Filed 8/18/26 Alharbi Brothers v. Corona Town Farmers Market CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
ALHARBI BROTHERS, INC., D086595
Plaintiff and Respondent,
v. (Super. Ct. No. CVRI2300681)
CORONA TOWN FARMERS MARKET,
INC. et al.,
Defendants and Appellants.
APPEAL from a judgment of the Superior Court of Riverside County,
O.G. Magno, Judge. Vacated and remanded with directions but otherwise
affirmed.
Chalifoux, Brast, Thompson & Potocki and Anthony S. Chalifoux;
Niddrie Addams Fuller Singh, John S. Addams and David A. Niddrie for
Defendants and Appellants.
Denning & Grabel and Mark R. Denning for Plaintiff and Respondent.
Jamal Abdo Ali Alharbi and Musa Nasser Alharbi, on behalf of Alharbi
Brothers, Inc., entered into a business purchase agreement (BPA) with
Muhammad Ali, on behalf of Fruiticana, Inc., to buy Corona Town Farmers
Market (CTown), a grocery store. After the deal went south, Alharbi
Brothers sued Ali, Fruiticana, CTown, and Emad Abdallah, the majority
shareholder in Fruiticana (collectively, Defendants). The parties stipulated
to binding arbitration, and the arbitrator awarded damages, attorney fees,
and costs totaling $1,735,334.21 to Alharbi Brothers. He also sanctioned
Defendants for delaying his compensation.
On appeal, Defendants argue the arbitrator was statutorily barred
from serving as an arbitrator by Business and Professions Code section 6125
and State Bar Rule 2.30, which prohibit State Bar licensees from engaging in
certain activities once they become inactive. We conclude Defendants
forfeited this argument by failing to object to the arbitrator’s disclosures in a
timely fashion.
Defendants also claim the award must be vacated because the
arbitrator failed to disqualify himself after they objected to his disclosure
that he had accepted an offer to serve as a neutral in another matter
involving Alharbi Brothers’ counsel’s firm. We conclude Defendants forfeited
this argument as well by failing to object timely to the arbitrator’s disclosure
that he would entertain such offers during the arbitration. But even on the
merits, this claim fails, as an arbitrator’s disclosure that the arbitrator has
accepted an offer of employment from a party or a party’s counsel, standing
alone, does not require the arbitrator’s disqualification.
Defendants contend the arbitrator exceeded his authority by concluding
that they were alter egos of one another when alter ego liability was not pled
in the complaint, specified as an issue for the arbitrator to decide, or argued
during the arbitration. We determine, however, that the complaint pled
sufficient facts to put Defendants on notice that Alharbi Brothers sought to
hold them all liable for acts even if taken by others. Further, Defendants
were all represented by the same counsel and participated in the arbitration.
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Nor was alter ego expressly excepted from the issues the parties agreed the
arbitrator could decide. We thus conclude the arbitrator’s findings did not
exceed his authority.
Defendants further argue the arbitrator exceeded his authority by
awarding Alharbi Brothers punitive damages when Alharbi Brothers did not
argue entitlement to punitive damages during the arbitration. But because
punitive damages were pled in the complaint and within the authority
granted to the arbitrator, we discern no such transgression here. Nor was
the arbitrator barred from awarding punitive damages by the rules that
governed the arbitration.
Finally, Defendants claim the arbitrator exceeded his authority by
sanctioning them without notice. We agree. Accordingly, we vacate the order
confirming the arbitration award and the judgment and direct the trial court
to confirm the award as to all but the sanctions and enter judgment
accordingly.
As modified, we affirm the judgment in all other respects.
I.
A.
In August 2021, Fruiticana, through its manager and CEO, Ali, listed
CTown for sale through a real estate agent. Ali is also president and CEO of
CTown. Abdallah, who is registered to do business as
CTownFarmersMarket, owns 51% of Fruiticana. Fruiticana and CTown are
parties to a management and operation agreement.
The real estate agent knew Alharbi Brothers, Inc. was in the market to
purchase a grocery store and arranged for the parties to negotiate. Alharbi
Brothers made an offer that resulted in the parties entering into the BPA.
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The BPA was between Jamal and Musa on behalf of Alharbi Brothers
and Ali on behalf of Fruiticana. It contains an arbitration clause providing
that “[t]he Parties agree that any dispute or claim in law or equity arising
between them out of this [BPA] or any resulting transaction, which is not
settled through mediation, shall be decided by neutral, binding arbitration
. . . . The arbitrator shall be a retired judge or justice, or an attorney with at
least 5 years of residential real estate Law experience, unless the parties
mutually agree to a different arbitrator.”
