VVA-TWO, LLC v. Impact Development Group, LLC

Filed 5/12/20
CERTIFIED FOR PARTIAL PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
VVA-TWO, LLC, B291330
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC548740)
v.
IMPACT DEVELOPMENT
GROUP, LLC,
Defendant and Respondent.
APPEAL from a judgment and orders of the Superior Court
of Los Angeles County, David Sotelo, Judge. Affirmed.
Glaser Weil Fink Howard Avchen & Shapiro, Michael
Cypers; Greines, Martin, Stein & Richland, Robin Meadow and
Jeffrey E. Raskin for Plaintiff and Appellant.
Shaw Koepke & Satter and Jens B. Koepke for Defendant
and Respondent.
Pursuant to California Rules of Court, rules 8.1100 and
8.1110, this opinion is certified for publication with the exception
of the Discussion post, part B.3.
Efficiency, finality, and restricted appellate review are
the hallmarks of arbitration under California law, and thus often
the impetus for parties to enter into an arbitration agreement.
Absent party agreement providing otherwise, the Code of Civil
Procedure reflects those goals by limiting the bases for vacatur
of an arbitration award to a short list of situations in which the
award reflects not legal or factual error, but some flaw in the
arbitral proceedings or award rendering them fundamentally
unfair or unauthorized. (See Code Civ. Proc.,1 § 1286.2; see also
§ 1283.4.) We disagree with appellant VVA-TWO, LLC (VVA)
that the award underlying this appeal presents any such basis
for vacatur.
VVA appeals from a judgment resulting from the
court’s confirmation of an arbitration award in favor of Impact
Development Group, LLC (IDG) regarding a contractual
dispute between the parties. VVA presents three arguments
for vacatur, none of which we find persuasive. In considering
these arguments, we are guided by the general policy in favor
of arbitration and, more specifically, in favor of interpreting
arbitration awards to give effect to parties’ stated desire to avoid
court involvement.
VVA first argues that the arbitrator exceeded his authority
by awarding IDG remedies that are inconsistent with the
contract. But where, as here, the arbitration agreement does
not expressly prohibit the specific remedies awarded by the
arbitrator, California Supreme Court precedent requires only a
rational relationship between the arbitrator’s interpretation of
the contract and the remedies awarded—nothing further.
1 Further statutory references are to the Code of Civil
Procedure.
2
Ours is not to assess the merits of the arbitrator’s contractual
interpretation, even if, as VVA argues is the case here, it is
inconsistent with the plain terms of the contract. The remedies
the arbitrator awarded here bear a rational relationship to the
arbitrator’s interpretation of the contract, which we infer from
the terms of the award itself and the record more generally.
The arbitrator thus did not exceed his authority in awarding
this remedy.
We also disagree with VVA’s argument that the award
is incomplete. Under the circumstances that existed at the
time the arbitrator signed the award, it finally resolved all issues
between the parties. Events that might—but are not necessarily
likely to—happen in the future could render the remedy
incremental, but the arbitrator retained jurisdiction to
implement those potentially incremental terms, should such
hypothetical events materialize.
As to VVA’s third argument, in the unpublished portion
of this opinion, we conclude that the arbitrator’s assessment of
certain evidence as irrelevant and his resulting refusal to reopen
proceedings to admit such evidence do not render the arbitration
process fundamentally unfair.
Thus, the trial court correctly confirmed the award.
3
BACKGROUND AND PROCEDURAL SUMMARY
A. The Contracts Underlying This Dispute
This litigation is part of a larger set of disputes between
Gary Downs, William Rice, Douglas Day, and Kristoffer
Kaufmann stemming from their ownership of a low income
housing development entity called Highland Property
Development, LLC (Highland).2 One such dispute arose between
Day, Downs, and Rice regarding Highland’s efforts to acquire
two low-income housing projects, Villa Vasona and Twin Oaks.
To resolve this dispute, Day, Downs, and Rice agreed that
appellant VVA, a housing development entity owned by Rice
and Day, would acquire the two housing projects and assign a
one-third economic interest in them to respondent IDG, a housing
development entity owned by Downs.
IDG and VVA memorialized their agreements regarding
the housing projects on February 1, 2013 with a complex
set of contracts that included, among other documents, a set
of substantively identical agreements the parties refer to as
Distributable Cash Agreements (DCAs) and a set of limited
partnership agreements (LPAs). Pertinent to the matter before
us, each of the DCAs contains an arbitration clause and, as an
2 Neither Highland, nor any of its individual members, is
a party to this appeal. More background regarding the dispute
underlying this appeal and related disputes involving individual
Highland partners, can be found in our opinions in Rice v. Downs
(2016) 248 Cal.App.4th 175 (Downs I) and Rice v. Downs (Jul. 23,
2019, B286296) [nonpub. opn.] (Downs II). The background
provided in these opinions is not necessary to an understanding
of the issues here.
4
amendment to the Highland operating agreement, a “Mandatory
Buy-Sell of Membership Interests” clause, and a “Limitation of
Buy-Sell Rights” clause.3 (Underlining omitted.)
The DCAs defined various events as “Buy-Sell Events”
that could trigger the agreements’ buy-sell provisions. On the
occurrence of a “Buy-Sell Event,” either IDG or VVA could invoke
the buy-sell provisions by sending a buy-sell notice to the other
party. The notice was to contain “the terms and conditions
for the Offering Party’s purchase of the [i]nterests of the other
party . . . (the ‘Non-Offering Party’).” Upon delivery of a buy-sell
notice, the contracts gave the other party—the Non-Offering
Party—the option to purchase the Offering Party’s interest “on
the same terms and conditions set forth in the Buy-Sell Notice
3 The “Limitation of Buy-Sell Rights” clauses stated:
“Notwithstanding anything to the contrary set forth herein, no
party shall have the right to exercise the Mandatory Buy-Sell if
the exercise of the Mandatory Buy-Sell and/or the consummation
of the transactions contemplated thereby would result in a breach
of any agreement to which the Project, the [project partnership]
and/or the [project co-general partner] are a party or subject
to, including, without limitation, the [project] Partnership
Agreement[s]. Notwithstanding the foregoing, the exercise and
consummation of the rights under the Mandatory Buy-Sell shall
be subject to (i) any consent rights of an Investor Limited Partner
under the [project] Partnership Operating Agreement, and
(ii) any consent or approval rights of any other third party if
required under their documents, the [project] Partnership, and/or
the [project co-general partner] Operating Agreement, including,
but not limited to, any secured lender of the Project, the federal
department of Housing and Urban Development, CBRE HMF,
Inc., and the California Tax Credit Allocation Committee.” The
DCAs designated RBC Tax Credit Equity, LLC (RBC) as the
“Investor Limited Partner.”
5
of the Offering Party” by giving the Offering Party notice of
the election to exercise the option within 30 days after delivery
of the buy-sell notice. The contracts also provided that “[t]he
closing . . . of the purchase and sale of any [i]nterest pursuant to
this Mandatory Buy-Sell shall take place on the conditions and
date identified in the Buy-Sell Notice delivered by the Offering
Party, but not later than ninety (90) days after the delivery of the
Buy-Sell Notice.”
The agreements reference several third party lenders and
investors, often referred to as “special” or “limited” “partner[s].”
For example, the DCAs designate RBC Tax Credit Equity, LLC
(RBC) as the “Investor Limited Partner” as well as the Special
Limited Partner. Neither RBC, nor any other such “partner” or
investor is a party to the arbitration, arbitration agreement, or
this appeal.
The agreements create a role for RBC and other third
party partners in consummating transactions resulting from a
“Buy-Sell Notice” (buy-sell transactions). First, the LPAs provide
that VVA could “withdraw from the Partnership or sell, transfer
or assign its Interest as General Partner”—including via a
buy-sell transaction—“only with the prior Consent of the Special
Limited Partner [RBC] in its sole discretion, and of the Agency
and the Project Lenders, if required.” The “Limitation of
Buy-Sell Rights” clauses in the LPAs reinforce that “the exercise
and consummation of the rights under the Mandatory Buy-Sell
shall be subject to (i) any consent rights of an Investor Limited
Partner under the [project] Partnership Operating Agreement,
and (ii) any consent or approval rights of any other third party
if required under their documents, the [project] Partnership,
and/or the [project co-general partner] Operating Agreement,
6
including, but not limited to, any secured lender of the Project,
the federal department of Housing and Urban Development,
CBRE HMF, Inc., and the California Tax Credit Allocation
Committee.”4
B. The Buy-Sell Transaction at Issue
On February 17, 2014, IDG sent VVA a letter indicating
that a buy-sell event had occurred and that IDG was invoking
the DCAs’ mandatory buy-sell provisions. For each of the
projects, IDG specified the closing would occur on the “[l]ater
of 90 days following the date of this Buy-Sell Notice or receipt of
[the] last of consents required under [each respective project’s]
Operating Agreement”—i.e., the consent of third party investors
and partners, such as RBC, as outlined in the provisions
discussed above. On March 18, 2014, VVA responded with a
notice of election to purchase IDG’s interests in the projects.
