Hardie v. Bell Gadens Bicycle Club

Filed 2/28/08 Hardie v. Bell Gadens Bicycle Club CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

APPEAL from a judgment of the Superior Court for the County of Los Angeles. Raul A. Sahagun, Judge. Affirmed.

Blum Collins and Craig M. Collins for Cross-complainants and Appellants.

Baker, Keener & Nahra, Robert C. Baker, Phillip A. Baker, and James D. Hepworth for Cross-defendants and Respondents.

Cross-complainants and appellants George Hardie and Kard King, Inc., appeal from the judgment for cross-defendants and respondents The Bell Gardens Bicycle Club (the Bicycle Club), LCP Associates Ltd., Haig Kelegian, Robert Carter, and Walter Lack. The judgment was based on the trial courts confirmation of an arbitration award in favor of respondents. Finding no applicable exceptions to the general rule of arbitral finality, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

The Bicycle Club operates a card club in Bell Gardens called the Bicycle Casino, which is regulated by the State of California. The Bicycle Club was organized in the 1980s as a joint venture between Park Place Associates, Ltd. (Park Place) and LCP Associates, Ltd. (LCP).[1] Park Place held a 35 percent interest, and LCP held a 65 percent interest and acted as the Bicycle Clubs managing partner. George Hardie, a limited partner in Park Place, was sole shareholder of appellant Kard King, Inc. (Kard King), Park Places general partner. Hardies interests in Park Place and Kard King gave him an approximately 16 percent interest in the Bicycle Club.

In November 1996, Hardie entered into a stipulated settlement agreement with the Attorney General of the State of California. That agreement required Hardie to divest himself, within four years, of his and Kard Kings interests in the Bicycle Club and in Park Place, to the extent his interests related to activities requiring a California gaming license.

Accordingly, on September 21, 1999, Hardie and the Bicycle Club executed an agreement whereby Hardie sold and the Bicycle Club purchased Hardies entire interest in Park Place, resulting in the allocation of his ownership interest in the Bicycle Club to the partners of Park Place and LCP. The Bicycle Club agreed to pay Hardie $4 million, with $1.4 million to be paid upon execution of the agreement and $2.6 million to be paid under a promissory note calling for monthly payments of $50,000 plus 8 percent interest. The agreement provided for the disposition of five different litigation matters, and both parties agreed not to disparage the other or interfere with or intercede in the business of the other. Of specific relevance to this appeal, section 12 of the agreement, entitled Non-Involvement in Local Politics, provided that: (1) with one limited exception, Hardie will not contact any Bell Gardens City Council member, city employee, city attorney, or staff member regarding the Bicycle Club or its business, or otherwise involve himself in local politics of Bell Gardens during the period of the payout set forth in the Promissory Note; (2) during the payout period, Hardie will do nothing to thwart the orderly transaction or conduct of business at the Bicycle Club; (3) in the event of Hardies material breach of the letter or spirit of the agreements and undertakings contained in this section, HARDIE agrees that he will be entitled to no further payments under the Promissory Note attached, and that he will be obligated to the Bicycle Club for the actual damages suffered by the Bicycle Club as a result of that breach; (4) after providing a notice of material breach, if the Bicycle Club continued to assert a breach, the parties would arbitrate the dispute; and (5) if the arbitrator were to find the Bicycle Club had declared a breach and withheld payments without justification, Hardie would be entitled to declare the entire remaining debt immediately due and payable.

In July 2002, the Bicycle Club gave Hardie notice of a material breach of section 12 of the agreement and terminated payments on the note, based on his involvement with certain council members and current recall and election concerns. The Bicycle Club also cited certain unfounded accusations contained in Hardies cross-complaint against the Bicycle Club and others in Park Places underlying lawsuit against the Bicycle Club, LCP, Hardie, and others.[2] The cross-complaint alleged that LCPs general partners who managed the Bicycle Club had improperly obtained their gaming license by failing to disclose a secret partner. The Bicycle Club asserted that Hardies cross-complaint was a blatant attempt to interfere with the Clubs business and the licensing of its owners, and provided ample reason to terminate any future payments on the promissory note under section 12 of the agreement.