Alharbi Brothers deposited funds into escrow and began its due
diligence and initiated the lending process. The process revealed, however,
that CTown’s financial data contradicted its profit and loss reports as well as
its tax returns. While Alharbi Brothers qualified for the loan, Fruiticana and
CTown did not. Fruiticana refused to reconcile its inconsistent financial
records. Accordingly, the bank offered restructured loan options that
reflected a significant reduction in loan funds.
Alharbi Brothers then learned the lease on the property on which
CTown was operated was in the name of Abdallah rather than Fruiticana.
Abdallah approached the landlord about assigning the lease to Alharbi
Brothers, but the landlord was upset to learn the lease was in Abdallah’s
name rather than Fruiticana’s and began eviction proceedings. Escrow was
suspended until this eviction-related litigation was ultimately dismissed.
Allegedly believing Alharbi Brothers was not qualified to purchase
CTown, Abdallah demanded the BPA and escrow be cancelled. By this point,
Fruiticana was no longer cooperating with the transaction either.
B.
In February 2023, Alharbi Brothers sued CTown, Abdallah, Fruiticana,
and Ali for specific performance, breach of contract, breach of the implied
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covenant of good faith and fair dealing, intentional interference with
prospective economic advantage (IIPEA), and declaratory relief.
The complaint alleges Fruiticana, Abdallah, and CTown were “in a
de[ ]facto partnership.” All claims were brought against all Defendants
except the IIPEA claim, which was brought against Ali and Abdallah only. In
the complaint, Alharbi Brothers sought punitive damages for IIPEA. The
complaint also sought a declaration that all Defendants were parties to the
BPA and thus obligated to arbitrate the matter.
Not long after, the parties stipulated to withdraw the cause of action
for breach of the implied covenant of good faith and fair dealing but agreed to
incorporate the paragraphs pleading it into the cause of action for breach of
contract. Defendants answered together, all represented by the same
counsel.
The parties attempted to mediate the matter without success.
In January 2024, the parties filed a joint stipulation to proceed with
arbitration and to stay the court proceedings. The court ordered the parties
“to submit . . . to full and binding arbitration with Donald Cripe of CAMS
Mediation and Arbitration Services, in accordance with such organization’s
Rules and Procedures.”
C.
Before the court’s order, the parties had begun the arbitration process.
In September 2023, Alharbi Brothers’ counsel suggested either Donald Cripe
or another candidate as a potential arbitrator, to which counsel for the
Defendants replied, “Mr. Cripe is fine.”
In late October, the arbitrator e-mailed counsel for all parties,
indicating the arbitration would be “pursuant to California Law, the AAA
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Consumer Rules[,] and the Arbitration agreement that controls.” The e-mail
included the arbitrator’s disclosures and oath.
The October 2023 disclosures specified the arbitrator had been
previously engaged to mediate and arbitrate matters for Alharbi Brothers’
counsel’s firm. In response to a question asking whether the arbitrator would
“entertain offers of employment or new professional relationships in any
capacity other than as a lawyer, expert witness, or consultant from a party or
a lawyer for a party, including offers to serve as a dispute resolution neutral
in another case,” the arbitrator responded, “If I am invited to serve in another
case by any firm/attorney involved in this matter, it will be disclosed and the
parties to this case will have an opportunity to object.” In another response
to a question asking whether he had ever resigned his membership in the
State Bar while disciplinary charges were pending, the arbitrator responded
no but indicated he “recently resigned from the State Bar for Retirement
from law practice.”
In late November, the parties fully executed the CAMS Agreement to
Arbitrate and Stipulation to Jurisdiction. The agreement noted arbitration
was binding and identified the following issues to be determined by the
arbitrator: “The enforcement of a purchase agreement for a grocery store
business that has leased premises and breach thereof. Then damages arising
therefrom, and reduction of purchase price based on breach and/or delay.
Plaintiffs seek performance and damages, and defendants deny said claims.”
As to the arbitrator’s jurisdiction, the CAMS Agreement specified: “Purchase
Agreement has arbitration clause for the above said issues, and arbitrator
can adjudge as to all issues, including awarding or denying specific
performance, claims of breach, and mon[e]tary damages.” The agreement
further specified that “the arbitration shall be conducted pursuant to the
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Civil Arbitration Procedures and Rules as articulated in the California Code
of Civil Procedure or, at the Arbitrator’s discretion, the Rules of the American
Arbitration Association.”
In December, the arbitrator issued a scheduling order providing that
“[t]he last date for either party to ‘increase or decrease the amount of its
claim or counterclaim’” was February 9, 2024, at which point the amount
“will be fixed at the amounts set forth in [the party’s] most recent timely
pleading.”
