Jackson v. X10 Capital, L.P.

SIMONDS, J.

NOT TO BE PUBLISHED

(San Francisco City &County Super. Ct. No. CPF24518463).

SIMONDS, J.^[*]

Plaintiff Eddie Jackson and Defendant X10 Capital, LP (X10) executed an "Income Purchase Agreement" (IPA), pursuant to which X10 paid Jackson $3 million in exchange for a 15 percent interest in his future income, up to a maximum payment of $8,850,000. Only five months later, Jackson signed a contract extension to play professional football. Jackson made payments to X10 over the next 32 months, but he then repudiated the IPA and ceased further payments.

Pursuant to the IPA's terms, X10 initiated arbitration with Judicial Arbitration and Mediation Services, Inc. (JAMS). The arbitrator rejected Jackson's arguments and defenses, including his contention that the IPA was an illegal insurance contract, and awarded X10 $6,490,253.49, including attorney fees and costs.

Jackson filed a petition to vacate the arbitration award on the grounds that the award was based upon an illegally sold insurance contract and the product of the arbitrator's prejudicial improprieties. The superior court denied Jackson's petition and he timely appealed. We affirm.

BACKGROUND

A. Jackson and X10 Negotiate the IPA

Jackson is a professional football player who signed a rookie contract in 2017. X10 is a limited partnership that holds itself out as an investment fund that provides professional athletes with an upfront payment in exchange for an interest in their future income.

In January 2019, X10 learned through connections with Jackson's agent, Ben Setas, and financial advisor, Peter Wright, that Jackson "expressed interest in a X10 partnership." X10 internally evaluated Jackson as a potential client, noting his injury history and predicting the odds he would suffer an injury before his current contract expired.

Wright arranged Jackson's initial meeting with X10's Mark Dominik to discuss a potential contract. Afterwards, Dominik emailed Wright the slides he had presented to Jackson, and Wright informed Jackson he would "run some projections" of the proposed deal and "then want to review with [yo]u."

A month later, and ahead of another meeting with Jackson, Dominik sent Setas a draft IPA. At bottom, the proposed deal provided that Jackson would pay X10 an "Income Purchase Amount" that equals 15 percent of his "Talent Income" less "Excluded Income" and any other applicable deduction. The draft agreement further provided that as "consideration for the right to receive the Income Purchase Amount . . ., X10 Capital shall pay [Jackson] . . . the Purchase Price" of $3 million.

Pursuant to paragraph 1.40 of the IPA," 'Talent Income' means any and all Gross Monies that are earned and payable to [Jackson] . . . as a result of [Jackson's] activities . . . in the Field...." Under paragraph 1.14, the "Field" is broadly defined to include "any" activities related to the sport of football as well as "any and all of [Jackson's] activities," "any use of [Jackson's] Persona," and "any activities of [Jackson], which are of the type

Before attending the meeting with Dominik that evening, Jackson asked Setas his opinion about the IPA. Setas responded that "it all depends on whether you're gonna spend the money or not. If Pete[r Wright] thinks he can save it and grow it then that's where the player wins. If you're gonna spend it then you lose."

Jackson deliberated on the deal for several months. In June of 2019, Wright forwarded Jackson further financial analysis of the proposed deal, which advised that the IPA "only makes sense from a monetary standpoint if" Jackson was "concerned about a significant injury or a career ending injury before [he] sign[ed] a new contract next year" or if he "need[ed] $1.89 [m]illion to cover a large expense in the next couple of years."

A few weeks later, Jackson texted Wright that he wanted to sign the IPA. Wright advised they discuss the decision with Setas and asked Jackson the reason for his decision. Jackson responded: "I Was Just Thinking If The Money Gling [sic] To Make It's Self Then It's The Same Thing And Just To Have Some Financial Security 4Real." Wright affirmed that it would give Jackson financial security but also cautioned the deal was "expensive."

