Harshad & Nasir Corporation v. Global Sign Systems

Filed 8/15/17
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
HARSHAD & NASIR No. B269427
CORPORATION et al.,
(Los Angeles County
Plaintiffs and Respondents, Super. Ct. No. BS155377)
v.
GLOBAL SIGN SYSTEMS, INC.,
Defendant and Appellant.
___________________________________
FRIENDLY FRANCHISEES (Los Angeles County
CORPORATION, Super. Ct. No. BS155973)
Plaintiff and Appellant,
v.
GLOBAL SIGN SYSTEMS, INC.,
Defendant and Respondent.
___________________________________
GLOBAL SIGN SYSTEMS, INC., (Los Angeles County
Plaintiff, Appellant and Super. Ct. No. BS155974)
Respondent,
v.
FRIENDLY FRANCHISEES
CORPORATION,
Defendant and Appellant;
HARSHAD & NASIR
CORPORATION et al.,
Defendants and Respondents.
GLOBAL SIGN SYSTEMS, INC., No. B275942
Plaintiff and Respondent,
(Los Angeles County
v. Super. Ct. No. BS155974)
FRIENDLY FRANCHISEES
CORPORATION,
Defendant and Appellant.
___________________________________
HARSHAD & NASIR No. B275947
CORPORATION et al.,
(Los Angeles County
Plaintiffs and Appellants, Super. Ct. No. BS155377)
v.
GLOBAL SIGN SYSTEMS, INC.,
Defendant and Respondent.
APPEALS from a judgment and orders of the Superior Court
of Los Angeles County, Michelle R. Rosenblatt and Josh M.
Frederiks, Judges. Reversed with directions.
Greenberg Traurig, Scott D. Bertzyk, Karin L. Bohmholdt,
and Hannah B. Shanks-Parkin for Defendant and Appellant
Friendly Franchisees Corporation and Defendants and Respondents
Harshad & Nasir Corporation, Senior Classic Leasing, LLC,
DFG Restaurants, Inc., and Sun Gir, Inc. (case No. B269427);
for Defendant and Appellant Friendly Franchisees Corporation
(case No. B275942); for Plaintiffs and Appellants Harshad & Nasir
Corporation, Senior Classic Leasing, LLC, DFG Restaurants, Inc.,
and Sun Gir, Inc. (case No. B275947).
The Business Legal Group, Russell M. Frandsen; The Holmes
Law Firm and Reginald A. Holmes for Plaintiff, Appellant and
Respondent Global Sign Systems, Inc. (case No. B269427); for
Plaintiff and Respondent Global Sign Systems, Inc. (case No.
B275942); for Defendant and Respondent Global Sign Systems, Inc.
(case No. B275947).
2
Global Sign Systems, Inc. (Global) sued Friendly Franchisees
Corporation (FFC) to recover $114,823.72 allegedly owed on unpaid
invoices. A few weeks before trial, the parties agreed to submit the
dispute to arbitration. Five years later, the arbitrator, Retired
Judge David D. Perez, awarded Global $1,154,793.72 in damages,
$702,093.86 in prejudgment interest, and $1,142,596.20 in costs
and attorney fees. The arbitrator also added four affiliates of FFC
(the Affiliates) as joint and several obligors under the award.1
Global petitioned the superior court to confirm the award,
and FFC and the Affiliates petitioned to vacate the award. The
trial court confirmed the award as to FFC and vacated the award
as to the Affiliates.2 Global then filed a motion in the trial court to
recover post-arbitration attorney fees from FFC, and the Affiliates
moved to recover attorney fees from Global. The court denied these
motions, but ruled that the arbitrator could award such fees.
FFC appealed from the judgment confirming the arbitrator’s
award, and Global appealed from the part of the judgment vacating
the award as to the Affiliates. FFC appealed from the order
permitting Global to seek post-arbitration attorney fees from the
arbitrator, and the Affiliates appealed from the order denying their
motion for attorney fees. We consolidated the appeals for purposes
of argument and decision.
We conclude that the trial court prejudicially erred when it
failed to apply the correct standards in reviewing the arbitrator’s
award. On the merits, we hold that substantial evidence does not
support the award and that an alleged contract to be performed
over a three-year period violated the statute of frauds. Further,
the arbitrator exceeded his authority by deciding a claim that
1 The Affiliates are Harshad & Nasir Corporation, Senior
Classic Leasing, LLC, DFG Restaurants, Inc., and Sun Gir, Inc.
2 The orders confirming in part and vacating in part the
arbitrator’s award were issued by Judge Michelle R. Rosenblatt.
3
FFC had not agreed to arbitrate. We agree with the trial court,
however, that the arbitrator exceeded his authority when he added
the Affiliates as obligors under the award. Lastly, we deem the
appeals from the orders denying attorney fees as petitions for writ
of mandate and direct the trial court to vacate its orders and to
deny the motions.
FACTUAL AND PROCEDURAL SUMMARY3
A. Background
FFC provides management services to the Affiliates, who
own certain Carl’s Jr. restaurant franchises, or “stores,” in
Los Angeles County. Global manufactures and repairs commercial
signs. Beginning in April 2007, FFC employee Kimberly Avan
and Global employee Mark Chavez engaged in discussions
and exchanged emails about a potential business relationship
between FFC and Global. These discussions covered possible
work related to the replacement of “clearance” signs located above
the drive-through lanes at some stores, signs for a possible new
Carl’s Jr. store in Azusa (which did not materialize), sign repair and
maintenance work, and a franchisor-mandated project to remodel—
or “reimage”—Carl’s Jr. stores.
3 Global’s respondent’s brief (in appeal No. B269427) fails
to comply with rule 8.204(a)(1)(C) of the California Rules of Court,
which requires that briefs must “[s]upport any reference to a
matter in the record by a citation to the volume and page number
of the record where the matter appears.” Compliance with this
rule is particularly important when, as here, the record is large
and complex. (City of Santa Maria v. Adam (2012) 211 Cal. App. 4th
266, 287.) We are not required to scour the record in search of
support for a party’s factual statements and may disregard such
unsupported statements. (Sharabianlou v. Karp (2010)
181 Cal. App. 4th 1133, 1149.)
4
Global was primarily interested in acquiring FFC’s
reimaging work. In September 2007, Chavez asked to meet with
FFC to discuss the “Carl’s Jr.—Sign Service—Sign Program.”
(Capitalization omitted.) Avan informed Chavez that FFC was
“still in the planning stages” and “not ready to move forward
with any remodeling” at that time. Avan explained that her “first
project” continued to be “finding a cheaper vendor for our sign
repair which I recall you sending me your price list. I still need
to review that and I will let you know what the outcome. At this
time a meeting would be premature since we are not ready to
move forward and I don’t know when that will be except that it
will happen, eventually.” When Chavez inquired further, Avan
responded: “Rest assured that I will bid out all upcoming projects
to you and am confident that you will get our business. There are
so many plans in the works that it is hard for me to get a priority on
any of them. . . . Please know that I want to work with you and look
forward to the opportunity and I apologize that I cannot give you a
definite answer.”
Later that month, Avan asked Chavez about Global’s
hourly sign repair rates, and Chavez responded with a one-page
“preliminary pricing sheet” of material prices and labor rates for
the sign maintenance program. Avan informed Chavez that Global
“would have to lower [its] labor rates” “to be competitive,” and
added that when she is “done with this project, [Global] will be
potentially getting all the stores.” Chavez sent Avan a revised
pricing sheet for the sign maintenance program and informed Avan
that Global would modify its prices to “meet [FFC’s] budget needs.”
Chavez also told Avan that Global planned to conduct site
surveys of each FFC-managed Carl’s Jr. At the arbitration hearing,
Chavez explained that the surveys would allow Global to create an
inventory of signs at each site that could be used in the event of a
service call. The surveys, Chavez added, would also be beneficial to
Global in preparing drawings for new signs.