In late February 2024, the arbitrator informed the parties by e-mail
that he “ha[d] been invited to serve as a mediator, and ha[d] accepted the
invitation, in a different AAA case unrelated to this one, that involves
[Alharbi Brothers’ counsel]’s firm.” In early March, Defendants’ counsel
indicated she was objecting to the arbitrator’s service given the other matter.
The same day, the arbitrator responded that he would “not voluntarily recuse
for there is no basis to do so.” He stated, “The argument I have seen is
because I have handled cases with an attorney from one side I must be
recused. One wonders how that would play if an attorney filed a
[section] 17[0].6 motion against a judge for the same reason. Simply put,
there is no bias and no basis for recusal.” The record contains no further
communication on this matter.
Alharbi Brothers’ July 2024 arbitration brief requested specific
performance with financial offsets or, alternatively, damages for breach.
Alharbi Brothers also argued “Defendants should not benefit from their bad
faith acts and omissions” and Plaintiff “should be awarded specific
performance and damages.”
The arbitration occurred over a period of four days: three days in mid-
July 2024, followed by a final day on September 10.
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The parties submitted final briefing on September 17. Defendants’
closing brief is not part of the appellate record. Alharbi Brothers’ closing
brief sought specific performance of the contract and “damages to offset the
increased financing costs . . . and to compensate for lost profits.”
In October 2024, the arbitrator issued an interlocutory arbitration
award in favor of Alharbi Brothers and against Defendants.
Several weeks later, counsel for Defendants submitted a letter brief
titled “Errors in award claimed by Defendants.” Defendants argued that the
award in favor of Alharbi Brothers on breach of the implied covenant of good
faith and fair dealing was error because the parties had stipulated to that
claim’s dismissal. Because only Fruiticana and Alharbi Brothers were
parties to the BPA and “[t]he arbitrator is bound by the four corners of the
Complaint,” which “did not allege alter ego,” Defendants claimed “[t]here was
no evidence presented” on this issue and so “the award reaches beyond the
allegations.” Finally, Defendants contested the award of punitive damages
given the lack of “evidence presented to impose liability” and the prayer for
relief sought only punitive damages against Ali and Abdallah, neither of
whom was “a signatory to the BPA.”
Alharbi Brothers opposed what it titled Defendants’ “Demand for
Corrections.” Later that month, the arbitrator issued a ruling granting
Defendants’ request as to breach of the implied covenant but otherwise
denying Defendants’ request.
D.
The arbitrator explained his findings in the Clarified Final Binding
Arbitration Award. Beginning with the Alharbis, he found Jamal and Musa
“very credible.” He found the real estate agent to be a credible historian of
the transaction. He found Alharbi Brothers’ expert on the loan transaction to
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be “highly credible.” The arbitrator concluded Ali “destroyed” what
credibility he had initially established. He found Abdallah credible as to his
relationship with Fruiticana. The landlord was “reasonably credible,” but
Fruiticana’s CFO was “not credible.”
Based on the “substantial evidence elicited during the arbitration
regarding the operation of the corporation, Fruiticana,” which “illuminated
the noncompliance with corporate expectations giving rise to corporate
protections,” the arbitrator found it appropriate to pierce the corporate veil
and hold all Defendants jointly and severally liable for “the conduct of the
corporations.” The arbitrator noted that “this issue was addressed obliquely
during the arbitration” but concluded “it clearly was addressed” and
accordingly “presented as an issue to the arbitrator.”
Although Fruiticana “was not sufficiently ‘unique’ to support an award
of Specific Performance,” the arbitrator found the BPA was a binding contract
and “overwhelming” evidence showed that Fruiticana and CTown “breached
the BPA” with “malicious intent.” The arbitrator awarded Alharbi Brothers
two years of lost profits, totaling $936,000, for the breach claim.
The arbitrator found Defendants liable for IIPEA. Ali “and possibly
others” formed a separate entity that purchased the property on which
CTown was located from the landlord. The entity then entered into a new
lease with “CTown/Fruiticana” with “rent approximately five times the rate
of the lease at the time the BPA was executed” so the lease assigned to
Alharbi Brothers as part of the sale would be at a higher rate that would
benefit Defendants. The arbitrator awarded Alharbi Brothers $250,000 “as
direct and consequential bad faith damages.”
“Though no direct evidence of the financial condition or the ability for
Defendants to respond to a punitive/exemplary damages award” was
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presented, the arbitrator found that “there was ample collateral evidence of
the ability of Defendants to respond to this Award.” Because Defendants’
acts were performed “willfully, unlawfully, and maliciously,” the arbitrator
awarded Alharbi Brothers an additional $500,000 in punitive damages. The
arbitrator also awarded Alharbi Brothers the $68,000 held in escrow, with
interest from the date of deposit; and attorney fees and costs in the amount of
$49,334.21 under the BPA.
