350 WSJ v. Winchester Plaza On The Row CA6

Filed 10/17/22 350 WSJ v. Winchester Pla za On The Row CA6
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
350 WSJ LLC et al., H049212
(Santa Clara County
Plaintiffs and Appellants, Super. Ct. No. 18CV321720
v.
WINCHESTER PLAZA ON THE ROW
et al.,
Defendants and Respondents.
I. INTRODUCTION
This appeal arises from business disputes between appellants Renee K. Kwan, 350
WSJ LLC (350 WSJ), and Asset Management LLC (ASM) and respondents David Seto,
Sharon Seto, Gordon Lee, Patricia Lum, and Sharon Seto (collectively, the Seto Group),
Winchester Plaza on the Row LLC (WPR), and Anthony Sam. The parties made three
separate demands for arbitration of their disputes, which concerned the parties’
involvement in developing commercial real property, that were coordinated for one
arbitration hearing. After holding an arbitration hearing in three phases, the arbitrator
awarded respondents over $4 million in damages and determined that Kwan was
personally liable for all amounts due in the final award.
Kwan, 350 WSJ, and ASM filed petitions to vacate the arbitration award and the
Seto Group and Sam filed petitions to confirm the award. The trial court denied the
petitions to vacate the arbitration award and granted the petitions to confirm the
arbitration award. The judgment in conformity with the order confirming the arbitration
award was entered on May 17, 2021.
On appeal, Kwan, 350 WSJ, and ASM contend that their petitions to vacate the
arbitration award should be granted pursuant to Code of Civil Procedure section 1286.2,
subdivision (a)(5)1 because the arbitrator abused his discretion in refusing to grant their
request for a continuance of Phase 2 of the arbitration hearing to allow them to obtain
new counsel after their attorneys withdrew following Phase 1, which effectively denied
their right to counsel under section 1282.4, subdivision (a). For the reasons stated below,
we find no merit in these contentions and we will affirm the judgment.
II. FACTUAL AND PROCEDURAL BACKGROUND
A. The Underlying Disputes
Although the merits of the parties’ disputes are not at issue, we provide a very
brief summary as background to the issues on appeal.
The members of the Seto Group had ownership interests in WPR, which included
among its assets commercial real property on Winchester Boulevard in San Jose that the
Seto Group intended to develop. The property was encumbered by several liens.
Kwan became involved as an investor and also as a manager of the proposed
development through the entities 350 WSJ and ASM. The parties entered into several
agreements regarding the development, including operating agreements and loan
agreements. Sam became involved as an independent director of an entity known as WSJ
Management. He also had an ownership interest in that entity.
Numerous disputes later arose between the parties regarding their respective rights
and obligations under various agreements. One of the disputes concerned 350 WSJ’s
obligation to respond to a cash call that WPR had made to all of the members of WPR in
order to retire one of the liens on the development property. When 350 WSJ did not
1 All statutory references hereafter are to the Code of Civil Procedure.
2
respond to the cash call, its interest in WPR was diluted to zero. ASM’s interest in WSJ
Management was also diluted to zero.
B. The Arbitration
The parties made three separate demands for arbitration that were coordinated into
one arbitration. The arbitration was held in three phases.
1. Phase 1
Phase 1 took place over 12 days in November 2016 and February 2017. The
parties stipulated to five issues that the arbitrator would decide in Phase I in order “to
render a final decision on the issue of control of WSJ Management and thereby
Winchester Plaza on the Row, LLC and the Property.” The arbitrator made an interim
award finding in favor of the claimants, Seto Group and Sam, on all five issues in Phase
I.
The arbitrator also made witness credibility findings in Phase 1. As stated in the
arbitration award, the Seto Group witnesses and Sam were determined to be credible
witnesses, while Kwan was not. Regarding Kwan’s credibility, “for numerous reasons,
the Arbitrator did not find Ms. Kwan to be a credible witness. Ms. Kwan was unable to
remember important facts and events, was unable to answer simple questions, and when
questions were answered by Ms. Kwan, her responses were at times evasive.” Further,
the arbitrator found that Kwan had destroyed evidence, given false and inconsistent
testimony, and made misleading statements, which together “resulted in the Arbitrator
giving Ms. Kwan’s testimony little weight.”
2. Phase 2
Phase 2 of the arbitration was set to begin on September 25, 2018, and took place
over 6 days in September and October 2018. However, on August 20, 2018, Steven A.
