) 9 Cal.4th 362, 376, fn. 9 (Advanced Micro).)
“Both our review and the trial court’s review of the arbitrator’s
award, however, are limited, as discussed in more detail below.”
(VVA-TWO LLC v. Impact Development Group, LLC (2020) 48
Cal.App.5th 985, 998 (VVA-TWO), citing Advanced Micro, supra,
at pp. 376, fn. 9 & 381.)
“Under California law, the scope of judicial review of
arbitration awards is very narrow. ([Citation]; Moncharsh v.
Heily & Blase (1992) 3 Cal.4th 1, 10 . . . (Moncharsh) [‘arbitrator’s
decision should be the end, not the beginning, of the dispute’].)
Consistent with this limited role, a court may vacate an
arbitral award only on certain statutorily enumerated grounds.
(Hightower v. Superior Court (2001) 86 Cal.App.4th 1415,
1433 . . . .) These are laid out in the Code of Civil Procedure, and
reflect not error in the merits of the decision, but ‘ “circumstances
involving serious problems with the award itself, or with the
fairness of the arbitration process.” ’ (Id. at pp. 1432–1433.)”
(VVA-TWO, supra, 48 Cal.App.5th at p. 998.) “A court may
12
vacate only an entire arbitral award, not some portion of it, even
if the basis for vacatur affects only one aspect of the award.” (Id.
at p. 998.)
A court may, however, “correct” an arbitral award under
certain very limited circumstances. (See § 1286.6.) Like the
permissible bases for vacatur, the bases on which a lower court
may “correct” an arbitration award are limited and enumerated
by statute. Namely, section 1286.6 provides that “the court,
unless it vacates the award . . . shall correct the award and
confirm it as corrected if the court determines that: [¶] (a) There
was an evident miscalculation of figures or an evident mistake
in the description of any person, thing or property referred to
in the award; [¶] (b) The arbitrators exceeded their powers but
the award may be corrected without affecting the merits of the
decision upon the controversy submitted; or [¶] (c) The award
is imperfect in a matter of form, not affecting the merits of the
controversy.” (§ 1286.6, subds. (a), (b) & (c).)
Devonshire argues in its appeal that the court erred in
correcting the consequential damages amount in the award
before entering judgment based thereon. According to
Devonshire, section 1286.6 did not authorize the court to do
so, because the arbitrator did not “exceed[ ] [his] powers” under
the arbitration agreement when he awarded these damages.
(§ 1286.6, subd. (b).) Mehta and Gupta argue in their appeals
that the court erred in not correcting the grant of attorney
fees in the arbitration award before entering judgment based
thereon, because the arbitrator “exceeded [his] powers” under
the arbitration agreement by awarding attorney fees. (Ibid.)
13
As set forth in more detail below, we conclude the court
erred in correcting the amount of damages awarded, but did not
err in awarding attorney fees and costs.
A. Devonshire’s Appeal: Consequential Damages
1. Advanced Micro approach to assessing
whether an arbitrator exceeded his or her
powers by awarding a remedy
“In Advance Micro, the California Supreme Court described
the analysis in which a court may engage to ascertain whether
or not an arbitrator ‘ “exceed[s] [his] powers” ’ by awarding
a particular remedy.”6 (VVA-TWO, supra, 48 Cal.App.5th at
p. 1003.) “Arbitrators are not obliged to read contracts literally,
and an award may not be vacated merely because the court is
unable to find the relief granted was authorized by a specific
term of the contract.” (Advanced Micro, supra, 9 Cal.4th at
p. 381; Moncharsh, supra, 3 Cal.4th at p. 11; Greenspan v. LADT,
6 Although Advanced Micro addressed the scope of
the arbitrator’s authority as a basis for vacating an arbitration
award, as opposed to correcting it, the concept is the same in
both contexts, as reflected by the corollary nature of the statutory
provisions regarding vacatur based on the arbitrator exceeding
his or her power and correction on this basis. (See § 1286.2,
subd. (a) & (a)(4) [“the court shall vacate the 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”]; § 1286.6,
subd. (b) [“the court, unless it vacates the award . . . 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”].)
