IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION FIVE
December 17, 2010
LOUISE PEIRONA ET AL., PLAINTIFFS AND APPELLANTS,
KIET NGUYEN ET AL., DEFENDANTS AND RESPONDENTS.
(San Mateo County Super. Ct. No. CIV 445795)
The opinion of the court was delivered by: Bruiniers, J.
Peirona v. Nguyen CA1/5
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
Respondent Kiet Nguyen (Nguyen) was one of two members of TMT Associates, LLC (TMT), a real estate holding limited liability company. The other was Thomas Peirona. Thomas Peirona died suddenly in 2005, and his estate and his surviving spouse, Louise Peirona (collectively Plaintiffs), sued Nguyen over their entitlement to distributions from TMT's income. The trial court entered a preliminary injunction restricting use of the company's funds. Other trial court proceedings were stayed and Plaintiffs' claims were submitted to arbitration, with an agreement by the parties that the injunction would remain in effect until the arbitration was resolved.
While the arbitration was pending, the parties (including Nguyen's spouse, Kim Nguyen) repeatedly returned to court seeking further provisional relief. Late in the arbitration proceeding, Plaintiffs asked the court to lift the stay of the trial court litigation so that they could abandon the arbitration. The court denied the motion and sanctioned Plaintiffs for bringing it. The trial court subsequently confirmed the final arbitration award, which rejected many of Plantiffs' claims.
Plaintiffs challenge the order confirming the final arbitration award, the denial of their motion for relief from the stay of trial court proceedings, and the trial court order imposing sanctions. We affirm these orders. We also grant motions by Nguyen and TMT for sanctions against Plaintiffs for pursuing a frivolous appeal; we further impose sanctions on Plaintiffs payable directly to the clerk of this court both for a frivolous appeal and for repeated violations of appellate rules; and we grant Kim Nguyen's request for an award of attorney fees on appeal.
In September 1996, Nguyen and Thomas Peirona formed TMT for the purpose of acquiring leasehold interests and option rights in certain commercial property in San Mateo County (the Property).*fn1 A company owned by Nguyen, KLN Precision Machining Company (KLN) (later renamed KLN Engineering Corporation), already held a lease on the Property, as well as an option to purchase the Property at a price of $4.1 million. At the time TMT was formed, the Property had a market value of $19.25 million. After TMT was formed, KLN assigned the lease and its purchase option to TMT. TMT then subleased space in the Property to KLN and another tenant, Inhale Therapeutic Systems, Inc., which later became Nektar Therapeutics (Nektar). Nektar held an option to purchase the Property from TMT at a price of slightly more than $25 million in 2005, escalating annually.
In April 1997, TMT exercised its purchase option and acquired the Property. In November 1997, it refinanced the Property with a $14 million loan secured by the Property (the Loan). The loan was originally held by Credit Suisse and was later transferred to Wachovia Securities (Lender). As of January 2005, TMT still owed $13 million on the Loan.
TMT Operating Agreement
The TMT Operating Agreement (Operating Agreement) provided that Nguyen and Thomas Peirona held 51 percent and 49 percent ownership interests, respectively. (Section 1.3.) Upon Thomas Peirona's death, his estate and spouse became assignees of his interest in TMT, but not members, and Nguyen became the sole member and manager of TMT. (Sections 4.1, 5.2, 5.4.) Subject to certain restrictions, the Operating Agreement required that TMT's "cash available for distribution" (cash available after paying all ordinary and necessary expenses, maintaining reserves, and repaying loans) be distributed to the members according to their percentage interests. (Section 3.5(b)(3).) The Operating Agreement also required mediation and binding arbitration of "[a]ny controversy or claim arising out of or relating to this Agreement, the Company or the Members' rights and duties," with the prevailing party to recover his or her fees and costs. (Section 8.7.) The members' spouses, Kim Nguyen and Louise Peirona, signed "Consent of Spouse" declarations in which each agreed to be bound by the terms of the Operating Agreement.
Thomas Peirona's Death and Louise Peirona's Lawsuit
Thomas Peirona died suddenly on February 11, 2005, and Louise Peirona (Peirona) acquired his community interest in TMT. Although Thomas Peirona had received monthly distributions of $40,000 to $60,000 from TMT before his death, Peirona received no distributions after his death and Nguyen failed to respond to numerous inquiries by her and her counsel. When a family friend finally contacted Nguyen, Nguyen gave Peirona a $20,000 distribution, without explanation of the amount. Moreover, a certified public accountant hired by Peirona opined that TMT's tax records for 2002 appeared to show far greater distributions to Nguyen than were justified by his 51 percent interest in the company.
In March 2005, Peirona sued Nguyen and TMT. Peirona asserted claims against Nguyen for conversion, breach of fiduciary duty, breach of contract, breach of the covenant of good faith and fair dealing, fraud and deceit, and negligent misrepresentation. She alleged that Nguyen was not distributing TMT's receipts in accordance with the Operating Agreement and that he had taken capital distributions from TMT that were three times greater than those taken by Thomas Peirona and may have used the distributions for his personal benefit. She sought an accounting, declaratory relief, imposition of a constructive trust against both Nguyen and TMT, and injunctive relief against Nguyen.
Temporary Restraining Orders and January 6, 2006 Preliminary Injunction
On March 30, 2005, Peirona applied for an ex parte order prohibiting Nguyen from disbursing any assets of TMT except for certain specified monthly expenses. Nguyen agreed to the terms of a temporary restraining order in March and again in April, and the parties participated in mediation as required by the Operating Agreement. When the mediation proved unsuccessful, the trial court (Judge Quentin L. Kopp) incorporated the terms of the restraining order into a preliminary injunction on November 15, and thereafter entered a stipulated amended preliminary injunction that was filed January 6, 2006 (January 6, 2006 Preliminary Injunction).
The January 6, 2006 Preliminary Injunction enjoined Nguyen from using any of TMT's assets except to pay four specified monthly TMT obligations and "other expenses pertaining to the subject property to which [Peirona] may consent in writing, and which consent shall not be unreasonabl[y] withheld." The injunction ordered TMT's net receipts distributed on a monthly basis to Nguyen and Peirona according to their respective 51 percent and 49 percent interests in the company.
Motion to Compel Arbitration and June 6, 2006 Stipulation to Arbitrate
On November 23, 2005, Nguyen moved to compel arbitration. Peirona initially filed a notice of nonopposition that stated, "This non-opposition is based upon an understanding between counsel for the parties that the preliminary injunction ordered by this court on November 15, 2005 shall remain in place . . . ." On December 20, 2005, however, Peirona opposed the motion to compel arbitration after discovering that Nguyen had encumbered the Property in 2003 with a $1.6 million deed of trust, apparently for his personal benefit, but had only recorded the encumbrance in October 2005. She also discovered that Nguyen had used some of the proceeds of TMT's November 1997 refinancing of the Property to purchase his residence in Atherton, California.
The matter of the newly-discovered deed of trust was resolved by February 2006, and the encumbrance on the Property was removed.*fn2 Nguyen's alleged use of TMT funds to purchase his Atherton home, however, was not resolved. In a March 2006 second amended complaint, Peirona sued not only in her personal capacity (as in her original complaint) but also as administrator of the Estate of Thomas Peirona (Estate)*fn3 and on behalf of TMT. Plaintiffs added claims that Nguyen misused TMT funds to purchase his marital residence in Atherton and added as defendants Kim Nguyen and other entities related to the financing of the Atherton home.*fn4 They brought quiet title, constructive trust, and resulting trust causes of action with respect to the Atherton property in addition to their original causes of action. They also requested appointment of a receiver for TMT.
In May 2006, Nguyen renewed his motion to compel arbitration and also moved to expunge a lis pendens Peirona had recorded on the Atherton property. Plaintiffs filed a "Partial Opposition" to the motion to compel arbitration, explaining that they were "not opposed to the referral of this matter to arbitration. However, [they] object[ed] to exempting certain matters currently before the court, namely issues surrounding the lis pendens placed . . . against Nguyen's Atherton, California residential property, from the arbitration proceedings." (Italics added.) That is, Plaintiffs asked that the scope of arbitration be augmented to include issues related to the lis pendens. They insisted that they were not trying to avoid arbitration and the initial nonopposition to arbitration had been withdrawn only because they had discovered an allegedly improper encumbrance on the Property and needed to preserve access to the trial court to secure relief from the encumbrance.
On June 6, 2006, the court (Judge Marie S. Weiner) signed a stipulated order (the June 6, 2006 Stipulation) that ordered Plaintiffs' claims to arbitration. The parties agreed that Plaintiffs would remove the lis pendens from the Atherton property and Nguyen would deposit the net proceeds from a sale of the property into a blocked account to be held in trust. The parties also agreed to arbitrate "the disputes and controversies alleged in the Second Amended Complaint . . . in accordance with the provisions of the [Operating Agreement]." Finally, they stipulated that "[n]otwithstanding the stay of this action [pending arbitration], the [January 6, 2006 Preliminary Injunction], shall continue in effect during the pendency of the arbitration, . . . [and] the court in the above-captioned matter shall retain jurisdiction to determine and decide any issues pertaining to the policing or enforcement of said preliminary injunction . . . . The Court shall also retain jurisdiction to enforce the terms of this Stipulation and Order . . . ."
