Opinion
G053220
09-18-2017
STUEVE BROTHERS FARMS, LLC, et al., Defendants and Appellants, v. JAMES D. DAILY, Plaintiff and Respondent.
Barnes Law, Robert E. Barnes and Keobopha Keopong for Defendants and Appellants. Aitken Aitken Cohn, Wylie A. Aitken and Richard A. Cohn for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2015-00816480) OPINION Appeal from a judgment of the Superior Court of Orange County, Hugh Michael Brenner, Judge. Affirmed. Barnes Law, Robert E. Barnes and Keobopha Keopong for Defendants and Appellants. Aitken Aitken Cohn, Wylie A. Aitken and Richard A. Cohn for Plaintiff and Respondent.
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This appeal is from a judgment confirming an arbitration award. Appellants are numerous individuals and entities associated with the Stueve family. Respondent James Daily is an attorney who represented the Stueve family members in recovering assets that had been stolen from them by their prior attorneys. A dispute arose between the Stueve family members and Daily regarding Daily's fees. The Stueve family members, together with several entities, initiated arbitration, contending certain agreements were void and that Daily committed malpractice, entitling them to over $2 million in damages. Daily cross-claimed against the claimants for unpaid fees. Daily prevailed. The arbitrator awarded Daily over $4 million in fees, enforceable against not only the claimants to the arbitration, but several other entities that the individual Stueve family members own, and trusts of which they are beneficiaries. The court confirmed the award. All of the entities subject to the arbitration award appealed.
Appellants first contend the court lacked jurisdiction to confirm the award because the arbitration took place in Los Angeles County, not Orange County. Their argument is based on a misreading of Code of Civil Procedure section 1292.2. And, to the extent venue was improper in Orange County, appellants were not prejudiced.
Second, appellants contend the award was not final because a certain property had to be sold to satisfy the judgment, and the arbitrator retained jurisdiction to resolve certain disputes that arose out of that sale. But the arbitrator retained jurisdiction solely over future disputes related to enforcement of the award. The principal issues to be resolved in the arbitration were resolved, and thus the award was sufficiently final to be confirmed.
Third, appellants contend the petition to confirm arbitration improperly contained attorney-client privileged information, but they offer no explanation or authority for how that would empower a trial court to vacate the arbitration award.
Finally, appellants contend the arbitration award improperly includes entities that were not parties to the arbitration. Any such objections, however, had to be raised within the 100 day time limit of Code of Civil Procedure section 1288.2. Appellants did not move to vacate or correct the award within that timeframe and have thus forfeited any basis for vacating the award.
FACTS
The arbitration was initiated against Daily by the following parties, all of whom are appellants here: Stueve Brothers Farms, LLC; Stueve Brothers Farms of Delano, LLC; SBI Partners; SNF Partners GP; Mill Creek Farming Associates, LLC; Fresh for Life; EHE Family Foundation; Cleson Stueve; David John Stueve; Donna C. Clarke; Jacqueline Ann Arthur; Jean Laverne Behrend; Judy Christine Claverie; Kim Stueve; Lea Stueve; Lloyd Lynn Stueve; Lynn D. Heinz; Ruth McClamma Stueve; and Michael Meyer as trustee of various trusts (collectively, Claimants). Claimants sought the following relief: declaratory relief that no further money was owed Daily, that any interest Daily had in entities owned by the individual Claimants was void, that any interest Daily had in real property owned by Claimants was void, and that Daily be required to vacate a certain residence described below. Claimants also sought over $2 million, plus punitive damages, for legal malpractice. Daily counterclaimed against the Claimants for breach of written contract and quantum meruit, seeking $16,914,542.88.
The arbitrator found the following facts:
Daily was contacted by certain individual members of the Stueve family who believed they had been systematically defrauded of their substantial holdings over the course of 10 years by their personal attorney. Because the fraud had left the Stueve family with limited cash, Daily agreed to a hybrid fee structure. He discounted his usual hourly rate by approximately 50 percent and received a 30 percent contingent fee on anything he recovered. The contingency fee was to be split with another attorney, Michael Meyer, a friend of the Stueve family. Meyer served as an intermediary between the family members and Daily, and also managed any assets recovered by Daily. "Daily was entitled to collect his fees from any entity entitled to any 'reimbursement payment' from the Client's recovery."
