Opinion
Appellant Pour Le Bebe (PLB) seeks reversal of trial court orders confirming an arbitration award and denying PLB’s petition to vacate the award. The parties’ dispute revolved around a series of “license agreements” under which PLB was granted the right to utilize the trademarks of respondent Guess?, Inc. (Guess), at first in the manufacture and sale of infant’s and children’s clothing and accessories, and later in the manufacture and sale of home furnishings. Guess claimed that PLB had failed pay royalties required under the agreements. PLB asserted a number of counterclaims in the arbitration, including a claim that the licenses had been wrongly terminated by Guess and that the licenses represented illegal franchises. In addition, PLB sought to disqualify Guess’s counsel, Daniel Petrocelli and the law firm of Mitchell, Silberberg & Knupp (MSK) from representing Guess in the arbitration. The panel rejected these claims.
On appeal, PLB contends: (1) Guess attained the award by undue means as a result of its representation by conflicted counsel; (2) the arbitrators exceeded their authority by deciding a statute of limitations issue exempted from arbitration by the parties’ agreements; and (3) the award cannot be enforced because the contracts from which it arose were illegal and void ab initio. For the reasons set forth herein, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
The Parties’ Agreements
1. License Agreement
PLB entered into a “License Agreement” with Guess in 1992. Under the agreement, Guess granted PLB “the exclusive right to use the Guess Marks *814 and related Design Rights solely in connection with the manufacture and sale of the Products [defined elsewhere in the agreement essentially as clothing and accessories for babies, boys, and girls] in the Territory [also defined in the agreement] in accordance with the provisions of this Agreement.” Guess retained the right to manufacture and sell “the Products” under the marks “in any area of the world other than the Territory” and to manufacture and sell products of any and all types and descriptions other than “the Products.”
Section 19.1 of the agreement stated: “Except as provided, all disputes, controversies or claims arising out of or relating to this Agreement (including any extensions or modifications) or its interpretation, or concerning the respective rights or obligations of the parties . . . shall be settled and determined by arbitration only in Los Angeles, California in accordance with the Commercial Arbitration Rules of the American Arbitration Association . . . .” Section 19.6 provided: “Any claim is barred and waived unless the claimant institutes arbitration proceedings prior to the date when any action in court would be barred by the statute of limitations. The failure to institute arbitration proceedings prior to the expiration of the applicable statute of limitations constitutes an absolute bar to the institution of any arbitration or other proceeding by either party. All issues relating to the statute of limitations barring or preventing the commencement of proceedings shall be determined in court proceedings as described in Section 19.4, and the Arbitrators shall not have power or jurisdiction to determine such issues.”
The “initial term” of the agreement was from November 1, 1992, to October 31, 2002, with an option to renew granted to PLB for a second 10-year term. Paragraph 13 permitted termination for material breach, with a right to cure for the defaulting party under certain circumstances, and for failure of PLB to reach minimum net sales as set forth elsewhere in the agreement, among other things.
2. Store License Agreement
In August 1993, Guess and PLB entered into an agreement entitled “Store License Agreement.” The 1993 agreement contained a nearly identical arbitration provision, including the provision relating to statute of limitations, and also stated somewhat redundantly: “Any controversy or claim arising out of or relating to this Agreement, or the interpretation or breach of it, including any modification or extension, shall be settled by arbitration in Los Angeles County, California in accordance with the Commercial Arbitration Rules of the American Arbitration Association and California Code of Civil Procedure.” There were also provisions similar to those in the 1992 License Agreement with respect to term, termination, and renewability.
*815 3. Home Furnishings License Agreement
In March 1994, Guess and PLB entered into a “License Agreement... for Home Furnishings.” This had a three-year term with an option to renew for an additional seven years. The termination provision was similar to the one in the 1992 License Agreement, as was the arbitration provision. For purposes of this agreement, products were defined as home furnishings, including bath and table linens, bath and table accessories, and bath robes.
4. Retail Store License Agreement
In July 1994, Guess and PLB entered into a “Retail Store License Agreement ... for Home Furnishings.” This agreement was also for a three-year term with a seven-year option to renew. It, too, contained termination and arbitration provisions similar to those set forth in the other agreements.
Arbitration Claim and Counterclaim
In 1998, a dispute arose between the parties. On May 21, 1999, Guess filed a demand for arbitration. The demand stated that PLB had defaulted on its obligation to pay royalties and that Guess had given notice to PLB on May 14, 17, and 19, 1999, that the licenses had terminated. Guess was represented by Petrocelli and MSK.