On June 16, 2014, VVA filed a complaint against IDG
alleging IDG had breached the contract created by the DCAs,
IDG’s buy-sell notice, and VVA’s notice of its election to purchase
IDG’s interests in the two projects. Specifically, VVA claimed
that IDG breached by refusing to execute closing documents and
by refusing to transfer its interests in the projects to VVA.
4 Additional provisions indirectly have the same effect,
including a provision that “no party shall have the right to
exercise the Mandatory Buy-Sell if the exercise of the Mandatory
Buy-Sell and/or the consummation of the transactions
contemplated thereby would result in a breach of any agreement
to which the Project, the [project partnership] and/or the [project
co-general partner] are a party or subject to, including, without
limitation, the [project] Partnership Agreement.”
7
C. The Parties’ Arbitration Agreement
The DCAs’ arbitration clauses read: “Any dispute or
controversy between the parties arising out of this Agreement
shall be submitted to the American Arbitration Association for
arbitration in San Francisco or Los Angeles, California. The
costs of the arbitration, including any American Arbitration
Association administration fee, the arbitrator’s fee, and costs
for the use of facilities during the hearings, shall be borne equally
by the parties to the arbitration. Attorneys’ fees may be awarded
to the prevailing or most prevailing party at the discretion of the
arbitrator. The provisions of Sections 1282.6, 1283, and 1283.05
of the California Code of Civil Procedure apply to the arbitration.
The arbitrator shall not have any power to alter, amend, modify
or change any of the terms of this Agreement nor to grant
any remedy which is either prohibited by the terms of this
Agreement, or not available in a court of law.”
In July 2014, after VVA filed its complaint, Downs, Day,
Kaufmann, Rice, VVA, and IDG entered into a global arbitration
agreement intended to direct all of the parties’ disputes into a
single arbitration proceeding. Part of that agreement modified
the DCAs’ arbitration clauses to reflect the parties’ agreement to
allow “all contemplated claims between and among them . . . [to]
be submitted to JAMS in Los Angeles, California for arbitration
before a single arbitrator.” The agreement expressly modified
the DCAs’ arbitration clauses “in no other respect.” The parties
stipulated to stay the court case pending arbitration, and the
trial court entered the stay order on August 27, 2014.
D. Arbitration Proceedings
In August 2014, IDG moved the arbitrator for an order
severing IDG’s and VVA’s mutual claims regarding the DCAs’
8
buy-sell provisions and to accelerate a hearing on those claims.
The arbitrator granted IDG’s motion and left the parties’
remaining claims (including claims involving Kaufmann and
disputes related to Downs I and Downs II) to proceed on a
different track.
The arbitration hearing on IDG’s and VVA’s severed claims
was held in November and December 2016 and January 2017.
VVA and IDG presented competing claims that the other party
breached. Both claims of breach depended on the parties’
respective interpretations of certain terms in the contract.5
IDG and VVA both requested the arbitrator award specific
performance as the remedy for their respective claims of breach.
At the hearing, the parties discussed with the arbitrator the
third party consent provisions in the DCAs, including how
these provisions might affect the arbitrator’s ability to grant
specific performance. For example, the arbitrator asked what
would happen if a third party partner, such as RBC, “refuses” to
consent to the transaction, and how “that [would] affect a specific
performance remedy.”
5 Specifically, VVA claimed that IDG breached by refusing
to execute closing documents and by refusing to transfer its
interests in the projects to VVA. IDG claimed VVA breached by
failing to pay the purchase price and demanding that IDG assign
its interests before paying this amount. Although the buy-sell
notice was silent on the sequence of payment and assignments
of interest, the DCAs provide that the seller shall execute and
deliver assignments of interest “upon payment of the purchase
price.” The parties’ arguments derived largely from a dispute
regarding the meaning of “upon.”
9
E. Relevant Arbitration Awards and Orders
1. February 2017 Interim Award
On February 23, 2017, the arbitrator issued an
interim award. The interim award identified the “core legal
determination” in the arbitration as “which [p]arty breached the
Buy-Sell Agreement.” The arbitrator found VVA had breached
that agreement by demanding new and different terms beyond
those contained in the buy-sell notice. The award concluded that
“[t]he evidence is overwhelming that it was VVA that breached
the Agreement, not IDG,” and, accordingly, decided both parties’
respective claims in IDG’s favor.
During arbitration, IDG had proposed a remedy, a portion
of which the interim award adopts. Specifically, the interim
award provides that “IDG may enforce the DCAs as the buyer
of VVA’s [i]nterests, effective as of May 19, 2014,” and that
“IDG may file a post-[h]earing motion for attorneys’ fees and
costs.” As to IDG’s request that the arbitrator “require[ ] VVA
to pay IDG 100 [percent] of the Distributable Cash accrued since
May 19, 2014 and [one-third] of the Distributable Cash accrued
before May 19, 2014” and “enjoin[ ] VVA from taking any further
distributions,” the interim award notes that a final award, to be
issued within a certain time frame, “will address IDG’s request
regarding [cash] distributions” as another component of the
remedy for VVA’s breach of contract.
2. Order Denying Motion to Reopen
Proceedings
On April 13, 2017, VVA filed a motion to reopen the
arbitration, citing newly discovered evidence related to Downs’s
credibility. VVA argued, inter alia, that this evidence warranted
10
reopening proceedings, because the arbitrator had relied heavily
on Downs’s and Rice’s respective credibility in making its
decision. Namely, the arbitrator’s interim award noted: “The
most important witnesses were Downs and Rice. They are the
principals of the [p]arties. Each engaged in the critical conduct
that is in dispute. Not surprisingly, their testimony conflicts on
significant matters. Consequently, evaluation of their respective
credibility is a significant factor in deciding this case.”
The arbitrator denied VVA’s motion on the basis that
“[t]he evidence which VVA seeks to present at a re-opened
[h]earing is wholly collateral to what the parties contested in
this Arbitration”—the meaning, performance, and breach of the
buy-sell agreement—and that “[w]hether Downs violated the
Rules of Professional Responsibility or certain criminal statutes
is not for the Arbitrator to decide.”
The arbitrator further noted that “even if VVA’s proffered
evidence had been presented at the [h]earing, the Arbitrator
would have sustained IDG’s inevitable relevance objection.”
3. May 2017 Partial Final Award
The arbitrator issued a “partial final award” on May 19,
2017, in favor of IDG.6 The award contained the same language
and findings as the interim award regarding VVA being the
sole party in breach, and Downs’s and Rice’s credibility.
Regarding the appropriate remedy, the arbitrator
noted that it was “telling that the parties agree that specific
performance of the Buy-Sell is the appropriate way to remedy
the other’s breach. Since VVA did not effect a purchase and
6The award is “partial” because it leaves intact claims
severed from the parties’ dispute here.
11
thereby breached the DCAs and the Buy-Sell, the only remaining
option consistent with the DCAs is to order VVA to sell its
[i]nterests to IDG on the terms and conditions set forth in the
Buy-Sell, effective on the May 19, 2014 closing date.” (Italics
added.)
Accordingly, the award provided, inter alia, that
“IDG may enforce the DCAs as the buyer of VVA’s [i]nterests,
effective May 19, 2014,” which the arbitrator concluded to be
the “Buy-Sell closing date . . . when IDG is deemed to have
purchased VVA’s [i]nterests”; and that “VVA shall immediately
pay IDG 33.3 [percent] of Distributable Cash that accrued prior
to May 19, 2014 and all Distributable Cash that has accrued
since May 19, 2014.” To determine the amount of Distributable
Cash, the partial final award also required VVA, upon written
demand from IDG, to provide IDG with “an accounting of its
receipt, disbursement and retention of Distributable Cash from
February 21, 2013 to the present.” The partial final award thus
contemplated further proceedings for the purpose of calculating
the specific amount of damages VVA was to pay IDG under the
award, a calculation for which the arbitrator required additional,
updated information.