Arbitration Proceedings and April 2009 Final Arbitration Award
The arbitration commenced in January 2007 at JAMS (formerly Judicial Arbitration and Mediation Services, Inc.) before retired Justice Nat A. Agliano. In a February 2007 preliminary order, the arbitrator wrote, "The parties agree all issues framed by the pleadings are subject to this binding arbitration," and he authorized discovery, which continued through the summer. In September 2007, Plaintiffs sought and were granted leave to file a third amended complaint. In December 2007, the arbitrator struck Plaintiffs' punitive damages claim and otherwise denied a summary adjudication motion filed by Nguyen. The arbitrator ordered outstanding discovery to be completed in December 2007.
The first arbitration hearing took place in February 2008. An issue immediately arose about whether Plaintiffs' claims against Nguyen were personal or derivative of claims by TMT and whether, if those claims were derivative, the arbitrator had jurisdiction over the claims as TMT was not a party to the arbitration. The arbitrator granted Plaintiffs' request for leave to serve TMT with a demand to arbitrate the claims in the third amended complaint. Nguyen, acting on behalf of TMT, retained attorney David L. Andersen to represent the company in the arbitration proceeding.
Hearings resumed in April 2008. Nguyen and TMT argued that Nguyen's capital account needed to be adjusted to credit him for his contribution of the purchase option for the Property when the company was first formed. The arbitrator ordered bifurcation of the proceedings: in Phase 1, the arbitrator would determine the amount of each member's initial capital account, and in Phase 2, an accountant would perform an accounting "and thereby determine the relative rights and obligations of the parties," with any disputes about the accounting resolved by the arbitrator.
On June 10, 2008, the arbitrator issued an interim Phase 1 award that determined Nguyen's initial capital account in TMT was $14,950,000, the net value of the purchase option KLN assigned to TMT when it was first formed.*fn5 The arbitrator later determined that the value of Thomas Peirona's initial capital account was $0. On June 23, 2008, the arbitrator denied Plaintiffs' June 16 motion for reconsideration of the Phase 1 award. Subsequent settlement negotiations were unsuccessful.
Phase 2 of the arbitration, the accounting, followed. In January 2009, the arbitrator issued an interim Phase 2 award that systematically reviewed TMT's expenditures, characterized them as having been made for the benefit of TMT, Nguyen or Thomas Peirona, and adjusted the members' capital accounts accordingly. He found that as of December 31, 2007, the adjusted capital account of Nguyen was positive $6,406,525.91 and the adjusted capital account of Thomas Peirona was negative $1,777,215.59. In light of the value of the capital accounts, the arbitrator determined that "Nguyen had not taken excessive distributions from TMT as alleged by plaintiffs."
On the issue of Plaintiffs' tort and contract claims against Nguyen, the arbitrator gave Plaintiffs an opportunity to "make an offer of proof and, if warranted by the offer of proof, present evidence relative to [the] claims" at a January 2009 hearing. At the hearing, the arbitrator found Plaintiffs' offer of proof inadequate and denied the claims without taking additional evidence. In his Phase 2 interim award, the arbitrator ruled, "[T]he arbitrator, after hearing and considering plaintiffs' offer of proof, and after considering the entirety of the evidence previously introduced by plaintiffs including the evidence related to the accounting herein, determines the offered evidence wholly insufficient to sustain plaintiffs' claims and denies plaintiffs' request for further delay to prove such issues."
On the issues of indemnification and attorney fees and costs (deemed Phase 3 of the arbitration), the arbitrator ordered briefing in January 2009, and issued a decision in March. The arbitrator denied Nguyen indemnification for the costs of the arbitration because it arose from a dispute between the members and was not an proceeding brought or defended on behalf of the company. The arbitrator found Nguyen and Plaintiffs each prevailed in significant respects in the litigation and concluded neither was the prevailing party for purposes of awarding attorney fees. Specifically, "Plaintiffs requested an accounting and the accounting performed did result in decisions that quantified the parties' respective financial shares of TMT assets and liabilities. Considering the pre-accounting state of TMT's financial records, the accounting was essential in resolving various disputes about expenditures." He ordered Nguyen and Plaintiffs to bear their own fees and costs. The arbitrator found Kim Nguyen was a prevailing party and ordered Plaintiffs to pay her fees and costs, which he later determined to be $169,644.99.
On April 29, 2009, the arbitrator signed a Final Arbitration Award incorporating his interim awards.
Court Proceedings Pending Final Arbitration Decision During the more than two years that arbitration proceedings were underway, the parties repeatedly returned to court to seek enforcement or modification of the January 6, 2006 Preliminary Injunction or other forms of provisional relief.
April 2007 Appointment of Receiver Peirona had been receiving regular monthly distributions from TMT following the January 6, 2006 Preliminary Injunction, but stopped receiving them in March 2007. At about the same time, Plaintiffs learned that in January 2007 the family court presiding over Nguyen's then pending divorce case had held Nguyen in contempt for failing to make court-ordered payments from his TMT member distributions to Kim Nguyen, and thereafter Nguyen continued to fall short on his family court-ordered payments.
On April 2, 2007, Plaintiffs requested, and the court (Judge Beth Labson-Freeman) granted, an ex parte order prohibiting Nguyen from spending any TMT funds and appointing a temporary receiver to distribute TMT's funds consistent with the terms of the January 6, 2006 Preliminary Injunction (with payment of one-half of Nguyen's distributions to Kim Nguyen). On April 25, 2007, the court (Judge Kopp) signed a stipulated order and appointed a receiver.
May 2007 Loan Default The receiver learned that TMT's Loan was in default.*fn6 Moreover, the appointment of a receiver was itself a default event under the Loan documents, triggering a significantly higher interest rate and allowing the Lender to demand immediate payment of the entire unpaid principal. On May 16, 2007, Lender sent TMT a "Notice of Default."
With court authorization and the parties' consent, the receiver brought regular loan payments current and attempted to negotiate a resolution with Lender; however, negotiations were unsuccessful and default penalties and accelerated interest continued to accumulate. TMT failed to pay off the Loan by the scheduled repayment date of December 11, 2007, an additional default event. Lender threatened to appoint its own receiver to collect all rent payments.
February 2008 Removal of Receiver and Court Orders Regarding TMT Funds
At a January 16, 2008 hearing, the court (Judge Kopp) expressed concern that Lender was charging TMT "huge penalties" due to the appointment of the receiver. Judge Kopp announced that he would "take action to stop the bleeding of these loan proceeds" by "terminating the receivership and . . . order[ing] that the loan proceeds . . . be deposited with the clerk of the court[,] [¶] . . . [¶] . . . [u]nless the parties stipulate to some other repository of the money." On February 27, the receiver filed his final report and accounting, and on April 3, 2008, Judge Kopp approved the report and discharged him.
Lender's Foreclosure Suit Against TMT
On April 11, 2008, Lender recorded a Notice of Default and Election to Sell Under Deed of Trust on the Property and asserted its entitlement under the Loan documents to receive all rents on the Property. On April 25, Lender filed a foreclosure action against TMT and Nguyen in San Mateo County Superior Court and requested appointment of a receiver for TMT. TMT retained Andersen to represent it in the action and Andersen negotiated an agreement with the Lender allowing him to deposit Nektar's rent checks in his trust account and disburse the funds consistent with the terms of the Loan documents. The court in the foreclosure action signed the parties' stipulated order to this effect on April 29.
August 2008 Loan Reinstatement Agreement and Application for Injunctive Relief
On August 1, 2008, Nguyen, on behalf of TMT, signed a Reinstatement Agreement with Lender (Loan Reinstatement Agreement). TMT agreed to pay more than $800,000 in arrearages and to use all monthly rental income after necessary operating expenses to pay off the Loan. Because all income would be used to pay off the Loan, TMT would not be able to make any monthly distributions.
On August 12, Plaintiffs filed a motion to enforce or modify the January 6, 2006 Preliminary Injunction. They argued that Nguyen had violated the injunction by signing the Loan Reinstatement Agreement, by hiring Andersen to represent TMT, and by making several payments of TMT funds that were not authorized by the court's order, all without Peirona's consent. The court (Judge Kopp) found that Nguyen made 13 payments of TMT funds totaling $150,241.71 in violation of the January 6, 2006 Preliminary Injunction and ordered Nguyen to repay that amount to TMT. The court, however, denied the remainder of Plaintiffs' motion because Plaintiffs had "produce[d] no competent showing as to . . . [a] need" for distributions and the "reinstatement agreement save[s] the parties about $400,000."
