Opinion
NOT TO BE PUBLISHED
APPEAL from the Superior Court of Riverside County No. RIC378187. Erik Michael Kaiser, Judge.
Forman & Associates, George Forman, Kimberly A. Cluff and Jay B. Shapiro for Defendant and Appellant.
Robert A. Garcia for Plaintiff and Appellant.
OPINION
MILLER, J.
The Cahuilla Band of Indians (Cahuilla) appeals from a judgment entered in favor of Mary DiCara (DiCara), doing business as Scott Leasing Company, after the trial court granted DiCara’s petition to confirm an arbitration award and denied Cahuilla’s petition to vacate the award. The principal issue presented is whether equitable considerations such as unjust enrichment may properly be applied to enforce a seemingly illegal contract to lease video gaming devices for use in an Indian reservation casino. After conducting an independent review, we conclude, as did the trial court, that enforcement is appropriate under the circumstances of this case.
In affirming the judgment, we reject Cahuilla’s contention the court erred in refusing to adhere to Code of Civil Procedure section 1290, pursuant to which, “[t]he allegations of a petition [initiating a judicial arbitration proceeding] are deemed to be admitted by a respondent duly served therewith unless a response is duly served and filed.” Although DiCara did not file a “response” to Cahuilla’s “petition to vacate,” her filing of “opposition” to Cahuilla’s “motion to vacate” served the same purpose and did not prejudice Cahuilla. Furthermore, in light of our affirmance, we need not reach the merits of DiCara’s contention, as asserted in her protective cross-appeal, that the arbitration award was final and binding upon the parties and thus not subject to appeal.
All further statutory references will be to the Code of Civil Procedure unless otherwise indicated.
FACTUAL AND PROCEDURAL BACKGROUND
The source of these background facts is, for the most part, the arbitrator’s final decision. This is proper, as the factual basis of that decision was binding on the trial court and is binding on us. Indeed, “it is the general rule that, with narrow exceptions, an arbitrator’s decision cannot be reviewed for errors of fact or law.” (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11 (Moncharsh); see also Oakland-Alameda County Coliseum Authority v. CC Partners (2002) 101 Cal.App.4th 635, 638.)
In December 1995, DiCara and Cahuilla entered into an agreement entitled Gaming Machine Lease (the lease). The recital portion of the lease provided that Cahuilla, “acting through its General Council in the exercise of its inherent sovereign power has elected to engage in the business of conducting on Tribal lands casino type gaming activities to include offering for play to the general public the gaming machines hired pursuant to this Agreement;” that Cahuilla “is the beneficial owner of the Cahuilla Reservation lands, which was acquired by [Cahuilla] before the passage of the Indian Gaming Regulatory Act of 1988[;]” and that “[a]s engaged in by [Cahuilla], Indian gaming is a lawful business and economic development enterprise[.]”
The lease provided for DiCara to lease to Cahuilla “any and all electronic gaming machines used in [Cahuilla’s] gaming activities,” for a term of 60 months, and for Cahuilla to pay to DiCara 30 percent of the “total net win,” on a weekly basis. The lease also provided that all disputes, controversies or claims arising out of or relating to the lease would be settled by arbitration. DiCara “warrant[ed] that all of the gaming machines were in good working order and would be inspected on a regular basis by qualified technicians.” In negotiating the lease, DiCara was represented by her son, attorney Anthony Caronna; Cahuilla was represented by its tribal attorney, Eugene Madrigal.
The casino opened for business in early June of 1996. DiCara had provided approximately 250 machines, which it had either purchased or leased from suppliers. Soon thereafter, some of the machines malfunctioned, requiring a series of maintenance calls and the replacement of various parts. By September, with the consent of Caronna, Cahuilla stopped making payments under the lease, apparently due to cash flow problems, and a dispute arose as to the duration of this “‘forbearance’” period. Cahuilla never made any additional payments, and in late 1996, Scott Leasing Company went out of business except for purposes of debt collection.
In March 1997, the United States Attorney filed a civil suit against Cahuilla and other federally recognized Indian tribes, seeking declaratory and injunctive relief to cease the operation of casino-type gaming on Indian reservation lands in violation of the Indian Gaming Regulatory Act (IGRA). The lawsuit alleged that the tribes were conducting Class III video gaming in the absence of a compact approved by the State of California, as required by IGRA.
In October 1998, an injunction was issued by the United States District Court, barring Cahuilla and other tribes from operating any games of chance. The order was never enforced, however, and Cahuilla’s casino continued to operate. The injunction was stayed pending an appeal by the tribes, and by order dated October 19, 2000, the matter was deemed moot, apparently because Proposition 1A had been passed, allowing video gaming on Indian reservations.
Proposition 1A was approved by the voters in March 2000, adding the following provision to the state Constitution: “Notwithstanding subdivisions (a) and (e), and any other provision of state law, the Governor is authorized to negotiate and conclude compacts, subject to ratification by the Legislature, for the operation of slot machines and for the conduct of lottery games and banking and percentage card games by federally recognized Indian tribes on Indian lands in California in accordance with federal law. Accordingly, slot machines, lottery games, and banking and percentage card games are hereby permitted to be conducted and operated on tribal lands subject to those compacts.” (Cal. Const., art. IV, § 19, subd. (f).)