On July 11, 2017, IDG petitioned the trial court for an
order confirming the arbitrator’s award.
On July 24, 2017, VVA filed a petition to vacate the award.
4. August 2017 Order Regarding
Determination of Distributable Cash
With the petitions to vacate/confirm still pending before the
trial court, IDG provided VVA with the requisite written demand
for accounting. As contemplated in the partial final award, the
12
arbitrator held further proceedings to calculate the exact amount
VVA owed IDG.
In the August 25, 2017 “Order re[garding] Determination
of Distributable Cash” (boldface and capitalization omitted), the
arbitrator set forth the specific amount owed by VVA, taking into
account arguments regarding taxes and prejudgment interest. In
addition, the arbitrator noted as follows regarding his continuing
jurisdiction over the dispute:
“The Arbitrator will continue to retain jurisdiction over
the bifurcated portion of this arbitration that was the subject
of the Partial Final Award for the sole purpose of ensuring that
the Buy-Sell transaction occurs as directed in the Partial Final
Award. Although the Partial Final Award did not address the
retention of jurisdiction, both parties have availed themselves
of the Arbitrator’s authority consistently since issuance of
that [a]ward to resolve disputes regarding the accounting, a
determination of the amount of distributable cash and VVA’s
interim management of the Projects. VVA did not object to these
proceedings on any ground, including that the Arbitrator lacked
jurisdiction. However, in light of a hearing regarding the parties’
cross-motions to confirm or set aside the Partial Final Award . . .
the undersigned Arbitrator will stay the effectiveness of this
[o]rder to retain jurisdiction until a further hearing before the
undersigned. VVA requested further briefing on this issue.
The Arbitrator reserves judgment on that request until after the
[trial court] rules on the cross-motions [to vacate and confirm].”
13
F. Trial Court Proceedings
1. Request for Clarification from Arbitrator
The trial court heard the parties’ competing petitions on
September 1, 2017. On September 11, 2017, the court issued
an order for the parties to “return to the arbitrator . . . to
obtain clarification of the May 19, 2017 partial final award.”
(Capitalization omitted.)
In a written “Response to Court Minute Order [regarding]
Clarification of Partial Final Award” (boldface and capitalization
omitted), the arbitrator wrote that “[n]either the Minute Order
nor the transcript of the hearing specifically identified any
particular issue to be clarified,” and that the parties’ briefing
to the arbitrator in the wake of the court’s request reflected the
parties likewise were unsure of what issues were to be clarified.
Finally, the arbitrator found it “[n]otabl[e]” that the parties
“agreed that no clear authority exists whether an arbitrator
has the authority to clarify an arbitration award.” On these
bases, “[t]he Arbitrator decline[d] to respond to the Minute Order
at th[e] time,” but noted that, “should the Court expressly order
the Arbitrator to clarify any aspect(s) of the Partial Final Award,
the Arbitrator [would] do so within the scope of the authority
granted to the Arbitrator by the Court.”
2. Order Confirming Award
The trial court heard further argument on February 26,
2018. On April 12, 2018, it issued an order confirming the
arbitration award. The trial court concluded that the remedies
in the arbitrator’s award “appear rationally related to both
the contract and to VVA’s breach” and that the arbitrator had
“not exceed[ed] his authority in awarding any of the specified
14
remedies.” Finally, the court noted that the “suggestions that
VVA was ‘substantially prejudiced’ because [the arbitrator] made
material credibility calls involving parties or witnesses, or both,
is not a basis for a review by this Court.” In short, the court
concluded, “[t]he arbitrator did his job and [VVA] lost, and th[e]
Court’s observation that the findings and the [a]ward could
logically result in more than one possible scenario (based on
options and interests IDG or other parties may elect based on
[the arbitrator’s] findings), is not a ground to vacate the award
under . . . [section] 1286.2.” On May 7, 2018, the trial court
entered judgment for IDG based on the arbitration award.
VVA filed a timely notice of appeal from that judgment, a
subsequent order denying VVA’s motion to vacate or correct the
judgment, and “all orders made final and appealable by either the
judgment or the . . . order.”
As of the date of the parties’ argument before this court,
IDG had obtained all necessary third party consents except that
of RBC. With respect to RBC, IDG had provided a significant
amount of due diligence materials to RBC at the latter’s request,
made a formal request for RBC’s consent, and paid RBC certain
fees to fund RBC’s diligence efforts.
15
DISCUSSION
Our review of the trial court’s judgment and orders is
de novo. (Advanced Micro Devices, Inc. v. Intel Corp. (1994)
9 Cal.4th 362, 376, fn. 9 (AMD).) Both our review and the trial
court’s review of the arbitrator’s award, however, are limited,
as discussed in more detail below. (Id. at pp. 376, fn. 9 & 381.)
A. A Court’s Limited Role in Reviewing
Arbitration Awards
Under California law, the scope of judicial review of
arbitration awards is very narrow. (Reed v. Mutual Service
Corp. (2003) 106 Cal.App.4th 1359, 1365; Moncharsh v.
Heily & Blase (1992) 3 Cal.4th 1, 10 (Moncharsh) [“arbitrator’s
decision should be the end, not the beginning, of the dispute”].)
Consistent with this limited role, a court may vacate an
arbitral award only on certain statutorily enumerated grounds.
(Hightower v. Superior Court (2001) 86 Cal.App.4th 1415, 1433
(Hightower).) These are laid out in the Code of Civil Procedure,
and reflect not error in the merits of the decision, but
“ ‘circumstances involving serious problems with the award
itself, or with the fairness of the arbitration process.’ ” (Id.
at pp. 1432–1433.) The situations in which the code provides
a basis for vacatur include when: (1) the award fails to fully
“determin[e] . . . all the questions submitted to the arbitrators[,]
the decision of which is necessary in order to determine the
controversy” (§ 1283.4; see M. B. Zaninovich, Inc. v. Teamster
Farmworker Local Union 946 (1978) 86 Cal.App.3d 410, 415
(Zaninovich)); (2) “[t]he arbitrators exceeded their powers and
the award cannot be corrected without affecting the merits of the
decision upon the controversy submitted” (§ 1286.2, subd. (a)(4));
and (3) “[t]he rights of the party were substantially prejudiced by
16
the refusal of the arbitrators . . . to hear evidence material to
the controversy.” (§ 1286.2, subd. (a)(5).)
A court may vacate only an entire arbitral award, not some
portion of it, even if the basis for vacatur affects only one aspect
of the award. This is because partial vacatur could effectively
revise the merits of an overall award, in violation of the
principles discussed above. Similarly, courts may not “correct[ ]”
an arbitral award in any way that “affect[s] the merits” of the
decision upon the controversy submitted. (§ 1286.6, subds. (b)
& (c); see id., subd. (a).)
B. There Is No Basis for Vacating the Award
VVA raises three arguments as to why the trial court erred
when it confirmed the arbitration award. We address each in
turn below, and conclude that none of them provides a basis for
vacatur.
1. The Award Is Not Incomplete or Uncertain
for Failure Expressly to Address Third
Party Consent
VVA argues that, because the award fails to expressly
address the question of third party consent, an issue “necessary
in order to determine the controversy,” the award is incomplete
and must be vacated. (See § 1283.4; Zaninovich, supra,
86 Cal.App.3d at p. 415.) We disagree.
The parties submitted two questions to the arbitrator:
(1) which party breached the DCAs, and (2) what specific
performance remedy should be awarded as a result. The
arbitrator has provided a final answer to both of these questions.
In this respect, the award is distinguishable from the award
in Zaninovich, on which VVA relies, because in that case, “the
17
submission agreement expressly required a determination
of ‘how much . . . is owing,’ ” leading the court to conclude that
“the failure to state the amount is a failure to find upon an issue
submitted to the arbitrator.” (Zaninovich, supra, 86 Cal.App.3d
at p. 415.)
