Opinion
B224686
09-20-2011
MARATHON ENTERTAINMENT, INC., et al., Petitioners and Appellants, v. FOX & SPILLANE, LLP, et al., Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BS124681)
APPEAL from a judgment of the Superior Court of Los Angeles County. Yvette M. Palazuelos, Judge. Affirmed.
James Ellis Arden, for Petitioner and Appellant Marathon Entertainment, Inc.
Rick Siegel, in pro. per., for Petitioner and Appellant Rick Siegel
Wilson, Elser, Moskowitz, Edelman & Dicker, Martin K. Deniston and Patricia Ann Golson, for Respondents.
INTRODUCTION
Appellant Marathon Entertainment, Inc. filed an arbitration claim alleging that its former counsel, Fox & Spillane LLP, committed malpractice in three separate lawsuits involving former Marathon clients. Fox & Spillane filed a counterclaim asserting that Marathon and its president, Richard Siegel, owed the firm more than $200,000 in unpaid legal fees. After a five-day arbitration hearing, the arbitrator issued a written ruling that rejected all of Marathon's claims and awarded Fox & Spillane $200,208.86 for unpaid legal work. An appellate arbitrator affirmed the ruling, but reduced Fox & Spillane's recovery to approximately $85,000.
Marathon and Siegel filed a petition to vacate the award arguing that the parties' arbitration agreement permitted the trial court to review the merits of the arbitrator's decision. In addition, they alleged that: (1) the arbitrators failed to decide a "fundamental" issue regarding its malpractice claim, (2) the arbitrators acted in excess of their authority by deciding an issue that was not subject to arbitration, and (3) Fox & Spillane procured the award through fraud during the arbitration proceedings.
The trial court denied the petition, ruling that the arbitration agreement did not permit judicial review of any legal or factual errors that may have occurred in the course of the arbitration. The court further ruled that Marathon had failed to identify any other ground to vacate the award.
On appeal, Marathon and Siegel re-assert several of the arguments presented to the trial court. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. Events Preceding the Arbitration Hearing
1. The parties' retainer agreement
Marathon Entertainment and its President, Rick Siegel (collectively Marathon), are "in the business of providing personal management services to actors, singers, and other performing artists." In September of 2002, Marathon retained Fox & Spillane LLP (Fox) to represent the company in breach of contract actions against three former Marathon clients: Reggie Hayes, Rosa Blasi and Nia Vardoles.
This factual summary is based on the parties' appellate briefs, the initial arbitration award, the appellate arbitration decision and various briefs and exhibits filed in the arbitration.
The parties' retainer agreement contained a dispute resolution provision requiring the arbitration of all claims arising from Marathon's legal representation in the Hayes, Blasi and Vardoles matters:
Attorneys and client agree to submit all disputes to binding arbitration by a single neutral arbitrator in Los Angeles selected by the parties . . . . The parties shall be entitled to reasonable discovery, and the California rules of evidence, pleading and procedure shall govern the arbitration. The arbitrator shall determine the dispute based solely on the law governing the claims at issue, and not on any other basis such as "Just Cause". . . . Any award in excess of $50,000 shall be subject to appeal to a second arbitrator who shall proceed, as far as practicable, pursuant to the laws and procedure governing civil appeals in California.
The agreement also contained a retainer provision stating that Marathon agreed to "pay Attorneys a monthly retainer of $5,000, due on the first of every month, which shall be applied against Attorneys' hourly rates . . . . The total amount of fees earned by Attorneys and eventually due to the Client will not be limited by the monthly retainer payments, nor shall the monthly retainer payments serve as a minimum." The agreement permitted the parties to "adjust the monthly payment, either higher or lower, if the amount of work is significantly different than what is currently anticipated."
2. Summary of the Talent Agencies Act and the underlying litigation
In the three underlying breach of contract actions, Marathon asserted that its former clients failed to pay commissions that were required under their respective management agreements. Specifically, Marathon asserted that: (1) Rosa Blasi "fired Marathon . . . and stopped paying commissions two years into the series' six-year run starring in the Lifetime Network series, 'Strong Medicine'"; (2) Reggie Hayes fired Marathon and stopped paying commissions 22 episodes "into the 140-episode run of the UPN series 'Girlfriends'"; (3) Nia Vardoles, "the writer and star of the film 'My Big Fat Greek Wedding' . . . fired Marathon" after it had "produced the play, developed the screenplay and succeeded in obtaining a production entity and funding for the film."
Marathon anticipated that each defendant would argue that their management agreement was unenforceable under the Talent Agencies Act (TAA), which requires "anyone who solicits or procures artistic employment or engagements for artists to obtain a talent agency license." (Marathon Entertainment, Inc. v. Blasi (2008) 42 Cal.4th 974, 985 (Blasi).) Under the TAA's statutory framework, any dispute arising under the Act must be referred "to the Labor Commissioner, who shall hear and determine the same, subject to an appeal within 10 days after determination, to the superior court where the same shall be heard de novo." (Lab. Code, § 1700.44.) If the Labor Commission determines that a violation of the Act has occurred, it "has the authority to void manager-talent contracts ab initio for unlawful procurement," meaning that the artist need not pay commissions that would have otherwise been due under the contract. (Blasi, supra, 42 Cal.4th at pp. 980-981, 984.)