Ellenberg, counsel for Kwan, moved to be relieved as counsel on the grounds of
nonpayment of fees and breakdown in the attorney-client relationship. At the same time,
3
Thoits Law, counsel for 350 WSJ and ASM, moved to be relieved as counsel on the
grounds of irreconcilable differences between Thoits Law and the clients. 2
Kwan did not object to counsels’ motions to withdraw, but requested a
continuance of not less than 120 days in order for new counsel to prepare. The arbitrator
granted the motions of Ellenberg and Thoits Law to be relieved as counsel, and in an
order dated August 31, 2018, denied Kwan’s request for a continuance of the arbitration
after balancing the prejudice to each party. Specifically, the arbitrator determined that
“[t]he arbitrator must weigh the respective prejudices to the parties in evaluating the
request for a continuance. The prejudice to the entire project with the prospect of losing
the Entitlement [to develop an 18-story building] is most substantial. Balanced against
that is if Ms. Kwan is unable to obtain counsel, she appears to be a very intelligent
individual with extensive knowledge of all phases of the case, including the Phase 1
hearing process. She may legally represent the two LLCs [350 WSJ and ASM] in the
arbitration.”
Before Phase 2 of the arbitration hearing began, Kwan, 350 WSJ and ASM
renewed their request for a continuance of Phase 2 hearing, based on their submission of
a declaration from an attorney stating he would need five or six months to prepare. The
arbitrator again denied the request for a continuance on the ground that a continuance
would cause the “substantial prejudice to the completion of the project.” On September
25, 2018, Kwan made a third request for a continuance, based primarily on her assertion
that the time for the development entitlement for the property could be extended. The
arbitrator denied the third request for a continuance, remaining unpersuaded that Kwan
was unable to obtain counsel for the Phase 2 hearing and again finding that “Ms. Kwan’s
lack of credibility undercuts her claims with respect to the need for a continuance.”
2 Thoits Law is not a party to the present appeal.
4
Phase 2 commenced with Kwan representing herself, 350 WSJ, and ASM. The
issues to be determined in Phase 2 were the parties’ remaining claims, including
entitlement to punitive damages, plus determination of the prevailing party for purposes
of awarding attorneys’ fees and costs. The arbitrator found in favor of claimants the Seto
Group and Sam on all issues, including entitlement to punitive damages, and determined
that the Seto Group and Sam were the prevailing parties. The arbitrator also found that
Kwan was the alter ego of 350 WSJ and ASM and “is personally liable for all amounts
due in the Final Arbitration Award.”
3. Phase 3
In February 2019 new counsel appeared for Kwan, 350 WSJ, and ASM. Phase 3
of the arbitration was held on two days in June 2019. The issues to be decided included
the amount of punitive damages and the motions for attorney’s fees and costs submitted
by the Seto Group and Sam. Kwan, 350 WSJ, and ASM submitted a motion to strike the
punitive damages award on the ground, among other things, that they had been denied the
right to counsel in Phase 2. The arbitrator denied the motion to strike the punitive
damages award, finding that “Ms. Kwan had other counsel in related matters at the time
of the request for a continuance. The Arbitrator was not and is not persuaded that
Respondents were unable to obtain counsel to represent her during the Phase 2 hearing.
Again, as noted throughout this award, Ms. Kwan’s lack of credibility undercuts her
claims with respect to the need for a continuance. Respondents’ claims with respect to
being prejudiced due to the exclusion of material evidence fail to reference any specific
relevant evidence that she was unable to have admitted.”
At the conclusion of Phase 3, the arbitrator awarded the Seto Group punitive
damages in the amount of $2 million. The arbitrator also ruled that the Seto Group, Sam,
and WPR were entitled to an award of attorney’s fees and costs, as set forth in the final
arbitration award.
5
4. Final Arbitration Award
In September 2019 the arbitrator issued a 174-page arbitration decision that
concluded with the following awards: (1) the Seto Group is entitled to recover
$4,071,999.07 from Kwan, 350 WSJ, and ASM; (2) Sam is entitled to recover from
$229,046.40 from Kwan, 350 WSJ, and ASM; (3) WPR is entitled to recover
$159,284.33 from Kwan, 350 WSJ, and ASM; and (4) Kwan is personally liable for all
amounts due in the final award.
C. Trial Court Proceedings and Judgment
The Seto Group, joined by WPR, and Sam each filed a petition to confirm the
arbitration award. Kwan, 350 WSJ, and ASM (hereafter, collectively the Kwan Parties)
filed petitions to vacate the arbitration award, arguing that there were sufficient grounds
to vacate the arbitration award pursuant to section 1286.2, subdivisions (a)(4) and (a)(5),
including the arbitrator’s refusal to grant Kwan’s request for a continuance of Phase 2 of
the arbitration in order to obtain new counsel, which Kwan asserted effectively denied
her the right to counsel and constituted structural error. Kwan also argued that the
arbitrator had refused to hear relevant evidence, which was another ground sufficient to
vacate the arbitration award.
