Ahdout v. Hekmatjah
213 Cal. App. 4th 21
| Cal. Ct. App. | 2013Background
- Ahdout and Hekmatjah formed 9315 Alcott, LLC to develop a condominium project, with Braum as manager.
- Arbitration was used to resolve disputes, including Ahdout’s §7031 disgorgement claims against unlicensed construction work by BIDI.
- Arbitrators denied the §7031 claims; the superior court denied Ahdout’s petition to vacate and granted respondents’ petition to confirm.
- Ahdout contends BIDI was unlicensed and performed contracting work, seeking disgorgement of construction costs and adjusted profit-sharing.
- Trial court treated arbitral findings as binding and declined de novo review; appellate court later considered and remanded for de novo review under §7031(b).
- This court reverses: §7031(b) constitutes an explicit public policy permitting de novo judicial review of the award on remand.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does §7031(b) create a public policy exception to arbitral finality? | Ahdout: §7031(b) disgorges unlicensed-contractor fees, violating public policy. | Respondents: arbitration should remain final; §7031(b) not invoked because no compensation paid for unlicensed work. | Yes; §7031(b) is an explicit public policy exception allowing de novo review. |
| Did the arbitrators exceed their powers by not disgorging unlicensed-contractor costs? | Ahdout: arbitrators erred by allowing BIDI’s compensation despite unlicensed status. | Respondents: arbitration properly concluded no disgorgement was required. | To be reviewed de novo on remand; arbitral findings not binding. |
| Is Loving/Lindenstadt controlling to require de novo court review of illegality in the contract? | Loving/Lindenstadt require review when entire contract is illegal. | Moncharsh limits Loving/Lindenstadt; illegality here does not infect entire contract. | Public policy exception governs; not bound by Loving/Lindenstadt; de novo review permitted. |
| What scope of review applies on remand for §7031(b) issues? | Court should reassess evidence de novo to determine disgorgement. | Arbitrators’ factual findings should remain unless plainly erroneous. | De novo review required; consider all admissible evidence. |
Key Cases Cited
- Loving & Evans v. Blick, 33 Cal.2d 603 (Cal. 1949) (illegality of entire contract; arbitration not proper for illegality)
- Lindenstadt v. Staff Builders, Inc., 55 Cal.App.4th 882 (Cal. App. 1997) (trial court must review illegality de novo)
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (Cal. 1992) (limits on reviewing arbitrator errors; illegality partial vs entire contract)
- MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc., 36 Cal.4th 412 (Cal. 2005) (statutory framework of contractors; public policy against unlicensed work)
- WSS Industrial Construction, Inc. v. Great West Contractors, Inc., 162 Cal.App.4th 581 (Cal. App. 2008) (application of §7031 to unlicensed contractors; public policy rationale)
- Cotchett, Pitre & McCarthy v. Universal Paragon Corp., 187 Cal.App.4th 1405 (Cal. App. 2010) (public policy exceptional review when statute expresses policy)
- Jordan v. Department of Motor Vehicles, 100 Cal.App.4th 431 (Cal. App. 2002) (public policy exception in arbitral enforcement cases)
- Palo Alto v. Service Employees Internat. Union, 77 Cal.App.4th 327 (Cal. App. 1999) (arbitration review limits; finality and public policy considerations)