Of course, the arbitrator’s inability to know whether all
third party partners would consent to the buy-sell transaction
complicated the specific performance issue submitted by the
parties. But we understand the partial final award as working
around this complication by: (1) awarding IDG the right to
“enforce the DCAs as the buyer of VVA’s [i]nterests, effective as
of May 19, 2014,” and (2) retaining jurisdiction to address any
issues that might arise in the process—including IDG’s failure
to obtain third party consent, should that occur. The arbitrator
confirmed such reservation of jurisdiction when he noted in
his August 2017 order that he “continu[ed] to retain jurisdiction
over . . . the subject of the Partial Final Award for the sole
purpose of ensuring that the Buy-Sell transaction occurs as
directed in the Partial Final Award.” Therefore, the award does
not fail to address a situation in which a third party investor
withholds consent, and the arbitrator “has not improperly
left undecided issues ‘necessary in order to determine the
controversy.’ ” (Hightower, supra, 86 Cal.App.4th at p. 1439;
see AMD, supra, 9 Cal.4th at p. 372 [“[I]t is for the arbitrators to
determine what issues are ‘necessary’ to the ultimate decision.”].)
Rather, the award provides a complete but potentially
incremental remedy tailored to address a challenging situation.
(See Hightower, supra, 86 Cal.App.4th at pp. 1419 & 1439, citing
Morris v. Zuckerman (1968) 69 Cal.2d 686, 690 (Morris).) “[S]uch
[an] incremental award process . . . is within the ‘broad scope’ of
18
an arbitrator’s authority to fashion an appropriate remedy. It
is not precluded by nor offensive to the California Arbitration
Act.” (Hightower, supra, 86 Cal.App.4th at p. 1419; Jones v.
Kvistad (1971) 19 Cal.App.3d 836, 843.) “Nothing remains to
be resolved except those potential and conditional issues that
necessarily could not have been determined . . . when the Partial
Final Award was issued,” given that the arbitrator could not
know whether all third parties would consent.7 (Hightower,
supra, 86 Cal.App.4th at p. 1439.)
The record supports our understanding of the award as
potentially incremental in this manner. There was no need
for the arbitrator to address third party consent at the time
of the partial final award, because, at that point, it was only a
theoretical possibility that IDG would not be able to obtain such
consent. Should IDG ultimately obtain all requisite third party
consent—and VVA has offered nothing to suggest that this will
not or cannot occur—the arbitrator need take no further action.
IDG would simply “enforce the DCAs as the buyer of VVA’s
[i]nterests,” acquiring VVA’s project interest and associated
distributions. In this respect, the award is again distinguishable
from the award in Zaninovich, because the issues left unresolved
in that case—namely, which employees “ ‘had given the employer
written authorization to deduct dues and initiation fees,’ ” and
7 VVA repeatedly notes that IDG suggested to the
arbitrator “only” two possible options for a remedy addressing
the consent issue, neither of which the arbitrator adopted. But
declining to implement a party’s suggestion on how to structure a
remedy does not reflect a failure to decide a submitted issue. Nor
does such a suggestion restrict the arbitrator’s ability to address
the issue some other way.
19
how much of the dues and initiation fees employees actually
needed to pay the union—rendered the award unenforceable
under any circumstances. (See Zaninovich, supra, 86 Cal.App.3d
at p. 413.)
Our reading of the award is informed by the strong policy
in favor of interpreting arbitration awards in a manner that gives
effect to parties’ stated desire to avoid court involvement. (See,
e.g., Moncharsh, supra, 3 Cal.4th at pp. 9–10; accord, Vandenberg
v. Superior Court (1999) 21 Cal.4th 815, 830 (Vandenberg).)
Specifically, we must “ ‘ “indulge every intendment to give effect
to [arbitration] proceedings.” ’ ” (Moncharsh, supra, 3 Cal.4th
at p. 9.) In addition, in understanding the award as outlined
above, we consider that arbitration is a creature of consent (see
Vandenberg, supra, 21 Cal.4th at p. 835), and that the parties
asked the arbitrator to award specific performance—rather than,
for example, declaratory relief as to which party was in breach.
The parties submitted this issue to the arbitrator knowing that
he might not be able to determine exactly what such specific
performance would ultimately look like, given that he could not
know whether all third party partners would consent to IDG
purchasing VVA’s interest. In this way, the parties consented
to the possibility of a specific performance award dependent
on a factor outside of the arbitrator’s control and knowledge.
This is what they received. Finally, in construing the award
as outlined above, we are cognizant of the California Supreme
Court’s admonition that “[f]ashioning remedies for a breach of
contract or other injury is not always a simple matter of applying
contractually specified relief to an easily measured injury” (AMD,
supra, 9 Cal.4th at p. 374), and that “[t]he choice of remedy . . .
may at times call on any decisionmaker’s flexibility, creativity
20
and sense of fairness. In private arbitrations, the parties have
bargained for the relatively free exercise of those faculties.”8
(Ibid.)
The dissent argues that our interpretation of the
arbitrator’s award as retaining jurisdiction renders it
interlocutory, and that the judgment enforcing the award
is therefore nonappealable. We disagree for largely the same
reasons we outline above in rejecting VVA’s contention that
the award is incomplete, mindful also of the fact that “ ‘in
doubtful cases the doubt should be resolved in favor of the right
[to appeal] whenever the substantial interests of a party are
affected by a judgment.’ ” (Koehn v. State Board of Equalization
(1958) 50 Cal.2d 432, 435 [“[t]he policy of the law is to recognize a
right to review the judgment of a lower court if not prohibited by
law”].)
8 With these same principles in mind, we are not persuaded
by VVA’s argument that the “past-tense” language in the
award—for example, that IDG is “deemed to have purchased”
VVA’s interest as of May 19, 2014—is inconsistent with the
arbitrator retaining jurisdiction.
Nor are we concerned by VVA’s posited scenario, in which
retention of jurisdiction without a time limit leaves the parties in
a perpetual state of limbo. As a practical matter, both RBC and
IDG have independent economic interests in resolving the issue
of consent. IDG can return to the arbitrator if IDG and RBC
reach an impasse. (RBC cannot seek such recourse in the same
way, given that it is not a party to the arbitration.) Finally, any
inconvenience created by the lack of a deadline for resolving the
consent issue is at least partially a problem of the parties’ own
making, given that they requested a specific performance remedy
from the arbitrator.
21
As a preliminary matter, that an otherwise final judgment
reserves continuing jurisdiction for the court or an arbitrator
to address particular issues does not automatically render that
judgment interlocutory or nonappealable. (See, e.g., Rosenquist
v. Haralambides (1987) 192 Cal.App.3d 62, 68–69 [arbitral award
that reserved jurisdiction to determine the amount of attorneys
fees “served to settle the entire controversy between the parties”
and reviewed on appeal]; Eldridge v. Burns (1978) 76 Cal.App.3d
396, 403 & 405 [judgment concluding that “defendants were
entitled to recover attorney’s fees for nonjudicial foreclosure in
the principal action” was appealable despite court’s retention
of equitable jurisdiction to consider “issues . . . which may arise
prior to the foreclosure sale, including attorneys fees, questions
regarding the assessments and other matters”]; Exxon Mobil
Corp. v. County of Santa Barbara (2001) 92 Cal.App.4th
1347, 1351–1352 [in tax refund cases, an order directing
the assessment appeals board to apply a different valuation
methodology and redetermine value is appealable, even if the
trial court retains jurisdiction to review the board proceedings];
Goodman v. Community S. & L. Assn. (1966) 246 Cal.App.2d
13, 20 [judgment ordering damages to purchasers of apartment
house complex for vendor's breach of contract and reserving
jurisdiction to make further orders regarding mechanics’ and
materialmen’s liens was “final appealable judgment”]; see also
Jackson v. Cintas Corp. (11th Cir. 2005) 425 F.3d 1313, 1315
[“order compelling arbitration and dismissing a complaint, but
retaining jurisdiction over a motion for sanctions, is a final and
appealable decision”].)
A judgment resulting from an arbitration award is
appealable pursuant to the same rules governing any “judgment
22
in a civil action of the same jurisdictional classification.”
(§ 1287.4 [“[i]f an award is confirmed, judgment shall be entered
in conformity therewith” and “is subject to all the provisions
of law relating to[ ] a judgment in a civil action of the same
jurisdictional classification”]; § 1294.2 [appeal from judgment
resulting from arbitration award “shall be taken in the same
manner as an appeal from an order or judgment in a civil
action”].) We apply these rules and conclude that the judgment
resulting from the award here is appealable, because it is a final
judgment that, under the circumstances that existed at the time
the arbitrator issued it, finally resolved all issues between the
parties. (See California Assn. of Psychology Providers v. Rank
(1990) 51 Cal.3d 1, 9 [“judgment that leaves no issue to be
determined except the fact of compliance with its terms is
appealable”]; see Doudell v. Shoo (1911) 159 Cal. 448, 453
[“judgment is final ‘when it terminates the litigation between
the parties on the merits of the case and leaves nothing to be
done but to enforce by execution what has been determined’ ”].)