At the time these cases were pending, it was unclear whether a violation of the TAA automatically nullified the entire talent contract or whether the doctrine of severability (Civ. Code, § 1599) could be applied to partially enforce such contracts. In Blasi, supra, 42 Cal.4th 974, which arose from the Blasi matter, the California Supreme Court ruled that "while the Labor Commissioner has the authority to void manager-talent contracts ab initio for unlawful procurement, she also has discretion to apply the doctrine of severability to partially enforce these contracts." (Id. at pp. 980- 981.)
Marathon, who did not hold a talent license, hired Fox to provide legal services in each action "with a focus on challenging the validity and application of various provisions of the California Talent Agencies Act." More specifically, Marathon sought to challenge the TAA's "constitutionality as applied to personal managers."
Fox continued to represent Marathon from late 2002 until approximately June of 2005. During that period, Fox successfully negotiated a settlement of the Vardalos matter entitling Marathon to approximately $750,000. The other two matters were heard by the Labor Commission, and eventually proceeded to trial.
In the Hayes matter, the Labor Commission ruled that Marathon had not violated the TAA and, as a result, its management agreement was enforceable. However, Hayes sought a de novo trial in superior court, where the jury found that he had fully complied with the terms of the agreement. The jury's findings were affirmed on appeal.
In the Blasi matter, the Labor Commission initially determined that Marathon had "procured [artistic employment for Blasi] in violation of the Talent Agencies Act." Marathon thereafter filed for a de novo trial in superior court, where the trial court entered a summary judgment affirming the Commission's ruling. Marathon appealed the judgment, "arguing that the court should apply the law of severability of contracts to permit Marathon to recover its commission on Blasi's Strong Medicine contract even if there were other unrelated violations of the [TAA]." On June 23, 2006, the appellate court agreed with Marathon, holding that severability applied to manager-talent contracts. The California Supreme Court granted review, where the case remained pending at the time the arbitration at issue here was finalized. (See Blasi, supra, 42 Cal.4th 974.)
It is unclear from the record whether Fox represented Marathon in the Blasi appeal or had any role in the Supreme Court proceedings. Ultimately, the Supreme Court affirmed the appellate court's conclusion that severability applied in the context of the TAA, but rejected Marathon's argument that the TAA did not apply to personal managers.
B. The Arbitration
In August of 2006, Marathon submitted an arbitration demand to JAMS alleging that Fox had committed malpractice, breach of fiduciary duty and fraud during its representation in the Hayes, Blasi and Vardalos matters. Fox filed a counterclaim alleging that Marathon owed $200,208.86 for unpaid legal fees. Arbitrator Barbara Reeves Neal heard the arbitration on July 9-13 and July 18, 2007.
The counterclaim was filed by Fox Spillane & Schaeffer, as successor in interest to Fox & Spillane.
On August 4, 2007, Arbitrator Neal issued a final award ruling that Marathon "shall take nothing by their complaint," and that Fox "shall recover $200,208.86 on its Counterclaim, payable by Marathon Entertainment." Arbitrator Neal issued a 17-page ruling that explained the basis for her decision, the relevant portions of which are summarized below.
1. Arbitrator Neal's ruling on Marathon's claims
In its arbitration demand, Marathon contended that Fox committed malpractice by failing to argue that the legislative history of the TAA demonstrated that the Act did not apply to personal managers. Arbitrator Neal rejected the claim, ruling that Marathon had "not met their burden of proving that [Fox] committed malpractice in any of the underlying cases." Specifically, Neal found that Marathon's contention that "the legislative history of the [TAA] establishes that the Act does not 'apply' to managers" was a "novel argument and one that [did] not find support in general statutory interpretation." Neal further explained that "[w]hile some attorneys advance every possible argument they can imagine, it is generally better practice and better legal strategy to limit one's arguments to those that appear to be the strongest."
Marathon's arbitration demand also alleged that Fox committed breach of fiduciary duty by making "demands for payment at times when no payments were owed." Arbitrator Neal, however, concluded that the evidence established that "payments for fees were in fact owed at the times that [Fox] requested those payments."
Arbitrator Neal concluded her analysis of Marathon's claims by stating that "[a]ll arguments and claims not specifically discussed above are rejected."
Arbitrator Neal considered and rejected several additional malpractice and fraud claims that are not at issue in this appeal.
2. Arbitrator Neal's analysis of Fox's counterclaim for unpaid legal fees
Fox's counterclaim alleged that Marathon owed the firm over $200,000 for work completed on the Blasi, Hayes and Vardoles matters.
a. Factual summary of Fox's counterclaim
i. The parties' billing dispute and modification of payment terms
The evidence at the arbitration showed that, in the fall of 2003, Marathon and Fox became involved in a billing dispute. In a series of e-mail exchanges, Fox notified Marathon that it was behind on its payments to the firm and requested that it pay down its account. Marathon, however, objected to paying for certain work detailed in Fox's billing invoices and denied that it owed the firm any money.
On Friday, November 21, 2003, Fox sent Siegel an e-mail stating that the firm was willing to provide a 25 percent discount for all fees incurred through October 31, 2003, if the outstanding invoices were paid "according to the following schedule:"
$10,000 a month by the 10th of each month, starting December 2003, until such time as your balance is zero. Once you retire your outstanding balance you will be required to act like any other client of the firm, which is to pay your invoices within 30 days of receipt, and raise any questions about the invoices within such 30 days.Thereafter, Marathon paid Fox $10,000 prior to December 10th, but failed to make any payment in January of 2004.
