PORCH.COM, INC., Plaintiff and Respondent, v. KANDELA, LLC, Defendant and Appellant.
B326289
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN
Filed 4/14/25
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS. California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. 22STCP03332)
Hayes Litigation, Daniel M. Hayes and Oscar A. Alvarez for Defendant and Appellant.
Ropers Majeski, Stephen J. Erigero, E. Lacey Rice, Ernest E. Price; Greines, Martin, Stein & Richland, Gary J. Wax and Alex Chemerinsky for Plaintiff and Respondent.
On appeal Kandela contends the trial court was required to vacate the arbitration award under
A. The Asset Purchase Agreement2
Kandela was founded in 2012 by David Fiedler and Eli Gordon as a “one-stop-shop” concierge service for people in the process of moving homes. Kandela‘s call-center representatives would connect homeowners free-of-charge with local providers of services such as cable television, internet, home security, and home warranties. Kandela earned revenue from commissions paid by the service providers; in turn, Kandela shared revenue with utility companies that were Kandela‘s primary referral source of new homeowners.
Porch.com was founded in 2013 by Ehrlichman as a technology-based marketplace for connecting homeowners with handypersons, electricians, plumbers, movers, and other home service providers. Recognizing potential synergies between the two businesses, Porch.com approached Kandela as a potential merger partner in 2018. The parties began to negotiate Porch‘s outright acquisition of Kandela, eventually closing a sale in March 2019. In consideration for acquiring substantially all of Kandela‘s assets, Porch agreed to provide Kandela with a fixed number of shares of Porch.com common stock valued at $11.5 million, including an earnout3 of common stock valued at
The parties’ asset purchase agreement (agreement) was dated March 22, 2019 and signed by Ehrlichman and Gordon. The agreement provided that Gordon and Fiedler would have “reasonable discretion,” subject to Porch‘s oversight and direction, “to operate the business on a day-to-day basis as they deem reasonably appropriate to achieve [Porch‘s] objectives and achieve the milestone targets and earn the earnout shares.” Porch agreed “not to take any action in bad faith with the intent or effect of adversely affecting [Kandela‘s] ability to achieve the milestone targets and earn the earnout shares.”4 However, the agreement provided that gross revenue derived from referrals to a company called Updater, a Porch competitor that had been a significant source of Kandela‘s revenue, would not count toward the earnout targets.
The agreement included an arbitration provision stipulating that “any dispute, claim or controversy arising out of, or relating to, this [a]greement or the breach, termination, enforcement, interpretation or validity thereof” would be determined by binding arbitration. The provision also provided for the prevailing party to receive reasonable attorneys’ fees and costs. An integration clause stated the agreement and
B. The Complaint (Case No. 20STCV17705)
Almost immediately after the acquisition closed, the parties ran into numerous difficulties transitioning Kandela‘s business into Porch operations, and on May 11, 2020 Kandela filed a lawsuit against Porch (Kandela, LLC v. Porch.com, Inc., et al. (Super. Ct. Los Angeles County, 2020, No. 20STCV17705)). Kandela‘s complaint asserted three causes of action: (1) fraud against Porch.com and Ehrlichman; (2) breach of contract against Porch.com; and (3) breach of the implied covenant of good faith and fair dealing against Porch.com.
The complaint alleged one set of “facts common to all causes of action.” As alleged in paragraph 35 of the complaint (with no specific heading), during the parties’ negotiations prior to executing the agreement, Porch represented it placed no value on Kandela‘s relationship with Updater, which it intended to phase out by June 2019, and Kandela would have the ability to reach the revenue milestones in part by offering its customers new Porch.com products and services and coupons for discounted Porch.com services.
Under the heading “Porch‘s post-closing misrepresentations and misconduct,” the complaint alleged in paragraphs 40 to 52 numerous ways in which Porch prevented Kandela from achieving the revenue targets necessary to receive the earnout. Among other things, Porch (1) directed Kandela to expand rather than phase-out its relationship with Updater even though Updater revenue still did not count toward the earnout targets;
Kandela‘s first cause of action for “fraud” alleged in relevant part that Porch‘s promise to pay a $6 million earnout if Kandela met revenue targets was false: “Porch did not intend to perform this promise at the time it was made. Instead, Porch‘s intent was to preclude Kandela from ever achieving any earnout.” Further, “Porch intended for Kandela to rely on this promise of a prospective earnout“; Porch “knew that Kandela would not have entered into the Agreement without the promise of a substantial and achievable earnout“; Kandela “reasonably relied on Porch‘s promise of a prospective earnout“; and “Porch did not perform the promised act, and . . . acted to preclude Kandela from achieving any earnout.” Porch‘s conduct caused Kandela to lose millions of dollars in revenue and rendered it unable to achieve its earnout.5
The causes of action for breach of contract and bad faith alleged, based on the common factual allegations, that Porch breached its contractual and good faith obligations to give Gordon and Fiedler reasonable discretion to operate Kandela and not to take action adversely affecting Kandela‘s ability to achieve the earnout. Kandela prayed for compensatory damages exceeding $11.5 million and punitive damages.