As previously noted, at the time the arbitrator issued the award,
RBC had not refused to consent. As long as that circumstance
does not change, the award will remain a final resolution of all
issues between the parties. In this respect, the remedy in the
award is only potentially incremental—and nothing in the record
makes that potential “likely” to materialize. (Cf. Hightower,
supra, 86 Cal.App.4th at p. 1427 [reviewing an order denying
motion to vacate arbitration award where award “specified
that the arbitrator reserved jurisdiction to determine a
number of specific additional issues likely to arise” following
implementation of the partial award] (italics added & omitted).)
Thus, under the facts presented to the arbitrator (and this court),
23
nothing “further in the nature of judicial action on the part of
the court is essential to a final determination of the rights of the
parties.” (Lyon v. Goss (1942) 19 Cal.2d 659, 670, italics added.)
Should circumstances change—that is, should RBC
refuse to consent—the parties can return to the arbitrator for
guidance on how to implement the terms of the award. If this
results in another award imposing terms different from those set
forth in the current award, the judgment or order implementing
(or refusing to implement) such an additional award will be
subject to appellate review under section 1286, subdivision (d)
or subdivision (e), or by application for an extraordinary writ.
Whether such review will be necessary is a question for another
day, however, because it derives from purely hypothetical facts.
For now, we must work with the facts in the current record. We
see no reason not to review a judgment implementing an award
that, based on that record, finally addresses all claims between
the parties. Put differently, we will not delay appellate review on
the basis that the circumstances at the time of the initial award
might, but are not necessarily likely to, change.
2. The Arbitrator Acted Within His Authority
When He Awarded the Remedy Set Forth in
the Partial Final Award
VVA next argues that the arbitrator exceeded his authority
by awarding IDG an interest in the project as of a closing date
before IDG had obtained all third party consent, as well as cash
distributions based on that same pre-consent closing date. We
disagree.
24
a. The remedy in the partial final
award is rationally related to the
arbitrator’s interpretation of the
DCAs
In AMD, the California Supreme Court described the
analysis in which a court may engage to ascertain whether or not
an arbitrator “exceed[s] [his] powers” by awarding a particular
remedy. (AMD, supra, 9 Cal.4th at p. 373.) Namely, “[t]he
critical question with regard to remedies [in an arbitration
award] is not whether the arbitrator has rationally interpreted
the parties’ agreement, but whether the remedy chosen is
rationally drawn from the contract as so interpreted.” (Id. at
p. 377.) “Were courts to reevaluate independently the merits
of a particular remedy, the parties’ contractual expectation
of a decision according to the arbitrators’ best judgment would
be defeated.” (Id. at p. 375.) Thus, in reviewing an arbitration
award, a court may review only to assure the arbitrator’s
interpretation provides the basis for the remedy awarded. “In
close cases, the arbitrator’s decision must stand.” (Id. at p. 381;
see ibid. [“[t]he award will be upheld so long as it was even
arguably based on the contract”].)
Applying this deferential standard here, we must first
discern the arbitrator’s interpretation of the DCAs and LPAs.
(See AMD, supra, 9 Cal.4th at p. 381.) Although the record does
not contain an express statement by the arbitrator in this regard,
an arbitrator’s interpretation of a contract may be “implied in
the award itself.” (Ibid.) Based on the award granting IDG
rights as a buyer under the buy-sell without expressly addressing
third party consent, we may infer one of two possible DCA
interpretations by the arbitrator: (1) that the DCAs do not
require third party consent to consummate a buy-sell transaction
25
at all, or (2) that the DCAs require a buyer in a buy-sell
transaction to obtain third party consent as part of the buyer
enforcing its rights in a buy-sell transaction, such that third
party consent is a prerequisite to consummating the change of
ownership that may result from a buy-sell transaction, but not a
prerequisite to obtaining rights as a buyer in such a transaction.
We conclude the arbitrator interpreted the DCAs in the latter
manner, as it is most reasonable when viewed in light of the
award terms, the record of the parties’ discussions regarding
third party consent during arbitration proceedings, and
“a plausible theory of the contract’s general subject matter,
framework, [and] intent.” (Id. at pp. 362–363.)
We next consider whether the remedies in the partial
final award are rationally related to the arbitrator’s implied
interpretation of the DCAs and his finding of breach. (AMD,
supra, 9 Cal.4th at pp. 362–363.) We conclude that they
are. Specifically, permitting IDG to enforce rights as a buyer
under the buy-sell as of a May 19, 2014 closing date is a remedy
“rationally drawn from the arbitrator’s conception of the
contract’s subject matter,” which, as discussed above, does not
deem third party consent to be a prerequisite to awarding such
rights. (Id. at p. 384.) Awarding IDG possession of the cash
distributions to which a buyer would be entitled as of that closing
date—on a potentially temporary basis, pending resolution of the
third party consent issue—is likewise rationally drawn from the
arbitrator’s interpretation of the DCAs implied in the award.9
9 Whether the arbitrator was wise or efficient in awarding
cash distributions to IDG on a potentially temporary basis is not
germane to whether the lower court correctly confirmed the
award. (See Discussion ante, part B.2.b.)
26
We find further support for this conclusion when we
consider that, had the arbitrator postponed any award to IDG
until the third party consent issue was resolved (as VVA argues
the DCAs require), VVA would have been permitted to retain the
projects and cash distributions in the interim. But trusting VVA
to act as a stakeholder in this manner is inconsistent with the
arbitrator’s finding that VVA had breached the agreement. Thus,
as between VVA and IDG, choosing IDG to act as the stakeholder
bears a more rational relationship to the arbitrator’s breach
determination as well. Therefore, under the applicable standard
set forth in AMD, the arbitrator did not exceed his authority by
awarding the remedies reflected in the partial final award, as we
understand it.
b. The partial final award does not
contain a remedy prohibited by
the DCAs
VVA next argues that AMD’s rational relationship
standard does not apply, because the DCAs expressly prohibit the
remedy awarded. VVA is correct that the rational relationship
standard applies only “in the absence of more specific restrictions
in the arbitration agreement” prohibiting the remedy awarded.
(AMD, supra, 9 Cal.4th at p. 367.) But VVA identifies no such
express contractual prohibitions that would trigger this exception
here. Nothing in the DCAs prohibits the remedies the arbitrator
actually awarded to IDG: specific performance (recognizing
IDG’s rights as a buyer under the buy-sell transaction) and
damages (cash disbursements to IDG as the buyer). (See, e.g.,
San Francisco Housing Authority v. Service Employees Internat.
Union, Local 790 (2010) 182 Cal.App.4th 933, 948 (San Francisco
Housing) [“the remedy awarded here was not expressly forbidden
27
or prohibited by either the arbitration agreement or by the
submission,” and thus was not outside the scope of arbitrator’s
authority].)
Nevertheless, VVA argues more broadly that, because VVA
interprets the DCAs as making third party consent an absolute
prerequisite to enforcing rights under a buy-sell transaction,
the DCAs prohibited the arbitrator from granting IDG any such
rights before all third parties had consented and/or without
making those rights expressly contingent on obtaining such
consent. As discussed above, however, we understand the
arbitrator to have interpreted the DCAs differently with respect
to third party consent. Thus, at base, VVA’s argument is that the
arbitrator incorrectly interpreted the DCAs, and that the remedy
in the partial final award is inconsistent with VVA’s preferred
“correct” interpretation. This is not a basis for vacatur.
Courts must defer to an arbitrator’s assessment of the
merits—here, the interpretation and enforcement of the DCAs.
(AMD, supra, 9 Cal.4th at p. 372.) The parties “empowered [the
arbitrator] to interpret and apply the parties’ agreement to the
facts he found to exist” (Gueyffier v. Ann Summers, Ltd. (2008)
43 Cal.4th 1179, 1185 (Gueyffier); Cable Connection, Inc. v.
DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1360 (Cable Connection)),
and California law does not permit a court to correct even
what may appear to be obvious errors in such interpretation.