In September 2000, Caronna wrote to Cahuilla, demanding payment of all monies past due. In October 2001, after several follow-up letters proved to be futile, DiCara filed a lawsuit against Cahuilla in federal court. The matter was removed to state court, and in December 2002, DiCara’s motion to compel arbitration was granted. At the same time, the court overruled Cahuilla’s demurrer made on the ground the lease had an unlawful purpose and was therefore unenforceable.
In March 2006, the arbitrator issued a final award in favor of DiCara, consisting of $580,696 in damages, $419,845 in interest (with interest to accrue until damages are paid in full), $150,000 in attorney fees, and $24,500 in costs, for a total of $1,175,041. As for Cahuilla’s renewed claim that the lease was illegal and therefore unenforceable, the arbitrator found the defense of illegality to be meritless, thereby impliedly finding that the lease was not unenforceable.
The arbitrator’s decision states: “The record reflects concern by the government regarding the activities taking place at Indian owned casinos. But ultimately there is nothing before the arbitrator, supporting the conclusion taken by the defense that the lease is unenforceable. The U.S. Attorney approached the problem with some ambivalence, avoiding criminal proceedings and allegedly seeking a civil remedy. [¶] There is nothing in [the] record showing the Casino lost even one day’s business due to government interference. To allow the tribe to shed its contractual obligations while continuing to operate its gaming machines would result in a gross miscarriage of justice. If in fact the Casino had been locked down, then both sides would be unable to comply with the terms of the contract due to circumstances beyond their control, and the legal result might be different. [¶] The tribe concedes in its brief that ‘. . . California courts have looked at the kind and degree of illegality and the facts in the particular case’ when making a determination if an illegal contract should be enforced or not.”
On April 21, 2006, Cahuilla filed a petition to vacate the arbitration award on the ground “the arbitrator exceeded his . . . authority, and the award cannot be fairly corrected.” Specifically, Cahuilla alleged the sole purpose of the lease was to provide Cahuilla “with gambling machines that were illegal under California’s penal code and federal laws prohibiting gaming devices in Indian County [sic]. These gambling machines were Class III gaming devices that could not lawfully be operated, leased, or possessed in California, or in Indian County [sic] in California, in the absence of a compact between Cahuilla and the State of California that was in effect, and no such compact existed when the parties entered into the Lease or at any time during which [DiCara] sought payment that [she] claimed Cahuilla owed under the Lease.”
On April 24, 2006, DiCara filed a petition to confirm arbitration award, to which she attached a copy of the arbitrator’s Final Award on Binding Arbitration. She also filed points and authorities in support of the petition, asserting that her petition should be granted because it was properly before the court, it was timely, and the award was valid.
On May 17, 2006, DiCara filed a document entitled “Petitioner’s Opposition to Respondent’s Motion to Vacate Award,” wherein she alleged the lease agreement was not illegal, and even if it was, enforcement was warranted to prevent unjust enrichment.
At a hearing on August 2, 2006, the court indicated that it would read the parties’ papers and send out a statement of intended decision, after which the parties “can file any opposition [they] want, and then if we have to have a hearing, we will do that.” At this hearing, counsel for Cahuilla took the position that, although DiCara had filed opposition to Cahuilla’s motion to vacate, a response to its petition to vacate had not been filed, as required by statute, and that the allegations in Cahuilla’s petition must therefore be deemed admitted.
By minute order filed October 26, 2006, the court rendered its initial ruling. At the request of Cahuilla’s counsel, the court scheduled a hearing for December 8, 2006.
Because this ruling was later modified, we do not set forth its particulars.
At the hearing, counsel for DiCara indicated that his client was satisfied with the court’s ruling. However, Cahuilla’s counsel argued the court overlooked the fact that at the time the parties entered into the lease, it was illegal to merely possess slot machines; accordingly, “the object of this lease was the commission of a crime, not only on the part of Cahuilla in terms of operating machines, or merely possessing the machines, but on the part of DiCara in leasing the machines to Cahuilla.” Notwithstanding the position taken on Cahuilla’s behalf, the court indicated its view that the lease was “apparently” legal during the applicable period of time.
Cahuilla’s attorney then asserted that because a tribal/state compact did not go into effect until May 16, 2000, after the lease had expired, “it was never legal during the term of this lease . . . .” Thus, counsel argued the arbitrator exceeded his authority by entering an award on a contract that was “void from the get-go.” The court responded, “If it was void from the get-go, then you ought to give the money back.” Counsel indicated, “That’s not . . . for this Court to decide,” to which the court replied, “I haven’t decided it. What I decided was based on the equities, the arbitrator came to the right decision.”
Counsel for Cahuilla also challenged the court’s reference to a petition to confirm or vacate an arbitration award as a motion rather than a complaint. Citing section 1290, he argued that a motion is not a petition, and that opposition to a motion is not a substitute for a response to a petition; thus, in the absence of a response, the allegations of the petition must be deemed admitted. The court took the matter under submission, and by minute order filed January 30, 2007, rendered a revised ruling. With respect to Cahuilla’s position regarding DiCara’s failure to file a response, the court had this to say: “DiCara’s response to the petition to vacate the arbitration award did not comply with CCP Section 1285.6. DiCara’s response did address the issues raised by the petition to vacate. The petition to vacate did attach the documents required by CCP Section 1285.6. Therefore, the court finds defendant Cahuilla Band was not prejudiced by DiCara’s failure to comply with CCP Section 1285.6.”
