Currency Corp. v. Wertheim






Filed 5/20/11 Currency Corp. v. Wertheim, LLC CA2/1





NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.



IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

CURRENCY CORPORATION, Plaintiff and Appellant, v. WERTHEIM, LLC et al., Defendants and Respondents.

B222851 (Los Angeles County Super. Ct. No. BC417798)

APPEAL from an order of the Superior Court of Los Angeles County. Michael Stern, Judge. Reversed and remanded.
Smith Law Firm, Craig R. Smith; Benedon & Serlin, Douglas G. Benedon and Gerald M. Serlin for Plaintiff and Appellant.
Law Offices of Robert S. Besser, Robert S. Besser; Law Office of Anthony Kornarens and Anthony Kornarens for Defendants and Respondents.


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When a borrower and her assignee instituted arbitration proceedings against a lender pursuant to the terms of a promissory note, the lender petitioned the superior court to enjoin arbitration on the ground that no arbitration agreement existed. The court denied the petition because it found there was a factual dispute as to whether the parties had agreed to arbitrate. The matter proceeded to arbitration, where the lender renewed its objection. Evidence and argument were presented on the issue and the panel ultimately concluded the note and arbitration agreement were valid and issued an award in favor of the borrower. The borrower petitioned the superior court to confirm the award. The lender petitioned the court to vacate it, again arguing no arbitration agreement existed. The court refused to consider the lender’s argument, reasoning that the validity of the arbitration agreement had been examined and affirmed by the arbitrators. The court dismissed the lender’s petition and confirmed the award.
This was error. An arbitration award cannot be confirmed over objection absent a judicial finding at some point in the proceedings that a valid arbitration agreement exists.
BACKGROUND
Parviz Omidvar is the founder, owner and CEO of Currency Corporation (Currency) and Tiffany Ventures, LLC (Tiffany). Currency loans money to persons who own rights to royalty income payable by such entities as the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music Inc. (BMI). The loans are typically secured by the borrower’s royalty income. Omidvar’s two adult sons, Oliver and O’Neil Omidvar, participate in this business. (Omidvar, Currency, Tiffany, Oliver and O’Neil are collectively the Omidvar parties.)
David Pullman is the owner of Wertheim, LLC and the founder and CEO of Structured Asset Sales, LLC (collectively the Pullman parties). Pullman has negotiated with several of Currency’s borrowers for the assignment of their claims against the Omidvar parties.
This is the first of apparently nine appeals arising out of five lawsuits between the Pullman parties and the Omidvar parties concerning loans made by Currency to various borrowers. We glean the facts from a voluminous record containing several pleadings and the declarations of various interested persons. As there has been no trial or factual finding on any substantive issue in the instant case, the facts we recite are necessarily unsettled.
Loans
Maibell Page is the widow of Eugene Page, a highly successful songwriter, arranger and producer who died in 1998. Maibell’s two adult children, Jennifer and Christopher Page, sometimes help with her financial matters.[1]
From 1997 to 2002, Currency made at least 81 loans first to Eugene and, after he passed away, to Maibell, ranging from $46.06 to $44,326.09. The loans were usually for less than $5,000, had maturity periods of 5 to 17 months, bore compound interest at the rate of 2 percent per every 10 days, and required payment of a 20 percent administrative fee. The loans were evidenced by promissory notes and secured by an assignment of royalty payments due the Pages from ASCAP. The promissory notes were typically two or three single-spaced pages long and had several boxes for the borrower’s initials and a signature line at the end. All notes in the record from 1997 to 2002 bear Eugene’s or Maibell’s initials and signature. None contains an arbitration provision.
In March 1999, Maibell made an unsecured loan of $560,000 (from Eugene’s retirement fund) to Tiffany at an interest rate of 5 percent.
In May 2006, Pullman offered to investigate the financial transactions between Maibell and Omidvar in exchange for 50 percent of whatever he could recoup for her and an assignment of her rights to Eugene’s music catalog.