(Moncharsh, supra, 3 Cal.4th at pp. 6, 28 & 33.) This broad
deference derives from the fact that “ ‘ “ ‘[t]he arbitrator’s
resolution of [contested issues of law or fact] is what the
parties bargained for in the arbitration agreement.’ ” ’ ” (Cable
Connection, supra, 44 Cal.4th at pp. 1360–1361.) Parties to
an arbitration agreement “accept the risk of legal error in
28
exchange for the benefits of a quick, inexpensive, and conclusive
resolution.” (Id. at p. 1360.) That the arbitrator’s authority and
remedial power are defined (in part) through a cross-reference
to the DCAs generally does not transform interpretation of
the DCAs into a proper basis for vacating an arbitration award.
(See O’Malley v. Wilshire Oil Co. (1963) 59 Cal.2d 482, 493
[contractual clause precluding arbitrator from modifying contract
did not permit court to reach merits of controversy in deciding
limits of arbitrability]; see, e.g., Harris v. Sandro (2002)
96 Cal.App.4th 1310, 1314 [argument that arbitrator “exceeded
his powers by issuing . . . ‘inconsistent’ rulings” was “nothing
more than a claim that the arbitrator erred in a legal ruling,”
which cannot provide a basis for vacatur]; AMD, supra, 9 Cal.4th
at p. 373.) Thus, regardless of the merits of VVA’s proposed
alternative interpretation of the DCAs, as long as the arbitrator’s
interpretation is rationally related to the remedy, the arbitrator
did not exceed his authority in awarding it.
VVA cites O’Flaherty v. Belgum (2004) 115 Cal.App.4th
1044 (O’Flaherty), which appears to hold that a remedy
“inconsistent with the terms of a contract”—as the court
interprets them—is a remedy effectively prohibited by the
contract, and thus one that exceeds the bounds of the arbitrator’s
jurisdiction. We read this case as limited to its very unique facts,
as have several other courts.
In O’Flaherty, Division 5 of this court stated the following:
“By providing a remedy inconsistent with the provisions of the
partnership agreement and specifically in contradiction to the
partnership agreement provision that the arbitrator has no
power to order a remedy prohibited by the agreement or not
available in a court of law, the arbitrator in effect awarded
29
‘a remedy expressly forbidden by the arbitration agreement.’
[Citation.] In view of the arbitrator’s acts in excess of his
power and jurisdiction, the warnings in [Moncharsh] and [AMD]
concerning the limitations on judicial power over arbitration
awards are not applicable.” (O’Flaherty, supra, 115 Cal.App.4th
at p. 1061.)
But the facts in O’Flaherty do not require such a broad
statement of the law. O’Flaherty concluded that the forfeiture
remedy the arbitrator ordered for wrongful withdrawal from
a partnership agreement exceeded his authority, because
“[t]he partnership agreement does not provide for forfeiture of
a partner’s capital account in the event the partner wrongfully
withdraws against the firm or upon involuntary termination
of a partner for cause. To the contrary, the agreement provides
for a return of capital, even to a wrongfully withdrawing
partner.” (O’Flaherty, supra, 115 Cal.App.4th at pp. 1057–1058.)
Therefore, in O’Flaherty, unlike here, the contract at issue
expressly addressed the specific remedies permitted and provided
an exhaustive list of such remedies, a list that did not include the
forfeiture remedy awarded in arbitration. (See ibid.) This is not
the same thing as a remedy being generally “inconsistent with
the [contract].” (Id. at p. 1060.)
The California Supreme Court and several appellate
courts have distinguished O’Flaherty on this basis, limiting
its seemingly broad holding to the unique facts involved. In
Gueyffier, for example, the California Supreme Court noted that
the award in O’Flaherty, “contravene[d] an express, unambiguous
limitation in the contract itself” (Gueyffier, supra, 43 Cal.4th
at p. 1187), and that “[a]bsent an express and unambiguous
limitation in the contract or the submission to arbitration,
30
an arbitrator has the authority to find the facts, interpret
the contract, and award any relief rationally related to his or
her factual findings and contractual interpretation.” (Id. at
pp. 1181-1182 [concluding that an arbitrator does not “exceed
his powers when he applies equitable defenses to excuse a
party from performing a material condition of the agreement
that provides the arbitrator may not modify or change any
of the agreement’s material provisions”]; accord, San Francisco
Housing, supra, 182 Cal.App.4th at pp. 949 & 951.) For example,
in San Francisco Housing, the Court of Appeal explained
that, “[u]nlike the remedies in the foregoing cases [including
O’Flaherty], the remedy imposed by the arbitrator . . . did not
conflict with clear and explicit language of the [underlying
contract]. Rather, the arbitrator’s interpretation of the contract
allowed her to frame a remedy that, although not expressly
provided for . . . , was, nevertheless, reasonably related to the
arbitrator’s interpretation of the contract and was not expressly
prohibited by it.” (Id. at p. 951.) So, too, here.
Thus, the arbitrator here was acting well within his
authority under prevailing precedent when he awarded the
remedies at issue. Our state Supreme Court has expressly
rejected the type of arguments VVA raises to the contrary.
We further note, VVA’s argument is not only plainly
incorrect under the applicable law, it is also patently unfair.
Were we to accept, as VVA suggests, that third party consent
is a prerequisite to the arbitrator having authority to award
IDG a specific performance remedy, VVA would enjoy a “heads
I win, tails you lose” scenario in this arbitration. Namely, if the
arbitrator concludes VVA did not breach the DCAs, VVA keeps
the project and cash distributions; if the arbitrator concludes
31
VVA did breach the DCAs, VVA still keeps the project and
cash distributions, because the arbitrator is, according to VVA,
without authority to issue any remedy requiring otherwise.
Under VVA’s arguments, VVA prevails in practice, regardless of
whether or not it breached.
3. The Court’s Refusal to Consider Certain
Impeachment Documents and Testimony
Discovered After the Close of Evidence
in Arbitration Did Not Substantially
Prejudice VVA or Render the Proceedings
Unfair
VVA’s final argument for vacatur stems from the
arbitrator’s denial of VVA’s motion to reopen the arbitration to
consider newly discovered evidence related to Downs’s credibility.
VVA’s motion identified two categories of credibility evidence
produced in separate proceedings after the close of evidence in
this arbitration.
First, it identified documents contradicting Downs’s
arbitration testimony regarding the circumstances surrounding
termination of Downs’s partnership at the law firm Nixon
Peabody. Specifically, these documents contradict Downs’s
arbitration testimony that he could have remained a partner
at Nixon Peabody without divesting his interest in Highland,
and that his leaving the firm was unrelated to his interest in
Highland. Second, VVA’s motion identified Downs’s deposition
testimony admitting that he had issued multiple opinion letters
that included false statements regarding Highland’s and Rice’s
affordable housing transactions. Specifically, Downs testified
that he had sent these letters to state and federal agencies
and federally-insured financial institutions—either directly
(by signing the letter) or indirectly (by being a partner at the
32
firm preparing the letter)—and that the letters inaccurately
stated Downs’s firms had “acted as counsel to” Highland
members, including Rice individually.
The arbitrator denied VVA’s motion on the basis that
“[t]he evidence which VVA seeks to present at a re-opened
[h]earing is wholly collateral to what the parties contested in
this Arbitration”—the meaning, performance, and breach of the
buy-sell agreement—and that “[w]hether Downs violated the
Rules of Professional Responsibility or certain criminal statutes
is not for the Arbitrator to decide.”
The arbitrator further noted that “even if VVA’s proffered
evidence had been presented at the [h]earing, the Arbitrator
would have sustained IDG’s inevitable relevance objection.”
To vacate an award based on an arbitrator’s “refusal . . .
to hear evidence material to the controversy,” section 1286.2,
subdivision (a)(5), requires that the trial court find a party
has been “substantially prejudiced” by the refusal. (§ 1286.2,
subd. (a)(5).) “To 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.” (Hall v.
Superior Court (1993) 18 Cal.App.4th 427, 439 (Hall).) The
record here supports no such conclusion.
First, the arbitrator did not arbitrarily refuse to hear
the evidence at issue without considering its relevance. The
arbitrator’s denial of VVA’s motion to reopen was partially based
on the arbitrator’s view of the evidence as irrelevant; he noted
that, were he to reopen proceedings and consider it, he ultimately
would have “sustained IDG’s inevitable relevanc[y] objection.”
Had the arbitrator excluded this evidence as irrelevant during
33
the course of the arbitration hearing, the Code of Civil Procedure
would not have permitted the trial court to review the correctness
of that determination. For the same reasons, a court is not
empowered to vacate an award based on the arbitrator’s refusal
to reopen proceedings for the purpose of considering evidence the
arbitrator deems irrelevant. No procedural unfairness arises—
let alone procedural unfairness at the level that might justify
vacatur—simply because the arbitrator was presented with
and assessed the relevance of the evidence after the hearing
concluded, as opposed to before.