14
LLC (2010) 185 Cal.App.4th 1413, 1447.) Rather, “arbitrators,
unless expressly restricted by the agreement of the parties,
enjoy the authority to fashion relief they consider just and fair
under the circumstances existing at the time of arbitration, so
long as the remedy may be rationally derived from the contract
and the breach.” (Advanced Micro, supra, at p. 383.) “Parties
to an arbitration agreement must accept the risk of arbitrator
errors because arbitrators are not required to make decisions
according to the rule of law” (State Farm Mutual Automobile Ins.
Co. v. Robinson (2022) 76 Cal.App.5th 276, 282 (State Farm)),
and the arbitrator’s interpretation of the agreement and the
law at issue is what the parties bargained for. (See Moncharsh,
supra, at p. 28.) Thus, “[t]he critical question with regard to
remedies [in an arbitration award] is not whether the arbitrator
has rationally interpreted the parties’ agreement, but whether
the remedy chosen is rationally drawn from the contract as
so interpreted” (Advanced Micro, supra, at p. 377), and “in
reviewing an arbitration award, a court may review only to
assure the arbitrator’s interpretation provides the basis for the
remedy awarded.” (VVA-TWO, supra, at p. 1003.)
2. Under Advanced Micro, the arbitrator
did not exceed his powers under
the purchase agreement by awarding
consequential damages
Based on the Advanced Micro analytical framework set
forth in the preceding section, to assess whether the arbitrator
acted within the scope of his power under the purchase
agreement by awarding consequential damages for breach
of the purchase agreement: (1) We first look to whether the
agreement expressly prohibited this remedy; (2) If not, we
15
discern the arbitrator’s interpretation of the agreement; and
(3) We then assess whether the award is rationally related to a
breach of the agreement as interpreted by the arbitrator. (See
Advanced Micro, supra, 9 Cal.4th at p. 381.)
a. Prohibition on remedy
No provision in the purchase agreement expressly prohibits
granting consequential damages for any breach of the agreement
by any party. Mehta and Gupta argue, however, that the
language in the liquidated damages clause requiring that
$70,000 be the “sole and exclusive remedy . . . for [Mehta’s]
default” in her “purchase obligations” is tantamount to a
prohibition on any damages other than the $70,000 for any
breach of the contract by Mehta. We disagree. Under certain
circumstances, a provision in an agreement describing a
particular remedy as the sole and exclusive remedy available
may be tantamount to a prohibition on other remedies. (See
O’Flaherty v. Belgum (2004) 115 Cal.App.4th 1044, 1057–1058
(O’Flaherty) [partnership agreement provision that “ ‘[u]pon an
event of termination of a partner, such partner . . . shall only
be entitled to [certain] rights and preferences . . . in lieu of all
other rights hereunder, and shall not be entitled to receive any
other property payments or benefits whatsoever against the
partnership or the remaining partners’ ” constituted a prohibition
on arbitrator returning partner’s capital to him as a result of
his termination (capitalization omitted & italics added)].) But
the liquidated damages provision Mehta and Gupta cite does not
provide that $70,000 shall be the sole and exclusive remedy for
any breach of any obligation under the purchase agreement.
Rather, it much more specifically addresses the remedy available
“upon [Mehta’]s default”—specifically, a “default in [Mehta’s]
16
purchase obligations” not caused by Devonshire. The liquidated
damages provision thus prohibits the arbitrator from awarding
any damages in excess of $70,000 as compensation for a default
by Mehta in her purchase obligations under the agreement.
But the purchase agreement contains no limitation on the
damages the arbitrator may award as a result of breaches
based on something other than Mehta’s default in her purchase
obligations.