In July 1999, PLB filed a counterdemand claiming that although the asserted basis for the termination and dispute was arrearages in royalty payments, Guess had accepted late payments in the past. PLB alleged that Guess wanted to take control of PLB’s business by destroying PLB’s financial viability. PLB further charged that the agreements were illegal franchises. Also included in the counterdemand were counterclaims for intentional interference with contractual relations, intentional interference with prospective economic advantage, unlawful business practices, unfair competition, and fraud. PLB sought, among other things, disgorgement of all royalties, fees, and other payments made to Guess since 1984.
Attempts to Disqualify MSK
1. Motion to Disqualify Presented to Panel
In June 1999, Guess successfully obtained withdrawal of PLB’s counsel (the firm of Alschuler, Grossman, Stein & Kahan) due to an alleged conflict of interest.
*816 In December 1999, PLB’s newly retained counsel filed a motion to disqualify MSK from representing Guess. PLB claimed that MSK was concurrently representing PLB in other matters and/or that MSK’s past representation of PLB resulted in disclosure of confidential information substantially related to the issues raised in the arbitration. With respect to former matters, PLB pointed to: (1) the case of Ready v. Benasra et al., (L.A. Super. Ct. case No. BC169021), a sexual harassment claim against Benasra, PLB, and others; (2) In re Guess?, Inc. and Jet Tech, Inc., an arbitration in which MSK jointly represented Guess and PLB; and (3) immigration matters in which MSK had represented key PLB employees, including its CEO Michel Benasra, its president Denys Goulin, and members of their families. With respect to current matters, PLB pointed to the fact that just days before the arbitration commenced, on May 6, 1999, an MSK attorney had sent a letter to the Immigration and Naturalization Service (INS) on Benasra’s behalf.
PLB further pointed to the fact that in May 1997, MSK through Petrocelli had requested a conflict waiver acknowledging that MSK could “represent Guess (or any of its affiliated persons or entities) against [PLB] even if [it had] acquired confidential information from [PLB] relating to the subject matter of the dispute(s) between Guess and [PLB].” PLB refused to sign the waiver.
PLB expressed concern that MSK would use confidential information disclosed during the course of its representation of PLB. PLB noted that in a related arbitration, “[MSK] has asked a series of inflammatory questions . . . about whether there were girlfriends on the [PLB] payroll, the use of the corporate jet and inferences about the way in which PLB principals spent their money.” For example, Petrocelli asked about a trip Benasra took on the corporate jet to Russia. MSK had represented Benasra in applying for a visa to visit Russia. Witnesses were also asked about Benasra’s purchase of expensive automobiles and real estate, and placing girlfriends on PLB’s payroll. PLB’s cause for concern was further supported by the fact that MSK had just made a demand in the underlying arbitration for documents relating to use of corporate funds to cover personal expenses because such information was “necessary for claimant to defend itself against PLB’s counterclaims and defenses.”
According to the motion for disqualification, PLB had requested the immediate transfer of all of PLB’s files in October 1999. Files were turned over in late November, but PLB believed that MSK had withheld important documents, including copies of bills, internal billing files, and conflict checks.
In opposition to the motion to disqualify, MSK claimed to have advised PLB that it was ceasing further work on its behalf in mid-1997 due to PLB’s *817 failure to sign the conflict waiver form, and to have ceased representing PLB a year later, in mid-1998. After that date, “MSK performed minimal work in assisting a few family members and a friend of Messrs. Benasra and Goulin in processing certain immigration forms ... in late 1998/early 1999.” MSK claimed to have been first consulted by Guess regarding the dispute with PLB on May 14, 1999. As further grounds for denying the motion, MSK argued that PLB had failed to promptly raise the issue of conflict, causing it prejudice, and that PLB had not offered any admissible evidence because there were no declarations filed in support of it.
With respect to the Jet Tech arbitration, MSK presented evidence that it took place in 1994 and involved a broker’s claim for a commission on the sale of PLB’s corporate jet. Concerning the Ready action, MSK said that it “briefly represented PLB and Benasra” and “consulted intermittently with PLB and Benasra from January through May 1997.” MSK withdrew be cause of PLB’s failure to sign the waiver letter, described above.