Once Daily began billing for his work he was quickly told the Stueve family members could not afford to pay the bills, and the bills made them anxious so they asked him not to send any more bills. Daily agreed to defer payments on the hourly fees until the family members had more cash. After more than one year had passed, the family members agreed to pay $19,000 per month toward the hourly fees. Daily eventually recovered property referred to as the "Chino property" with a market value of approximately $20 million. Rather than force the family members to sell the Chino property to pay Daily's contingency fee, Daily agreed to take a 15 percent interest in the Chino property.
Daily also recovered property in the city of Delano. Again, the family members did not have the money to pay Daily's contingency fee. Instead, Daily agreed to become a 15 percent owner of the entity that owned the property, SBF-D, LLC. That entity then entered into a 1031 exchange (26 U.S.C. § 1031 (1031 exchange)) and acquired a partial interest in residential real property, which the parties call the "Jupiter property." Sixty percent of the Jupiter property is owned by SBF-D, and the remainder is owned by Daily individually. To satisfy the requirements of a 1031 exchange, Daily entered into a complicated rental scheme, the details of which are not relevant here. Daily went on to recover several more properties for the family members.
The various deferrals Daily took on his fees, none of which were documented, created complications. For example, would Daily be entitled to 15 percent of the value of the property when acquired, or when liquidated? Meyer and Daily separately drafted agreements to attempt to document any changes, but they and the family members could not agree. Eventually communication between the family members and Daily broke down entirely, and the family members wanted Daily out. He was eventually discharged as conflicts over fees worsened.
During the arbitration, the family members apparently took the position that "nothing about obtaining the first recoveries was 'particularly novel nor peculiarly difficult,' and is only worthy of compensation for approximately 200 hours of legal work at $35/hour." The arbitrator rejected this position out of hand. The family members also took the position that Daily should not recover anything because, notwithstanding that he regained control of valuable properties for them, the properties were in irrevocable trusts. The arbitrator rejected that position too.
The arbitrator was impressed with Daily's work. She described the task as "multi-faceted, time intensive and delicate." She described Daily as having developed "an effective strategy, both short term and long term, to recapture control of the hard assets through the probate court, and obtain monetary damages, to make the family whole, through civil litigation." "Daily devoted essentially all his professional time to the Stueve matters for nearly two and a half years. He was unable to take new clients until Meyer began to ease him out in the spring of 2012. He took on a case of enormous complexity, involving many areas of the law, and against a schemer who might well have made ANY recovery impossible, as a practical matter. No work he did could be done on form pleading. $300 an hour, plus a 30% contingent — which compensated both Daily's legal work and Meyer's work as attorney, trustee and manager — was reasonable." The arbitrator described much of the fact-finding as coming down to a credibility contest between Daily and Meyer, and the arbitrator made that determination strongly in Daily's favor.
In the end, the arbitrator granted the Claimants request for declaratory relief that any interest Daily had in entities owned by individual Claimants was void, but denied the remaining declaratory relief Claimants sought. The arbitrator also denied the legal malpractice claim. The arbitrator awarded Daily $4,769,135 in fees, which broke down into $1.35 million in hourly fees, and the remainder in contingency fees. The arbitrator found Daily to be the prevailing party in the matter and awarded him costs.
The award was against "individual Stueves or entities in which they have an ownership or beneficial interest." The arbitrator listed most of the Claimants, as well as the following: SBF Management LLC, SBF Partners GP, SBF Notes LP, SBU Partners GP, Delano Farms GP, Delano Farms LP, Stueve Brothers Farms of Oakdale LLC, "and any other entity or individual from whom these damages are recoverable" (we refer to these as the nonclaimant entities)
The arbitrator made one further award to Daily, which plays a significant role in this appeal: "Clear title to [the] Jupiter [property] should be transferred to Daily at the earliest date allowed pursuant to IRC 1031. Daily shall be responsible for all tax consequences related to that transaction, actually imposed by the IRS, including indemnifying the Stueves for all capital gains consequences, related to his 15% share, should the 1031 exchange be denied as to the value of the Jupiter property. No rent is due by Daily on the Jupiter property. [¶] The parties have not agreed on the mechanism for accomplishing this. The Arbitrator reserves jurisdiction to resolve disputes on this issue."