Therefore, in order for us to determine whether the
purchase agreement prohibits the consequential damages
awarded, we must determine whether the breach for which
the arbitrator awarded the consequential damages constitutes
a “default in [Mehta’s] purchase obligations” to which the
liquidated damages provision applies. But we may only make
that determination based on the arbitrator’s understanding of
the breaches he identified—not our own understanding of the
agreement and breach. Therefore, we must proceed to the next
step in the Advanced Micro analysis—identifying the arbitrator’s
interpretation of the agreement and the breach—before we can
determine the applicability of the agreement’s limited prohibition
on consequential damages.
b. Arbitrator’s interpretation of the
agreement and breach
The arbitration award does not include an explicit
interpretation of the purchase agreement. Nevertheless, an
arbitrator’s interpretation of a contract may be “implied in the
[arbitration] award itself.” (Advanced Micro, supra, 9 Cal.4th
at p. 381.) Here, the award’s discussion of Mehta’s breach as
a basis for awarding consequential damages focuses not only
on her failure to pay the purchase price by the close of escrow,
17
but on her filing a specific performance counterclaim in
the interpleader action, which the award characterizes as
tantamount to filing a lis pendens on the property. From this,
we imply that the court interpreted the agreement as imposing
at least three distinct obligations on Mehta: an obligation
to make the payments as set forth in the agreement (Mehta’s
“purchase obligations”), an obligation to relinquish any
entitlement to purchase the property after she defaults,
and an obligation to submit any disputes “arising from” the
agreement or transaction contemplated therein to an arbitrator.
Our conclusion that the arbitrator so interpreted the obligations
in the purchase agreement is further bolstered by the fact that
the agreement contains language expressly imposing such
obligations. In any event, ours is not to review the correctness
of the arbitrator’s interpretation, but merely to identify it.
We may further imply from this same language in the
award that the breaches the arbitrator identified included
breaches of all three of these obligations.
Having discerned the arbitrator’s understanding of the
breaches at issue, we may complete our analysis from step one
and determine whether the arbitrator viewed the breach for
which he was awarding consequential damages as a “default
in [Mehta’s] purchase obligations” to which the liquidated
damages provision’s prohibition on consequential damages
applies. We conclude he did not. In the award, the arbitrator
acknowledged as valid the limitation on damages reflected in
the liquidated damages provision, yet determined that damages
beyond $70,000 were warranted nevertheless. The only way
to reconcile these two aspects of the award is to imply that the
arbitrator did not view Mehta’s obligations to resolve disputes
18
solely in arbitration and relinquish the rights to purchase
the property as “purchase obligations” to which the liquidated
damages provision applies. Because they are not purchase
obligations, the liquidated damages provision does not “explicitly
and unambiguously” prohibit awarding consequential damages
for breach thereof. (Advanced Micro, supra, 9 Cal.4th at p. 383.)
We may therefore proceed to the third and final step in the
Advanced Micro analysis.
c. Rational relationship
Finally, we consider whether the award of consequential
damages was rationally related to a breach of the agreement
under the arbitrator’s interpretation thereof. A remedy “is
rationally related to the breach if it is aimed at compensating for,
or alleviating the effects of, the breach.” (Advanced Micro, supra,
9 Cal.4th at p. 381, fn. 12.) In awarding consequential damages,
the arbitration award explains that, as a result of Mehta filing
a specific performance counterclaim in the interpleader action,
Devonshire was restricted in its ability to rent out the property,
resulting in lost rents and other expenses.7 The arbitrator’s
consequential damages in the amount of such lost rents and
expenses are thus “aimed at . . . alleviating the effects of ” these
Mehta’s breach of her obligations under the purchase agreement
to resolve disputes in arbitration and relinquish any right to
purchase the property following her default (Advanced Micro,
7Whether awarding both lost rents and expenses reflects
double recovery is not an issue Mehta and Gupta raise on appeal.
In any event, it is highly unlikely a trial court could correct the
award on this basis, given the limited scope of a trial court’s
powers under section 1286.6.
19
supra, 9 Cal.4th at p. 381, fn. 12), and these damages are
rationally related to a breach of obligations the arbitrator
interpreted the purchase agreement to include.
Based on the foregoing, we conclude the arbitrator’s
award of consequential damages did not exceed his power under
the agreement. Accordingly, the court lacked authority under
section 1286.6, subdivision (b) to correct this aspect of the award.
As previously discussed, there are only two other bases on which
section 1286.6 permits a court to “correct” an arbitration award.