On June 2, 2006, Currency allegedly made the loan that is the subject of this action. As evidenced by the promissory note, Currency loaned Maibell $6,500 for six months at a compound interest rate of 2 percent per every 10 days, with an administrative fee of 10 percent.
Among several differences between this note and prior notes was that it contained an arbitration clause. The arbitration clause provided that all controversies arising out of or relating to the note “shall be settled by arbitration before a panel of three non-attorney arbitrators in accordance with the rules of the American Arbitration Association. The arbitration hearing is to occur within 60 (sixty) days of the filing of the demand for arbitration. The arbitrators shall decide any issue as to whether a particular claim is subject to arbitration hereunder.” (Italics added.) The copy of the note produced by Maibell bears no initials or signature.
From October 2006 to 2008, Currency made at least 14 loans to Maibell ranging from $1,494.17 to $17,000. The loans bore compound interest at a rate of 2.25 percent per every 15 days and required payment of a 10 percent administrative fee. The promissory notes typically comprised five single-spaced pages, with lines designated for the borrower’s initials and signature lines for the borrower and Currency. The 2006 to 2008 notes in the record are initialed and signed. None contains an arbitration provision.
Maibell’s Assignment to Pullman of her Claims against Omidvar
In June and August 2006, Pullman and Maibell entered into more agreements wherein Maibell assigned to Wertheim and Structured Asset Sales her royalty rights to the Eugene Page catalog as well as her rights to any claims against Omidvar or Currency. Maibell also granted Pullman full power of attorney to secure the royalty income. After Maibell sued Pullman to rescind the assignments, the royalty rights were returned to Maibell and the scope of the assignments was limited.
Actions Against Omidvar and Currency
On August 5, 2008, Wertheim filed a lawsuit on behalf of itself, Pullman and Maibell against the Omidvar parties, Los Angeles Superior Court (LASC) case number BC395819, alleging they interfered with the agreement by which Maibell had assigned her claims against them to Wertheim, misappropriated the $560,000 loaned by Maibell to Tiffany, misappropriated the royalty income from Eugene’s music catalog, made predatory loans to Maibell, and lied to her about the nature of the transactions. The case was assigned to Judge Maureen Duffy-Lewis in Department 38. After a demurrer was filed, Wertheim amended the complaint by dropping all of Maibell’s claims and asserting only its own claim for interference with contract.
In April and June 2009, Wertheim received adverse trial court rulings in several other cases it had filed against Omidvar and Currency concerning royalty-secured loans made to other individuals, not parties here, who received payments from ASCAP and BMI.
On June 8, 2009, citing the arbitration provision contained in the June 2, 2006 promissory note, Wertheim filed a demand for arbitration with the American Arbitration Association against the Omidvar parties regarding the loans Currency had made to Maibell. Wertheim alleged the nature of the dispute was: “Fraud; Conversion; Breach of Contract; Violation of Finance Lenders Act; Violation of Business and Profession[s] Code Section 17200; Breach of Contract; Elder Abuse arising from a series of loan transactions; RICCO [sic]; Racketeering; Fraud in the inducement; Fraud in the Execution; Breach of Fiduciary Duties; Constructive Trust; Money Had and Received; Civil Conspiracy; Conversion; An Accounting.” Wertheim demanded $5 million, later increasing the demand to approximately $41 million.
After objecting unsuccessfully before the AAA that no arbitration agreement existed, the Omidvar parties filed the instant lawsuit, LASC case number BC417798, against Wertheim and Maibell to enjoin the arbitration. The case was assigned to Judge Michael Stern in Department 62.
On July 16, Currency moved ex parte in Department 86 before Judge David P. Yaffe for a temporary restraining order in case number BC417798, seeking to enjoin arbitration on the ground that no arbitration agreement existed. In support of the motion, Parviz Omidvar declared Currency made no loan to Maibell in June 2006, none of the promissory notes from 1997 to 2002 contained an arbitration provision, and the June 2, 2006 promissory note alone bore no signature or initials. Currency argued that even if the arbitration provision in the June 2 note was valid, it was valid only as to the $6,500 at issue on that note, and only as to Currency, not Tiffany or the Omidvars. Finally, Currency argued the court, not the arbitrators, must in the first instance determine whether an arbitration agreement exists.