Section 1285.6 provides that a response to petition shall set forth the substance of or attach a copy of the arbitration agreement, set forth the names of the arbitrators, and set forth or attach a copy of the award and, if any, the opinion of the arbitrators.
Moreover, the court concluded that Cahuilla “has not made a showing that the arbitrator exceeded his authority.” The court then stated: “Even if the lease agreement was illegal when it was entered into on December 1, 1995, DiCara should not be denied relief. [¶] There is no public interest to protect or laws to be enforced. The voters in November 1998 approved Proposition 5 permitting tribal gaming. In March 2000 the California Constitution was amended to permit Indian gaming. After March 2000 the Cahuilla Band did not attempt to obtain a tribal-state compact agreement. Even the United States Attorney sought a civil resolution. [¶] To void the agreement or not confirm the arbitration award result, is a harsh result for DiCara and would unjustly enrich the Cahuilla Band.” In reaching its decision, the court relied on Southfield v. Barrett (1970) 13 Cal.App.3d 290, 294 (Southfield).
As indicated at page 11, the court later acknowledged that Cahuilla did obtain a tribal-state compact agreement effective in May 2000.
In February, Cahuilla filed a motion for reconsideration or for new trial, which was heard on April 2, 2007. At the hearing, the court acknowledged “[t]here can be no dispute from the date of the lease agreement until March of 2000 it was illegal to operate gaming machines.” The court pointed out, however, that the United States Attorney approached the matter by means of civil litigation, and that no criminal action was ever taken against Cahuilla. Thus, the court acknowledged that Penal Code section 330.1 prohibits possession of slot machines or devices. However, it indicated that “the big problem I have is when this came to light, nobody took any action on it. They all treated it like a civil wrong. Every authority who had this matter brought to their attention treated it like a civil wrong, and they didn’t file any criminal charges against the Band. . . .”
Neither the motion nor DiCara’s opposition is included in the record.
See page 15, footnote 12, post.
Further, in response to Cahuilla’s counsel’s assertion that DiCara “was a participant in the illegal gambling activity,” the court stated, “I’m not making a judgment on moral culpability at all. I’m just trying to decide whether or not this contract is enforceable under the law, and in light of . . . what the authorities did in this case, and how they treated this case as a civil case, I think the Southfield case is persuasive. That’s what I relied on.”
The court stayed enforcement of the judgment pending a hearing on the issue of Cahuilla’s purported waiver of its right to appeal, which had previously been raised by DiCara, and continued the matter to May 1, 2007. At the May 1 hearing, the court found it was not clear that Cahuilla had waived its right to appeal either the court’s decision to confirm the arbitration award or the decision of the arbitrator. The court also corrected an earlier ruling, indicating that it is for the court, and not the arbitrator, to decide if an agreement is illegal as a whole. Thus, the court acknowledged for the first time that it had made a mistake in allowing the arbitrator to decide the issue of legality. In response to the court’s inquiry of counsel as to how it ought to proceed, counsel for Cahuilla conceded there was nothing else for the arbitrator to do.
The court then reiterated its denial of Cahuilla’s motion for reconsideration. However, on its own motion, it had reconsidered its prior ruling, concluding that “[e]ven if the lease agreement was illegal when it was entered into on December 1, 1995, DiCara should not be denied relief. There is no public interest to protect or laws to be enforced. The voters in November 1998 approved Prop[osition] 5, permitting tribal gaming.” The court also acknowledged that Cahuilla eventually obtained a tribal-state compact agreement, which became effective May 16, 2000. In response, counsel for Cahuilla argued, “there is no California case that has ever enforced a contract to commit a crime, where the object of the contract was the commission of a crime, and that is exactly what your Honor’s ruling would offer us.” The court replied that it was following the position of the Unites States Attorney, who had approached the issue by means of civil litigation, without bringing any criminal action against Cahuilla. The court said it “see[s] that as a difference.”
On June 28, 2007, Cahuilla filed its notice of appeal. Two weeks later, Cahuilla filed a motion in this court, asking us to take judicial notice of a letter dated June 13, 2007, addressed to Cahuilla’s counsel, from the acting general counsel of the National Indian Gaming Commission (NIGC). On July 17, 2007, DiCara noticed her cross-appeal. Three days later, she filed opposition to Cahuilla’s request for judicial notice along with her own request with regard to letters dated January 16, 1996, from the chairperson of the Cahuilla Band of Indians to the chairperson of the NIGC, and March 18, 1996, from the NIGC to the chairperson of the Cahuilla Band of Indians. By orders of July 26, 2007, and August 16, 2007, this court’s rulings on both requests were reserved for consideration with the appeal.
We now deny both requests. The June 2007 letter was offered to show that, although the arbitrator found that the lease was not a management contract for purposes of section 81 of title 25 of the United States Code, it actually was a management contract subject to approval by the NIGC, and in the absence of that approval, was illegal and unenforceable. In light of our conclusion that the lease is enforceable notwithstanding its illegality, we fail to see the purpose of either the 2007 letter or the original 1996 letters.