All told, the arbitrator awarded Alharbi Brothers damages, costs, and
fees in the combined sum of $1,735,334.21.
The arbitrator also sanctioned Defendants $1,822.50, payable to him,
for being dilatory in resolving issues involving his compensation.
E.
On November 25, 2024, Alharbi Brothers filed a petition to confirm the
arbitration award in court.
Defendants twice attempted to file a petition to vacate the award, but
their filings were rejected. We deny Defendants’ motion to consider
additional documentary evidence—namely, their first rejected petition—as
unnecessary to our decision.
On December 19, Defendants successfully filed their petitions to vacate
the arbitration award. It appears each Defendant filed a separate but
substantively identical petition. Alharbi Brothers objected to the petitions.
A hearing on the petitions to confirm and vacate was held in
February 2025. Before the hearing, the court issued a tentative ruling
confirming the arbitration award and denying the petitions to vacate. After
hearing argument from both sides, the court ordered the tentative ruling to
become the final ruling.
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The trial court concluded the arbitrator was not required to disqualify
himself. Defendants failed to object timely to the disclosures that he had
resigned from the State Bar and that the arbitrator would continue to accept
offers to serve as a neutral in other unrelated matters involving the parties or
their counsel. As to the alter ego and punitive damages issues, the court
concluded that these “determination[s] of fact and application of law . . . were
within the purview of the arbitrator’s power[s].”
II.
In private arbitration, like here, “the scope of arbitration is a matter of
agreement between the parties, and the powers of an arbitrator are limited
and circumscribed by the” arbitration agreement. (Moncharsh v. Heily &
Blase (1992) 3 Cal.4th 1, 8-9 [cleaned up].) “[U]nless specifically required to
act in conformity with rules of law,” arbitrators “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.” (Id. at pp. 10-11 [cleaned up].) Thus, “it is the general rule
that [t]he merits of the controversy between the parties are not subject to
judicial review,” and “courts will not review the validity of the arbitrator’s
reasoning.” (Id. at p. 11 [cleaned up].) “In other words, it is within the power
of the arbitrator to make a mistake either legally or factually. When parties
opt for the forum of arbitration they agree to be bound by the decision of that
forum knowing that arbitrators . . . are fallible.” (Id. at p. 12 [cleaned up].)
“Any party to an arbitration in which an award has been made may
petition the court to confirm, correct[,] or vacate the award.” (Code Civ. Proc.,
§ 1285.) The court “shall confirm the award as made” unless, as relevant
here, it vacates the award because the arbitrator “exceeded their powers and
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the award cannot be corrected without affecting the merits of the decision
upon the controversy submitted.” (§§ 1286, 1286.2(a)(4).)
We review de novo the superior court’s order on whether the arbitrator
exceeded its authority—but we do not review the arbitrator’s award itself.
(Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376, fn. 9.)
Public policy strongly favors arbitration as a means to expeditiously and
finally resolve disputes and avoid the courts, so courts “indulge every
intendment to give effect to such proceedings.” (Moncharsh, 3 Cal.4th at p. 9
[cleaned up].) Accordingly, “arbitration awards are generally subject to
extremely narrow judicial review. Courts will not review the merits of the
controversy, the validity of the arbitrator’s reasoning[,] or the sufficiency of
the evidence supporting the arbitrator’s award.” (Hoso Foods, Inc. v.
Columbus Club, Inc. (2010) 190 Cal.App.4th 881, 887.)
A.
As an initial matter, Alharbi Brothers argues we can affirm the trial
court’s judgment without reaching the merits because Defendants’ petitions
to vacate were untimely and the applicable deadlines are “strictly enforced.”
The Supreme Court, however, has unequivocally held that the applicable
“deadline for seeking vacatur of an arbitral award is a nonjurisdictional
statute of limitations that is subject to equitable tolling and equitable
estoppel.” (Law Finance Group, LLC v. Key (2023) 14 Cal.5th 932, 959-960.)
Here, the trial court appropriately exercised its discretion to accept
Defendants’ late-filed petitions to vacate. This is therefore not a basis for
affirmance.
B.
Defendants argue vacatur is required because the arbitrator failed to
disclose that he was statutorily ineligible to serve as a private arbitrator;
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because of that ineligibility, they claim any acts he took as an arbitrator
necessarily exceeded his authority. We conclude Defendants failed to object
timely on this basis and accordingly forfeited the issue.
