Opinion
A120212
10-29-2008
JOHN R. LEVY, Plaintiff and Appellant, v. TERRENCE J. SEIBERLICH, et al., Defendants and Respondents.
Not to be Published
Plaintiff John R. Levy appeals from a judgment entered after the trial court confirmed an arbitration award in favor of defendants Terrence J. Seiberlich and Seiberlich Accountancy Corp. (Seiberlich). The trial court denied Levys petition to vacate the arbitration award. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
In February 2005, Levy agreed to sell his tax and accounting practice to Seiberlich, pursuant to a buy and sell agreement later executed by the parties on March 7, 2005. The agreement included provisions for the payment of the purchase price of Levys accounts and the retention of Levys professional services as an independent contractor. Paragraph W of the agreement provided a mechanism for "unwinding" or separating the two accountancy practices and for transferring clients back to Levy if the relationship did not work out. The contract also contained a dispute resolution provision that read: "The Parties agree that any unresolved issues arising out of this agreement will be submitted for resolution by mediation. After reasonable mediation effort, any remaining unresolved issues would then be submitted for resolution by arbitration. Such arbitration shall be binding on both Parties and constitute a final settlement of the disputed issues. In agreeing to arbitration, both Parties acknowledge that in the event of a dispute arising out of this agreement, each Party is giving up the right to have the dispute decided in a court of law before a judge or jury, and instead has willingly accepted the use of binding arbitration for resolution. Absent agreement to the contrary (1) the mediation and arbitration will be conducted within Contra Costa County; (2) the mediation and arbitration will use the conduct rules established by the American Arbitration Association; (3) the Parties will each retain legal counsel who will, together, select the mediator and, if necessary, the arbitrator."
In November 2005, after Levy gave notice of his intention to terminate his employment with Seiberlich, a dispute arose regarding the repurchase of certain client accounts that Levy had sold to Seiberlich. When the parties could not resolve their dispute, they agreed to mediation pursuant to the buy and sell agreement. A mediation was held in December 2005 before Robert West acting as the mediator. When the mediation process failed, Levy filed this lawsuit on December 29, 2005. Seiberlich moved to compel arbitration, which was granted by the trial court.
A two-day arbitration was held before Michael Ney as arbitrator. In his clarified award, the arbitrator directed that Levy was to recover $6,594, and receive certain client files. Seiberlich was to recover $109,374, consisting of $31,374 for the cost of unwinding the buy and sell agreement, and $78,000 in accounts receivable. In his initial award, the arbitrator did not mention anything about Levys contention that the buy and sell agreement was superseded by a binding settlement agreement that had been reached during the earlier mediation. In his clarified award, the arbitrator ruled: "Levy raised the question of whether there had been a binding settlement reached during an earlier mediation. I did listen to Levys basis for believing that mediation was admissible as part of the arbitration. There is no record of a settlement agreement being either recorded or reduced to writing and signed by both parties. Pursuant to the holding in Rojas v. Superior Court [(2004) 33 Cal.4th 407 (Rojas)], I denied Levys request."
In Rojas, supra, 33 Cal.4th 407, the Supreme Court held that the statutory scheme governing mediation confidentiality "`unqualifiedly bars disclosure of specified communications and writings associated with a mediation `absent an express statutory exception." (Id. at p. 424, quoting from Foxgate Homeowners Assn. v. Bramalea California, Inc. (2001) 26 Cal.4th 1, 15, italics added by Rojas court.) Evidence Code sections 1123 and 1124 exclude from the rule of mediation confidentiality certain oral or written settlement agreements that meet statutory requirements, which the arbitrator apparently found were not met in this case.
Seiberlich petitioned the court to confirm the clarified award. Levy petitioned to vacate the clarified award. The trial court granted Seiberlichs petition to confirm and denied Levys petition to vacate. In relevant part, the court refused to vacate the clarified award on the following grounds: the arbitrator had listened to Levys reasons for admitting evidence of the mediation process but refused to hear the proffered evidence because there was no record of a settlement agreement being either recorded or reduced to writing and signed by both parties; it was apparent that the arbitrator found there was no evidence of an enforceable settlement agreement and that it would be improper to admit evidence of the parties settlement negotiations to find that there was such an agreement; Levy had not shown how the unsigned settlement agreement could be found to be enforceable in any manner except by reference to the parties mediation discussions which evidence was prohibited; and Levy did not explain how the arbitrator could have properly considered any of the parties mediation discussions. The court entered a judgment in favor of Seiberlich based upon the confirmed clarified arbitration award. Levy timely appeals from the judgment.