DISCUSSION
A. Standard of review.
When parties agree to private arbitration, the scope of judicial review is strictly limited in order to give effect to the parties’ intent “to bypass the judicial system and thus avoid potential delays at the trial and appellate levels . . . .” (Moncharsh, supra, 3 Cal.4th at p. 10.) This principle rests upon the strong public policy in favor of arbitration, of settling arbitrations speedily and with a minimum of court interference, and of making arbitration awards final and conclusive. (Id. at p. 9.)
Accordingly, we do not review the merits of the dispute, the sufficiency of the evidence, or the arbitrator’s reasoning, nor may we correct or review an award because of an arbitrator’s legal or factual error, even if it appears on the face of the award. (Moncharsh, supra, 3 Cal.4th at pp. 6, 11.) Instead, we restrict our review to whether the award should be vacated under the grounds listed in section 1286.2. (Moncharsh,at p. 11.) Applicable here is subdivision (a)(4) of section 1286.2, which provides that an arbitration award shall be vacated if “[t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.” In determining whether the arbitrator exceeded his or her powers, we review the trial court’s decision de novo, giving substantial deference to the arbitrator’s own assessment of his or her contractual authority. (Alexander v. Blue Cross of California (2001) 88 Cal.App.4th 1082, 1087; Malek v. Blue Cross of California (2004) 121 Cal.App.4th 44, 55 (Malek).) “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.” (Malek, at pp. 55-56.)
Section 1286.2 also provides that an award may be vacated if it was procured by “corruption, fraud or other undue means,” if there was “corruption in any of the arbitrators,” or if “the rights of the party were substantially prejudiced by misconduct of a neutral arbitrator.”
Of course, “the power of the arbitrator to determine the rights of the parties is dependent upon the existence of a valid contract under which such rights might arise. [Citations.] In the absence of a valid contract no such rights can arise and no power can be conferred upon the arbitrator to determine such nonexistent rights.” (Loving & Evans v. Blick (1949)33 Cal.2d 603, 610.) Thus, an arbitrator exceeds his or her powers in rendering an award upholding an illegal contract. As our Supreme Court explained in Moncharsh, “‘the rules which give finality to the arbitrator’s determination of ordinary questions of fact or of law are inapplicable where the issue of illegality of the entire transaction is raised in a proceeding for the enforcement of the arbitrator’ award.’ [Citation.]” (Moncharsh, supra, 3 Cal.4th at p. 31.)
Here, the arbitrator made an implied finding that the lease was not illegal, and in so doing exceeded his power. “Under California law, the question whether the contract as a whole is illegal is one for the court to decide.” (Hotels Nevada, LLC v. Bridge Banc, LLC (2005) 130 Cal.App.4th 1431, 1436 (Hotels Nevada).) A claim that a contract is illegal must be determined by a judge, not by the arbitrator, because such claim raises questions of public policy. (Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 316, fn. 2.; Hotels Nevada, at p. 1437.)
As previously indicated, the arbitrator did not expressly determine if the lease was legal or illegal. Rather, indicating that the lease should be enforced even if it was illegal, he concluded, “[t]he defense of illegality ha[d] no merit.”
In the present case, after recognizing that it erred in allowing the arbitrator to decide the legality issue, the court made a finding that even if the lease was illegal, it should be enforced. The court then purported to give counsel for both parties an opportunity to request the matter be remanded to the arbitrator, should they deem such procedure appropriate. However, Cahuilla’s counsel essentially conceded that once the court made a finding on the legality issue, there was nothing further for the arbitrator to do in this case. Thus, the issue presented for our independent review is whether the trial court was correct in confirming the arbitration award, and denying Cahuilla’s petition to vacate the award, on the ground that even if the lease was illegal when made, DiCara should not be denied relief.
B. An illegal contract is not per se unenforceable.
“California statutes require that a contract have ‘a lawful object.’ (Civ. Code, § 1550, subd. (3); see Civ. Code, § 1596.) Otherwise the contract is void. (Civ. Code, § 1598.) Civil Code section 1668 provides that a contract that has as its object a violation of law is ‘against the policy of the law.’” (Kashani v. Tsann Kuen China Enterprise Co. Ltd. (2004) 118 Cal.App.4th 531, 541.) Ordinarily, an illegal contract which is void cannot be ratified by any subsequent act. (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 432, pp. 473-474.) As stated in Swenson v. File (1970) 3 Cal.3d 389, 394, “‘the law here is, and should be, that a contract, or provision in a contract, which contravenes public policy when made is not validated by a later statutory change in that public policy.’”
Thus, as a general rule, “a contract made in violation of a regulatory statute is void. [Citation.] Normally, courts will not ‘“lend their aid to the enforcement of an illegal agreement or one against public policy . . . .”’ [Citations.] This rule is based on the rationale that ‘the public importance of discouraging such prohibited transactions outweighs equitable considerations of possible injustice between the parties.’ [Citation.]” (Asdourian v. Araj (1985) 38 Cal.3d 276, 291 (Asdourian).) The rule, however, “‘is not an inflexible one to be applied in its fullest rigor under any and all circumstances. A wide range of exceptions has been recognized.’ [Citation.]” (Ibid.) Quoting from Southfield, supra, 13 Cal.App.3d at p. 294, the Asdourian court explained that “[i]n compelling cases, illegal contracts will be enforced in order to ‘avoid unjust enrichment to a defendant and a disproportionately harsh penalty upon the plaintiff.’ [Citation.] ‘“In each case, the extent of enforceability and the kind of remedy granted depend upon a variety of factors, including the policy of the transgressed law, the kind of illegality and the particular facts.”’ [Citation.]” (Asdourian, at p. 292.)
