Massa v. Ruskin

Filed 8/29/06 Massa v. Ruskin CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

Allen J. Ruskin appeals from a judgment enforcing an arbitration award ordering him to pay Kenneth Massa, doing business as Massa Construction Company, the general contractor who built his home, the balance due for work performed plus statutorily authorized penalties, attorney fees and costs. Ruskin challenged the arbitrator's award on various grounds, including the three he pursues on appeal: that the arbitrator failed to disclose information indicating a bias, that the parties had not agreed to an arbitration that would be binding, and that the award of statutory penalties exceeded the arbitrator's authority. These arguments were rejected by both the arbitrator and the superior court. We too reject them and shall affirm the judgment.

Background

In July 1998, Ruskin and Massa entered a contract under which Ruskin agreed to pay Massa $586,700 to build him a home in San Rafael. The contract provided that the designer "will provide administration of the Contract and will be the Owner's representative (1) during construction, (2) until final payment is due and (3) with the Owner's concurrence, from time to time during the correction period . . . .

. . .

The Designer will interpret and decide matters concerning performance under and requirements of the Contract Documents on written request of either the Owner or Contractor. The Designer will make initial decisions on all claims, disputes or other matters in question between the Owner and Contractor, but will not be liable for results of any interpretations or decisions rendered in good faith. The Designer's decisions in matters relating to aesthetic effect will be final if consistent with the intent expressed in the Contract Documents. The decisions of the Designer shall be subject to mediation or arbitration upon the written demand of either party." The contract also provided that "[a]ll claims or disputes between the Contractor and the Owner arising out [of] or relating to the contract, or the breach thereof, shall be decided by mediation or arbitration as determined by the mutual agreement of the parties."

In September 1999, Massa filed a first amended complaint for breach of contract and to foreclose on his mechanic's lien. The complaint alleged that during construction Ruskin ordered numerous changes in the work to be performed, and that these changes "required extra labor and materials to be furnished by" Massa. The complaint alleged that there were verbal agreements that Ruskin would reimburse Massa for the cost of the changes, and that the additional cost of these changes, $75,503.44, was due and owing to Massa.

The parties agreed to stay the court action and pursue alternative dispute resolution procedures outlined in the contract, beginning with resolution of their differences by the designer. In July 2000, the designer submitted a "statement of opinion" which concluded that $169,592.72 was owed to Ruskin. Massa rejected the designer's opinion and in January 2001, the parties agreed to arbitrate the dispute before Neil J. Moran as the arbitrator.

On November 2, 2001, Ruskin filed a complaint against Massa and others alleging breach of contract, intentional and negligent concealment, breach of warranty, unfair business practices, and negligence. Ruskin alleged that "[t]he actual value of the work performed by Massa on the Project does not exceed $400,000 . . ." and that "Massa has received approximately $180,000 in excess of the reasonable value of the work performed on the Project."

In June 2002, the court consolidated the two actions and granted a petition to compel arbitration. In response to argument regarding the scope of the arbitration and whether arbitration should be considered binding, the court affirmed that all of the conflicting claims were subject to arbitration and that "[t]he award of the arbitrator shall be binding on all parties."

The arbitration took place on 21 days between December 2, 2003, and June 14, 2004. The arbitrator found "that Massa's workmanship was of good and workmanlike quality and that the Owner received good value for the sums charged by (but not yet received by) the Contractor.

. . .

At the time the Owner locked out the Contractor . . . the only items remaining to be done were the punch list items, which were minor in nature, carrying a remedial cost of $3,995;

The Contractor paid all legitimate claims of subcontractors and material suppliers, except for the claim of Nordby Electric, which the Owner voluntarily paid;

. . .

The Contractor did not breach any duties owed to the Owner.

. . .

After substantially completing six punch lists, the Contractor correctly concluded that the Owner was using punch lists as an excuse for nonpayment, like Sisyphus pushing the rock up the hill, only to have it roll back down every time;

Owner . . . wrongfully terminated the Contractor . . . .

. . .

The Owner's termination of the Contractor was wrongful for two reasons: first, the Owner only gave the Contractor four days notice . . . in violation to the Contract's 5-day requirement. Second, and independent of the defective 4-day notice, the Owner had no factual basis to terminate the Contractor, who was diligently performing the punch list items on the property at the time he was terminated.

. . .

