COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA
December 13, 2010
BH PARTNERSHIP ET AL., PLAINTIFFS AND RESPONDENTS,
NANCY EVANS ZYTKO ET AL., DEFENDANTS AND APPELLANTS.
APPEAL from a judgment of the Superior Court of San Diego County, Rafael A. Arreola, Judge. (Retired judge of the San Diego Sup. Ct. assigned by the Chief Justice pursuant to art. VI, § of the Cal. Const.) Affirmed. (Super. Ct. No. 37-2009-00090811- CU-PT-CTL)
The opinion of the court was delivered by: Mcconnell, P. J.
BH Partnership v. Zytko
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
The issue in this case is whether a judgment confirming an arbitration award must be reversed because plaintiffs violated mediation confidentiality statutes (Evid. Code, § 1115 et seq.) by referring to the mediator's finding in a prior mediation, thereby ostensibly tainting the arbitration. The mediator found defendants' underlying petitions in probate court for trust accountings triggered an anti-litigation clause in various partnership agreements, which authorized a forced buy-out of defendants' interests in the partnerships. After an arbitration hearing, during which the arbitrator assured the parties he would not consider the mediator's finding, he made the same finding as the mediator, and he also awarded plaintiffs $952,451.51 in attorney fees and costs as the prevailing parties. Under well established law pertaining to the finality of arbitration, we conclude defendants have forfeited appellate review of the matter by not raising any objection based on mediation confidentiality at the arbitration. Rather, they fully participated in the arbitration, and, displeased with the result, raised the issue for the first time in their request that the court vacate the arbitration award. Moreover, even without forfeiture defendants' position lacks merit because of lack of prejudice. We affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
Nancy Evans Zytko, Margaret Evans Sullivan, Anne Evans Quinn, Grace Evans Cherashore, and William (Bill) L. Evans are the children of Anne L. Evans and the late William D. Evans.*fn1 William established hotels in San Diego's beach area, the Bahia Resort Hotel (Bahia) and The Catamaran Hotel and Spa (Catamaran). When William died in 1984, Anne assumed control over the hotels, with Grace assisting her.
In 1993, as part of her estate plan, Anne offered her children the opportunity to purchase partnership interests in the hotels at attractive prices. BH Partnership was formed to own the Bahia, and Braemar Partnership was formed to own the Catamaran. Each of the children agreed to sign partnership agreements except Nancy, based on her dissatisfaction with how the hotels were being managed. The agreements were restated, and all five children and Anne signed them, effective January 1, 1994. In June 1994 the Lodge at Torrey Pines Partnership was created to own the Lodge at Torrey Pines. In 1998, 9th & A Limited Partnership became a co-owner of the Catamaran. The children also have interests in these partnerships. Additionally, Grace's husband, David Cherashore, and Robert Gleason, have interests in the Lodge at Torrey Pines Partnership.
Each of the four partnership agreements contains the following anti-litigation clause (Section 17): "If (i) any Partner . . . institutes or threatens to institute litigation, mediation or arbitration proceedings against the Partnership or any of the other Partners . . . at any time with respect to matters arising, directly or indirectly, out of the Partnership business . . . then the Partnership and the other Partners shall have the right to purchase the Partnership Interest of such Partner. . . ." The genesis of Section 17 was Anne's intention that the partnerships not be disrupted by a disgruntled partner, particularly Nancy, since she had been dissatisfied with the operation of the hotels.
In 2006, defendants became dissatisfied with the manner in which Anne and Grace were handling the partnerships and certain trusts of which defendants are beneficiaries. They sought to withdraw the corpus of the trusts and requested accountings. They also sought disclosure of financial details concerning the four partnerships by requesting to inspect books and records. Anne notified defendants that if they did not agree to confidentiality pertaining to trust information and agree to the accountings, the trustees would seek court approval of the accountings.
In November 2007 defendants filed eight separate petitions against Anne and Grace in the San Diego County Superior Court's probate division. The petitions seek accountings for each trust, and four of the petitions seek redress for alleged breaches of trust by Anne and Grace. Two of the petitions allege breaches of trust for funds the trusts loaned to the partnerships and contain allegations that Anne and Grace improperly managed the partnerships.