Nguyen's Motion to Dissolve Injunctions and Plaintiffs' Motion for Relief from Stay
On September 17, 2008, Nguyen moved to dissolve all injunctions that had been issued in the case on the ground of a material change in circumstances, namely the June 2008 Phase 1 interim arbitration award that valued Nguyen's initial capital account at $14.95 million and Thomas Peirona's at $0. Nguyen argued that after the accounting (Phase 2 of the arbitration) Plaintiffs would owe TMT more than the amount of their equity interest in TMT, so there was no need for an injunction to ensure that any judgment in Plaintiffs' favor would be collectible. At an initial hearing on the motion before Judge Kopp, Plaintiffs' counsel argued, "If [Nguyen] wishes to have the preliminary injunction dissolved, knowing that that would be a violation of a stipulation that was entered into by the parties that the preliminary injunction stay in place until such time as the arbitration was final, . . . we waive any objection." At a December 18, 2008 hearing, Judge Kopp indicated he was inclined to grant the motion. After the parties agreed on procedures Andersen would follow under such an arrangement, the court ordered Andersen to prepare a written order. At the end of the hearing, Plaintiffs' counsel asked, "Your Honor, you indicated earlier a predisposition to granting the motion to dissolve the preliminary injunction . . . ." The court responded, "Not a predisposition. I am granting the motion to dissolve . . . [¶] . . . [¶] . . . the amended preliminary injunction. And that will be part of the order Mr. Andersen prepares."
Later that day (December 18, 2008), Plaintiffs filed a motion for relief from the stay of trial proceedings and for suspension of the arbitration proceedings (Motion for Relief). Plaintiffs argued that dissolution of the January 6 Preliminary Injunction at Nguyen's request had deprived Plaintiffs of the benefit of their bargain in the June 6, 2006 Stipulation and thus freed them from their commitment to arbitrate their claims against Nguyen. A hearing on the motion was set for January 20, 2009.
At a December 26, 2008 hearing on a different issue, Nguyen told the court, "Your Honor, at this point, I would like to make . . . an oral motion, that since no order has been signed on our motion to dissolve the preliminary injunction, that we hereby withdraw our request to dissolve the preliminary injunction." The court responded, "Well, . . . I'm not deciding that from the bench in these circumstances. [¶] Does defendant abandon his motion to vacate the amended preliminary injunction?" Nguyen's counsel said he did and the court stated, "So noted." Later in the hearing, Plaintiffs' counsel asked about the status of Nguyen's motion to dissolve injunctions and the court said it had been withdrawn. Plaintiffs' counsel said, "So the order likewise has been withdrawn[,]" and the court responded: "That's right. There will be no order dissolving the amended preliminary injunction. It remains in effect." Plaintiffs' counsel then stated, "So that I am not accused of in any way sandbagging anyone here, let me indicate that it is possible that while we will be withdrawing our motion as currently drawn, that we may be reasserting that motion by virtue of the actions that were taken by Mr. Nguyen on behalf of TMT in August of this year."
Plaintiffs did not withdraw their Motion for Relief. On December 22 and 29, 2008, respectively, Plaintiffs asked the arbitrator and then trial court to stay arbitration proceedings pending the January 20, 2009 court hearing on the Motion for Relief. Both requests were denied. On December 29, 2008, Plaintiffs filed a supplemental brief in support of their Motion for Relief that raised additional grounds for the motion. First, Plaintiffs argued that once Nguyen's motion to dissolve the preliminary injunction had been granted orally by Judge Kopp at the December 18 hearing, the order could not be negated by the moving party's unilateral withdrawal of the motion. The trial court's acknowledgement that Nguyen was abandoning his motion did "not reinstate the preliminary injunction. [Citation.] Indeed, to reinstate the dissolved stipulated preliminary injunction at this juncture, . . . [P]laintiffs would be required to stipulate once again . . . ."*fn7 Plaintiffs wrote that they would not stipulate to reinstate the injunction "unless, and until, they are the beneficiaries of the bargain that caused plaintiffs to enter into the stipulated preliminary injunction in the first place." According to Plaintiffs, the bargained-for arbitration was consideration for "a steady monthly income stream . . . and the requirement that plaintiffs be consulted and consent obtained before expenditures . . . by [TMT] were made . . . ." They argued that even if Nguyen had some power to unilaterally reinstate the June 6, 2006 Stipulation, he could do so only by restoring the full consideration provided to Plaintiffs under that stipulation, which he had not done. Plaintiffs claimed that they had been denied the benefit of that bargain by Nguyen's negotiation of the Loan Reinstatement Agreement, which resulted in all TMT income being used to pay the Loan obligation.*fn8
In opposition to the motion, Nguyen argued that Plaintiffs did not voluntarily submit their claims to arbitration; rather, arbitration was mandatory under the Operating Agreement. Nguyen also argued that the preliminary injunction was still in effect, that his signing the Loan Reinstatement Agreement did not violate the injunction (and was necessary to save TMT's only significant asset), and that the Motion for Relief was a baseless motion for reconsideration of the December orders denying Plaintiffs' request to stay arbitration proceedings (pending the January 20, 2009 hearing). Nguyen argued that Plaintiffs' motion was frivolous and harassing, stating that since the arbitrator issued his June 2008 decision recognizing a $14.95 million capital account for Nguyen Plaintiffs had "threatened to delay and prolong the litigation at all costs. Plaintiff[s] ha[ve] stated that they intend to delay resolution of this matter until 2010 if possible. [¶] . . . Given the litigation posture, TMT is unable to refinance the building which plays into [Plaintiffs'] hands." Kim Nguyen additionally argued the court lacked jurisdiction to grant the motion and that Plaintiffs' December 29, 2008 supplemental brief and declaration were not timely filed and should not be considered by the court.
The court (Judge Scott) denied the Motion for Relief at the January 20, 2009 hearing. The court explained that it was not persuaded by Plaintiffs' argument that, although Nguyen's motion to dissolve the injunction had been dismissed, the stipulated injunction had not been reinstated. In its written order, the court ruled that the motion was moot: "The sole ground for lifting the stay and restoring the matter to the civil calendar is that [Nguyen] was seeking to dissolve the preliminary injunction. [Nguyen] withdrew that motion on 12/26/08."
On January 21, 2009, Kim Nguyen moved for sanctions against Plaintiffs for their having prosecuted the Motion for Relief. She argued (1) the motion was meritless because the court lacked jurisdiction to grant the motion and (2) the motion was brought primarily for the purpose of harassing respondents and delaying resolution of the case in arbitration. Moreover, Plaintiffs' contractual argument lacked merit because Plaintiffs gave up nothing by stipulating to arbitration in the June 6, 2006 order, as arbitration was mandatory under the Operating Agreement. At the hearing on the sanctions motion, Plaintiffs' counsel disputed that the Operating Agreement required binding arbitration of their claims and represented that Plaintiffs had vigorously opposed Nguyen's motion to compel arbitration.
In a written order filed on June 2, 2009, the court (Judge Kopp) granted the motion for sanctions. The court wrote that "Plaintiffs' argument that the stipulation to binding arbitration constitutes a bargained-for contractual transaction . . . is fanciful, even spurious[,]" and that "[P]laintiffs were compelled to submit to binding arbitration irrespective of their aforementioned stipulation . . ." by the terms of the Operating Agreement. Moreover, Nguyen withdrew his motion to dissolve the injunctions, and the court clearly ruled at the December 26, 2008 hearing, " 'There will be no order dissolving the amended preliminary injunction. It remains in effect.' [Citation.] [¶] In the face of such pronouncement by the Court, [P]laintiffs pursued on December 29, 2008 a motion for relief from the stay of court proceedings and a stay of the arbitration. Their ex parte application for a stay of the arbitration was denied by the presiding judge of this Court. Nevertheless, [P]laintiffs prosecuted such motion in a fully contested hearing . . . on January 20, 2009 . . . . In these circumstances, [Kim Nguyen] demonstrates harassment by [P]laintiffs, thus entitling [her] to Code of Civil Procedure section 128.7 monetary sanctions in the amount of $4,200, together with the fee for the filing of her successful motion." (Underscoring omitted.)
Petitions to Confirm and Vacate Arbitration Award
As noted, the arbitrator issued his final decision in April 2009. On May 14, 2009, Kim Nguyen petitioned the court to confirm the arbitrator's April 29, 2009 award, and Nguyen joined in her motion. TMT filed a brief in support of the petition. Plaintiffs opposed the petition to confirm and cross-petitioned the court to vacate the award on the grounds that the arbitrator (1) exceeded his authority (a) by determining the value of Nguyen's initial capital account, an issue not placed in issue by Plaintiffs' pleading, and (b) awarding Kim Nguyen attorney fees for legal work that was not directly related to the arbitration proceeding; (2) unfairly relied on an offer of proof to decide Plaintiffs' claims without giving Plaintiffs an opportunity to present evidence of their claims; and (3) denied Plaintiffs due process by (a) denying discovery related to the members' initial capital accounts, and (b) refusing to decide if Plaintiffs' claims were personal or derivative.