The matter was arbitrated before retired Judge Diane Wayne, who issued an award in favor of the Bicycle Club. The award stated in relevant part: [The Bicycle Club was] justified in stopping payments in June 2002 as [Hardie] breached both the spirit and letter of the Agreement. The arrangement made between [Hardie] and [the Bicycle Club] was specifically to avoid any contact between Hardie and the City so that he would not interfere in the operations of the Club. That did not occur. The actions of [the Bicycle Club] were not a ruse to avoid payments but a justifiable position in relation to the breaches of the Agreement. [] Besides discussions with member [sic] of the Bell Gardens government, [Hardie] filed pleadings alleging that [the Bicycle Club] had unlawfully obtained their gaming license. Though his motion to lift a stay was denied, [the Bicycle Club was] required to report the allegations to city and state officials. That their licenses were not actually revoked does not diminish the fact that they were in jeopardy. The activity affected the orderly transaction and conduct of the Bicycle Club.

The trial court confirmed the arbitrators award and entered judgment for the Bicycle Club on the cross-complaint. This appeal followed.

DISCUSSION

Hardie contends that the trial court erred in confirming the arbitrators award because the award violated two public policies of this state: the public policy of controlling gambling and the public policy against imposing penalties for breach of contract. Neither claim has merit.

The rules governing our review of an arbitration award are clear. The scope of judicial review is extremely narrow. With limited exceptions, an arbitrators decision cannot be reviewed for error of fact or law, even if the error appears on the face of the award and causes substantial injustice. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 6, 11 (Moncharsh).) Judicial review is limited to those cases in which there exists a statutory ground to vacate or correct the award (id. at p. 28), such as an award that exceeds the arbitrators powers (Code Civ. Proc., 1286.2, subd. (a)(4)). Judicial review of an arbitrators ruling is available where a party claims the entire contract or transaction was illegal. (Moncharsh, supra, 3 Cal.4th at p. 32.) However, the normal rule of limited judicial review may not be avoided by a claim that a provision of the contract, construed or applied by the arbitrator, is illegal, except in rare cases when according finality to the arbitrators decision would be incompatible with the protection of a statutory right. (Id. at p. 33.) Moncharsh expressly cautioned: Without an explicit legislative expression of public policy, . . . courts should be reluctant to invalidate an arbitrators award on this ground. The reason is clear: the Legislature has already expressed its strong support for private arbitration and the finality of arbitral awards in title 9 of the Code of Civil Procedure. ( 1280 et seq.) Absent a clear expression of illegality or public policy undermining this strong presumption in favor of private arbitration, an arbitral award should ordinarily stand immune from judicial scrutiny. (Moncharsh, supra, at p. 32.)

The illegality or public policy exception articulated in Moncharsh has been limited in subsequent cases to situations where private arbitration itself would impede a statutory right, that is, where legislative enactments expressly or impliedly created an impediment to the resolution of an issue by private contractual arbitration. [Citations.] (Jones v. Humanscale Corp. (2005) 130 Cal.App.4th 401, 410 (Jones); see also Aguilar v. Lerner (2004) 32 Cal.4th 974, 982-983 [enforcement of private arbitration clause of attorney retainer agreement that violates clients rights under mandatory fee arbitration act would exceed arbitrators powers]; City of Palo Alto v. Service Employees Internat. Union (1999) 77 Cal.App.4th 327, 338-340 [vacating arbitral award reinstating employee because the award would result in violation of a court order, issued under Code Civ. Proc.,  527.8, enjoining the employees return to the workplace].)

The arbitration award in this case is clearly not barred by the illegality exception to the ordinary rule according finality to an arbitration award.