In response, plaintiffs gave notice of their intent to exercise against defendants the forced buy-out option under Section 17. In February 2008 defendants sought to enjoin buy-outs on the ground the probate court petitions are unrelated to the partnerships and thus do not trigger Section 17. The probate court denied injunctive relief.
The partnership agreements include a three-step dispute resolution procedure. It requires the parties to informally meet and confer; if that is unsuccessful, they must mediate the matter before the Honorable J. Lawrence Irving, retired; if that is unsuccessful, they must submit the matter to binding arbitration before JAMS, The Resolution Experts, a private alternate dispute resolution provider (JAMS). The partnership agreements provided the parties were to bear their own costs of mediation, but the prevailing party was entitled to attorney fees and other costs of arbitration.
In May 2008 the parties entered into mediation with Judge Irving, but it was unsuccessful. Several days before Judge Irving issued his opinion, defendants demanded arbitration. The demand identified the following issues: (1) whether the allegations they made in the probate court petitions triggered Section 17 of the partnership agreements, and (2) whether the individual partners' "contingent" buy-out notices were effective. JAMS selected the Honorable Kevin Midlam, retired, to be the arbitrator.
At the outset, defendants attempted to expand the issues beyond those included in their demand for arbitration. The partnerships brought a motion in limine to limit the issues to those included in the demand. The motion states, "At all times during the dispute resolution process, the dispute discussed has been the narrow issue of whether the Trust Petitions triggered the Partnerships' buy-out rights." In support, the motion included a one-page letter from Judge Irving to the parties' attorneys, which states the issue at mediation was whether the probate petitions triggered Section 17 of the partnership agreements." The letter also states, "it is my non-binding opinion that Section 17 was triggered." Judge Midlam presumably granted the motion in limine, as he limited the issues to those delineated in the demand for arbitration.
Defendants did not object to the attachment of Judge Irving's letter to the motion in limine. They did object, however, when plaintiffs attempted to include Judge Irving's letter as a trial exhibit on the parties' joint exhibit list. Plaintiffs voluntarily withdrew the exhibit.
Arbitration was held on January 27 and 28, 2009. The parties did not mention Judge Irving's findings in their arbitration briefs or during arbitration, and defendants never objected to the submission of Judge Irving's letter or raised mediation confidentiality. During the first day of arbitration, Judge Midlam disclosed to the parties that he had seen Judge Irving's letter. Judge Midlam stated the Evidence Code precluded him from considering the letter, and "I will make my decision solely on the facts and the evidence and the law that you present here. So I just want that clear. And I'm sorry I didn't raise it earlier, but frankly, I forgot about it."
After the disclosure, defendants raised no objection to Judge Midlam continuing to preside over the arbitration. Rather, one of their attorneys merely stated, "Your Honor, I believe actually counsel had -- we all agreed that [Judge Irving's letter] was not going to be before your Honor and had taken it off the exhibit list some time ago. So if you saw it, it was probably inadvertent." Judge Midlam then added, "So in the interest of full disclosure, I want everybody to know that, and I want you to know what my position was. That [Judge Irving's letter] will play no role in any decision that I make in this matter." The arbitration proceeded, and after its completion on the merits the parties submitted post-arbitration briefs.
On March 4, 2009, Judge Midlam issued a "Partial Final Binding Arbitration Award." (Some capitalization omitted.) He confirmed the arbitration award and denied defendants any relief, determining their probate court petitions triggered Section 17 of the partnership agreements. He found "it was the intent of [Anne], Grace, and Gleason as well as the attorney responsible for drafting Section 17, that it be as broad as possible. While [Anne] testified that it was not meant to be used as a tool to quell all disagreements that might occur regarding the operation of any of the Partnerships, when such disagreement(s) rose to the level of litigation or threats of litigation, it was intended to take effect."*fn2 He also found the allegations against Anne and Grace "of mismanagement of the Partnerships arise not only from their duties as trustees, but also out of the business of the Partnerships both directly and indirectly." The court also found Section 17 provides buy-out rights to the individual partners "permitting the issuance of contingent buy-out notices." He designated plaintiffs the prevailing parties for purposes of attorney fees and costs.