Daily petitioned to confirm the arbitration award and the court granted the petition. The hearing on the petition was unreported and there was no request for a statement of decision. Consequently, we have no record of the court's analysis. Appellants moved for reconsideration. However, prior to the motion being decided, appellants filed their notice of appeal, depriving the trial court of jurisdiction to decide the motion.
DISCUSSION
It Was Not Reversible Error to Entertain the Petition in Orange County
Appellants first contend the court lacked jurisdiction to entertain Daily's petition to confirm the arbitration award. Code of Civil Procedure section 1292.2 states: "Except as otherwise provided in this article, any petition made after the commencement or completion of arbitration shall be filed in a court having jurisdiction in the county where the arbitration is being or has been held, or, if not held exclusively in any one county of this state, or if held outside of this state, then the petition shall be filed as provided in Section 1292." Appellants interpret this statute to mean that only the Superior Court in the county where the arbitration was held has jurisdiction to consider a related petition. They contend the arbitration was held exclusively in Los Angeles, and thus the Orange County Superior Court lacked jurisdiction over the parties.
Appellants misread Code of Civil Procedure section 1292.2. That statute is a venue statute, not a jurisdictional statute. A necessary condition of proper venue is that the court have jurisdiction. Thus, for example, the petition to confirm the award could not have been filed in federal court, unless the federal court's jurisdictional requirements were met. In this case, any superior court would have jurisdiction over the subject matter and personal jurisdiction over the parties, but venue properly would be laid in the superior court specified in section 1292.2. Appellants cite two cases, Crofoot v. Blair Holdings Corp. (1953) 119 Cal.App.2d 156, 181, disapproved on an unrelated point in Posner v. Grunwald-Marx, Inc. (1961) 56 Cal.2d 169, 183, and Aurandt v. Hire (1959) 175 Cal.App.2d 758, 761. Neither case says anything about exclusive jurisdiction being limited to a specific superior court. They merely address venue. Moreover, appellants' response to the petition to compel in the trial court acknowledged that Code of Civil Procedure section 1292.2 is a venue statute, arguing: "Venue for this action is improper under CCP Section 1292.2 because the arbitration at issue was held exclusively in Los Angeles County." But appellants never filed a motion for change of venue in the trial court.
Assuming, without deciding, that venue was improper in Orange County, appellants make only a half-hearted effort to demonstrate prejudice. (See Code Civ. Proc., § 475.) They do not address prejudice at all in their opening brief, and only in response to Daily's argument do they contend in their reply brief they were "de facto harmed" because, in the absence of the improper venue, "no judgment would have been entered."
Appellants misunderstand the nature of the prejudice requirement. It is absurd to suppose Daily would have petitioned to confirm the award in Orange County or not at all. The question is, therefore, whether appellants were likely to have a better outcome in the proper venue, i.e., Los Angeles County. "[P]osttrial review of an order denying a motion to change venue is retrospective. Thus, even if a trial court were to err in denying a motion to change venue, the showing of error would not in itself justify reversal on appeal. The defendant must also demonstrate that, in view of what actually occurred at trial, it is reasonably likely that a fair trial was not in fact had." (People v. Howard (1992) 1 Cal.4th 1132, 1168.)
