Lonky v. Patel
| Decision Date | 02 July 2020 |
| Docket Number | B295314 (consolidated with B297632) |
| Citation | 265 Cal.Rptr.3d 482,51 Cal.App.5th 831 |
| Parties | Stewart LONKY et al., Plaintiffs and Appellants, v. Paryus PATEL, Defendant and Appellant. |
| Court | California Court of Appeals Court of Appeals |
Certified for Partial Publication.*
Roxborough, Pomerance, Nye & Adreani, Drew E. Pomerance, Woodland Hills, and Joseph C. Gjonola, for Plaintiffs and Appellants.
The Annigian Firm, Jason D. Annigian, Claremont, James T. Ryan, P.C., James T. Ryan, Beverly Hills, for Defendant and Appellant.
An arbitrator's power to modify any of her rulings is severely curtailed if that ruling constitutes an "award" within the meaning of Code of Civil Procedure section 1283.4.1 Where, as here, an arbitrator issues a series of rulings during an arbitration proceeding, how does a court determine which of those rulings constitutes an "award"? We hold that a court does so (1) by asking whether the ruling (a) determines all issues necessary to resolve the entire controversy and (b) leaves unaddressed only those issues incapable of resolution at that time because those issues are potential, conditional or contingent, and (2) answers those questions by looking to the specific procedures adopted in the arbitration at issue. Because the parties in this case trifurcated the arbitration proceedings and because the arbitrator's second of three rulings did not determine all issues necessary to the controversy and left unaddressed issues that could have been addressed at that time, the arbitrator acted within her authority in modifying that second ruling prior to issuing her third and final ruling that constituted an "award."
Consequently, the trial court erred in refusing to confirm that award on the ground that the arbitrator had exceeded her powers in incorporating a modification of the second ruling into the award. We therefore vacate the judgment with instructions to enter a new and different judgment in accordance with the award. We reject the parties’ further attorney fees-based challenges, but award attorney fees on appeal to the prevailing party on appeal.
Dr. Stewart Lonky (Lonky) is a cardiologist who obtained his medical license in 1973 and started a practice called Medical Associates of Westchester (MAW) in 1988. In 1996 Dr. Paryus Patel (Patel) joined Lonky's practice as a 50/50 partner. Lonky and Patel signed a written Agreement of Partnership (the agreement) memorializing the arrangement.
Between 2009 and 2014, Patel stole money from Lonky and MAW by secretly intercepting reimbursement checks sent to MAW in the mail and depositing them in his own account(s). To facilitate this fraud, Patel also forged Lonky's signature on bank documents. During this period, the total amount of diverted checks came to $558,266.
On November 19, 2014, Lonky and MAW (collectively, plaintiffs) sued Patel. In accordance with the arbitration clause in the agreement, the parties stipulated in April 2015 to stay the lawsuit and proceed by way of arbitration.
In their operative pleading, plaintiffs alleged claims against Patel for (1) conversion and embezzlement, (2) breach of fiduciary duty, (3) breach of contract, and (4) dissolution of the medical practice. Patel cross-claimed against Lonky, MAW and Lonky's wife (who was MAW's office manager) for (1) breach of the agreement, (2) breach of the duty of loyalty, (3) breach of the duty of care, (4) concealment, (5) an accounting, (6) declaratory relief, (7) dissolution of the medical practice, (8) conspiracy to commit fraud, (9) conversion, and (10) constructive trust.2
Although the arbitrator's two scheduling orders initially proposed to break the arbitration proceeding into two phases, the parties ultimately agreed to break the proceedings into three phases: (1) a first phase where the arbitrator would decide issues of liability, the amount of compensatory damages and eligibility for punitive damages, (2) a second phase where she would decide the amount of punitive damages and entitlement to attorney fees and costs, and (3) a final phase where she would decide the amount of attorney fees and costs. In accordance with the agreement, the arbitration was to be "conducted pursuant to the California Arbitration Act."
The arbitrator held five days of evidentiary hearings in early May 2017.
On August 14, 2017, the arbitrator served a 33-page written award entitled "Interim Award" (First Interim Ruling).