Mehta and Gupta do not argue that either of these authorized
the trial court to correct the consequential damages award in
the manner it did. Nor do we see any basis in the record for
such an argument. Thus, the trial court erred in correcting
the arbitration award by removing the consequential damages
amount from the award.
3. Mehta’s and Gupta’s arguments to the
contrary are unpersuasive
In defending the court’s correction of the consequential
damages amount, Mehta and Gupta argue that the only plausible
interpretation of the liquidated damages clause is that it sets
forth the sole remedy for any breach by Mehta, and that this
interpretation is also supported by California law. But what is
a plausible or correct interpretation of the purchase agreement
and its liquidated damages provision is of no consequence to
our analysis under Advanced Micro. Courts must defer to an
arbitrator’s assessment of the merits—here, his interpretation
of the purchase agreement and any breaches thereof. (See
Advanced Micro, supra, 9 Cal.4th at p. 372.) The parties
“ ‘empowered [the arbitrator] to interpret and apply the parties’
agreement to the facts he found to exist’ ” (Gueyffier v. Ann
20
Summers, Ltd. (2008) 43 Cal.4th 1179, 1185 . . . (Gueyffier);
see Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th
1334, 1360 . . . ), and California law does not permit a court
to correct even what may appear to be obvious errors in such
interpretation. (Moncharsh, supra, 3 Cal.4th at pp. 6, 28 & 33.)”
(VVA-TWO, supra, 48 Cal.App.5th at p. 1005.)
Mehta and Gupta raise a related argument that the
arbitrator’s award effectively “modified” the liquidated damages
clause, in violation of the purchase agreement’s requirement
that an arbitrator “shall not have the power to add to, modify,
or change any of the provisions [of the agreement].” We
disagree, as have several courts before us in considering similar
arguments. As a preliminary matter, this argument necessarily
assumes that the arbitrator must apply “the provisions [of
the agreement]” as Mehta and Gupta interpret them, rather
than as the arbitrator interprets them. This is inconsistent with
California Supreme Court authority and the general principles
discussed above. Second, “[t]he mere existence of a ‘no
modification’ provision . . . d[oes] not prevent the arbitrator from
fashioning a remedy that was neither expressly contemplated
nor directly contrary to the agreement.” (San Francisco Housing
Authority v. Service Employees Internat. Union, Local 790 (2010)
182 Cal.App.4th 933, 948; VVA-TWO, supra, 48 Cal.App.5th at
p. 1006 [“[t]hat the arbitrator’s authority and remedial power
are defined (in part) through a cross-reference to the [broader
purchase agreement] generally does not transform interpretation
of the [purchase agreement] into a proper basis for vacating [or
correcting] an arbitration award”]; Harris v. Sandro (2002) 96
Cal.App.4th 1310, 1314 [argument that arbitrator “exceeded his
powers by issuing . . . ‘inconsistent’ rulings” was “nothing more
21
than a claim that the arbitrator erred in a legal ruling,” which
cannot provide a basis for vacatur]; Advanced Micro, supra, 9
Cal.4th at p. 373.)
The Supreme Court rejected a similar argument in
Gueyffier, supra, 43 Cal.4th 1179, and that case is instructive.
The arbitrator in Gueyffier “excus[ed] as futile [one party’s]
failure to give [another party] prompt notice of, and an
opportunity to cure, its breaches.” (Id. at p. 1185.) The court
concluded that the parties’ arbitration agreement, which
provided that the “arbitrator would have no power to ‘modif[y]
or change[ ]’ any material term of the contract, including the
notice-and-cure provision,” “did not unambiguously prohibit the
arbitrator from excusing performance of a contractual condition
where the arbitrator concluded performance would have been
an idle act.” (Ibid., italics added.) The high court explained
that “[t]he contract’s no-modification provision would have been
effective to bar an actual change or modification[,] . . . [b]ut
to excuse performance of a contract term in a specific factual
setting is not, in ordinary usage at least, to ‘modif[y] or change[ ]’
the term. The no-modification clause [thus] did not ‘explicitly
and unambiguously’ (Advanced Micro . . . , supra, 9 Cal.4th
at p. 383) bar the arbitrator from deciding that . . . [the] notice-
and-cure provision was inapplicable on the facts of the case as
he found them.” (Gueyffier, supra, at p. 1185, italics omitted.)
