Nonpayment of Arbitration Fees Dooms Arbitral Award

In Cinel v. Christopher, 2012 DJDAR 2171 (2012), the Second District California Court of Appeal reviewed an order rendered by the trial court denying a petition to confirm an arbitration award.

A Brazilian citizen (the “investor”) purchased a large number of shares of stock from a closely held limited liability company (“LLC”). Richard Christopher (“Christopher”) was one of the founding members of the LLC which sold the stock to the investor.

After making three installment payments, the investor allegedly became concerned that the LLC’s financial condition was not favorable and that it was contrary to what had been represented to him. The investor filed a suit for securities fraud against Christopher and the other members of the LLC.

Because there was an arbitration clause in the applicable agreements, Christopher sought to compel arbitration of the dispute. However, after the defendants refused to pay the arbitration fees, the proceedings were suspended and eventually terminated.

The matter returned to trial court. Christopher moved for confirmation of the arbitration award. Christopher also moved to dismiss the complaint. The trial court found that there was no “arbitration award,” only a “termination order” and denied the motion. Christopher argued that the trial court could not review the merits of an arbitrator’s award in determining that it did not constitute an “award.” Christopher appealed the unfavorable ruling.

The court of appeal affirmed the lower court’s ruling. The court noted that under Code of Civil Procedure Section 1238.4, an arbitration award shall determine all the questions which must be decided in order to adequately decide the dispute. The court of appeal noted, however, that the arbitrator’s order at issue here did not address any substantive issues related to the dispute. The order merely refused to commence the proceedings for failure to pay fees. The court of appeal ruled that the trial court was correct in denying the petition to confirm.

 

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