Song v. Creative Global Investment CA2/2 ( 2022 )

Filed 2/4/22 Song v. Creative Global Investment CA2/2
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California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
BRYAN J. SONG, B299422
B301697
Plaintiff and Respondent, B304884
(Los Angeles County
v. Super. Ct. No. BC638221)
CREATIVE GLOBAL
INVESTMENT, INC., et al.,
Defendants and Appellants.
APPEAL from a judgment of the Superior Court of Los
Angeles County. Barbara Ann Meiers, Judge. Affirmed.
Law Offices of J. P. Pak, J. P. Pak; Benedon & Serlin,
Gerald M. Serlin and Kelly Riordan Horwitz for Defendants and
Appellants.
Park & Lim, S. Young Lim and Jessie Y. Kim for Plaintiff
and Respondent.
_______________________
A breach of contract dispute between co-investors in two
Coffee Bean and Tea Leaf franchises proceeded to private
arbitration, resulting in an award of $132,000 for plaintiff and
respondent Bryan Song. Defendants and appellants Dong Yeoun
Lee and Creative Global Investment, Inc., filed a petition to
confirm the arbitration award, but included requests to have the
award clarified and modified. Respondent filed an opposition to
the modifications and asked the award to be confirmed.
At the motion to confirm hearing on April 6, 2018, the trial
court expressed concerns that the arbitration award contained
“serious clarification and/or completeness issues,” and
subsequently on May 23, 2018, ordered the award vacated and
set a date for a de novo bench trial. The trial court’s May 23,
2018 minute order states “all parties being in agreement” with
the order.
The case proceeded to trial to judgment without objection
by any party, resulting in an award of $900,000 in damages and
$3 million in punitive damages for Song. After the trial had
concluded, appellants filed a motion for a new trial on May 31,
2019, in which the attorney for appellants asserted for the first
time that she merely “submitted” to the trial court’s insistence on
vacating the arbitration award without consulting with her
clients.
Appellants appealed from the trial judgment on the basis
that the trial court had no authority to set aside the arbitration
award and order trial de novo, among other substantive grounds
related to the trial judgment.
On the threshold question of whether the trial court had
the authority to vacate the arbitration award and order a de novo
judicial trial pursuant to the purported agreement of the parties,
2
we conclude that it did have such authority by agreement, and
that the record reflects that the agreement was authorized and/or
ratified. Over more than a year, appellants actively participated
in pretrial proceedings, including filing a pretrial motion
affirming that they had stipulated to trial, and proceeded with
trial to judgment before ever contending that appellants never
consented to their attorney’s agreement to a trial de novo. By
remaining silent and participating in the pretrial and trial
proceedings without objection, the appellants’ agreement to
vacate the award and proceed to a bench trial constituted a
ratification of these proceedings and waiver of their right to
arbitration.
On all other grounds related to the trial judgment, we
affirm the judgment entered for the reasons stated below.
FACTUAL AND PROCEDURAL HISTORY
I. Factual Background
A. Song and Lee form two entities to jointly invest in
Coffee Bean franchises
Appellant Dong Yeoun Lee is the sole shareholder and CEO
of appellant Creative Global Investment, Inc. (CGI), which owns
Coffee Bean and Tea Leaf (Coffee Bean) franchises in Asia and
California. Respondent Bryan Song is a businessman who owns
and manages a liquor store and a karaoke cafe in Los Angeles.
Lee and Song met each other in early 2015 through attending the
same health club, began a friendly social relationship, and
discussed investing in Coffee Bean franchises together.
Lee and Song ultimately agreed that CGI and Song would
jointly form two new companies, CGI Gaju, LLC (Gaju) and CGI
Paramount, LLC (Paramount), to open new Coffee Bean
franchises in Los Angeles (the Gaju location and the Paramount
3
location). Lee told Song that they would be co-owners of each
franchise through the LLCs. When asked about income and
profits, Lee represented to Song that Song “would be able to take
at least 2 percent of [his] investment every month.” Lee told
Song that he was very happy to have met someone like Song and
suggested that they become “brothers,” meaning that they “would
share everything.”
In March 2015, Song and CGI entered into an investment
agreement governing Gaju, written in Korean. Among other
things, it required Song to invest $450,000, for which he would
receive 49 percent of Gaju’s stock and 50 percent of its net
income, and obligated CGI to pay any expenses in excess of
$450,000 prior to the store’s opening. Song provided Lee with
separate payments of $200,000 and $250,000 for his required
investment in Gaju, for which Lee gave him written receipts.
The Gaju investment agreement also provided Song would pay
CGI a $50,000 finder’s fee, which Song also paid; however, this
$50,000 was ultimately applied toward Song’s investment in
Paramount.
Based on their prior discussions, Song understood the Gaju
investment agreement to mean that CGI and Song would form a
new company, which would be the owner of the Gaju Coffee Bean
franchise. Song completed a franchise application form with his
personal information and provided it to Lee, who subsequently
told him it had been approved. The Gaju location opened in
December 2015.
In February 2016, CGI and Song entered into an operating
agreement for Gaju drafted by Lee’s lawyer, written in English.
The operating agreement specified that CGI was required to
provide “Labor and $300,000” and Song was required to provide
4
$450,000 as capital contributions for Gaju. Song and CGI were
each entitled to 50 percent of net profits. Lee admitted that CGI
never made its required $300,000 financial investment: He
initially testified at deposition that CGI never put any money
into Gaju, and at trial testified that he had invested $60,000.