Although the relevant statute and the parties phrase this as a waiver,
the word “waiver” has “been loosely used at times, including in the
disqualification context, to signify what is properly understood as a
forfeiture.” (North American Title Co. v. Superior Court (2024) 17 Cal.5th
155, 177.) “When a party does not raise an objection in the manner required,
their failure to do so, without more, constitutes a forfeiture, not a waiver.”
(Id. at p. 178.) Accordingly, we use the term “forfeiture” instead.
(See Goodwin v. Comerica Bank, N.A. (2021) 72 Cal.App.5th 858, 867, fn. 8
[noting section 1281.91(c) “uses the term ‘waived,’ but it is clear in context
that the Legislature meant ‘forfeited’”].)
“No person shall practice law in California unless the person is an
active licensee of the State Bar.” (Bus. & Prof. Code, § 6125.) State Bar
Rule 2.30(b) relevantly provides that any State Bar licensee who occupies “a
position wherein [the licensee] is called upon to give legal advice or counsel or
examine the law or pass upon the legal effect of any act, document or law”
cannot “be enrolled as an inactive licensee.” Rule 2.30(c) makes an exception
for “a licensee serving for a court or any other governmental agency” in certain
positions, including as an arbitrator. (Italics added.)
Defendants argue Alharbi Brothers forfeited any challenge based on
the arbitrator’s licensure status by failing to respond timely to the
arbitrator’s disclosure that he had transitioned to inactive status. We agree.
“In any arbitration pursuant to an arbitration agreement, when a
person is to serve as a neutral arbitrator, the proposed neutral arbitrator
shall disclose all matters that could cause a person aware of the facts to
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reasonably entertain a doubt that the proposed neutral arbitrator would be
able to be impartial.” (Code Civ. Proc., § 1281.9(a).) A proposed neutral
arbitrator who complies with this requirement “shall be disqualified on the
basis of the disclosure statement” if any party serves a notice of
disqualification “within 15 calendar days after service of the disclosure
statement.” (§ 1281.91(b)(1).) “[U]nless the proposed [arbitrator] makes a
material omission or material misrepresentation in [the] disclosure,” a party
who fails to serve a disqualification notice within 15 days loses the right to
disqualify the arbitrator under this section. (§ 1281.91(c).)
Here, the arbitrator disclosed in October 2023 that he had “recently
resigned from the State Bar for Retirement from law practice.” This
disclosure did not contain a material omission or misrepresentation.
Defendants did not serve a notice of disqualification based on this disclosure
within 15 days. Accordingly, Defendants forfeited their right to disqualify
the arbitrator on this ground.
Defendants’ contrary claims do not persuade us.
Defendants argue the arbitrator’s disclosure “was ambiguous and
misleading” because “[h]e did not disclose . . . under . . . State Bar
Rule 2.30(B)[ that] the resignation meant he could no longer serve as an
arbitrator.” But we perceive nothing ambiguous about the disclosure, as it
made clear the arbitrator was no longer an active licensee. And we see no
reason why the arbitrator was required to mention State Bar Rule 2.30 in his
disclosures. Defendants were represented by counsel, and the State Bar
Rules are publicly available. (Rules of the State Bar
<https://www.calbar.ca.gov/legal-professionals/rules/rules-state-bar> [as of
August 18, 2026].) Regardless of what Defendants may have actually known,
“[g]enerally, an attorney’s knowledge is imputed to [the] client,” “and an
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attorney is presumed to know the laws and rules of procedure which govern
the forms of litigation, the legal remedies, which [the attorney] selects and
pursues.” (Strong v. Sutter County Bd. of Supervisors (2010) 188 Cal.App.4th
482, 498 [cleaned up].)
Defendants also argue that “if Rule 2.30’s limitation on [the
arbitrator]’s authority to act as an arbitrator is jurisdictional, it cannot be”
forfeited. While Defendants argue, relying on section 170.6, that a
disqualified arbitrator lacks jurisdiction over the parties to an arbitration,
the arbitrator here was not disqualified. Defendants cite no law, nor have we
located any, for the proposition that Rule 2.30 and section 6125 are
jurisdictional, much less that an inactive licensee lacks jurisdiction over the
parties to an arbitration. If parties may agree to have a nonlawyer act as an
arbitrator (Code Civ. Proc., § 1141.18), we fail to perceive how or why an
arbitrator’s licensure status affects the arbitrator’s jurisdiction to serve as an
arbitrator or violates public policy.
Because Defendants did not timely disqualify the arbitrator, they
forfeited this issue.
C.
Defendants claim the arbitrator was required to disqualify himself
after their counsel objected to him accepting an offer to serve as a mediator in
an unrelated matter involving Alharbi Brothers’ counsel’s firm. Once again,
Defendants’ failure to object timely on this basis forfeited the issue. But even
on the merits, the arbitrator was not required to disqualify himself on this
record.
