Michael Demartini v. Thomas Johns

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JUN 7 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
MICHAEL JAY DEMARTINI; RENATE No. 15-15205
DEMARTINI, 16-15078
Plaintiffs-Appellees, D.C. No. 3:12-cv-03929-JCS
v.
MEMORANDUM*
THOMAS CHRISTOPHER JOHNS;
JOHNS & ALLYN, A.P.C.,
Defendants-Appellants.
MICHAEL JAY DEMARTINI; RENATE No. 16-15134
DEMARTINI,
D.C. No. 3:12-cv-03929-JCS
Plaintiffs-Appellants,
v.
THOMAS CHRISTOPHER JOHNS;
JOHNS & ALLYN, A.P.C.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of California
Joseph C. Spero, Magistrate Judge, Presiding
Argued and Submitted April 20, 2017
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
San Francisco, California
Before: THOMAS, Chief Judge, MURGUIA, Circuit Judge, and BAYLSON,**
District Judge.
Thomas Christopher Johns and the law firm Johns & Allyn, A.P.C.
(collectively, “Defendants”) appeal the district court’s order denying their motion
to vacate an arbitration award entered against them on Michael and Renate
DeMartini’s (collectively, “Plaintiffs”) legal malpractice claims. Defendants also
appeal the district court’s denial of their request for a stay in response to Plaintiffs’
motion to confirm the arbitration award. Plaintiffs cross-appeal the district court’s
grant of Defendants’ motion to amend the judgment pursuant to Federal Rule of
Civil Procedure 59(e). We have jurisdiction pursuant to 28 U.S.C. § 1291, and we
affirm in part and reverse and remand in part.
I.
We review de novo the district court’s decision to deny a motion to vacate
an arbitration award. Woods v. Saturn Distrib. Corp., 78 F.3d 424, 427 (9th Cir.
1996). Defendants argue that the district court erred in denying their motion to
vacate under § 10 of the Federal Arbitration Act (“FAA”), which, in relevant part,
authorizes vacatur “where the arbitrators exceeded their powers, or so imperfectly
**
The Honorable Michael M. Baylson, United States District Judge for
the Eastern District of Pennsylvania, sitting by designation.
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executed them that a mutual, final, and definite award upon the subject matter
submitted was not made.” 9 U.S.C. § 10(a)(4). We have strictly interpreted this
standard, emphasizing that review of an arbitration award itself is “both limited
and highly deferential.” Sheet Metal Workers’ Int’l Ass’n v. Madison Indus., Inc.,
84 F.3d 1186, 1190 (9th Cir. 1996). Accordingly, “arbitrators exceed their powers
in this regard not when they merely interpret or apply the governing law
incorrectly, but when the award is completely irrational, or exhibits a manifest
disregard of law.” Kyocera Corp. v. Prudential–Bache Trade Servs., Inc., 341 F.3d
987, 997 (9th Cir. 2003) (en banc) (internal quotation marks and citations omitted).
This means that “[i]t must be clear from the record that the arbitrators recognized
the applicable law and then ignored it.”’ Lagstein v. Certain Underwriters at
Lloyd’s, London, 607 F.3d 634, 641 (9th Cir. 2010) (quoting Mich. Mut. Ins. Co. v.
Unigard Sec. Ins. Co., 44 F.3d 826, 832 (9th Cir. 1995)). “As such, mere
allegations of error are insufficient.” Carter v. Health Net of Cal., Inc., 374 F.3d
830, 838 (9th Cir. 2004).
Defendants argue that the arbitrator showed a manifest disregard of law
when she denied their requests to dismiss Plaintiffs’ malpractice claims as time-
barred. Defendants specifically argue that the arbitrator correctly recognized the
one-year statute of limitations that applies to malpractice claims, but then
intentionally ignored it in applying the law to the facts before her. See Cal. Code
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Civ. P. § 340.6(a); see also Peregrine Funding, Inc. v. Sheppard Mullin Richter &
Hampton, LLP, 35 Cal. Rptr. 3d 31, 51 (Cal. Ct. App. 2005) (explaining that the
one-year limitations period “is triggered by the client’s discovery of ‘the facts
constituting the wrongful act or omission,’ not by his discovery that such facts
constitute professional negligence”). We cannot conclude from the record that the
arbitrator’s decision—while perhaps an erroneous application of the California
statute of limitations for legal malpractice claims—constitutes a “manifest
disregard” of law. See Bosack v. Soward, 586 F.3d 1096, 1104 (9th Cir. 2009)
(“[T]here must be some evidence in the record, other than the result, that the
arbitrators were aware of the law and intentionally disregarded it.” (alteration in
original) (quoting Lincoln Nat’l Life Ins. Co. v. Payne, 374 F.3d 672, 675 (8th Cir.