In February 2016, CGI and Song also entered into an
investment agreement and an operating agreement governing
Paramount. The investment agreement provided that Song
would invest $450,000 in Paramount and receive 39 percent of
the stock while a third nonparty investor, The Korea Daily, would
invest $100,000 and receive 10 percent of the stock; and a
nonparty named individual would receive 17.5 percent of the net
income for working as the store manager. Lee told Song that the
franchise agreement for the Paramount location would be held by
the Paramount LLC.
The Paramount operating agreement was identical to the
Gaju operating agreement except that CGI would hold 51 percent
of Paramount’s shares, Song would hold 39 percent, and The
Korea Daily would hold 10 percent; CGI would contribute
$450,000 and labor, while Song and The Korea Daily would
contribute $450,000 and $100,000, respectively, and CGI and
Song would each receive a 45 percent interest while The Korea
Daily would be allocated the remaining 10 percent interest. The
Paramount location opened in July 2016. Song paid Lee
$400,000 in cash for his investment in Paramount, for which he
received no signed receipt. Lee also applied $50,000 Song had
previously given him toward his investment in Paramount, and
provided a receipt.
CGI entered into franchise agreements with Coffee Bean
for the two stores on April 15, 2015, and June 1, 2016,
5
respectively. Song, Gaju, and Paramount were not parties to the
franchise agreements, thus only CGI had an actual ownership
interest in the franchises. Song never received any return on his
investments.
The personal and financial relationship between the two
men was complicated in late 2015 by an apparent straw buyer
scheme for Song to advance funds to Lee to purchase Song’s
condominium, which was “ ‘upside down,’ ” in a “ ‘short sale,’ ”
after which Song leased the condominium back from Lee. The
relationship between Lee and Song further deteriorated by mid-
2016, when they had a physical altercation over repayment of
other unrelated business funds advanced to Lee by Song,
resulting in a restraining order against Song.
B. The arbitration clause and attorney fees provision
The Gaju and Paramount operating agreements each
contain the same arbitration clause. In relevant part, the clause
provides: “13.08. ARBITRATION. The parties further agree to
submit any claim arising out of, relating to, or regarding the
validity of, this Agreement in excess of the then current
limitation for a small claims matter (presently $5,000.00), to
binding arbitration administered by the American Arbitration
Association (“AAA”) pursuant to the Commercial Rules of the
AAA and California law in the County of San Bernardino, State
of California, with all expenses being shared equally by the
parties, subject to Section 13.03. This arbitration clause,
however, will not deprive the parties of any right they may
otherwise have to seek provisional injunctive relief from a court
of competent jurisdiction. . . . The parties will ask the arbitrator
to limit discovery to the greatest extent possible consistent with
basic fairness. . . . The arbitrator will have no power to assess
6
punitive or special damages, legal costs, attorneys’ fees, the fees
of expert witnesses, unless the arbitrator finds a party to have
acted in bad faith and except in accordance with Section 13.03.
The arbitrator will not make any award that extends, modifies, or
suspends any lawful term of this Agreement. The arbitrator
must provide a written arbitration award setting forth the
arbitrator’s findings of fact and conclusions of law. Judgment on
any AAA award may be entered in any court having competent
jurisdiction. Any costs incurred in the enforcement of the
arbitration award will be paid by the party against whom
enforcement is sought.”
Section 13.03 of the operating agreements provides that the
prevailing party in “any dispute” resulting in arbitration or
litigation is entitled to recover reasonable attorney fees, costs,
and expenses.
II. Arbitration and Trial
A. Song sues CGI and Lee, and arbitration proceeds to a
final award of $132,000 for Song
On October 21, 2016, Song filed a complaint against CGI
and Lee asserting claims against (1) CGI for breach of contract
for failure to make its required capital contributions under Gaju’s
operating agreement; (2) CGI for breach of contract for failure to
make its required capital contributions under Gaju’s operating
agreement and Paramount’s operating agreement; (3) CGI and
Lee for intentional misrepresentation for allegedly inflating the
amounts needed to construct the Coffee Bean stores so that Song
would bear all the necessary costs; (4) CGI for breach of fiduciary
duty for failure to make the capital contributions; and (5) CGI for
enforcement of inspection rights to review books and records of
Gaju. CGI and Lee successfully moved to compel arbitration.
7
On December 8, 2017, the arbitrator issued an award.
Among other things, he found that CGI never made any financial
contribution to Gaju, that CGI contributed at least $311,150 to
Paramount, and that there was no documentary or other credible
evidence that Song made any financial contribution to
Paramount beyond the $50,000 the parties agreed was credited to
him. The arbitrator concluded (1) CGI breached the Gaju
operating agreement by not making its capital contribution;
(2) CGI did not breach the Paramount operating agreement and
substantially performed based on its capital contributions;
(3) Song failed to prove CGI and Lee intentionally defrauded him;
(4) CGI breached its fiduciary duty to Song by failing to make its
required capital contribution to Gaju; and (5) the claim for right
of inspection was moot. The arbitrator awarded damages for
CGI’s breach of the Gaju contract in the amount of $132,000. The
arbitrator described this figure as 50 percent of 2016 net income
if CGI had made its $300,000 capital contribution, payable under
the operating agreement as a distribution of “funds not needed
for operations.”
B. CGI and Lee ask the trial court to confirm the
arbitration award with modifications
CGI and Lee filed a “Petition/Motion To Confirm
Arbitration Award” with the trial court, asking “that the award
be confirmed and made into an order, then judgment.” The
motion included a proposed order to the trial court which
“confirmed in all respects” the arbitration award and “entered
[judgment] in conformity therewith.” But the petition was not a
straightforward motion to confirm as it also included “further
requests” that the trial court recalculate the extent of Song’s
percentage interests in the two franchises in proportion to the
8
capital contribution amounts the arbitrator found were actually
made. These further requests were not part of the award.