As we explain below, even if the object of the lease between Cahuilla and DiCara was unlawful at the time it was made and the proscribed conduct then constituted a misdemeanor punishable by fine and/or imprisonment, application of equitable considerations supports the conclusion that enforcement is proper under the unique circumstances of this case. We therefore reject Cahuilla’s position that an agreement purporting to have a criminal objective is per se unenforceable.
Pursuant to Penal Code section 330b, it is unlawful for any person to, among other things, own, possess, or permit the operation of any slot machine or device, or to make an agreement with another person regarding any slot machine for gambling purposes. Subdivision (c), added in 2003, excludes “business activities that are conducted in accordance with the terms of a license issued by a tribal gaming agency pursuant to the tribal-state gaming compacts entered into in accordance with the Indian Gaming Regulatory Act . . . .”
C. The lease is enforceable.
We begin our review with a brief discussion of Southfield, supra, 13 Cal.App.3d 290, the case which the trial court found persuasive in deciding that the lease should be enforced. There, the plaintiff agreed to advance $40,000 to the defendant, who agreed to harvest and deliver hay to the plaintiff. The plaintiff would then sell the hay and credit the defendant with the proceeds less certain deductions, including commissions. After partially performing under the agreement, the defendant ceased making deliveries. The plaintiff sued for breach of contract, money had and received, and account stated. The defendant argued the contract was illegal in that the plaintiff was acting as a commission merchant, without a license, in violation of the Agricultural Code. Accordingly, the trial court determined that the agreement was illegal and void, and entered judgment for the defendant. The appellate court reversed, finding that the plaintiff should not be denied relief despite the illegality of the contract.
Said the court: “The rule requiring courts to withhold relief under the terms of an illegal contract is based on the rationale that the public importance of discouraging such prohibited transactions outweighs equitable considerations of possible injustice as between the parties. [Citation.] However, the rule is not an inflexible one to be applied in its fullest rigor under any and all circumstances. A wide range of exceptions has been recognized. [Citations.] Where the public cannot be protected because the transaction has already been completed, no serious moral turpitude is involved, defendant is the one guilty of the ‘greatest moral fault,’ and defendant would be unjustly enriched at the expense of plaintiff if the rule were applied, the general rule should not be applied. [Citation.] In such circumstances, equitable solutions have been fashioned to avoid unjust enrichment to a defendant and a disproportionately harsh penalty upon the plaintiff. [Citations.] (Southfield, supra, 13 Cal.App.3d at p.294.)
The court continued: “The present case is one in which plaintiff should be entitled to some relief. The violation of law was one which did not involve serious moral turpitude; the policy of protecting the public from the future consequences of the contract will not be furthered because the transaction has been completed; neither party can be said to have been guilty of the ‘greatest moral fault;’ defendant would be unjustly enriched at the expense of plaintiff were he not required at least to repay the balance owing on the $40,000 advance payment; and the penalty resulting from denial of relief would be disproportionately harsh in relation to the violation involved.” (Southfield, supra, 13 Cal.App.3d at p.294, fn. omitted.)
Cahuilla acknowledges that Southfield and similar cases in which an agreement was made in violation of a civil law or regulation, such as a licensing requirement, “recognize that recovery might be appropriate even under a contract that suffers from some technical illegality,” where there are compelling circumstances. However, it maintains that those cases do not apply to contracts intended to violate criminal laws. Further, Cahuilla infers that the lease was malum in se, rather than malum prohibitum, and is therefore unenforceable because it was “designed to further a crime or obstruct justice.” (Asdourian, supra, 38 Cal.3d at p. 293.) Cahuilla cites Vitek, Inc. v. Alvarado Ice Palace (1973) 34 Cal.App.3d 586, 593, where the court said: “[A]cts which are malum in se . . . are viewed as rendering the agreement absolutely void . . . . Agreements malum in se include all those of an immoral character, those which are inequities in themselves, and those opposed to sound public policy or designed to further a crime or obstruct justice.” Accordingly, insisting that “no California court ever has invoked equity to award relief in an action to enforce a contract with a criminal objective,” Cahuilla urges us to follow the rationale of Yoo v. Jho (2007) 147 Cal.App.4th 1249 (Yoo), a case in which the appellate court reversed an order awarding partial rescission to a buyer of a business dealing partially in counterfeit goods, concluding that “the illegal object of the contract precludes any recovery.” (Id. at p. 1251.) We decline to do so. As we shall explain, our decision as to whether the lease should be enforced is not governed solely by the fact the conduct underlying the lease agreement is, at least technically, criminally proscribed.
