Pasternack v. Capozzoli’s Pizzeria
Filed 5/15/13 Pasternack v. Capozzoli’s Pizzeria CA4/1
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
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COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
LAWRENCE
PASTERNACK,
Plaintiff and Appellant,
v.
CAPOZZOLI'S PIZZERIA &
RESTAURANT, INC.,
Defendant and Respondent;
CHARLES J. CAPOZZOLI
Defendant and Appellant.
D060023
(Super. Ct. No. 37-2010-00052924-
CU-FR-NC)
APPEALS
from a judgment of the Superior Court
of
County, Thomas P. Nugent, Judge. Reversed and remanded with directions.
Hatton,
Petrie & Stackler, Arthur R. Petrie, II, John A. McMahon for Plaintiff and
Appellant Lawrence Pasternack.
Frame &
Matsumoto, Ted R. Frame for Defendants and Appellants, Donna Marie Capozzoli
and Janine Bayme as Special Administrators of the Estate of Charles J.
Capozzoli.
The Kushner
Law Firm, Michael B. Kushner, Kalab A. Honey for Defendant and Respondent,
Capozzoli's Pizzeria & Restaurant, Inc.
Lawrence
Pasternack appeals from a judgment entered after the trial court confirmed an arbitration
award in favor of respondents Charles J. Capozzoli and Capozzoli's Pizzeria
& Restaurant, Inc. (CPRI).
Pasternack contends the court should have vacated the
erroneously failed to consider additional evidence he had presented between the
issuance of the arbitrator's "interim award" and the final
arbitration award. Pasternack
alternatively claims the final arbitration award was gained through fraud,
corruption or other undue means. Charles
Capozzoli cross-appeals, contending the court erred because after it issued a
judgment that included respondents' requested prejudgment interest, the court
issued an unauthorized "amended judgment" withdrawing the prejudgment
interest award. We affirm the decision
to confirm the arbitration award, but reverse the trial court's May 27, 2011 amended judgment and
remand the matter with directions set forth below.
FACTUAL AND
PROCEDURAL BACKGROUND
In 2005,
Pasternack invested $250,000 in CPRI, an Italian restaurant venture set up and
run by Joseph and Kristie Capozzoli, a married couple. Pasternack received 1,616 shares for his
investment in the business under a Stock Purchase Agreement. Pasternack subsequently advanced an additional
$200,000 to Joseph and Kristie for investment in the business.
The parties filed articles of
organization for West Coast Eats, LLC (WCE) with the California Secretary of
State. Charles Capozzoli, Joseph's
father, assumed sole ownership of CPRI in name only, and received 3,000 shares,
which Joseph and Kristie could acquire at any time. The parties understood Charles was doing them
a favor because Joseph's prior convictions for driving under the influence disqualified
him from owning or managing a licensed restaurant under the rules of the
California Department of Alcoholic Beverage Control. Moreover, Pasternack had declined to apply
for the license to avoid disclosing his finances to the authorities.
In 2009,
Pasternack demanded arbitration with the American Arbitration Association (AAA)
as required under the Shareholder's Agreement, alleging breach of fiduciary
duty and fraud. Pasternack amended his
arbitration claim to add what he described as an "[a]ction for accounting,
appointment of receiver, and derivative action for recovery against management
for fraud and embezzlement."
Pasternack later filed a superior court action against CPRI, Charles,
and Doe defendants, asserting causes of action for "relief based on
rescission," "damages for fraud," and money had and
received. The parties stipulated to stay
that matter and resolve it in the arbitration.
Between July 26, 2010, and July 29, 2010, the arbitrator
conducted arbitration proceedings, and the parties submitted posthearing
briefs.
On October 7, 2010, the arbitrator declared the matter
closed for purposes of gathering evidence regarding the underlying dispute.
On October 29, 2010, the arbitrator
issued an "Interim Award"
adjudicating the parties' rights, and rejecting Pasternack's claim Charles had
committed fraud. The arbitrator
concluded: "The evidence
established that the intent of the parties was to have net operating income or
loss flow through to the owners [Joseph], Kristie and [Pasternack]. This was to be done by having . . . WCE[ ]
own the restaurant. CPRI then was formed
and was to be a Subchapter S corporation so the 'flow-through' could be
accomplished in the corporate form rather than the limited liability form. . . .