On January 28, 2004, at 2:20 p.m., Fox sent another e-mail indicating that Marathon still owed the firm approximately $60,000, and offered three proposals to resolve the billing dispute. One of the proposals included a one-time payment of $50,000 to "forgive all time on our books . . . and we will discount all our rates by 10% going forward." In addition, the firm agreed to "try Hammerman pro bono." The "Hammerman" matter was a breach of contract action involving a former Marathon employee. In April of 2003, Fox had substituted into the action at Marathon's request.
Approximately five hours after Fox sent Marathon its initial e-mail proposal, Fox sent Marathon a second e-mail, with the subject matter "Resolution." The e-mail stated that the communication was intended to "confirm our agreement this evening," and listed the following terms regarding the parties' resolution of their billing dispute: (1) Marathon would pay Fox $50,000; (2) all outstanding invoices would be deemed paid in full, which included bills that had accrued in the Hayes, Vardalos, Blasi and Hammerman matters, and; (3) Fox would continue to represent Marathon in the Hammerman action through judgment "for no additional charge." Unlike the e-mail sent at 2:20 p.m., Fox's second e-mail did not contain a provision stating that Fox would discount its future fees by 10 percent.
At the arbitration hearing, Siegel testified that he had accepted the January 28 agreement and paid Fox $50,000.
ii. Summary of Fox's counterclaim for unpaid billings
Fox's counterclaim sought repayment of $200,200 for unpaid legal fees that accrued after the parties' January 28 agreement. Its claim was comprised of two categories of billings. First, Fox sought approximately $100,000 for "accounts receivable" billings, which reflected work that had been completed between February of 2004 and February of 2005. Fox provided Marathon invoices for its "account receivable" billings, which described the specific work associated with each charge.
Second, Fox sought approximately $112,000 for "Work in Progress" (WIP) billings, which reflected work completed between February and June of 2005. Although Fox sought payment of its WIP billings, it provided no evidence demonstrating that it sent Marathon invoices detailing the nature of these specific charges.
iii. Summary of the parties' evidence regarding Fox's counterclaim
In support of its counterclaim, Fox submitted billing records with supporting declarations. In addition, Jay Spillane, a partner at Fox, testified that the billing records were "true and correct account records from the firm" and that he recognized the records as being "consistent with the time keeping software that the firm keeps and reports that the software produces."
Marathon submitted its own evidence regarding the amount it owed to Fox, which consisted of a two-page excel spread sheet labeled "Monies to Law Firm" (MTLF chart). The calculations in the MTLF chart incorporated a 25 percent reduction of all billings prior to February of 2004, and a 10 percent discount on all billings from February 2004 forward. According to Marathon, it was entitled to these reductions based on modifications to the retainer agreement that were reflected in the parties' e-mails of November 17, 2003 and January 28, 2004.
Marathon failed to offer any documentary evidence supporting the figures in the MTLF chart, such as "copies of the payments and/or checks referenced in the MTLF." In addition, Marathon "did not offer testimony that" Fox's billing documents "were not what they are purported to be, i.e., the [Fox] invoices to Marathon during the relevant period," nor did Marathon offer "any evidence with respect to any specific errors (outside the issue of discounts) in the Fox & Spillane records."
b. Arbitrator Neal's decision regarding Fox's counterclaim
In assessing Fox's counterclaim, Arbitrator Neal elected to "adopt[ ] the billing records submitted by [Fox &Spillane]" and "reject[ ] the 'Monies to Law Firm' summary offered by Marathon."
Neal provided two reasons in support of her decision to credit Fox's evidence. First, she explained that Marathon had not offered any documentary evidence to support the figures in its MTLF chart. Second, she concluded that the calculations in the MTLF chart improperly incorporated discounts of 25 percent "for all billing on or before January 31, 2004," and 10 percent for all subsequent billings. Although Marathon asserted that these reductions correctly reflected modifications the parties had agreed to in their November and January e-mails, Neal disagreed, ruling that that neither discount had become operative.
Arbitrator Neal explained that the November 17 e-mail promised a 25 percent discount of fees only if Marathon paid $10,000 by the 10th of each month, until its balance was paid down to zero. Marathon failed to make any such payment in January of 2004, which, according to Neal, was a necessary prerequisite to receive the 25 percent discount. With regard to the 10 percent discount, Arbitrator Neal ruled that while this term was referenced in an e-mail Fox sent to Marathon at 2:20 p.m., on January 28, 2004, that e-mail was "superseded by an email sent several hours later," which embodied the final terms of the parties' agreement and did not reference a 10 percent discount.
Because Marathon had provided no documentary evidence to support the figures in its MTLF chart, and because the chart was based on billing discounts that never became operative, Arbitrator Neal chose to credit Fox's billing records and awarded the full amount indicated in those records.
C. The Arbitration Appeal
Under the parties' arbitration agreement, Marathon was permitted to "to appeal to a second arbitrator who [was to] proceed, as far as practicable, pursuant to the laws and procedure governing civil appeals in California." Marathon elected to assert its appellate rights, and Judge Read Ambler was assigned to serve as the appellate arbitrator. On September 30, 2009, Arbitrator Ambler issued a 31-page ruling that affirmed Arbitrator Neal's final award in most respects, but reduced Fox's recovery to approximately $85,000.
