Filed 8/31/20 Peter L. Kaufman, Panish etc. v. Prospect Funding CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPO RTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for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(a). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115(a).

IN THE COURT OF APPE AL OF THE STATE OF C ALIFORNIA

SECOND APPELLATE DIS TRICT DIVISION FOUR

PETER L. KAUFMAN, PANISH, SHEA & BOYLE LLP,

Petitioners and Appellants,

v. PROSPECT FUNDING LLC,

Defendants and Respondents. B293259

Los Angeles County Super. Ct. No. BS169525

Appeal from a Judgment of the Superior Court of Los Angeles County. Daniel Murphy, Judge. Reversed. Peter L. Kaufman, Panish, Shea & Boyle for Petitioners
and Appellants

. Patrick R. Mahoney and Tyson W. Kovash for Respondent

.

### 2 T he law firm of Panish Shea & Boyle ( PS&B ) and one of its attorneys, Peter L. Kaufman, Esq., appeal from a judgment confirming an arbitration award against them in favor of Prospect Funding (NY) LLC

. We reverse, concluding the arbitrator exceeded his authority in finding Kaufman and P S &B agreed to arbitrate disputes arising out of a litigation funding agreement between their client

, La

- Phosa Sangkaphim

, and Prospect, and by entering an arbitration award against them in
absen t ia

.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY
1. The Underlying Personal Injury Litigation and Prospect ’

s Purchase of an Interest in the Litigation

. Kaufman and PS&B represented La

- Phosa Sangkaphim on a contingency basis in a personal injury suit in Riverside County Superior Court. While the lawsuit was pending, Prospect provided $10,000 to Sangkaphim under a n undated “Sale and Repurchase Agreement” (Agreement) drafted by Prospect

. T he Agreement provided t hat Prospect, as the “Purchaser

, ” would buy from Sangkaphim, as the “Seller

, ” an interest in Sangkaphim ’s eventual recovery, if any. The Agreement specified a “ P urchase
Price” of $13, 600 , of which Sangkaphim received $10,000 ($3,600 was a fee paid to Prospect)

. In exchange, Prospect acquired a right to receive proceeds from any eventual settlement or

recovery through Sangkaphim’s “repurchase” of the interest sold to Prospect

. The amount Prospect would receive varied depending
on when Sangkaphim “repurchased” the interest sold. If the interest were “repurchased” within six months, Prospect would be paid $17,680

. The amount to be paid to Prospect out of any

### 3

recovery ( the “ Repurchase A mount”) increased steeply to a maximum of $46,240 (the “Prospect Ownership Amount ” ) if paid after April 15, 2019. 1 The Agreement contained a liquidated damages clause providing in the even t Sangkaphim did not comply with the Agreement, “ [Sangkaphim] SHALL
IMMEDIATELY PAY TO [Prospect] LIQUIDATED D AMAGES
IN THE AMOUNT OF TWICE THE PROSPECT OWNERSHIP
AMOUNT REGARDLESS OF THE OUTCOME OF THE LEGAL CLAIM,” plus costs. The Agreement provided for mandatory arbitration of
claims , including the determination of arbitrability : “ [i ] nstead of suing in court, [Prospect] and [Sangkaphim] agree to arbitrate all disputes

. . . . ” and “ THE PARTIES AGREE THAT THE ISSUE
OF ARBITRABILITY SHALL BE DECIDED BY THE
ARBITRATOR AND NOT BY ANY OTHER PERSON. ” Prospect and Sangkaphim were the only parties to the Agree ment. Underneath Sangkaphim’s signature on the last page of the Agreement

, Kaufman signed a separate “ C ertification of Seller’s Attorney ” ( C ertification) , also drafted by Prospect

. It states
Kaufman “certifies to [Sangkaphim] that [Kaufman] ha s reviewed the terms and conditions of this

. . . A greement and explained [them] to [ Sangkaphim ]

. ” The C ertification also state s :

“ I have a written fee agreement with Purchaser [sic] 2 to pay my

1 This structure is known as a prepaid forward contract. (See Wood, Capital Gains, Litigation Finance & Legal Fees , (Mar. 2015) Vol. 23, No. 8 The M&A Tax Report (Woodllp.com/publications/articles/pdf/capital_gain_litigation.pdf) .)