On April 21, 2009, Judge Midlam held a hearing on plaintiffs' request for fees and costs. On April 23, after taking the matter under submission, he issued a "Final Binding Arbitration Award." (Some capitalization omitted.) He awarded the partnerships $629,846.21 in fees and costs, the individual partners $303,515.62 in fees and costs, and Gleason $19,089.68 in fees and costs, for a total award of $952,451.51. Over defendants' objection, Judge Midlam allowed attorney fees associated with preparing for the mediation because they "were necessary to prepare for the arbitration as well. The same work and cost would have been incurred if there had been no mediation and only an arbitration. The work was not duplicated in preparation for the arbitration."
Plaintiffs petitioned the superior court for confirmation of the arbitration award. Defendants requested that the court vacate the award, arguing for the first time that the partnerships' submittal of Judge Irving's letter to Judge Midlam violated mediation confidentiality statutes and tainted the arbitration. The court denied defendants any relief and confirmed the award. The court rejected the notion of taint and observed that if defendants felt strongly about mediation confidentiality they should have requested another arbitrator. Judgment was entered on September 14, 2009.
Forfeiture of Judicial Review
Defendants contend the judgment must be reversed because the arbitration was tainted by plaintiffs' submission of Judge Irving's letter to Judge Midlam. Defendants, however, have forfeited judicial review of the mediation confidentiality issue.*fn3
As this court explained in Marsch v. Williams (1994) 23 Cal.App.4th 238, 243-244: "To ensure that an arbitrator's decision is, indeed, the end of a dispute, arbitration judgments are subject to extremely narrow judicial review. [Citation.] The scope of this judicial review was comprehensively treated by our Supreme Court in Moncharsh [v. Heiley & Blase (1992) 3 Cal.4th 1]. In that case the court reviewed the history of arbitration in California, . . . and concluded the exclusive grounds for vacating an arbitration award are the five statutory grounds found in Code of Civil Procedure section 1286.2. [Citation.] Unless one of the enumerated grounds exists, a court may not vacate an award even if it contains a legal or factual error on its face which results in substantial injustice." (Fns. omitted.)
The grounds enumerated in Code of Civil Procedure section 1286.2, subdivision (a) are: "(1) The award was procured by corruption, fraud or other undue means[;] [¶] (2) [t]here was corruption in any of the arbitrators[;] [¶] (3) [t]he rights of the party were substantially prejudiced by misconduct of a neutral arbitrator[;] [¶] (4) [t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted[;] [¶] (5) [t]he rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title[; and] [¶] (6) [a]n arbitrator making the award either: (A) failed to disclose . . . a ground for disqualification of which the arbitrator was then aware; or (B) was subject to disqualification upon grounds specified in [Code of Civil Procedure] Section 1281.91 but failed upon receipt of timely demand to disqualify himself or herself. . . ."
In their request for vacatur of the arbitration award, defendants cited Code of Civil Procedure section 1286.2, but they did not specify any particular ground.*fn4 On appeal, they claim Judge Midlam was corrupted or exceeded his powers. They also assert Code of Civil Procedure section 1286.2 "is the mechanism to enforce" Evidence Code section 1128. Evidence Code section 1128, a provision of the mediation confidentiality statutes (Evid. Code, § 1115 et seq.), provides in part: "Any reference to a mediation during any other subsequent non-criminal proceeding is grounds for vacating or modifying the decision in that proceeding, in whole or in part, and granting a new or further hearing on all or part of the issues, if the reference materially affected the substantial rights of the party requesting relief." (Italics added.) Evidence Code section 1121 prohibits the submittal of a mediator's report or findings "to a court or other adjudicative body."
Defendants now express outrage at plaintiffs' violation of mediation confidentiality statutes during arbitration. They submit that mediation confidentiality is "sacrosanct," (capitalization and boldface omitted) plaintiffs secured the arbitration award "through a deliberate and unjustifiable exploitation" of Judge Irving's finding, plaintiffs' "conduct makes a mockery of the mediation confidentiality statutes," and a new arbitration is required "to purge the taint created by [their] illegal conduct." This is a far cry from defendants' position during arbitration, where they never broached the issue of mediation confidentiality, even though they knew weeks before the arbitration that Judge Irving's letter was attached to the motion in limine. Further, when Judge Midlam disclosed during the first day of arbitration that he had read the letter, defendants' counsel expressed no concern and characterized the reading as "probably inadvertent."