The arbitrator here similarly found the liquidated damages
limitation, as he interpreted it, was inapplicable to a claim for
breach of a non-purchase obligation, and awarded additional
damages accordingly. In short, “regardless of the merits of
[Mehta and Gupta’s] proposed alternative interpretation of
[the purchase agreement or no-modification provision], as long
22
as the arbitrator’s interpretation is rationally related to the
remedy,” as we conclude above it was, “the arbitrator did not
exceed his authority in awarding [that remedy].” (VVA-TWO,
supra, 48 Cal.App.5th at p. 1006.)
Finally, Mehta argues that Devonshire stated in its
interrogatory response and arbitration brief that it was seeking
$70,000 as damages for breach of the purchase agreement. But
Devonshire’s operative arbitration demand clearly submitted to
the arbitrator a request for consequential damages in addition
to the $70,000 as compensation for the breaches alleged. To
the extent Mehta is arguing that Devonshire was offering an
interpretation of the purchase agreement via the submissions she
identifies, Mehta’s interpretation of the purchase agreement is of
no moment in our analysis. Under the same principles discussed
above, the arbitrator’s interpretation of the agreement—whether
right or wrong in the eyes of the parties or the eyes of the law—is
what the parties agreed to in signing the arbitration agreement.
(See Moncharsh, supra, 3 Cal.4th at p. 28; State Farm, supra, 76
Cal.App.5th at p. 282.)
C. Mehta’s and Gupta’s Appeals: Attorney Fees
1. Timeliness of Gupta’s challenge to the
arbitration award below
As a threshold matter, Devonshire argues that we
may “dismiss Gupta’s appeal based on his failure to seek
timely review of the arbitration award in the trial court.”
(Capitalization omitted.) Specifically, Devonshire argues that
Gupta failed to file an opposition or response to Devonshire’s
petition to confirm the arbitration award by May 21, 2020—the
statutory deadline for such a responsive pleading—and that only
23
Mehta, not Gupta, applied for and received an extension of
this deadline. Devonshire argues that “Gupta [thus] essentially
failed to challenge the arbitration award in the trial court”
and “because a party’s challenge to an arbitration award is a
jurisdictional prerequisite to appellate review, this court should
not entertain Gupta’s untimely challenge to the arbitration
award for the first time on appeal.” (Capitalization omitted.)
Although only Mehta requested an extension of the
deadline to respond to Devonshire’s petition below, the notice
of ruling served on Devonshire clearly reflects that an extension
was granted to both Mehta and Gupta.8 The record thus
8 Devonshire argues in a footnote that the record does not
contain any suggestion that Gupta timely joined Mehta’s request
for an extension. But the notice of ruling served on Devonshire
also reflects that, at the hearing on the request, the court
permitted Gupta to so join, and that Devonshire did not object.
Specifically, it provides: “At the outset [of the hearing], attorney
Gordon advised the court that attorney Schlanger, counsel
of record for defendant/respondent John Gupta and Kusum
Mehta, had asked [the day before the hearing] (on May 21, 2020),
to join in the ex parte application to extend the time for filing
a response to the motion to confirm. In reply, attorney
Gooch objected to attorney Gordon’s status as counsel for
defendants/respondents Gupta and Mehta, until the court clerk
confirmed that a substitution from John Schlanger to Peter
Gordon had been electronically filed on the afternoon of May 21,
2020. At that point, the objection was withdrawn. Based on
the foregoing confirmation of the status of attorney Gordon
as counsel for defendants/respondents, the court granted
defendants/respondents’ ex parte application for an extension of
time to file a response, as follows: [¶] 1. The deadline for filing
responses on behalf of defendants/respondents Kusum Mehta
24
supports that the court granted an extension to both parties.
Devonshire cites a recent decision of this district concluding
that the deadlines for seeking to vacate or correct an award
are “ ‘jurisdictional,’ ” and thus that an untimely filed pleading
to this effect—even if accepted by the trial court—prevents a
litigant from seeking to vacate or correct the award on appeal.