Frida Glucoft, the MSK attorney who had represented PLB in immigration matters, stated in a declaration that MSK “ceased all work on PLB matters in the fall of 1997” but admitted that she responded to inquiries from the Department of Labor concerning a PLB employee between December 1997 and July 1998, and responded to “brief follow-up inquiries” after July 1998. She further admitted that she did work for a female friend of Benasra, the son and daughter of Goulin, and Benasra’s teenage daughter between January and May 5, 1999. The latter representation led to the letter of May 6, 1999, in which she stated “[o]ur firm represents Mr. Michel Benasra in connection with his petition for alien relative on behalf of his daughter Charlotte Benasra.” In addition, “[a]s part of the required documentation, [MSK] submitted a Form G-28: ‘Notice of Entry of Appearance as Attorney.’ ” Glucoft purportedly told Deborah Siegel, “[her] contact person concerning [the daughter’s] application,” that the daughter should have new counsel. Glucoft represented that “[w]hen an applicant changes counsel, the obligation falls on new counsel to advise the INS of the change” and that “[p]rior counsel is not required to formally withdraw or be released.” Glucoft denied receiving any confidential information “pertaining to PLB’s relationship with [Guess], PLB’s performance under license agreements with [Guess], PLB’s financial condition, . . . PLB’s dealings with its customers, bankers, suppliers, or lenders” or “about personal financial issues, habits, or activities related to the principles of PLB or any other of its employees.”
Petrocelli stated in a declaration that in connection with the Ready action, “MSK did not acquire any confidential information from PLB, Benasra, or anyone else that relates to any matter at issue in [the Guess] arbitration.” He specifically stated that “[t]he contention . . . that I obtained confidential *818 information in the Ready action that I later used in examining witnesses in the [related arbitration] is completely false.” Petrocelli claimed that “information regarding Mr. Benasra’s relationships with women and his lavish lifestyle was known to numerous individuals and publicly reported in the press.” 1 Petrocelli further denied that MSK’s representation of PLB made it “ ‘privy to the internal operating practices of PLB’ ” or that MSK had “a ‘long history of intimacy with the inner workings of PLB,’ ” as PLB had claimed.
The arbitrators denied the motion, stating in their order that “[t]here is insufficient evidence to support the disqualification of [MSK] as counsel in this proceeding.” Because of the stated basis for the arbitrators’ order, PLB requested leave to obtain further evidence from MSK and hold a full evidentiary hearing. The panel denied the request.
2. Application for TRO and OSC Filed in Court
PLB then sought a temporary restraining order (TRO) and order to show cause (OSC) from the superior court. In conjunction with this, PLB presented a declaration from Kathleen Grzegorek, an immigration law expert. She reviewed the Glucoft declaration and MSK billing records, and INS files, identifying a number of matters in which MSK still appeared to be counsel of record for Benasra, Goulin, their family members, and other PLB employees based on the fact that applications submitted to INS on their behalf in 1998 and 1999 required several years processing time. Since Glucoft had not said that she had submitted forms to the INS formalizing withdrawal, Grzegorek believed that the INS would still consider Glucoft to be attorney of record for Benasra and the Goulins, and would communicate directly with her if necessity required. Grzegorek expressed the opinion that Glucoft must have obtained certain confidential information from the applicants, such as tax returns and records of travel. Grzegorek stated that MSK’s bills reflected time spent tracking Benasra’s travels. Since many of the individuals Glucoft assisted were employees or prospective employees of PLB, she would also have needed, in Grzegorek’s opinion, to obtain information about employees’ salaries, job duties, and backgrounds.
In support of the motion for reconsideration, PLB also submitted declarations from Benasra and Goulin to the court. Benasra’s declaration stated his belief that he was a current client of MSK based on the application to bring his daughter into the United States. His declaration further said that MSK was representing PLB in various matters in late 1998, when Guess first threatened to terminate the license agreements between the parties. He stated that MSK *819 had been given both PLB’s tax returns and his personal tax returns. He described consulting with MSK about a nonlitigation matter involving the termination of the licenses for an entity called Fashion Rite in which PLB was a joint venturer and which “included consideration of various issues relating to licenses and license termination, and required analysis of the nature of the commitments made by [Guess].” With respect to the Ready matter, Benasra stated that he “gave [MSK] a great deal of information” during its brief representation, including “both intimate personal history and the financial and operations history of PLB, which were germane because of [Ready’s] allegations,” including a claim for a share of PLB profits. Benasra contended that MSK had “refused to turn over a series of memoranda it wrote during its representation of [Benasra] and PLB in the sexual harassment case, claiming they are privileged or work product.”
Denys Goulin stated in his declaration that PLB’s general counsel, Deborah Siegel, was “instructed and authorized during the period 1993 to 1999 to provide whatever information MSK requested.” He also used MSK for immigration assistance for himself and his family and believed Glucoft was still representing them in those matters.
Guess opposed the TRO and OSC application on the ground that the court lacked jurisdiction to hear the application since the issues had already been submitted to and ruled on by the arbitration panel. Guess further argued that the application was substantively meritless based on the papers and declarations already filed in the arbitration proceeding.
The court denied the application, agreeing on the record with Guess that PLB’s sole remedy was to obtain relief from the arbitrators and that it lacked the power to adjudicate the dispute.