Initially, Marathon argued that it was entitled to a three-person appeal panel because JAMS "Optional Arbitration Appeal Procedure" rules state that "the panel will consist of three neutral members, unless the Parties agree that there will be one neutral member . . . ." Arbitrator Ambler rejected this argument, explaining that the parties' arbitration agreement "is unambiguous, and requires that Claimants' appeal be heard by a single appellate arbitrator." On appeal, Marathon has re-asserted this argument, alleging that a three-judge panel was required under JAMS rules and the California Constitution. (See Cal. Const. Art. VI, § 3 [the appellate court "shall conduct itself as a 3-judge court"].) Marathon ignores the immutable fact that its arbitration agreement specifically provides for a single arbitrator on appeal and we find no merit in its argument.
1. Arbitrator Ambler's review of Marathon's malpractice claim Arbitrator Ambler concluded that there was substantial evidence "with respect to whether Fox & Spillane adequately incorporated the legislative history into their legal arguments made on behalf of Marathon, i.e., whether Fox & Spillane's representation of Marathon with respect to this issue met the standard of care." In support, Ambler noted that Fox's standard of care expert, who had "extensive" experience on malpractice issues, testified that: (1) "he did not find any convincing evidence of practice below the standard of care by Fox & Spillane in Vardalos, Hayes or Blasi," and (2) the firm "acted within the standard of care" with "respect to the constitutionality and/or applicability of the TAA." In addition, Fox called a "TAA expert" who testified that Marathon's proposed arguments regarding the TAA were not credible.
Arbitrator Ambler also addressed Marathon's "causation" argument, which asserted that if Fox had "properly integrated the legislative history into their constitutional argument, [Marathon] would have prevailed in the Blasi, Hayes and Vardalos cases." In support of this assertion, Marathon explained that the California legislature had repealed a criminal penalty provision in the TAA, thereby "eliminates the statutory authority [of the Labor Commission] to penalize" parties who violated the TAA.
Ambler rejected this argument, concluding that the issue of causation was irrelevant because Marathon had failed to establish any "breach of duty" with respect to Fox's "integration of the legislative history into their constitutional argument."
2. Arbitrator Ambler's review of Fox & Spillane's counterclaim for unpaid fees
Arbitrator Ambler also reviewed several issues regarding Fox's counterclaim, including: (1) whether Arbitrator Neal had properly interpreted the parties' retainer agreement and various modifications to that agreement, (2) whether Arbitrator Neal had erred in crediting Fox's billing documents, rather than Marathon's MTLF payment chart, and (3) whether Arbitrator Neal had properly calculated the total amount owed to Marathon.
a. Interpretation of the parties' billing agreements
On appeal, Marathon argued that Arbitrator Neal misinterpreted the retainer provision in the parties' retainer agreement, which states:
Client agrees to pay Attorneys a monthly retainer of $5,000, due on the first of every month, which shall be applied against Attorneys' hourly rates detailed herein. The total amount of fees earned by Attorneys and eventually due to the Client will not be limited by the monthly retainer payments, nor shall the monthly retainer payments serve as a minimum. . . .Marathon argued that this language "limited" its payment "obligation . . . to "$5,000 per month." Arbitrator Neal disagreed, ruling that the provision did not create "a minimum or maximum" for the total amount Fox could bill in any month. Instead, it simply required Marathon "to pay [Fox] a monthly retainer of $5,000 . . . to be applied against the hourly rates."
In its arbitration appeal brief, Marathon re-asserted that the parties' payment provision "must be interpreted to mean that Marathon owed a maximum of $5,000" each month. Ambler dismissed the argument as "meritless," explaining that the retainer agreement plainly stated that "the total amount of fees earned by Attorneys and eventually due to the Client will not be limited by the monthly retainer payments.''
Marathon also argued that Arbitrator Neal erred in ruling that the discounts Fox referenced in its November 17 and January 28 e-mails never became operative. Ambler reviewed the text of the relevant e-mails and concluded that Judge Neal's interpretation of those documents was supported by substantial evidence. Specifically, Ambler found that: (1) the 25 percent discounted was predicated on the condition that Marathon pay Fox $10,000 a month until its entire obligation was fully paid, which Marathon failed to do, and (2) the "undisputed evidence" showed that although Fox "offered Marathon a 10% discount on rates going forward on January 28, 2004," that offer e-mail was "superseded" by a "subsequent January 28, 2004 . . . e-mail that did not reflect an agreement that Fox & Spillane would discount its rates by 10% going forward."
b. Acceptance of Fox's billing records evidence
Marathon also appealed Arbitrator Neal's decision to accept Fox's billing documents, rather than the calculations in Marathon's MTLF chart, as the correct measure of the total amount of unpaid legal fees. After conducting an exhaustive review of Marathon's MTLF chart and Fox's billing records, Arbitrator Ambler ruled that there was substantial evidence supporting Neal's evidentiary finding that Fox's exhibits "provided the best and most persuasive evidence of the amounts billed by Fox & Spillane and the amounts paid by Marathon." In support, Ambler noted that: (1) Fox provided declarations and testimony that attested to the accuracy of the billing records and explained how those records had been generated; (2) Marathon had failed to offer any testimony that the billing records were inaccurate, and (3) Marathon's two page MTLF chart was not supported by any documentary evidence, such as cancelled checks or other proof of payment.
c. Reduction of Arbitrator Neal's award for unpaid legal fees
Although Arbitrator Ambler affirmed Arbitrator Neal's decision to accept Fox's billing records, he found that Neal had erred by awarding Fox two different categories of billings which totaled more than $115,000.