Under section 1286.2(a)(6)(B), a court “shall vacate” an arbitration
award if the arbitrator “was subject to disqualification upon grounds specified
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in Section 1281.91 but failed upon receipt of [a] timely demand to disqualify
himself or herself.” (Italics added.)
Defendants forfeited this ground for disqualification. One of the
questions in the initial disclosure form asked whether, while the arbitration
was pending, the arbitrator would “entertain offers of employment or new
professional relationships in any capacity . . . from a party or a lawyer for a
party, including offers to serve as a dispute resolution neutral in another
case.” (Italics added.) He responded, “I am a professional ADR service
provider” who “mediate[s] and arbitrate[s] many cases a year . . . . If I am
invited to serve in another case by any firm/attorney involved in this matter,
it will be disclosed and the parties to this case will have an opportunity to
object.” If Defendants were opposed to the arbitrator serving as a neutral in
other matters involving Alharbi Brothers’ counsel, they should have served a
notice of disqualification within 15 days of that October 2023 disclosure.
They failed to do so. Accordingly, they forfeited the issue. (§ 1281.91(c).)
At any rate, because the arbitrator informed the parties of his offer and
acceptance of employment as a neutral by Alharbi Brothers’ counsel’s firm,
under California’s Ethics Standards for Neutral Arbitrators in Contractual
Arbitration, he was “not subject to disqualification under standard 10(a)(2),
(3), or (5) solely on the basis of that offer or [his] acceptance of that offer.”
(Std. 12(d)(3)(C), italics added.) Standard 10(a)(5) concerns the reason for
disqualification Defendants invoke on appeal—“[i]f any ground specified in
Code of Civil Procedure section 170.1 exists and the party makes a demand
that the arbitrator disqualify himself or herself” under section 1281.91(d).
Because Defendants sought to disqualify the arbitrator solely based on
his acceptance of an offer to serve as a neutral in a matter involving the firm
of Alharbi Brothers’ counsel, under the Ethics Standards, the arbitrator was
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not subject to disqualification. Accordingly, the arbitrator’s refusal to
disqualify himself on this basis is not grounds to vacate the arbitration
award.
D.
Defendants contend the arbitrator exceeded his authority in holding
them all liable jointly and severally on an alter-ego basis because (1) except
for Fruiticana, they were not signatories to the BPA, and they stipulated to
arbitrate only the claims and remedies as to which Alharbi Brothers put
them on notice; (2) the complaint did not allege alter ego liability; and
(3) alter ego is beyond the scope of the issues the parties agreed were
arbitrable. We disagree.
1.
Abdallah, Ali, and CTown were not parties to, and accordingly could
not be forced to submit to arbitration under, the BPA. But Defendants’
counsel later executed a joint stipulation under which “[Alharbi Brothers], on
the one hand, and Defendants, on the other hand, and each of them, have
agreed to submit the present case for mediation and arbitration.” (Italics
added.) While Defendants reserved the right to “claim they are not bound to
the” BPA’s arbitration provision, they nonetheless stipulated “to proceed with
binding arbitration.”
A different division of this court found such attorney-signed
stipulations to arbitrate binding on parties who did not personally sign them
where the parties ratified the stipulation by conducting themselves
“consonant with a binding arbitration.” (Rivera v. Shivers (2020)
54 Cal.App.5th 82, 93.) Here, Defendants were represented at and
participated in the arbitration proceeding at all times through the same
counsel. The record contains no indication Defendants intended not to be
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bound to the stipulation to arbitrate until after the award was made against
them. Rather, they conducted themselves consistently with binding
arbitration.
Accordingly, we conclude Defendants voluntarily submitted themselves
to the arbitrator’s jurisdiction.
2.
We further determine Defendants were on notice of the possibility they
would be held liable on an alter ego theory. “‘To recover on an alter ego
theory, a plaintiff need not use the words “alter ego,” but must allege
sufficient facts to show a unity of interest and ownership, and an unjust
result if the corporation is treated as the sole actor.’” (A.J. Fistes Corp. v.
GDL Best Contractors, Inc. (2019) 38 Cal.App.5th 677, 696.)
