Song v. Creative Global Investment CA2/2, B299422

Background

Song and Lee/Creative Global Investment (CGI) agreed to form two LLCs to operate Coffee Bean franchises; Song paid about $900,000 total but received no ownership or returns.
Gaju and Paramount operating agreements contained an arbitration clause and an attorney-fees provision.
Arbitrator awarded Song $132,000 for breach relating to Gaju; CGI/Lee petitioned to confirm the award but also asked the court to recalibrate membership interests.
At hearings the trial court, citing ambiguities in the award, issued a minute order (stating “all parties being in agreement”) vacating the arbitration award and setting a de novo court trial; no party objected or sought immediate relief.
A bench trial resulted in judgment for Song: $900,000 rescission/compensatory award, $3 million punitive damages, and $86,583 in attorney fees; CGI/Lee later moved for a new trial asserting counsel lacked client authority to stipulate to vacatur.
The Court of Appeal affirmed: it held the stipulation to trial de novo was authorized/ratified (waiver of arbitration) and sustained the damages, punitive award, and fees.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the trial court had power to vacate the private arbitration award and hold a de novo judicial trial	Song: parties (through counsel) agreed to vacate the award and proceed to court trial; court acted on that agreement	Lee/CGI: counsel lacked express authority from clients; the vacatur and de novo trial were void without client consent	Court: Counsel’s stipulation—reflected in minute order and subsequent conduct—bound parties; appellants ratified/waived arbitration by participating and delaying objection
Whether appellants ratified their counsel’s stipulation (and therefore waived arbitration)	Song: appellants’ year-long participation and filings confirming trial date show ratification and waiver	Lee/CGI: counsel “submitted” under pressure and did not consult clients; lack of client consent makes stipulation invalid	Court: Substantial evidence supports ratification; silence and participation for >1 year constitute waiver; tardy repudiation fails
Adequacy of evidence for $900,000 award (rescission vs. contract damages)	Song: sought rescission and restitution equal to invested sums; credible testimony and receipts support $900,000 return	Lee/CGI: argued remedy selection/election error and insufficiency	Court: Song elected rescission; testimony and receipts provide substantial evidence for $900,000 restitution
Validity and excessiveness of $3M punitive damages and $86,583 fee award	Song: evidence of intentional fraud, malice/oppression supports punitive damages; contract fee clause and broad dispute language justify fees	Lee/CGI: insufficient evidence for punitive damages; punitive award excessive; fees improper if contract void for fraud	Court: Clear-and-convincing evidence supports punitive damages; $3M not excessive in light of reprehensibility and Lee’s proven wealth; fee award proper under Civ. Code §1717 and contract language

Key Cases Cited

Moncharsh v. Heily & Blase, 3 Cal.4th 1 (1992) (private contractual arbitration is binding and not subject to de novo trial unless parties agree)
Blanton v. Womancare, Inc., 38 Cal.3d 396 (1985) (attorney stipulation to arbitration may be void without client consent)
Rivera v. Shivers, 54 Cal.App.5th 82 (2020) (unauthorized attorney acts can be ratified by client conduct and silence)
Cinel v. Christopher, 203 Cal.App.4th 759 (2012) (an unconfirmed arbitration award is effectively a contract between parties)
Byerly v. Sale, 204 Cal.App.3d 1312 (1988) (parties may stipulate to withdraw a dispute from arbitration)
Caro v. Smith, 59 Cal.App.4th 725 (1997) (client silence and participation can ratify attorney’s stipulation to arbitration)
Neal v. Farmers Ins. Exchange, 21 Cal.3d 910 (1978) (purpose and guiding principles for punitive damages)
Adams v. Murakami, 54 Cal.3d 105 (1991) (limits and considerations for punitive damages awards)