"[I]t is well settled that a party may not sit idle through an arbitration proceeding and then collaterally attack that procedure on grounds not raised before the arbitrators when the result turns out to be adverse. [Citations.] This rule even extends to questions, such as arbitrator bias, that go to the very heart of arbitral fairness." (Marino v. Writers Guild of American, East, Inc. (9th Cir. 1993) 992 F.2d 1480, 1484; Wellman v. Writers Guild of America, West, Inc. (9th Cir. 1998) 146 F.3d 666, 673.) In Moncharsh v. Heily & Blase, supra, 3 Cal.4th at page 30, the court explained: "Any other conclusion is inconsistent with the basic purpose of private arbitration, which is to finally decide a dispute between the parties. Moreover, we cannot permit a party to sit on his rights, content in the knowledge that should he suffer an adverse decision, he could then raise the illegality issue in a motion to vacate the arbitrator's award. A contrary rule would condone a level of 'procedural gamesmanship' that we have condemned as 'undermining the advantages of arbitration.' "
In their opening brief, defendants violate a basic rule of appellate advocacy by omitting that they did not raise mediation confidentiality during the arbitration. An appellate brief should, of course, accurately and fairly state the relevant facts. (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2009) ¶ 9:27, p. 9-8.) Defendants state they objected during the trust proceeding when plaintiffs' counsel mentioned a mediation had been held, but that objection is immaterial insofar as the arbitration is concerned. Further, plaintiffs' voluntary removal of Judge Irving's letter from the parties' joint exhibit list for arbitration after defendants objected to it is immaterial. Plaintiffs raise the forfeiture issue in their respondents' brief, but defendants filed no reply brief to address the issue. Although the court did not address the issue of forfeiture in its written ruling, the failure to address additional grounds upon which a court ruling may be upheld is a forfeiture. (Hambrose Reserve, Ltd. v. Faitz (1992) 9 Cal.App.4th 129, 133, disapproved of on another ground in Trope v. Katz (1995) 11 Cal.4th 274, 292.)
We note that at the trial court, defendants cited Simmons v. Ghaderi (2008) 44 Cal.4th 570 (Simmons) for the proposition that forfeiture principles do not apply to mediation confidentiality. In Simmons, the parties had reached an oral agreement during mediation, and the plaintiffs sought to introduce evidence of the agreement in a subsequent action for breach of oral contract. The court held the evidence was inadmissible even though the defendant had not objected to the evidence during pretrial proceedings, and had conceded in a summary adjudication proceeding that she had orally agreed to settlement. The court held that neither estoppel nor waiver principles precluded the defendant's reliance on mediation confidentiality statutes at trial, as under Evidence Code section 1122, subdivision (a)(1) a communication made during mediation is admissible in another proceeding if all participants expressly agree in writing, or orally in accordance with Evidence Code section 1118, to disclosure. (Simmons, supra, 44 Cal.4th at p. 586.)
Simmons is inapt. In Simmons, the defendant raised mediation confidentiality at trial, the proceeding in which the plaintiff sought to introduce evidence of what transpired at mediation. The defendant did not ignore the issue at trial and raise it for the first time on appeal. Here, defendants ignored mediation confidentiality during arbitration, the proceeding in which Judge Irving's letter was submitted. They raised the issue for the first time in superior court after the arbitration was completed and Judge Midlam had no opportunity to rectify any problem. Simmons does not undercut the forfeiture rule of Moncharsh v. Heily & Blase, supra, 3 Cal.4th at page 30. "A decision is authority only for the point actually passed on by the court and directly involved in the case. General expressions in opinions that go beyond the facts of the case will not necessarily control the outcome in a subsequent suit involving different facts." (Gomes v. County of Mendocino (1995) 37 Cal.App.4th 977, 985; Chevron U.S.A., Inc. v. Workers' Comp. Appeals Bd. (1999) 19 Cal.4th 1182, 1195.)
Defendants forfeited judicial review of the mediation confidentiality issue by not raising it before Judge Midlam during the arbitration.