The Owner's criticisms of the project workmanship are unreasonable. At the beginning of the project, when the parties were still negotiating over the Contract price, the Owner's sole concern was 'price, price, price.' The General Contractor's original bid to build the house was $725,000. Allen J. Ruskin bargained for the lowest possible price ($586,000) with the explicit understanding that quality would be reduced. The Contractor informed the Owner that in order to meet the Owner's $586,000 price to construct the residence, the Contractor would have to use his low bid painting subcontractor instead of the higher quality, higher priced painting subcontractor. Ultimately, both the Owner and the General Contractor agreed to a contract price of $586,000, $139,000 lower than the Contractor's original bid. The final product (the house) is a beautiful, high quality house.

The Owner is unhappy with the quality of the construction, yet many of his complaints are for conditions that are the Owner's sole responsibility. For example, the plans and specifications called for a 'light orange peel' interior drywall texture. One of the Owner's claims in the arbitration proceeding was for the cost to completely re-texture and paint all of the interior walls to achieve a smooth drywall finish, at a cost of more than $75,000." The arbitrator awarded Massa $166,492.70 "for unpaid sums on the base contract, change orders and extra work performed by the Contractor at the request of the Owner, interest penalties to and including June 30, 2004, under California Civil Code § 3260," less $500 "for construction of concrete stairs leading out of the house into the garage.

. . . As noted above, the Arbitrator denies all punch list (remedial work) claims of the Owner, except for the $500 charge for the concrete steps." The arbitrator denied punitive damages to both parties and deferred a decision on the amount of attorney fees, court costs, arbitrator's fees, and expert fees to be paid by Ruskin.

Ruskin submitted to the arbitrator an application for correction and reconsideration of the arbitration award and Massa submitted a claim for attorney fees, costs and other expenses. The arbitrator granted in part and denied in part Ruskin's application, changing the award from $166,492.70 to $168,253.36. The arbitrator denied Ruskin's request that the arbitration be considered non-binding. "Ruskin argues that the word 'binding' should be stricken from the Arbitrator's Award. Because this was in fact a binding arbitration as ordered by Judge Dufficy, the Arbitrator overrules this objection.

Fundamentally, Ruskin makes this argument that the award should not be 'binding' because he is dissatisfied with the arbitration award against him. He is now left in the untenable position of arguing that the arbitration proceeding that encompassed 21 days of hearings, over 100 documents standing over 1 foot tall, over $50,000 in arbitrator's fees, ordered by Judge Dufficy to be 'binding,' provided for as one of the two alternative dispute resolution mechanisms in the contract between owner and contractor was a 'free look' (non-binding). To state the proposition is to rebut it." The arbitrator denied Ruskin's request to reverse his determination that Massa was entitled to attorney fees, and awarded Massa $209,197.50 in attorney fees. He also denied Ruskin's request for the attorney fees he incurred in expunging Massa's mechanic's lien.

Ruskin then filed in superior court a "Notice of Rejection of Arbitration Award." Two months later he filed a motion to declare the arbitration award nonbinding and a motion to vacate or correct the arbitrator's decision "as an alternative to his motion for an order declaring that the purported arbitration award rendered in this case is not binding . . . ." Massa filed a petition to confirm the arbitrator's award.

On March 24, 2005, the trial court issued an order denying Ruskin's motions and granted Massa's petition to confirm the award. Thereafter, judgment was entered[1] and this timely appeal followed.

Discussion

Standard of review

On appeal from a motion to vacate an arbitration award, "[t]here is a presumption favoring the validity of the award, and appellant bears the burden of establishing [the] claim of invalidity." (Betz v. Pankow (1993) 16 Cal.App.4th 919, 923.) "Our function as an appellate court is to review the trial court proceedings. In this regard, the applicable standards of appellate review of a judgment based on affidavits or declarations are the same as for a judgment following oral testimony: We must accept the trial court's resolution of disputed facts when supported by substantial evidence; we must presume the court found every fact and drew every permissible inference necessary to support its judgment, and defer to its determination of credibility of the witnesses and the weight of the evidence." An arbitration award may be vacated only on certain statutorily limited grounds.[2] (Ibid.)