First, Ambler ruled that Neal had improperly awarded Fox for the "WIP" billings (which totaled approximately $112,000) because there was no evidence that Fox had sent Marathon invoices for those charges. Ambler explained that, under the parties' retainer agreement, Fox was required to "send Client monthly statements for fees and costs incurred" and, as a result, the firm was "not entitled to recover . . . fees and costs not actually billed to Marathon."
Ambler also ruled that Arbitrator Neal had improperly awarded Fox approximately $4,000 for work the firm billed on the Hammerman matter after January of 2004. Ambler concluded that, under the parties' January 28, 2004 e-mail agreement, Fox agreed that it would complete the Hammerman matter "for no additional charge." Therefore, the firm was not entitled to fees for work it had completed after the date on which the e-mail was sent.
However, Ambler rejected Marathon's further contention that Fox was required to return over $25,000 for work the firm had completed on the Hammerman matter prior to January 2004. According to Ambler, the January 28 e-mail clearly stated that "[t]he agreement with respect to 'a free Hammerman trial' was for any future fees and costs."
D. Marathon's Petition to Vacate the Arbitration Award
1. Summary of Marathon's petition to vacate the arbitration award
On January 27, 2010, Marathon filed a petition to vacate the arbitration award in Los Angeles Superior Court. The petition argued that the arbitrators had committed numerous errors of fact and law, including, in relevant part: (1) finding that Marathon had not established malpractice, (2) misinterpreting the parties' retainer agreement and subsequent modifications to that agreement, (3) rejecting Marathon's "expert" evidence regarding Fox's billing practices, and (4) accepting Fox's billing statements rather than Marathon's MTLF chart as the proper measure of outstanding fees.
Marathon contended that although a court ordinarily has no authority to review such errors, the parties' arbitration agreement contained language that expanded the scope of review ordinarily applicable to arbitration awards. In support, Marathon cited the following provision: "The arbitrator shall determine the dispute based solely on the law governing the claims at issue, and not on any other basis such as 'just cause.'"
Marathon also argued that, even if the trial court found it could not review errors of fact or law, the arbitration award should be vacated for three additional reasons. First, Marathon asserted that the arbitrators failed to "render[ ] a determination as to the most fundamental grievance petitioners raised," which was whether Fox's failure to utilize the legislative history of the TAA caused Marathon to obtain a less favorable outcome in the Vardoles, Blasi and Hayes matters. Second, Marathon argued that the arbitrators had exceeded their authority by deciding issues that were not subject to arbitration. Third, it asserted that opposing counsel had procured the arbitration award through fraud by "knowingly misrepresent[ing] material facts and law" during the arbitration hearing.
2. Trial court's denial of the petition to vacate
At the hearing on Marathon's petition, the trial court ruled that the language in the parties' arbitration agreement did not permit the court to review the merits of the arbitrators' decisions. Rather, according to the court, the agreement simply contained a "choice of law provision. It's just saying you apply California law." The court characterized Marathon's construction of the arbitration agreement as not "reasonable," adding that if the parties had "wanted court review, it should be much clearer in your arbitration agreement if that's what you intended."
In a subsequent written ruling, the trial court emphasized the "'extremely narrow'" scope of review applicable to arbitration awards. The court explained that Code of Civil Procedure section 1286.2 provided "the only grounds for judicial review," and Marathon had failed to demonstrate any of those grounds.
The trial court entered a judgment denying the petition to vacate the arbitration award, and awarding Fox & Spillane "$84,116.34 against Marathon pursuant to the Counterclaim in the underlying arbitration." Marathon filed a timely appeal.
DISCUSSION
On appeal, Marathon raises four primary arguments: (1) the arbitrators committed several errors of fact and law that are subject to judicial review pursuant to a specific provision in the parties' arbitration agreement; (2) the arbitrators failed to decide a fundamental issue that was properly submitted to them, (3) the arbitrators exceeded their powers by deciding issues that were not subject to arbitration; (4) opposing counsel procured the arbitration award through fraud by making misrepresentations of fact and law during the arbitration hearing.
A. Standard of Review
"The principles governing review of an arbitration award are well established. An arbitration award is final and conclusive because the parties . . . 'have agreed that it be so.' [Citation.] Only limited judicial review is available; courts may not review the merits of the controversy, the validity of the arbitrator's reasoning, or the sufficiency of the evidence supporting the award. [Citation.] Thus, with 'narrow exceptions,' an arbitrator's decision is not reviewable for errors of fact or law. [Citation.] This is so even if the error appears on the face of the award and causes substantial injustice. [Citation.]" (Shahinian v. Cedars-Sinai Medical Center (2011) 194 Cal.App.4th 987, 999-1000.)
Code of Civil Procedure section 1286.2 (section 1286.2), subdivision (a), sets forth the exclusive grounds for vacating an arbitration award. (SWAB Financial LLC v. E*Trade Securities (2007) 150 Cal.App.4th 1181, 1201; Marsch v. Williams (1994) 23 Cal.App.4th 238, 243-244 (Marsch) ["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"].) Here, Marathon asserts that the arbitration award should be vacated under section 1286.2, subdivision (a)(4), which states that the court shall vacate an award if it determines "[t]he arbitrator[ ] exceeded [her] powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted." It further alleges that the award must be vacated under subdivision (a)(1), which applies when the "award was procured by corruption, fraud or other undue means."
"In determining whether an arbitrator exceeded [her] powers, we review the trial court's decision de novo, but we must give substantial deference to the arbitrator's own assessment of [her] contractual authority. [Citations.]" (Kelly Sutherlin McLeod Architecture, Inc. v. Schneickert (2011) 194 Cal.App.4th 519, 528.) In other words, "we review de novo the [trial] court's order, but not the arbitrator's award. [Citations.]" (San Francisco Housing Authority v. Service Employees Internat. Union, Local 790 (2010) 182 Cal.App.4th 933, 944.)