The Court of Appeal reached a similar conclusion in Hall.
There, “[t]he arbitrator received an informal offer of proof,
determined that even if presented the evidence would not
persuade him against the [non-moving parties], and denied
[the moving party] the opportunity to replace his offer of proof
with actual testimony.” (Hall, supra, 18 Cal.App.4th at p. 439.)
Under such circumstances, “[t]he arbitrator did not prevent [the
moving party] from fairly presenting his defense”; rather, the
arbitrator concluded that this “defense, even with the proffered
evidence, lacked merit.” (Ibid.) As a result, the award could not
be vacated. (Ibid.) Similar reasoning prevents us from vacating
the award here.
Moreover, even if the arbitrator in this case had not made
such a relevance finding, the record would still support the trial
court’s conclusion that this evidence would not have affected the
arbitrator’s assessment of Downs’s and Rice’s relative credibility.
In the interim award and partial final award, the arbitrator
found Downs to be credible, and Rice to be not credible, and
described in some detail the bases for these determinations. For
example, he found Downs’s testimony “understated[,] . . . careful,”
34
and “consistent.” The arbitrator found that Rice, by contrast,
“was not a credible witness” for several reasons. Specifically, the
arbitrator noted that Rice “frequently contradicted himself and
made many unbelievable statements.” The arbitrator also noted
that “Rice’s conduct before this particular dispute arose further
eroded his credibility,” as did Rice’s efforts to “portray himself
as a victim of Downs’[s] superior real estate experience,” that he
“blamed his former attorney . . . in order to evade responsibility
for” a finding in earlier proceedings that Rice had “knowingly
[made] false statements,” and his “unconvincing[ ]” efforts “to
avoid admitting” to having made certain potentially offensive
statements.
The arbitrator thus based his credibility assessment on
several factors, including the two witnesses’ demeanors while
testifying, and ultimately found Downs to be significantly more
credible than Rice. Given this, the court correctly concluded that
the excluded impeachment materials would not have tipped the
scales in Downs’s favor during arbitration, such that its exclusion
“substantially prejudiced” VVA.
VVA contends that, particularly following the California
Supreme Court’s recent decision in Heimlich v. Shivji (2019)
7 Cal.5th 350 (Heimlich), the proper focus in assessing whether
an arbitrator’s refusal to consider evidence provides a basis
for vacatur is whether the refusal to hear evidence calls
into question the fundamental fairness of the proceeding by
effectively denying one side the opportunity to be heard. (See id.
at pp. 368-369.) We do not disagree, but VVA’s argument fares
no better when the analysis is phrased in these terms.
Section 1286.2 subdivision (a)(5) acts as a “ ‘safety valve’ ”
that allows us “ ‘to intercede when an arbitrator has prevented
35
a party from fairly presenting its case.’ ” (Heimlich, supra,
7 Cal.5th at pp. 368–369, quoting Hall, supra, 18 Cal.App.4th
at p. 439.) This requires inequity of the kind not present here.
For example, the California Supreme Court identified Royal
Alliance Associates, Inc. v. Liebhaber (2016) 2 Cal.App.5th 1092,
1108, as a “paradigmatic example” of such inequity. (Heimlich,
supra, 7 Cal.5th at p. 369.) Specifically, the Supreme Court
noted that, in Royal Alliance Associates, “ ‘[t]he arbitrators
gave [one party] an unfettered opportunity to bolster the
written record but denied [the other party] even a limited
chance to do the same’ ” (ibid., quoting Royal Alliance Associates,
supra, 2 Cal.App.5th at p. 1110), and the record suggested the
arbitrators did so because “[they] may have felt [themselves]
too busy to allow each side the opportunity to present evidence.”
(Heimlich, supra, at p. 369; see Royal Alliance Associates,
supra, at p. 1099.) The record here reflects no such arbitrary
one-sidedness. Thus, the court did not err in concluding that
subdivision (a)(5) of section 1286.2 did not provide a basis for
vacating the award.
In sum, because none of the narrow bases on which a court
may vacate an arbitration award applies, the trial court did not
err in confirming the award.
36
DISPOSITION
The trial court’s judgment and orders are affirmed. IDG
is entitled to its costs on appeal.
CERTIFIED FOR PARTIAL PUBLICATION.
ROTHSCHILD, P. J.
I concur:
BENDIX, J.
37
CHANEY, J., Dissenting
I agree with VVA’s contention that the arbitrator exceeded
his power. I would reverse the trial court’s judgment on that
basis.
A. The Arbitrator Exceeded His Authority
“On petition of a party to an arbitration [citations], the
superior court is to vacate an arbitrator’s award if ‘[t]he
arbitrators exceeded their powers and the award cannot be
corrected without affecting the merits of the decision upon the
controversy submitted.’ [Citation.] As [the Supreme Court has]
explained in prior cases, however, this provision does not supply
the court with a broad warrant to vacate awards the court
disagrees with or believes are erroneous.
“When parties contract to resolve their disputes by private
arbitration, their agreement ordinarily contemplates that the
arbitrator will have the power to decide any question of contract
interpretation, historical fact or general law necessary, in the
arbitrator’s understanding of the case, to reach a decision.
[Citations.] Inherent in that power is the possibility the
arbitrator may err in deciding some aspect of the case.
Arbitrators do not ordinarily exceed their contractually created
powers simply by reaching an erroneous conclusion on a
contested issue of law or fact, and arbitral awards may not
ordinarily be vacated because of such error, for ‘ “[t]he
arbitrator’s resolution of these issues is what the parties
bargained for in the arbitration agreement.” ’ [Citations.]
“An exception to the general rule assigning broad powers to
the arbitrators arises when the parties have, in either the
contract or an agreed submission to arbitration, explicitly and
unambiguously limited those powers. [Citation.] ‘The powers of
an arbitrator derive from, and are limited by, the agreement to
arbitrate. [Citation.] Awards in excess of those powers may,
under sections 1286.2 and 1286.6, be corrected or vacated by the
court.’ [Citation.] The scope of an arbitrator’s authority is not so
broad as to include an award of remedies ‘expressly forbidden by
the arbitration agreement or submission.’ [Citation.]”1 (Gueyffier
v. Ann Summers, Ltd. (2008) 43 Cal.4th 1179, 1184-1185.)
“Arbitrators are not obliged to read contracts literally, and
an award may not be vacated merely because the court is unable
to find the relief granted was authorized by a specific term of the
contract. [Citation.] The remedy awarded, however, must bear
some rational relationship to the contract and the breach. The
required link may be to the contractual terms as actually
interpreted by the arbitrator (if the arbitrator has made that
interpretation known), to an interpretation implied in the award
itself, or to a plausible theory of the contract’s general subject
matter, framework or intent. [Citation.] The award must be
related in a rational manner to the breach (as expressly or
impliedly found by the arbitrator).[2] Where the damage is
difficult to determine or measure, the arbitrator enjoys
correspondingly broader discretion to fashion a remedy.
[Citation.] [¶] The award will be upheld so long as it was even
1 The arbitration agreement at issue here expressly limits
the arbitrator’s power: “The arbitrator shall not have any power
to alter, amend, modify or change any of the terms of this
Agreement nor to grant any remedy which is either prohibited by
the terms of this Agreement, or not available in a court of law.”
(Italics added.)
2 “The award is rationally related to the breach if it is
aimed at compensating for, or alleviating the effects of, the
breach. . . .
2
arguably based on the contract; it may be vacated only if the
reviewing court is compelled to infer the award was based on an
extrinsic source. [Citations.] In close cases the arbitrator’s
decision must stand.” (AMD, supra, 9 Cal.4th at p. 381, original
italics.) “Consequently, the dispositive question before us is
whether the remedy imposed by the arbitrator was ‘even
arguably based on the contract’ [citation] or, stated otherwise,
whether the award ‘ “conflicts with express terms of the
arbitrated contract.” ’ ” (San Francisco Housing Authority v.
Service Employees International Union, Local 790 (2010) 182
Cal.App.4th 933, 945.)