Nondisclosure of the arbitrator's connections with the construction industry

Ruskin argues that the arbitrator "failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware." (Code Civ. Proc., § 1286.2, subd. (a)(6)(A).) He contends that the arbitrator was required to disclose his connections with the construction industry within 10 days of his proposed selection as arbitrator (Code Civ. Proc., § 1281.9, subd. (b)) and that his failure to do so until the arbitration proceedings were under way required the superior court to vacate the arbitrator's award.[3]

Code of Civil Procedure section 1281.9, subdivision (a) requires an arbitrator to "disclose all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial," including any ground on which a judge could be disqualified, any matter subject to disclosure under ethical standards for neutrals, prior or pending professional relationships with the parties or the attorneys, or any "significant personal relationship" with one of the parties or the attorneys. The arbitrator must also comply with the Judicial Council ethics standards. (Cal. Rules of Court, appen., div. VI, Ethics Standards for Neutral Arbitrators in Contractual Arbitration.) These standards specify that disclosures must be made of family relationships with a party or a with an attorney, any significant personal relationship with a party or an attorney, current, recent or prospective service as an arbitrator or other dispute resolution neutral for a party or an attorney, any attorney client relationship with a party or an attorney, any other professional relationship with a party or an attorney, any financial interest in a party, any financial interest in the subject of the arbitration, any "interest that could be substantially affected by the outcome of the arbitration," "personal knowledge of disputed evidentiary facts relevant to the arbitration," membership in an organization that practices discrimination, or "any other matter that . . . might . . . cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be impartial [or] [l]eads the proposed arbitrator to believe there is a substantial doubt as to his or her capacity to be impartial . . . [or] [o]therwise leads the arbitrator to believe that his or her disqualification will further the interests of justice." (Cal. Rules of Court, appen., div. VI, standard 7(d).) Ruskin argues only that the last of these grounds is applicable here, i.e. that Moran's ties to the construction industry "might cause a person aware of the facts to reasonably entertain a doubt" that Moran would be impartial.

After he was selected as the arbitrator in this case, Moran sent the parties a letter with a conflict of interest report, and the additional disclosure that "I do not have any business relationship with any party or its attorney. Nor have I had a prior business or professional relationship with any of the parties or attorneys. To my knowledge I have not served as arbitrator for either of the attorneys in this matter.

. . .

In addition, California Code of Civil Procedure section 1281.95(a) requires a special disclosure in 'residential construction' disputes. Pursuant to that Code section, I declare under penalty of perjury that to the best of my knowledge neither I nor my law firm had or has a personal or professional affiliation with either party, and that neither I nor my law firm have been selected or designated as an arbitrator by either party in another transaction."

The facts that Ruskin asserts create a reasonable doubt about Moran's impartiality are set out in the documents filed in support of his post-arbitration motions. In support of the motion to vacate the arbitration award, Ruskin's attorney filed a declaration stating, among other things, that "Moran failed to disclose that he is from a family of contractors, until he made that remark during the arbitration hearing, that he considers himself 'quite a handyman,' and that he claimed personal expertise concerning sheetrock application and finishing." Ruskin also submitted a declaration in which he stated that "[d]uring the hearing, Moran disclosed for the first time that members of his family were general contractors.

I was not aware that Moran had family members who were general contractors prior to his appointment.

Had Moran disclosed his family background, I would not have agreed to appoint him as the sole and neutral arbitrator."

Moran executed a declaration outlining his credentials, which included the fact that he is president of a homeowners' association and that his "law practice emphasizes civil litigation, including construction and real estate . . . ." He stated, "I do not come 'from a family of contractors' as argued and, like Mr. Ruskin, I have personally experienced long, frustrating residential building projects." He also stated that he had disclosed to the parties that "I have represented home owners such as Allen J. Ruskin in lawsuits against contractors (such as Massa); and, I have personally experienced two long, expensive construction projects." He declared that "[n]o member of my family of origin (my parents, grandparents, siblings or my own children) have been or are contractors or subcontractors and none work in the construction trades. My wife is not a contractor.

. . . For the past 24 years, as an attorney I have represented parties on all sides of the residential construction disputes: design professionals, house owners (as Mr. Ruskin), contractors, subcontractors, material suppliers, construction lenders and sureties. Some years ago, on behalf of one of my owner clients, I sued Massa's expert . . . for alleged design negligence. That matter was arbitrated and resulted in an award in favor of [Massa's expert] and against my owner client. . . .

. . . I have represented numerous home owners in claims and lawsuits against contractors for many of the same types of claims made by Allen J. Ruskin in the present dispute. Most of my construction clients are owners of homes who have disputes with contractors.