Song filed a response requesting confirmation of the award
without modification, opposing the “further requests” as
“contrary to law and public policy” given the presumption in favor
of the validity of an arbitration award. Song stated, “As there is
no evidence to support any claim of invalidity of the Award, and
plaintiff has petitioned this Court to confirm the award, this
Court should confirm the Award and disregard defendant’s
‘further requests.’ [¶] . . . [¶] Plaintiff simply requests that the
court confirm the arbitration award.”
CGI and Lee replied that “[c]ontrary to Plaintiff’s claim
that petitioner is asking for an invalidity of the award, Petitioner
simply asks that the award be confirmed and made into an order,
then judgment.” The reply reiterated the request “that the Court
confirm the Arbitration Award and order that Plaintiff’s LLC
member percentage interests be adjusted according to the fully
integrated Operating Agreements based on Plaintiff’s actual
capital contribution amounts that were found to have been made,
as referenced and concluded by the Arbitrator.”
C. The trial court expresses concern about the clarity
and completeness of the arbitration award, vacates
the award, and orders a de novo trial pursuant to the
agreement of the parties
At the motion to confirm hearing on April 6, 2018, the trial
court issued a minute order stating: “In light of what the court
views as serious clarification and/or completeness issues with
regard to the arbitration award, the parties are ordered to
contact the arbitrator and to try and arrange for further
proceedings to be conducted by him” or to obtain a statement
9
from him as to why not. The trial court set “a further hearing on
all matters” for May 23, 2018, unless the parties should give
notice of further arbitration proceedings. No further arbitration
proceedings occurred, and no additional statement, motions, or
documents were filed with the trial court. No transcript of the
April 6, 2018 hearing was included in the record on appeal.
At the May 23, 2018 hearing, the trial court issued a
minute order stating: “All parties being in agreement the
arbitration award is vacated and the case is set for a Court Trial
on October 19, 2018.” The order further directed that “[n]o
discovery beyond that done already is to take place but
arbitration discovery documents products may be used.” There is
no transcript of the May 23, 2018 hearing and the minute order is
the only record of the proceedings that is included in the record
on appeal.
D. Song amends his complaint before trial
Six weeks before trial was to begin, with new counsel, Song
filed an ex parte application to amend his complaint to add a
claim for declaratory relief. CGI and Lee filed an opposition.
The trial court ordered supplemental briefing on whether
the causes of action properly belonged to Song or to the LLCs and
whether declaratory relief or reformation were necessary to put
the issues to rest. After receiving the supplemental briefing, the
trial court granted Song’s motion to amend and directed Song to
bring most of his claims as derivative claims on behalf of the
LLCs and proceed on his own behalf on claims for intentional
misrepresentation, breach of fiduciary duty, and enforcement of
inspection rights.
Song filed a revised first amended complaint, asserting
claims against: (1) CGI and Gaju for breach of written contract
10
on Gaju’s behalf; (2) CGI and Paramount for breach of written
contract on Paramount’s behalf; (3) CGI and Lee for intentional
misrepresentation on Song’s behalf; (4) CGI for breach of
fiduciary duty on behalf of Song, Gaju, and Paramount; (5) CGI
for enforcement of inspection rights on Song’s behalf; (6) Lee,
CGI, Gaju, and Paramount for rescission based on fraud on
Song’s behalf; (7) Lee, CGI, Gaju, and Paramount for violation of
securities laws entitling Song to rescission; (8) CGI, Gaju, and
Paramount for declaratory relief on behalf of Gaju and
Paramount; and (9) CGI, Gaju, and Paramount for reformation of
contract on behalf of Gaju and Paramount.
On October 12, 2018, CGI and Lee filed an ex parte motion
seeking to confirm the trial date, take judicial notice of the
arbitration award as to the original third, fourth, and fifth causes
of action (misrepresentation, breach of fiduciary duty, and rights
of inspection), or, in the alternative, cancel the scheduled trial
and/or confirm the arbitration award as to the original third,
fourth, and fifth causes of action. The motion represented that
“[o]n May 23, 2018, Plaintiff and Defendants agreed to stipulate
to vacate the arbitration award in place of a retrial,” that
“Defendants did agree with the Court in the April 6 motion
hearing that the Arbitrator’s Award as applied to the First and
Second Causes of Action was incomprehensible and
unintelligible,” and that “Plaintiffs and Defendants had agreed to
vacate the Arbitration Award and move forward with a one-time
retrial by this Court only because of the incompleteness of and
issues remaining in the Arbitrator’s Award specifically for the
First and Second Causes of Action.”
11
At the hearing on the ex parte motion, the trial court
continued the trial to January 2019 and ordered an accelerated
briefing schedule on the first amended complaint.
E. The trial court awards Song $900,000 in
compensatory damages and $3 million in punitive
damages
The trial court conducted a bench trial in January 2019,
from which the issue of punitive damages was bifurcated. The
trial court held that Song prevailed on all causes of action except
for his claim for enforcement of inspection rights—which he had
dismissed—and his request for declaratory relief, which it
rejected on the basis that such relief is not proper where an
action at law provides an adequate remedy. The trial court
awarded Song $900,000 “as to all causes of action” upon which he
prevailed.
Song sought $9 million in punitive damages. The trial
court conducted the punitive damages phase in March 2019 and
awarded Song $3 million in punitive damages. In conjunction
with the punitive damages trial, Lee admitted that he had been
charged with securities violations in South Korea and placed on
probation for two years.