DISCUSSION
We review de novo the trial courts judgment confirming the arbitration award. (Malek v. Blue Cross of California (2004) 121 Cal.App.4th 44, 55.) "To the extent that the trial courts ruling rests upon a determination of disputed factual issues, we apply the substantial evidence test to those issues." (Id. at pp. 55-56.)
Both the grounds and the scope of judicial review of any contractual arbitration award are "extremely limited." (Pierotti v. Torian ( 2000) 81 Cal.App.4th 17, 23 (Pierotti); see Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 10-11 (Moncharsh).) "Under Moncharsh, we cannot review the merits of the underlying controversy, the arbitrators reasoning, or the sufficiency of the evidence supporting the award. [Citation.] Even `an error of law apparent on the face of the award that causes substantial injustice does not provide grounds for judicial review. [Citation.] Code of Civil Procedure sections 1286.2 [to vacate] and 1286.6 [to correct] provide the only grounds for challenging an arbitration award." (Pierotti, supra, 81 Cal.App.4th at pp. 23-24.)
Code of Civil Procedure section 1286.2, subdivision (a)(1)-(6), sets forth the grounds upon which a court shall vacate an arbitration award. Levy refers us to paragraphs (3), (4), and (5), which provide, in pertinent part, that a court shall vacate an arbitration award if a party was "substantially prejudiced by misconduct of a neutral arbitrator," the arbitrator "exceeded [his] powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted"; or a party was "substantially prejudiced . . . by the refusal of the arbitrator[] to hear evidence material to the controversy. . . ." (§ 1286.2, subd. (a)(3)-(5).)
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
Levy challenges the arbitrators ruling that in the absence of any record of a settlement agreement being either recorded or reduced to writing and signed by both parties, evidence of oral or written communications during mediation was not admissible as part of the arbitration. He contends the arbitrator erred in ruling on the issue without hearing the evidence that Levy was prepared to proffer on the issue of the validity of a signed settlement agreement. Levys argument is unavailing as we explain more fully below.
The contention that an arbitrator did not permit a party to offer material evidence "could be made in virtually every case where the arbitrator has excluded some evidence . . . . Plainly, this type of attack on the arbitrators decision, if not properly limited, could swallow the rule that arbitration awards are generally not reviewable on the merits. Accordingly, a challenge to an arbitrators evidentiary rul[es] . . . should not provide a basis for vacating an award unless the error substantially prejudiced a partys ability to present material evidence in support of its case." (Schlessinger v. Rosenfeld, Meyer & Susman (1995) 40 Cal.App.4th 1096, 1110 (Schlessinger); see Hall v. Superior Court (1993) 18 Cal.App.4th 427, 439 (Hall).)
As we explained in Hall: "Typically, a trial court reviewing a ruling excluding evidence first resolves any dispute over materiality and then considers whether excluding material evidence caused prejudice. Under Moncharsh, `it is the general rule that, with narrow exceptions, an arbitrators decision cannot be reviewed for errors of fact or law. ([Moncharsh ], supra, 3 Cal.4th at p. 11.) Subdivision [(a)(5)] of section 1286.2, applied in the usual two-step manner, would often permit a court to second-guess an arbitrators legal theory if materiality hinged on the validity of the arbitrators differing view of the law. If an arbitrator excluded evidence as immaterial, a reviewing superior court could examine the arbitrators theory of the case while analyzing the materiality of evidence the arbitrator excluded." (Hall, supra, 18 Cal.App.4th at p. 438.) Section 1286.2, subdivision (a)(5), does not provide "a back door to Moncharsh through which parties may routinely test the validity of legal theories of arbitrators." (Hall, supra, at pp. 438-439.) It is "a safety valve in private arbitration that permits a court to intercede when an arbitrator has prevented a party from fairly presenting its case." (Id. at p. 439.) "Where, as here, a party complains of excluded material evidence, the reviewing court should generally focus first on prejudice, not materiality. To find substantial prejudice the court must accept, for purposes of analysis, the arbitrators legal theory and conclude that the arbitrator might well have made a different award had the evidence been allowed." (Ibid.)