Wright and Setas then engaged in negotiations with X10 over the IPA's terms. The IPA's basic structure - a $3 million upfront payment to Jackson in exchange for 15 percent of his future earnings - remained the same. But pursuant to negotiations, X10 agreed to add a "Talent Buy-Out typically performed by individuals in the Principal Business arising out of or relating to being or having been a Professional Athlete ...." Option" clause that gave Jackson the option to terminate the IPA on or before September 30, 2020, in consideration for $4.5 million.

It does not appear that the parties' negotiations touched on the IPA's choice of law or arbitration clauses. Both clauses are within the paragraph 15.5 titled "Governing Law; Arbitration," which reads in part: "The law of California (exclusive of conflict or choice of law rules) shall govern, construe and enforce all of the rights and duties of the Parties arising or in any way relating to the subject matter of this Agreement. In the event of any dispute, claim or controversy arising out of or relating to this Agreement (including any claim based on contract, tort or statute) or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this Agreement to arbitrate, (a 'Dispute'), then the Parties shall engage in informal, good faith discussions and attempt to resolve the Dispute. If the Parties are unable to resolve the Dispute within forty-five (45) days, then the Dispute shall be determined by confidential binding arbitration in San Francisco before one arbitrator. The arbitration shall be administered by JAMS pursuant to its Streamlined Arbitration Rules and Procedures ...."

In early August 2019, Jackson reviewed the IPA with Setas and authorized Setas to sign it on his behalf. X10 wired Jackson the $3 million the next day.

B. Jackson Partially Performs, Then Repudiates the IPA

Five months after he signed the IPA, Jackson inked a five-year contract extension. Jackson then decided to exercise the buy-out clause of the IPA. At Wright's request, X10 agreed to amend the buyout option to allow Jackson to pay the $4.5 million in three installments to coincide with the installment payments of Jackson's signing bonus. Jackson made the first installment payment, but he failed to make the second payment. A few weeks after the second installment payment was due, Wright informed X10 that Jackson would not be exercising the buyout option due to lack of funds.

In the fall of 2021, Jackson failed to make two of his scheduled IPA payments. X10 sent a notice of breach to Jackson's counsel; Jackson then made those payments.

The following spring, Jackson requested X10 for another buyout option. By late August of 2022, X10 and Jackson had negotiated a $2.6 million buyout with an installment payment plan, and Jackson authorized his business manager to accept the deal. Shortly thereafter, X10 sent Jackson the draft amendment.

But Jackson never executed the amended agreement. Instead, Jackson informed X10 that he would not make further payments or exercise the buyout amendment. X10 subsequently sent Jackson a notice of breach.

C. Arbitrator Finds In Favor of X10

X10 filed a demand for arbitration against Jackson, alleging breach of contract and breach of implied covenant of good faith and fair dealing. X10 claimed its damages equaled the difference between the IPA's maximum payment cap and the $3,596,352 that Jackson had paid under the IPA. In the alternative, X10 sought $1,696,956.53, which equaled the payments Jackson owed under the IPA but had withheld as of the arbitration hearing, and declaratory relief stating that the IPA was a valid, legal, and binding contract.

Jackson answered that the IPA was an unenforceable insurance contract. Jackson further asserted a counterclaim for his alleged overpayment of insurance premiums to X10 because it was an unlicensed insurer. In the alternative, Jackson argued the IPA constituted a usurious and unconscionable loan or an illegal sports bet and violated California's unfair competition law (Bus. &Prof. Code, § 17200 et seq.).

The arbitrator selected for the dispute was Honorable James P. Kleinberg, a retired judge of the Santa Clara County Superior Court.

Over the course of the arbitration hearing, Jackson principally argued that the IPA was an insurance contract, emphasizing X10's marketing of the agreement and Jackson's subjective expectations. For example, Jackson testified that Dominik pitched the IPA to him using the term "insurance" during their first meeting in 2019. On cross-examination X10's CEO conceded that X10 may use the term "insurance" to sell its agreements to athletes, that X10 "help[s] professional athletes derisk their situation," and that athletes shift "risk over to X10" through income purchase agreements. However, Judge Kleinberg sustained X10's objections to some of Jackson's evidence in support of these issues. Specifically, he sustained objections to witnesses and arbitration awards involving Fantex - a nonparty company founded by X10's CEO - on timeliness and relevance grounds, respectively.

