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Arbitration: Citing Confusion Over Parties, California Appeals Court Overturns Award (Web)

In an unpublished opinion, California’s Fourth District Court of Appeals, Division 1, reversed a trial court’s arbitration award confirmation, noting the confusion over the identity of the parties involved in the matter. Harper v. Business Advisers Inc., No. D045817, 2006 WL 2303186 (Cal.App. 4th Dist. Aug. 10, 2006).

Two parties submitted a dispute to arbitration, Business Advisors Employees Retirement Trust, or Baert, represented by its trustee, George Newman, and the Harper Family Trust, referred to here as HFT, and represented by its trustee, Billie Joe Harper.

In April and May 2004, an arbitrator awarded $81,500 to HFT, against Business Advisors Inc., referred to in the opinion as BAI. The arbitrator failed to mention Baert in his award.

On July 27, 2004, Harper, individually and as trustee of HFT, petitioned the trial court to confirm the award against BAI and Newman, individually and as Baert’s trustee. Defendants BAI argued that Baert alone entered into an agreement to arbitrate the dispute, which concerned the status of a lease HFT's held on property it had conveyed to Baert.

BAI and Newman further contended that HFT erroneously sought confirmation of the award against them. Baert argued that the trial court had committed a clerical error and asked it to delete Newman from the judgment as an individual, and not identify BAI as a party to the arbitration or judgment.

In addition, BAI argued that the arbitrator exceeded his power; improperly corrected or supplemented an original award; and that the arbitrator wrongly designated the parties to the award.

The trial court confirmed the award as requested and entered judgment in favor of Harper, individually and as trustee of HFT, and against BAI and Newman, individually and as trustee of Baert. BAI, Newman and Baert appealed the judgment, arguing the trial court erred in confirming the award and in failing to correct miscalculations and an erroneousness party.

On appeal, the appellants argued that the arbitrator exceeded in his powers by awarding to HFT set-offs based on a loan between Baert and HFT and the property’s rental value, arguing that the arbitration should have been limited to the issue of whether a lease existed on the subject property, and, if so, whether it survived the transfers of that property's ownership and agreements between the parties.

The appeals court agreed with the trial court's observation that the parties had initially presented a narrow issue. But it also agreed that the parties during the arbitration had agreed to expand the matter and to submit additional evidence concerning rental value and set-offs; this led the court to believe that the arbitrator did not exceed his power in considering the issues of rental value and set-offs in his award.

The appellants argued that the trial court erred in concluding that it had no jurisdiction to correct the judgment by deleting parties not named in the arbitration award. The appeals court noted that the trial court didn’t understand the appellant's contention on a fundamental issue: the arbitration award named BAI, and not BAERT, as a party, and HFT was seeking an order confirming the arbitration award not just against BAERT but also against BAI and Newman.

The unanimous panel reversed, relying on Southern Cal. Pipe Trades Dist. Council No. 16 v. Merritt,126 Cal.App.3d 530, 536 (1981). The appeals panel acknowledged that there was no indication in the record that Newman or BAI ever agreed to arbitrate their dispute with HFT. It was “[o]nly through a series of errors and laxity of proper procedure” that Newman and BAI became part of the arbitration. "Neither the arbitrator nor the trial court can impose an arbitration award on a nonparty to the arbitration," the decision notes, quoting Southern California Pipe Trades.

Finally, the appellate court ruled that “the trial court abused its discretion in refusing to entertain appellants' motion to correct the designations of the parties, especially considering the offered stipulation of HFT to accept an amended judgment naming only Newman as trustee of Baert." Specifically, the panel reversed the judgment confirming the arbitration award to BAI, and Newman individually, and vacated the arbitration award against BAI.

--Ongmu Tshering, CPR Intern