2004)); cf. American Postal Workers Union AFL-CIO v. U.S. Postal Serv., 682
F.2d 1280, 1284 (9th Cir. 1982) (finding a manifest disregard of law when the
record showed the arbitrator recognized the applicable law, but refused to apply it
because of “the arbitrator’s belief that the penalty was too severe” under the
circumstances). Defendants have failed to carry their heavy burden of showing the
arbitrator’s award warrants vacatur based on a manifest disregard of law on the
part of the arbitrator.
Defendants also argue the district court erred in denying its motion to vacate
the arbitration award on public policy grounds. While a court may vacate an
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arbitration award that is contrary to public policy, this is a very narrow exception.
Stead Motors v. Auto. Machinists Lodge No. 1173, 886 F.2d 1200, 1209 (9th Cir.
1989) (en banc) (“[A] court need not, in fact cannot, enforce an award which
violates public policy.”). To vacate an arbitration award on public policy grounds,
the panel must find (1) that an “explicit, well defined and dominant” public policy
exists, and (2) “that the policy is one that specifically militates against the relief
ordered by the arbitrator.” Id. at 1210–13.
Defendants argue that the arbitration award should be vacated because it is
based on perjury committed by Mr. DeMartini in the underlying partition action,
and the “the public policy against perjury is explicit and well-defined.” A review
of the record reveals that Defendants made similar claims of perjury to the
arbitrator, and the arbitrator directly questioned Mr. DeMartini during the
arbitration proceeding about whether he had lied under oath during the partition
action. The arbitrator’s final decision indicates that the arbitrator rejected
Defendants’ claims that Mr. DeMartini intentionally gave false testimony during
his deposition and at the underlying trial. See Cal. Penal Code § 118 (defining
“perjury” as when an individual, under oath, “willfully states as true any material
matter which he or she knows to be false”). The arbitrator found that Mr.
DeMartini was “being asked to juggle competing complex concerns and follow
difficult instructions under pressure,” and ultimately entered an award in Plaintiffs’
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favor, which strongly indicates that the arbitrator did not believe that Mr.
DeMartini had intentionally misrepresented any material facts during his
deposition. Although the arbitrator did not expressly address whether Mr.
DeMartini intentionally gave false testimony at trial in her written decision, she
was not required to do so. Bosack, 586 F.3d at 1104 (stating that and arbitrator’s
“award may be made without explanation of their reasons and without a complete
record of their proceedings”). Because Defendants’ public policy argument would
require the Court to revisit the arbitrator’s findings of fact and conclusions of law
with respect to Defendants’ perjury argument put forth to the arbitrator, the Court
will not vacate the award on this ground. Kyocera, 341 F.3d at 994.
Accordingly, we affirm the district court’s denial of Defendants’ motion to
vacate the arbitration award under § 10 of the FAA or on public policy grounds.
II.
We review a district court’s denial of a motion to stay for abuse of
discretion. United States v. Peninsula Comm., Inc., 287 F.3d 832, 838 (9th Cir.
2002). A district court “has broad discretion to stay proceedings as an incident to
its power to control its own docket” in an effort to promote judicial economy.
Clinton v. Jones, 520 U.S. 681, 706–07 (1997); Lockyer v. Mirant Corp., 398 F.3d
1098, 1109 (9th Cir. 2005). The party who moves for a stay has the burden to
“make out a clear case of hardship or inequity in being required to go forward,”
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and the court must weigh the competing interests that will be affected by the
granting of or refusal to grant the stay. Landis v. N. Am. Co., 299 U.S. 248, 255
(1936).