In opposition to the application for a TRO, Jennifer Page declared she witnessed Maibell sign the June 2, 2006 promissory note and Christopher Page declared Currency gave Maibell a check in June 2006 for $6,500, which he cashed.
Judge Yaffe denied Currency’s motion for a TRO, stating “there is a factual dispute as to whether [the June 2, 2006] note is in existence . . . .” The ruling was without prejudice to Currency filing a notice of related case in Department 38 and seeking relief there.
Currency thereafter filed in Department 38 (case No. BC395819): (1) A notice relating cases BC395819 and BC417798; and (2) an ex parte application in case number BC417798 for a temporary restraining order. By minute order the trial court: (1) Tabled the issue of related cases until a future case management conference; (2) took “no action on the ex parte application for temporary restraining order in BC417798 currently assigned to Department 62”; and (3) returned the parties to Department 86 for consideration of the ex parte request for a temporary restraining order. The record does not indicate whether the parties went back to Department 86.
Arbitration
The arbitration went forward, the parties offering evidence and argument regarding their claims and defenses, with Currency again objecting to jurisdiction. On August 27, 2009, the arbitration panel found the parties had “entered into a broad arbitration agreement dated June 2, 2006 granting authority to the Arbitrators to hear and decide those claims submitted in the Demand for Arbitration dated June 8, 2009.” The panel rendered an award against Currency only, granting Maibell and Wertheim $503,086 in damages, $110,000 in attorney fees and costs, $11,850 in administrative fees and expenses, and $47,186.10 in arbitrators’ fees.
Wertheim petitioned to confirm the award. Currency petitioned to vacate it, arguing the June 2, 2006 promissory note produced by Maibell was forged. Judge Stern declined to engage the issue because he felt it had already been adequately litigated, stating “The opposition to the award is nothing more than an attempt to re-litigate what has been presented to the arbitration . . . .” The court dismissed Currency’s petition, confirmed the award and entered judgment.
Currency appeals from the judgment.
DISCUSSION
To the extent the trial court’s decision on arbitrability is based upon resolution of disputed facts, we review the decision for substantial evidence. (NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 71.) We review de novo a trial court’s legal conclusions in an order confirming an arbitration award. (Greenspan v. LADT, LLC (2010) 185 Cal.App.4th 1413, 1435.)
On appeal, Currency contends the award should be vacated because (1) no judicial determination has been made that an arbitration agreement exists; (2) the arbitrators violated AAA rules; (3) the scope of arbitration should have been restricted to the $6,500 allegedly put in issue by the June 2, 2006 promissory note, the only agreement with a purported arbitration clause; and (4) inclusion of Tiffany and the Omidvars as parties prejudiced Tiffany by diverting their joint counsel’s attention and resources.
We agree with Currency’s first contention: An arbitration award cannot be confirmed absent a judicial determination that a valid arbitration agreement exists. No such determination has yet been made. We do not reach Currency’s other contentions.
A. The Requirement of an Arbitration Agreement
“Private arbitration (also called contractual or nonjudicial arbitration) ‘is a procedure for resolving disputes which arises from contract; it only comes into play when the parties to the dispute have agreed to submit to it.’ [Citation.]” (Toal v. Tardif (2009) 178 Cal.App.4th 1208, 1218.) “By agreeing to arbitration, parties anticipate a relatively speedy, inexpensive and final resolution, one that may be based on ‘“broad principles of justice,”’ rather than strictly the rule of law. [Citation.] Consequently, ‘as a general rule courts will indulge every reasonable intendment to give effect to arbitration proceedings.’ [Citation.]” (Ibid.) But “‘a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.’” (Atkinson v. Sinclair Refining Co. (1962) 370 U.S. 238, 241.) “Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.” (AT&T Technologies v. Communications Workers (1986) 475 U.S. 643, 649.)