[¶] When the initial plan for the
tax treatment to be handled through CPRI was frustrated, the attorneys for all
parties considered how to rectify the situation with no apparent resolution
according to the evidence. The evidence
has WCE filing tax returns at least through 2006 while CPRI filed tax returns
at least through 2008." (Footnotes
omitted.) Rejecting Pasternack's claim
for money had and received, the arbitrator ruled that in return for his
investment, Pasternack had received a 35 percent interest in the restaurant
business. In rejecting the alter ego
claim, the arbitrator ruled, "[Pasternack] was as involved, if not more
involved, than [Charles] in the operation of the restaurant. Recognizing the shield of the corporate form
of CPRI does not sanction fraud or promote injustice to the damage of
[Pasternack]." The arbitrator
summarized his ruling on the substantive claims: "Pasternack shall recover nothing
pursuant to his Demand for Arbitration against Respondents CPRI and Charles
Capozzoli that he is entitled to rescind the Stock Purchase Agreement and to
collect damages against CPRI and Charles Capozzoli for fraud and for money had
and received."
However, a provision in the interim
award stated the arbitrator was reopening the case for the limited purpose of
allowing the parties to brief "the issue of attorneys' fees, if any, to be
awarded in this action." The
arbitrator stated in the last paragraph of the interim award: "This Award is in full settlement of all
claims submitted to this Arbitration.
All claims, except those related to fees and costs, not expressly
granted herein are hereby denied. This
Award shall remain in full force and effect until such time as a Final Award is
rendered."
In November 2010, the arbitrator
issued two amendments to the Interim Award to correct typographical matters and
minor omissions.
On December 7, 2010, Pasternack
petitioned the arbitrator to reopen the hearing to address his allegations that
Joseph and Kristie had committed fraud by not informing the arbitrator they had
wasted, destroyed and looted CPRI's essential operating assets, thus rendering
Pasternack's ownership interest valueless.
Further, Pasternack claimed Joseph and Kristie had recently filed a
misleading bankruptcy petition.
On December 16, 2010, the arbitrator denied as untimely
Pasternack's petition to reopen arbitration proceedings. The arbitrator recognized Pasternack had
produced credible evidence of fraud: "The
circumstances recounted in the letters from [Pasternack's] counsel . . . are
disturbing. The photographs and copy of
the bankruptcy petition of Joseph and Kristie Capozzoli are credible evidence
and not disputed by either Charles Capazzoli or Capazzoli's Pizzeria &
Restaurant, Inc." The arbitrator
cautioned that "there are other plausible inferences which can be drawn
from the same evidence on which [Pasternack's] counsel relies." Nonetheless, the arbitrator relied on AAA
Rule 36, which states: "The hearing
may be reopened on the arbitrator's initiative, or upon application of a party,
at any time before the award is made."
The arbitrator ruled: "The
Post-Mediation Order dated July 29,
2010, stated that upon a filing of a Reply Brief by Petitioner, the
matter would stand submitted. The
Interim Award dated October 29, 2010,
decided all issues other than the possible award of attorneys' fees and
costs. . . . The Interim Award . . . specifically provided
for a reopening only to consider an award of attorneys' fees and costs. The final paragraph of the Interim Award
states that it 'is in full settlement of all claims submitted to this
Arbitration and that it shall remain in full force and effect until such time
as a Final Award is rendered.[']"
Addressing Pasternack's specific claim that Joseph and Kristie had
committed fraud, the arbitrator ruled, "There is no evidence of exactly
when the restaurant was closed and the furnishings and fixtures were removed so
completely, leaving the leased premises in what appears from the photographs as
a deplorable state. The bankruptcy
petition of Joseph and Kristie was filed on November 28, 2010, a month after issuance of the Interim
Award. The events on which [Pasternack]
relies took place after the issuance of the Interim Award. [¶] .
