Harshad & Nasir Corporation v. Global Sign Systems
B269427
| Cal. Ct. App. | Aug 15, 2017Background
- Global Sign Systems (Global) sued Friendly Franchisees Corporation (FFC) for unpaid invoices (~$114,824). Parties agreed to arbitrate 19 days before trial; the arbitration agreement required the arbitrator to apply California law and provide written findings subject to court review on the same standards as a court.
- During arbitration, Global expanded its claim to allege a separate reimaging contract to remodel 66 Carl’s Jr. stores over multiple years and sought lost profits; evidence for that claim included belatedly produced “preliminary cost summaries.”
- The arbitrator awarded Global roughly $2.99 million (lost profits, unpaid invoices, interest, costs, and attorney fees) and added four FFC affiliates as joint and several obligors; the affiliates had not signed the arbitration agreement.
- FFC and the affiliates petitioned to vacate; Global petitioned to confirm. The trial court confirmed the award as to FFC, vacated as to the affiliates, and denied post-arbitration fee motions while saying the arbitrator could award such fees.
- On appeal, the Court of Appeal held the trial court applied the wrong standard of review, found no substantial evidence of a multi-year reimaging contract (statute of frauds issue), concluded the reimaging/lost-profits claim was outside the arbitration scope, affirmed vacatur as to the affiliates, reversed confirmation as to FFC, and directed the trial court to deny confirmation and vacate the award as to FFC.
Issues
| Issue | Global's Argument | FFC/Affiliates' Argument | Held |
|---|---|---|---|
| Standard of review for arbitrator's legal conclusions | Parties contracted for review under court standards but arbitrator claimed his decisions were immune from legal-error review | Arbitration clause required the arbitrator to apply law and to have his decision reviewed under same standards as a court | Court: Parties did provide for judicial review for legal error; trial court erred by not applying those standards |
| Existence/enforceability of alleged 66-store reimaging contract (Statute of Frauds) | Global: oral/written communications, site surveys, cost summaries, and conduct show a multi-year contract | FFC: no mutual assent, no signed writing by FFC, limited communications show only Baldwin Park agreement; statute of frauds bars multi-year oral contract | Court: No substantial evidence of mutual consent or a writing satisfying statute of frauds; award for reimaging/lost profits vacated |
| Scope of arbitration — whether lost-profits/reimaging claim was arbitrable | Global: arbitration clause and JAMS rules allowed arbitrator to decide scope; broad language "submit all disputes relating to this agreement" | FFC: arbitration was limited to amounts claimed in pleadings (past services/invoices); lost-profits claim was a new claim beyond agreed scope | Court: Reimaging/lost-profits claim was outside the scope defined by pleadings and initiating correspondence; arbitrator exceeded authority in deciding it |
| Addition of Affiliates as judgment debtors by arbitrator | Global: arbitrator (and later award) could add affiliates as joint obligors to protect award efficacy | Affiliates/FFC: stipulation during arbitration set aside the arbitrator’s order to add affiliates and reserved any joinder motion to a court | Court: Arbitrator exceeded power by reinstating addition; trial court properly vacated award as to affiliates per stipulation intent |
Key Cases Cited
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (1992) (arbitration awards generally receive very limited judicial review)
- Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4th 1334 (2008) (parties may contract for judicial review of arbitrator legal errors; arbitrator must follow rule of law when so agreed)
- Sterling v. Taylor, 40 Cal.4th 757 (2007) (statute of frauds writing requirement need only identify subject and essential terms with reasonable certainty)
- Weddington Productions, Inc. v. Flick, 60 Cal.App.4th 793 (1998) (mutual consent measured objectively; offer and acceptance must be sufficiently definite)
- AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643 (1986) (arbitrator may decide arbitrability when parties clearly and unmistakably agree)
- Gravillis v. Coldwell Banker Residential Brokerage Co., 143 Cal.App.4th 761 (2006) (de novo review applies to arbitrability determinations when language is undisputed and no credibility findings required)