Lack of Prejudice
While the forfeiture issue is dispositive, we also note substantial evidence supports a finding that Judge Midlam's review of Judge Irving's letter caused defendants no prejudice. Under Evidence Code section 1128, no relief is available unless the violation of mediation confidentiality statutes "materially affected the substantial rights of the party requesting relief." Further, under Code of Civil Procedure section 1286.2, an arbitration award will not be vacated "for any error that does not prejudice the rights of the party complaining." (Davey Tree Surgery Co. v. International Brotherhood of Electrical Workers, Local 1245 (1976) 65 Cal.App.3d 440, 450.) "Every reasonable intendment will be indulged to give effect to arbitration proceedings." (Ibid.)
" 'On appeal from an order confirming an arbitration award, we review the trial court's order . . . under a de novo standard. [Citations.] 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.' " (Toal v. Tardif (2009) 178 Cal.App.4th 1208, 1217.) The question of whether an arbitration award must be vacated for taint "is a factual determination made by the court reviewing the award." (Reed v. Mutual Service Corp. (2003) 106 Cal.App.4th 1359, 1370.)
"[W]here a trial court's factual finding is challenged on the ground there is no substantial evidence to sustain it, the power of the reviewing court begins and ends with the determination as to whether, on the whole record, there is substantial evidence, contradicted or uncontradicted, that will support the trial court's determination. [Citation.] [¶] The appellate court reviews the evidence in the light most favorable to the respondents [citation], resolves all evidentiary conflicts in favor of the prevailing party and indulging all reasonable inferences possible to uphold the trial court's findings [citation]." (San Diego Metropolitan Transit Development Bd. v. Handlery Hotel, Inc. (1999) 73 Cal.App.4th 517, 528.)
Defendants assert there was obviously taint because Judge Midlam "was informed that a well respected jurist, Judge Irving, . . . had already determined the question pending before him." Judge Midlam, however, is also a well respected jurist and he disclosed the matter to the parties and unequivocally denied Judge Irving's letter would influence him. Contrary to defendants' assertion, the court did not err by relying on Judge Midlam's assurance. The trier of fact is the sole judge of credibility issues. (Estate of Teel (1944) 25 Cal.2d 520, 526.) If the court were required to reject an arbitrator's assurance of impartiality and nonbias, the prejudice requirements of Evidence Code section 1128 and Code of Civil Procedure section 1286.2 would be eviscerated.
Further, the mere fact that Judge Midlam came to the same conclusion as Judge Irving does not suggest the arbitration was tainted. Judge Midlam conducted a two-day proceeding on the merits, during which he allowed the parties to present testimony and documentary evidence. His decision is hardly surprising, given that Section 17 broadly applies to any litigation against any of the partners to the four partnership agreements arising "directly or indirectly" out of "[p]artnership business," and two of the probate court petitions allege Anne and Grace engaged in improper activities in the management of the partnerships.*fn5 Had Judge Midlam never seen Judge Irving's letter, the arbitration result likely would have been the same.
Moreover, defendants' claim that during the arbitration plaintiffs "repeatedly focused" Judge Midlam on the mediation is untrue. During the merits phase of the arbitration the parties did not discuss the mediation. Judge Midlam disclosed he had read Judge Irving's letter and defendants raised no concern. Defendants point out that the mediation was also raised during the attorney fees phase of the arbitration. The partnerships' briefing stated, "Without disclosing confidential mediation communications, [plaintiffs] are confident that [defendants] had reason to know at the conclusion of the mediation that an arbitration would likely result in a finding that the Trust Litigation triggered Section 17." Further, at the hearing, the partnerships argued defendants "certainly had ample reason to believe that they weren't going to be the prevailing party in this case." Those comments, however, obviously did not taint Judge Midlam's earlier decision on the merits.
Further, defendants cite no evidence to support their argument that by awarding plaintiffs nearly $1 million in fees and costs Judge Midlam relied on the mediation result, and he intended to "punish" them "for ever having gone through the [m]ediation." The final arbitration award explains he awarded fees associated with the mediation because they "were necessary to prepare for the arbitration as well," the "same work and cost would have been incurred if there had been no mediation and only an arbitration," and the "work was not duplicated in preparation for the arbitration." Defendants complain about the amount of the award and the inclusion of fees for certain tasks. Nonetheless, the propriety of the award is not before us.*fn6
The judgment is affirmed. Plaintiffs are entitled to costs on appeal.
WE CONCUR: HUFFMAN, J. NARES, J.