5
On October 24, 2007, Avan made a presentation to Harshad
Dharod, the Chief Executive Officer of FFC, and seven FFC district
managers regarding sign maintenance vendors, among other
matters. Avan presented a spreadsheet showing the hourly rates
for three sign vendors and the savings that would result if FFC
replaced its then-current vendor with Global. She did not discuss
the reimaging program, and no decision was made at that time as to
the reimaging project. Dharod “approved” Avan to “go forward” and
choose a vendor. Avan ultimately selected Global to be FFC’s “go to
sign maintenance company,” and informed Chavez of the decision.
On October 29, 2007, Chavez wrote to Avan in response
to getting “the go-ahead” from Avan “to do the sign maintenance
program,” and to confirm that Global would begin conducting “sign
and facility surveys as part of the Carl’s Jr.—Sign and Facility
Survey—Sign Inventory Program.” Chavez told Avan that Global
would perform the surveys “at no cost to [FFC].” As Global’s
counsel later explained, the site surveys and Global’s initial sign
drawings were done “as a means of winning [FFC’s] business.”
Over the next 18 months, Global performed sign maintenance
and repair work at FFC locations and billed FFC for its work.
FFC paid Global approximately $160,000 over the course of their
relationship. Meanwhile, Global continued to conduct site surveys,
prepare sign plans for particular stores, and obtain sign permits for
numerous FFC stores in anticipation of their remodeling.
At some point, Avan met with her superior, Dharod
(FFC’s principal) and “pitched” the reimaging project, and Dharod
“approved” it. Avan testified that she could not recall when this
meeting occurred. According to Avan, Dharod agreed to “maybe try
one store and see how it goes.” Dharod testified that FFC sought
and considered bids for remodeling individual stores, not bids for
the entire reimaging project. Avan would receive bids from vendors
and present them to Dharod for his approval. Avan did not have
6
the authority to award projects or enter into contracts on FFC’s
behalf.
In April 2008, Chavez informed Avan that Global had
prepared site surveys and sign designs “for all Carl’s Jr. sites,”
and would “commence with sign pricing for all locations.” Chavez
requested information as to FFC’s “projected conversion/remodel
timeline,” and said Global “will target pricing in the order of [FFC’s]
proposed work.” On April 29, 2008, Avan responded, and told
Chavez that FFC “want[ed] to start the remodels this summer. We
need to start late June or July and HAVE to do 22 each year for the
next three years.” Avan added that FFC “still ha[d] a few things”
it needed “to work out,” but that she would keep him informed “as
things progress[ed].”
In June 2008, Chavez emailed Avan regarding the need to
obtain sign permits before the stores were remodeled. “The average
lead time” for obtaining permits, he stated, is two to four weeks.
Avan responded, stating: “4 months!! Holy crap!!! Let’s start
applying right away.”4
The first store to be reimaged was in Baldwin Park. Avan
requested bids from numerous vendors for the Baldwin Park
remodel and presented them to Dharod, who selected Global based
on its price and Avan’s recommendation. Global performed the
sign work for the remodel of the Baldwin Park store in July 2008,
and FFC paid Global for the work. FFC then placed the broader
reimaging project “on hold.” It did not resume the reimaging
program until August 2009, after this litigation began.
In 2009, Global’s owner, Michael Blakely, grew frustrated
with the pace of FFC’s payments on invoices for sign maintenance
4 It is not clear from the record why Avan said “4 months”
in response to Chavez’s reference to “[t]wo (2) to [f]our (4) weeks.”
(Italics added.)
7
work and with FFC’s attempts to reduce the amounts due. By
June 2009, $24,188.72 remained unpaid on outstanding invoices.
On June 6, 2009, Global issued an invoice to FFC for $90,635,
which covered Global’s work conducting site surveys, preparing
sign drawings, and obtaining permits. Six days later, Global filed
a verified complaint in the superior court against FFC. Global
alleged causes of action for breach of contract, open book account,
common counts, and quantum meruit. Each cause of action was
based on the allegation that FFC and Global “entered into various
written invoice agreements” for work “invoiced from October 31,
2008 through June 6, 2009.” FFC allegedly defaulted on these
agreements by “failing to pay the outstanding invoices then due and
or the invoices thereafter invoiced.” “[T]he total principal sum of
$114,823.72 remain[ed] due”—an amount equal to the $24,188.72
of old unpaid invoices and the $90,635 invoice sent in June 2009.
The complaint sought that amount, plus interest, costs, attorney
fees, and “such other relief as the court deems just and proper.”
FFC filed a first amended cross-complaint alleging causes
of action for breach of contract, abuse of process, slander of title,
and defamation. The breach of contract cause of action was based
upon alleged “various written invoice agreements” between FFC
and Global. The other causes of action were based primarily on
Global’s filing of mechanics liens on several of FFC’s properties.
During pretrial discovery, Global did not identify or produce
any documents to support a claim for lost profits or damages in
excess of the $114,823.72 claim asserted in its complaint.
B. The Arbitration
On June 2, 2010, after discovery had been completed, and
19 days before trial was scheduled to begin, FFC and Global entered
into an arbitration agreement. The agreement identified Global’s
complaint and FFC’s cross-complaint, and recited that “[t]he
dispute involves the amount of money FFC owes to Global for
services performed.” The parties agreed to “submit all disputes
8
relating to this [a]greement to binding arbitration, in accordance
with California Code of Civil Procedure [sections] 1280-1294.2.”
They further provided that “[t]he matter shall be arbitrated by and
in accordance with the JAMS Arbitration Administrative Policies
and the applicable JAMS Arbitration Rules and Procedures.” The
Affiliates were not parties to the agreement.
The arbitration agreement provided that the “[a]rbitrator
shall apply California law as though he were obligated by applicable
statutes and precedents and case law, including the admissibility
of evidence and shall endeavor to decide the controversy as though
he were a judge in a California court of law.” It further provided:
“The [a]rbitrator shall prepare a written decision that shall be
supported by written findings of facts and conclusions which
adequately set forth the basis of the decision and which cites
the statutes and precedents applied and relied upon in reaching
his decision. . . . Any party may object to the confirmation of the
decision and award on the basis that the statement of facts and the
conclusions of law do not support the decision and award, and/or
that the law was incorrectly determined or applied. The arbitrator
shall apply the substantive law of the State of California and the
United States, if such law would apply if the matter were decided in
court, in deciding the issues submitted to arbitration. The parties
agree that the decision of the [a]rbitrator and the findings of fact
and conclusions of law shall be reviewed on appeal to the trial court
and thereafter to the appellate courts upon the same grounds and
standards of review as if said decision and supporting findings of
fact and conclusions of law were entered by a court with subject
matter and present jurisdiction.”
The agreement required that a pre-arbitration hearing be
held within 20 business days after the selection of an arbitrator,
and the arbitration must be completed and a decision rendered
within 90 calendar days thereafter. The arbitrator was required
to “establish any deadlines necessary to accomplish this goal.”
9
The arbitration hearing, which Global’s counsel originally
estimated would take one day, took place over six days in May and
June 2012. During the arbitration, Global took the position that
it had a contract with FFC to perform reimaging work on all
66 of FFC’s stores, that FFC wrongfully cancelled that contract,
and that Global was entitled to the profits it would have received
in the absence of the breach. According to Blakely (Global’s owner),
the parties entered into the reimaging contract in October 2007.
Blakely believed the contract was “based on our conversations,
based on accepted projects, [and] based on e-mail conversations
to re-image 66 locations.” In support of this theory, Blakely
referred to the “grid pricing” that Global purportedly created and
presented to FFC in 2007. The “grid pricing” document was marked
as exhibit 86.
During the arbitration hearing, Global made an oral motion
to have the Affiliates added as parties to the arbitration, and the
arbitrator granted the motion. Shortly thereafter, the arbitrator
set aside that ruling pursuant to a stipulation among counsel.