On April 19, 2019, the trial court issued its tentative
judgment and proposed statement of decision. The court held Lee
was liable for violations of fiduciary duties to Song, breaches of
written contracts, intentional misrepresentation, and all other
claims alleged other than enforcement of inspection rights and
declaratory relief. The trial court found that “while Song was a
very credible witness, defendant Lee has and had no credibility
whatsoever.”
12
Overall, the trial court “found that Mr. Lee was an
experienced and excellent ‘flimflammer’ who neatly defrauded
plaintiff Song. Among other things, he also falsely promised
monthly income to plaintiff Song which he knew was never going
to be received by Song, and, in pursuit of his goals including but
not limited to a goal of inspiring trust and confidence in his
expertise and influence in the Coffee Bean franchise business,
Lee pursued a phony social relationship with Song and held
himself out to be a very wealthy man who was the holder of many
franchises with a Coffee Bean company in other parts of the
world, worthy of trust, and who, because of his relationship with
that company would be able to obtain Coffee Bean franchises for
himself and Song as equal ‘brothers’ to enjoy and share, using a
newly created jointly held (Lee and Song, albeit it with Lee’s
share held by GCI [sic]) LLC company for each Coffee Bean
location/franchise, with these LLCs, ‘owned’ jointly by them, that
would actually hold the franchise and be the franchisee, etc.”
The trial court specifically found that “[t]he LLC
companies, purportedly, as represented to Song, to ultimately be
the franchisees, were created and Song’s money was indeed put
into them, albeit the monetary contributions to each required to
be forthcoming from Lee were never contributed or invested. Mr.
Song’s monies were then taken by Lee using his own company
CGI which was the designated manager of each of these
companies to pay all of the expenses required to open the
franchises in issue, but not for the LLCs as franchisees. Instead,
they were opened and the Song money used only for Lee’s benefit
for he never caused the franchises to be ‘obtained’ by the LLCs.
Instead the franchises ‘went to’ and were solely held and owned
by Lee’s own company CGI in which Mr. Song and the LLCs held
13
no interest. Mr. Song was led down a yellow brick road and
received nothing in return for his money, much less all that he
had been promised and induced to believe he would receive if he
would but contribute the money sought by Lee. [¶] The bottom
line is that plaintiff Song, as intended by Lee at the outset, put
up everything and got nothing with Lee and his company, CGI,
reaping all of the benefits.”
The trial court “determined that the two LLCs discussed in
the evidence were also nothing more than additional vehicles set
up to defraud Mr. Song by Mr. Lee,” and that “Lee simply created
and used those LLCs as fraudulent ‘shells’ and conduits of Song’s
money to fund the obtaining and opening of a Coffee Bean
franchise for himself in the name of his CGI company with no
ownership or other interest at all, directly or indirectly reposed in
Song.”
Accordingly, the trial court concluded that “Song is entitled
to a rescission of his dealings and contracts with Lee, the LLCs,
and GCI [sic] based upon the Civil Code and California common
law definitions of fraud and the liability that attaches thereto.”
The court ordered that Song present a final judgment which
includes “a provision that the contracts and membership
interests noted above are all rescinded having been induced by
fraud with the result that all monies deposited with the
companies in issue and obtained by Lee are to be refunded” in the
amount of $900,000 plus interest. In connection with the tort
claims, the trial court concluded Lee had acted “egregious[ly]”
and therefore imposed $3 million in punitive damages. Lee filed
objections to the statement of decision, which the trial court did
not address.
14
The trial court issued judgment against Lee on May 8,
2019. CGI was not included in the judgment because proceedings
against it were stayed when it filed for bankruptcy.
F. Lee moves for a new trial on grounds including that
his attorney agreed to vacate the arbitration award
without his consent
On May 31, 2019, Lee moved for a new trial on grounds
including that the trial court erred in refusing to confirm the
arbitration award and the award of punitive damages was
excessive. The motion asserted that at the May 23, 2018 hearing
where the parties purportedly agreed to vacate the arbitration
award and proceed to trial “counsel were stunned and silently
complied with the court’s order, but did not agree to the trial
court’s action, or to waive their clients’. [Sic.] At no time were
the clients present, nor consulted as to such a change.” The
attorney for CGI and Lee declared in a supporting declaration
that at the hearing she and Song’s prior counsel “were shocked
and submitted to our Judge saying she was vacating the binding
arbitration award, to which both he and I asked the court to
confirm the award. There were no discussions with clients, Song
or Lee, who were not in court on the hearing date. Frankly,
neither [Song’s counsel] nor I had such authority.” No supporting
declaration from Lee was attached. The motion asked that the
arbitration award be confirmed.
On July 19, 2019, the trial court conducted a hearing on
Lee’s motion for a new trial and denied it on all grounds except
that it agreed that Gaju and Paramount could not be included in
the judgment as defendants. As for Lee’s other arguments, the
trial court stated that “claims made in support thereof, both as to
events that allegedly occurred in the course of the case in
15
Department 12 and as to other matters, this court views as
inaccurate.” The transcript of the proceedings reflects no
discussion concerning Lee’s purported lack of consent to the
motion to vacate and hold a trial de novo and nothing more than
appellants’ counsel’s arguments and declaration were provided to
the court.
Lee filed a timely notice of appeal from the original
judgment in July 2019. The trial court entered an amended
judgment removing Gaju and Paramount in August 2019. Lee
timely appealed from the amended judgment. After the
bankruptcy court lifted the stay against CGI, the trial court
entered yet another judgment against Lee and CGI. Lee and CGI
timely appealed from this third judgment. This court
consolidated the three appeals.