The arbitrator sustained all of plaintiffs’ claims against Patel. The arbitrator found that Patel had stolen $558,266 in checks from MAW. Patel's "theft of checks," the arbitrator ruled, constituted conversion and embezzlement, a breach of fiduciary duty and a breach of the agreement. Because Patel had "concealed" this theft, the arbitrator continued, the delayed discovery rule applied and plaintiffs could recover the full amount of diverted money they proved up—that is, all $558,266 substantiated by the bank records from 2009 forward.3 The arbitrator also awarded plaintiffs prejudgment interest on one-half of that amount, and ordered the partnership dissolved. Aside from a $91,811.50 set off that plaintiffs conceded was appropriate because Wells Fargo drew upon one of Patel's accounts to fund a line of credit for MAW, the arbitrator rejected each and every one of Patel's cross-claims.
The arbitrator also found that the "facts constituting the breach of fiduciary duty allow for a consideration of punitive damages" because Patel's conduct in methodically stealing from his long-time partner was "intentional and can fairly be ... described as bad faith, fraudulent, malicious, oppressive and outrageous."
In its final section, the First Interim Ruling specified (1) the amounts awarded for compensatory damages and prejudgment interest as well as the offset, (2) that "Patel shall pay Lonky" "punitive damages," but left the amount blank and noted that the "[a]mount" was "to be determined in a Phase II hearing in this Arbitration," and (3) that plaintiffs are "the prevailing party in this Arbitration," but left blank the amount of attorney fees and costs. The First Interim Ruling concluded with the following language: "[insert in Final Award only] This award resolves all issues submitted for decision in this proceeding[.]"
On August 21, 2017, Patel filed an application with the arbitrator to correct the First Interim Ruling. Patel argued that his theft of checks should be viewed as several discrete acts, such that plaintiffs’ recovery should be limited pursuant to the continuous accrual doctrine to those checks diverted within the pertinent statute of limitations period. Because the statute of limitations for breach of fiduciary duty and conversion is three years, Patel argued, plaintiffs’ compensatory damages should be limited to the checks diverted in the three years immediately prior to the filing of their lawsuit. That amount came to $310,138.62.
On October 13, 2017, the arbitrator granted Patel's motion in a written order. This order was issued and served on the parties 60 days after the First Interim Ruling was served.
The arbitrator held a one-day hearing on October 25, 2017.
On January 16, 2018, the arbitrator issued and served a 40-page written award entitled "Corrected Phase II Interim Award" (Second Interim Ruling).4
The Second Interim Ruling largely cut and pasted the analysis from the First Interim Ruling with two notable exceptions. First, the arbitrator awarded plaintiffs compensatory damages for three years’ worth of diverted checks in accordance with its earlier order modifying the First Interim Ruling. Second, the arbitrator awarded plaintiffs $1 million in punitive damages after finding that Patel's conduct was "sufficiently reprehensible as to warrant the imposition of punitive damages" and that the "totality of the evidence" established that a $1 million punitive damages award was "sufficient to punish Patel and deter further similar behavior."
In its final section, the Second Interim Ruling specified (1) the reduced amounts for compensatory damages and prejudgment interest as well as the offset, (2) the $1 million punitive damages award, and (3) that plaintiffs were the "prevailing party," but left blank the amount of attorney fees and costs. Like the First Interim Ruling, the Second Interim Ruling also concluded with the following language: "[insert in Final Award only] This award resolves all issues submitted for decision in this proceeding[.]"
On January 18, 2018, plaintiffs wrote a letter to the arbitrator asking her to correct the Second Interim Ruling. Plaintiffs argued that, if their recovery was to be limited by the continuous accrual doctrine, the pertinent limitations period was four years, not three years, because Patel's diversion of checks also constituted a breach of contract (for which the statute of limitations is four years). The checks diverted in the four years immediately preceding plaintiffs’ lawsuit came to $434,158.25.
As explained next, the arbitrator accepted plaintiffs’ argument in its third order. That order was issued and served on April 27, 2018, which is 101 days after the Second Interim Ruling was served.
The arbitrator conducted a telephonic hearing on March 26, 2018.
On April 27, 2018, the arbitrator issued and served a 12-page written award entitled "Final Award" (Final Award).
Rather than cut and paste the content of the First Interim Ruling and Second Interim Ruling, the Final Award "incorporated" their content "by reference" with one exception. The arbitrator granted plaintiffs’ request to correct the Second Interim Ruling and, on that basis, increased the compensatory damages to $434,158.25....
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