3. Motion for Reconsideration Presented to Panel
PLB sought reconsideration of the denial of the motion to disqualify based on “[n]ewly discovered evidence not previously available to be submitted to the Panel which demonstrates that this Panel was misled by earlier statements made to the Panel by [MSK]”; the declarations of Benasra, Goulin, and Grzegorek presented to the trial court; and the parties’ recent filing of a lawsuit against MSK. 2 The newly discovered evidence consisted of recently *820 produced notes written by an agent for Guess dated November 30, 1998, 3 which contained reference to PLB and the following language: “Petrocelli [to] sit with Tim[;] review matter[;] fully prepared to deal with any challenge to terminating license.” This indicated that MSK had been consulted prior to May 14, 1999, concerning termination of the PLB licenses contrary to Petrocelli’s representation that “[p]rior to May 14, 1999, MSK had never represented or advised [Guess] in connection with any matter adverse to PLB.”
Guess opposed, claiming that the document was “meaningless” and that the matter had already been fully explored. Petrocelli submitted a supplemental declaration stating that he was unaware of the November 30, 1998 meeting and was not involved in any discussion concerning terminating PLB’s licenses until May 14, 1999. He said that in his only conversation with Guess on November 30, 1998, he was asked to supply a reference to a bankruptcy lawyer. Another MSK attorney, Wayne Terry, stated in a declaration that he had been consulted by Guess employees between November 30, 1998, and December 1998, and gave them “general bankruptcy advice.”
The arbitrators denied the renewed motion to disqualify, again based on “insufficient evidence to support the disqualification of [MSK].”
Arbitrators ’ Award
The arbitration went forward and the panel awarded Guess $5,563,861 in damages, plus $901,968 in interest, and $1,193,848 in fees and costs for a total award of $7,659,677. The panel found that in 1997, PLB fell behind on its royalty payments, in part because of the need for cash to expand the home furnishings business. It obtained a multimillion-dollar loan with Guess’s assistance, but by 1998 fell behind on both royalties and loan payments. The lender required PLB to hire a turnaround expert to take over the business. Business improved somewhat, but not. sufficient for PLB to keep up to date on royalty payments. In November 1998, Guess notified PLB of its intent to terminate the agreements for nonpayment of royalties. The parties thereafter discussed a possible buy-out of PLB by Guess and signed a nonbinding letter of intent, but did not reach a final agreement. During the negotiations, Guess learned that PLB had sold in-season,- first-quality merchandise to off-price retailers. Guess confronted PLB with this knowledge, and demanded that such sales cease; PLB complied. Nevertheless, on May 14, 1999, Guess notified PLB that the agreements were terminated.
The panel concluded that Guess had given notice and opportunity to cure, which expired on January 25, 1999. Thereafter, “[t]he parties continued to *821 negotiate a buy out and the license was de facto continued in effect until May 14, 1999, but PLB lost the right to cure . . . .” It ruled that the fact that Guess had allowed late royalty payments in the past did not result in waiver.
The panel considered the applicability of the Franchise Relations Act (Bus. & Prof. Code, § 20000 et seq.). It concluded that section 20021 permits termination without right to cure where a prior noncompliance with the agreement had occurred and had been cured. Concerning the Franchise Investment Law (Corp. Code, § 31000 et seq.), the panel stated: “Assuming arguendo that the FPL does apply to this relationship, any obligation to register the franchise (Corp. Code, § 31110) (and damages flowing therefrom) are barred by the applicable four-year statute of limitations (Corp. Code, § 31303)” and that the letters of intent were not “material modifications to that putative relationship.”
One of the panel members dissented on the franchise question, concluding that the agreements met the definition of franchises under the FIL. He further concluded, however, that “there was no adequate proof of substantive damages flowing from the violations [of the FPL].”
Petitions to Vacate/Confirm
Guess petitioned to confirm the arbitration award, and PLB petitioned to vacate it. PLB presented declarations from Benasra in opposition to the petition to confirm the award and in support of the petition to vacate. With respect to disqualification, Benasra continued to stress MSK’s representation of PLB in the Jet Tech, Ready, Fashion Rite, and immigration matters. 4
Petrocelli outlined in a new declaration the various proceedings in which conflict of interest was raised, insisting that the arbitrators had held a full evidentiary hearing that finally resolved the matter. With respect to the substance of the breach of duty of loyalty/conflict of interest claim, Guess asked the court to take judicial notice of the declarations and evidence previously submitted in the proceedings before the arbitration panel and in connection with the application for TRO and OSC before the trial court.
The petition to vacate was denied, and the arbitration award confirmed. At the hearing, the court stated that the alleged conflict, even if tme, would not fit within the “procured, by undue means” rubric of Code of Civil Procedure section 1286.2, subdivision (a). The court further stated that PLB was *822 required to establish that it did not know about the issue or raise it before the arbitrators. Appeal was noticed as to both orders and consolidated.