2 In the Agreement, Sangkaphim was referred to as the “Seller” while Prospect was the “Purchaser.” Kaufman’s

### 4

fees contingent upon the outcome of the case. I agree that all dispute s regarding this agreement will be resolved via arbitration and I have explained this to [Sangkaphim] . All proceeds of the legal claim will be disbursed via the attorney ’ s trust account and the attorney is following the written instructions of [Sangkaphim] with regard to this [ Agreement ] and the
Irrevocable Letter of Directions which attorney has
acknowle dged. ” Below Kaufman’s signature was a signature
block for Prospect

. The Irrevocable Letter of Direction (Letter )

, reference d in the Agreement and C ertification

, is dated October 6, 2015

. Prospect prepared it for Sangkaphim’s signature, and addressed
it to Kaufman

. The Letter directed Kaufman , among other things, to “ p lace an assignment, consensual li e n and security interest against any and all settlement proceeds

. . . after payment of legal fees and reimbursa ble costs, and to protect and satisfy this assignment, consensual li e n and security interest of $46,240 which is the Prospect Ownership Amount.” It also
directed Kaufman to p ay Prospect in full before disbursing any settlement funds to Sangkaphim

. The Letter states that in the event of a dispute over Prospect ’ s ownership amount, Kaufman i s to hold the amount in dispute in PS&B’s trust fund “ until the dispute is resolved by arbitration as per [Sangkaphim ’ s] agreement with [Prospect]. ” The concluding sentence of the letter states, “By signing the acknowledgement below, you acknowledge that this letter is from me and that you will comply with this
irrevocable Letter of Direction for the bene fit of [Prospect]. ”

contingent fee agreement was with Sangkaphim, not Prospect , so this is a sc rivener’s error . The contingent fee agreement is not part of the record.

### 5 In a n “Attorney Acknowledgment” ( A cknowledgment) placed below Sangkaphim ’ s signature line in the Letter

, Kaufman states, among other things: “[¶] I

. . . acknowledge receipt of th is L etter from my client; [¶] I will honor my client ’ s irrevocable letter of direction

. . . as per instructions above

. . . . [ ¶ . . . ¶ ] I acknowledge that all disputes arising out of this transaction will be resolved via arbitration per the Sale and Repurchase Agreement and the irrevocable letter of
direction

. . . [ ; ] [and] [¶] [Prospect] has relied upon this letter and acknowledgement

. . . . ”

2

. Settlement of Claim and Arbitration

. The litigation settled for $ 350,000 in February 2016 , with net settlement proceeds to Sangkaphim of $70,120.87 , after
de duction of attorneys ’ fees , medical liens, non

- recourse loans, and other costs and expenses

. At the time of the settlement

, pursuant to the terms of the Agreement

, $17,680 was due Prospect , but PS&B did not pay it. Instead, PS&B later sent Prospect a check for $5,000 with a letter stating, “ [e]nclosed please find a check in the amount of $5,000 as re

- payment for the loan provided to [Sangkaphim]. Unfortunately, the case settled
for much les s than the actual value and we have no additional
funds. ” 3 Prospect submitted a “Certification of Damages ” to Sangkaphim and Kaufman, asserting $138,720 plus costs was due, consisting of the Prospect O wnership A mount of $46,240

3 Apparently, P S&B mistakenly disbursed Sangkaphim ’ s share of the settlement proceeds, except for $5,000, to Sangkaphim , without first paying Prospect . When P S&B discovered the error , it sent the remaining $5,000 to Prospect

.

### 6

plus liquidated damages of two times that amount ($92,480). As a
result of PS&B ’ s failure to pay, Prospect took the matter to arbitra tion in July 2016 , alleging breach of contract against
Kaufman and PS&B

. Sang kaphim was not a party to the
arbitration. PS&B notified the arbitrator that neither it nor Kaufman was a party to an y agreement to arbitrate and that they objected to the arbitration. Kaufman and PS&B further objected to Prospect ’ s calculation of damages because it omitted the $5,000 payment PS&B had made and its claim for liquidated damages of $92,480 exceeded the maximum $46,240 awardable under the Agr e em ent. PS&B and Kaufman did not present evidence at or participate in the arbitration hearing

. On November 10, 2016, t he arbitrator found for Prospect, concluding the Acknowledgment and C ertification bound
Kaufman and PS&B to the arbitration clause in the Agreement