B. The Parties' Arbitration Agreement Does Not Permit Judicial Review of Errors of Fact or Law
Marathon contends that the arbitrators in this case exceeded their powers by committing numerous legal and factual errors, including: (1) failing to apply a California evidentiary rule that requires the trier of fact to accept "uncontested expert testimony on the standard of care" attorneys owe their clients; (2) failing to apply several rules of contract interpretation; (3) misinterpreting the payment provision in the parties' retainer agreement; (4) misinterpreting modifications to the payment provision that are reflected in e-mails dated November 17, 2003 and January 28, 2004; (5) applying the wrong standard of review during the arbitration appeal; (6) making findings that were not supported by substantial evidence; (7) crediting Fox's billing statements as a correct measure of unpaid legal fees; (8) allowing Fox to admit certain documents in violation of "California law and procedure."
Ordinarily, an arbitrator does not exceed her powers when she renders a decision that is based on errors of fact or law (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 11 (Moncharsh), which includes questions of contract interpretation.
"When parties contract to resolve their disputes by private arbitration, their agreement ordinarily contemplates that the arbitrator will have the power to decide any question of contract interpretation, historical fact or general law(Hoso Foods, Inc. v. Columbus Club, Inc. (2010) 190 Cal.App.4th 881, 887 (Hoso).)
necessary . . . to reach a decision . . . . Arbitrators do not ordinarily exceed their contractually created powers simply by reaching an erroneous conclusion on a contested issue of law or fact . . . ."
Although Marathon acknowledges these well-established principles, it argues that the following provision in the parties' arbitration agreement expanded the permissible scope of review to include errors of fact and law:
The parties shall be entitled to reasonable discovery, and the California rules of evidence, pleading and procedure shall govern the arbitration. The arbitrator shall determine the dispute based solely on the law governing the claims at issue, and not on any other basis such as "just cause." . . . . [The appellate arbitrator] shall proceed, as far as practicable, pursuant to the laws and procedure governing civil appeals in California.
Parties to an arbitration agreement are permitted to "expand the scope of review to include errors of law [and fact] if the agreement explicitly and unambiguously provides for review on the merits." (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 173; see also Greenspan v. Ladt, LLC (2010) 185 Cal.App.4th 1413, 1439 ["the decision is not judicially reviewable for errors of fact or law unless the parties have explicitly and unambiguously agreed to an expanded scope of review"].) For example, in Cable Connection, Inc. v. DIRECTV, Inc., (2008) 44 Cal.4th 1334 (DIRECTV), the California Supreme Court held that an arbitration provision stating that "'[t]he arbitrators shall not have the power to commit errors of law or legal reasoning'" was sufficient "to take [the parties] out of the general rule that the merits of the award are not subject to judicial review." (Id. at p. 1361 & fn.20.) Although the Court declined to decide what "formulation[ ] would be sufficient to confer the expanded scope of review," it emphasized that the arbitration agreement must show the "the parties . . . clearly agree[d] that legal errors are an excess of arbitral authority that is reviewable by the courts." (Ibid.)
In this case, the parties' agreement does not contain any language that explicitly provides for review of errors of fact or law. Instead, the agreement states only that "the California rules of evidence, pleading and procedure shall govern the arbitration" and that "[t]he arbitrator shall determine the dispute based solely on the law governing the claims at issue, and not on any other basis such as 'just cause.'" The first clause is merely a choice of law provision, while the second clause prohibits the arbitrators from deciding disputed issues under principles of equity or justice. (See Moncharsh, supra, 3 Cal.4th at pp. 10-11 ['"[a]rbitrators, unless specifically required to act in conformity with rules of law, 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"].)
"[O]ur Courts of Appeal have rejected claims that review of the merits [of an arbitration award] was authorized inferentially, by contract clauses stating that . . . the arbitrator '"shall apply California law"' and '"shall be constrained by the rule of law."' [Citation.]" (DIRECTV, supra, 44 Cal.4th at p. 1345; see also id. at p. 1360 ["[a] provision requiring arbitrators to apply the law leaves open the possibility that they are empowered to apply it 'wrongly as well as rightly.' [Citation.]"].) Rather, merits review is only permitted if there is an "explicit reference to a broadened scope of judicial review of an arbitration award." (Marsch, supra, 23 Cal.App.4th at p. 245.) The parties' agreement contains no such language and, as a result, we have no authority to review the arbitration award for any alleged error of fact or law.
C. The Arbitrators Did Not Exceed Their Authority
Marathon contends that, in addition to committing errors of fact and law, the arbitrators exceeded their authority by: (1) failing to decide a "fundamental" issue regarding Marathon's malpractice claim, and (2) deciding an issue they had no authority to address.
1. The arbitrator did not exceed their authority by failing to resolve a fundamental issue regarding Marathon's malpractice claim
Marathon contends that the arbitrators failed to address "the fundamental question" presented in its malpractice claim, which was whether Fox should have argued that the Legislature's decision to repeal a criminal penalty provision in the TAA "left adjudicators without legal authority to find violations [of the Act] and mete out penalties such as voiding contracts for unlicensed procurement of employment for artists." Stated more simply, Marathon contends that: (1) Fox committed malpractice in the underlying litigation by failing to argue that the Legislature's repeal of the TAA's criminal penalty provision implicitly barred the Labor Commission (or any other adjudicative body) from voiding manager-artist contracts based on violations of the Act, and (2) the arbitrators failed to address this issue, which constituted an act in excess of their authority.