DISCUSSION
I
Conflict of Interest
Appellant claims that MSK violated well established ethical strictures against conflicts of interest and breach of duty of loyalty set forth in the Rules of Professional Conduct. In particular, rule 3-310(E) provides: “A member shall not, without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential information material to the employment.” In addition, rule 3-310(C)(3) provides: “A member shall not, without the informed written consent of each client: [f] . . . [][] (3) Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter.”
Rules of Professional Conduct, rule 3-310(C)(3) represents a “per se rule of disqualification which generally prevents an attorney from undertaking a representation which is adverse to a current client. [Citation.]”
(Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft
(1999)
“The primary value at stake in cases of simultaneous or dual representation is the attorney’s duty—and the client’s legitimate expectations—of
loyalty,
rather than confidentiality.”
(Flatt v. Superior Court
(1994)
Moreover, “[a] lawyer may not avoid the automatic disqualification rule applicable to concurrent representation of conflicting interests by unilaterally converting a present client into a former client.
(American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton
(2002)
With respect to the successive representation of clients with potentially adverse interests, “the courts have recognized that the chief fiduciary value jeopardized is that of client confidentiality. Thus, where a former client seeks to have a previous attorney disqualified from serving as counsel to a successive client in litigation adverse to the interests of the first client, the governing test requires that the client demonstrate a ‘substantial relationship’ between the subjects of the antecedent and current representations.” (Flatt v. Superior Court, supra, 9 Cal.4th at p. 283.) “Where the requisite substantial relationship between the subjects of the prior and the current representations can be demonstrated, access to confidential information by the attorney in the course of the first representation (relevant, by definition, to the second representation) is presumed and disqualification of the attorney’s representation of the second client is mandatory . . . .” (Ibid.)
A
“substantial relationship” between the former representation and the current representation is said to exist “ 1 “when it appears by virtue of the nature of the former representation or the relationship of the attorney to his former client confidential information material to the current dispute would normally have been imparted to the attorney
(H. F. Ahmanson & Co.
v.
Salomon Brothers, Inc.
(1991)
In
Jessen
v.
Hartford Casualty Ins. Co.
(2003)
The allegation has been made that much of the representation at issue involved immigration matters, and that with respect to those matters the client was not PLB but various employees and officers of PLB and their families. In
Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft, supra,
These authorities convince us that PLB has at least a colorable claim that MSK engaged in conflicted representation or violated its duty of loyalty by undertaking the representation of Guess in the underlying arbitration. We therefore turn to the issue of whether such conduct constitutes grounds for vacating an arbitration award.
n
Undue Means
A
“As the courts of this state have repeatedly emphasized, the merits of a controversy that has been submitted to arbitration are not subject to judicial review. This means that we may not review the validity of the arbitrator’s reasoning, the sufficiency of the evidence supporting the award, or any errors of fact or law that may be included in the award.
(Moncharsh
v.
Heily & Blase
(1992)
PLB challenges the award under section 1286.2 of the Code of Civil Procedure, which provides that a court is to vacate an arbitration award if, among other things, “[t]he award was procured by corruption, fraud or other undue means” (Code Civ. Proc., § 1286.2, subd. (a)), the alleged undue means in this case consisting of the representation of Guess by MSK. Guess argues that PLB’s challenge fails for three reasons: “First, the Arbitrators’ repeated unanimous rulings on the issue ... are final and cannot be judicially reviewed for error. Second, ... the type of conduct PLB relies on does not *826 constitute ‘undue means’ under section 1286.2(a) because it was not ‘extrinsic’ to the Arbitration. Third, as every tribunal ever to consider the issue has concluded, MSK had no conflict of interest and was not precluded from representing Guess against PLB in the arbitration.”
We have already disagreed with Guess’s contention with respect to finality. As we held in
Benasra
v.
Mitchell Silberberg & Knupp, supra,
On the question of whether “other undue means” includes representation of the prevailing party by an attorney with a potential conflict of interest, PLB argues for a broad interpretation of the term to include any conduct that might be described as unfair. Guess takes the position that only extrinsic fraud meets the statutory requirements. We believe both parties are incorrect.
To determine the Legislature’s intent in enacting Code of Civil Procedure section 1286.2, we begin with the words of the statute. (See
Kraus v. Trinity Management Services, Inc.
(2000)
This rule cautions against an overly broad interpretation of the term “undue means.” If the Legislature intended to permit an arbitration award to be vacated whenever the prevailing party engages in tactics that might in any way seem unfair, it would not have used the specific examples of fraud and corruption to describe the type of “undue means” it had in mind.