After a week-long hearing and post-hearing briefing, Judge Kleinberg issued a final award in which he rejected Jackson's contentions. Most importantly, the arbitrator held the IPA did not meet the legal definition of an insurance contract because it neither indemnified Jackson against loss nor did it distribute such risk among similarly situated policyholders. He was unpersuaded that "one errant reference to 'insurance' in a marketing presentation that Jackson never saw [citation], and a reference to the IPA providing a player 'coverage'" demonstrated that the parties considered the IPA to be an insurance contract. He further found that the factors courts utilize to determine the purpose and object of a contract - its written terms, the parties' subjective expectations, and how the parties performed the contract - "cut against Jackson's arguments."

The arbitrator ordered Jackson to pay total damages of $6,490,253.49. The amount awarded was the sum of $1,696,956.53 for Jackson's missed payments as of the arbitration hearing, "plus $448,333.33 constituting payments for the 2023-24 season," $214,528.98 for interest, $3,882,042.65 for attorney fees, and $248,392 for costs.

D. Superior Court Denies Jackson's Petition to Vacate the Arbitration Award

Jackson filed a petition to vacate the arbitration award in superior court, contending that the arbitrator exceeded his authority by enforcing an illegal contract. Jackson also contended the arbitrator's refusal to hear certain evidence and lack of impartiality prejudiced him.

X10 opposed the petition on the ground that the Federal Arbitration Act (9 U.S.C. §§ 1-16) (FAA) bars judicial review of the IPA's validity. X10 further argued the court should deny the petition on the merits and rebutted Jackson's assertions of the arbitrator's bias.

The superior court held that the IPA's choice-of-law provision provided that the California Arbitration Act (Code Civ. Proc., § 1280 et seq.) (CAA) governed, and therefore it had jurisdiction to review whether the arbitrator exceeded his powers by enforcing an illegal contract. The court nonetheless agreed with the arbitrator's analysis that the IPA was not an insurance contract. The court also concluded that, although "the arbitrator's tone could have been more measured on some occasions," Jackson "fail[ed] to show that the arbitrator substantially prejudiced petitioner through misconduct/bias." Accordingly, it denied the petition.

Jackson timely appealed.

DISCUSSION

Jackson contends the superior court erred in confirming the arbitration award and entering judgment in favor of defendants. We independently review a court order confirming an arbitration award. (Mave Enterprises, Inc. v. Travelers Indemnity Co. (2013) 219 Cal.App.4th 1408, 1422.)

A. Propriety of Judicial Review

At the threshold, we dispatch X10's objection to judicial review. X10 contends the superior court erred in "conduct[ing] its own plenary review to determine whether the IPA was an illegal insurance contract" and further asserts that this court may not "overrule the arbitrator's finding that the IPA is not an insurance contract." X10 points to the IPA's arbitration clause, which incorporates privately promulgated arbitration rules, and therefore concludes the "FAA's substantive arbitrability rules apply," precluding vacation of the award under the CAA. We disagree.

Whether federal law governs the IPA's arbitration agreement is a question of law involving statutory and contract interpretation, which we review de novo. (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432; Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866.) The FAA's substantive rules apply in state and federal courts to arbitration agreements in contracts concerning interstate commerce. (9 U.S.C. §§ 1, 2; Buckeye Check Cashing, Inc. v. Cardegna (2006) 546 U.S. 440, 445 (Buckeye).) But parties are free to contract out of the FAA's rules. (Volt Info. Sciences. v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 478 ["the FAA's principal purpose [is to] ensur[e] that private arbitration agreements are enforced according to their terms"].)