According to the stipulation, Global preserved its “right to seek
an order from a court . . . to add one or more of the Affiliates as
[r]espondents in the arbitration and/or as defendants in the
underlying lawsuit.”
Approximately four months later, in October 2012, the
arbitrator issued an interim award stating that FFC and Global
had agreed to a binding sign maintenance program and, based in
part on exhibit 86, a project to reimage FFC’s 66 stores over a
three-year period. The arbitrator found that FFC had breached the
maintenance agreement by failing to pay Global $24,188.72 due on
outstanding invoices, and breached the reimaging agreement “when
it refused to call Global to perform reimaging work . . . and instead
hired another sign company to perform this work.” Global was
therefore entitled to recover $1,130,675 in “los[t] profits” for the
breach of the reimaging contract.
10
FFC objected to the interim award on the grounds, among
others, that the arbitrator exceeded his authority under the
arbitration agreement to consider and decide Global’s claim that
it had a contract to reimage all 66 of the FFC-managed stores.
The arbitrator overruled the objections in December 2012.
In April 2013, the arbitrator granted FFC’s motion for leave
to conduct discovery with respect to exhibit 86. After discovery,
FFC moved to strike exhibit 86 and vacate the interim award on the
ground that Global had fraudulently represented the exhibit during
the arbitration. The arbitrator granted the motion and found that
“[e]xhibit 86 was falsely described and represented,” granted FFC’s
motion to strike the exhibit and withdrew the interim award with
respect to the lost profits claim. The arbitrator further ordered
Global to file a brief identifying evidence it “offered during the
arbitration [that] supports its demand for [its] lost profits claim for
reimaging work, excluding any reference to [e]xhibit 86.”
Global thereafter submitted the required brief and attached
to it approximately 100 pages of emails and other documents
that had not been previously introduced. (The documents were
purportedly found on Chavez’s wife’s laptop computer.) The
documents include a series of spreadsheets, each described as a
“PRELIMINARY COST SUMMARY,” for 13 of FFC’s stores.
(Capitalization, underlining and boldface in original.) Chavez
purportedly emailed these documents to Avan on various dates
in October 2007. Chavez asked Avan in the emails to “review
the attached information and provide comments and questions as
required,” and notes that “added costs savings can/will be applied
with quantity sign orders and/or location agreements.” The
belatedly-produced documents do not indicate that Avan responded
to these cost summaries.
Global’s new evidence did include one email exchange
between Chavez and Avan, which took place on October 24, 2007,
the date of Avan’s presentation to FFC’s management regarding the
11
sign maintenance program. That morning, Chavez sent an email
to Avan attaching a revised, one-page “preliminary pricing sheet
as it pertains to the Carl’s Jr. Sign Maintenance Program.” Avan
responded in the afternoon stating: “The new prices look great!
I am so excited about it!!” She then informed Chavez that a sign
had “blow[n] off” at a store in Reseda and asked Chavez for an
estimate to replace it. Avan also stated that Global’s proposal for
a fixed, per month price for sign maintenance, when compared
with FFC’s then-current expenses, did not “seem like a more cost
effective solution.” Avan did not mention the preliminary cost
summaries or the reimaging program.
FFC moved to strike the new documents, and Global moved
to have them admitted. The arbitrator ultimately allowed the
documents into evidence and expressly relied on the preliminary
cost summaries in finding that the parties had entered into a
contract for reimaging the FFC-managed stores.
In October 2014, the arbitrator issued an amended interim
award, again finding that FFC was liable to Global for $24,188.72
due on maintenance invoices and $1,130,675 in “lost profits” for
the breach of the reimaging contract. The arbitrator did not award
Global any amount with respect to the $90,635 invoice Global
issued just prior to filing its complaint.
In January 2015, Global filed a motion with the arbitrator
to reinstate the arbitrator’s order adding the Affiliates as parties
to the arbitration. FFC opposed the motion on the ground, among
others, that the prior stipulation to set aside the arbitrator’s
ruling precluded the arbitrator from reinstating the order. For
unexplained reasons, the arbitrator granted the motion and added
the Affiliates as parties.
On May 13, 2015, nearly five years after the parties agreed
to arbitrate,the arbitrator issued a final award in favor of
Global, awarding Global $24,118.72 “for unpaid invoices on the
maintenance program and $1,130,675.00 for lost profits on the
12
reimaging program,” plus $702,093.86 in pre-award interest (which
will continue to accrue at 10 percent). Global was also awarded
$1,051,066.50 in attorney fees and $91,529.70 in costs. The total
of damages, attorney fees, costs, and interest (as of the date of
the award) was $2,985,628.28. The arbitrator also ruled that the
Affiliates were joint and several obligors under the award. The
arbitrator awarded FFC $149,360 in attorney fees in connection
with FFC’s motion to reopen the arbitration with respect to
exhibit 86.
C. Post-Arbitration Proceedings and Appeals
On May 22, 2015, Global filed a petition in the superior
court to confirm the award, and FFC and the Affiliates filed
petitions to vacate the award.5 The trial court confirmed the award
as to FFC and vacated the award as to the Affiliates, and entered
judgment accordingly. FFC and Global appealed. We assigned case
No. B269427 to these appeals.
The trial court thereafter denied Global’s and the Affiliates’
motions for attorney fees, but ruled that the arbitrator has
“discretion to award such fees in whatever proportion the arbitrator
decides.” FFC and the Affiliates appealed from these orders, which
we assigned case numbers B275942 and B275947, respectively.
We have consolidated the three appeals (case Nos. B269427,
B275942, and B275947) for purposes of oral argument and decision.
FFC contends that the parties’ arbitration agreement
provided for trial court review of the arbitration award for legal
error, and that the trial court failed to review the award on that
basis. FFC further contends that if the proper standard of review
5 Global’s petition commenced Los Angeles County Superior
Court case No. BS155974; FFC’s petition commenced Los Angeles
County Superior Court case No. BS155973; and the Affiliates’
petition commenced Los Angeles County Superior Court case
No. BS155377.
13
is applied, the arbitration award cannot stand because: (1) the
alleged “reimaging” agreement is barred by the statute of frauds;
(2) the evidence is insufficient to support the arbitrator’s award
of lost profits damages; (3) the arbitrator erroneously admitted
and relied on evidence of FFC’s conduct in other litigation; and
(4) Global’s lost profits claim was outside the scope of the
arbitration agreement.6
Global disputes FFC’s contentions and, in Global’s
cross-appeal, argues that the trial court erred in denying its
petition to confirm the arbitrator’s award as to the Affiliates and
granting the Affiliates’ petition to vacate the award. The Affiliates,
as cross-respondents, contend that the trial court properly vacated
the award as to them.
FFC and the Affiliates further contend that the trial court
erred in ruling on the motions for post-arbitration attorney fees by
stating that the arbitrator had discretion to award attorney fees
related to the petitions to confirm and vacate the arbitration award.
6 FFC further contends that even if a more deferential
standard of review is applied, the award must be vacated because
(1) the arbitrator committed prejudicial misconduct, (2) the award
was procured through corruption, fraud, or undue means, and
(3) the arbitrator erred in failing to permit FFC to rebut Global’s
evidence of FFC’s litigation practices. Lastly, FFC contends that
the award should be vacated because the arbitrator failed to comply
with certain contractual procedures and deadlines. Because we
reverse the judgment on other grounds, we need not and do not
address these arguments.
14
DISCUSSION
I. The Arbitration Agreement Provided for
Review of Legal Error
The arbitrator determined that courts could not review his
decision “for errors of fact or law,” and the trial court agreed. FFC
contends that these conclusions are wrong, and that the trial court
should have reviewed the arbitrator’s decision under the standards
for appellate review of a court’s judgment. We agree with FFC.
Generally, an arbitrator’s determination of the merits of
a controversy is subject to very narrow judicial review, and the
arbitrator’s decision cannot be reviewed for errors of fact or law.
(Moncharsh v. Heily & Blase (1992) 3 Cal. 4th 1, 11 (Moncharsh).)