In the May 6, 2020 order the trial court granted the petitions to confirm the
arbitration award and denied the petitions to vacate the award. The trial court ruled that
the totality of the circumstances showed that the arbitrator did not abuse his discretion in
denying Kwan’s request for a continuance of Phase 2 of the arbitration. The court found
that the arbitrator “took into consideration the credibility and motives of Ms. Kwan, and
he engaged in a weighing of prejudice to the parties.” Additionally, the court found that
the arbitrator’s concern regarding the development entitlement could not “be deemed
unreasonable or misplaced in view of the totality of the information before him.”
The trial court also rejected Kwan’s claim that the arbitrator’s refusal to continue
Phase 2 of the arbitration effectively denied her the right to counsel, finding that “[a]s the
6
Arbitrator correctly observed, Ms. Kwan’s actions resulted in the Kwan Parties being
without counsel.” Further, the court determined there was no due process right to be
represented by counsel at an arbitration and JAMS arbitration rules did not require that a
corporation or LLC be represented by counsel. Having concluded that the arbitrator did
not abuse his discretion, the trial court declined to reach the issue of prejudice.
After the May 6, 2020 order confirming the arbitration award was filed, the Kwan
Parties filed a motion to disqualify the law firm representing the Seto Group, Hopkins &
Carley, on the ground that Ellenberg, Kwan’s former attorney, had joined Hopkins &
Carley after his motion to be relieved as counsel was granted and the litigation was still
ongoing. The Kwan Parties also sought an order striking all papers filed by Hopkins &
Carley after the date Ellenberg joined the firm. In addition, the Kwan parties brought a
motion for reconsideration of the May 6, 2020 order on the same ground of the conflict of
interest caused by Ellenberg joining Hopkins & Carley.
On December 15, 2020, the trial court issued a combined order on the Kwan
Parties’ motion to disqualify Hopkins & Carley and their motion for reconsideration. The
court found that “[a]fter the close of the evidence and during post-hearing briefing in
Phase 3, Hopkins & Carley issued a public announcement on July 16, 2019 that Mr.
Ellenberg had joined Hopkins & Carley. Neither Mr. Ellenberg nor Hopkins & Carley
disclosed this to Ms. Kwan. Neither Mr. Ellenberg nor Hopkins & Carley obtained a
waiver or consent from Ms. Kwan.” The court granted the motion to disqualify Hopkins
& Carley from representing the Seto Group, effective the date of the December 15, 2020
order.
However, the trial court denied the Kwan Parties’ request for an order striking the
papers filed by Hopkins & Carley and their motion for reconsideration, finding that the
Kwan Parties had failed to show that they were prejudiced by Hopkins & Carley’s
conflict of interest since Ellenberg did not join Hopkins & Carley until after the close of
evidence in Phase 3 of the arbitration and all that remained was the submission of post-
7
hearing briefs. The court noted that “[t]he Kwan parties have not shown that the post-
hearing briefing by Hopkins & Carley actually used confidential information and that
such wrongful use had a substantial impact on the Arbitrator’s decision.”
The judgment in conformity with the order confirming the arbitration award was
entered on May 17, 2021, and included awards of prejudgment interest and attorney’s
fees and costs to the Seto Group, Sam, and WPR.
III. DISCUSSION
The Kwan Parties contend on appeal that their petition to vacate the arbitration
award should be granted pursuant to section 1286.2, subdivision (a)(5) because the
arbitrator erred in refusing to grant their request for a continuance of Phase 2 of the
arbitration hearing and effectively denied their right to counsel under section 1282.4,
subdivision (a). We will begin our evaluation of these contentions with the general legal
principals pertaining to arbitration awards and the applicable standard of review.3
A. General Legal Principles and Standard of Review
Through the California Arbitration Act, set forth in Title 9 of the Code of Civil
Procedure (§ 1280 et seq.), the Legislature has expressed a “ ‘strong public policy in
favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.’
[Citations.]” (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9 (Moncharsh).)
“ ‘Because the decision to arbitrate grievances evinces the parties’ intent to bypass
the judicial system and thus avoid potential delays at the trial and appellate levels, arbitral
finality is a core component of the parties’ agreement to submit to arbitration.’ ” (Richey
v. AutoNation, Inc. (2015) 60 Cal.4th 909, 916 (Richey).) “[I]t is the general rule that
parties to a private arbitration impliedly agree that the arbitrator’s decision will be both
binding and final” (Moncharsh, supra, 3 Cal.4th at p. 9), and thus they agree to bear the
3 We granted the applications of Imre Stephen Szalai and Carrie Shu Shang for
leave to file an amicus curiae brief in support of appellants.
8
risk of an arbitrator’s mistake “in return for a quick, inexpensive, and conclusive
resolution to their dispute.” (Id. at p. 11.)