PLB quotes the California Law Revision Commission, which stated in 1960 in connection with a review of the arbitration statutes undertaken to determine whether they should be revised: “It has been held that any conduct which amounts to fraud or which deprives either party of a fair and impartial hearing to his substantial prejudice may be ground for setting aside the award.” (Recommendation Relating to Arbitration (Dec. 1960) Cal. Law Revision Com. Rep. (1960) p. G-55.) The quoted language is actually more supportive of Guess’s position. The statement was based on the holding in
Stockwell v. Equitable F. & M. Ins. Co.
(1933)
*828
The rule set forth by the court in
Stockwell
and repeated by the Law Revision Commission bears a strong resemblance to the long-standing description of extrinsic fraud, a commonly used ground for vacating a final court judgment. (See, e.g., 8 Witkin, Cal. Procedure (4th ed. 1997) Attack on Judgment in Trial Court, § 223, p. 727 [“The most common ground for equitable relief [from a final judgment] is
extrinsic fraud,
a broad concept that covers a number of situations. Its essential characteristic is that it has the effect of preventing a fair adversary hearing, the aggrieved party being deliberately kept in ignorance of the action or proceeding, or in some other way fraudulently prevented from presenting his claim or defense”];
Olivera v. Grace
(1942)
Despite their similar roots, however, courts have not equated the conduct necessary for setting aside a judgment with the conduct necessary for vacating an arbitration award. With regard to an attack on a judgment, the distinction between intrinsic and extrinsic fraud is of critical importance because intrinsic fraud cannot be used to overthrow a judgment, even where the party was unaware of the fraud at the time and did not have a chance to raise it at trial.
(Kachig v. Boothe
(1971)
*829
Explaining why introduction of perjury or false documents is considered intrinsic and cannot support a collateral attack on a final judgment where it is uncovered after the trial, the court stated: “ ‘[W]hen [a party] has a trial, he must be prepared to meet and expose perjury then and there. He knows that a false claim or defense can be supported in no other way; that the very object of the trial is, if possible, to ascertain the truth from the conflict of the evidence, and that, necessarily, the truth or falsity of the testimony must be determined in deciding the issue. The trial is his opportunity for making the truth appear. If, unfortunately, he fails, being overborne by perjured testimony, and if he likewise fails to show the injustice that has been done him on motion for a new trial, and the judgment is affirmed on appeal, he is without remedy.’ ”
(Kachig v. Boothe, supra,
Because parties to an arbitration are not afforded the full panoply of procedural rights available to civil litigants, lacking for example the right to an appeal or to extensive discovery, courts generally take a more lenient approach when examining intrinsic fraud in the context of a motion to vacate an arbitration award. In
Bonar
v.
Dean Witter Reynolds, Inc.
(11th Cir. 1988)
A type of fraud traditionally considered intrinsic was also at the center of a motion to vacate in
Lafarge Conseils Et Etudes, S.A. v. Kaiser Cement
(9th Cir. 1986)
Rather than rely on the distinction between intrinsic and extrinsic fraud, the courts in
Bonar
and
Lafarge Conseils
set forth a three-part test to be used to determine whether an arbitration award should be vacated for fraud. “First, the movant must establish the fraud by clear and convincing evidence. [Citations.] Second, the fraud must not have been discoverable upon the exercise of due diligence prior to or during the arbitration. [Citations.] Third, the person seeking to vacate the award must demonstrate that the fraud materially related to an issue in the arbitration. [Citations.]”
(Bonar v. Dean Witter Reynolds, Inc., supra,
Guess contends that the present matter should be analyzed under the three-part test, and that PLB cannot prevail because it knew about the allegedly improper conduct (the conflict of interest or breach of duty of loyalty) and brought it to the attention of the arbitrators. Guess cites the Ninth Circuit opinion in
A.G. Edwards & Sons, Inc. v. McCollough
(9th Cir. 1992)
In
A.G. Edwards,
the party seeking vacation of the award asserted that the prevailing party had engaged in both “fraud” and “undue means” within the meaning of 9 United States Code section 10(a)(1) by asserting facially meritless defenses. Apparently presuming that the meritless defenses influenced the arbitrators’ decision, the district court vacated the award. The Ninth Circuit reversed. The primary basis for the circuit court’s reversal was the district court’s unwarranted presumption: “If the district court employed a presumption that the
*831
meritless defenses had an impact on the arbitrator’s decision, its holding is in obvious tension with the applicable case law. As the district court recognized, arbitrators are not required to state the reasons for their decisions. [Citations.] The rule that arbitrators need not state their reasons presumes the arbitrators took a permissible route to the award where one exists. [Citation.] Under the district court’s rationale in this case, courts would be free to vacate an award in any case in which the winning side had raised even one meritless defense and the arbitrators had not specifically identified the reasons for their award. Panels of arbitrators wishing to avoid relitigation would be forced to state the reasons for their decisions in direct contradiction of the universally accepted rule that a statement of reasons is not required and arbitrators are presumed to have relied on permissible grounds. [Citation.] [f] If the district court meant to hold that no reliance by the arbitrators on the meritless arguments need be demonstrated because the mere offering of the defenses itself constitutes ‘undue means,’ its holding conflicts with the language of § 10 and cases interpreting it. The statute allows for vacation of an award ‘procured by corruption, fraud, or undue means.’ 9 U.S.C. § 10(a)(1). Thus the statute requires a showing that the undue means caused the award to be given.”