This rule “is consistent with the usual expectations of parties
to arbitration agreements, who accept the risk of legal error in
exchange for the benefits of a quick, inexpensive, and conclusive
resolution.” (Cable Connection, Inc. v. DIRECTV, Inc. (2008)
44 Cal. 4th 1334, 1360 (Cable Connection).) This general rule,
however, does not apply when the parties have agreed to “limit
the arbitrators’ authority by providing for review of the merits in
the arbitration agreement.” (Id. at p. 1364.)
In Cable Connection, the parties agreed to the following
arbitration clause in a sales agency agreement: “ ‘The arbitrators
shall apply California substantive law to the proceeding, except to
the extent [f]ederal substantive law would apply to any claim. . . .
The arbitrators shall prepare in writing and provide to the parties
an award including factual findings and the reasons on which
their decision is based. The arbitrators shall not have the power
to commit errors of law or legal reasoning, and the award may be
vacated or corrected on appeal to a court of competent jurisdiction
for any such error.’ ” (Cable Connection, supra, 44 Cal.4th
at pp. 1341-1342, fn. 3.) A dispute among the parties arose and was
submitted to arbitration. A majority of a panel of arbitrators found
in favor of one party and against the other. The trial court vacated
15
the award on the ground, among others, that the arbitrators’ award
“reflected errors of law that the arbitration clause placed beyond
their powers and made subject to judicial review.” (Id. at p. 1342.)
The Court of Appeal, however, held that the trial court erred by
reviewing the merits of the arbitrators’ decision. (Id. at p. 1343.)
The Supreme Court disagreed, and reversed. (Id. at p. 1364.)
The Supreme Court explained that the general rule of limited
judicial review is based “not on statutory restriction of the parties’
contractual options, but on the parties’ intent and the powers of the
arbitrators as defined in the agreement. These factors support the
enforcement of agreements for an expanded scope of review. If the
parties constrain the arbitrators’ authority by requiring a dispute
to be decided according to the rule of law, and make plain their
intention that the award is reviewable for legal error, the general
rule of limited review has been displaced by the parties’ agreement.
Their expectation is not that the result of the arbitration will be
final and conclusive, but rather that it will be reviewed on the
merits at the request of either party.” (Cable Connection, supra,
44 Cal.4th at p. 1355.) Acting in accordance with the “rule of law,”
as the Cable Connection Court used that phrase, means acting “ ‘in
conformity with rules of law.’ ” (Id. at pp. 1359-1360.)
Here, the parties agreed that the “[a]rbitrator shall apply
California law as though he were obligated by applicable statutes
and precedents and case law” and “apply the substantive law of the
State of California and the United States, if such law would apply
if the matter were decided in court, in deciding the issues submitted
to arbitration.” This language unambiguously requires the
arbitrator to act in conformity with rules of law—specifically, in
accordance with applicable California and federal substantive law.
The parties also plainly expressed “their intention that the
award [be] reviewable for legal error.” (See Cable Connection,
supra, 44 Cal.4th at p. 1355.) The arbitration agreement obligated
the arbitrator to “prepare a written decision that shall be supported
16
by written findings of facts and conclusions which adequately set
forth the basis of the decision and which cites the statutes and
precedents applied and relied upon in reaching his decision.” Most
significantly, the arbitrator’s findings of fact and conclusions of law,
as well as “the decision of the [a]rbitrator . . . shall be reviewed on
appeal to the trial court and thereafter to the appellate courts upon
the same grounds and standards of review as if said decision and
supporting findings of fact and conclusions of law were entered by a
court with subject matter and present jurisdiction.” The standards
of review of a court’s factual findings and legal conclusions are
well-settled: We review factual findings for substantial evidence
and legal conclusions de novo. (See, e.g., Haraguchi v. Superior
Court (2008) 43 Cal. 4th 706, 711.) By providing for such review,
the parties plainly expressed their intention that the merits of the
award be subject to review under these standards.
The trial court rejected FFC’s argument by stating: “The
[c]ourt finds that in contrast to Cable Connection, the [a]rbitration
[a]greement in this case does not explicitly and unambiguously
provide for expanded judicial review beyond that provided
by statute. In other words, the [c]ourt is not reviewing the
[a]rbitration or the [a]ward for errors of law.” We disagree with
the trial court’s interpretation. Although the language in the
instant agreement is not identical to the language in the agreement
examined in Cable Connection, the Supreme Court did not require
the use of any particular words to provide for expanded judicial
review; what matters is that the parties “make plain their
intention that the award is reviewable for legal error.” (See Cable
Connection, supra, 44 Cal.4th at p. 1355; see also Dotson v. Amgen,
Inc. (2010) 181 Cal. App. 4th 975, 987-988 [provision that a court’s
“standard of review” in an action to set aside arbitration award
“ ‘will be the same as that applied by an appellate court reviewing a
decision of a trial court sitting without a jury’ ” was “similar” to the
17
provision in Cable Connection].) As we explained above, the parties
have done so here. The trial court erred in concluding otherwise.
The trial court’s failure to apply the agreed-upon standards
of review does not require reversal unless it is reasonably probable
that a result more favorable to FFC would have been reached if the
court had applied the correct standards of review. (See People v.
Watson (1956) 46 Cal. 2d 818, 836; Brokopp v. Ford Motor Co. (1977)
71 Cal. App. 3d 841, 853.) One pertinent standard is our standard
for reviewing factual findings to determine whether they are
supported by substantial evidence.
“ ‘Substantial evidence’ is evidence of ponderable legal
significance, evidence that is reasonable, credible and of solid
value.” (Roddenberry v. Roddenberry (1996) 44 Cal. App. 4th
634, 651.) This requires that we review the entire record, not
merely the “ ‘isolated bits of evidence selected by the respondent’ ”
(People v. Johnson (1980) 26 Cal. 3d 557, 577), and that we
focus “on the quality, rather than the quantity, of the evidence”
(Roddenberry v. Roddenberry, supra, 44 Cal.App.4th at p. 651).
“The ultimate test is whether it is reasonable for a trier of fact
to make the ruling in question in light of the whole record.”
(Id. at p. 652.) FFC argues that the arbitrator’s finding that
the parties had entered into the reimaging contract that satisfies
the statute of frauds does not meet this test. We agree.
An essential element of any contract is the mutual consent
of the parties. (Weddington Productions, Inc. v. Flick (1998)
60 Cal. App. 4th 793, 811.) “ ‘The existence of mutual consent is
determined by objective rather than subjective criteria, the test
being what the outward manifestations of consent would lead a
reasonable person to believe.’ [Citation.] Outward manifestations
thus govern the finding of mutual consent required . . . for contract
formation. [Citation.] The parties’ outward manifestations
must show that the parties all agreed ‘upon the same thing in
the same sense.’ [Citation.] If there is no evidence establishing a
18
manifestation of assent to the ‘same thing’ by both parties, then
there is no mutual consent to contract and no contract formation.
[Citations.]” (Ibid.)
The arbitrator found that the alleged reimaging contract was
to be performed over three years.7 Under California’s statute of
frauds, when, as here, a contract is not to be performed within one
year it “or some note or memorandum thereof, [must be] in writing
and subscribed by the party to be charged or by the party’s agent.”
(Civ. Code, § 1624, subd. (a).) The writing need not contain all of
the contract’s terms; it is sufficient “if it identifies the subject of the
parties’ agreement, shows that they made a contract, and states
the essential contract terms with reasonable certainty.” (Sterling v.
Taylor (2007) 40 Cal. 4th 757, 766.) The purpose of this requirement
is “ ‘to require reliable evidence of the existence and terms of the
contract and to prevent enforcement through fraud or perjury of
contracts never in fact made.’ ” (Ibid., quoting Rest.2d Contracts,
§ 131, com. c., p. 335.)