Accordingly, courts generally may not review arbitration awards for errors of fact
or law, “even when those errors appear on the face of the award or cause substantial
injustice to the parties.” (Richey, supra, 60 Cal.4th at p. 916.) “[T]he Legislature has
reduced the risk to the parties of such a decision by providing for judicial review in
circumstances involving serious problems with the award itself, or with the fairness of the
arbitration process.” (Moncharsh, supra, 3 Cal.4th at p. 12.)
Section 1286.2, subdivision (a) sets forth the six circumstances in which the
Legislature has authorized judicial review and vacation of an arbitration award: “[T]he
court shall vacate the award if the court determines any of the following: [¶] (1) The
award was procured by corruption, fraud or other undue means. [¶] (2) There was
corruption in any of the arbitrators. [¶] (3) The rights of the party were substantially
prejudiced by misconduct of a neutral arbitrator. [¶] (4) The arbitrators exceeded their
powers and the award cannot be corrected without affecting the merits of the decision
upon the controversy submitted. [¶] (5) The rights of the party were substantially
prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause
being shown therefor or by the refusal of the arbitrators to hear evidence material to the
controversy or by other conduct of the arbitrators contrary to the provisions of this title.
[¶] (6) An arbitrator making the award either: (A) failed to disclose with the time
required for disclosure a ground for disqualification of which the arbitrator was then
aware; or (B) was subject to disqualification upon grounds specified in Section
1281.91[.]”
Thus, “ ‘ “[t]he statutory provisions for [review of an arbitration award] are
manifestly for the sole purpose of preventing the misuse of the proceeding, where
corruption, fraud, misconduct, gross error, or mistake has been carried into the award to
the substantial prejudice of a party to the proceeding.” ’ [Citation.]” (Heimlich v. Shivji
9
(2019) 7 Cal.5th 350, 368 (Heimlich).) “Otherwise, judicial corrections are limited to
remedying ‘obvious and easily correctable mistake[s],’ ‘technical problem[s],’ and
actions in excess of authority so long as the correction leaves the merits of the decision
unaffected. [Citation.]” (Id. at p. 367; see § 1286.6.)
“ ‘ “On appeal from an order confirming an arbitration award, we review the trial
court’s order (not the arbitration award) under a de novo standard. [Citations.] To the
extent that the trial court’s ruling rests upon a determination of disputed factual issues,
we apply the substantial evidence test to those issues.” ’ [Citations.]” (ECC Capital
Corp. v. Manatt, Phelps & Phillips, LLP (2017) 9 Cal.App.5th 885, 900 (ECC).) We
may review an order denying a petition to vacate an arbitration award upon appeal from
the judgment on the order confirming the arbitration award. (Mid-Wilshire Assocs. v.
O’Leary (1992) 7 Cal.App.4th 1450, 1454.)
B. Postponement of Arbitration Hearing
1. Section 1286.2, subdivision (a)(5)
“The party seeking to vacate an arbitration award bears the burden of establishing
that one of the six grounds listed in section 1286.2 applies and that the party was
prejudiced by the arbitrator’s error. [Citation.]” (Royal Alliance Associates, Inc. v.
Liebhaber (2016) 2 Cal.App.5th 1092, 1106 (Royal Alliance).) Here, the Kwan Parties
contend that their petition to vacate the arbitration award should be granted pursuant to
section 1286.2, subdivision (a)(5) because the arbitrator erred in refusing to grant their
request for a continuance of Phase 2 of the arbitration hearing to obtain new counsel after
their attorney withdrew.
Section 1286.2, subdivision (a)(5) provides in part: “[T]he court shall vacate the
award if the court determines . . . [¶] The rights of the party were substantially prejudiced
by the refusal of the arbitrators to postpone the hearing upon sufficient cause being
shown therefor . . . .” Thus, there are two issues to be resolved in ruling on a petition to
vacate an arbitration award pursuant to section 1286.2, subdivision (a)(5) on the ground
10
that the arbitrator refused to postpone the arbitration hearing: “First, the trial court must
determine whether the arbitrator abused his or her discretion by refusing to postpone the
hearing upon sufficient cause being shown. Second, if there was an abuse of discretion,
the trial court must determine whether the moving party suffered substantial prejudice as
a result.” (SWAB Financial, LLC v. E*Trade Securities, LLC (2007) 150 Cal.App.4th
1181, 1198).)
2. Analysis
On appeal, the Kwan Parties contend that the arbitrator abused his discretion in
denying Kwan’s third request for a continuance of the Phase 2 hearing because the
arbitrator failed to take into account Kwan’s evidence showing that a new attorney
willing to represent the Kwan Parties would need five or six months to prepare, and also
showing that the development entitlement to the property could be extended.