. . The Interim Award became final no
later than November 24, 2010." (Footnote omitted.)
On December 22, 2010, the arbitrator issued the final award,
addressing only attorneys' fees and costs.
The arbitrator resolved the issue of prevailing party thusly: "[Pasternack] prevailed on the initial
issue of whether he was a stockholder in CPRI while CPRI and [Charles]
prevailed on the issue of whether [Charles] and CPRI fraudulently induced
[Pasternack] to purchase his stock in CPRI." The arbitrator's main award of fees and costs
was in the amount of $33,733.00 to CPRI, and $41,229.24 to Charles.
Thereafter, Pasternack filed in the
superior court a notice of intent to
move to vacate the final arbitration award.
In January 2011, Charles and CPRI
filed petitions in the superior court to
confirm the final arbitration award, and sought interest from December 22, 2010.
On May 6, 2011, the superior court issued
a minute order granting respondents' petition to confirm the arbitration award,
and denying Pasternack's petition to vacate it.
The court ruled:
"[T]he arbitrator correctly concluded that it lacked jurisdiction
to reopen the hearing. As such,
Plaintiff has failed to establish that the arbitrator improperly refused to
hear evidence material to the controversy.
[Citation.] [¶] The interim order, although labeled as
'interim' was a final determination as to the liability on the complaint. The [arbitrator] reopened the arbitration
hearing for the sole purpose of determining attorneys' fees and costs. Further, the interim order finally determined
that 'All claims, except those related to fees and costs, not expressly granted
herein are hereby
denied.' "
The court requested that
respondents submit a proposed judgment within 10 days. They did so, and included a provision
regarding prejudgment interest:
"Pursuant to the Arbitrator's December 22, 2010[ ] award of
attorney's fees and costs in the arbitration, defendants are entitled to
recover the following amounts from plaintiff, Lawrence Pasternack, and defendants
are awarded judgment against [plaintiff] for these amounts: [¶] a.
for defendant Capozzoli's Pizzeria and Restaurant, Inc., $36,608.44. [¶] b.
for defendant Charles J. Capozzoli, $43,270.46.
[¶] . . . Defendants are entitled to prejudgment interest
[at 10 percent] per annum on the foregoing amounts from December 22, 2010, to
the date of entry of this judgment."
On May 19, 2011, the court approved
respondents' proposed judgment.
On May 24, 2011, Pasternack
objected to the court's proposed
judgment and, as relevant here, the provision awarding prejudgment interest,
arguing, "Prejudgment interest is only available in certain instances
flowing from economic damages for
loss of use of funds or property.
[Citation.] Since prejudgment
interest is an element of damages, not costs, it cannot be granted pursuant to
an award of attorney's fees and/or costs.
[Citation.] Thus, as the only
items being awarded to defendants in the judgment are fees and costs, not
damages, prejudgment interest is wholly inappropriate and the offending
language must be stricken."
On May 27, 2011, Charles responded
to Pasternack's objections regarding prejudgment interest. That same day, the court issued a brief
"amended judgment," which differed from its previous judgment only in
that it excluded prejudgment interest.
The court did not explain its change.
On June 3, 2011, Pasternack
appealed from the court's amended judgment.
DISCUSSION
I.
Pasternack contends that in light
of the additional evidence regarding fraud that he had presented to the
arbitrator between the interim award and the final award, the arbitrator was
required to reopen the arbitration
proceedings and give him an opportunity to gather more evidence and develop
his claims Joseph and Kristie had committed waste. By declining to do so, the arbitrator
thwarted the parties' will and failed to finally resolve their claims, and
provided grounds for the court to vacate the arbitrator's final award because
the arbitrator had failed to consider further Pasternack's evidence regarding
waste (Code Civ. Proc.,
name="_ftnref5" title="">[5] §
1286.2, subd. (a)(5)) or alternatively, the final award was a product of fraud,
corruption or other undue means. (§
1286.2, subd. (a)(1).)