We cannot conclude that the district court abused its discretion in denying
Defendants’ request to stay ruling on Plaintiffs’ motion to confirm the arbitration
award. The FAA mandates courts to confirm an arbitration award unless the award
has been vacated, modified or corrected. See 9 U.S.C. § 9 (“[A]t any time within
one year after the award is made any party to the arbitration may apply to the court
so specified for an order confirming the award, and thereupon the court must grant
such an order unless the award is vacated, modified, or corrected.” (emphasis
added)). The Supreme Court has noted that § 9 of the FAA “carries no hint of
flexibility.” Hall Street Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 587 (2008).
Because the district court had already denied Defendants’ motion to vacate the
arbitration award, and the three-month limitation period for bringing any further
motion to vacate or alter the arbitration award had passed by the time Plaintiffs
moved to confirm the arbitration award, see 9 U.S.C. § 12, the district court was
obligated to summarily confirm the award. The district court properly rejected
Defendants’ arguments that ruling on the motion to confirm the arbitration award
would result in a considerable waste of resources for both the parties and the court.
Further, Defendants have not persuasively argued that they were subjected to any
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“hardship or inequity” in requiring to litigate Plaintiffs’ motion to confirm the
award. See Landis, 299 U.S. at 255.
Accordingly, we affirm the district court’s denial of Defendants’ request to
stay ruling on Plaintiffs’ motion to confirm the arbitration award.
III.
Plaintiffs cross-appeal the district court’s grant of Defendants’ motion to
amend the judgment pursuant to Rule 59(e). We review a district court’s grant of a
Rule 59(e) motion to amend judgment for abuse of discretion. Int’l Rehab. Sci. Inc.
v. Sebelius, 688 F.3d 994, 1000 (9th Cir. 2012).
The district court initially entered judgment in favor of Plaintiffs “in the
amount of $177,100.00” and, consistent with the arbitration award, granted
“prejudgment interest from June 30, 2011, at the California statutory rate.”
Defendants filed a Rule 59(e) motion to amend the judgment, arguing that the
district court’s judgment conflicted with California law, which only allows for
prejudgment interest to start from the date the legal malpractice arbitration award
was issued—July 30, 2014. See Cal. Civ. Code § 3287. The district court agreed
and granted Defendants’ motion to amend the award, concluding that “the date
stated in its previous order and judgment is clearly erroneous,” as it does not
comport with § 3287 of the California Civil Code. The court then entered an
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amended judgment in the amount of $177,100 “plus prejudgment interest from
July 30, 2014 at the California statutory rate.”
The district court abused its discretion in granting Defendants’ Rule 59(e)
motion and amending the judgment so that it conflicted with the arbitrator’s grant
of prejudgment interest. Sections 10 and 11 of the FAA provide the “exclusive
grounds” for vacating or modifying an arbitration award. Hall Street, 552 U.S. at
584. Under the FAA, motions to vacate, modify, or correct the arbitration award
must be served on the opposing party within three months after the award is filed.
9 U.S.C. § 12. Here, the arbitrator issued her final decision on July 30, 2014 and,
although Defendants knew that the award consisted of prejudgment interest
beginning from June 30, 2011 through the date of the award, Defendants did not
raise this issue in their motion to vacate the award, or otherwise move to modify
the grant of prejudgment interest within three months of the award. Accordingly, at
the time Defendants filed their Rule 59(e) motion, they were time-barred from
amending the arbitration award pursuant to the FAA. See 9 U.S.C. § 12.
Defendants’ attempt to circumvent the FAA through a Rule 59(e) motion was
improper. See Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1133,
1133 n.3 (9th Cir. 2000). Further, we note that it is well-established that a Rule
59(e) motion “may not be used to raise arguments . . . for the first time when they
could reasonably have been raised earlier in the litigation,” Kona Enter., Inc. v.
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Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000). The argument that the
arbitrator’s grant of prejudgment interest from June 30, 2011 violated state law
most certainly “could reasonably have been raised earlier in the litigation.” Id.
Accordingly, we reverse the district court’s Rule 59(e) order and remand to
the district court with instructions to enter judgment consistent with the arbitration
award—“$158,000 plus interest thereon at the California statutory prejudgment
interest rate from June 30, 2011 through the date of [the arbitration award],” and
“$19,100.00 for arbitration fees and costs”1—including post-award prejudgment
interest under California Civil Code § 3287(a).
AFFIRMED in part, REVERSED in part, and REMANDED. Costs are
taxed against Defendants.
1
The $19,100 for arbitration fees and costs is not subject to prejudgment interest.
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