In this case, the clarified award shows that the arbitrator did not refuse to listen to any pertinent arguments raised by Levy regarding the validity of an alleged settlement. The arbitrator was not required to read the proffered documents or hear the proffered testimony before considering their admissibility. He could consider the issue based upon Levys offer of proof and arguments. After hearing Levys offer of proof and arguments, the arbitrator ruled that in the absence of a record of a settlement agreement being either recorded or reduced to writing and signed by both parties, Levys request to admit evidence of the alleged settlement would be denied because of the rule of mediation confidentiality enunciated in Rojas, supra, 33 Cal.4th 407. Given the arbitrators ruling, Levy cannot establish he was substantially prejudiced because he cannot show that the arbitrator would have made a different award even assuming witnesses were allowed to testify. Levy also contends the award should be vacated because the arbitrator misconstrued his offer of proof and misapplied the rule of mediation confidentiality. However, those arguments are not grounds for vacating an arbitration award under section 1286.2, subdivision (a). (See Schlessinger, supra, 40 Cal.App.4th at p. 1109.)
We reject Levys argument to the extent he contends that an arbitrators exclusion of evidence after an offer of proof constitutes either an erroneous refusal to hear evidence within the meaning of section 1286.2, subdivision (a)(5), or misconduct within the meaning of section 1286.2, subdivision (a)(3). "An arbitrator `hears evidence by providing a `legal hearing, that is by affording an `opportunity to . . . present ones side of a case. [Citation.] An arbitrator also `hears a matter by `consider[ing] a motion upon presentation thereof by counsel. " (Schlessinger, supra, 40 Cal.App.4th at p. 1105.) Additionally, it is within the arbitrators power to "rule on the admission and exclusion of evidence and on questions of hearing procedure," and the arbitrator need not observe "the rules of evidence." (§ 1282.2, subds. (c)-(d).)
In essence, Levys argument is an impermissible attack on the asserted error of law reflected in the arbitrators decision that the parties dispute was to be governed by the terms of the buy and sell agreement and not any later settlement agreement reached in mediation. (See Luster v. Collins (1993) 15 Cal.App.4th 1338, 1347.) "Even if the arbitrator decided the point incorrectly, he did decide it." (Crofoot v. Blair Holdings Corp. (1953) 119 Cal.App.2d 156, 189, disapproved on another ground in Posner v. Grunwald-Marx, Inc. (1961) 56 Cal.2d 169, 183.) "It is well settled that `arbitrators do not exceed their powers merely because they assign an erroneous reason for their decision. " (Moncharsh, supra, 3 Cal.4th at p. 28.) "[I]t is within the power of the arbitrator to make a mistake either legally or factually. When parties opt for the forum of arbitration they agree to be bound by the decision of that forum knowing that arbitrators, like judges, are fallible." (That Way Production Co. v. Directors Guild of America, Inc. (1979) 96 Cal.App.3d 960, 965.) Additionally, "[a]rbitrators, unless specifically required to act in conformity with rules of law, may base their decision upon broad principles of justice and equity, and in doing so may expressly or impliedly reject a claim that a party might successfully have asserted in a judicial action." (Sapp v. Barenfeld (1949) 34 Cal.2d 515, 523.) "A contrary holding would permit the exception to swallow the rule of limited judicial review; a litigant could always contend the arbitrator erred and thus exceeded his powers." (Moncharsh, supra, 3 Cal.4th at p. 28.)
Because the arbitration award is not subject to vacation based upon any of the statutory grounds asserted by Levy, we must uphold the judgment confirming the arbitration award.
DISPOSITION
The judgment is affirmed. Defendants are awarded costs on appeal.
We concur:
McGuiness, P. J.
Pollak, J.