. . . From the 1930's until the mid 1970's my paternal grandfather, my father, two uncles and my aunt's husband were owners of a plumbing supply distribution business. Currently, my two youngest brothers . . . are owners of a plumbing distribution business. None of my four siblings are or were contractors. My father is retired.

. . . Before his death, my wife's father was a general contractor, whose construction was limited to his own investment properties as an owner-builder; he did not build for owners such as Mr. Ruskin. My father-in-law also did not build for speculation. . . .

My brother-in-law is a licensed general contractor, who also limits his construction activities to his own investment properties as an owner-builder, and has not built for others.

Neither my father-in-law nor my brother-in-law, to my knowledge, was ever adverse to an owner, such as Mr. Ruskin. Both my father-in-law and my brother in law have been generous with their time over the years explaining to me construction and design concept[s], which helps me represent parties in construction disputes and resolve construction cases as a mediator and arbitrator. No other member of my wife's family is a contractor."

While the impartiality of an arbitrator is essential (Commonwealth Coatings Corp. v. Continental Cas. Co. (1968) 393 U.S. 145, 149), "[w]hether an award is tainted by bias because an arbitrator failed to disclose a particular relationship is a factual determination made by the court reviewing the award. [Citation.] The party claiming bias bears the burden of establishing facts supporting its position. [Citation.] The test is objective, i.e., whether the relationship would create an impression of bias in the mind of a reasonable person." (Reed v. Mutual Service Corp. (2003) 106 Cal.App.4th 1359, 1370-1371 (Reed).) In this case, Moran's family ties to the construction industry as disclosed in his declaration were not such as would "cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial" or "lead[] the proposed arbitrator to believe there is a substantial doubt as to his or her capacity to be impartial." Moran clearly has experience both personally and professionally with the construction industry, but this is an asset in an arbitrator. "Because arbitrators are selected for their familiarity with the type of business dispute involved, they are not expected to be entirely without business contacts in the particular field. [Citation.] The fact that an arbitrator and a party to the arbitration are members of the same professional organization 'is in itself hardly a credible basis for inferring even an impression of bias.' " (Ray Wilson Co. v. Anaheim Memorial Hospital Assn. (1985) 166 Cal.App.3d 1081, 1087-1088, disapproved on other grounds in Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 27 (Moncharsh).) There is nothing in the facts disclosed in this record that suggests any reasonable basis to question Moran's impartiality, particularly since Moran's experience in the industry includes representing homeowners in construction disputes and personal involvement in residential building projects.[4]

The arbitration was binding

Ruskin next argues that the arbitration was not binding because the agreement to arbitrate contained in the construction contract did not specify that the arbitration would be binding, and because his attorney struck the term "binding" from a draft of the subsequent agreement to arbitrate. The construction contract provided that "All claims or disputes between the Contractor and the Owner arising out [of] or relating to the contract, or the breach thereof, shall be decided by mediation or arbitration as determined by the mutual agreement of the parties." In January 2001, after their dispute had arisen, the parties signed a separate agreement, captioned "Agreement Between Parties to Arbitration Agreement and Arbitrator Neil J. Moran." The agreement contains a paragraph which, as originally prepared, provided that "[p]ursuant to the [construction contract] and California law, the parties through their attorneys have selected Neil J. Moran as their binding arbitrator . . . ." Ruskin's attorney lined through the word "binding" and substituted the words "contractually designated," so that the provision as executed by both parties reads, ". . . the parties through their attorneys have selected Neil J. Moran as their contractually designated arbitrator . . . ."

Ruskin argues that the resulting contract language does not provide a "clear and unmistakable" expression of an intent to be bound by the arbitrator's decision which, he asserts under the authority of Titan Group, Inc. v. Sonoma Valley County Sanitation Dist. (1985) 164 Cal.App.3d 1122, is necessary if the award is to be binding. He emphasizes the fact that the agreement does not state that the arbitrator's decision will be final, and that the term "final" appears in the construction contract only with respect to the decisions of the designer.[5] Even there, he argues, "final" does not indicate actual finality because the designer's decisions were subject to challenge by mediation or arbitration; thus, he asserts, the parties certainly did not intend arbitration to be final where the word "final" was not even used. He goes on to argue that the language in the construction contract that disputes will "be decided by mediation or arbitration as determined by the parties" could be interpreted to mean that the outcome of any dispute resolution would be "determined by the mutual agreement of the parties."

