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Hoso Foods, Inc v. Columbus Club

December 7, 2010

HOSO FOODS, INC., PLAINTIFF AND RESPONDENT,
v.
COLUMBUS CLUB, INC., DEFENDANT AND APPELLANT.



APPEAL from a judgment of the Superior Court of Los Angeles County. Michelle R. Rosenblatt, Judge.

The opinion of the court was delivered by: J. Chavez

CERTIFIED FOR PUBLICATION

(Los Angeles County)

Reversed with directions and remanded.

Defendant and appellant Columbus Club, Inc. entered into an agreement to lease an assembly hall to plaintiff and respondent Hoso Foods, Inc. (Hoso). When Hoso learned that city ordinances precluded it from using the hall for catered events as it had intended, it filed a complaint against appellant alleging claims including breach of contract and fraud. According to Hoso, appellant knew about the restrictive ordinances, did not disclose them to Hoso and made affirmative representations that contradicted the ordinances. The parties agreed to arbitrate their claims and the arbitrator found in favor of Hoso, awarding it over $1.2 million. The trial court confirmed the award, rejecting appellant's arguments that the arbitrator exceeded his authority in making the award and conducting the arbitration.

We reverse. The award must be vacated pursuant to Code of Civil Procedure section 1286.2, subdivision (a)(4), because the arbitrator exceeded his powers by limiting appellant's representation at the arbitration to an individual who had been sued personally, was not appellant's choice of representative, was not involved in significant aspects of the transaction and was dismissed from the action at the conclusion of the hearing. The arbitrator's conduct deprived appellant of a fair hearing.

FACTUAL AND PROCEDURAL BACKGROUND

Appellant is a nonprofit California corporation affiliated with the Knights of Columbus Glendale Council, a philanthropic Catholic men's association. As the Knights of Columbus rules prohibit a council from owning property, appellant was formed approximately 60 years ago to own and operate an assembly hall (Hall) located in the City of Glendale. Hoso is a California corporation that operates as a catering and banquet business.

In March 2002, appellant and Hoso entered into a written lease agreement whereby Hoso agreed to lease the Hall to appellant. The parties executed a standard industrial lease together with a 26-point addendum (Lease). In May 2002, the parties entered into two additional Lease addenda--the first being a personal guaranty by Hoso indemnifying appellant for $75,000 of work to be performed on the Premises, and the second reflecting a temporary reduction in rent pending the construction. Daniel Rodela, appellant's president, signed the Lease and addenda on appellant's behalf.

In the Lease, appellant warranted "that the Premises, in its state existing on the date that the Lease term commences, but without regard to the use for which Lessee will use the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term commencement date." Hoso intended to remodel the interior and exterior of the Hall in order to use it for catered events. In several different provisions of the Lease, Hoso acknowledged that it assumed responsibility for complying with all applicable laws and regulations in connection with its intended use of the Hall. For example, paragraph 6.3(b) of the Lease provided: "Lessee hereby accepts the Premises . . . subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record . . . . Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business." Hoso further acknowledged that it "assume[d] all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease." Hoso also agreed "to abide with the Alcohol Beverage Control laws regarding the dispensing of liquor" and that "[a]ny disagreements with the Alcohol Beverage Control Board caused by [the] lessee, and any parking noise violation will be the sole responsibility of the lessee."

According to Hoso, notwithstanding these provisions, during the Lease negotiations appellant represented that there were no time or other restrictions on the Hall, even though it knew or should have known that the Glendale Municipal Code precluded that location from being leased for the purpose of conducting a banquet hall and remaining open to the public past midnight. Moreover, appellant failed to disclose that Hoso could not operate using appellant's existing liquor license. After the Lease was signed, Hoso made numerous improvements to the Hall with appellant's knowledge. But when Hoso held its first catered event in February 2004, Glendale police officers informed it that the Hall could not be operated after 12:30 a.m. Hoso then learned that it could not operate using appellant's liquor license. The parties were unsuccessful in obtaining a variance and, ultimately, Hoso was unable to use the Hall for its intended purpose.

Hoso filed its initial complaint against appellant and Rodela in April 2005 and the operative first amended complaint in June 2005; it alleged causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, conspiracy, intentional misrepresentation, concealment, rescission and fraud. It sought $310,000 damages for remodeling the Hall and suffering a loss of business, plus general and other damages according to proof. Appellant and Rodela answered, specifically denying the allegations and asserting multiple affirmative defenses.

In October 2007, the parties stipulated to submit the matter to binding arbitration and, in turn, vacate the November 2007 trial date. According to appellant, as a condition of arbitration, Hoso's counsel verbally agreed to dismiss Rodela from the action. Hoso's counsel, however, later averred that although there were discussions concerning Rodela's dismissal, "[n]o such language is contained in said Stipulation and there was never a conclusive agreement to that effect between the parties." The matter was arbitrated by retired Judge Richard C. Hubbell over the course of four days in December 2008. Hoso presented its case during the first three of four days of arbitration the parties had reserved, and appellant presented its case on the last day, without seeking to extend the arbitration period.

During the arbitration, Rodela was the only representative permitted to participate in the proceedings on appellant's behalf. He was not dismissed from the action until after his testimony on the last day of the arbitration. Witnesses on Hoso's behalf testified that during Lease negotiations appellant represented Hoso could lease the Hall without any restrictions on appellant's liquor license and without any restrictions on the duration of time of each event. Appellant's representatives testified that they were unaware of the liquor license restrictions and did not recall discussing the time restrictions. An expert for Hoso presented a report that calculated $1,212,733 as Hoso's net loss of profits from January 2004 to December 2007. The arbitrator overruled appellant's objection to the report, which was based on Hoso's failure to disclose the document as part of its exhibit exchange preceding the arbitration.

The arbitrator issued his award on January 26, 2009, ruling in favor of Hoso on all claims except conspiracy and rescission. He awarded Hoso $342,662 for reconstruction of the premises, $808,467 for loss of earnings, $78,178 for attorney fees ...


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