Although "the failure to decide an issue submitted to an arbitrator [may] provide[ ] a valid ground for vacating the award," (Mossman v. City of Oakdale (2009) 170 Cal.App.4th 83, 88 (Mossman)), Marathon has failed to establish that the arbitrators committed any such error.
a. Marathon has failed to present evidence that the arbitrators failed to decide any issue that was presented to them
"Under the arbitration statute . . . the burden is on the party claiming invalidity to support such claim with evidence." (National Marble Co. v. Bricklayers & Allied Craftsmen (1986) 184 Cal.App.3d 1057, 1066.) Therefore, to establish that the arbitrators failed to decide any issue submitted to them, Marathon was required to cite evidence showing that: (1) it actually presented its "criminal penalties" argument to the arbitrators, and (2) the arbitrators failed to address it.
Marathon has cited no evidence demonstrating that it presented its "criminal penalties" argument to Arbitrator Neal at any point in the arbitration hearing. Although Marathon now contends that Fox's "critical failure in challenging the TAA . . . was neglecting to point out . . . that the Legislature repealed the Act's misdemeanor penalty," the record shows that Marathon presented a different argument regarding the TAA during the arbitration hearing. Specifically, Marathon argued that Fox committed malpractice by failing to argue that the legislative history of the TAA showed that the Act did not apply to personal managers. Marathon's expert opined that if Fox had examined the legislative history, it would have seen "that personal managers were not included in the Act and intentionally excluded from the Act. The legislative history is very plain in this regard." Arbitrator Neal discussed this "applicability" claim at length and rejected it.
Based on the record before us, there is simply no evidence that Marathon ever argued to Arbitrator Neal that Fox's malpractice was predicated on failing to reference the Legislature's withdrawal of criminal penalty provisions from the TAA. If Marathon never presented this issue to Arbitrator Neal, it cannot now complain that she failed to address the matter. (See Moncharsh, supra, 3 Cal.4th at p. 30 [to preserve issue for judicial review, party must "raise [the] issue before the arbitrator" [italics omitted]].)
In its appellate arbitration brief, Marathon did not assert that Arbitrator Neal failed to address its "criminal penalty" argument. Instead, it alleged - presumably for the first time - that Fox's failure to argue that the Legislature's removal of criminal penalties "eliminated any statutory authority to penalize" violations of the TAA had "resulted in the claimants' loss of millions in commission." The argument appeared in a subdivision of its brief entitled "Had F&S Properly Integrated the Legislative History into the Constitutional Argument, [Marathon] would have prevailed in the Blasi Hayes and Vardalos Cases."
The argument also appeared in other portions of its brief.
Arbitrator Ambler interpreted the argument as relating to whether Fox's purported breach of the standard of care had caused any injury to Marathon. Ambler concluded that because there was substantial evidence that Fox did not act below the standard of care, there was no reason to reach the issue of causation. Thus, it appears that Arbitrator Ambler did consider the criminal penalty argument, and provided an explanation as to
why he need not decide it.
b. An arbitrator's failure to render express findings on a specific claim is insufficient to vacate an arbitration award
Even if we assume that Marathon properly presented its criminal penalties argument to both arbitrators, and neither of the arbitrators addressed the claim in their written rulings, that would be insufficient to vacate the award. "'[A]n arbitrator's failure to render express findings on disputed questions does not invalidate the award where . . . the award '"serves to settle the entire controversy.' [Citation.]"'" (Harris v. Sandro (2002) 96 Cal.App.4th 1310, 1313.) Indeed, "'a decision simply that one of the parties should pay the other a sum of money is sufficiently determinative of all items embraced in the submission.'" (Baldwin Co. v. Rainey Constr. Co. (1991) 229 Cal.App.3d 1053, 1058, fn. 3.)
Arbitrator Neal's written ruling found that "Claimants have not met their burden of proving that [Fox] committed malpractice in any of the underlying cases." After analyzing several alleged instances of malpractice, including Fox's failure to argue that the TAA does not apply to personal managers, Neal's opinion stated that "all arguments and claims not specifically discussed above are rejected." In her "Final Award," Arbitrator Neal stated "Claimants shall take nothing by their complaint."
Similarly, Arbitrator Ambler's appellate opinion ruled that there was substantial evidence to support "Arbitrator Neal's finding that [Fox's] conduct did not fall below the standard of care in connection with their arguments regarding the constitutionality and/or applicability of the TAA." Ambler further ruled that, although Fox's "conduct with respect to the TAA (including the legislative history) did not fall below the standard of care," Marathon's claim also failed because it had not shown that "but for the alleged negligence of [Fox], Marathon would have obtained a more favorable judgment in the Blasi and Hayes actions, or a more favorable settlement in the Vardalos action." Ambler's final award stated that "Claimants shall take nothing pursuant to their Claims."
Thus, both of the arbitration opinions decided the issue of malpractice and settled Marathon's entire arbitration claim on that issue. Even if either arbitrator had failed to provide a specific written explanation detailing why they rejected Marathon's criminal penalties argument, that would not be a proper ground for vacating the award.