DISCUSSION
I. Standard of Review
Whether a party consented to or ratified an agreement of
their attorney is a question of fact we review for substantial
evidence (Toal v. Tardif (2009) 178 Cal.App.4th 1208, 1223), as is
whether a party waived the right to contractual arbitration
(Lewis v. Fletcher Jones Motor Cars, Inc. (2012) 205 Cal.App.4th
436, 443). “We infer all necessary findings supported by
substantial evidence,” and “ ‘construe any reasonable inference in
the manner most favorable to the judgment, resolving all
ambiguities to support an affirmance.’ ” (Ibid.) The judgment of
the trial court is presumed correct, and “[i]f the trial court’s
resolution of the factual issue is supported by substantial
evidence, it must be affirmed.” (Winograd v. American
Broadcasting Co. (1998) 68 Cal.App.4th 624, 631–632.)
16
Where a party challenges the sufficiency of the evidence to
support a judgment, we also apply the substantial evidence
standard of review. (Zagami, Inc. v. James A. Crone, Inc. (2008)
160 Cal.App.4th 1083, 1096.) We review claims of law, and the
application of law to facts, de novo. (Yumori-Kaku v. City of
Santa Clara (2020) 59 Cal.App.5th 385, 409–410.)
II. The Trial Court Acted with the Parties’ Agreement to
Conduct a Trial De Novo
A. The record reflects that the parties stipulated to
vacate the arbitration award and proceed with trial
de novo
The parties in this case submitted their dispute to an
arbitrator pursuant to a written agreement, thus this case
involves private, or nonjudicial, arbitration. (Moncharsh v. Heily
& Blase (1992) 3 Cal.4th 1, 8; see Blanton v. Womancare, Inc.
(1985) 38 Cal.3d 396, 401–402 & fn. 5 (Blanton) [discussing the
differences between judicial and nonjudicial arbitration].) Unlike
judicial arbitration, which is nonbinding and offers the
opportunity for a de novo trial after arbitration has been
completed (Code Civ. Proc., § 1141.20, subd. (b)), 1 private
contractual arbitration like that at issue here “is by its essence
binding” and “there is no right to de novo trial under the general
arbitration statute” (§ 1280 et seq.). (Thomas J. Porreco v. Red
Top Rv Ctr. (1989) 216 Cal.App.3d 113, 119; see Mesa Shopping
Center-East, LLC v. O Hill (2014) 232 Cal.App.4th 890, 905
[distinguishing judicial arbitration from “contractual arbitration,
1
Undesignated statutory references are to the Code of Civil
Procedure.
17
which is not subject to a de novo trial at the option of the
plaintiff”].)2
However, as a matter of contract the parties can stipulate
to withdraw from arbitration at any time before an arbitration
award is confirmed. (See Byerly v. Sale (1988) 204 Cal.App.3d
1312, 1315 [judicial system’s involvement in private arbitration
limited “[b]arring a subsequent stipulation not to arbitrate”];
Bucur v. Ahmad (2016) 244 Cal.App.4th 175, 188 [courts may not
act on dispute sent to arbitration “absent an agreement to
withdraw the controversy from arbitration”].) “Contractual
arbitrations are, as their moniker suggests, always a matter of
agreement” (Rivera v. Shivers (2020) 54 Cal.App.5th 82, 90
(Rivera)), an unconfirmed arbitration award “is no more than a
contract between the parties to the arbitration” (Cinel v.
Christopher (2012) 203 Cal.App.4th 759, 765), and the parties to
an arbitration are thus free to mutually reject an arbitration
award and agree that a judicial officer may conduct a trial
de novo.
2 Song relies on section 1141.20 to argue that either party
had the right to a de novo trial after the arbitration award, and
that appellants’ “further requests” of the trial court in their
petition to confirm the arbitration award should be construed as
rejecting the award and electing trial de novo. However,
“[s]ection 1141.20, which gives the parties the right to request a
trial de novo within 30 days after an arbitration award, deals
with judicial arbitration and is inapplicable to private
arbitrations like this one.” (Trabuco Highlands Community Assn.
v. Head (2002) 96 Cal.App.4th 1183, 1191–1192.) By Legislative
design, the provisions of the two statutory schemes are
“ ‘mutually exclusive and independent of each other.’ ” (Blanton,
supra, 38 Cal.3d at p. 402.)
18
Here, the record reflects an agreement by the parties that
the trial court determine the merits of the case by way of a trial
de novo, effectively agreeing not to be bound by their contractual
arbitration provision. “As a general matter, if a contract
provision is subject to arbitration and a party seeks a judicial
resolution of a disagreement which falls within the scope of the
arbitration agreement, that party waives its right to arbitration.”
(Aviation Data, Inc. v. American Express Travel Related Services
Co., Inc. (2007) 152 Cal.App.4th 1522, 1540.) “In the arbitration
context, ‘[t]he term “waiver” has also been used as a shorthand
statement for the conclusion that a contractual right to
arbitration has been lost.’ ” (St. Agnes Medical Center v.
PacifiCare of California (2003) 31 Cal.4th 1187, 1195, fn. 4.) The
trial court’s May 23, 2018 minute order stated “all parties being
in agreement” with the order, reflecting an oral stipulation to
vacate the arbitration award and proceed with a bench trial.
There was no objection or contrary position stated by appellants
for over a year. Indeed, on October 12, 2018, appellants filed an
ex parte application to confirm the trial date of October 18, 2018,
or to set a new date as soon as possible, which affirmed the prior
stipulation of the parties to de novo trial. In that motion,
appellants’ counsel acknowledged that “Plaintiff and Defendants
agreed to stipulate to vacate the arbitration award in place of a
retrial,” and that “Plaintiffs and Defendants had agreed to vacate
the Arbitration Award and move forward with a one-time retrial
by this Court” based on appellants’ agreement at the April 2018
hearing that the arbitration award was incomplete and
unintelligible. At closing argument at trial, appellants’ counsel
again reiterated that “the arbitrator wrote something
incomprehensible.”
