Ikerd v. Warren T. Merrill & Sons

• Decision Date: 06 October 1992
• Docket Number: No. B059236,B059236
• Citation: 12 Cal.Rptr.2d 398,9 Cal.App.4th 1833
• Court: California Court of Appeals Court of Appeals
• Parties: Lloyd IKERD, Plaintiff and Appellant, v. WARREN T. MERRILL & SONS, Defendant and Respondent.

Page 398

12 Cal.Rptr.2d 398

9 Cal.App.4th 1833

Lloyd IKERD, Plaintiff and Appellant, v. WARREN T. MERRILL & SONS, Defendant and Respondent.

No. B059236.

Court of Appeal, Second District, Division 3, California.

Oct. 6, 1992.

Review Denied Dec. 31, 1992.

Cayer, Kilstofte & Craton, and Stephen R. Kilstofte, Long Beach, for plaintiff and appellant.

Kaiser, DeBiaso, Palmer & Andrew, and Eric C. Demler, Long Beach, for defendant and respondent.

CROSKEY, Associate Justice.

In this case, the trial court, before finally signing a judgment confirming an arbitration award, modified the designation of the party against whom the award was made, from an individual to a corporation. The appellant, Lloyd Ikerd ("Ikerd"), appeals from such corrected judgment which modified the award so that it was only against respondent Warren T. Merrill & Sons, Inc. ("WTMS"), and not against Warren T. Merrill ("Merrill"), individually. The sole ground for the court's ruling was that there was never any personal jurisdiction over Merrill.

As we are satisfied that this record does not provide any factual or legal basis for the assertion by the arbitrator of personal jurisdiction over Merrill, the trial court's judgment of correcting and then confirming the award should be affirmed.

FACTUAL AND PROCEDURAL BACKGROUND

There is no essential dispute as to the operative facts and the parties are in practical agreement as to the dispositive issue.

This case arises from one of three construction contracts entered into on September 23, 1985. For reasons not relevant to the issue before us, these contracts bore different execution dates. The contract with which we are concerned was back-dated to December 12, 1984. It was concerned with the performance of construction work to bring a certain building up to earthquake standards.

The parties to the contract were Ikerd, the owner of the property in question, and "Warren T. Merrill & Sons," the name of the contractor as set forth in the agreement. The contract was signed on behalf of the contractor by "Warren T. Merrill." There was no designation appended to such signature as to capacity. However, there is no dispute that Merrill signed on behalf of the described contractor which, in fact, was a corporation.

At the time the contract was signed Ikerd did not know that the contractor was a corporation. Two months later, on November 21, 1985, Ikerd and Merrill signed a document assigning the construction contract to the Bank of America. In that document, Merrill signed as "President" of WTMS. On February 5, 1987, Merrill wrote a letter to Ikerd's attorney which he signed as "President" of "William T. Merrill & Sons." Finally, on February 12, 1987, a WTMS secretary signed a cover letter returning to Ikerd an IRS Form 1099 covering payments previously made under the construction contract. Apparently, that form had described the recipient as an individual rather than as a corporation. This cover letter specifically stated that "William T. Merrill & Sons" was a corporation. ¹ Thus, it is clear, and Ikerd concedes, that he had actual knowledge of WTMS' corporate status no later than approximately February 12, 1987.

A dispute arose over the construction work done under the contract and Ikerd, on April 29, 1987, filed a demand for arbitration pursuant to the provisions of paragraph 30 of the agreement. ² The named respondent was "Warren T. Merrill & Sons," the same name used in the contract. Neither WTMS nor Merrill were then or ever designated as arbitration respondents. The demand was served by mail upon the business address of WTMS, which was the address set forth in the contract. As Ikerd emphasizes, this procedure was the one expressly called for in paragraph 26 of the contract. ³

A denial and counterclaim to Ikerd's arbitration demand was filed on behalf of WTMS on August 13, 1987. ⁴ Counsel for WTMS had been retained by its insurer and such counsel never had any authority to appear on behalf of or represent Merrill. Nonetheless, Merrill did appear at and participate in the arbitration proceedings as he was WTMS's principal officer and the person most knowledgeable about its day-to-day business dealings.

