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Kelly Sutherlin Mcleod Architecture, Inc., et al v. Michael D. Schneickert

April 18, 2011

KELLY SUTHERLIN MCLEOD ARCHITECTURE, INC., ET AL., PLAINTIFFS AND APPELLANTS,
v.
MICHAEL D. SCHNEICKERT, DEFENDANT AND APPELLANT.



(Los Angeles County Super. Ct. No. BC361424) APPEAL from a judgment of the Superior Court of Los Angeles County, Teresa Sanchez-Gordon, Judge.

The opinion of the court was delivered by: Suzukawa, J.

CERTIFIED FOR PUBLICATION

Reversed with directions.

After engaging in contractual arbitration, the parties filed competing petitions in superior court to vacate and confirm the arbitrator's award. The superior court corrected the arbitrator's award and confirmed the award as corrected. Both parties appealed from the judgment confirming the corrected award.

The primary issue on appeal is whether the superior court erred in correcting the award by striking the compelled retraction of defendant's defamatory statements (the retraction order). The superior court concluded that by compelling defendant to retract his defamatory statements in violation of the free speech provision of the First Amendment of the United States Constitution, the arbitrator had exceeded his powers.

In the main appeal, defendant agrees that the arbitrator exceeded his powers, but argues that the superior court should have vacated the entire award. In the cross-appeal, plaintiff disagrees that the arbitrator exceeded his powers and argues that the superior court should have confirmed the entire award.

We conclude that although the arbitrator was empowered to compel a limited retraction of the defamatory statements, he exceeded his powers by inserting certain language, including an apology, in the letter of retraction. We further conclude that because the language may be stricken without affecting the merits of the award, the judgment shall be reversed and remanded with directions to reinstate the retraction order, as amended, and to confirm the award as corrected.

BACKGROUND

Defendant Michael D. Schneickert hired plaintiff Kelly Sutherlin McLeod Architecture, Inc. (KSMA), to renovate and restore Schneickert's historic residence in Pasadena. The parties entered into an architectural services contract (the contract), which contained an arbitration clause. The arbitration clause stated in relevant part that, "[a]ny claim, dispute or other matter in question arising out of or related to this Agreement shall be subject to arbitration," that the arbitrator's award "shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof," and that the arbitration would be conducted "in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association [AAA Rules]."

After a dispute arose under the contract, the parties filed related superior court actions. KSMA filed a complaint against Schneickert, who was not served, for breach of contract, specific performance, quantum meruit, account stated, foreclosure of mechanic's lien, defamation, and declaratory relief. Schneickert filed a complaint against KSMA's principal, Kelly Sutherlin McLeod, for professional negligence, conversion, fraud, and violation of the unfair competition law.*fn1 (Bus. & Prof. Code, § 17200.)

KSMA submitted its claims against Schneickert to contractual arbitration and obtained a stay of its complaint. In light of his pending arbitration with KSMA, Schneickert agreed to submit his complaint to the same arbitration. Pursuant to the parties' stipulation, the superior court stayed both actions while the parties voluntarily pursued contractual arbitration of their respective claims.

As previously mentioned, the main issue on appeal is whether the arbitrator exceeded his powers by requiring a published retraction of Schneickert's defamatory statements (the retraction order). Our discussion is focused with this issue in mind.

During arbitration, KSMA presented evidence that Schneickert made false and defamatory statements to persons in the historic restoration community regarding KSMA's performance of the contract. Consistent with the prayer in its complaint, KSMA submitted to the arbitrator a request for "a full retraction of [Schneickert's] defamatory statements against KSMA and its principal to the effect that neither KSMA nor its principal engaged in any misconduct, nor were negligent in performing any duties. This retraction shall be sent to the same people to whom Mr. Schneickert sent his malicious lies."

In the March 6, 2009 interim award, the arbitrator found Schneickert's comments to be defamatory and granted KSMA's request for a retraction of the defamatory remarks. The arbitrator stated that Schneickert's "comments were unprivileged, defamatory and clearly beyond 'rhetorical hyperbole.' Claimant is entitled to such sum as both per se and punitive damages and a retraction as shall be determined by the Arbitrator after a further telephonic hearing . . . ."

After the interim award was issued, the parties filed postarbitration briefs on the proposed retraction order. Although Schneickert's postarbitration brief is not contained in our record, we infer from KSMA's postarbitration brief that Schneickert's brief contained an objection based on a claim that the arbitrator lacked authority to compel a retraction of the defamatory statements. In response to that objection, KSMA cited Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 389 (Advanced Micro Devices) and the AAA Rules. KSMA argued that arbitrators are empowered to grant equitable relief, including mandatory injunctions, and that "[a]rbitrators have even greater authority to issue equitable relief than the courts." KSMA also pointed out that Schneickert had agreed to be bound by the AAA rules, which places no limits on the arbitrator's authority to grant the appropriate equitable relief. KSMA stated that unless a "retraction is ordered to undo some of the damage caused by Mr. Schneickert's [defamatory remarks], KSMA's damages should be increased accordingly."

After considering the parties' postarbitration briefs on the proposed retraction order, the arbitrator issued a March 30, 2009 supplemental interim award in which he cited Advanced Micro Devices and rule R-44 of the AAA Rules in support of his authority to select "such remedies as are consistent with the evidence presented which are just and equitable." The arbitrator stated that a compelled retraction was an appropriate equitable remedy because the defamatory statements were causing continuing harm to KSMA's reputation that was difficult to measure.

In the July 27, 2009 final award, the arbitrator awarded KSMA monetary damages ($100,000 as damages per se and $250,000 as punitive damages) and ordered Schneickert to issue a retraction of the defamatory remarks.*fn2 The retraction order, which is the main issue on appeal, required Schneickert to distribute the following letter of retraction:

"[Current Date]

"Pasadena Heritage, Board of Directors

"And Others Whom It May Concern

"Subject: Retraction of False ...


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