At a June 22, 2009 hearing, the court (Judge Scott) granted the petition to confirm the arbitration award and denied the petition to vacate. On June 26, the court (Judge Kopp) granted TMT's ex parte application to vacate all preliminary injunctions entered in the case. On July 15, the court (Judge Scott) entered judgment for Kim Nguyen on her attorney fee award. Plaintiffs appealed.
Plaintiffs challenge the arbitration award, the trial court's denial of their Motion for Relief, and the trial court's imposition of sanctions for having prosecuted the Motion for Relief. Nguyen and TMT have moved for an award of sanctions on appeal and Kim Nguyen seeks an award of attorney fees on appeal.
A. Petition to Vacate Arbitration Award
Plaintiffs challenge the arbitration award on the following grounds: (1) that the arbitrator exceeded his powers (a) by deciding an issue that had not been submitted for decision, and (b) by awarding attorney fees to Kim Nguyen that were not authorized by the attorney fee provision in the Operating Agreement; and (2) that the arbitrator violated Plaintiffs due process rights by (a) failing to determine whether Plaintiffs claims were personal or derivative, (b) denying discovery on the Phase I capital accounts issue, and (c) excluding evidence relevant to their tort and contract claims against Nguyen.
The scope of judicial review of arbitration awards is extremely limited. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 6 (Moncharsh).) "[W]ith narrow exceptions, an arbitrator's decision cannot be reviewed for errors of fact or law," even if an error is apparent on the face of the award. (Id. at pp. 11, 33.) The court will not review the validity of the arbitrator's reasoning, the sufficiency of the evidence supporting an award, or the legal correctness of any arbitral ruling. (Id. at p. 11.) Thus, the parties are bound by an arbitration award even if it is clearly erroneous. The risk that an arbitrator will make a mistake is acceptable because "the parties have agreed to bear the risk in return for a quick, inexpensive and conclusive resolution to their dispute." (Ibid.) Also, the Legislature had reduced the risk by providing grounds for vacating or correcting an award "in circumstances involving serious problems with the award itself, or with the fairness of the arbitration process." (Id. at pp. 11-12.) That statutory scheme, specifically Code of Civil Procedure sections 1286.2 and 1286.6,*fn9 sets forth the only grounds that will justify vacating or correcting an arbitration award. (Id. at p. 33.)
We review the trial court's denial of a petition to vacate an arbitration award under the substantial evidence test, except for legal determinations, which we review independently. (County of Solano v. Lionsgate Corp. (2005) 126 Cal.App.4th 741, 752.) The appellant bears the burden of establishing the invalidity of the award. (Betz v. Pankow (1993) 16 Cal.App.4th 919, 923.)
1. Award in Excess of the Arbitrator's Powers
Section 1286.2 requires a court to vacate a contractual arbitration award if the arbitrators "exceeded their powers and the award cannot be corrected without affecting the merits of the decision . . . ." (§ 1286.2, subd. (a)(4).) An argument that an arbitrator exceeded the scope of his powers will be rejected if it is "nothing more than an attack on the 'arbitrator's reasoning' or, at best, an assertion of 'an error of law apparent on the face of the award.' [Citation.]" (Pierotti v. Torian (2000) 81 Cal.App.4th 17, 24 (Pierotti), fn. omitted.) In order to hold that an arbitrator exceeded his powers under a contract, rather than simply erred in interpreting the contract, a court must find that the arbitrator violated a clear and unmistakable contractual limitation on the arbitrator's powers. (See San Francisco Housing Authority v. Service Employees Internat. Union, Local 790 (2010) 182 Cal.App.4th 933, 943.) "[W]e review the trial court's decision [on whether an arbitrator exceeded his powers] de novo, but we must give substantial deference to the arbitrator's own assessment of his contractual authority. [Citations.]" (Jordan v. Department of Motor Vehicles (2002) 100 Cal.App.4th 431, 443-444.)
a. Alleged Augmentation of Arbitration Issues
Plaintiffs first argue that the arbitrator exceed the scope of his powers by deciding an issue that was not submitted for decision: the value of Nguyen and Thomas Peirona's initial capital accounts.
Plaintiffs have forfeited this issue by failing to support their discussion of the issue in their opening brief with accurate citations to the record. (Cal. Rules of Court, rule 8.204(a)(1)(C); Guthrey v. State of California (1998) 63 Cal.App.4th 1108, 1115 (Guthrey) [appellate court may treat as waived any factual contentions not supported by a citation to the record].) They cite the record only once and in that instance misstate the content of the record.*fn10
In any event, the argument lacks merit. It is true that " '[t]he scope of arbitration is . . . a matter of agreement between the parties' [citation], and ' "[t]he powers of an arbitrator are limited and circumscribed by the agreement or stipulation of submission." ' [Citation.]" (Moncharsh, supra, 3 Cal.4th at pp. 8-9.) However, where the parties agree that their dispute is arbitrable and questions arise about which issues the arbitrator must decide in order to resolve the dispute, "it is for the arbitrators to determine what issues are 'necessary' to the ultimate decision." (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 372 (Advanced Micro Devices), citing Morris v. Zuckerman (1968) 69 Cal.2d 686, 690 (Morris); see also Hall v. Superior Court (1993) 18 Cal.App.4th 427, 436 (Hall).) More specifically, where a case is submitted to arbitration based on a court pleading, it is the arbitrator's role to construe the pleading and determine which issues it raises. (Hall, at pp. 436-437.) Only if an arbitration agreement or submission expressly restricts the scope of issues the arbitrator may decide does a court have grounds to vacate an award because the arbitrator exceeded his powers by deciding an issue outside that restricted scope. (See Advanced Micro Devices, at pp. 374-376 [stating rule in context of arbitral remedies based on analogy to Morris, which addressed arbitrators' power to define the issues before them].)
The Operating Agreement's arbitration clause is broadly worded and covers "[a]ny controversy or claim arising out of or relating to this Agreement." Plaintiffs do not contend that the initial capital accounts issue was outside the scope of the arbitrator's powers under the contractual arbitration clause. Instead, they argue the issue was outside the scope of issues that were actually submitted to the arbitrator for decision. In the June 6, 2006 Stipulation, Plaintiffs agreed to arbitrate "the disputes and controversies alleged in the Second Amended Complaint." Consistent with this stipulation, the arbitrator's first procedural order stated, "The parties agree all issues framed by the pleadings are subject to this binding arbitration." Plaintiffs, however, argue that the value of the TMT members' initial capital accounts was not raised by Plaintiffs' pleadings.*fn11
The arbitrator concluded that Plaintiffs' pleadings "do raise issues regarding the amounts of the parties' Capital Accounts. Plaintiffs' Third Amended Complaint filed on October 3, 2007 alleges inter alia that Thomas Peirona had a 49% interest and . . . Nguyen a 51% interest in [TMT]; that TMT owned [the Property]; that . . . Nguyen managed the property and collected rents; that [Nguyen] improperly took distributions in excess of his 51%; that Nguyen refused to return the capital accounts of TMT to equilibrium by reimbursing TMT or [Plaintiffs] for the unauthorized distributions he took from TMT funds; that in the event of default there is insufficient equity to fully fund the Peirona share of the capital account; . . . . Plaintiff[s] sought appointment of a receiver; accounting; . . . declaratory relief including duty to return funds to TMT in order to balance the capital accounts; . . . . [¶] Defendants denied [P]laintiffs' allegations and contended any withdrawals were lawful, proper and with [Thomas] Peirona's knowledge and consent. Although defendants did not specifically request 'augmentation' of Nguyen's Capital Account, the actual amount of Nguyen's Capital Account was placed in issue by [P]laintiffs' allegations and, as observed throughout the accounting phase of the arbitration, the amount of the account constituted an arguable factor in determining whether Nguyen's withdrawals were excessive. [¶] The pleadings thus provided ample notice that the actual amount of each party's capital account was at issue." (Italics omitted.)
Plaintiffs disagree. They argue that "capital accounts" are affected by "capital transactions" under the terms of the Operating Agreement, not by distributions, which were the focus of Plaintiffs' pleadings, and that their claims could have been resolved without determining the parties' capital accounts. That is, Plaintiffs argue the arbitrator misconstrued their complaint and the terms of the Operating Agreement. However, Plaintiffs have not cited any express restriction on the scope of issues submitted to the arbitrator that was clearly violated by the arbitrator's award. Absent such an express restriction, we have no power to review the arbitrator's decision on the scope of issues before him or the arbitrator's interpretation of the Operating Agreement for legal or factual error or faulty reasoning. (Moncharsh, supra, 3 Cal.4th at p. 11.)