California law reflects a "
'strong public policy in favor of arbitration as a speedy and relatively
inexpensive means of dispute resolution' [and therefore] courts will ' "indulge every intendment
to give effect to such proceedings." ' " (Moncharsh
v. Heily & Blase (1992) 3 Cal.4th 1, 9.) To further that policy, arbitration awards
are generally final. (
provides otherwise or certain exceptional circumstances exist, courts may
review an arbitration award only on the extremely narrow statutory grounds
identified in sections 1286.2 and 1286.6.
(Moncharsh, at pp. 27-28, 32;
see Cable Connection, Inc. v. DIRECTV,
Inc. (2008) 44 Cal.4th 1334, 1340.)
Section 1286.2 authorizes a court
to vacate an arbitration award if (1) "[t]he award was procured by
corruption, fraud or other undue means"; (2) "[t]here was corruption
in any of the arbitrators"; (3) "[t]he rights of the party were
substantially prejudiced by misconduct of a neutral arbitrator"; (4)
"[t]he arbitrators exceeded their powers and the award cannot be corrected
without affecting the merits of the decision upon the controversy
submitted"; (5) the arbitrator substantially prejudiced a party's rights
by refusing to postpone the hearing despite a showing of good cause or by
refusing to hear material evidence; or (6) the arbitrator failed to make the
required disclosures or disqualify himself or herself based upon a proper
request. Section 1286.6 sets forth the
limited circumstances under which a court may correct and then confirm the
award.
"On appeal from an order
confirming an arbitration award, we review the trial court's order (not the
arbitration award) under a de novo standard.
[Citations.] To the extent that
the trial court's ruling rests upon a determination of disputed factual issues,
we apply the substantial evidence test to those issues." (Lindenstadt v. Staff Builders, Inc.
(1997) 55 Cal.App.4th 882, 892, fn. 7.)
Here, two months after expiration
of the October 7, 2010 date set by the arbitrator as the deadline for
submission of evidence regarding the parties' underlying claim, Pasternack
presented new evidence to support his claim of fraud. The arbitrator did not reject that evidence,
but instead received and considered it.
However, the arbitrator made a threshold determination that other
plausible inferences could be drawn from the same evidence. In declining to reopen the proceedings to
permit Pasternack to develop the record further on the claim of waste, the
arbitrator acted within the discretion granted to him under AAA Rule 36. In light of the deference we accord an
arbitrator's exercise of his discretion, we conclude the trial court did not
err in declining to vacate the arbitration award. (Accord,
(2001) 88 Cal.App.4th 1082, 1091 ["An arbitrator who decides not to impose
a particular sanction required by the discovery statutes has not exceeded his
or her power, but declined to exercise it.
Whether that decision was correct is not an issue that is subject to
judicial review."].)
II.
Charles cross-appeals, contending
the judgment entered on May 19, 2011, which includes an award of prejudgment
interest for respondents, is the operative judgment because it is the sole
permissible one under section 473, subdivision (d), which allows the trial
court to correct only clerical errors.
He argues that judgment was correct on the merits. By contrast, Charles contends the May 27,
2011 amended judgment was void for lack of jurisdiction because it was a
judicial correction of the first judgment and, further, it erroneously excluded
an award of prejudgment interest. We
agree.
"The general rule is that once
a judgment has been entered, the trial court loses its unrestricted power to
change that judgment. The court does
retain power to correct clerical errors in a judgment which has been
entered. However, it may not amend such
a judgment to substantially modify it or materially alter the rights of the
parties under its authority to correct clerical error. [Citations.] This general rule is applicable even though
time for appeal from the judgment has not yet passed. [Citation.]
[¶] Once judgment has been
entered, the trial court does retain jurisdiction for a limited period of time
to entertain and grant a motion for a new trial [citation] or a motion for a
judgment notwithstanding the verdict.
[Citation.] The court also
retains jurisdiction to consider and grant a motion to vacate a judgment and
enter a different judgment for either of two reasons: an incorrect or erroneous
legal basis for the decision, not consistent with or supported by the facts, or
a judgment not consistent with or not supported by the special verdict. [Citation.]