The Kwan Parties additionally contend that the arbitrator’s denial of their request
for a continuance was prejudicial, since the record shows that in Phase 2 Kwan had
difficulty with the admission of evidence and the examination of witnesses, and
improperly relied upon evidence not admitted in her closing argument. Kwan also argues
that she did not receive the assistance during Phase 2 that the arbitrator should have
provided to her as a self-represented litigant. According to the Kwan Parties, “[i]t is
highly likely that an experienced litigator—such as [proposed new counsel]—would have
been able to mitigate these [arbitration] awards. But the Arbitrator, without adequate
justification, denied Ms. Kwan that opportunity—to her severe prejudice.”
The Seto Group and Sam4 respond that the arbitrator did not abuse his discretion
in denying a continuance of the Phase 2 hearing because the arbitrator did consider
Kwan’s evidence and could properly give greater weight to other factors, such as Kwan’s
4
We will refer to respondents the Seto Group and Sam collectively as the Seto
Group hereafter for ease of reference and because they have filed a joint respondents’
brief.
11
lack of credibility, her representation by other attorneys in related matters, the impact of a
continuance on the Seto Group, and the arbitrator’s justifiable concern “that Kwan had
provoked a change in counsel as a tactic to obtain a continuance.” The Seto Group also
argues that denial of a continuance did not substantially prejudice the Kwan Parties,
because they have not identified anything in the record, such as an inability to admit
material evidence, that would have changed the outcome had the Kwan Parties been
represented by counsel in Phase 2.
In reply, the Kwan Parties contend that, in addition to her difficulty with evidence
in Phase 2, Kwan did not adequately oppose a motion in limine brought by the Seto
Parties to exclude evidence of a prior lawsuit relating to dilution of membership interests
in limited liability companies.
We need not determine whether the arbitrator abused his discretion in denying the
Kwan Parties’ request for a continuance of Phase 2 of the arbitration hearing because the
Kwan Parties have not shown that their rights were substantially prejudiced by the denial,
as expressly required by section 1286.2, subdivision (a)(5). In the arbitration context,
substantial prejudice may be shown where the arbitrator’s conduct denied a party a fair
hearing. (Hoso Foods, Inc. v. Columbus Club, Inc. (2010) 190 Cal.App.4th 881, 888-
889.) “Because the rules of evidence and judicial procedure do not apply to arbitration
proceedings absent the parties’ agreement, ‘[a]rbitration procedures violate the common
law right to a fair hearing ‘only in the clearest of cases, i.e., when the applicable
procedures essentially preclude the possibility of a fair hearing.’ [Citation.]’ [Citation.]”
(Ibid.)
Further, the California Supreme Court has instructed that “section 1286.2
subdivision (a)(5), ‘if not properly limited, could swallow the rule that arbitration awards
are generally not reviewable on the merits.’ The provision is not ‘a back door to
Moncharsh through which parties may routinely test the validity of legal theories of
arbitrators.’ [Citation.] Instead, it was designed as a ‘safety valve in private arbitration
12
that permits a court to intercede when an arbitrator has prevented a party from fairly
presenting its case.’ [Citation.] It comes into play, for example, when an arbitrator,
without justification, permits only one side to present evidence on a disputed material
issue. [Citation.] The Arbitration Act codifies ‘the fundamental principle that
“[a]rbitration should give both parties an opportunity to be heard.” [Citation.] . . . [T]he
opportunity to be heard must be extended to all parties equitably.’ [Citation.]”
(Heimlich, supra, 7 Cal.5th at pp. 368-369.)
In the present case, the Kwan Parties contend that the arbitrator’s denial of a
continuance of the Phase 2 hearing substantially prejudiced them because Kwan, an
untrained layperson, was forced to represent the Kwan Parties against the experienced
litigators representing the Seto Group and had difficulties in presenting evidence,
examining witnesses, and opposing a motion in limine. However, the Kwan Parties’
argument fails to identify any specific evidence that Kwan was unable to have admitted.
Even where the appellant contends that the arbitrator failed to admit specific material
evidence, “ ‘[t]o find substantial prejudice, the court must accept, for purposes of
analysis, the arbitrator's legal theory and conclude that the arbitrator might well have
made a different award had the evidence been allowed.’ [Citation.]” (Royal Alliance,
supra, 2 Cal.App.5th at p. 1109.) Here, the Kwan Parties have failed to demonstrate that
the arbitrator might have made a different, more favorable award had the Kwan Parties
been represented by counsel able to have material evidence admitted, examine witnesses
effectively, give a closing argument that properly relied on admitted evidence, and
adequately oppose the Seto Group’s motions in limine.
Moreover, the Kwan Parties have not made a specific showing that representation
by Kwan in Phase 2, instead of new counsel, prevented them from fairly presenting their
case. (See Heimlich, supra, 7 Cal.5th at pp. 368-369.) Their conclusory assertions that
Kwan’s evidentiary difficulties were prejudicial, or that the arbitrator should have
provided her with assistance in Phase 2, are insufficient to establish that the Kwan Parties
13
were unable to present their case or that a more favorable award would have been made.