Similarly, here, there is no reason to question the impartiality of the Orange County Superior Court, and without evidence to the contrary, we presume appellants enjoyed the same fair hearing they would have had in the Los Angeles Superior Court. Were we to treat improper venue as structural error — which is essentially what appellants' argument boils down to — they would be incentivized to not object to venue, enjoy a fair trial, forgo an appeal if they win, and get an automatic new trial via an appeal if they lose. To avoid that conundrum, the Legislature has provided for a statutory writ specifically addressing situations where venue is improper. (Code Civ. Proc., § 400.) While we are not aware of any authority suggesting a writ is mandatory, it is at least preferable. (People v. Fain (1971) 18 Cal.App.3d 137, 142 ["If the motion [for change of venue] is denied, appellate review before actual trial, by a petition for writ of mandate, is the preferable procedure"]; Maine v. Superior Court of Mendocino County (1968) 68 Cal.2d 375, 381 ["'It is proper, and often preferable, to determine the place of trial prior to the actual trial of the case rather than afterwards'"].) Because appellants are unable to show prejudice, there was no prejudicial error in holding the hearing in Orange County.
We note appellants have not attempted to argue the trial judge was biased pursuant to Code of Civil Procedure section 170.1.
The Arbitrator's Award Was Sufficiently Final to Warrant Confirmation
Appellants next contend the arbitrator's award was "expressly" not final, and thus confirming the award was premature. They rely on the provision of the award in which the arbitrator retained jurisdiction to resolve any disputes over the sale of the Jupiter property and indemnification of tax consequences if the Internal Revenue Service rejects the 1031 exchange. However, the arbitrator's award expressly was final: it is entitled "Final Award (clarified)." The arbitrator resolved all of the causes of action at issue in the arbitration. She merely retained jurisdiction to resolve disputes over the enforcement of the award, if any. We conclude the award was sufficiently final to warrant confirmation.
Code of Civil Procedure section 1283.4 requires an arbitrator to issue an award that determines all questions necessary to determine the controversy: "The award shall be in writing and signed by the arbitrators concurring therein. It shall include a determination of all the questions submitted to the arbitrators the decision of which is necessary in order to determine the controversy."
Both parties discuss Hightower v. Superior Court (2001) 86 Cal.App.4th 1415 (Hightower), a case which, in our view, supports the judgment in this case. There, an arbitration transpired between two shareholders over enforcement of an agreement to sell one's shares to the other. The agreement, essentially, permitted one shareholder to offer to buy the other's shares, which triggered an option for the other shareholder to either sell or buy the offeror's shares at the same price. (Id. at p. 1421.) The arbitrator found in favor of the offeror (id. at p. 1424.) and issued a "Partial Final Award," finding the offeree had breached the agreement. (Id. at p. 1426.) It permitted the offeror to once again raise the money needed to buy the shares at the originally agreed price, but retained jurisdiction to issue future orders in the event the offeror was unable to finance the purchase. It also retained jurisdiction to award costs associated with raising the capital. (Id. at pp. 1426-1427.)
The court concluded the arbitrator's incremental approach was "reasonably necessary, if not essential, to the effective establishment and enforcement of the remedy that the arbitrator has fashioned. We find no violation of section 1283.4, as argued by [the offeree]. The arbitrator has not improperly left undecided issues 'necessary in order to determine the controversy.' Rather, he has determined all issues that are necessary to the resolution of the essential dispute arising from [the offeree's] breach. The arbitrator's judgment on this point must be respected. [Citations.] 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." (Hightower, supra, 86 Cal.App.4th at p. 1439.)
We note the Hightower court sanctioned the approach of the trial court confirming the partial final judgment as a interlocutory judgment, such that the trial court could confirm multiple awards as appropriate. (Hightower, supra, 86 Cal.App.4th at p. 1440.) --------
So, too, here. The expressly final award resolved all of the causes of action brought before the arbitrator. The only issues remaining to be decided — if any — are future disputes that may arise if the Internal Revenue Service refuses to allow the 1031 exchange. The arbitrator resolved all of the causes of action before her and determined Daily was the prevailing party. This award is significantly more final than the award in Hightower, and we concur in that court's analysis.