(A.G. Edwards & Sons, Inc. v. McCollough, supra,
The court gave a second reason for its reversal based on the conduct not falling within its understanding of the term “undue means”: “Although the term has not been defined in any federal case of which we are aware, it clearly connotes behavior that is immoral if not illegal. See Black’s Law Dictionary 1697 (Rev. 4th ed. 1968) (‘Undue’ means ‘more than necessary; not proper; illegal,’ and ‘denotes something wrong, according to the standard of morals which the law enforces.’ ‘Undue influence’ means any ‘improper or wrongful constraint, machination, or urgency of persuasion whereby the will of a person is overpowered.’). Offering a meritless defense, however unfortunate, is part and parcel of the business of litigation; it carries no connotation of wrongfulness or immorality. In addition, it occurs with such frequency that, were the district court’s rule to be adopted, the federal courts would be required to overturn arbitration awards regularly as procured by ‘undue means.’ This would be inconsistent with the extremely limited scope of judicial review of such awards.” (A.G. Edwards & Sons, Inc. v. McCollough, supra, 967 F.2d at pp. 1403-1404.)
Finally, the court made the statements on which Guess seeks to rely. The court “s[aw] no reason not to apply [the three-part test devised to apply to fraud] to cases raising claims of ‘undue means,’ ” and said that the party seeking to vacate the award had not satisfied it.
(A.G. Edwards & Sons, Inc. v. McCollough, supra,
The Ninth Circuit was doubtlessly correct in ruling that the mere assertion of facially meritless defenses is insufficient ground to overturn an arbitration award. Where meritless legal arguments are raised in an arbitration, the opposing party has a full and fair opportunity to contest them and mere legal error made by arbitration panels must be disregarded by the courts.
(Moncharsh v. Heily & Blase,
supra,
More to the point, under similar circumstances, a California court held that a party, who did not receive a hearty “first bite” could not be precluded from having a “second bite.” In
Pacific Crown Distributors v. Brotherhood of Teamsters
(1986)
As we stated in Benasra v. Mitchell Silberberg & Knupp, supra, 96 Cal.App.4th 96, “[t]he arbitration involved claims and counterclaims between PLB and Guess, which were disputing product-licensing agreements^] [t]he question of whether a conflict prevented [MSK] from representing Guess . . . in the arbitration was raised as an ancillary or collateral issue” (id. at p. 109) and “[a]ppellants have never had an opportunity to prosecute a full-blown claim for breach of duty of loyalty against [MSK] in any forum[;] [t]he single issue of whether the presentation of Guess in the arbitration required use of confidential information was presented in summary fashion to the panel of arbitrators.” (Id. at p. 114.) Thus, it cannot be said that PLB had an opportunity to discover and reveal the alleged undue means at the arbitration hearing. For this reason, we do not believe that the holding in A.G. Edwards resolves the issue in this case.
B
Our conclusion that PLB did not receive a full hearing on its conflict of interest/breach of duty of loyalty contention does not, however, mean that the alleged breach is the type of “fraud, corruption, or other undue means” needed to vacate the award. In
Newark Stereotypers’ U. No. 18 v. Newark Morning Ledger Co., supra,
This was similar to the approach taken in
Forsythe Intern., S.A. v. Gibbs Oil Co. of Texas
(5th Cir. 1990)
Responding to the question of whether the arbitrators’ actions (or inaction) rendered the arbitration fundamentally unfair, the court stated: “As a speedy and informal alternative to litigation, arbitration resolves disputes without confinement to many of the procedural and evidentiary strictures that protect the integrity of formal trials. [Citation.] Parties to voluntary arbitration may not superimpose rigorous procedural limitations on the very process designed to avoid such limitations. [Citation.] The informal nature of arbitration proceedings effectuates the national policy favoring arbitration, and such proceedings require ‘expeditious and summary hearing, with only restricted
*835
inquiry into factual issues.’ [Citations.] [f] Submission of disputes to arbitration always risks an accumulation of procedural and evidentiary shortcuts that would property frustrate counsel in a formal trial. But because ‘the advantages of arbitration are speed and informality, an arbitrator should be expected to act affirmatively to simplify and expedite the proceedings before him.’ [Citation.] Thus, whatever indignation a reviewing court may experience in examining the record, it must resist the temptation to condemn imperfect proceedings without a sound statutory basis for doing so.”