First, Hardies claim that the arbitration award violates the public policy that the Legislature has declared in the Gambling Control Act is unavailing. Hardies theory is that (1) it is a misdemeanor to interfere with the performance by the Department of Justices Division of Gambling Control of its duty to ensure that gambling licenses are not held by unsuitable persons (see Bus. & Prof. Code, 19826, 19944), and (2) any agreement not to disclose information relevant to investigations by the division interferes with the performance of those statutory duties. Hardies premises may be correct, but they do not apply to the agreement or the arbitrators award.

The arbitrator did not interpret the agreement to prohibit Hardie from reporting a licensing violation to the Department of Justice or to exculpate the Bicycle Club from fraud. The arbitrator expressly so stated: [T]he legislative scheme involving licensing of gambling in the State of California does not assist [Hardie]. [The Bicycle Club is] not attempting to prevent notification of violations. Indeed, the actions by Hardie which the arbitrator found violative of the agreement were the claims made in his proposed cross-complaint seeking to rescind the agreement and restore his ownership interest in Park Place and the Bicycle Club. In short, nothing in the arbitration award remotely impede[s] a statutory right (Jones, supra, 130 Cal.App.4th at p. 410), or otherwise violates any express public policy articulated by the Legislature.

Second, Hardies claim that the arbitration award violated the public policy against imposing penalties and forfeitures for breach of a contract is equally without merit. Hardie relies on Civil Code section 1671 (section 1671) and related statutes. Section 1671 provides that, absent certain conditions, a liquidated damages provision is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made. ( 1671, subd. (b).) This provision does not assist Hardie because its application to this case involves questions of fact and law consigned to the arbitrator. Hardie asserts that section 12 of the settlement agreement violated 1671 as a matter of law because it provided both that Hardie would be entitled to no further payments and that he would be obligated to the Bicycle Club for the actual damages suffered by the Bicycle Club as a result of that breach. But whether the provision violated 1671 as a matter of law was for the arbitrator to decide, and the arbitrator decided that question adversely to Hardie when she denied his motion for summary disposition: As of yet no evidence has been presented that damages were readily ascertainable. [The Bicycle Club] may be correct that other than attorneys fee[s] it may be difficult or [im]practical to calculate damages from a breach of this agreement. The correspondence between counsel suggests that the difficulty was contemplated. Unlike the situation in Cook [v. King Manor and ConvalescentHospital(1974) 40 Cal.App.3d 782] the relevant language was negotiated and agreed upon by counsel. I[n] fact, it was actually drafted by counsel for [Hardie]. They cannot now successfully argue at this time that language they proposed should be void as a matter of law. The Agreement involved several pieces of litigation and resulted in language contributed by [Hardie]. As such, the forfeiture provision contained in the Agreement is not automatically void as against public policy.

This case is not one in which a legislative enactmenthere, section 1671expressly or impliedly created an impediment to the resolution of an issue by private contractual arbitration. [Citations.] (Jones, supra, 130 Cal.App.4th at p. 410.) Quite to the contrary, this is a case like Jones, where the court of appeal rejected the claim that an arbitration award was reviewable because it violated Californias public policy against covenants not to compete. Just so here: [I]f a party challenges the validity of a contractual provision other than the arbitration clause itself, the issue of the clauses legality is subject to arbitration. (Id. at p. 410; see Moncharsh, supra, 3 Cal.4th at p. 30 [legality of an attorney fee-splitting provision was a question for the arbitrator].) Errors of law are not reviewable. Nothing in the arbitration award violated Hardies statutory rights, and nothing in this case brings it within any exception to arbitral finality.

DISPOSITION

The judgment is affirmed. The respondents are to recover their costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

SUZUKAWA, J.

We concur:

WILLHITE, Acting P. J.

MANELLA, J.

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[1] Respondents Walter Lack (chief legal counsel), Haig Kelegian (chief executive officer), and Robert Carter (chief financial officer) are LCPs general partners.

[2] In the underlying lawsuit, Park Place alleged, among other things, that the sale of Hardies interests in Park Place and the Bicycle Club had violated the Park Place limited partnership agreement and should be declared null and void. While the parties discuss the suit and various motions, appeals and rulings related to the underlying action, only Hardies proposed cross-complaint has any relevance to this appeal.