19
On its face, this record indicates the parties’ mutual
agreement to a trial de novo through their attorneys’ stipulation,
giving the trial court the authority to vacate the arbitration
award and proceed with a bench trial. “ ‘[A] stipulation of the
attorneys will be presumed to have been authorized by the client’
unless the opposing side and the court are aware that the client
has not consented to the stipulation.” (Rivera, supra, 54
Cal.App.5th at p. 91.) Appellants’ suggestion that the trial court
erroneously sua sponte vacated the arbitration award and
conducted a trial de novo, in the absence of any agreement of the
parties to do so, is contradicted by the minute order and
appellants’ own motion papers. Even the new trial motion
concedes that Lee’s attorney “submitted” without objection to the
agreement to proceed with de novo trial. Accordingly, the trial
court did not err in accepting counsel’s stipulation to the vacation
of the arbitration award and de novo trial, as it was only after
completing the entire trial and receiving an unfavorable
judgment that Lee first sought to repudiate the attorney’s
stipulation.
B. Lee and CGI ratified counsel’s stipulation to
vacation of the arbitration award and de novo trial
Appellants contend that Lee, who was not present at the
May 23, 2018 hearing, did not authorize his attorney to enter into
any such agreement. In appellants’ motion for new trial on
May 31, 2019, the attorney for CGI and Lee first declared that at
the hearing a year previously she and Song’s prior counsel “were
shocked and submitted to our Judge saying she was vacating the
binding arbitration award, to which both he and I asked the court
to confirm the award. There were no discussions with clients,
Song or Lee, who were not in court on the hearing date. Frankly,
20
neither [Song’s counsel] nor I had such authority.” Appellants
contend that the trial court’s order and resulting trial and
judgment are thus void because the purported agreement to
vacate the arbitration award and hold a de novo judicial trial was
not consented to or authorized by Lee. Song contends that even if
the stipulation by appellants’ attorney was unauthorized, CGI
and Lee ratified it through participating in the subsequent trial
and not promptly challenging the trial court’s order.
The authority of an attorney to enter into stipulations on
behalf of a client is certainly limited. An “ ‘attorney is authorized
by virtue of his employment to bind the client in procedural
matters arising during the course of the action’ ” but he may not
“ ‘impair the client’s substantial rights or the cause of action
itself.’ ” (Blanton, supra, 38 Cal.3d at pp. 403, 404 [arbitration
award void where plaintiff’s attorney, without his client’s
consent, stipulated to submit medical malpractice case to binding
arbitration]; e.g., Sanker v. Brown (1985) 167 Cal.App.3d 1144,
1145–1146 (Sanker) [defendant entitled to vacate judicial
arbitration award because he never agreed to his attorney
waiving right to trial de novo, even though he agreed to
nonbinding arbitration].) Moreover, arbitration is a matter of
contractual right, and “ ‘[a]bsent express authority, it is
established that an attorney does not have implied plenary
authority to enter into contracts on behalf of his client.’ ”
(Blanton, supra, 38 Cal.3d at p. 407; Toal v. Tardif, supra, 178
Cal.App.4th at p. 1221 [“a party’s consent is essential to ‘the
contractual underpinning of the arbitration procedure’ ”].)
However, even a client who does not initially provide
express consent may be bound by an attorney’s unauthorized
stipulation if the client ratifies the action. (Blanton, supra, 38
21
Cal.3d at pp. 403, 408; Rivera, supra, 54 Cal.App.5th at p. 92
[“even an unauthorized act by an attorney concerning substantial
rights can be later ratified by the client and thus bind him or
her”].) In Rivera, for example, an attorney’s stipulation to
binding arbitration was ratified by the client where “the record
shows no evidence either side ever objected to the stipulation or
to the arbitration itself” or argued that the stipulation lacked
consent. (Rivera, supra, 54 Cal.App.5th at p. 92.) The court
concluded that “the parties’ conduct was always consonant with a
binding arbitration, and thus the failure to obtain the clients’
signatures on the stipulation was harmless.” (Id. at p. 93.)
Similarly, in Caro v. Smith (1997) 59 Cal.App.4th 725 (Caro), an
attorney’s stipulation to binding arbitration was ratified where
the client affirmatively acquiesced to arbitration without
objection and her attorney “never filed a declaration from [the
client] purporting to repudiate her oral agreement to arbitrate.”
(Id. at p. 730.)
Here, the trial court’s May 23, 2018 order vacating the
arbitration award by agreement of the parties stood without
contradiction for more than a year, while Lee actively
participated in pretrial proceedings and trial itself. His conduct
for over a year was always consonant with agreement for a
de novo trial. In Blanton, supra, 38 Cal.3d 396, and Sanker,
supra, 167 Cal.App.3d 1144, in contrast, the clients promptly
repudiated their attorney’s stipulations to binding arbitration
upon learning the nature of the stipulations. Moreover, even in
the new trial motion where he finally asserted that his attorney’s
stipulation was unauthorized, Lee failed to provide his own
declaration as to lack of consent. Nothing more was presented to
the trial court than the claim in the new trial motion that at the
22
time of the May 23, 2018 hearing Lee’s attorney “submitted” to
the stipulation to de novo trial without prior discussion with her
client. At the hearing on the new trial motion, Lee’s lack of
consent was not discussed or asserted. As the Caro court noted,
“[c]lient ‘no knowledge’ declarations were filed in both Blanton
. . . and Sanker,” and in the face of purported lack of client
consent a client’s “silence says it all.” (Caro, supra, 59
Cal.App.4th at p. 733 & fn. 3.)