An arbitration award “has the same force and effect as a contract in writing between the parties to the arbitration.” (Code Civ. Proc., § 1287.6.) A party may seek judicial enforcement of the award by petitioning the court to confirm it. (Code Civ. Proc., § 1285.) A petition to confirm an award is akin to a suit in equity seeking specific performance of the arbitration contract. (See Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653 [a petition to compel arbitration is a suit in equity seeking specific performance of an arbitration agreement].)
A petition to confirm an arbitration award must “[s]et forth the substance of or have attached a copy of the agreement to arbitrate . . .” (Code Civ. Proc., § 1285.4, subd. (a).) “[T]he existence of the agreement is a statutory prerequisite to granting the petition . . . .” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) Before a court may confirm an arbitration award it must find, or there must have been a prior judicial finding, that a valid arbitration agreement exists. (Toal v. Tardif, supra, 178 Cal.App.4th at p. 1221.) “[W]hen a petition to compel arbitration is filed and accompanied by prima facie evidence of a written agreement to arbitrate the controversy, the court itself must determine whether the agreement exists and, if any defense to its enforcement is raised, whether it is enforceable. . . . If the party opposing the petition raises a defense to enforcement—either fraud in the execution voiding the agreement, or a statutory defense of waiver or revocation [citation]—that party bears the burden of producing evidence of, and proving by a preponderance of the evidence, any fact necessary to the defense.” (Rosenthal, supra, 14 Cal.4th at p. 413.)
No court has yet determined that a valid arbitration agreement exists. Judge Yaffe found only that the issue was in factual dispute, and Judge Stern declined to reach the issue. Absent a judicial finding that a valid arbitration agreement exists, the trial court had no authority to confirm the award.
Respondents urge us to invoke the doctrine of implied findings to infer that Judge Yaffe considered and dismissed Currency’s forgery claim and found the agreement was valid. It argues substantial evidence supports such an implied finding. We conclude the doctrine of implied findings does not apply.
Under the doctrine of implied findings, “an appellate court must presume that the superior court impliedly found all facts in favor of the prevailing party, so long as those implied findings are supported by substantial evidence.” (Agri-Systems, Inc. v. Foster Poultry Farms (2008) 168 Cal.App.4th 1128, 1142.) But such a presumption cannot be made where the record expressly shows the court engaged in no factfinding. (Kemp Bros. Construction, Inc. v. Titan Electric Corp. (2007) 146 Cal.App.4th 1474, 1477 [“Where the record demonstrates the trial judge did not weigh the evidence, the presumption of correctness is overcome.”].) Here, Judge Yaffe expressly chose not to resolve the factual dispute over the existence of the June 2, 2006 promissory note.
Respondents also urge us to presume that Judge Stern impliedly found an arbitration agreement existed. Again, we cannot presume a trial court did that which the record amply demonstrates it did not do. Judge Stern’s only comment on Currency’s argument that the June 2, 2006 note had been forged was that the arbitrators had already determined the note to be valid. Where a trial court declines to rectify an omission that has been brought to its attention, it will not be inferred on appeal that the court decided the omitted issue in favor of the prevailing party. (See Code Civ. Proc., § 634 [pertaining to statements of decision].)
Because we conclude the doctrine of implied findings does not apply, we have no occasion to determine whether substantial evidence would support any implied finding.[2]
Citing our decision in Greenspan v. LADT, LLC, supra, 185 Cal.App.4th 1413, respondents argue a court determination of whether a valid arbitration agreement existed is unnecessary, as the arbitrators were empowered by the agreement to make the determination. The argument is without merit.