We further note that Marathon's criminal penalties argument is meritless. In sum, Marathon asserts that the Legislature's decision to remove a criminal penalty provision from the TAA implicitly barred the Labor Commission or any other adjudicative body from addressing violations of the TAA or to void manager-talent contracts that violate the Act. Labor Code section 1700.44 specifically provides the Labor Commission authority to hear disputes arising under the TAA. The TAA, in turn, "defines conduct, and hence contractual arrangements, that are illegal: An unlicensed talent agency may not contract with talent to provide procurement services. [Citations.]" (Blasi, supra, 42 Cal.4th at p. 991.) Under the Civil Code, contracts based on an unlawful purpose are void. (See Civ. Code, §§ 1596, 1598, 1599.) Thus, the Labor Commission has explicit authority to hear matters arising under the TAA and to void contracts that violate the Act's provisions. The fact that the Legislature elected to remove criminal liability for violations of the TAA simply means that neither the Labor Commission nor the courts may impose criminal penalties for violations of the TAA.
2. The arbitrators did not exceed their powers by awarding Fox fees for the Hammerman matter
Marathon argues that the arbitrators exceeded their powers by "incorporate[ing] the Hammerman work, billings and payments into the written fee agreement." As we understand its argument, Marathon is asserting that the Hammerman matter is not included in the parties' arbitration agreement, and, as a result, the arbitrators had no authority to award Fox any fees for work it completed on that matter. (See, e.g., Mossman, supra, 170 Cal.App.4th at p. 88 ["An arbitrator's power to resolve a dispute extends only to those disputes submitted to the arbitrator by the parties"].)
The arbitration agreement is contained within the parties' retention agreement, which applies only to the Blasi, Hayes and Vardalos matters.
Even if we assume that the arbitrators had no authority to resolve disputes regarding the Hammerman matter, Marathon's argument fails because the final arbitration award did not incorporate any billings for that particular matter. In its counterclaim, Fox sought repayment for unpaid billings that accrued between February of 2004 and June of 2005. In the arbitration appeal, Arbitrator Ambler reviewed Fox's billing records and found that it had billed over $4,000 on the Hammerman matter during that time period. Ambler concluded that Arbitrator Neal erroneously included those fees in her final award, and reduced the award accordingly. Therefore, it is simply not the case that the arbitrators ordered Marathon to make any payment in conjunction with the Hammerman matter.
We further note that, in the arbitration proceedings, Marathon took a position that directly conflicts with the argument it presents here. Specifically, Marathon requested that the arbitrators order Fox to return over $25,000 that Marathon had allegedly paid on the Hammerman matter for work completed before the January 28 agreement. Marathon appears to re-assert that argument here, alleging that Fox promised to cap the total fees on the Hammerman matter at $7,000, but the arbitrators ignored this evidence, thereby allowing Fox to wrongfully retain "$30,000 . . . for work it alleged was done on that case." To the extent Marathon is now alleging that it presented evidence that required the arbitrators to order Fox to return payments it received for the Hammerman matter, such an argument is foreclosed by the fact that Marathon has specifically argued that the arbitrators had no authority to resolve disputes arising from the Hammerman matter. Even if the arbitrators had authority to resolve disputes involving the Hammerman matter, their decision to reject Marathon's evidence that Fox agreed to cap its total charges on the matter at $7,000 would be an issue of fact that is not subject to judicial review.
D. Marathon Has Failed to Demonstrate that the Final Award was Procured Through Fraud
Marathon next contends that the arbitration award was procured through fraud (see § 1286.2, subd. (a)(2)) because Fox made several "misrepresentations of law" and fact during the arbitration proceedings. Specifically, Marathon argues that Fox misrepresented: (1) "that issues of unconscionable fee practices and constructive fraud is not an issue of standard of care"; (2) "that finders of fact can reject the uncontroverted expert testimony in a standard of care matter," and; (3) "that the Hammerman matter should be incorporated into the Blasi/Hayes/Vardalos fee arrangement." In addition, Marathon argues that Fox misrepresented the terms of the parties' payment agreements, misstated Marathon's "monthly liability," falsely alleged that it submitted evidence contradicting Marathon's standard of care expert, and provided inconsistent statements about Jay Spillane's knowledge of the accuracy of the firm's billing documents.
Although characterized as allegations of fraud, it is apparent that, in effect, Fox is requesting that we re-weigh the evidence and revisit various legal rulings the arbitrators made during the course of the arbitration. As discussed above, we have no authority to reach such issues. (Hoso, supra, 190 Cal.App.4th at p. 887 ["'Arbitrators do not ordinarily exceed their contractually created powers simply by reaching an erroneous conclusion on a contested issue of law or fact . . .'"].)
Moreover, even if we treat these purported "misrepresentations" as acts of fraud, they are insufficient to vacate the final award. To demonstrate that a party procured an arbitration through fraud, the moving party must show that the fraud was not discoverable upon the exercise of due diligence prior to or during the arbitration. (Pour Le Bebe, Inc. v. Guess? Inc. (2003) 112 Cal.App.4th 810, 832-833.) The key is whether the party had the "opportunity to rebut or discover and reveal the purported fraud at the arbitration hearing." (Id. at p. 832.) All of the "misrepresentations" that Marathon cites were discoverable during the arbitration. In fact, all of the "misrepresentations" were disputed matters decided at the arbitration.
DISPOSITION
The trial court's order denying Marathon's petition to vacate the arbitration award and affirming the arbitration award is affirmed. Respondents are to recover their costs on appeal.
ZELON, J. We concur:
WOODS, Acting P. J.
JACKSON, J.