Johnson v. Milestone Financial CA3

Filed 10/14/22 Johnson v. Milestone Financial CA3

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication

or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

----

DANIEL JOHNSON, JR., as Conservator, etc.,

Plaintiff and Appellant, C094370

v. (Super. Ct. No. 34-2018-

00243733-CU-FR-GDS)

MILESTONE FINANCIAL, LLC,

Defendant and Respondent.

Daniel Johnson, Jr., conservator for Arletha Mae Johnson, appeals the

confirmation of an arbitration award in favor of Milestone Financial, LLC (Milestone)

after Daniel1 sued Milestone for various causes of action relating to Milestone’s lending

of money, secured by real property, to Arletha. Daniel contends the arbitration award

must be vacated because (1) it contravenes public policy protecting elders and (2) it

contravenes legislative policy concerning attorney’s fees awards. Milestone, for its part,

contends (3) we should award costs and attorney’s fees for this appeal against Daniel as

conservator and in his personal capacity. Finding no error, we will affirm the trial court’s

order confirming the arbitration award and award costs and attorney’s fees on appeal to

Milestone, but not against Daniel in his personal capacity.

1 We refer to Johnson family members by their first names for clarity.

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BACKGROUND

Arletha, who was 94 years old at the time of the arbitration in this case, has four

children: Janice, Charletta, Kevin, and Daniel. Arletha owned several rental properties

in Sacramento and Vallejo. At the time of her husband’s death in 2013, none of the

properties were encumbered with debt.

Arletha’s son Kevin became involved in two cannabis-related companies and

needed funds for the businesses. Kevin approached Arletha about obtaining loans on her

properties to provide him funding for the businesses, and she agreed , while being clear he

would be required to pay off the loans.

The loans relevant to this action were obtained from Milestone in 2016 and 2017.

The loans were hard money loans. As explained in the arbitration panel’s final award,

“[t]he hard money lending industry serves a relatively small cohort of borrowers, those

whose credit or income either cannot qualify for conventional loans, or those whose

exigent need for loan funds makes the longer wait-time to complete conventional loan

processes unworkable. Hard money lenders like Milestone work only with borrowers

who are represented by brokers. Hard money lenders make loans for commercial

purposes and Arletha confirmed in her applications that this was the general purpose for

the loans. For this reason, too, these types of loans are secured only by commercial

properties and not private residences. The experts in this arbitration are in agreement that

hard money lenders look only to the value of the property securing the loan and not to the

creditworthiness of the borrower. It is the likelihood of recovering the value of the loan

and fees through foreclosure and not the repayment of the periodic payments that drives

the lending process. This is why the loan-to-value ratios for hard money loans are

significantly lower than those in conventional lending. In fact, Johnson’s expert witness

agreed that Milestone did not violate any California law, rule or regulation relating to

hard money lending in its underwriting of these loans to Arletha. [¶] These facts being

undisputed, arguably it would ‘exceed the scope of its conventional role as a mere lender

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of money’ for a hard money lender to engage in the activities argued by Johnson,

including investigating the purpose for the loan, the creditworthiness of the borrower, the

mental capacity of the borrower or the personal circumstances driving the application for

these niche financial transactions.”

In 2016, Arletha, working through a loan broker, with Kevin making most of the

arrangements, obtained a loan from Milestone for $820,000, secured by properties in

Vallejo. After nine months, however, Arletha had not made any payments on the loan,

and Milestone sent her a notice of default. In 2017, the loan broker and Kevin contacted

Milestone to arrange a refinance of the loan, and Milestone agreed to loan Arletha $1.23

million to pay off the 2016 loan and provide additional funds to Arletha.

In 2018, the 2017 loan from Milestone went into default, and Milestone initiated

foreclosure proceedings. However, Kevin and Milestone negotiated a settlement

requiring Kevin to pay Milestone $60,000, part of which would go toward principal on

the 2017 loan. Arletha signed the settlement with a notary present. Within a few months,

however, Arletha had not made any further payments on the loan, and Milestone

foreclosed on the Vallejo properties.

Daniel initiated an action against Kevin and Milestone asserting claims for

declaratory relief, cancelation of a written instrument, quiet title, breach of fiduciary duty,

fraud, negligence, financial elder abuse, lack of capacity, and violation of Business and

Professions Code section 17200. Milestone filed a petition to compel arbitration, Daniel

did not oppose the petition, and the matter was arbitrated before Honorable Ignazio

Ruvolo (ret.), Honorable Joseph Biafore (ret.), and Honorable Richard Silver (ret.).

The arbitration panel unanimously ruled in favor of Milestone on all causes of

action except for negligence and recission, as to which Judge Silver disagreed with the

majority. Judge Silver said Milestone had a legal duty to Arletha and breached that duty.

Judge Silver also was of the opinion that Arletha had mild dementia when she signed the

settlement agreement and, therefore, it was not enforceable against her.