Viewing the record most favorably to Global, as we must,
there is no substantial evidence in the record that FFC ever agreed
to have Global perform the reimaging work for any store other than
the Baldwin Park store. Nor is there any evidence of any writings
that satisfy the statute of frauds.
To support its contention that a 66-store reimaging contract
existed, Global points to Avan’s testimony that she met with
7 The finding that the contract was to take place over
three years appears to be based on Avan’s April 23, 2008 email
to Chavez stating that FFC would start the remodels in June or
July 2008 and “do 22 each year for the next three years.” Blakely,
however, testified that he believed the contract was to be performed
over the course of 18 months. Because the statute of frauds applies
to contracts not to be performed within one year, the discrepancy is
immaterial.
19
Dharod and “pitched the reimaging project, and he approved it.”8
Global infers from this statement that Avan pitched Global’s
bid to reimage 66 stores and that Dharod approved that bid. The
inference is not reasonable in light of Avan’s further testimony and
the whole record. After testifying that Dharod approved of Avan’s
“pitch,” Global’s counsel and Avan engaged in the following
colloquy.
“[Global’s counsel:] When you were pitching the re[]imaging
project, what is it you were pitching?
“[Avan:] I don’t recall specifically, but generally it was the
idea of doing it ourselves, how can we do this in the most cost
effective way and still get it done and get approved, but finish it in a
timely manner and basically the least expensive way . . . possible.
“[Global’s counsel:] And when he approved it, then you went
ahead and implemented it?
“[Avan:] No, approved it meaning, okay, you know, let me
think about it, let’s maybe—let’s maybe try one store and see how
it goes. [Dharod] basically said, okay I think you are doing the
right thing, I think we are down the same path, approve it meaning
let’s—let’s maybe try it. He still had to mul[l] it over and talk to
other people . . . , but we were on the path of going somewhere,
which was a big step.
“[Global’s counsel:] Do you recall that first store that he
mentioned?
“[Avan:] Yes.
“[Global’s counsel:] Which one was that?
8 Global’s noncompliance with California Rules of Court,
rule 8.204(a)(1)(C), mandating citations to the record (see fn. 3,
ante), is compounded by the fact that its citations to Avan’s
testimony are not to the transcripts of her testimony, but to the
pages in Global’s trial court brief. The citations, in turn, refer to
transcript pages that do not correspond to the pages in the record
on appeal.
20
“[¶] . . . [¶]
“[Avan:] In Baldwin Park. That was our test store.”
When viewed in its context, Avan’s testimony indicates that
her “pitch” was concerned with the project of reimaging stores
in general; she was not pitching any particular bid to reimage
66 stores, or even one store. Indeed, there is nothing in the cited
testimony to indicate that either Avan or Dharod had mentioned
Global or any other potential vendor during Avan’s “pitch.” The
testimony does not support the existence of a three-year reimaging
contract with Global.
Moreover, there is no evidence of a bid or offer from Global
to reimage all 66 stores. In order for FFC’s acceptance to form a
contract, the bid it accepts “ ‘must be sufficiently definite, or must
call for such definite terms in the acceptance, that the performance
promised is reasonably certain.’ [Citation.] . . . The terms of
a contract are reasonably certain if they provide a basis for
determining the existence of a breach and for giving an appropriate
remedy.” ’ [Citation.]” (Weddington Productions, Inc. v. Flick,
supra, 60 Cal.App.4th at p. 811.) Here, the arbitrator relied on
the preliminary cost summaries regarding 13 stores to support
the requisite definiteness. These “preliminary” documents,
however, were insufficient to support a contract for the 13 stores
they referred to, let alone all 66 stores.9 The 13 preliminary cost
summaries were accompanied by emails indicating that the prices
9 As noted above, the preliminary cost summaries were
not admitted or even produced prior to or during the evidentiary
presentation of the arbitration hearing. They were presented
to the arbitrator in response to the arbitrator’s order that Global
identify evidence introduced during the evidentiary hearing that
supported the formation of the reimaging contract. Although the
submission violated the arbitrator’s order, the arbitrator admitted
the materials over FFC’s objection, and expressly relied on them in
making his decision.
21
remained subject to negotiation and that Global contemplated
a formal written agreement. Moreover, there is no substantial
evidence that FFC ever treated such summaries as offers or, if it
had, that it accepted them. Furthermore, even if Avan’s testimony
regarding her pitch of the reimaging project could be viewed as
Dharod’s approval of Global as a vendor for any store other than the
Baldwin Park store, there is no evidence that anyone communicated
such approval to Global in any writing or otherwise.
Global also refers to Avan’s testimony regarding her
October 2007 presentation to Dharod and district managers
concerning Avan’s proposals for saving costs by switching to Global
as FFC’s sign maintenance vendor. In the passage quoted by
Global, Avan described her presentation and how, “at the end they
all just [clapped] and said okay, do it.” When this testimony is
viewed in its context, however, it unmistakably relates to Avan’s
presentation regarding sign maintenance, not the reimaging
program. Omitted from the passage that Global quotes in its brief
are the prefatory questions: “[S]o eventually then did [Global]
become your go to sign maintenance company?”; and “[i]n terms of
approving [Global] as your vendor, who else was involved in that?”
(Italics added.) The testimony does not support the existence of a
contract to reimage 66 stores.
Global next refers to Avan’s testimony regarding the bidding
process for the reimaging of stores generally and of the one store for
which Global was selected to provide the signage. The testimony,
particularly when viewed in its context, does not suggest that FFC
invited or considered bids for a contract that would cover 66 stores.
Although the particular testimony does not specifically refer to
the Baldwin Park store, Avan had previously testified that the first
store to be reimaged was the Baldwin Park store and subsequently
clarified that the only “final price quote” she had ever received from
Global for any store was the bid she had received for the Baldwin
Park store. Indeed, our record discloses only one price quote labeled
22
as “final”: the quote for the Baldwin Park remodel. Moreover,
Avan further testified that FFC approved of Global’s bid only for the
Baldwin Park store because Global was not a franchisor-approved
vendor and had never reimaged a Carl’s Jr. store; selecting Global
was therefore “a big risk.” As she put it: “I mean we were one store
in, what if they sucked later, then we would change them.” In light
of the entire record, the cited testimony does not reasonably support
the existence of a reimaging contract beyond the Baldwin Park
store.
Even if the evidence of Avan’s meetings and conversations
with Dharod and other FFC managers indicated that Avan had
made a pitch or presentation to have Global perform the reimaging
of all FFC-managed stores—and Dharod had accepted Avan’s
proposal—no contract with Global could be formed unless FFC
communicated its acceptance of Global’s offer to Global. (See
1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 187,
p. 221.) Global, however, points to no evidence that Avan or any
other representative of FFC ever informed Global that FFC had
agreed to give Global the right to reimage any store other than
the Baldwin Park store. Although the parties had an agreement
as to the Baldwin Park store and Avan informed Chavez that
Global would be its “go to” vendor for repairing and maintaining
signs, there is nothing in the record to indicate that she ever
promised Global anything more.
Global also points to numerous emails between Avan and
Chavez concerning the clearance sign project, the sign maintenance
work, and the reimaging program, which, when viewed individually
or collectively, do not reasonably express “a manifestation of
assent” to have Global perform the reimaging work on 66 stores.
(Weddington Productions, Inc. v. Flick, supra, 60 Cal.App.4th
at p. 811.)
The arbitrator expressly relied on Chavez’s October 29, 2007
letter to Avan as confirmation that Avan had informed Chavez
23
that Global had been awarded the maintenance and reimaging
contracts, and that “Global accepted the contract and would
commence work on both programs.” The October 29 letter,
however, makes no mention of the reimaging or remodeling
program, and states that Global will commence conducting sign
and facility surveys, “at no cost to” FFC. It does not reasonably
suggest or imply an agreement to reimage any store. Moreover,
even if the letter could be viewed as implying an agreement, it
would not satisfy the statute of frauds because it was signed only
by Chavez.