In support of their argument, Plaintiffs cite two cases that are clearly distinguishable because the arbitrator in those cases violated express restrictions on the issues he was authorized to decide. In California Faculty Assn. v. Superior Court, the arbitration clause of the parties' collective bargaining agreement expressly restricted the authority of the arbitrator to review tenure decisions, limiting review to the decision-making process under specified standards. (California Faculty Assn. v. Superior Court (1998) 63 Cal.App.4th 935, 945-946.) Only in " 'extreme cases' " could the arbitrator order the university to grant a professor tenure. (Id. at p. 946.) The arbitrator did so, and the reviewing court upheld an order vacating the arbitration award as exceeding the arbitrator's powers. (Id. at pp. 942-943, 951.) "Although the arbitrator recites the language of the agreement in finding that the campus decision was 'not based on reasoned judgment,' the opinion itself clearly shows that the arbitrator disagreed with the president's evaluation of the grievant's scholarly judgment and substituted his own judgment for the president's." (Id. at p. 951.) The arbitrator "failed to conform to the specific restrictions of the parties' agreement" on arbitration of such issues and exceeded his powers under the agreement. (Id. at p. 953.)
In O'Flaherty v. Belgum, the arbitration clause in the parties' partnership agreement "expressly precluded the arbitrator against granting any remedy prohibited by the agreement or 'not available in a court of law . . . .' " (O'Flaherty v. Belgum (2004) 115 Cal.App.4th 1044, 1047.) The arbitrator ordered forfeiture of the capital accounts of certain partners who had breached the agreement. (Id. at p. 1056.) The reviewing court ordered the award vacated because forfeiture of capital accounts was not permitted by the partnership agreement and was not an available remedy under the law. (Id. at pp. 1056-1059.) "[T]he arbitrator in effect awarded 'a remedy expressly forbidden by the arbitration agreement . . .' " and, thus, acted in excess of his powers. (Id. at p. 1061.)
Here, Plaintiffs are unable to identify any express restriction on the arbitrator's powers that was violated by the arbitrator's determination. Another case cited by Plaintiffs, Meat Cutters Local No. 439 v. Olson Bros. (1960) 186 Cal.App.2d 200 (Meat Cutters), is not helpful to their position.*fn12 There, the court upheld an arbitration award where the parties had submitted the issues of whether an employee was discharged for good cause and whether he was entitled to reinstatement, and the arbitrator ordered the employee's reinstatement on other grounds. (Id. at pp. 202, 204-205.) The employer argued that the reinstatement issue was impliedly limited to the just cause discharge issue, but the court held that insistence on such a restrictive interpretation of the submission "assaults the real purpose of arbitration proceedings and defeats the original intent of both parties to settle the issue of [the employee's] separation," particularly where the employer was given notice and an opportunity to defend against the broader issue. (Id. at pp. 204-205; see also Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413, 1444-1446 [arbitration award upheld where arbitrator construed complaint to raise issue of alter ego liability and party held liable under this theory had opportunity to defend against claim].) Here, as in Meat Cutters, supra, 186 Cal.App.2d 200, the arbitrator had discretion to determine which issues were necessary to decide in order to resolve the parties' dispute as it was presented to him in the parties' submission. Also, insofar as the record discloses, Plaintiffs had notice and an opportunity to be heard on the issue of the value of the initial capital accounts.
In a footnote, Plaintiffs further argue the arbitrator lacked jurisdiction to determine the value of the members' initial capital accounts because no one ever made a claim against the Estate regarding the amount of Thomas Peirona's initial capital account. First, Plaintiffs do not support this argument with citations to the record or legal authority in either their opening or reply briefs, even though TMT's respondent's brief noted the lack of factual support for the argument. Second, for the reasons already stated, the arbitrator acted well within the scope of his powers in deciding that the issue of the initial capital accounts was raised by Plaintiffs' own pleadings.
Because Plaintiffs have not shown that the arbitrator violated an express restriction on the scope of issues he had the power to decide, we reject Plaintiffs' argument that the award should be vacated as exceeding the arbitrator's powers.
b. Award of Attorney Fees to Kim Nguyen
The Operating Agreement provides, "The prevailing party or parties in such arbitration and any ensuing legal action shall be reimbursed by the party or parties who do not prevail for their reasonable attorney's, accountants', and experts' fees and the costs of such arbitration and action." Plaintiffs argue that the arbitrator misinterpreted this provision, and exceeded his powers in doing so, because he awarded Kim Nguyen fees for representation in a legal action that preceded the final arbitration award, whereas "ensuing" necessarily refers to court proceedings that follow a final arbitration award. (Italics added.)
Plaintiffs have forfeited this issue by failing to support the one-page discussion of the matter in their opening brief with legal authority and analysis or with adequate citations to the record. (Cal. Rules of Court, rule 8.204(a)(1)(B), (C); Guthrey, supra, 63 Cal.App.4th at pp. 1115-1116 [appellate court may deny claim that is unsupported by legal argument applying legal principles to the particular facts of the case on appeal and may treat as waived any factual contentions not supported by a citation to the record].) Although Plaintiffs contend the arbitrator awarded Kim Nguyen fees for representation that was not incurred "in such arbitration and any ensuing legal action," they cite nothing in the record to substantiate the claim. They cite no documentation of Kim Nguyen's fees, no breakdown the overall fee award into fees incurred for various types of legal representation, and no evidence that they objected to any part of Kim Nguyen's fee request as unauthorized by the fee provision. Further, they cite no legal authority to support their analysis of the fee provision in the Operating Agreement.
In any event, the argument lacks merit. In the first instance, the correctness of the arbitrator's interpretation of this fee provision, however, is beyond the scope of our judicial review. (Moncharsh, supra, 3 Cal.4th at p. 11.) On the specific issue of whether an arbitrator exceeds his powers by imposing a particular remedy, the Supreme Court has held, "[I]n the absence of . . . specific restrictions in the arbitration agreement, the submission or the rules of arbitration, the remedy an arbitrator fashions does not exceed his or her powers if it bears a rational relationship to the underlying contract as interpreted, expressly or impliedly, by the arbitrator and to the breach of contract found, expressly or impliedly, by the arbitrator." (Advanced Micro Devices, supra, 9 Cal.4th at p. 367.) "The critical question with regard to remedies is not whether the arbitrator has rationally interpreted the parties' agreement, but whether the remedy chosen is rationally drawn from the contract as so interpreted." (Id. at p. 377.) "Arbitrators are not obliged to read contracts literally . . . ." (Id. at p. 381.) They " '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; see also Morris[, supra,] 69 Cal.2d [at p.] 691; Grunwald-Marx, Inc. v. L.A. Joint Board (1959) 52 Cal.2d 568, 589.)" (Moncharsh, supra, 3 Cal.4th at pp. 10-11.)
Plaintiffs have not shown that the arbitrator awarded the alleged fees to Kim Nguyen on any basis other than the fee provision. (Advanced Micro Devices, supra, 9 Cal.4th at p. 367.) In fact, it is easily inferable that the arbitrator did base the award on the fee provision, which does not clearly and unmistakably limit fees (as distinct from costs) to those incurred in "such arbitration and action" and does not clearly and unmistakably define "ensuing legal action" as an action that follows the issuance of a final arbitration award.
2. Alleged Due Process Violations
Although Plaintiffs argue the arbitrator denied them "substantial due process" in three ways, they fail to cite legal authority on the scope of "due process" rights in a private arbitration proceeding. (See Guthrey, supra, 63 Cal.App.4th at pp. 1115-1116 [appellate court may deny claim on appeal that is unsupported by legal argument applying legal principles to the particular facts of the case on appeal].)
The protections of the due process clause apply only to state action, which is not directly involved in a private arbitration proceeding. (Rifkind & Sterling, Inc. v. Rifkind (1994) 28 Cal.App.4th 1282, 1291.) Although state action is involved in a state court's confirmation of an arbitration award, which establishes the award as an enforceable judgment, the statutes governing confirmation, vacation and correction of arbitration awards suffice to guarantee litigants' due process rights with respect to the underlying arbitration proceeding. (Id. at pp. 1291-1292.)
As to one of their three "due process" claims Plaintiffs cite cases that applied section 1286.2, subdivision (a)(5) as a basis for vacating the award: "The rights of the party were substantially prejudiced 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." (See Burlage v. Superior Court (2009) 178 Cal.App.4th 524, 529.) This subdivision also offers the only possible statutory basis for vacating the award based on the other two alleged "due process" violations. (See Moncharsh, supra, 3 Cal.4th at p. 33 [section 1286.2 sets forth the only grounds for vacating an arbitration award].) We consider whether Plaintiffs' three procedural claims have merit under this statute.
a. Failure to Determine Nature of Plaintiffs' Claims
Plaintiffs first argue that the arbitrator denied them due process by failing to decide whether their claims were personal or derivative. Plaintiffs have forfeited this issue because they cite to nothing in the record that shows the arbitrator failed to decide the issue, that they objected to the arbitrator's failure to decide the issue, or that they were prejudiced by the arbitrator's failure to decide the issue. They also fail to cite any legal authority demonstrating that the failure to decide such an issue could be grounds for vacating an award, particularly in the absence of prejudice. (Guthrey, supra, 63 Cal.App.4th at pp. 1115-1116.)