Whatever ambiguity may be found in the language of the agreements, Ruskin's argument is based on a misunderstanding of the governing legal principles. Titan Group, Inc. v. Sonoma Valley County Sanitation Dist., supra, 164 Cal.App.3d 1122, upon which he relies, is inapposite for two reasons. First, that case held that the parties had not agreed to arbitrate, not that the results of an arbitration to which the parties had submitted were not binding.[6] Thus, Ruskin misstates the holding of the case when he cites it for the proposition that "the test for such a clause is whether it expresses a 'clear and unmistakable' intent that an arbitration will be binding." Second, to the extent that the case might be read to suggest that an arbitration not clearly labeled as "binding"? will not be treated as such, it is inconsistent with subsequent authority from our Supreme Court. It is now settled that in the absence of a clear indication that the parties intend arbitration not to be binding, they will be bound by the arbitrator's decision. "[I]t is the general rule that parties to a private arbitration impliedly agree that the arbitrator's decision will be both binding and final. Indeed, 'The very essence of the term "arbitration" [in this context] connotes a binding award.' [Citations.] In the early years of this state, this court opined that, 'When parties agree to leave their dispute to an arbitrator, they are presumed to know that his award will be final and conclusive.' [Citation.] . . . 'Even in the absence of an explicit agreement, conclusiveness is expected; the essence of the arbitration process is that an arbitral award shall put the dispute to rest.' [Citation.] It has thus been observed that, 'The parties [to an arbitration] can take a measure of comfort in knowing that the arbitrator's award will almost certainly mean an end to the dispute.' " (Moncharsh, supra, 3 Cal.4th at pp. 9-10, fn. omitted.) Thus, although under the terms of the construction contract, the parties were not obligated to arbitrate, having agreed to submit the dispute to arbitration and having failed to unambiguously specify that the award would not be binding, both parties are bound by the arbitrators decision.

Award of statutory penalties

Finally, Ruskin argues that the arbitrator exceeded his authority in awarding Massa statutory penalties. Code of Civil Procedure section 1286.6, subdivision (b) provides that a court shall correct an arbitration award if "[t]he arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted.'? "In cases involving private arbitration, '[t]he scope of arbitration is . . . a matter of agreement between the parties' [citation], and '[t]he powers of an arbitrator are limited and circumscribed by the agreement or stipulation of submission.' " (Moncharsh, supra, 3 Cal.4th at p. 8.)

" 'It is well settled that the scope of judicial review of arbitration awards is extremely narrow. [Citations.]' [Citations.] In determining whether private arbitrators have exceeded their powers, the courts must accord 'substantial deference to the arbitrators' own assessments of their contractual authority . . . .' (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 373 [(AMD)].) Nevertheless, except where 'the parties "have conferred upon the arbiter the unusual power of determining his own jurisdiction" [citation], the courts retain the ultimate authority to overturn awards as beyond the arbitrator's powers, whether for an unauthorized remedy or decision on an unsubmitted issue.' (Id. at p. 375.) 'Guided by these standards, this court conducts a de novo review, independently of the trial court, of the question whether the arbitrator exceeded the authority granted him by the parties' agreement to arbitrate. [Citations.]' [Citations.] In undertaking our review, however, 'we must draw every reasonable inference to support the award.' " (Ajida Technologies, Inc. v. Roos Instruments, Inc. (2001) 87 Cal.App.4th 534, 541.) We give substantial deference to the arbitrator's determination that he acted within the scope of this authority. "[A]n appropriately deferential review starts not from the beginning, but from the arbitrator's own rational assessment of his or her contractual powers and is dependent on (that is, rests on acceptance of) this and any other factual or legal determination made by the arbitrator." (AMD, supra, 9 Cal.4th at p. 376.)

Civil Code section 3260.1, subdivision (b) provides that an owner may withhold progress payments if there is a good faith dispute between the parties, but that "[i]f any amount is wrongfully withheld in violation of this subdivision, the contractor shall be entitled to the penalty specified in subdivision (g) of Section 3260." That section provides that "[i]n the event that retention payments are not made within the time periods required by this section, the owner or original contractor withholding the unpaid amounts shall be subject to a charge of 2 percent per month on the improperly withheld amount, in lieu of any interest otherwise due. Additionally, in any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney's fees and costs." (Civ. Code, § 3260, subd. (g).)