In Yoo, supra, the plaintiff paid $400,000 to purchase a boutique selling women’s clothing and accessories, which she knew was engaged in the sale of counterfeit merchandise. Three years later, after moving the business to a different location in the same shopping center, investigators came to the store and removed the counterfeit merchandise. After several months, the plaintiff closed down the store due to declining business and sued the seller for breach of contract, fraud, and rescission. She pled that the seller falsely represented the business had annual gross sales of $700,000 and annual net income of $500,000. In an attempt to “do equity,” the trial court awarded her “partial” rescission. However, the appellate court reversed, concluding that the illegal object of the contract precluded any recovery.
Said the court: “The reason for judicial refusal to enforce a contract which has an illegal object ‘is not that the courts are unaware of possible injustice between the parties, and that the defendant may be left in possession of some benefit he should in good conscience turn over to the plaintiff, but that this consideration is outweighed by the importance of deterring illegal conduct. Knowing that they will receive no help from the courts and must trust completely to each other’s good faith, the parties are less likely to enter an illegal arrangement in the first place.’ [Citations.]” (Yoo, supra, 147 Cal.App.4that p. 1255.) The court noted that the trial court apparently believed it was doing the right thing when it awarded partial rescission in view of the fact that only one-third of the merchandise was counterfeit. However, the court reasoned, “irrespective of whether counterfeit goods accounted for 30 percent or 70 percent of sales receipts, the business was substantially involved in the sale of counterfeit goods, rendering the object of the business purchase agreement illegal.” (Ibid.)
Yoo is distinguishable, not because, as DiCara contends, there was no evidence here that either party intended to defraud the other, but rather, because any reason for refusing to enforce the lease was virtually eliminated with the legalization of Indian gaming. Indeed, the seller in Yoo was essentially rewarded for entering into an illegal transaction when the court said she need not return any of the money paid to her by the buyer—even though she should in good conscience do so. However, the likelihood of a repeat performance was minimized by virtue of that court’s unwillingness to make the buyer whole and to instead “leave the parties as it [found] them.” (Yoo, supra, 147 Cal.App.4that p. 1251.) That is, in the Yoo court’s view, the refusal to honor the illegal transaction would, at least hopefully, deter future illegal conduct of this kind. In contrast, because it is no longer illegal to engage in business activities “conducted in accordance with the terms of a license issued by a tribal gaming agency pursuant to the tribal-state gaming compacts entered into in accordance with the Indian Gaming Regulatory Act,” (Pen. Code, § 330b, subd. (c)), and in light of the injustice which will befall DiCara if the lease is not enforced, we perceive no reason why we should not do so. Simply stated, while deterring unlawful conduct such as counterfeiting could conceivably outweigh any injustice between parties engaged in that conduct, we cannot say the same about leasing gaming devices to an Indian tribe which had yet to enter into an appropriate tribal-state gaming compact.
Cahuilla contends, “DiCara freely entered into an agreement to lease gaming machines, thereby violating at least four provisions of the California Penal Code . . . .” Perhaps. However, in the absence of a finding by the arbitrator, it cannot be said that both parties knew the lease was illegal at the time they entered into it. Indeed, the lease recites that “[a]s engaged in by [Cahuilla], Indian gaming is a lawful business and economic development enterprise.” In this regard, inferring that the trial court may actually have been correct when it initially made a finding that the lease was legal, DiCara asserts that at the time the parties entered into the agreement, the status of Indian gaming in California was essentially in transition, i.e., “[t]he scope of gaming was unclear and being litigated . . . .”
Also distinguishable is Kelly v. First Astri Corp. (1999) 72 Cal.App.4th 462 (Kelly), a case cited by Cahuilla for the proposition that California courts steadfastly refuse to enforce contracts involving gambling. In Kelly, the plaintiff sought to recover gambling losses and lost gambling profits arising out of allegedly rigged casino games at a tribal casino. The Court of Appeal affirmed summary judgment against the plaintiff, concluding that, “‘notwithstanding shifting public attitudes about gambling and public acceptance of some forms of gambling both in California . . . and on California Indian lands” (id. at p. 489), his action was barred “under California’s strong and long-standing public policy against judicial resolution of civil claims arising out of lawful or unlawful gambling contracts or transactions . . . .” (Id. at p. 466.) Although Cahuilla acknowledges that Kelly “did not per se involve an illegal gambling contract,” it insists that the opinion “offers considerable guidance” to resolve disputes which do. Thus, asserting that but for Cahuilla’s unlawful operation of the gaming devices, no rent would be due under the lease, Cahuilla argues DiCara is not unlike the unsuccessful plaintiff in Kelly. We cannot agree.
Although the lease was made in violation of a provision of the Penal Code, we are reluctant to view this case as one involving illegal gambling. Rather, we share the trial court’s opinion that, in light of the decision of the United States Attorney “to approach the issue by way of civil litigation, and no criminal action was ever brought,” it is appropriate to seek guidance from case law dealing with agreements made in violation of civil licensing statutes. We therefore reject Cahuilla’s position that “neither case law nor common sense supports [the] proposition that an illegal contract’s enforceability turns on the manner [in which] the government exercises its prosecutorial discretion to enforce laws prohibiting the contracted-for conduct.”