C. The Arbitration and Award6
On October 12, 2020 Kandela filed a demand for arbitration (demand) with JAMS after the parties stipulated to binding arbitration and a litigation stay.7 Kandela attached its complaint to the JAMS demand form. Porch filed a response to the demand on October 29, and on January 28, 2021 the arbitrator, Richard Chernick, entered an order finding the claims were arbitrable. The arbitrator ordered based on the parties’ agreement that the
There was extensive discovery, and the arbitrator resolved several discovery disputes throughout 2021 and in early 2022. The arbitrator held a final status conference on February 25, 2022. The parties submitted pre-hearing briefs on March 2, a week before the evidentiary hearing.
A bifurcated evidentiary hearing on liability was conducted over 10 days between March 9 and March 24, 2022, deferring presentation of evidence on damages. The arbitrator admitted all evidence offered by the parties and overruled all objections to exhibits. Eighteen witnesses testified, including four experts.8 The parties submitted post-hearing opening briefs on April 25 and reply briefs on May 4. The arbitrator issued an interim award on May 19 finding against Kandela and directing Porch, as the prevailing party, to file an application for attorneys’ fees and costs. On July 8 the arbitrator issued a 24-page final award (award) addressing liability and fees and costs.
The arbitrator concluded in the award that there was no proof of fraud, breach of contract, or breach of the implied covenant of good faith and fair dealing, and he dismissed those claims. The arbitrator rejected Kandela‘s claims for fraudulent inducement and tortious interference, finding these claims were
The arbitrator found in the award, “The assertion of fraudulent inducement and tortious interference claims by [Kandela] for the first time in pre- and post-hearing briefs, without any attempt (formally or informally) to seek to add those claims to the demand, is a clear violation of these rules. It should not surprise [Porch] that such claims might be asserted, based on the nature of the discovery in this case, but that is insufficient to satisfy the rule that the arbitrator is not permitted to consider
The arbitrator rejected Kandela‘s argument that JAMS rules 9 and 10 were superseded by court rules allowing pleading amendments to conform to proof, including
Based on his determination there was no submitted claim for fraudulent inducement to enter the agreement, the arbitrator ruled “he must therefore disregard the[] pre-closing representations” adduced at the evidentiary hearing based on the agreement‘s integration clause. However, the arbitrator observed “that some of these same claims are made as part of the fraud claim Kandela directs to post-closing conduct” and remained properly at issue. For example, contrary to Kandela‘s contention that Porch misrepresented it would provide significant staffing for Kandela‘s call center, “the evidence supports the conclusion
Addressing Porch‘s fraud claim, the arbitrator found Porch made no material misrepresentations to Kandela after the closing; at most Porch made misleading statements to Kandela‘s utility partners about Porch products and services, but Kandela was aware of Porch‘s actual capabilities and limitations “almost immediately after closing.” Similarly, with respect to revenue from Updater, the evidence showed “Ehrlichman was quite candid in his post-closing communications with Fielder that the Updater revenue was valuable to Porch and that he ‘did not have to pay for it’ . . . by virtue of the earnout exclusion.” The arbitrator also observed with respect to any pre-closing representation that on the day before the closing Ehrlichman transmitted an email to Fiedler stating Porch “‘will absolutely want to retain [Updater] business.‘”
The arbitrator further found Kandela‘s claim of post-closing fraud was undermined by its argument in its post-hearing opening brief that it “quickly became clear after the acquisition that [Porch‘s] representations [pre-closing] were false, and that Porch never intended or had the capability to perform these promises.” The arbitrator found “[t]hese assertions are effectively concessions that no material post-closing representations were made and/or that Kandela did not rely on post-closing representations in any meaningful way,” and, to the extent Kandela did rely on these post-closing representations, “such reliance would not be reasonable” because Kandela was aware almost immediately after the closing that the representations before the closing were false.
Finally, with respect to attorneys’ fees and costs, the arbitrator made significant lodestar reductions and awarded Porch $927,257 in fees and $474,557 in costs, for a total award of $1,401,814.
D. The Petition To Confirm (Case No. 22STCP03332)
On September 8, 2022 Porch initiated the current action (case No. 22STCP03332) by filing a form petition to confirm the award. The petition attached the agreement, the award, and an attorney declaration summarizing the timeline of the lawsuit and arbitration. As relevant here, the declaration stated that when Kandela submitted its demand to JAMS, it “attach[ed] its complaint as its ‘Nature of Dispute/Claims & Relief Sought by Claimant.’ The complaint . . . asserted the following causes of action: (1) fraud; (2) breach contract; and (3) breach of the implied covenant of good faith and fair dealing.” Porch later filed a memorandum arguing the trial court was required to confirm the award under
On September 16, 2022 Kandela timely filed an opposition brief. Kandela argued the arbitrator abused his discretion in denying Kandela‘s “request to amend its initial pleading,” an
In reply Porch argued, “Some eighteen months of discovery strategy and exchange and hearing preparation were . . . based solely on [the] three causes of action” in the complaint, and “[i]t was not until the eve of arbitration itself that Kandela attempted ‘to finagle’ two more claims in its opening briefing without formal notice.” The arbitrator‘s determination that JAMS rules 9 and 10 applied to the proceeding and foreclosed the amendment was not error, and even if it was error, it was not grounds for vacatur.