The trial court acted reasonably in relying on counsel’s
stipulation without protest, and in rejecting Lee’s tardily asserted
argument that he did not agree to trial. “It is a fundamental rule
of appellate procedure that an order will not be disturbed on an
appeal prosecuted by a consenting party.” (In re Marriage of
Carter (1971) 19 Cal.App.3d 479, 488.) On any discernable
ground, there was consent by agreement. It was only when
things went against appellants that the consent issue surfaced.
The record reflects a stipulation by consent within the meaning of
this rule.
III. Substantial Evidence Supports the Award of $900,000
Appellants note that the statement of decision refers to
both compensatory damages and rescission when discussing the
$900,000 award and contend that this is reversible error because
Song should have either elected rescission for fraud or damages
for breach of contract. “Rescission and damages are alternative
remedies,” and “ ‘[t]he election of one [remedy] bars recovery
under the other.’ ” (Wong v. Stoler (2015) 237 Cal.App.4th 1375,
1385.) “The party may disaffirm the contract, treating it as
rescinded, and recover damages resulting from the rescission.
[Citation.] Alternatively, the party may affirm the contract,
23
treating it as repudiated, and recover damages for breach of
contract or fraud.” (Id. at p. 1384.)
We conclude that notwithstanding some minor facial
ambiguity in the statement of decision and the court’s conclusion
that the facts supported breach of contract liability, the record is
clear that Song elected rescission based on fraud as his chosen
remedy. During closing argument, Song’s counsel notified the
trial court of his client’s election to disaffirm the contract and
represented that Song “seek[s] recision [sic] and restitution” in
the sum of $900,000. The statement of decision makes one initial
general reference to “the compensatory damages now also
awarded against defendant Lee in the sum of $900,000,” but the
court then specifically found that “Song is entitled to a rescission
of his dealings and contracts with Lee, the LLCs, and GCI [sic]
based upon the Civil Code and California common law definitions
of fraud and the liability that attaches thereto,” and ordered that
Song present a final judgment which includes “a provision that
the contracts and membership interests noted above are all
rescinded having been induced by fraud with the result that all
monies deposited with the companies in issue and obtained by
Lee are to be refunded.”
Rescission damages are “damages that would restore the
plaintiff to the position that she would have been in if had she
not entered the contract.” (Akin v. Certain Underwriters at
Lloyd’s London (2006) 140 Cal.App.4th 291, 296.) The amount of
$900,000 plus interest is thus supported as the return of the total
amount Song invested in Gaju and Paramount. Song testified
that he paid Lee $450,000 as his investment in Gaju ($50,000 of
which was later applied to Paramount), and introduced receipts
for these payments. Song also testified that he paid Lee $400,000
24
in cash toward his investment in Paramount. The trial court
found Song was a very credible witness, and his testimony
constitutes substantial evidence in support of the award.
IV. The Punitive Damage Award Was Proper
Having concluded that the trial court’s $900,000 award was
not improper, we next address the award of punitive damages.
Appellants contend that the evidence was insufficient to support
a punitive damages award and that the award was excessive as a
matter of law. We conclude that punitive damages were proper
and affirm the trial court’s award and determination of the
amount of punitive damages.
A. Substantial evidence supports the trial court’s
finding that Lee engaged in conduct warranting
punitive damages
We review the evidence supporting punitive damages under
the substantial evidence standard. (Stewart v. Union Carbide
Corp. (2010) 190 Cal.App.4th 23, 34.) Punitive damages are
permissible on a showing of conduct amounting to “oppression,
fraud, or malice.” (Civ. Code, § 3294, subd. (a).) Our substantial
evidence review proceeds in light of the clear and convincing
standard of proof applicable at trial, considering whether the
record as a whole contains substantial evidence from which a
reasonable trier of fact could have found clear and convincing
evidence of “ ‘oppression, fraud, or malice’ that allows for the
imposition of punitive damages.” (Conservatorship of O.B. (2020)
9 Cal.5th 989, 999; Civ. Code, § 3294, subd. (a).)
There was sufficient evidence in the record that Lee
engaged in fraudulent and/or malicious conduct resulting in
25
Song’s harm.3 Lee told Song that they would be co-owners of
each franchise through the LLCs. When asked about income and
profits, Lee represented to Song that Song “would be able to take
at least 2 percent of [his] investment every month.” Lee obtained
Song’s confidence, told Song that he was very happy to have met
someone like Song, and suggested that they become “brothers,”
meaning that they “would share everything.”
To the extent Lee testified to the contrary, the parties agree
in their joint settled statement of the punitive damages phase
that the trial court rejected Lee’s credibility.
Because of Lee’s misrepresentations, Song was initially
unaware he was not actually a co-owner of either Coffee Bean
franchise, that CGI had not made its full required investments,
and that the Gaju and Paramount LLCs were purely pass-
through entities to shuttle funds to franchises owned solely by
CGI. Song, Gaju, and Paramount were not parties to the
franchise agreements, thus only CGI had an actual ownership
interest in the franchises. Song never received any ownership
stake or any income on his investments. Lee’s
misrepresentations and false promises directly led to Song’s harm
and constitute sufficient evidence of conduct amounting to
oppression, fraud, or malice to support punitive damages.
3Our conclusion that there was substantial evidence from
which a reasonable trier of fact could have found clear and
convincing evidence of “ ‘oppression, fraud, or malice’ ” is
unaffected by the trial court’s incidental use of the phrase
“preponderance of the evidence” at the punitive damages phase of
trial.
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B. The punitive damages award was not excessive
“The purpose of punitive damages is to punish wrongdoers
and thereby deter the commission of wrongful acts.” (Neal v.