Applying what we believe to be the most far reaching principle articulated in Southfield, i.e., that illegal contracts will be enforced where “defendant would be unjustly enriched at the expense of plaintiff if the rule [against enforceability] were applied,” (Southfield, supra, 13 Cal.App.3d at p. 294), as confirmed by the Supreme Court in Asdourian, supra, we conclude that the lease should be enforced. Even if the lease violated California law at the moment it was signed, and even if, as indicated below, neither party has any greater moral culpability than the other, not enforcing the lease would result in unjust enrichment to Cahuilla, which stands to gain over a million dollars owed to DiCara. As the trial court stated, “There is nothing in the record showing the casino lost even one day’s business due to government interference. [¶] To allow the tribe to shed its contractual obligations while continuing operating its gaming machines would result in a gross miscarriage of justice. [Cahuilla] concedes . . . that California courts have looked at the kind and degree of the illegality and the facts of the particular case when making a determination if an illegal contract should be enforced or not.” Indeed, DiCara performed her part of the bargain, i.e., she leased machinery to Cahuilla—machinery which conceivably could have been used elsewhere. In turn, Cahuilla did virtually nothing except sit back and receive the financial rewards derived from the gambling conducted in its casino.
Cahuilla does not refute, nor could it, that it has received a large amount of money as a result of its use of DiCara’s slot machines. Nonetheless, it contends “[w]hile this consideration might weigh in favor of enforcement in circumstances in which the central purpose of the parties’ agreement was not to violate the law, it cannot overcome the facts that the parties knowingly entered into a contract involving serious moral turpitude and that DiCara was just as guilty as Cahuilla of violating State and federal penal laws. Thus, even if the analytic framework advanced by DiCara governed—which it does not—in this case, it could not support enforcement of the parties’ Agreement.” We disagree.
As previously noted, the record does not support Cahuilla’s position the parties entered into the lease with express knowledge that it was then unlawful to lease and/or operate slot machines for gambling purposes. Nor can it be said that the lease necessarily involved serious moral turpitude simply because the underlying violation pertained to gambling. Furthermore, we do not share Cahuilla’s view that the lease cannot be enforced because the in pari delicto doctrine prohibits judicial reliance on equity to enforce an otherwise illegal contract. While we recognize the oft-stated rule that courts will not aid parties to an executed illegal transaction unless one of the parties is guilty of greater moral fault (see, e.g., Southfield, supra, 13 Cal.App.3d at p. 294), we know of no authority precluding enforcement where, as here, the issue of culpability cannot be ascertained from the record. In any event, the relative culpability and equities of the parties appears to be just one of many factors to be considered in determining the enforceability of an otherwise illegal contract. As Witkin puts it: “In situations in which no strong objections of public policy are present, a party to the illegal agreement may be permitted to enforce it, often on the ground that the parties are not in pari delicto. Other reasons that have been assigned, either singly, or together are: (1) the violation of law did not involve serious moral turpitude; (2) the adverse party would be unjustly enriched if enforcement were denied; (3) the forfeiture would be disproportionately harsh in proportion to the extent of illegality. [Citations.]” (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 441, p. 481, second italics added.) Thus, factors such as those articulated in Southfield are guidelines only and are to be weighed in conjunction with one another. Having done so, we are confident that enforcement of the lease is the only equitable solution in this case.
Cahuilla reminds us that the trial court expressly declined to apportion moral culpability as between the parties, but contends the facts would not have supported a finding in DiCara’s favor. However, a finding that DiCara was in pari delicto would have required evidence that she had direct knowledge at the time the lease was made that the leasing of gaming devices to Cahuilla was unlawful. Because there is no record of the proceedings before the arbitrator and no evidence was produced during the hearing on the petition to confirm the award, the only source of operative facts is the arbitrator’s award, which is silent on this point.
D. Although DiCara did not file a response to Cahuilla’s petition, her filing of opposition to Cahuilla’s motion to vacate was sufficient; thus, we reject Cahuilla’s contention that the court erred in failing to vacate the arbitration award on the ground the allegations of the petition to vacate were deemed admitted.
Section 1290 provides: “A proceeding under this title in the courts of this State is commenced by filing a petition. Any person named as a respondent in a petition may file a response thereto. The allegations of a petition are deemed to be admitted by a respondent duly served therewith unless a response is duly served and filed. . . .” Section 1290.6 provides that, except under circumstances not applicable here, “[a] response shall be served and filed within 10 days after service of the petition . . . .”
Section 1290 is part of Article 1 (Petitions and Responses) of Chapter 5 (General Provisions Relating to Judicial Proceedings) of Title 9 (Arbitration). Judge Kaiser initially ruled that section 1290 did not apply to contractual arbitration proceedings, but later acknowledged that he had been mistaken.
DiCara did not file a response to Cahuilla’s petition to vacate arbitration award. She did, however, file a document entitled “Petitioner’s Opposition to Respondent’s Motion to Vacate Award.” Judge Kaiser ruled that Cahuilla suffered no prejudice in that DiCara’s opposition essentially satisfied the requirement of a response.
Cahuilla acknowledges that Cahuilla filed opposition, but maintains that by reason of her failure to file a response, the allegations of its petition should have been deemed admitted and the award vacated. Cahuilla’s position is specious. Not only does it take the untenable position that the filing of a document entitled opposition does not satisfy the statutory requirement that a response be filed, but also, it insists that the “plain language” of the statute “specifically requires a response to a petition separate and distinct from opposition to a motion to grant a petition.” The statute says nothing of the kind.