(See Orange County Water Dist. v. Alcoa Global Fasteners, Inc. (2017) 12 Cal.App.5th
252, 364 [“conclusory assertions do not establish prejudice”].)
Alternatively, the Kwan Parties contend that they need not show prejudice because
the arbitrator’s denial of a continuance of Phase 2 of the arbitration hearing, which forced
Kwan to proceed without counsel, constituted structural error. Since the Kwan Parties
raise the issue of structural error for the first time in their reply brief, we will not consider
it. We ordinarily do not address issues raised for the first time in a reply brief, “ ‘because
such consideration would deprive the respondent of an opportunity to counter the
argument.’ [Citation.]” (Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764.)
For these reasons, we determine that the trial court did not err in denying the
Kwan Parties’ petition to vacate the arbitration award pursuant to section 1286.2,
subdivision (a)(5) on the ground that the arbitrator’s refusal to continue Phase 2 of the
arbitration hearing substantially prejudiced their rights.
C. Right to Counsel
The Kwan Parties also contend that the arbitration award should be vacated
because the arbitrator violated section 1282.4, subdivision (a), which provides in part:
“A party to the arbitration has the right to be represented by an attorney at any proceeding
or hearing in arbitration under this title.”
1. Attorney Withdrawal
According to the Kwan Parties, the arbitrator abused his discretion and violated
section 1282.4, subdivision (a) by allowing attorney Ellenberg to withdraw without a
sufficient showing of cause or a showing by Ellenberg that he had protected Kwan by
obtaining a continuance of the Phase 2 hearing to allow new counsel to prepare.
The Seto Group notes that a violation of the right to counsel under section 1282.4
is not one of the grounds for vacation of an arbitration award listed in section 1286.2,
subdivision (a). Alternatively, the Seto Group argues that the arbitrator did not abuse his
14
discretion in allowing Ellenberg to be relieved as Kwan’s counsel because the arbitrator
could rely on counsel’s representations regarding the reasons for his withdrawal.
Our review of the record shows that Kwan did not object to the motions of
Ellenberg and Thoits Law to be relieved as counsel for Kwan and 350 WSJ and ASM. In
the final arbitration award, the arbitrator stated: “On August 20, 2018, counsel for the
Kwan entities [Thoits Law] and counsel for Ms. Kwan [Ellenberg] filed motions to be
relieved as counsel. The motions were based upon non-payment of fees and the
breakdown in the attorney-client relationship. On the evening before the August 30,
2018 hearing on the motions, Ms. Kwan submitted an email wherein she agreed that the
motions to withdraw should be granted but asked for a continuance of the Phase 2
hearing because there were only 18 business days to prepare for the hearing and she
needed to obtain new legal representation. [¶] On August 30, 2018, a hearing was
conducted regarding the motions. . . . At the hearing, Ms. Kwan expressed no objection
to the Arbitrator granting the motions to withdraw.”
We find that the lack of an objection to Ellenberg’s motion to be relieved as
Kwan’s counsel and Thoits Law’s motion to be relieved as counsel for 350 WSJ and
ASM is fatal to Kwan’s claim that the arbitration award should be vacated because the
arbitrator abused his discretion in granting the motions to withdraw. Our Supreme Court
has stated: “ ‘ “No procedural principle is more familiar to this Court than that a
constitutional right,” or a right of any other sort, “may be forfeited in criminal as well as
civil cases by the failure to make timely assertion of the right before a tribunal having
jurisdiction to determine it.” . . .’ [Citation.]” (Keener v. Jeld-Wen, Inc. (2009) 46
Cal.4th 247, 264 (Keener); see also San Mateo Union High School Dist. v. County of San
Mateo (2013) 213 Cal.App.4th 418, 436 [“ ‘ “[A] reviewing court ordinarily will not
consider a challenge to a ruling if an objection could have been but was not made in the
trial court. [Citation.]” ’ ”].)
15
Here, the arbitrator found that Kwan did not object to the motions to be relieved as
counsel made by Ellenberg and Thoits Law before Phase 2 of the arbitration hearing. We
may not review that finding of fact for error by the arbitrator. (See Richey, supra, 60
Cal.4th at p. 916.) We therefore conclude that Kwan has forfeited her claim that the
arbitration award should be vacated because the arbitrator violated her right to counsel
under section 1282.4, subdivision (a) by granting the motions to be relieved as counsel
made by Ellenberg and Thoits Law before Phase 2 of the arbitration hearing. (See
Keener, supra, 46 Cal.4th at p. 264.)