Here, the complaint alleges many irregularities in the business of
CTown, Fruiticana, Ali, and Abdallah. For example, during due diligence, “it
was discovered that SBA Loans were secured on the personal property for
C Town, but the named debtor was Corona Town,” while “the Franchise Tax
Board and other government agencies . . . listed/named Fruiticana as the
owner of C Town.” Further, “it was discovered that the Fruiticana did not
have a proper lease for C Town premises”; instead, “the lease for C Town was
actually in the name of Defendant [Abdallah], in his individual capacity. It is
upon information and belief that [Abdallah] as an individual and in his
capacity as officer for Corona Town, had previously sold C Town to Fruiticana
without getting consent from the Landlord of the premises to which C Town
is located and operates from, and without abiding by the proper notice
requirements to creditors.” The complaint further alleges on information and
belief “that Defendant Fruiticana, [Abdallah], and Corona Town are in a
defacto partnership, whereby Defendant Fruiticana owns and operates
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C Town, and [Abdallah] holds the lease, and Corona Town owns or holds an
interest in certain personal property that is part of the overall business of
C Town. Accordingly, the named defendants shall be referenced herein as
Defendant[] Sellers.” “Based on . . . information and belief, it is further
alleged that after entering the [BPA], Defendant [Ali] tried to purchase the
real property where C Town is located from the Landlord, in the name of a
different entity so that they could quickly enter a new lease between the
newly created shell entity and Defendant Sellers at a higher rental rate and
then assign said new lease for C Town to Plaintiff with that higher rental
rate.” These allegations suggest unity of interest and ownership and an
unjust result should Defendants not be held liable together.
The complaint also pleads the BPA is “between [Alharbi Brothers] and
Defendants” and seeks a declaration of “the rights and obligations of the
Defendant Sellers and” Alharbi Brothers. (Italics added.) Given only
Fruiticana was a signatory to the BPA, the allegations were sufficient to put
Defendants on notice that Alharbi Brothers sought to hold all Defendants
liable for the acts of one another. Coupled with the other allegations, this put
Defendants on notice that alter ego liability was on the table. Whether
sufficient evidence of alter ego liability was presented is not open to review.
(Moncharsh, 3 Cal.4th at p. 11.)
3.
Alter ego liability is also fairly encompassed within the issues the
parties agreed to arbitrate.
“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 necessary, in the arbitrator’s understanding of the case, to reach
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a decision.” (Gueyffier v. Ann Summers, Ltd. (2008) 43 Cal.4th 1179, 1184.)
“An exception to the general rule assigning broad powers to the arbitrators
arises when the parties have, in either the contract or an agreed submission
to arbitration, explicitly and unambiguously limited those powers.” (Id. at
p. 1185.) “The scope of an arbitrator’s authority is not so broad as to include
an award of remedies ‘expressly forbidden by the arbitration agreement or
submission.’” (Ibid.)
The BPA does not, as Defendants claim, “preserve[] each party’s right
to have the courts decide all equitable and provisional remedies,” including
alter ego liability. Rather, the BPA’s arbitration provision expressly provides
that “[t]he Parties agree that any dispute or claim in law or equity arising
between them out of this Agreement or any resulting transaction, which is
not settled through mediation, shall be decided by neutral, binding
arbitration.” (Italics added.) The BPA therefore does not preclude the
arbitrator from reaching the equitable issue of alter ego.
Nor does the CAMS Agreement prevent the arbitrator from making
alter ego findings. In the CAMS Agreement, the parties indicated the issues
for arbitration were “[t]he enforcement of a purchase agreement for a grocery
store business that has leased premises and breach thereof. Then damages
arising therefrom, and reduction of purchase price based on breach and/or
delay. Plaintiffs seek performance and damages, and defendants deny said
claims.” As to the arbitrator’s jurisdiction, the CAMS Agreement provided:
“Purchase Agreement has arbitration clause for the above said issues, and
arbitrator can adjudge as to all issues, including awarding or denying specific
performance, claims of breach, and monetary damages.” Making alter ego
findings is well within the broad scope of these provisions and is not
expressly excluded from the arbitrator’s powers.
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Accordingly, the arbitrator did not exceed his authority in finding all
Defendants liable as alter egos of one another.
E.
Defendants claim the arbitrator exceeded his authority in awarding
punitive damages. We conclude otherwise.
As noted above, an arbitrator’s authority is generally construed
broadly. Defendants concede punitive damages were prayed for in the
complaint. They were accordingly on notice that such damages were at issue.
And the broad language of the CAMS Agreement—which gives the arbitrator
jurisdiction to adjudge “monetary damages”—does not specifically preclude
the recovery of punitive damages. Awarding punitive damages was thus
within the arbitrator’s purview.
Yet Defendants argue awarding punitive damages “violated both the
AAA rules and [the arbitrator’s] own rules of procedure” because punitive
damages were requested by Alharbi Brothers in neither its opening nor
closing arbitration briefs. We grant Defendants’ unopposed request that we
judicially notice the AAA Commercial Arbitration Rules and AAA Consumer
Arbitration Rules. (Evid. Code, § 452(h); Boghos v. Certain Underwriters at
Lloyd’s of London (2005) 36 Cal.4th 495, 505, fn. 6 [judicially noticing AAA
rules].)