, and concluding ( apparently incorrectly) that they failed to tender

any funds to Prospect

. The arbitrator ordered PS&B to pay $138,720 to Prospect. He noted that PS&B challenged the jurisdiction of the arbitration, but concluded “ [ t ] he documents signed by Peter Kaufman, whom the Arbitrator finds to be an agent of [P S&B ] ” established that PS&B agreed to arbitration. Further, he concluded the liquidated damage s award was no t inequitable because “ [ PS&B ] blurs the distinction between a true loan and a purchase of a contin gent interest in a lawsuit. T h e latter involves a substantial amount of risk to Prospect because the personal injury case may either result in a defense verdict or
be otherwise dismiss ed

. ”

### 7 3

. Petitions to Vacate/Confirm Award. On May 1, 2017, Kaufman and PS&B filed a motion to vacate the award, asserting Prospect failed to establish an y arbitration agreement with them because they were not parties to the Agreement or its arbitration clause , nor were they parties to any agreement with Prospect. Thus, they asser ted, because
th ey had no contractual obligation to arbitrate , the arbitrator
exceeded his authority by deciding the arbitrability issue and making the award

. PS&B and Kaufman denied that the Letter bound them in any fashion to the terms of the Agreement. Prospect responded by filing a motion to confirm the award, asserting that the arbitrator did not exceed his authority in ruling on the arbitrability of the contract because Kaufman twice agreed (in the C ertification and A cknowledgement ) to arbitration. Further, it contended PS&B was bound by the arbitration clause based on agency and contract principles by acting as Sangkaphim’s agent and fiduciary in connection with the

contract. Prospect sought the full amount of the arbitration
award plus interest and costs. In reply, PS&B distinguished cases relying on agency principles on the ground that the party who was a signatory
received a benefit , while, here, PS&B and Kaufman received no
benefit from the cont r act or underlying transaction

. PS&B also objected that Prospect ’ s calculation of liquidated damages was excessive. The trial court entered judgment on July 26, 2018, awarding Prospect $138,720, plus interest, legal fees and costs. It rejected Kaufman ’s and PS&B ’ s argument that they were not part ies to the arbitration agreement , relying on the sentence fragment in the C ertification stating “ I agree that all disputes

### 8

regarding this agreement will be resolv ed via arbitration

. . . . ” Regarding damages, the court concluded Kaufman and PS&B had not shown grounds for vacating the award under Code of
Civil Procedure 4 section 1286.2 because the court could not
review the arbitrator ’ s reasoning n or the sufficiency of the
evidence supporting the award, and an arbitrator does not exceed
his powers m erely by rendering an erroneous decision on a legal

or a factual issue.

DISCUSSION
I. STANDARD OF REVIEW Generally, arbitration awards are not reviewable for errors of fact or law, even when the errors appear on the face of the award. ( Richey v. AutoNation, Inc. (2015) 60 Cal.4th 909, 916.) Courts are authorized to vacate an award only if the award was (1) procured by corruption, fraud, or undue means ; (2) issued by a corrupt arbitrator ; (3) affected by prejudicial misconduct by the
arbitrator ; or (4) in excess of the arbitrator ’ s powers. ( Ibid .)

“ Under this [ code ] provision, the trial court is authorized to
vacate an arbitrator ’ s determination that he or she has the jurisdiction to resolve an issue ” if arbitrability “ is outside the scope of an arbitration agreement [

. ] ” ( Glassman v. McNab (2003) 112 Cal.App.4th 1593, 1598.) We conduct a de novo review except to the extent there are disputed factual issues. ( Haworth v. Superior Court ( 2010) 50 Cal.4th 372, 383 ; Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1511 [ “ t rial court ’ s resolution of disputed facts will be upheld if supported by substantial

4 All statutory references are to the Code of Civil Procedure unless otherwise noted.

### 9

evidence, but if there is no disputed extrinsic evidence, the trial

court ’ s decision on arbitrability is reviewed de novo [Citation.]” ] .)