On October 7, 2022, the Friday before the Monday hearing on the petition to confirm, Kandela filed a petition to vacate the award. Kandela argued the arbitrator‘s refusal to consider evidence of pre-closing representations required vacatur because Kandela was “substantially prejudiced . . . by the refusal of the arbitrator to hear evidence material to the controversy.”
The trial court held a hearing on the petition to confirm on October 10, 2022, and two days later the court granted the petition. In its order the court relied on Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 28-29 (Moncharsh) in holding it could not “refuse to confirm an arbitrator‘s award based on error.” As to due process, the court stated, “The JAMS rules provide a full and fair opportunity for a claimant to add a new claim. Kandela violated those rules, and the arbitrator found that allowing the amendment at a late stage would prejudice Porch. . . . Courts routinely deny last-minute attempts to amend complaints under
On October 12, 2022 the trial court entered judgment against Kandela and in favor of Porch for $1,401,814 in attorneys’ fees and costs, plus interest from the date of the award. Kandela timely appealed.
A. Judicial Review of Arbitration Awards
“California law favors alternative dispute resolution as a viable means of resolving legal conflicts. ‘Because the decision to arbitrate grievances evinces the parties’ intent to bypass the judicial system and thus avoid potential delays at the trial and appellate levels, arbitral finality is a core component of the parties’ agreement to submit to arbitration.‘” (Richey v. AutoNation Inc. (2015) 60 Cal.4th 909, 916; accord, Valencia v. Mendoza (2024) 103 Cal.App.5th 427, 440 (Valencia).) “‘The scope of judicial review of arbitration awards is extremely narrow.‘” (E-Commerce Lighting, Inc. v. E-Commerce Trade LLC (2022) 86 Cal.App.5th 58, 63.) The California Arbitration Act (
“‘[A]rbitrators do not exceed their powers merely because they assign an erroneous reason for their decision.’ [Citations.] A contrary holding would permit the exception to swallow the rule of limited judicial review; a litigant could always contend the arbitrator erred and thus exceeded his powers.” (Moncharsh, supra, 3 Cal.4th at p. 28;
”
“We review de novo a trial court order confirming an arbitration award, including its determination whether the arbitrator exceeded her powers in granting relief.” (Valencia, supra, 103 Cal.App.5th 442; see Roussos v. Roussos (2021) 60 Cal.App.5th 962, 973 [“‘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.‘“].) However, we review a trial court‘s determination of disputed factual issues for substantial evidence. (Roussos, at p. 973.)
B. Kandela Has Failed To Provide a Record To Support Its Contention the Arbitrator Did Not Determine a Submitted Issue
This is Kandela‘s third bid to recast the arbitrator‘s decision not to amend the demand as a form of judicially reviewable error. In its opposition to Porch‘s motion to confirm, Kandela argued the court should not confirm the award because the arbitrator exceeded his power in denying Kandela‘s request to amend its demand given the lack of prejudice to Porch, requiring vacatur under
Considering these two provisions together, “[i]t has been held that where the record shows that an issue has been submitted to an arbitrator and that he totally failed to consider it, such failure may constitute ‘other conduct of the arbitrators contrary to the provisions of this title’ justifying vacation of the award under
The arbitrator did not “fail to consider” a question submitted to him. To the contrary, he made a clear and detailed determination that a claim for fraudulent inducement was not properly submitted for resolution. As discussed, the arbitrator made the following findings, among others: Kandela submitted three claims in its demand, including fraud, breach of contract, and breach of the implied covenant of good faith and fair dealing; JAMS rule 9 required “reasonably and timely notice of claims,” including “a short statement of [a claim‘s] factual basis,” but Kandela did not assert a claim for fraudulent inducement for 18 months (until its pre-hearing brief); Kandela focused primarily on fraudulent inducement in its post-hearing briefs (and even then, it never formally sought to amend the demand or address prejudice as required under JAMS rule 10); and although the fraudulent inducement claim “should not [be a] surprise,” Kandela‘s failure to provide notice denied Porch an opportunity to “shape[] their discovery and hearing preparation accordingly.” On these findings, the arbitrator decided not to allow Kandela to amend its demand to include the fraudulent inducement claim, and, as the trial court correctly held, the arbitrator‘s decision is not reviewable for legal error. (Moncharsh, supra, 3 Cal.4th at p. 28.)
Kandela argues that because Kandela alleged a fraudulent inducement claim in its complaint, reversal is required. But even if we assume the allegations of the complaint provided reasonable notice that Kandela sought recovery on an inducement theory
We have no basis for concluding based on the fact the complaint was attached to Kandela‘s demand that Kandela
The judgment is affirmed. Porch is entitled to recover its costs on appeal.
FEUER, J.
We concur:
SEGAL, Acting P. J.
PULOS, J.*
* Judge of the San Diego County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.