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The majority wrote extensively about Arletha’s mental capacity to enter into the

agreements. It found specifically that Daniel failed to establish she did not have the

capacity to enter into the agreements, including the 2018 settlement, even though she

later became subject to a conservatorship. The majority said Daniel failed to prove that

the 2017 loan and settlement were subject to rescission due to lack of capacity, unsound

mind or undue influence.

In addition to its decision on the merits, the arbitration panel awarded Milestone

$1.2 million in costs and attorney’s fees.

After the arbitration panel issued its final award, Milestone filed a petition in the

trial court to confirm the award, and Daniel opposed the petition. The trial court

confirmed the award, specifically stating that Daniel had shown no public or legislative

policy or unwaivable statutory right that would permit the trial court to vacate the award.

The trial court also awarded $10,753 in costs and attorney’s fees to Milestone for the trial

court proceedings because the relevant agreements allowed the prevailing party to

recover costs and attorney’s fees.

STANDARD OF REVIEW

Our review of the arbitration award is de novo. (Douglass v. Serenivision, Inc.

(2018) 20 Cal.App.5th 376, 386.)

In crafting his statement of facts for his opening brief on appeal, Daniel relied

principally on Judge Silver’s concurring and dissenting opinion in the final arbitration

award. However, Judge Silver, acting alone, could not adjudicate the facts of this case in

arbitration because his concurring and dissenting opinion did not have the force of a final

award, even if he could give his opinion of what the material facts were. Only the

majority could adjudicate the facts. “It is the duty of an appellant to provide an adequate

record to the court establishing error. Failure to provide an adequate record on an issue

requires that the issue be resolved against appellant. [Citation.]” (Barak v. The

Quisenberry Law Firm (2006) 135 Cal.App.4th 654, 660.) Therefore, we cannot rely

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on statements of a dissenting arbitration panel member to establish the facts of this case.

Instead, to the extent we need to consider the facts, we draw them from the final award’s

majority opinion. As the majority opinion noted, “Any discrepancy between the

statement of facts in this Final Award and the presentation of facts by either party is the

result of the Panel’s determination of factual disputes, credibility of witnesses, relevancy

of evidence, burden of proof and weight of the evidence presented.”

On appeal, Daniel cited an unpublished appellate decision in an effort to support

his arguments, in contravention of rule 8.1115 of the California Rules of Court.

Although Milestone suggests this warrants sanctions, we do not consider the suggestion

because Milestone did not file a motion for sanctions. (See Cowan v. Krayzman (2011)

196 Cal.App.4th 907, 919 [party must file proper motion for sanctions under Cal. Rules

of Court, rule 8.276(b)(1)].)

DISCUSSION

I

Daniel contends the arbitration award contravenes public policy protecting elders

and must therefore be vacated.

Under Code of Civil Procedure section 1285,2 a party to an arbitration award may

petition the trial court for an order confirming, correcting, or vacating the award.

California law favors resolving disputes in arbitration. (Moncharsh v. Heily & Blase

(1992) 3 Cal.4th 1, 9 (Moncharsh).) Generally, arbitration awards are immune from

review, and the grounds for challenging arbitration awards are limited. Errors of fact and

law are not reviewable, with few exceptions. (Id. at p. 11.)

Statutory grounds for vacating the award protect the parties from procedural

unfairness, such as corruption or fraud in the arbitration process. (§ 1286.2.) Daniel

2 Undesignated statutory references are to the Code of Civil Procedure.

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contends the arbitration panel exceeded its powers by issuing an award that violates a

well-defined public policy.

“An arbitrator exceeds his or her powers if the arbitration award violates a

statutory right or otherwise violates a well-defined public policy. (Jordan v. Department

of Motor Vehicles (2002) 100 Cal.App.4th 431, 443.)” (Department of Personnel

Administration v. California Correctional Peace Officers Assn. (2007) 152 Cal.App.4th

1193, 1195.) This court explained one arbitration award violated public policy “when the

arbitrator determined that a written collective bargaining memorandum of understanding

(MOU) between [California Correctional Peace Officers Association] and the

Department of Personnel Administration (DPA) did not comport with the parties’ actual

agreement. [¶] The arbitrator reformed the MOU after it had been ratified and approved

by the Legislature pursuant to the Ralph C. Dills Act (Dills Act). [Citation.] In changing

the terms of the MOU after it was approved by the Legislature, the arbitrator exceeded

her powers by violating the Dills Act and the important public policy of legislative

oversight of state employee contracts.” (Ibid.) No similar violation of a well-defined

public policy is present in this case.

Daniel argues the state’s elder abuse laws establish a well-defined public policy

violated by the arbitration panel. In his words, “the arbitration agreement was void to the

extent it sought to change the standards and duties of a lender with respect to elder abuse,

fraud, and undue influence, and shift the attorneys’ fees and costs to defendant in a case

that sounded in elder abuse.”