(Darby v. Sisyphian, LLC (2023) 87 Cal.App.5th 1100, 1111
& 1114–1115.) But that same authority recognizes that the
statutory deadline at issue here—namely, the 10-day deadline
for opposing a petition to confirm an arbitration award—may be
extended by the trial court. (Id. at p. 1111 [“[t]he 10-day
deadline, however, is a little more flexible, as the [a]ct itself
authorizes an extension of the 10-day deadline . . . when the
court, either explicitly or implicitly, finds ‘good cause’ to extend
the deadline and where such an extension would not unduly
prejudice the other party,” italics omitted]; see § 1290.6.) The
record contains substantial evidence that the court granted
Gupta an extension: namely, the notice of ruling served on
Devonshire that so indicates, and a lack of any objection
thereto by Devonshire in the proceedings below. To the extent
Devonshire is arguing this notice was incorrect and that, as a
factual matter, the court did not actually grant the extension,
the record does not support this argument. To the extent
Devonshire’s argument can be understood as an argument that
the court should not have granted such an extension to Gupta,
and John Gupta to the petition to confirm the arbitration
award is extended to June 25, 2020.” (Capitalization omitted.)
The reporter’s transcripts provided on appeal do not include
a transcript of the ex parte hearing described in this notice of
ruling.
25
Devonshire has offered no arguments establishing prejudice or
lack of good cause, the two statutory requirements for such an
extension. (See § 1290.6.) Accordingly, we consider the merits
of both Gupta’s and Mehta’s appeals challenging the grant of
attorney fees.
2. The arbitrator had authority to award
attorney fees
Both Gupta and Mehta challenge the judgment to the
extent it includes attorney fees, arguing the arbitrator exceeded
his power in granting such relief, and that the court should
therefore have corrected the award under section 1286.6,
subdivision (b) by removing the award of attorney fees before
confirming it.
Parties to an arbitration may empower the arbitrator
to decide issues not necessarily included within the arbitration
agreement’s description of the arbitrator’s powers when both
parties ask the arbitrator to decide the issue. (See, e.g., Moore v.
First Bank of San Luis Obispo (2000) 22 Cal.4th 782, 787 (Moore)
[parties “submitted the question of fees to the arbitrator[ ] . . .
by actually requesting an award of fees from the arbitrator[ ]
[himself]”]; J.C. Gury Co. v. Nippon Carbide Industries (USA)
Inc. (2007) 152 Cal.App.4th 1300, 1306 (J.C. Gury) [when during
arbitration both parties briefed whether a particular contract
term was unconscionable and unenforceable, seller requested
relief on this basis, and buyer never challenged the arbitrator’s
authority to decide the issue, “both parties unequivocally
submitted the issue of unconscionability to arbitration”].) Thus,
regardless of whether the purchase agreement contemplated
empowering the arbitrator to award attorney fees, the parties
so empowered him by all requesting such fees in the arbitration.
26
“Having submitted the fees issue to arbitration, [Mehta
and Gupta] cannot maintain the arbitrator[ ] exceeded [his]
powers, within the meaning of section 1286.6, subdivision (b), by
deciding it, even if [the arbitrator] decided it incorrectly.” (Moore,
supra, 22 Cal.4th at p. 787; J.C. Gury, supra, at p. 1306 [having
submitted an issue to the arbitrator for decision, parties may not
on appeal “complain that the arbitrator exceeded his authority”
by deciding it]; Cohen v. TNP 2008 Participating Notes Program,
LLC (2019) 31 Cal.App.5th 840, 876 [same].) The recovery or
nonrecovery of attorney fees was one of the “contested issues
of law and fact submitted to the arbitrator for decision[,]” so
“[t]he arbitrator’s resolution of these issues is what the parties
bargained for” (Moncharsh, supra, 3 Cal.4th at p. 28), if not in
the arbitration agreement itself, then through their submissions
in arbitration.