Global also points to evidence that it had undertaken actions
in furtherance of getting, or “winning,” FFC’s reimaging business.
In addition to preparing the preliminary cost summaries for
13 stores, Global conducted site surveys of each store (for which
Chavez stated FFC would not be charged), created sign drawings
based on a Carl’s Jr. design manual, and obtained sign permits for
numerous stores for which it claimed $90,635 for reimbursement
in both its complaint and before the arbitrator. But Global’s
demand to be reimbursed for those costs is contrary to their own
commitment to do the work for free, and belies its claim that the
parties had entered into a contract to reimage 66 stores.
Lastly, FFC cross-examined Chavez at some length as to
whether Chavez believed that FFC was obligated to use Global for
reimaging all 66 stores. He initially stated that the two businesses
“had developed a relationship, and we were given direction[s] to
follow, and we did that”; we were “producing what the client asked
us to do” and Global “expect[ed] to have something given back.”
When informed that he had not answered the question, Chavez
added: “All I can say is we followed in a path that was consistent
with what [FFC] had asked us to do.” When pressed further,
however, he eventually conceded that FFC’s use of Global to
reimage its stores was “at [FFC’s] discretion.”
24
Even if we assume there was some evidence from which
we could infer an oral agreement for reimaging work beyond the
Baldwin Park store, Global has referred us to no evidence of a
writing subscribed by anyone at FFC that would satisfy the statute
of frauds. Indeed, Chavez testified that, with the exception of the
Baldwin Park reimaging, “FFC wouldn’t sign anything.” Further,
even if we also assume that Avan’s emails could otherwise satisfy
the statute of frauds, there are no emails or writings from Avan
that identify with reasonable certainty the essential terms of a
contract to reimage 66 stores. (See Sterling v. Taylor, supra,
40 Cal.4th at p. 766.)
In the absence of any substantial evidence to support the
arbitrator’s findings that the parties had entered into a reimaging
contract or that the proffered writings satisfy the statute of frauds,
the award must be vacated.10
II. The Arbitrator Erred In Considering Global’s
Belated Reimaging Contract Claim
FCC further contends that the arbitration award must be
vacated because the arbitrator did not have the power to determine
the reimaging contract claim for lost profits. We agree.
FFC argued in the arbitration and before the trial court that
Global’s lost profits claim was not within the scope of the parties’
arbitration agreement and the arbitrator exceeded his authority
by determining that claim. The arbitrator rejected the argument,
finding that the lost profits claim “is not a new ‘claim’ and that
lost profits constitute a standard remedy for damages caused by a
10 Because the evidence is insufficient to support the
arbitrator’s award, the challenged claims may not be retried or
reheard. (See People v. Scott (2000) 85 Cal. App. 4th 905, 925
[“when a civil case is reversed on the ground of insufficiency of the
evidence, the case is properly terminated; it is not remanded for a
new trial”].)
25
breach of contract, nor is it a different remedy. Global’s Demand
for Arbitration always alleged a cause of action for breach of
contract and for damages. The cause of action related to 65 stores
and damages for the reimaging program amounted to over
$1,100,000.00 in the opinion of Global.”11
The trial court also rejected FFC’s argument, stating that
the “award of lost profits is not a new claim but a remedy that
arises from the breach of contract between Global and FFC.”
Although “the complaint in the underlying lawsuit sought more
limited damages,” the trial court explained that the complaint “is
not controlling. The [a]rbitration [a]greement describes the dispute
as about the amount of money owed by FFC to Global for services
performed. This is not a specific statement, and if the contract was
intended to concern only limited damages, it would have included
specific numbers.” We review de novo a ruling that an arbitrator
has acted within the authority granted to him under the arbitration
agreement. (California Faculty Assn. v. Superior Court (1998)
63 Cal. App. 4th 935, 945.) We agree with FFC.
The scope of arbitration is a matter of agreement between
the parties, and the arbitrator’s powers “derive from, and are
limited by, the agreement to arbitrate.” (Advanced Micro Devices,
Inc. v. Intel Corp. (1994) 9 Cal. 4th 362, 375; see also Moncharsh,
supra, 3 Cal.4th at p. 8; Ericksen, Arbuthnot, McCarthy, Kearney &
Walsh, Inc. v. 100 Oak Street (1983) 35 Cal. 3d 312, 323.) “[A]s such,
a party cannot be required to arbitrate an issue or grievance it
has not agreed would be subject to arbitration.” (Pacific Crown
11 Although the arbitrator referred to a “Demand for
Arbitration,” our record does not include a document with that
title. It appears from our record that the arbitration proceedings
were initiated when Global’s counsel submitted Global’s superior
court complaint, a copy of the arbitration agreement, and a letter
describing the dispute to JAMS. We discuss counsel’s letter below.
26
Distributors v. Brotherhood of Teamsters (1986) 183 Cal. App. 3d
1138, 1143.) An arbitrator that resolves issues the parties did not
agree to arbitrate or awards a remedy the parties did not authorize
exceeds the scope of his or her powers. (Service Employees Internat.
Union, Local 1021 v. County of San Joaquin (2011) 202 Cal. App. 4th
449, 462.)
Ordinarily, the question whether a particular claim or issue
is subject to arbitration is a matter to be determined by the trial
court, not the arbitrator. (Litton Financial Printing Div. v. NLRB
(1991) 501 U.S. 190, 208.) When, however, “the parties clearly and
unmistakably provide otherwise,” the arbitrator may determine the
scope of the arbitration. (AT&T Technologies v. Communications
Workers (1986) 475 U.S. 643, 649; accord, Dream Theater, Inc. v.
Dream Theater (2004) 124 Cal. App. 4th 547, 552.)
Here, Global contends that the parties, by providing
that the matter will be arbitrated in accordance with the JAMS
arbitration rules, “conferred upon the [a]rbitrator the authority
to determine the scope of the arbitration and to interpret the
[a]rbitration [a]greement.” Global points to rule 11 of the applicable
JAMS rules, which provides: “Jurisdictional and arbitrability
disputes, including disputes over the formation, existence, validity,
interpretation or scope of the agreement under which [a]rbitration
is sought . . . shall be submitted to and ruled on by the [a]rbitrator.
The [a]rbitrator has the authority to determine jurisdiction and
arbitrability issues as a preliminary matter.”
We need not decide whether the parties’ agreement to
arbitrate in accordance with the JAMS rules constitutes a clear and
unmistakable agreement to have the arbitrator decide the scope of
the arbitration. As explained above, the parties agreed that the
arbitrator’s decision is reviewable under the standards applicable
to a court’s determination. Thus, even if the parties clearly and
unmistakably agreed that the arbitrator had, under JAMS rule 11,
“the authority to determine jurisdiction and arbitrability issues
27
as a preliminary matter,” the parties also agreed that the
arbitrator’s determination of arbitrability was subject to review
under applicable standards of appellate review. Where, as here,
the language of the arbitration agreement is not in dispute and
the arbitrability determination was not based on the credibility of
extrinsic evidence, the applicable standard is de novo. (Gravillis v.
Coldwell Banker Residential Brokerage Co. (2006) 143 Cal. App. 4th
761, 771.) Therefore, regardless of whether the arbitrator or the
trial court was the appropriate person or court to determine the
scope of arbitration in the first instance, the respective decisions
are subject to our de novo review, and we are not bound by either
previous determination. (Ibid.)
Turning to the language of the arbitration agreement,
the parties identified at the outset Global’s complaint and FFC’s
cross-complaint, and stated that “[t]he dispute involves the amount
of money FFC owes to Global for services performed. Global asserts
one amount and FFC disputes such amount. Additionally, FFC
seeks affirmative relief in its cross-complaint for the matter alleged
in the cross-complaint.” (Italics added.) The arbitration agreement
also provides that the parties agreed to “submit all disputes relating
to this [a]greement to binding arbitration.”