The arbitrator concluded that IDG established VVA’s
breach of an agreement “formed by the DCAs, the Buy-Sell
Notice[,] and [VVA’s] Notice of Election” to purchase IDG’s
interests in Villa Vasona and Twin Oaks. The arbitrator
concluded that IDG was entitled to specific performance of the
agreement formed by those three documents, and “order[ed] VVA
to sell its Interests to IDG on the terms and conditions set forth
in the Buy-Sell, effective on the May 19, 2014 closing date. The
DCAs also require that VVA pay IDG its entitled share of
Distributable Cash, which is 33.33% of the amount that accrued
prior to the May 19th Buy-Sell closing date and 100% of the
Distributable Cash accruing since that closing date, when IDG is
deemed to have purchased VVA’s interests.” (Italics added.)
A May 19, 2014 closing date for the parties’ agreement
conflicts with the express terms of an agreement based on the
DCAs, the buy-sell notice, and VVA’s notice of election—by any
measure. Under the “Closing” heading in the DCAs, those
agreements specified that “closing . . . of the purchase and sale of
any Interest pursuant to this Mandatory Buy-Sell shall take
3
place on the conditions and date identified in the Buy-Sell Notice
delivered by the Offering Party, but not later than ninety (90)
days after the delivery of the Buy-Sell Notice.” The buy-sell
notice specified that the transaction would close on the “[l]ater of
90 days following the date of this Buy-Sell Notice or receipt of last
of consents required under [each property’s] [o]perating
agreement.” (Italics added.) And VVA could transfer or assign
its interests in the properties “only with the prior written Consent
of [RBC] in its sole discretion.” (Italics added.) Even without
reference to the LPAs, the DCAs’ “Limitation of Buy-Sell Rights”
provision states that “no party shall have the right to exercise the
Mandatory Buy-Sell” if the transaction would run afoul of RBC’s
consent rights.
The arbitrator was aware of this issue before he issued his
interim award. The issue was raised again between the interim
award and the partial final award. The issue was raised again
when the trial court sought clarification of the award from the
arbitrator. At each turn, the arbitrator declined—in one instance
expressly—to account for the fact that RBC’s prior consent was
necessary for VVA to transfer its interests in Villa Vasona and
Twin Oaks. The parties agree that RBC never gave the required
consent, and the arbitration award makes no allowance for the
consent or the possibility that RBC might withhold it. The effect
of the arbitration award is that IDG and VVA are suspended in
an impregnable dilemma created by an arbitration award that
VVA cannot comply with because it cannot force RBC—a
nonparty to the arbitration—to consent to the transfer, and that
IDG cannot enforce for the same reason.
IDG argued in the trial court as it does here that the
arbitrator’s language means only that there is a possibility of the
4
transfer happening at some point in the future if RBC grants the
required consent. No reasonable interpretation of the arbitrator’s
award would permit that understanding. The arbitrator clearly
stated that the buy-sell agreement was deemed to have closed
and VVA’s interests in Villa Vasona and Twin Oaks were deemed
to have passed to IDG three years before the award. Something
that can only happen once and that did happen three years ago is
not something that might happen in the future if a necessary
contingency occurs. IDG’s contentions that the arguments here
are simply arguments about damages that should be left to the
arbitrator’s discretion fail for the same reason. It is not the case
that the arbitrator made a determination about an amount of
damages or a type of damages that was within his purview; this
is the case where the remedy itself is expressly prohibited by the
contract.
It is obvious from the arbitrator’s award that he intended to
award IDG specific performance of the buy-sell agreement. It is
equally obvious that he awarded something different than specific
performance; something that failed to account for a variety of
terms of the parties’ agreements. Under the express terms of the
parties’ complex collection of interlacing agreements, no buy-sell
transaction requiring the transfer of VVA’s interests was possible
absent RBC’s prior written consent. The agreements repeatedly
make that express prohibition clear. This is not the case of an
ambiguous or missing term, or the failure of the parties’
agreements to expressly prohibit a particular occasion; the parties
agreed that the remedy at the center of the arbitrator’s award is
something that could not happen under any set of circumstances.
“The arbitrator cannot shield his decision from scrutiny
‘simply by making the right noises—noises of contract
5
interpretation . . . .’ [Citation.] Rather, the question [must be]
whether the award is ‘so outré that we can infer that it was
driven by a desire to do justice beyond the limits of the contract.’
[Citation.] Restated, the test asks ‘ “whether the arbitrator’s
solution can be rationally derived from some plausible theory of
the general framework or intent of the agreement.” ’ ” (AMD,
supra, 9 Cal.4th at p. 380.) Our Supreme Court has stated that
“arbitrators may not award remedies expressly forbidden by the
arbitration agreement or submission . . . . How the violation of
‘ “an express and explicit restriction on the arbitrator’s power” ’
[citation] could be considered rationally related to a plausible
interpretation of the agreement is difficult to see.” (Id. at pp.
381-382.)
Code of Civil Procedure section 1286.2 provides litigants
with limited review of arbitration awards. We have today made
them unreviewable.
Because the terms of the parties’ agreement and an award
in 2017 granting a transfer of VVA’s interests on May 19, 2014
absent RBC’s consent are mutually exclusive, I would conclude
the arbitrator’s award is not rationally related to the parties’
contract and the arbitrator exceeded his power. I would order the
trial court to vacate the arbitration award.
B. If the Arbitrator Retained Jurisdiction, The
Appeal Must be Dismissed
1. The Arbitrator did not Retain Jurisdiction
The arbitrator could have retained jurisdiction in his
partial final award to determine any issues that arose afterward.
(See Hightower v. Superior Court (2001) 86 Cal.App.4th 1415,
1427 (Hightower).) He did not.
6
The arbitrator issued his award on May 19, 2017. The
award does not state on its face that the arbitrator is retaining
jurisdiction for any purpose. The parties were unable to enforce
the award and returned to the arbitrator to discuss the question
of retained jurisdiction more than three months later on August
25, 2017. The arbitrator explained during that hearing that
when he issued his May 19 award, he had no intention “one way
or the other” of retaining jurisdiction.
On September 11, 2017, the trial court issued its order
requesting the arbitrator’s clarification of the award. VVA
argued to the arbitrator that he had not retained jurisdiction over
the matter, and in a September 21, 2017 letter to the arbitrator,
IDG agreed. IDG “concede[d] that, as VVA has argued, the
Arbitrator did not retain jurisdiction over this matter. The
Award does not state that the Arbitrator retains jurisdiction.
[Citation.] As the Arbitrator stated on the record, the Award is a
‘partial’ award only because the disputes among other parties in
the same arbitration have not yet been addressed.”
2. If the Arbitrator Retained Jurisdiction, then the
Trial Court’s Judgment is Not Appealable
If the arbitrator retained jurisdiction, then we have no
jurisdiction to hear this appeal.
The relief sought and granted in Hightower, upon which we
relied to find that the arbitrator’s post-award retention of
jurisdiction to conclude that the arbitrator’s award here created
an “incremental award process,” was a peremptory writ of
mandate. (Hightower, supra, 86 Cal.App.4th at p. 1440.) If the
arbitrator retained jurisdiction to continue to decide disputes
between the parties, “any partial award . . . would be subject to
confirmation. Upon such confirmation, it [would] be appropriate
7
for the trial court to issue an interlocutory judgment establishing,
in accordance with the terms of such award, the issues and
matters resolved thereby and providing a basis and means for the
judicial enforcement thereof. [Citation.] Appellate relief from
such judgment, as is true with respect to interlocutory judgments
generally, would be available by application for an extraordinary
writ. The granting of appellate relief at this stage, however,
would, as in all such cases, require a proper showing of
justification for immediate appellate intervention; in other words,
the aggrieved party would have to make a demonstration as to
why an appeal from the judgment confirming the ultimate final
award would not be adequate. [Citation.]” (Ibid., italics added.)
“Under the one final judgment rule, interlocutory
judgments generally are not appealable.” (Kaiser Foundation
Health Plan, Inc. v. Superior Court (2017) 13 Cal.App.5th 1125,
1138.) “The one final judgment rule applies to judgments
confirming arbitration awards.” (Id. at p. 1139.) If we construe
the arbitrator’s award as confirmation of one part of an
“incremental award process,” the “judgment confirming the
partial final award is not a final judgment, it is not
appealable . . . .” (Id. at p. 1140.) In that event this court would
lack jurisdiction to hear this appeal.
8
Based on the contractual prohibition of the remedy the
arbitrator awarded and the conclusion that the arbitrator was
engaged in an incremental award process, which renders the trial
court’s judgment interlocutory and deprives us of jurisdiction, I
respectfully dissent.
CHANEY, J.
9