In fact, as already noted, case law establishes that the arbitrator has broad discretion to determine which issues he must decide in order to resolve the parties' controversy. Moreover, an arbitrator's failure to decide a particular issue is not grounds for vacating an award unless the moving party can establish it suffered substantial prejudice as a result. (§§ 1283.4, 1286.2, subd. (a)(5); Rosenquist v. Haralambides (1987) 192 Cal.App.3d 62, 67-69; Rodrigues v. Keller (1980) 113 Cal.App.3d 838, 841-843; Hall, supra, 18 Cal.App.4th at p. 436.)
Plaintiffs make no showing of prejudice in their opening brief. In their reply brief, they argue that if their claims had been deemed personal rather than derivative, the arbitrator would not have decided the issue of the parties' initial capital accounts and TMT would have been dismissed from the arbitration proceeding. The argument is untimely. (REO Broadcasting Consultants v. Martin (1999) 69 Cal.App.4th 489, 500 [appellate court may refuse to entertain an argument raised for the first time in a reply brief].) Moreover, it is unpersuasive. Under the arbitrator's interpretation of the contract it was necessary to determine the value of Nguyen's initial capital account in order to determine whether he took excessive distributions from TMT, Plaintiffs' core allegation of wrongdoing by Nguyen.
b. Denial of Discovery on Issue of Initial Capital Accounts
Plaintiffs next argue the arbitrator improperly denied them the right to conduct discovery on the issue of the value of the members' initial capital accounts. This argument fails for a complete lack of evidentiary and legal support. (Guthrey, supra, 63 Cal.App.4th at pp. 1115-1116.)
Without any supporting citations to the record, Plaintiffs contend that they had no notice that the initial capital accounts issue would be decided by the arbitrator until after discovery had been completed. They neither assert nor demonstrate with citations to the record that they ever requested an opportunity to conduct discovery on the issue once they realized it would be decided by the arbitrator or that they objected to the arbitrator's deciding the issue without their having had the benefit of discovery on the issue.*fn13 They cite no evidence that the arbitrator denied them an opportunity to conduct such discovery. They also cite no legal authority demonstrating that they had a right to discovery under the circumstances.
c. Exclusion of Evidence Regarding Plaintiffs' Nonaccounting Claims
Finally, Plaintiffs argue that the arbitrator improperly ruled on Plaintiffs' contract and tort claims against Nguyen based on an offer of proof alone, without receiving evidence on the claims. Plaintiffs do not argue that the arbitrator erred in determining that their proffered evidence was insufficient to prove their claims for relief. Nor could they, as such an alleged legal error in the arbitrator's ruling is not subject to judicial review. (Moncharsh, supra, 3 Cal.4th at p. 11.) Rather, Plaintiffs object to the arbitrator's use of the procedural device of requiring a sufficient offer of proof before allowing Plaintiffs to present evidence on the claims.
This argument is frivolous. Courts routinely decide cases without hearing actual evidence after determining that a party's proffered evidence (or factual allegations, in the context of a demurrer) are insufficient to establish the party's claims. (See § 437c; Blank v. Kirwan (1985) 39 Cal.3d 311, 318; see also People v. Allen (2008) 44 Cal.4th 843, 872, fn. 19 [use of offer of proof to decide admissibility of evidence]; People v. Morrison (2004) 34 Cal.4th 698, 721 [same].) Arbitrators have even greater latitude in devising procedural shortcuts for arbitral efficiency and economy. (Evans v. Centerstone Development Co. (2005) 134 Cal.App.4th 151, 164 (Evans) ["arbitrator has broad discretion in conducting the hearing and ruling on admission of evidence"].) Indeed, Plaintiffs' own legal authority demonstrates that arbitrators have the power to proceed by way of an offer of proof. (Hyatt v. Eckel Valve Co. (1959) 169 Cal.App.2d 35, 38.)
In sum, we reject all of Plaintiffs' challenges to the arbitration award and thus affirm the trial court's order confirming the award.
B. Motion for Relief from Stay and Sanctions Order
Plaintiffs also challenge the denial of their motion for relief from the stay of the trial court proceedings pending arbitration (Motion for Relief), as well as the order sanctioning them for having brought the motion.
1. Motion for Relief
Plaintiffs argue their Motion for Relief should have been granted because Nguyen breached the June 6, 2006 Stipulation (a) by persuading the court to dissolve the January 6, 2006 Preliminary Injunction and (b) by signing the Loan Reinstatement Agreement in violation of the January 6, 2006 Preliminary Injunction. Plaintiffs argue that Nguyen's breach of the June 6, 2006 Stipulation obviated any agreement to arbitrate their claims.*fn14 We review a trial court's resolution of factual issues for substantial evidence and legal issues de novo. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 800.)
Again, Plaintiffs fail to support their argument with citations to the record and fail to even discuss a critical element of their legal theory: why their agreement to participate in the arbitration of their claims was optional and voluntary, and thus constituted valid consideration for the June 6, 2006 Stipulation.*fn15 (Guthrey, supra, 63 Cal.App.4th at pp. 1115-1116.)
On the merits, Plaintiffs' arguments clearly fail. First, Plaintiffs acknowledge that Nguyen withdrew his motion to dissolve the January 6, 2006 Preliminary Injunction, and that their Motion for Relief was therefore ultimately denied as moot. At the December 26, 2008 hearing before Judge Kopp, Plaintiffs asked for clarification of the court's ruling with respect to Nguyen's oral motion to withdraw his motion to dissolve the injunction. Plaintiffs now argue on appeal that Judge Kopp "merely acknowledged" that Nguyen had withdrawn his motion, and that he did not "directly reverse" his December 18, 2008 order dissolving the injunction. However, the court clearly stated that the "[t]here will be no order dissolving the amended preliminary injunction" and that the January 6, 2006 Preliminary Injunction remained in effect.*fn16 Plaintiffs then expressly acknowledged that the court's ruling undermined their then pending Motion for Relief and advised the court and opposing counsel that "we will be withdrawing our motion as currently drawn" but that they might renew the motion on an alternative ground.
Plaintiffs did not, however, abandon the originally asserted basis for their Motion for Relief. Instead, citing the pendency of that motion, they sought an ex parte order seeking to postpone scheduled arbitration hearings until after Plaintiffs' Motion for Relief could be heard. The ex parte motion was denied. Plaintiffs then raised their alternative argument that Nguyen's signing of the Loan Reinstatement Agreement separately breached the June 6, 2006 Stipulation in a supplemental brief that was filed less than 16 court days before the scheduled hearing (§ 1005, subd. (b)), without proper notice (§ 1010) and without leave of the court or an order shortening time (§ 1005, subd. (b); Cal. Rules of Court, rule 3.1300).
The trial court found that the "sole ground" on which Plaintiffs sought to lift the stay and restore the matter to the civil calendar was that Nguyen had sought to dissolve the preliminary injunction, and that withdrawal of Nguyen's motion rendered the issue moot. The trial court's decision that the motion was moot in light of Nguyen's abandonment of his motion to dissolve the injunction is supported by substantial evidence.
Third and most importantly, Plaintiffs' breach of contract theory is unsupported by argument or evidence. Plaintiffs' arguments in support of their Motion for Relief are entirely dependent on Plaintiffs' view that the June 6, 2006 Stipulation was a contractual bargain in which Plaintiffs voluntarily agreed to submit their claims to arbitration in exchange for Nguyen's promise that the January 6, 2006 Preliminary Injunction remain in effect. However, the record clearly establishes that Plaintiffs did not submit their claims to arbitration voluntarily, but rather were legally compelled to arbitrate their claims under the terms of the Operating Agreement (including the consent form signed by Peirona, in which she expressly agreed to be bound by the terms of the Operating Agreement). Remarkably, Plaintiffs have never--either in the trial court or on appeal--explained why, despite the terms of the Operating Agreement and the spousal consent form, their participation in the arbitration was voluntary.*fn17 In the trial court, and in briefing here, they simply assert that Plaintiffs "were not bound by the TMT [Operating] Agreement," without offering any basis for that contention. They provide no explanation whatever on this issue, persuasive or unpersuasive. The best they do is to argue in their reply brief on appeal that "there has never been a finding by the court that [Plaintiffs] had such an obligation [to arbitrate] under the TMT Operating [A]greement as [respondents] contend." (Bolding and italics omitted.)