Farmers Ins. Exchange (1978) 21 Cal.3d 910, 928, fn. 13; Zaxis
Wireless Communications v. Motor Sound Corp. (2001) 89
Cal.App.4th 577, 581.) “The function of punitive damages is not
served if the defendant is wealthy enough to pay the award
without feeling economic pain.” (Zaxis, at p. 581.) However, the
amount of the award must not exceed the level necessary to
punish and deter. (Adams v. Murakami (1991) 54 Cal.3d 105,
110.) “In determining whether a punitive damages award is
excessive, the Supreme Court has set forth three factors to guide
us: (1) the reprehensibility of the defendant’s conduct; (2) the
actual harm suffered; and (3) the wealth of the defendant.”
(Zaxis, at pp. 581–582, citing Neal v. Farmers Ins. Exchange, at
p. 928.) An award may be reasonable in light of the first two
factors but so disproportionate to the defendant’s ability to pay
that the award is excessive for that reason alone. (Adams v.
Murakami, at p. 111.)
Although appellants primarily address the third factor, the
relationship of the amount of punitive damages to Lee’s wealth,
here, the actual harm to Song was the loss of $900,000 with no
actual ownership interest in either franchise as he had been led
to believe. Although the harm was not physical or in disregard of
health or safety, Lee accomplished the relevant harm by
obtaining the confidence of and financially targeting his
purported friend Song, who considered him like a “brother.”
There is evidence that he convinced Song to invest $900,000 in
the LLCs for Lee and CGI’s sole benefit through intentional
deceit, including representing to Song that Song would be a co-
27
owner of the franchises, that Lee via CGI would also invest
substantial sums of money in the LLCs, and that Song would
receive monthly income from his investment. Although Lee
promised under the operating agreements to pay, he did not, and
he obscured the true nature of the LLCs as mere pass-through
investment entities. The making of intentionally false
representations and promises indicates intentional deceit rather
than “ ‘mere accident.’ ” (Simon v. San Paolo U.S. Holding Co.,
Inc. (2005) 35 Cal.4th 1159, 1181.) Lee’s affirmative
misrepresentations and false promises show he was not merely
indifferent to, but actively sought to injure Song’s rights.
Overall, Lee’s conduct displayed moderate reprehensibility with
the award reasonable in light of the harm and level of
reprehensibility.
The $3 million punitive damages award is not excessive in
light of the evidence provided of Lee’s ability to pay. Lee testified
at deposition that he had dozens of Coffee Bean stores in
Cambodia, Thailand, China, and Southern California, residence
equity of more than $3 million in a luxury home he had lived in
for over 30 years, and conceded that he was required to show a
net worth of at least $5 million to be a Coffee Bean franchisee.
The trial court also noted that he held himself out to be “a multi-
million-dollar person,” and that just days before Lee had
represented in an e-mail to a real estate broker that he had
money to invest in a new commercial property for another Los
Angeles Coffee Bean franchise. “There is no formula based on net
worth for determining what amount is too much. The
fundamental underlying principle is that punitive damages must
not be so large they destroy the defendant.” (Rufo v. Simpson
(2001) 86 Cal.App.4th 573, 625.) Given the evidence of Lee’s
28
wealth there is no indication that this award will destroy Lee
economically.
Lee testified that his net worth was minimal and presented
bank records showing he had little money in his accounts. He
also stated that his interest in the Asian Coffee Bean stores was
only 1 percent each and that he had lied at deposition when he
said he owned them. However, as already noted, the trial court
found Lee not credible. Accordingly, we will not disturb the
court’s determination.
Finding no error, we affirm the trial court’s award of
punitive damages.
V. The Fee Award Was Proper
The trial court awarded Song $86,583 in attorney fees. “In
any action on a contract, where the contract specifically provides
that attorney’s fees and costs, which are incurred to enforce that
contract, shall be awarded either to one of the parties or to the
prevailing party, then the party who is determined to be the
party prevailing on the contract, whether he or she is the party
specified in the contract or not, shall be entitled to reasonable
attorney’s fees in addition to other costs.” (Civ. Code, § 1717,
subd. (a).)
Appellants argue that the fee award is improper to the
extent it was based on the attorney fees provision in section 13.03
of the operating agreements because Lee’s alleged fraud, if it
occurred, rendered the agreements invalid and incapable of being
breached despite the trial court’s finding that Song prevailed on
all breach claims. We reject this argument and conclude that
Song’s action was an action “on the contract” for purposes of Civil
Code section 1717. In any event, to the extent appellants’
argument rests on the proposition that the trial court
29
substantively invalidated the agreements in tort, the fees
provision provides that fees are available in “any dispute”
between the parties that resulted in arbitration or litigation, thus
the fee award would be supported either way. “[A] broadly
phrased contractual attorney fee provision may support an award
to the prevailing party in a tort action,” and “ ‘ “ ‘[p]arties may
validly agree that the prevailing party will be awarded attorney
fees incurred in any litigation between themselves, whether such
litigation sounds in tort or in contract.’ ” ’ ” (Gil v. Mansano
(2004) 121 Cal.App.4th 739, 743; see also Hastings v. Matlock
(1985) 171 Cal.App.3d 826, 841 [“In an action to enforce the
rescission of a written land sale agreement, containing a clause
for attorney’s fees which does not limit recovery of such fees to
any particular form of action involving the contract, the
prevailing party is entitled to an award of such fees”].)
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DISPOSITION
The judgment is affirmed. Costs are awarded to Song.
NOT TO BE PUBLISHED.
LUI, P. J.
We concur:
ASHMANN-GERST, J.
CHAVEZ, J.
31