Global’s complaint cannot reasonably be viewed as
encompassing the reimaging contract and lost profits claim
developed during the arbitration. In its complaint, Global
alleged, in essence, that FFC “entered into various written invoice
agreements with [Global]” for labor and materials “invoiced from
October 31, 2008 through June 6, 2009,” and that FFC “defaulted
on said agreements, failing to pay the outstanding invoices then due
and or the invoices thereafter invoiced, and the total principal
sum of $114,823.72 remains due and owing.” There is nothing
in the pleading to suggest that FFC and Global had a reimaging
contract or that Global was seeking anything other than the
amount allegedly due and owing on invoices it had issued to FFC.
28
Indeed, Blakely admitted at the arbitration hearing that at the
time Global filed its complaint, he did not believe that Global had
a contract for reimaging, and believed that Global’s damages were
limited to what Global had previously billed. Nor does FFC’s
cross-complaint imply the existence of any dispute related to an
alleged reimaging contract.
Tellingly, the parties defined the “dispute” in the arbitration
agreement as involving the amount of money FFC owes to Global
“for services performed.” (Italics added.) The use of the past tense
is consistent with the nature of the claims asserted in Global’s
complaint, which sought payment on invoices for services that
Global allegedly previously performed. The alleged lost profits
Global suffered as a result of the breach of an alleged reimaging
agreement, by contrast, was not for any services that Global
previously performed; instead, the lost profits were the money
Global would have received for work it would have performed in
the future.
The limited nature of the claims asserted in the pleadings is
further confirmed by Global’s responses to pretrial discovery. FFC
propounded interrogatories and document requests pertaining to
the allegations of the complaint. FFC requested, for example, all
documents that supported each of Global’s causes of action and all
contracts between Global and FFC. Global produced invoices and
documents pertaining to its claim for $114,823.72, but none that
supported a claim for the alleged imaging contract or lost profits
related to that work.
A limited, pleadings-based definition of the dispute is
supported by a letter Global’s counsel wrote to initiate the
arbitration proceeding with JAMS. In that letter, Global’s counsel
described the matter as follows: “Global performed certain services
for FFC in connection with various Carl’s Jr. fast food franchise
outlets. When FFC failed to pay the invoices submitted by Global,
Global filed a lawsuit in the spring of 2009 against FFC seeking
29
to recover approximately $120,000. . . . [¶] The primary issue
appears to be whether FFC had authorized a large portion of the
work for which Global submitted an invoice to FFC. . . . We expect
that the matter will be a straightforward examination of the facts
to determine whether FFC authorized the work performed by
Global and whether or not other bases exist for Global to recover
compensation from FFC for the work performed. [¶] We expect
that the arbitration would not take more than one day.”
This view is further supported by a letter Global’s counsel
provided to FFC’s counsel the following month in which he detailed
the basis for Global’s $90,635 invoice. Counsel explained that
the industry’s and Global’s practices were “to bill for all services
and materials upon the completion of a job. However, if a job is
abandoned by the client, [Global] and others in the industry then
bill for all professional services rendered. This is what happened
between FFC and [Global]. [Global] performed the professional
services but waited to invoice the services in the belief that the
stores would be re-imaged and the invoices would be sent when the
re-imaging for each store was complete. When it became clear in
2009 that FFC was not moving forward with the re-imaging of the
stores, then [Global] prepared and sent an invoice to FFC for all
professional services rendered at FFC’s request.” The invoice, he
concluded, “simply captured [the] professional services that had not
been previously billed.” There is nothing in the letter to indicate
that the then-pending arbitration encompassed a claim for lost
profits under an alleged reimaging agreement.
It does not appear from our record that Global informed
either the arbitrator or FFC that it would attempt to expand the
scope of the arbitration until after the hearing began in May 2012.
Although the applicable JAMS rules provide that a party may make
“a new or different claim” in a writing served on the other party,
who may file a response, Global did not do so.
30
Global also relies on the contractual requirement that
the arbitrator apply California law and section 469 of the
Code of Civil Procedure, which permits a trial court to amend a
party’s pleading to conform to proof.12 (See generally 5 Witkin,
Cal. Procedure (5th ed. 2008) Pleading, §§ 1209-1212, pp. 641-646.)
Global contends that any variance between its complaint and the
facts presented during the arbitration hearing was immaterial
because FFC was not misled. We disagree. Our review of the
record, including the transcript of the arbitration hearing, supports
FFC’s characterization of the reimaging contract/lost profits claim
as “a claim by ambush.” It was not until the last day of the six-day
arbitration hearing, during FFC’s cross-examination of Blakely,
that Global produced the “grid pricing” that became exhibit 86, the
document that purportedly supplied the schedule of prices for the
reimaging contract. Until then, it appears that FFC reasonably
believed that it was defending against the limited claims alleged in
Global’s complaint. Even if the arbitrator had the power to amend
the complaint to conform to proof, the arbitrator erred by failing
to provide FFC with the opportunity to respond to the new claim.
(See 5 Witkin, supra, Pleading, § 1212 at pp. 645-646.)
Lastly, the language in the arbitration agreement by
which the parties agreed to “submit all disputes relating to this
[a]greement to binding arbitration” does not help Global. The
arbitration agreement relates to the dispute as defined by reference
to the claims asserted in the parties’ court pleadings. Because
Global’s reimaging contract/lost profits claim is not encompassed
12 Code of Civil Procedure section 469 provides: “No variance
between the allegation in a pleading and the proof is to be deemed
material, unless it has actually misled the adverse party to his
prejudice in maintaining his action or defense upon the merits.
Whenever it appears that a party has been so misled, the Court
may order the pleading to be amended, upon such terms as may be
just.”
31
within those pleadings, it does not relate to the arbitration
agreement.
In short, the record establishes that the parties agreed to
submit to arbitration the disputes alleged in Global’s complaint and
FFC’s cross-complaint. Because FFC did not agree to submit to
arbitration any claim for lost profits based on an alleged reimaging
contract, the arbitrator did not have the power to determine or
award damages on that claim. Because the arbitrator’s awards of
attorney fees and costs in Global’s favor are inextricably related to
the award on the reimaging contract claim, that award must also be
reversed.13
III. The Trial Court Properly Vacated the Award
As to the Affiliates
During the arbitration hearing, Global moved to add
the Affiliates as parties to the arbitration, and the arbitrator
granted the motion. Thereafter, the parties entered into
a stipulation, signed by the arbitrator, that included the
following: “The arbitrator’s order adding . . . the Affiliates as
defendants/respondents in the arbitration shall be set aside.
[Global] reserves the right to seek an order from a court of
competent jurisdiction to add one or more of the Affiliates as
[r]espondents in the arbitration and/or as defendants in the
underlying lawsuit.” As part of the stipulation, FFC agreed that if
13 Although the arbitrator’s final award reflects an award of
$149,360 to FFC for its attorney fees incurred in connection with
its efforts to reopen the arbitration with respect to exhibit 86,
FFC’s petition to vacate the award sought only “to vacate and set
aside the [f]inal [a]ward.” It did not seek to preserve its award
of attorney fees. Nor does FFC contend on appeal that we should
provide any relief to it with respect to that part of the award.
Accordingly, we do not address any issue concerning the award of
attorney fees to FFC.
32
judgment is entered against it, it would not challenge the judgment
on the ground that FFC did not own the Carl’s Jr. restaurants for
which Global provided services.
In January 2015, Global filed a motion with the arbitrator
to reinstate the arbitrator’s order adding the Affiliates as parties
to the arbitration. In the arbitrator’s final award, the arbitrator
granted the motion, stating that the Affiliates were named
in the underlying lawsuit as Doe defendants, and that FFC
acted as their agent in entering into the arbitration agreement.
The arbitrator further found that “adding the Affiliates as
respondents is necessary and appropriate to protect the efficacy of
the [f]inal [a]ward and to conserve the resources of the parties and
of the courts by avoiding future litigation between Global and the
Affiliates.”