Not only does the record establish that Plaintiffs were obligated by the Operating Agreement to arbitrate their claims, but it also establishes that Plaintiffs acknowledged this obligation at the time Nguyen moved to compel arbitration. Although Plaintiffs twice opposed Nguyen's motion to compel, they did so first on the ground that they had discovered an improper encumbrance on the Property and thus might need court intervention to preserve their economic interest in the Property, and then on the ground that the scope of issues Nguyen wanted sent to arbitration was underinclusive. In their oppositions to arbitration below, Plaintiffs never disputed that their claims were subject to arbitration under the terms of the Operating Agreement.
We affirm the order denying Plaintiffs' Motion for Relief.
2. Sanctions for Filing the Motion for Relief
Plaintiffs also contest the sanctions imposed by the trial court for their prosecution of the Motion for Relief.
Section 128.7 requires an attorney to sign every motion, thereby certifying that the motion is not being presented primarily for an improper purpose; that the legal contentions are "warranted by existing law or by a non-frivolous argument for the extension, modification, or reversal of existing law or the establishment of new law"; and, as relevant here, that the factual contentions have evidentiary support. (§ 128.7, subds. (a), (b).) The court may impose sanctions for a violation of this certification requirement if a party has been given an opportunity to withdraw an allegedly offending court filing and declines to do so. (§ 128.7, subd. (c).) We review an award of sanctions under this statute for abuse of discretion. (Guillemin v. Stein (2002) 104 Cal.App.4th 156, 167 (Guillemin).)
We must ensure that section 128.7 " 'not be construed so as to conflict with the primary duty of an attorney to represent his or her client zealously. Forceful representation often requires that an attorney attempt to read a case or an agreement in an innovative though sensible way. . . .' [Citation.]" (Guillemin, supra, 104 Cal.App.4th at pp. 167-168.) In the analogous context of section 907 sanctions for frivolous appeals, the Supreme Court has held that a legal argument is frivolous "when any reasonable attorney would agree that the appeal is totally and completely without merit. [Citation.]" (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650.)
The court acted well within the bounds of its discretion in imposing the sanctions. First, as noted, Plaintiffs have completely failed to explain why, despite the terms of the Operating Agreement, they were not legally compelled to arbitrate their claims. Therefore, their theory of contractual breach of the June 6, 2006 Stipulation was baseless and all of their arguments that relied on the consideration theory (e.g., that Nguyen's attempt to dissolve the injunction, whether successful or unsuccessful, breached the June 6, 2006 Stipulation and released Plaintiffs from their obligation to arbitrate their claims) were also baseless. Second, Plaintiffs affirmatively misrepresented during the hearing that they had vigorously opposed arbitration when Nguyen filed his petition to compel. At the April 22, 2009 hearing on the motion for sanctions, Plaintiffs' counsel stated, "[P]rior to the stipulation, there had been some extraordinary litigation over a motion to compel the arbitration, in which [Nguyen's] counsel maintained that the plaintiff had such a duty. The plaintiff vigorously indicated to the contrary. However, the parties were ultimately able to stipulate to arbitrate on the grounds that Ms. Peirona would continue to receive monthly income." The court asked Plaintiffs' counsel to confirm that they"dispute the contention that the contract requires binding arbitration[,]" and Plaintiffs' counsel replied, "That is correct, Your Honor. We do dispute that." However, as noted, Plaintiffs never disputed in their filed oppositions to arbitration that the Operating Agreement compelled arbitration of their claims. Their objections to arbitration arose from different concerns. Third, as noted, the circumstances of Plaintiffs' prosecution of the motion following the December 26, 2008 hearing (after the court clearly stated that the January 6, 2006 Preliminary Injunction was still in effect and after Plaintiffs' counsel acknowledged that this would undercut the stated basis for their motion) strongly suggests that they pursued the Motion for Relief with an improper purpose to delay the arbitration.
Plaintiffs argue that their pursuit of the motion was vigorous advocacy rather than frivolous litigation. However, vigorous advocacy implies a fully articulated legal theory, however novel the theory may be. Because Plaintiffs have never articulated why they were free to forgo arbitration of their claims absent the June 6, 2006 Stipulation, the trial court reasonably characterized their legal arguments as frivolous rather than innovative. Cases cited by Plaintiffs are distinguishable or inapposite. In Guillemin, the appellant's argument was based on a plain reading of a statute, which the court rejected based on the law's statutory context and on evidence of legislative intent. (Guillemin, supra, 104 Cal.App.4th at p. 168.) Here, Plaintiffs never articulated a rationale for their contract theory of the June 6, 2006 Stipulation. The two other cases cited by Plaintiffs address issues irrelevant to this appeal. (See Banks v. Hathaway, Perret, Webster, Powers & Chrisman (2002) 97 Cal.App.4th 949, 953-954 [holding court does not lose jurisdiction to impose § 128.7 sanctions after sustaining demurrer as long as movant gave targeted party opportunity to withdraw offending motion]; Pacific Trends Lamp & Lighting Products, Inc. v. J. White, Inc. (1998) 65 Cal.App.4th 1131, 1136 [holding superior court may not authorize imposition of sanctions by local rule for conduct already regulated by § 128.7].) We affirm the sanctions order.
C. Motions for Sanctions on Appeal
Nguyen and TMT have requested sanctions against Plaintiffs for prosecuting an appeal that is frivolous and filed for improper purposes. We also consider whether to impose sanctions payable to the court both on the aforementioned grounds and for Plaintiffs' persistent violations of the appellate court rules. We notified Plaintiffs that we were considering imposing sanctions and Plaintiffs filed a brief arguing that sanctions are not warranted. (See Cal. Rules of Court, rule 8.276(c), (d).)
Section 907 provides, "When it appears to the reviewing court that the appeal was frivolous or taken solely for delay, it may add to the costs on appeal such damages as may be just." Rule 8.276 of the California Rules of Court similarly provides that the court may impose sanctions on a party or an attorney for "[t]aking a frivolous appeal or appealing solely to cause delay," as well as for "[c]ommitting any other unreasonable violation of these rules." (Cal. Rules of Court, rule 8.276(a)(1), (4).) The California Supreme Court has held that an appeal is frivolous "only when it is prosecuted for an improper motive--to harass the respondent or delay the effect of an adverse judgment--or when it indisputably has no merit--when any reasonable attorney would agree that the appeal is totally and completely without merit. [Citation.]" (In re Marriage of Flaherty, supra, 31 Cal.3d 637, 650.)
1. Whether Sanctions are Warranted
We conclude for two reasons that sanctions are warranted for filing a frivolous appeal. First, with respect to Plaintiffs' challenges to the arbitration award, any reasonable attorney would conclude that Plaintiffs' arguments were devoid of merit in light of the extremely limited scope of judicial review of arbitration awards. Although Plaintiffs attempt to fit their arguments within the few exceptions to the unavailability of judicial review, the effort is strained at best and Plaintiffs should have recognized that their position lacked merit. In a similar case, another division of this court held that sanctions were warranted for a frivolous appeal of an order confirming an arbitration award. (Pierotti, supra, 81 Cal.App.4th at pp. 23-26, 34-35.) That court explained, "The primary purpose of arbitration is to provide a ' "speedy and relatively inexpensive means of dispute resolution." ' [Citations.] . . . By filing a frivolous appeal from a judgment confirming an arbitration award, a party defeats the very purpose of the arbitration process. [Citation.]" (Id. at p. 35; see also Evans, supra, 134 Cal.App.4th at pp. 154, 167-168 [imposing sanctions and stating, "Plaintiffs' crude attempt to characterize their claims so they would fall within acceptable bases for an appeal [of an arbitration award] is an artifice we condemn"].)
Second, with respect to Plaintiffs' challenges to the trial court's denial of their Motion for Relief and the trial court's imposition of sanctions for filing that motion, we rely specifically on the fact that Plaintiffs have never articulated a reason they were not required to submit their claims to arbitration under the Operating Agreement. Their contract theory of the June 6, 2006 Stipulation was predicated on the premise of their voluntary submission to arbitration in exchange for a promise that the January 6, 2006 Preliminary Injunction would remain in effect, and their Motion for Relief depended on their claimed ability to withdraw from arbitration based on an alleged failure of consideration. Plaintiffs pursued the Motion for Relief, and pursue this appeal, based on a legal theory they have never successfully articulated and that was patently without factual or legal foundation. Indeed, the theory is directly contradicted by evidence readily identifiable in the appellate record. We think that the trial judge, in denying the Motion for Relief, accurately characterized Plaintiffs' theory as "fanciful." Any reasonable attorney would conclude that Plaintiffs' relentless pursuit of this unsupported theory was frivolous.