The court also retains jurisdiction to entertain and grant a motion for
relief from a judgment taken against a party through mistake, inadvertence,
surprise, or excusable neglect." (
779, 782-783; see also 7 Witkin, Cal. Procedure (5th ed. 2008) Judgment, § 67,
pp. 603-604.)
Although Pasternack maintains that
the trial court's entry of the amended judgment constituted clerical error, it
plainly appears and we decide as a matter of law that in entering the amended
judgment the court was attempting to correct perceived judicial error. It is true that a court has the inherent
power to correct clerical error in its records at any time so as to conform its
records to the truth, but it may not amend a judgment to substantially modify
it or materially alter the rights of the parties under its authority to correct
clerical error. (Aspen Internat. Capital Corp. v. Marsch (1991) 235 Cal.App.3d 1199,
1204.) Here, the court's signing of the
amended judgment, which eliminated the prejudgment interest, thus substantially
altering the judgment, can only be viewed as an attempt to correct prior
perceived judicial error in granting that interest. The trial court had no jurisdiction to so
amend the judgment, and the resulting amended judgment is thus void and of no
effect. (Morgan v. State Bd. of
Equalization (1949) 89 Cal.App.2d 674, 682.)
On the merits, the court's May 19,
2011 judgment correctly awarded prejudgment interest. Civil Code section 3287 provides that a party
may recover prejudgment interest on an amount awarded when the damages are
certain, or capable of being made certain by calculation, and the right to
recover those damages is vested. (
(2005) 126 Cal.App.4th 741, 753.) If the
statutory conditions are satisfied, the court must award prejudgment
interest. (Wisper Corp. v. California Commerce Bank (1996) 49 Cal.App.4th 948,
958.) The purpose of prejudgment
interest is to compensate the prevailing party for the loss of money during the
period before the judgment is entered. (
Civil Code section 3287 applies to
arbitration awards. A prevailing party
in arbitration is entitled to prejudgment interest as of the date of the final
award to entry of judgment. (
17, 27-28; Britz, Inc. v. Alfa-Laval Food
& Dairy Co. (1995) 34 Cal.App.4th 1085, 1106.) "Although the interest [is]
pre-'judicial judgment,' it [is] post-'contractual judgment.' " (Britz,
the respondents the requested prejudgment interest.
Pasternack makes no attempt to
explain why this case falls outside the purview of Britz, supra,
his reply brief. Rather, he relies on
(1998) 65 Cal.App.4th 824, claiming Charles at no time moved for an award of prejudgment interest, but rather
"slip[ped] the request into his proposed judgment. At that time it was too late. And, moreover, the trial court determined, in
its discretion, that [Charles] should not be granted prejudgment
interest." But North Oakland Medical Clinic v. Rogers, supra, 65 Cal.App.4th 824 is inapplicable here. As noted, both respondents timely requested
prejudgment interest when they petitioned the court to confirm the arbitration
award. Therefore, Pasternack is
incorrect to the extent he claims that neither he nor the court knew of the
request before Charles submitted his proposed judgment. Moreover, under Civil Code section 3287,
subdivision (a), the court did not have discretion regarding whether to award
prejudgment interest. In that regard,
this case is different from other cases in which the damages are unliquidated,
and the court has discretion to award prejudgment interest under Civil Code
section 3287, subdivision (b).
DISPOSITION
The May 27,
2011 judgment is reversed. The matter is
remanded and the trial court is directed to reinstate the May 19, 2011
judgment. Costs on appeal are awarded to
Donna Marie Capozzoli and Janine Bayme as Special Administrators of the Estate
of Charles J. Capozzoli.
O'ROURKE, J.
WE CONCUR:
HALLER, Acting P. J.
McDONALD, J.
name="_ftn1" title="">[1] On April 19, 2013, Donna Marie Capozzoli and Janine Bayme
were substituted as parties to this action instead and in the place of Charles
J. Capozzoli, deceased, as the Special Administrators of the Estate of Charles
J. Capozzoli.
name="_ftn2" title="">[2] Charles, Joseph, and Kristie have the same surname;
therefore, we refer to them by their first names to avoid confusion.