The parties agreed broadly in the original contract that "[a]ll claims or disputes between the Contractor and the Owner arising out [of] or relating to the contract, or the breach thereof, shall be decided by mediation or arbitration as determined by the mutual agreement of the parties." This provision was recited verbatim in the subsequent agreement to submit the dispute to arbitration[7]

The arbitrator found that Massa was entitled to penalties under Civil Code section 3260.1 because there was not a good faith dispute that would have entitled Ruskin to withhold payment. The award stated that "[t]he Owner manufactured false issues, including many punch lists, in an unsuccessful attempt to force the Contractor to abandon his legitimate claims for payment on the Contract and change orders. By refusing to pay the sums rightfully due the contractor, the Owner has wrongfully withheld payment for more than five years. But for the Contractor and his attorney's stubborn refusal to give up their claims over the last five-plus years, the Owner would have profited from his wrongful refusal to pay the Contractor's valid claims." The arbitrator concluded that because there was not a good faith dispute entitling Ruskin to withhold payment, "the penalties of Civil Code section 3260 et seq. apply. Therefore, the Owner is liable for the Contractor's attorney's fees, costs and 2% per month interest penalty on the improperly withheld amount." The arbitrator's initial decision deferred determination of the amount of attorney fees, but specified numerous grounds for the award including Civil Code section 3260, subdivision (g), Code of Civil Procedure section 1033.5, subdivision (a)(10) (attorney fees allowable as costs when authorized by contract, statute or law), and "because a fee award is necessary to a 'fair and just award' ([AMD, supra,] 9 Cal.4th 362; Britz, Inc. v. Alfa-Laval [Food & Dairy Co.] (1995) 34 Cal.App.4th 1085, 1105)."? The judgment awarded Massa "[t]he sum of $108,162.72 constituting a statutory 'interest penalty' of $93,140.12 awarded by the arbitrator through June 2004, and a later accruing statutory 'interest penalty' of $15,022.50; and . . . [r]easonable attorney fees in the amount of $262,385.00 . . . ."

In AMD, the Supreme Court held that "in the absence of more specific restrictions in the arbitration agreement, the submission or the rules of arbitration, the remedy an arbitrator fashions does not exceed his or her powers if it bears a rational relationship to the underlying contract as interpreted, expressly or impliedly, by the arbitrator and to the breach of contract found, expressly or impliedly, by the arbitrator." (AMD, supra, 9 Cal.4th at p. 367.) The court emphasized the need for finality in arbitration awards: "A rule of judicial review under which courts would independently redetermine the scope of an arbitration agreement already interpreted by the arbitrator would invite frequent and protracted judicial proceedings, contravening the parties' expectations of finality." (Id. at p. 373.) The court explicitly rejected greater scrutiny of an arbitrator's power to fashion remedies. (Ibid.) It held that any limitation of an arbitrator's powers must be specific. "The principle of arbitral finality, the practical demands of deciding on an appropriate remedy for breach, and the prior holdings of this court all dictate that arbitrators, unless expressly restricted by the agreement or the submission to arbitration, have substantial discretion to determine the scope of their contractual authority to fashion remedies, and that judicial review of their awards must be correspondingly narrow and deferential." (Id. at p. 376.)

After a review of prior authority, the Supreme Court in AMD "distill[ed] from these cases what we believe is a meaningful, workable and properly deferential framework for reviewing an arbitrator's choice of remedies. Arbitrators are not obliged to read contracts literally, and an award may not be vacated merely because the court is unable to find the relief granted was authorized by a specific term of the contract. [Citation.] The remedy awarded, however, must bear some rational relationship to the contract and the breach. The required link may be to the contractual terms as actually interpreted by the arbitrator (if the arbitrator has made that interpretation known), to an interpretation implied in the award itself, or to a plausible theory of the contract's general subject matter, framework or intent. [Citation.] The award must be related in a rational manner to the breach (as expressly or impliedly found by the arbitrator). Where the damage is difficult to determine or measure, the arbitrator enjoys correspondingly broader discretion to fashion a remedy." (AMD, supra, 9 Cal.4th at p. 381, fn. omitted.)