II. THE ARBITRATOR EXCEEDED THE SCOPE OF HIS
POWERS BY DECIDING THE ISSUE OF ARBITRABILITY Arbitration is a matter of contract and ordinarily a

non party to the arbitration agreement cannot be compelled to arbitrate. ( See, e.g., AT&T Tech s. v. Commun s. Workers of Am. (1986) 475 U.S. 643, 648 ( AT&T) ; Williams v. Atria Las Posas (2018) 24 Cal.App.5 th 1048, 1053.) Generally, the court, not the arbitrator, decides the arbitrability of a dispute , but t he parties to an arbitration agreement may , pursuant to their agreement, have the arbitrator
decide the issue. (

AT&T, supra, 475 U.S. at p. 649.) ( This would, of course, require a valid arbitration agreement compelling the parties to arbitrate. ) U nless the parties “ clearly and unmistakably ” so provide, however, whether they agreed to arbitrate the particular dispute must be deci ded by the court, not
the arbitrator. ( Ibid. ; Jackpot Harvesting, Inc. v. Applied Underwriters, Inc. (2019) 33 Cal.App.5th 719, 730 .) The willingness of parties to enter into arbitration agreements “ would
be ‘ drastically reduced ’

. . . [ if an ] arbitrator had the ‘ power to determine his own jurisdiction.

. . . ’” ( AT&T, supra , 475 U

. S

. at p. 651.)
This rule “ necessarily requires the court to examine and, to a limited extent, construe the underlying agreement. ” ( Freeman
v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 48 1 .) If
the “ drafter of a form contract has prepared an arbitration provision whose application to a particular dispute is uncertain, ” we construe the provision against the drafter under ordinary

### 10

contract principles. ( Sandquist v. Lebo Automotive, Inc. (20 16) 1
Cal.5th 233, 248.) Here, Prospect drafted all the documents , and they appear to be form contracts

. Recently, our Supreme Court addressed whether an attorney ’ s acknowledgment to an agreement be tween the attorney ’ s client and a third party would bind the attorney to the provisions of the underl y ing agreement. Monster Energy Co

. v

. Schechter (2019) 7 Cal.5th 781 ( Monster ) held that an attorney ’ s signature on a notation approv ing a client ’ s settlement agreement as to form and content did not preclude a finding that
the attorney also intended to be bound by terms of the agreement. ( Id at p p. 785

- 786.) Monster observed that i f the agreement itself contained no provision purporting to bind counsel, then “ the question is easily answered

. . . . In that circumstance, counsel ’ s signature that he approved the agreement as to form and content could only mean he is approving it for his client ’ s signature. ” ( Id. at p. 792.) On the other hand, “[ a ] n attorney ’ s signature on an agreement containing substantive provisions imposing duties on counsel

may reflect an intent to b e bound even though counsel also approves the document for his client ’ s signature. ” ( I bi d. ) Thus,
Monster concluded in the case before it, a factfinder considering
all circumstances could conclude the attorney intended to be bound by confidentiality provisions in the agreement , and the question was one of fact . ( I d. at pp. 792
, 79 5 .)
But n othing in Monster precludes interpret ing an attorney certification as a matter of law where no factual issues exist. The parties here did not present any extrinsic evidence to aid the interpretation of the contracts, and both the arbitrator and trial
court ruled as a matter of law o n the meaning of the C ertification

### 11

and A cknowledgment. Thus

, we construe the various documents
as a matter of law

. As Monster envisions, an attorney’s certification must be
considered with the contract to which it is appended. Here, by solely relying on language in the C ertification and
A cknowledgment, Prospect takes the provisions out of context
and fails to consider their language in concert with th e Agreement and Letter. Indeed, t he only way the references to
arbitration in the C ertification and A cknowledgment can be interpreted to bind Kaufman and P S&B to arbitrat e is to ignore the terms of the agreements to which they are appended. Th at runs contrary to a cent r al principle of contract interpretation requiring “[ t ] he whole of a contract to be take n together, ” “ to give effect to every part, if reasonably practicable, with each clause helping to interpret the other. ” (Civ. Code, § 1641.) The language of a provision should be construed in context, in view of the
intended function of the provision and of the contract as a whole. ( Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1265.)
Under Monster, we consider whether the attorney had any duties under the agreements to which an arbitration clause could apply

. Kaufman and PS&B w ere not part ies to the Agreement
and had no duties under it. T he Agreement’s liquidated damages clause explicitly states that such damages were payable by Sangkaphim to Prospect. Given his lack of duties in the Agreement , t he only reasonable interpretation of the
Ce rtification of the Agreement is

— as it says

— that Kaufman
“has reviewed the terms and conditions of this Sales and Repurchase Agreement and explained such terms and conditions to [Sangkaphim].” The sentence read ing “I agree that all disputes regarding this agreement will be resolved via arbitration and