Respondents have also produced evidence strongly suggesting that in prosecuting this appeal, Plaintiffs acted with an improper purpose of harassing respondents and creating delay. Both Nguyen's counsel and TMT's counsel aver that after the arbitrator issued his Phase 1 award, which recognized a $14.95 million initial capital account for Nguyen, Plaintiffs' counsel expressly "threatened to contact the Internal Revenue Service for criminal prosecution [for tax evasion] if . . . Nguyen did not agree to give up that award." Plaintiffs' counsel also threatened to report Nguyen's counsel to the State Bar for complicity in Nguyen's alleged tax fraud. Moreover, Plaintiffs' counsel and Della Santina, administrator of the Estate, "specifically threatened to bury . . . us with litigation costs unless we succumb[ed] to their demands," knowing Nguyen and his counsel had limited resources. Plaintiffs' counsel "stated it was his intent to keep setting motions until such time as . . . Nguyen gave up and agreed to a settlement on [Plaintiff's counsel's] terms," and that he would do so even if it resulted in TMT losing the Property.
Plaintiffs do not dispute these averments or provide declarations of their own in opposition.*fn18 They argue that the accusations, even if true, relate only to the arbitration and trial court proceedings and do not establish that Plaintiffs' prosecution of the appeal is for a harassing purpose. However, the substantive frivolousness of the appeal (e.g., Plaintiffs' complete failure to explain why they were not compelled to arbitrate their claims and thus provided consideration for the June 6, 2006 Stipulation by voluntarily submitting their claims to arbitration) and the deficiencies we find in Plaintiffs' appellate briefs (e.g., the lack of factual and legal support for the appellate claims) by themselves support an inference that Plaintiffs brought the claim for an improper purpose. (See Pierotti, supra, 81 Cal.App.4th at p. 32 [given "appellate counsels' utter failure to discuss the most pertinent legal authority . . . and their preparation of a grossly inadequate record, we conclude they . . . subjectively prosecuted the appeal for an improper purpose"].) The evidence that these problems were part of a pattern of harassing litigation conduct in the arbitration and trial court proceedings simply bolsters that inference.
Plaintiffs argue that their appeal logically could not have been brought for purposes of delay because "[n]othing is being held up by this appeal; the confirmation of the arbitration award remains in place (as does the trial court's failure to vacate the award.) And no stay from the confirmation order was requested or imposed." However, the appeal delays finality of the litigation, which appears to be necessary before TMT can secure refinancing of the Property, and the evidence indicates that Plaintiffs' counsel has repeatedly threatened to prolong the litigation even to the point of TMT losing the Property as a means of forcing a favorable settlement of the parties' dispute.
We also conclude that sanctions are warranted for Plaintiffs' repeated violation of the appellate court rules. As noted in several instances in this opinion, Plaintiffs typically failed to support their arguments on appeal with citations to the record or relevant legal authority. They also generally failed to correct these deficiencies after they were pointed out in the respondents' briefs. Here, too, the Pierotti case is instructive. In addition to imposing sanctions for filing a frivolous appeal, the court imposed sanctions for the appellant's wanton violation of appellate rules and specifically noted that the violations were compounded by appellant's failure to correct them in his reply brief after the deficiencies had been brought to his attention. (Pierotti, supra, 81 Cal.App.4th at pp. 29-31; see also Keitel v. Heubel (2002) 103 Cal.App.4th 324, 340 (Keitel).)
2. Amount of Sanctions
In determining the amount of a monetary sanction, we may consider "the amount of respondent's attorney fees on appeal; the amount of the judgment against appellant; the degree of objective frivolousness and delay; and the need for discouragement of like conduct in the future. [Citation.]" (Pierotti, supra, 81 Cal.App.4th at pp. 33-34.) Greater sanctions are warranted where sanctions are imposed on more than one ground, for example for the filing of a frivolous appeal as well as for repeated violations of appellate court rules. (Id. at p. 33.)
TMT has requested reimbursement of legal fees incurred in defending the appeal and pursuing the motion for sanctions. Although Nguyen has not made a specific request, he too implies that an attorney fees award would be an appropriate sanction, and attorney fees are a common measure of sanctions payable to an opposing party. (See, e.g., Pierotti, supra, 81 Cal.App.4th at p. 33.) We thus award Nguyen and TMT sanctions in an amount equal to the attorney fees they incurred on appeal. The trial court shall determine the amount of those fees on remand.
We also impose sanctions payable directly to the clerk of this court. "Because a frivolous appeal, or one taken for improper reasons, harms the court, not just the respondent, a growing number of courts are ordering appellants to pay sanctions directly to the court clerk to compensate the state for the cost of processing such appeals. [Citations.]" (Pierotti, supra, 81 Cal.App.4th at p. 35.) A 2008 case cites a cost analysis by the clerk's office for the Second Appellate District that estimated the cost of processing an appeal that results in an opinion by the court to be approximately $8,500. (In re Marriage of Gong & Kwong (2008) 163 Cal.App.4th 510, 520; see also Huschke v. Slater (2008) 168 Cal.App.4th 1153, 1163-1164 [relying on that cost analysis to set amount of sanctions payable to the court].)*fn19 The processing of this appeal was far more time consuming than that required for an average civil appeal. The appellate record contained voluminous documents, including 22 volumes of clerk's transcript, and the opening brief raised seven issues that involved not only the trial court's confirmation of the arbitration award but also two trial court orders among many that were issued while the arbitration was underway. The latter claims caused us to review court filings and hearing transcripts covering a four-year time span. Therefore, we conclude that a sanction of $12,000 is appropriate to reimburse the state for the costs of this appeal.
The aforementioned sanctions are reasonable in light of the multiple grounds for the sanctions award in this appeal and the "particular need to discourage like conduct in the future because this appeal was taken from a judgment confirming an arbitration award. . . . By filing a frivolous appeal from a judgment confirming an arbitration award a party defeats the very purpose of the arbitration process. [Citation.]" (Pierotti, supra, 81 Cal.App.4th at pp. 34-35.) Finally, the amount is modest in comparison to the value of the assets that were at issue in the underlying dispute. (Cf. id. at p. 34 [comparing sanctions award to judgment].)
Nguyen and TMT ask that we impose the sanctions on both Plaintiffs and their counsel and that we hold each jointly and severally liable to pay the sanctions. Plaintiffs' counsel, A.K. Abraham, should be held liable for the sanctions, as he breached professional duties to raise only non-frivolous arguments on appeal and to comply with the rules of the appellate court. (See Pierotti, supra, 81 Cal.App.4th at pp. 36-37; Keitel, supra, 103 Cal.App.4th at pp. 342-343; Pollock v. University of Southern California (2003) 112 Cal.App.4th 1416, 1433-1434; In re Marriage of Economou (1990) 223 Cal.App.3d 97, 106; Cosenza v. Kramer (1984) 152 Cal.App.3d 1100, 1102-1103.) The Plaintiffs themselves are not blameless, for they initiated the appeal and benefited from the delay in finality of the arbitration award and apparently also the delay in paying Kim Nguyen her awarded attorney fees. (See Pierotti, at p. 37.) Therefore, we impose the sanctions against both Plaintiffs and their counsel, Mr. Abraham, who shall be jointly and severally liable for paying the sanctions.
D. Kim Nguyen's Request for Prevailing Party Fees on Appeal
As noted, the arbitrator determined that Kim Nguyen was a prevailing party in the arbitration proceeding and awarded her attorney fees pursuant to the fee provision of the TMT Operating Agreement. In her respondent's brief, Kim Nguyen asks us to award her attorney fees on appeal for the same reasons. Although it is not necessary for the appellate court to decide this issue, which may be raised for the first time in the trial court after issuance of the remittitur, it is not improper for us to do so. (Harbour Landing-Dolfann, Ltd. v. Anderson (1996) 48 Cal.App.4th 260, 264-265.) As we have rejected all of Plaintiffs' claims, there is no question that Kim Nguyen is a prevailing party on appeal, and Plaintiffs do not dispute that she is entitled to attorney fees on appeal under the Operating Agreement. Therefore, we award Kim Nguyen her attorney fees on appeal and direct the trial court on remand to determine the amount of those fees.
The judgment is affirmed. On remand, the trial court shall determine and award the attorney fees Nguyen and TMT expended in defending against this frivolous appeal and in prosecuting their motions for sanctions on appeal. Kim Nguyen shall also be awarded her attorney fees on appeal pursuant to the fee provision of the TMT Operating Agreement. Plaintiffs shall also pay $12,000 to the clerk of this court as a sanction for bringing this frivolous appeal and for unreasonably violating the California Rules of Court. Plaintiffs' counsel, A.K. Abraham, and Plaintiffs shall be jointly and severally liable for the aforementioned sanctions to be paid to Nguyen, TMT and the clerk of this court.
Sanctions payable to the court shall be paid no later than 15 days after the date the remittitur is filed. The clerk of this court is directed to deposit the sanctions received in the court's general fund. Abraham and the clerk of this court are each ordered to forward a copy of this opinion to the State Bar upon return of the remittitur. (Bus. & Prof. Code, §§ 6086.7, subd. (a)(3), 6068, subd. (o)(3); Pierotti, supra, 81 Cal.App.4th at pp. 37-38.) Nguyen, TMT and Kim Nguyen are awarded their costs on appeal.
Jones, P. J.