Nor is there any merit to Cahuilla’s contention that the court’s ruling was erroneous in that prejudice is not the test. In any event, Cahuilla contends that it was prejudiced in that the ruling eliminated Cahuilla’s entitlement to an order granting its petition to vacate. Cahuilla’s position is off the mark. In mentioning prejudice, the court was saying only that the purpose of a response was not lost on Cahuilla in that DiCara’s opposition sufficiently informed Cahuilla of her position. Moreover, the test for prejudice is not whether Cahuilla was detrimentally affected by the court’s ultimate ruling. Rather, the test is whether Cahuilla was prejudiced by DiCara’s filing of opposition in lieu of a response. It was not. Cahuilla is simply placing form over substance, as the opposition clearly served the same purpose as a response.
There is of course no question that Cahuilla was prejudiced by the court’s ruling; its petition to vacate was denied.
Cahuilla relies on A.D. Hoppe Co. v. Fred Katz Construction Co. (1967) 249 Cal.App.2d 154 (Hoppe) and Main v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1977) 67 Cal.App.3d 19 (Main) for the proposition that only a timely, formal response will suffice to satisfy the requirements of section 1290. Neither case is on point. In Hoppe, the court reversed an order denying a petition to compel arbitration, but the reversal did not hinge upon the respondent’s failure to serve and file a response to the appellant’s petition to compel arbitration. Rather, because the trial court failed to state the basis for its decision, the appellate court presumed from the record that the denial was made on the ground that the appellant had waived its right to compel arbitration, which was not supported by the evidence. In any event, although the court in Hoppe indicated that the allegations of the petition should have been deemed admitted by the respondent, the present case is distinguishable, not only because it involves a petition to confirm an award rather than a petition to compel arbitration, but more importantly, because opposition was filed which was tantamount to a response.
Nor does Main support Cahuilla’s position. In that case, the Court of Appeal observed, while commenting upon the procedure followed by the parties at the hearing on the defendant’s petition to compel arbitration, “Plaintiff did not file a response to the petition and therefore is deemed to have admitted the allegations of the petition.” (Main, supra, 67 Cal.App.3d at p. 28.) Clearly, the case does not stand for the proposition, as urged by Cahuilla, that “only a timely, formal response will suffice to satisfy [section] 1290’s requirement.”
In short, we agree with DiCara that she substantially complied with the statute by filing opposition which placed into issue all of the allegations set forth in Cahuilla’s petition. “Arbitration proceedings by voluntary acts of the parties are favored by the courts of this state and all that is necessary to support an award is substantial compliance with the applicable statute [citation]. The statute is remedial in nature and is to be liberally construed [citations]. Under the statute, both superior and appellate courts must give every intendment of validity to the award and the burden is on the party claiming error to support his claim [citation].” (Horn v. Gurewitz (1968) 261 Cal.App.2d 255, 261.) Accordingly, the trial court’s ruling was proper.
E. DiCara’s protective cross-appeal is essentially moot.
In light of our affirmance, we need not address DiCara’s cross-appeal, wherein she argues Cahuilla waived its right to appeal when it negotiated a dispute resolution process and agreed that the arbitrator’s award “shall be final and binding upon the parties.” We remind DiCara, however, that Cahuilla’s appeal is directed not at the arbitration award itself, but rather, at the order confirming the award and denying Cahuilla’s petition to vacate. Thus, from a practical standpoint, while a party agreeing to binding arbitration is ordinarily said to waive his or her right to appeal, in the present case any ruling by the arbitrator on the question of the legality of the lease, which was a proper subject of a petition to vacate, was not binding on the trial court and thus not binding on the parties. Accordingly, a party’s waiver of his or her right to appeal an arbitration award does not and cannot encompass a challenge based upon any of the grounds set forth in section 1286.2. (See, e.g., Malek, supra, 121 Cal.App.4th at p. 55.)
Finally, under the judgment, DiCara is to receive $150,000 in attorney’s fees awarded to her, pursuant to the terms of the lease, as part of the final arbitration award. Indeed, the lease provides, “[t]he prevailing party shall be entitled to recover as part of the award all such advanced costs and reasonable, attorney’s fees and related costs, including expert witness fees and costs, and any other reasonable costs, fees or expenses of the Arbitration.” DiCara contends, however, that the same provision in the lease also entitles her to attorney’s fees incurred on appeal. She is correct. Where a contract creates a right for the prevailing party to recover attorney’s fees, the prevailing party is also entitled to an award of attorney’s fees on appeal. (Palmer v. Agee (1978) 87 Cal.App.3d 377, 387-388.) A determination as to the amount of that award is, however, for the trial court upon motion by DiCara.
DISPOSITION
The judgment is affirmed. DiCara is entitled to costs on appeal and may also file an appropriate motion in the trial court seeking an award of attorney’s fees on appeal.
We concur: RAMIREZ, P.J., RICHLI, J.
Penal Code section 330.1 provides that every person who, among other things, owns, possesses, rents, or leases any slot machine or device, or who makes an agreement with another person with reference to any slot machine or device used for gambling purposes, “is guilty of a misdemeanor and shall be punishable by a fine of not more than one thousand dollars ($1,000) or by imprisonment in the county jail not exceeding six months or by both such fine and imprisonment. . . .”