Mehta and Gupta argue that, because the purchase
agreement expressly authorizes recovery of attorney fees
for compelling a dispute to arbitration, but does not expressly
authorize attorney fees for anything else, the agreement contains
an implied prohibition on awarding attorney fees for anything
but a motion to compel arbitration. This argument fails in two
ways. First, the provision allowing for attorney fees incurred
in compelling arbitration does not indicate that such fees are the
sole and exclusive type of fees that the arbitrator may award in
a dispute regarding the agreement. Thus, the provision does not
even implicitly limit the arbitrator’s ability to award other types
of attorney fees. (Cf. California Union Square, L.P. v. Saks & Co.
LLC (2020) 50 Cal.App.5th 340, 349–350, 352; O’Flaherty, supra,
115 Cal.App.4th at pp. 1057–1058; see Greenspan, supra, 185
Cal.App.4th at p. 1447 [“an award may not be vacated merely
27
because the court is unable to find the relief granted was
authorized by a specific term of the contract”].) Second and
more importantly, even if the purchase agreement contained
an express prohibition on the arbitrator awarding attorney fees,
this would not affect the arbitrator’s power to do so when—as
occurred here—all parties asked the arbitrator to issue such an
award and no one challenged the arbitrator’s authority to do so
during the arbitration. (See J.C. Gury, supra, 152 Cal.App.4th
at pp. 1302, 1305–1306; id. at p. 1305 [“the parties may submit
for decision issues they were not contractually compelled to
submit to arbitration” even if doing so is inconsistent with
the provisions of the arbitration agreement].) J.C. Gury Co.
is instructive here. In that case, the arbitration agreement
included an express prohibition on the arbitrator amending
the agreement. (J.C. Gury, supra, at p. 1305.) The buyer
argued during the arbitration that a particular provision was
unconscionable and thus unenforceable. (Ibid.) In responding
to this argument before the arbitrator, the seller did not
contend that the arbitrator lacked authority to consider
this issue. (Id. at pp. 1305–1306.) The arbitrator ultimately
agreed that the provision at issue was unconscionable and
unenforceable, and awarded damages to the buyer on this basis.
(Id. at pp. 1303–1304.) The Court of Appeal concluded that,
although the arbitration award clearly did modify—indeed
nullify—a portion of the agreement, and thus exceeded the scope
of the arbitrator’s power as set forth in the agreement, the award
was not in excess of the arbitrator’s power as augmented by the
parties’ act of submitting the issue to the arbitrator during the
arbitration. (Id. at pp. 1302, 1305.) Specifically, the court noted
that the seller had “expressly responded to the buyer’s claim
28
of unconscionability and failed to assert, at any time before or
during the arbitration proceeding, that the arbitrator’s power
to find the clause unconscionable or unenforceable was limited
by the arbitration clause. A party cannot wait until after an
award is made to claim that an issue expressly presented to the
arbitrator for decision is beyond his authority.” (Id. at p. 1302.)
Similarly, during the arbitration in this case, Mehta and
Gupta requested attorney fees from the arbitrator and never
questioned his authority to award the attorney fees and costs
Devonshire likewise requested from the arbitrator. The parties
thus submitted the issue of attorney fees to the arbitrator and
Mehta and Gupta’s argument that he acted outside the scope of
his power in deciding the issue fails.9
9 We find inapposite the parties’ arguments about whether
the arbitrator’s attorney fees award is authorized by or consistent
with California law. The arbitrator was not bound to follow
California law, and even if he was, we would be obligated to
defer to his interpretation of that law, whether or not it is a
correct interpretation. (See Moore, supra, 22 Cal.4th at p. 788
[arbitrator’s failure to correctly apply California law regarding
which party was the “prevailing party” was an error of law and
not a basis to conclude the arbitrator exceeded the scope of his
authority].)
29
DISPOSITION
The order confirming the arbitration award and the
subsequent judgment are vacated. Upon remand, the court is
instructed to enter a new order and a new judgment consistent
with this opinion. For the sake of clarity, the new order shall
reflect that the arbitration award is confirmed in all respects, and
the judgment shall award all relief the arbitrator included in the
arbitration award. Devonshire shall recover its costs on appeal.
NOT TO BE PUBLISHED.
ROTHSCHILD, P. J.
We concur:
CHANEY, J.
WEINGART, J.
30