2. Conflict of Interest
The Kwan Parties argue that another basis for vacating the arbitration award under
section 1286.2, subdivision (a)(5) is the conflict of interest caused by Ellenberg joining
the law firm of Hopkins & Carley. As we have noted, in the December 15, 2020 order
the trial court granted the Kwan Parties’ motion to disqualify the Seto Group’s law firm,
Hopkins & Carley, effective the date of the order. The trial court found that “[a]fter the
close of the evidence and during post-hearing briefing in Phase 3, Hopkins & Carley
issued a public announcement on July 16, 2019 that Mr. Ellenberg had joined Hopkins &
Carley. Neither Mr. Ellenberg nor Hopkins & Carley disclosed this to Ms. Kwan.
Neither Mr. Ellenberg nor Hopkins & Carley obtained a waiver or consent from Ms.
Kwan.” The trial court therefore granted the Kwan Parties’ motion to disqualify Hopkins
& Carley effective the date of the December 15, 2020 order.
The Kwan Parties urge that Ellenberg’s conflict of interest in joining the law firm
of Hopkins & Carley before the arbitration hearing was completed, as well as his
possession of confidential information, must be imputed to Hopkins & Carley. They
contend that the arbitration award must be vacated due to this conflict of interest, because
“this constituted ‘undue means’ of obtaining an arbitration award, which is prohibited by
Code of Civil Procedure section 1286.2(a)(1).” The Kwan Parties also argue that they do
not need to make a showing of prejudice as a result of the conflict of interest imputed to
16
Hopkins & Carley, because prejudice is presumed due to Ellenberg’s breach of his duty
of loyalty to Kwan.
Alternatively, the Kwan Parties claim that they were actually prejudiced because
Hopkins & Carley might have used confidential information in preparing their post-trial
briefs and in settlement negotiations, and because the arbitrator might not have awarded
attorney’s fees to Hopkins & Carley had the arbitrator known of the conflict of interest.
The Seto Group disagrees, pointing out that the disqualification order has not been
appealed and asserting that the Kwan Parties have not shown that they were prejudiced as
a result of Hopkin & Carley’s conflict of interest. We agree that the challenge fails for
lack of demonstrated prejudice.
The decision in Pour Le Bebe, Inc. v. Guess? Inc. (2003) 112 Cal.App.4th 810(Pour Le Bebe) is instructive with regard to whether an arbitration award may be vacated
due to attorney conflict of interest. Appellant Pour Le Bebe petitioned to vacate the
arbitration award in favor of Guess, Inc. on the grounds, among other things, that
respondent Guess, Inc. had obtained the award by undue means because Guess, Inc’s
counsel had a conflict of interest due to prior representation of Pour Le Bebe in other
matters. (Id. at p. 816.) The trial court granted Guess, Inc’s petition to confirm the
arbitration award and denied Pour Le Bebe’s petition to vacate the award. Although the
appellate court determined that there was a colorable claim of conflict of interest, the
court affirmed both orders. (Id. at p. 837.)
In reaching its decision, the Pour Le Bebe court addressed section 1286.2,
subdivision (a)(1), which provides: “Subject to Section 1286.4 [conditions to vacation of
award], the court shall vacate the award if the court determines any of the following: [¶]
The award was procured by corruption, fraud or other undue means.” The court
determined that Pour Le Bebe had not shown that the alleged attorney conflict of interest
resulted in the arbitration award being procured by “undue means” that warranted
17
vacation of the arbitration award. (Pour Le Bebe, supra, 112 Cal.App.4th at pp. 833,
837.)
The Pour Le Bebe court noted that “ ‘[i]t is a fundamental principle of appellate
jurisprudence in this state that a judgment will not be reversed unless it can be shown that
a trial court error in the case affected the result.’ [Citation.]” (Pour Le Bebe, supra, 112
Cal.App.4th at p. 837.) The court then ruled that “[w]e are constrained by our
interpretation of the governing statute [section 1286.2, subdivision (a)(1)] and the
relevant authorities to conclude that [Pour Le Bebe] failed to make the showing necessary
to vacate the arbitration award. [Pour Le Bebe] failed to show by clear and convincing
evidence that a conflict existed and that it had a substantial impact on the panel’s
decision.” (Ibid.)
In the present case, the trial court granted the Kwan Parties’ motion to disqualify
Hopkins & Carley due to the conflict of interest caused by Ellenberg joining the firm
before post-trial briefing in the arbitration hearing was completed. However, in denying
their motion for reconsideration the trial court ruled that the Kwan Parties had failed to
show that they were prejudiced by the conflict of interest imputed to Hopkins & Carley,
since (1) Ellenberg did not join Hopkins & Carley until after the close of evidence in the
arbitration hearing; and (2) the Kwan parties had not shown “that the post-hearing
briefing by Hopkins & Carley actually used confidential information and that such
wrongful use had a substantial impact on the Arbitrator’s decision.” Substantial evidence
supports the trial court’s finding that the Kwan Parties failed to establish prejudice, since
in their motion for reconsideration the Kwan Parties argued only that that the failure of
Hopkins & Carley and Ellenberg to notify Kwan of the conflict of interest constituted
unethical conduct and that Hopkins & Carley had confidential information “in hand.”