The arbitration panel found that Daniel failed to prove Milestone engaged in elder

abuse. Daniel now claims the arbitration award contravenes the public policy reflected in

elder abuse law, but addressing the argument would allow Daniel to essentially relitigate

the matter in court after losing in arbitration. As the trial court observed, “Even if the

Final Award here is based on an erroneous conclusion on contested issues of fact or law,

this Court is not permitted to review either the rationale or the sufficiency of the

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evidence.” Errors of fact or law are not reviewable. (Moncharsh, supra, 3 Cal.4th at

p. 11.) Because Daniel failed to prove there was any elder abuse, his contention in this

court that the arbitration award must be vacated because it violates the public policy

against elder abuse cannot succeed.

Daniel also argues the arbitration award contravenes public policy because the

arbitration panel should have imposed a duty on Milestone to investigate any suspicious

and potentially fraudulent activities against Arletha and, based on Milestone’s alleged

failure to properly investigate, should have found Milestone negligent. As with the

allegations of elder abuse, Daniel failed to establish in arbitration that Milestone violated

any duty to Arletha.

Without a foundation of some legal wrongdoing, Daniel’s arguments about the

arbitration award contravening public policy are unsupported.

II

Daniel also contends the arbitration award of costs and attorney’s fees contravenes

legislative policy because a defendant in an elder abuse or unfair competition case cannot

assert a right to attorney’s fees.

The arbitration was originally classified as consumer arbitration. However, the

arbitration panel reclassified it as commercial arbitration because the loans Milestone

made to Arletha were commercial hard money loans. Having done so, the arbitration

panel had authority to award costs and attorney’s fees. As noted, it awarded $1.2 million

in costs and attorney’s fees.

In making its award, the arbitration panel noted that it had authority to award

attorney’s fees under the parties’ agreements. But it also noted a defendant may not

recover attorney’s fees incurred in defending against an elder abuse claim, even if the

defendant is the prevailing party. (Welf. & Inst. Code, § 15657.5, subd. (a); Wood v.

Santa Monica Escrow Company (2007) 151 Cal.App.4th 1186.) The prohibition applies

to work attributable to any elder abuse claim or any other claim with inextricable overlap.

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(Wood, at pp. 1190-1191.) The arbitration panel considered this prohibition and applied

it to work attributable to the elder abuse claim, as well as the fraud claims because they

overlapped with the elder abuse claim. The arbitration panel therefore reduced its

attorney’s fees award for the time attributable to the elder abuse and fraud claims. It

determined, however, that the other claims did not overlap with the elder abuse claims.

Similarly, the arbitration panel recognized it could not award attorney’s fees for

work attributable to Daniel’s unfair competition claim against Milestone under Business

and Professions Code section 17200, which Milestone defeated at an early stage of the

arbitration in a dispositive motion. (See Walker v. Countrywide Home Loans, Inc. (2002)

98 Cal.App.4th 1158 [attorney’s fees unavailable in unfair competition law case].)

However, the arbitration panel found the time of Milestone’s counsel dedicated to that

claim was negligible, so the arbitration panel did not reduce the fees for any time spent

on the claim.

Daniel argues the arbitration award contravenes legislative policy because all of

the claims were fundamentally intertwined with the elder abuse and unfair competition

claims. But this argument is also just an attempt to relitigate an issue lost in arbitration.

The arbitration panel considered the laws regarding attorney’s fees for elder abuse and

unfair competition claims and adjusted the award as it deemed appropriate. The award of

costs and attorney’s fees did not contravene legislative policy.

III

Milestone argued to the arbitration panel that Daniel should be ordered to pay the

costs and attorney’s fees personally. Milestone claims Daniel knew Arletha was mentally

competent when she entered into the loans and settlement agreement and when she

allowed Kevin to use the money, but Daniel nevertheless testified that she was not

mentally competent. Milestone also claimed Daniel miscategorized the case as consumer

arbitration when he knew it was commercial arbitration. According to Milestone, this

constituted mismanagement or bad faith and allowed the arbitration panel to award costs

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and attorney’s fees against Daniel personally under section 1026, subdivision (b) and

Probate Code section 1002. The arbitration panel considered the arguments and declined

to exercise its discretion to award costs and attorney’s fees against Daniel in his personal

capacity. It determined that the claims were not frivolous and Daniel’s actions were not

unreasonable.

Here, Milestone does not contend the arbitration panel’s determination about costs

and attorney’s fees was erroneous. However, Milestone asserts we should order Daniel,

both as conservator and in his personal capacity, to pay Milestone’s costs and attorney’s

fees for this appeal.

Milestone is entitled to an award of costs and attorney’s fees under the subject

agreements and statutes, and that applies on appeal as well. (Marcus & Millichap Real

Estate Investment Brokerage Co. v. Woodman Investment Group (2005) 129 Cal.App.4th

508, 513; §§ 1033.5, subd. (a)(10)(A); 1293.2.) However, we decline to award costs and

attorney’s fees against Daniel in his personal capacity.

DISPOSITION

The order confirming the arbitration award is confirmed. Milestone is awarded its

costs, including attorney’s fees, on appeal. (Cal. Rules of Court, rule 8.278(a) & (c).)

/S/

MAURO, J.

We concur:

/S/

HULL, Acting P. J.

/S/

KRAUSE, J.

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