In Greenspan, the trustee of a trust filed a lawsuit against several parties concerning a dispute over the sale of trust assets. Before the lawsuit was filed, the beneficiary of the trust and the principal defendant had entered into a separate agreement concerning the sale. That agreement contained an arbitration provision stating that “[a]ny dispute as to the interpretation of this agreement shall be submitted to . . . binding arbitration.” (185 Cal.App.4th, supra, at p. 1424.) The defendants filed a petition to compel arbitration pursuant to this provision. The trustee opposed the petition, contending the trust was not party to the agreement and the arbitration clause did not encompass the causes of action in the complaint. The trial court found the parties had entered into a valid arbitration agreement and granted the petition. (Id. at p. 1425.)
During preliminary arbitration proceedings, the parties were to be governed by “JAMS Comprehensive Arbitration Rules & Procedures.” (Greenspan, supra, 185 Cal.App.4th at p. 1426.) JAMS Rule 11 authorized the arbitrator to make the final decision regarding what issues were arbitrable. (Id. at p. 1442.) The arbitrator ultimately rendered an award finding two defendants to be jointly and severally liable to plaintiff. (Id. at p. 1435.) The defendants petitioned the trial court to vacate the award and the trust petitioned to confirm it. The award was confirmed.
On appeal, the defendants argued that the issue of joint and several liability, as opposed to individual liability, was not arbitrable because the trust had not pleaded joint and several liability in its complaint. We disagreed, holding that by incorporating the JAMS rules, one of which authorized the arbitrator to decide issues of arbitrability, the parties delegated the authority to determine whether joint and several liability is an arbitrable issue. (Greenspan, supra, 185 Cal.App.4th at pp. 1442-1443.)
Respondents argue that in Greenspan we held the parties may contract to allow the arbitrators “to decide . . . even whether a valid agreement to arbitrate was made in the first place.” Not so. In Greenspan it was the trial court, not the arbitrator, that determined “the parties . . . entered into a valid agreement to submit disputes . . . to binding arbitration.” (185 Cal.App.4th at p. 1425.) The issue of who determines the validity of a purported arbitration agreement was thus not before us. (See id. at p. 1435 [setting forth the issues on appeal].) We held only that the parties may agree to leave it to the arbitrator to determine what issues are arbitrable, i.e., the scope of the agreement. (Id. at p. 1442.) “Because the parties are the masters of their collective fate, they can agree to arbitrate almost any dispute—even a dispute over whether the underlying dispute is subject to arbitration.” (Bruni v. Didion (2008) 160 Cal.App.4th 1272, 1286.) But if the party resisting arbitration claims “that it never agreed to the arbitration clause at all—e.g., if it is claiming forgery or fraud in the factum—then the court must consider that claim.” (Id. at p. 1287.)
Finally, respondents argue that Currency waived its claim that the June 2, 2006 promissory note was forged by waiting until arbitration had concluded to raise the issue. It argues that Currency contended before Judge Yaffe only that the note was invalid because it was unsigned, not that it was forged. The argument is without merit.
First, whether Currency made the argument early or late, an arbitration award cannot be confirmed over objection absent a judicial determination that an agreement to arbitrate exists. In any event, Currency contended before, during and after arbitration that Maibell had issued no promissory note dated June 2, 2006. The contention necessarily postulated that the June 2, 2006 note was forged.
Omidvar declared the June 2, 2006 agreement was forged. Jennifer Page declared it was not. A trial court must resolve the conflicting factual evidence to properly adjudicate respondents’ petition to compel arbitration. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 981.) Given this result, we need not reach Currency’s contentions regarding improprieties in arbitration.
DISPOSITION
The trial court order granting Wertheim’s petition to confirm the arbitration award and dismissing Currency’s petition to vacate the award is reversed as to both rulings. The case is remanded to the superior court with directions to determine whether an arbitration agreement exists. Costs are awarded to appellant.
NOT TO BE PUBLISHED.


CHANEY, J.
We concur:


MALLANO, P. J.


JOHNSON, J.

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