(See ECC, supra, 9 Cal.App.5th at p. 900.) Absent a showing that the conflict of interest
had a substantial impact on the arbitrator’s decision, we find no merit in the Kwan
Parties’ contention that Hopkin & Carley’s conflict of interest is sufficient to vacate the
18
arbitration award pursuant to section 1286.2, subdivision (a)(1). (See Pour Le Bebe,
supra, 112 Cal.App.4th at p. 837.)
Kwan’s contention that prejudice is presumed due to Ellenberg’s breach of his
duty of loyalty to Kwan does not cause us to alter our conclusion. Kwan has provided no
authority for the proposition that an arbitration award may be vacated on the grounds of
undue means pursuant to section 1286.2, subdivision (a)(1) without a showing of
prejudice where an attorney breached the duty of loyalty. Kwan’s reliance on decisions
in which a motion for attorney disqualification was granted on the ground of breach of
the duty of loyalty is misplaced. (See City National Bank v. Adams (2002) 96
Cal.App.4th 315, 318 [order disqualifying counsel affirmed]; National Grange Order of
Patrons of Husbandry v. California Guild (2019) 38 Cal.App.5th 706, 709-710 [same];
Henriksen v. Great American Savings (1992) 11 Cal.App.4th 109, 113-114 [same].)
We also find no merit in the Kwan Parties’ contentions that the trial court abused
its discretion by failing to grant their motion for discovery. We understand the motion
for discovery to consist of a footnote in the Kwan Parties’ motion for reconsideration,
which states in part: “Petitioners further request that Hopkins & Carley and Ellenberg be
ordered to produce to Kwan all documents that refer or relate to Ellenberg proposing to
join Hopkins & Carley, or vice versa, and their communications, internally and
externally, that refer or relate to the interviewing and/or other processes by which
Ellenberg joined Hopkins & Carley.” The Kwan Parties acknowledge that the trial court
did not rule on the purported motion for discovery. In any event, we determine that the
trial court did not abuse its discretion in failing to grant the motion in light of the court’s
finding that the Kwan Parties had failed to show that the conflict of interest that arose
from Ellenberg joining Hopkins & Carley had a substantial impact on the arbitrator’s
decision. (See Pour Le Bebe, supra, 112 Cal.App.4th at p. 837; Avant! Corp. v. Superior
Court (2000) 79 Cal.App.4th 876, 881 [standard of review for discovery orders is abuse
of discretion].)
19
Finally, the Kwan Parties contend that the trial court abused its discretion in
denying their motion to strike Hopkins & Carley’s papers filed in support of the petition
to confirm the arbitration award and in opposition to the Kwan Parties’ petition to vacate
the arbitration award. They assert that in the absence of these papers, which were filed
when Hopkins & Carley had a conflict of interest, their motion to vacate the arbitration
award should be granted. The Seto Group responds that “[s]triking the pleadings and
requiring them to be refiled would be a pointless exercise that would add nothing but
expense and delay to this already protracted dispute.”
In Schimmel v. Levin (2011) 195 Cal.App.4th 81 (Schimmel), the appellate court
ruled that the trial court did not abuse its discretion in striking the defendant’s motion to
compel arbitration after finding that disqualified defense counsel possessed confidential
information adverse to the plaintiff. (Id. at p. 88.) The decision in Schimmel is
distinguishable, since it did not involve a petition to confirm or vacate an arbitration
award. Additionally, the Schimmel court upheld the trial court’s order allowing the
defendant to file new papers after the papers filed by disqualified counsel were stricken.
(Id. at pp. 85, 88.)
We determine that the trial court did not abuse its discretion in denying the Kwan
Parties’ motion to strike the papers filed by Hopkins & Carley in support of the petition
to confirm the arbitration award and in opposition to the petition to vacate the award,
since the Kwan Parties failed to show prejudice sufficient to vacate the arbitration award
in the absence of a showing that an order striking the papers filed by Hopkins & Carley
and allowing different counsel to file new papers would have resulted in a more favorable
outcome for the Kwan Parties. (See Pour Le Bebe, supra, 112 Cal.App.4th at p. 837.)
IV. DISPOSITION
The May 17, 2021 judgment is affirmed. Costs on appeal are awarded to
respondents.
20
_______________________________
Greenwood, P. J.
WE CONCUR:
______________________________________
Danner, J.
______________________________________
Wilson, J.
H049212
350 WSJ LLC et al. v. Winchester Plaza On The Row et al.