Appellants also cite Rubin v. Western Mutual Ins. Co. (1999) 71 Cal.App.4th 1539 (Rubin), which we find readily distinguishable. There, an insured arbitrated claims against an earthquake insurer for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and intentional infliction of emotional distress. (Id. at pp. 1541-1542.) The insurance contract provided for an appraisal to determine the cash value of the damage to premises. (Id. at p. 1543.) The arbitrator returned an award determining the amount of damage to the insured's home. (Ibid.) The arbitrator did not, however, resolve any of the causes of actions. In other words, the arbitrator determined the amount in controversy, but did not determine liability. (Id. at p. 1547.) The Court of Appeal held the award was not final and thus could not be confirmed as a final judgment. It dismissed the appeal. (Id. at pp. 1547-1548.)
The obvious distinction here is that the arbitrator did resolve all causes of action at issue in the present arbitration. Only potential future disputes regarding enforcement of the award were left to be determined. Rubin has no application here.
Any Violation of Daily's Duty of Confidentiality Did Not Undermine the Petition
Appellants contend Daily's petition to confirm the arbitration award improperly included confidential information of his former clients. Appellants, however, do not identify what that information was, nor, more importantly, do appellants cite any authority to suggest the inclusion of confidential information is a basis for denying a petition to confirm an award. Appellants' arguments may have furnished a basis for striking or sealing portions of the petition. So far as we are aware, however, it is not a basis to reverse the judgment.
Appellants Have Forfeited Any Basis for Vacating or Correcting the Award
Appellants next contend the nonclaimant entities were not parties to the arbitration and cannot be bound by the arbitrator's ruling. Whatever the merits of that contention, excising the nonclaimant entities from the award would amount to a correction of the award, which cannot be done because the request to do so was untimely.
Code of Civil Procedure section 1288 provides, "A petition to vacate an award or to correct an award shall be served and filed not later than 100 days after the date of the service of a signed copy of the award on the petitioner." Code of Civil Procedure section 1288.2 permits a party to request that an award be vacated or corrected in response to a petition to confirm the award, but, in like fashion, only within the 100-day deadline: "A response requesting that an award be vacated or that an award be corrected shall be served and filed not later than 100 days after the date of service of a signed copy of the award upon: [¶] (a) The respondent if he was a party to the arbitration; or [¶] (b) The respondent's representative if the respondent was not a party to the arbitration." (Ibid., italics added.) In sum, "'if one wishes to have an award vacated or corrected he must act within one-hundred days of service of the award or be precluded from attacking the award.'" (Coordinated Construction, Inc. v. Canoga Big "A," Inc. (1965) 238 Cal.App.2d 313, 318.) A petition to confirm the award, by contrast, may be filed within four years of the service of the award. (Code Civ. Proc., § 1288.)
Eternity Investments, Inc. v. Brown (2007) 151 Cal.App.4th 739, 746, explained the basis for these divergent deadlines: "The [California Arbitration Act's] deadlines for challenging and confirming arbitration awards serve important goals. A challenge to an award — to correct or vacate it — typically requires the trial court to make factual determinations. [Citations.] Consequently, a challenge must be made soon after the award is served — within 100 days — while the evidence is fresh and witnesses are available. But absent a challenge, there may be no need for judicial intervention. The award is treated as a contract [citation], and the prevailing party has a substantially longer period — up to four years (similar to the four-year statute of limitations for breach of contract [citation] — to obtain satisfaction of the award before resorting to the courts. In the event of satisfaction, judicial relief will not be necessary, conserving court resources. If, however, the award is not satisfied, the prevailing party may convert it into an enforceable judgment by way of a petition to confirm. [Citations.] And confirmation will be a simple process absent a prompt, timely challenge to the award."
Here, the award was served on appellants' attorney on May 18, 2015. That attorney represented all of the named parties in the arbitration below (including the individual Stueves, who own the nonclaimant entities), and now represents the nonclaimant entities here on appeal. Appellants (including the nonclaimant entities) filed their response to Daily's petition to confirm on November 24, 2015, well beyond the 100 day deadline. Accordingly, the award was final, and the court properly confirmed it. We note, in concluding, that appellants ignored this issue in their briefs on appeal, notwithstanding that Daily raised it, suggesting they have no meritorious response.
DISPOSITION
The judgment is affirmed. Daily shall recover his costs incurred on appeal.
IKOLA, J. WE CONCUR: MOORE, ACTING P. J. ARONSON, J.