The trial court granted the Affiliates’ petition to vacate the
award, stating that the arbitrator “clearly exceeded his powers
by adding the Affiliates.” The stipulation, the court explained,
“remove[d] the [a]rbitrator’s authority to add the Affiliates to
the [a]rbitration.” (Underlining in original.) According to the
stipulation, the question “whether the Affiliates would be joined
was to be decided by a [c]ourt.”14 The trial court further explained
that the arbitrator’s decision “effectively denied the Affiliates a
hearing on the merits” because they were added in the final award
and never given an opportunity to present a defense.
The court’s order is correct. The provision in the stipulation
to set aside the arbitrator’s ruling adding the Affiliates as parties
14 In January 2016, Global filed a motion to amend the
judgment to add the Affiliates and Dharod as judgment debtors.
The trial court denied this motion, stating that “it would not be
proper to add the Affiliates and Dharod to the [j]udgment at this
time.” Global filed a notice of appeal from that order, but later
expressly abandoned that appeal.
33
to the arbitration, followed by Global’s reservation of the “right to
seek an order from a court” to add the Affiliates reasonably implies
that any subsequent motion by Global to add the Affiliates to
the arbitration, the lawsuit, or the judgment would be made to
“a court,” not the arbitrator. Indeed, Global’s interpretation—that
the arbitrator could still add the Affiliates as parties—would have
permitted Global to make a new motion to the arbitrator to add the
Affiliates as parties immediately upon entering into the stipulation.
The act of setting aside the arbitrator’s order would be rendered
effectively meaningless, depriving FFC of the benefit of the bargain
it made in entering into the stipulation.
Reasonably construed, therefore, the stipulation required that
any motion to add the Affiliates as parties to the arbitration be
made to a court, not the arbitrator. The stipulation thus had the
effect of withdrawing from the arbitrator’s authority the power to
determine whether the Affiliates could be added to the arbitrator’s
award. The trial court, therefore, did not err in denying Global’s
petition to confirm the award as to the Affiliates and in granting
the Affiliates’ petition to vacate the award as to them.
IV. The Orders Denying Attorney Fees
After the trial court confirmed the arbitrator’s award
as to FFC and vacated the award as to the Affiliates, Global
filed a motion for an award of attorney fees incurred to confirm
the arbitration award as to FFC. The motion was based on
paragraph 11 of the arbitration agreement, which provides that
“the arbitrator may award the prevailing party its expenses and
fees of arbitration, including reasonable attorney fees and witness
fees, in whatever proportion the arbitrator decides.” FFC opposed
the motion on the ground that this provision only permits the
recovery of attorney fees “borne during arbitration,” not fees
incurred in the trial court proceedings to confirm the arbitration
award.
34
After Global filed its motion, the Affiliates filed a motion to
recover an award of attorney fees incurred to vacate the arbitrator’s
award against them.15 The Affiliates took the position that neither
they nor Global were entitled to recover post-arbitration attorney
fees “because no statutory or contractual vehicle exists” for such
an award. Both motions, they asserted, should therefore be denied.
Nevertheless, the Affiliates argued that, “if the [c]ourt disagrees . . .
and determines that a valid attorneys’ fees provision indeed exists,
then both parties, the Affiliates and Global, would be eligible for
attorneys’ fee awards.”
The trial court denied the motions in separate orders, stating
in each: “The agreement to arbitrate was negotiated by the parties
and the attorney fees clause ([paragraph] 11) is specific that only
the arbitrator may award attorneys fees and further gives him
discretion to award such fees in whatever proportion the arbitrator
decides. This [c]ourt finds that the petitions to confirm or vacate
the arbitrator’s award is part of the arbitration pursuant to the
agreement to arbitrate.”16
FFC appealed from the order denying Global’s motion and
the Affiliates appealed from the order denying their motion. Global
did not appeal from either order. On appeal, FFC and the Affiliates
contend that the arbitration agreement “does not provide for
anyone to recover fees incurred post-arbitration, regardless of the
final merits outcome,” and they request that our decision “reduce
satellite litigation on remand, by making clear that . . . regardless
of the outcome of the [appeal on the merits], post-arbitration fees
are not recoverable.”
15 The Affiliates requested $210,595.50 in attorney fees.
Global sought $1,525,200.00 in fees.
16 Judge Josh M. Fredericks heard and denied the motions
for attorney fees.
35
Global contends that the appeals from the orders denying
attorney fees are premature and should be dismissed. The
contention has merit. Although an order denying a post-judgment
motion to recover attorney fees is ordinarily appealable (see,
e.g., Lakin v. Watkins Associated Industries (1993) 6 Cal. 4th
644, 654-655), the orders in this case contemplate that the parties
would return to the arbitrator for a determination of the amount of
attorney fees to be awarded. That award would presumably then
lead to competing petitions to confirm and vacate the arbitrator’s
award and, eventually, an appealable order. The trial court’s orders
were thus “preliminary to future proceedings” and, therefore, not
appealable. (Id. at p. 654.)
In extraordinary circumstances, however, we may deem a
purported appeal from an unappealable order as a petition for writ
of mandate. (See Olson v. Cory (1983) 35 Cal. 3d 390, 401.) Such
circumstances are present here. Although Global devoted the
initial portion of its brief to its argument that the appeal should be
dismissed, it thereafter fully briefed the issues raised in the opening
briefs. By addressing the issues now, we can protect the parties
and the courts from venturing further down an “ ‘ “unnecessarily
dilatory and circuitous” ’ ” path that has already extended much
longer and cost far more than the parties could have possibly
envisioned when Global filed its complaint eight years ago. (See
ibid.) Therefore, in the interest of justice and judicial economy,
we will deem the appeals from the orders denying the motions for
attorney fees as petitions for writ of mandate.
In light of the positions FFC and the Affiliates take on appeal
and our conclusions concerning the merits of the arbitration award,
we can quickly dispose of the attorney fees issues. Because we
reverse the trial court’s order granting Global’s petition to confirm
the arbitration award against FFC and we affirm the trial court’s
order granting the Affiliates’ petition to vacate the arbitration
award as to them, Global is not a prevailing party as to the
36
post-arbitration proceedings and, therefore, not entitled to recover
its fees from either the trial court or the arbitrator under any
interpretation of the attorney fees provision. Because FFC and the
Affiliates assert that no one is entitled to post-arbitration attorney
fees regardless of the outcome of the appeal on the merits, there is
no question presented as to whether FFC and the Affiliates might
be entitled to recover their attorney fees for post-arbitration
proceedings. Accordingly, we do not reach such questions.17
17 As noted above, the merits of Global’s claims may not be
retried or reheard by an arbitrator. (See Discussion ante, at p. 25,
fn. 10.) If, after remand, further proceedings before an arbitrator
are held to determine whether a party is entitled to recover
costs and attorney fees related to the arbitration proceeding and,
if so, the amount of such costs and fees, the rehearing shall not
be held before the original arbitrator unless the parties consent.
(Code Civ. Proc., § 1287.)
37
DISPOSITION
The judgment in superior court case No. BS155974 in
favor of Global and against FFC is reversed. The court is directed
to vacate its orders granting Global’s motion to confirm the
arbitrator’s award as to FFC and denying FFC’s motion to vacate
the award, and to issue a new order denying Global’s motion to
confirm the award and granting FFC’s motion to vacate the award.
The order granting the Affiliates’ motion to vacate the
arbitrator’s award is affirmed.
We hereby deem the appeals from the orders dated
June 9, 2016, in superior court case Nos. BS155974 and BS155377
concerning Global’s and the Affiliates’ motions for attorney fees to
be petitions for writ of mandate. Good cause appearing therefor,
let a peremptory writ of mandate issue, directing the trial court
to vacate such orders and to make different orders denying the
motions.
FFC and Affiliates are awarded their costs on appeal.
CERTIFIED FOR PUBLICATION.
ROTHSCHILD, P. J.
We concur:
CHANEY, J.
LUI, J.
38