### 12

that I have explained this to the seller” can only reasonably be understood as Kaufman certifying that he has reviewed the Agreement, agree s the Agreement requires the parties to it (i.e., Sangkaphim and Prospect) to arbitrate their disputes, and he has explained that to Sangkaphim

. We know from the first sentence
of the Certification that “this agreement” refers to the Agreement, to which neither Kaufman nor PS&B was a party, rather than some new agreement contained in the Certification.
We cannot read t he use of the phrase “ I agree ” to mean that
Kaufman also independently agreed to arbitration because that
would be contrary to the stated purpose of the Certificati on (explaining the Agreement’s terms to Sangkaphim), and expand the scope of the Agre e ment ’s arbitration provision to include Kaufman, a non

- party. To the extent there is any uncertainty, we construe the provision against the drafter, Prospect. ( Sandquist v. Lebo Automotive, Inc., supra, 1 Cal.5th at p. 248.) It is far from a “clear and unmistakable” agreement by Kaufman to arbitrate disputes with Prospect.
T he Letter direct ed Kaufman to pay Prospect out of any settlement proceeds before paying Sangkaphim and stated that
Kaufman was to hold any disputed funds until the dispute was resolved. Although Kaufman did have independent duties to his
client under the Letter (holding settlement funds in P S &B’s trust

account and forwarding the O wnership A mount to Prospect ) , t he language of both the Letter and the Acknowledgement clearly contemplates any arbitration would solely involve Sangkaphim
and Pros p ect , not Kaufman. The Letter directs Kaufman to “retain only the amount in dispute in your trust fund until the dispute is resolved as per my agreement with Prospect

. . . . ” Again, Kaufman was not a party to that a greement. In the

### 13

Acknowledgment, Kaufman similarly merely o bserves that all disputes arising out of this transaction will be resolved via
arbitration “

per the [Agreement] and the irrevocable letter of
direction .” (Emp h asis added.) Neither the Agreement nor the
Letter requires Kaufman to arbitrate, so we have no re ason to conclude Kaufman would have intended his statement that disputes would be resolved “ per” those documents to require him to arbitrate disputes involving him or his firm. Moreover, Kaufman and PS&B cannot be bound by any purported agree ment to arbitrate with Prospect because they did not receive any consideration

. (Civ. Code, § 1550; Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 1006 [ “ consideration is an
essential element of a contra ct ” ].) Finally, we cannot overlook the fact that Kaufman and PS&B were serving as Sangkaphim’s attorneys, with all the fiduciary and ethical duties that relationship entails. Their duties
under the Letter were to their client, Sangkaphim, not Prospect.
I ndeed, we assume the trans action was structured as it was

— i.e., not including Kaufman and PS&B as parties to the Agreement but instead having Sangkaphim impose duties on his lawyers through a letter of instruction

— to avoid creating a
conflict of interest necessitating a conflict waiver from Sangkaphim due to the parties’ adverse interests . No such waiver was sought or obtained. ( Sheppard

, Mullin

, Richter & Ham pton
, LLP v. J

- M Manufacturing Co. , Inc. (2018) 6 Cal.5th 59, 84 [necessity of client waiver of adverse interests].)
Given this context , th e only reasonable interpretation of
the A cknowledgment is that Kaufman assented to do the things Sangkaphim requested of him in the Letter

, and acknowledged
that the terms of the Agreement and Letter include

### 14

Sangkaphim ’ s consent to arbitrate disputes with Prospect

. As a result, Prospect cannot claim it reasonably relied on the isolated statements in the Certification and Acknowledgment such that
PS&B and Kaufman are bound to arbitrate by principles of promissory estoppel. ( Aceves v. U

. S

. Bank N.A. (2011) 192 Cal.App.4th 218, 22 5 [reliance must be reasonable for promissory estoppel to app ly].)
We therefore conclude A ppellants’ purported consent to arbitrate any dispute arising out of the A greement and Letter is

not “ clear and unmistakable. ” W e reverse the trial court and direct it to enter an order vacating the arbitration award and

enter judgment thereon in A ppellants ’ favor

. Consequently, we need not address the arbitrator ’ s award of liquidated damages or his failure to acknowledge the $5,000 payment by PS&B

.

### 15 DISPOSITION
The judgment of the superior court is reversed. The case is remanded for further proceedings consistent with this opinion. Appellant s are to recover costs on appeal.



### CURREY, J.

We concur:

WILLHITE, Acting P.J.

COLLINS, J.