The arbitration hearings were conducted before the appointed arbitrator during the period April to August of 1990. During August, while the hearings were still going on, the arbitrator asked the parties to brief the issue of whether Merrill had signed the contract as the agent of an undisclosed principal (i.e., WTMS) and thus could be held individually liable for the alleged breaches of the agreements. Both sides briefed and argued this issue. ⁵ Based on these arguments and the evidence presented at the hearing, the arbitrator concluded that Merrill alone was liable to Ikerd ⁶ in the sum of $146,864.50. This award was composed entirely of contract damages which were based on items included in the agreement which had not been completed. The total amount represented the cost of completion. Merrill's individual liability was premised on the arbitrator's conclusion that having failed to call to Ikerd's attention that he was executing the contract on behalf of his corporation, he was an agent of an undisclosed principal. ⁷

Thereafter, Ikerd sought confirmation of the award. Opposition was filed by WTMS in which it was argued that the award should be vacated or corrected because of the arbitrator's lack of jurisdiction over Merrill as an individual. As the record did not disclose the basis of such jurisdiction, the court requested a clarification of the award from the arbitrator. This was provided, but was limited to a discussion of the arbitrator's reasoning process by which individual liability was imposed on Merrill. (See fn. 7, ante.) No explanation was provided on the jurisdictional question. As a result, the court concluded it had no "evidentiary or logical basis" in which to vacate or correct the award and, on January 10, 1991, granted the motion to confirm the award.

On January 18, 1991, WTMS filed a motion for reconsideration of the court's confirmation order. At the hearing on this motion, the trial court concluded that it was appropriate to seek a second clarification from the arbitrator. As the court put it, "There's no reason for me or for an appellate court to have to start speculating as to what facts caused [the arbitrator] to make the determination that he made. I don't know whether he misperceived the question that was put to him. I thought it was plain but maybe it wasn't plain to him." The court then ordered that a second inquiry be made to the arbitrator.

On January 28, 1991, the arbitrator attempted to directly address the jurisdictional issue. However, his response, in effect, made clear that his jurisdictional authority rested entirely on three conclusions: (1) Merrill had signed an agreement with an arbitration clause, (2) he was personally liable thereon, and (3) he was equally and individually bound by all of the provisions of the contract, including the arbitration clause. The arbitrator provided no factual information regarding the basis for personal jurisdiction over Merrill. ⁸

Based on this second response from the arbitrator, the trial court concluded that the arbitrator did not have any basis for asserting jurisdiction over Merrill. It therefore entered an order correcting the judgment by inserting WTMS as the party against whom the award was made and deleting Merrill. As so corrected, the arbitration award was confirmed. Ikerd's subsequent motion for reconsideration was denied and he filed this timely appeal.

CONTENTIONS OF THE PARTIES

Ikerd raises several arguments. He first emphasizes that the issue of Merrill's capacity was presented to the arbitrator and was resolved. Merrill was found to be an agent for an undisclosed principal and thus personally liable. He next argues that since Merrill executed the contract in a way which made him personally liable, it was his contract and that was sufficient to establish the arbitrator's jurisdiction; service and notice requirements were met when the arbitration demand was served as provided in the contract. Finally, Ikerd makes two procedural arguments: (1) WTMS has waived its right to object to jurisdiction for the first time at the confirmation hearings after failing to raise the issue at the arbitration; and (2) WTMS' motion to reconsider was improper because it was directed to a judgment not an order.

WTMS concedes that Merrill signed the contract without disclosing that he was signing in his capacity as president of WTMS; therefore, it is conceded that Merrill was subject to liability as an agent for an undisclosed principal. To put it another way, WTMS does not dispute that both it and Merrill were subject to potential liability for a breach of the construction contract. However, WTMS says that this is wholly beside the point. Ikerd never served Merrill with the demand for arbitration in spite of his actual knowledge that the "party" to the contract was in fact a corporate entity and thus an alternative claim was available against Merrill as an individual. Therefore, the requirements of due process, notice and service were not met and there simply was no jurisdiction over Merrill. Finally, WTMS contends that there is no procedural impediment to the assertion of this fundamental objection.

DISCUSSION

1. Standard of Review

We review here the trial court's confirmation of a corrected arbitration award. Code of Civil Procedure section 1286 spells out the power of a court when faced with a confirmation petition. "... [T]he court shall confirm the award as made ... unless in accordance with this chapter it corrects the award and confirms it as corrected, vacates the award or dismisses the proceeding." Our review of an arbitration award requires us to extend to it every intendment of validity and the party claiming error has the burden of supporting his contention. (Cobler v. Stanley, Barber, Southard,...