The award in this case meets this standard. Nothing in the language of the original contract or the agreement to arbitrate expressly restricted the arbitrator from awarding applicable statutory penalties for unjustifiably withholding payments that were due. Ruskin argues that in the list of claims and counterclaims specified by the parties prior to arbitration, Massa did not explicitly state that he was seeking penalties under Civil Code section 3260. However, those penalties are expressly authorized for the wrongful withholding of payment which was the very basis of Massa's claim. Therefore, the award bears a rational relationship to the claims and the arbitrator did not exceed his powers in making such an award. As the court in AMD observed, "independent judicial reevaluation of remedies would tend to defeat the contractual intent to resolve disputes efficiently and by private mechanisms."[8] (AMD, supra, 9 Cal.4th at p. 379.)

Disposition

The judgment is affirmed.

_________________________

Pollak, J.

We concur:

_________________________

McGuiness, P. J.

_________________________

Siggins, J.

Publication Courtesy of California lawyer directory.

Analysis and review provided by Escondido Property line Lawyers.

[1] The judgment in Massa's favor is in the amount of $367,861.12, consisting of the following elements: "$75,113.24, constituting the contract principal balance owing Massa by Ruskin"; "$108,162.72 constituting a statutory 'interest penalty' of $93,140.12 awarded by the arbitrator through June 2004, and a later accruing statutory 'interest penalty' of $15,022.50"; $16,664.29 in additional prejudgment interest; attorney fees of $262,385.00, which presumably represent the fees awarded by the arbitrator plus additional fees incurred in the post-arbitration proceedings in the trial court; arbitration fees of $27,221.40; and $3,141.48 in costs, plus interest on the judgment at 10 percent per annum from the date of entry until paid.

[2] These grounds are specified in subdivision (a) of Civil Code section 1286.2: "(1) The award was procured by corruption, fraud or other undue means.

(2) There was corruption in any of the arbitrators.

(3) The rights of the party were substantially prejudiced by misconduct of a neutral arbitrator.

(4) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.

(5) The rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title.

(6) An arbitrator making the award either: (A) failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware; or (B) was subject to disqualification upon grounds specified in Section 1281.91 but failed upon receipt of timely demand to disqualify himself or herself as required by that provision."

[3] On appeal, Ruskin explicitly abandons the claim of actual bias.

[4] Moreover, there is a timeliness concern in this case. The arbitration hearings concluded on June 14, 2004, the arbitrator issued his final decision on July 26, 2004, and there is no indication that Ruskin raised the issue of nondisclosure until he filed his motion to vacate the arbitration award on December 3, 2004. (See Code of Civ. Proc., § 1281.91; Warren et al., Alternative Dispute Resolution § 7:164; cf. Moncharsh, supra, 3 Cal.4th at p. 30.)

[5] The construction contract specifies that "[t]he Designer's decisions in matters relating to aesthetic effect will be final if consistent with the intent expressed in the Contract Documents." The provision continues, "The decisions of the Designer shall be subject to mediation or arbitration upon the written demand of either party."

[6] The same distinction applies to other cases cited by Ruskin, which also question whether parties had agreed to arbitrate, not whether arbitration to which they did agree was binding. (Bade v. Bank of America (1998) 67 Cal.App.4th 779, 804-805; Chan v. Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632, 643.)

[7] This agreement further specified that Moran would have "the power to set the time and place of the arbitration hearing, decide all discovery disputes, conduct the arbitration hearing at which the parties and witnesses may testify, to interpret the Agreement, to decide factual issues and to serve a written arbitration award pursuant to California Code of Civil Procedure section 1283.6, as well as to provide all the services incidental to the above duties of an arbitrator, as provided in the referenced 'Agreement Between Owner and Contractor.' " The agreement also provided that "[t]he parties may agree on procedural matters and shall notify the arbitrator in writing of such procedures." The agreement also established a deadline for the parties to "notify each other in writing of all claims, counter-claims, remedies sought that each has."

[8] The case cited by Ruskin, O'Flaherty v. Belgum (2004) 115 Cal.App.4th 1044, is not to the contrary. In that case, "The partnership agreement limited the arbitrator's power and authority to grant remedies by providing as follows: 'Power and Authority of Arbitrator. The arbitrator shall not have any power to alter, amend, modify or change any terms of this Agreement nor to grant any remedy which is either prohibited by the terms of this Agreement, nor to grant any remedy which is either prohibited by the terms of this Agreement, or not available in a court of law.' " (Id. at p. 1057.) The court set aside an award that partners withdrawing from a law firm would forfeit money in certain accounts because "[t]he forfeiture is contrary to partnership law, the partnership agreement and decisional law," and therefore was beyond the scope of the arbitrator's authority. (Ibid.)