To the extent Defendants rely on the AAA Consumer Arbitration Rules,
however, they do not apply—as they themselves recognize, the arbitrator’s
invocation of these rules was likely a typographical error. And to the extent
Defendants rely on rule R-4(a)(iv)(d) of the AAA Commercial Arbitration
Rules, their focus is misplaced. Rule R-4 details the filing requirements and
procedures that apply to the parties. “Absent an express and unambiguous
limitation in the submission to arbitration, an arbitrator has the authority to
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award any relief rationally related to [the arbitrator’s] factual findings.”
(Emerald Aero, LLC v. Kaplan (2017) 9 Cal.App.5th 1125, 1140 [cleaned up].)
While Emerald Aero vacated an arbitration award where punitive damages
were never requested in the complaint and only requested by a party roughly
24 hours before the hearing, here, the arbitrator exercised his authority to
make an award of damages requested but not subsequently pursued by the
party. Emerald Aero is accordingly distinguishable in that Defendants had
notice in the complaint of the possibility of punitive damages, which the
arbitrator ultimately awarded without further request from Alharbi Brothers.
Defendants also argue the award is problematic in awarding punitive
damages against all Defendants but awarding damages on the IIEPA claim
only against CTown, Abdallah, and Ali. They argue this makes it “unclear
whether the arbitrator attempted to award punitive damages on the breach
of contract claim, awarded them under the [IIEPA] claim, or both.” They
further note punitive damages were pled in the complaint against only
Abdallah and Ali. But we have affirmed the arbitrator’s alter ego findings,
which permitted the arbitrator to hold all Defendants liable for punitive
damages regardless of whether each Defendant was found independently
liable for the underlying tort.
Defendants further argue the punitive damages award is flawed
because, in the arbitrator’s own words, he “considered only ‘collateral
evidence of the ability of Defendants to respond to this Award.’” This
argument, however, essentially challenges the sufficiency of the evidence
underlying the award, and “a court may not review the sufficiency of the
evidence supporting an arbitrator’s award.” (Moncharsh, 3 Cal.4th at p. 11.)
To the extent Defendants suggest this is a due process issue, “the
fundamental fallacy resides in [their] basic premise[] that due process
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requires judicial review of private arbitral awards of punitive damages,”
which “misconceives the applicability of the due process clause” to private
arbitration. (Rifkind & Sterling, Inc. v. Rifkind (1994) 28 Cal.App.4th 1282,
1291.)
Accordingly, we perceive no grounds to vacate the punitive damages
award.
F.
Finally, Defendants argue the arbitrator exceeded his authority in
sanctioning them without notice. In their briefing, Alharbi Brothers did not
take a position on this issue. We conclude that, while the arbitrator exceeded
his authority in this respect, it does not warrant vacating the entire
arbitration award.
Although Defendants did not raise this issue below, we exercise our
discretion to address this pure question of law on undisputed facts. (Fort
Bragg Unified School Dist. v. Colonial American Casualty & Surety Co.
(2011) 194 Cal.App.4th 891, 907.)
“An arbitrator exceeds his powers by conducting an unfair proceeding.”
(Emerald Aero, 9 Cal.App.5th at p. 1142.) “Thus, ‘arbitration procedures that
interfere with a party’s right to a fair hearing are reviewable on appeal.’”
(Ibid.) “Notice and an opportunity to be heard are essential ingredients to a
fair hearing, and these principles apply to arbitration hearings.” (Ibid.)
Under the AAA Commercial Arbitration Rules applicable to this
proceeding, “[t]he arbitrator must provide a party that is subject to a sanction
request with the opportunity to respond prior to making any determination
regarding the sanctions application.” (Rule R-60(b).) The record here lacks
any indication Defendants received notice of, much less a chance to be heard
on, the sanctions issue the arbitrator seemingly raised on his own.
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Accordingly, the procedure by which the arbitrator imposed sanctions was
unfair and therefore exceeded his authority. We conclude, however, the
award can be corrected without affecting its merits by striking the sanctions
award. (Code Civ. Proc., § 1286.6(b).)
III.
We reverse the order confirming the arbitration award to the extent it
confirms the arbitrator’s award of sanctions against Defendants and vacate
the judgment. On remand, we direct the trial court to vacate the portion of
the arbitration award issuing sanctions against Defendant but otherwise
confirm the award and enter judgment accordingly. As modified, the
judgment is affirmed in all other respects. The parties shall bear their own
costs on appeal. (Cal. Rules of Court, rule 8.278(a)(3).)
CASTILLO, J.
WE CONCUR:
MCCONNELL, P. J.
O’ROURKE, J.
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