(Forsythe Intern., S.A. v. Gibbs Oil Co. of Texas, supra,
Like the moving party in Forsythe, PLB encourages us to condemn the panel for its limited inquiry into the conflict issue, but highlights no aspect of the arbitrators’ award that might have been impacted by any confidential information allegedly obtained by MSK in the course of its representation of PLB and its officers and employees. The panel found that PLB fell behind on its royalty payments because of the need for cash to expand the home furnishings business, not because of any personal use of corporate funds that may have occurred. It awarded Guess royalty payments because such payment were due under the terms of the parties’ agreements and it could find no basis for excusing PLB’s performance. Any attempt to prejudice the panel against PLB by focusing on alleged misuse of corporate funds did not make its way into the final ruling.
PLB cites
Tsakos Shipping & Trading, S.A. v. Juniper Garden Town Homes, Ltd.
(1993)
In
Hernandez v. Paicius, supra,
On appeal, the court held that the trial court committed reversible error in denying plaintiff’s motion to disqualify and to declare a mistrial. The court stated that “[djefense counsel’s representation of [defendant] required her to create a record impeaching her other client’s professional reputation and credibility”; that “counsel demonstrated a dulled sensitivity to professional ethics and engaged in an egregious and shocking breach of her duty of loyalty to [the expert]”; and that “[t]he court should have intervened.”
(Hernandez
v.
Paicius, supra,
The facts before us are distinguishable from those in
Tsakos
or
Hernandez.
In
Tsakos,
the judgment was achieved through nondisclosure of the pendency of the proceedings to effected parties and the hiring of a conflicted attorney to represent their interests. In
Hernandez,
the conflicted defense attorney had knowledge obtained through the course of her firm’s representation of plaintiff’s expert witness that severely undermined his credentials and credibility. Here, by contrast, PLB was represented by independent counsel in the arbitration. Its claim was that confidential information had been imparted during the course of prior or other representation and brought out in the proceeding, but it points to no particular impact MSK’s continued representation of Guess had on a material issue or the arbitrator’s ultimate award. In overturning the judgment, the court in
Hernandez
found it “unnecessary to decide whether plaintiff suffered actual prejudice from counsel’s misconduct.”
*837
(Hernandez
v.
Paicius, supra,
We believe the present situation is more analogous to that in
In re Sophia B.
(1988)
We are constrained by our interpretation of the governing statute and the relevant authorities to conclude that PLB failed to make the showing necessary to vacate the arbitration award. PLB failed to show by clear and convincing evidence that a conflict existed and that it had a substantial impact on the panel’s decision. Accordingly, the trial court did not err in refusing to vacate the award on the ground that it was procured by undue means.
Ill, IV *
DISPOSITION
The order denying the petition to vacate the arbitration award and the order confirming the award are affirmed.
Vogel (C. S.), P. J., and Epstein, J., concurred.
Appellant’s petition for review by the Supreme Court was denied January 14, 2004. Werdegar, J., and Chin, J., were of the opinion that the petition should be granted.
Notes
The press articles attached referred to Benasra dating a famous actress and supporting a former girlfriend in a design business.
In January 2000, PLB filed a separate lawsuit against MSK. The claim against MSK was dismissed on collateral estoppel grounds. In 2002, this court reversed and remanded based on the Supreme Court’s holding in
Vandenberg v. Superior Court
(1999)
The notes actually show the date as “11/30” but there is no dispute that they were written in 1998.
Benasra’s declaration also discussed facts related to PLB’s claim that the license agreements were disguised franchises. The franchise issue and the facts related to it are discussed in part IV below.
A fuller definition of extrinsic fraud was set forth more than a century ago in
United States
v.
Throckmorton
(1878)
Like Code of Civil Procedure section 1286.2, 9 United States Code section 10(a)(1) permits an arbitration award procured by “corruption, fraud, or undue means” to be vacated.
The accused party allegedly “misrepresented to the panel that [a telephonically deposed witness] was an employee . . . when in fact he was a former employee”; “controlled] the availability of [the witness] and . . . interfere^] with the questioning of [the witness] during [the] deposition”; “imposed an arbitrary time limit on [the] deposition”; and “misrepresented . . . [the witness’s] medical condition, which enabled [it] to terminate the telephonic interview prematurely.”
(Forsythe Intern., S.A. v. Gibbs Oil Co. of Texas, supra,
See footnote, ante, page 810.