Extensive contract interpretation is not necessary here, though, because X10 "agree[s] that since the IPA is governed by California law, the CAA's procedural rules apply in determining whether to vacate the award." (See Heimlich v. Shivji (2019) 7 Cal.5th 350, 358 (Heimlich) ["Arbitration is a matter of consent"].) Nor is there any dispute the parties were free to contract for state procedural rules to apply. (See Hall Street Associates, L.L.C. v. Mattel, Inc. (2008) 552 U.S. 576, 590 [stating parties "may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable"].) X10 further acknowledges that the applicability of the CAA "means that a court can vacate the award if the arbitrator 'exceeded [his] powers.' "

But X10 contends that, to determine whether the arbitrator exceeded his powers, the superior court had to inquire "whether the arbitrator had the power to decide the parties' dispute." Because that is a question about arbitrability, X10 concludes the issue is "governed by the 'body of federal substantive law of arbitrability' when, as here, the FAA applies."

That is incorrect for two reasons. First, under California law, an arbitrator generally exceeds its power when it enforces an invalid contract. (Loving &Evans v. Blick (1949) 33 Cal.2d 603, 609-610 (Loving); Sheppard, Mullin, Richter &Hampton, LLP v. J-M Manufacturing Co. Inc. (2018) 6 Cal.5th 59, 74-75 &fn. 3 (Sheppard) [listing cases].) Thus, in the instant case, the superior court's inquiry into whether Judge Kleinberg exceeded his powers was circumscribed to analyzing the legality of the IPA. The court did not question, nor does Jackson contest, the arbitrability of the parties' dispute in the first instance.

Further, Jackson did not waive the issue of the IPA's illegality by arbitrating it first. (Loving, supra, 33 Cal.2d at p. 609; Sheppard, supra, 6 Cal.5th at pp. 74-75.)

Second, the FAA's provisions regarding judicial review of an arbitration award are procedural, not substantive, and therefore do not apply in state courts. (Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, pp. 1351-1352 (DIRECTV) [holding 9 U.S.C. §§ 10 &11 are "not controlling" where parties contracted for CAA to govern]; see also Southland Corp. v. Keating (1984) 465 U.S. 1, 16, fn. 10 [9 U.S.C. §§ 3 &4 inapplicable in state court].)

In DIRECTV, our Supreme Court observed that the FAA's provisions for enforcing and vacating an arbitration award "are directed to 'the United States court in and for the district wherein the award was made,'" and that "similar language in sections 3 and 4 of the FAA reflects Congress's intent to limit the application of those provisions to federal courts." (DIRECTV, supra, 44 Cal.4th at p. 1351.) DIRECTV held that, because the matter had been brought in superior court, the "FAA's procedural provisions [were] not controlling." (Id. at p. 1352.) Instead, the "determinative question" was whether CAA procedures authorizing parties to expand the scope of judicial review conflict with the FAA's policy. (Ibid.) The court concluded there was no conflict because "a reading of the CAA that permits the enforcement of agreements for merits review is fully consistent with the FAA 'policy guaranteeing the enforcement of private contractual arrangements.'" (Id. at p. 1354.) So too here.

X10's reliance on Preston v. Ferrer (2008) 552 U.S. 346 (Preston) and Mastrobuono v. Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52 (Mastrobuono) - in each of which the United States Supreme Court reconciled a choice-of-law clause with an arbitration clause - is misplaced. In Preston, the contract's choice-of-law clause merely stated that the" 'agreement shall be governed by the laws of the state of California,'" and its arbitration clause stated that" 'any dispute . . . relating to . . . the breach, validity, or legality'" of the contract should be arbitrated in accordance with the American Arbitration Association (AAA) rules." (Preston, at p. 361.) Relying on its analysis in Mastrobuono, the United States Supreme Court determined that "the 'best way to harmonize' the parties' adoption of the AAA rules and their selection of California law is to read the latter to encompass prescriptions governing the substantive rights and obligations of the parties, but not the State's 'special rules limiting the authority of arbitrators.'" (Preston, at p. 363.)

In Mastrobuono, the subject contract's choice-of-law clause provided that the agreement" 'shall be governed by the laws of the State of New York'" and its arbitration clause provided any dispute" 'shall be settled by arbitration' in accordance with the rules of the National Association of Securities Dealers." (Mastrobuono, supra, 514 U.S. at pp. 58-59.)

Here, in contrast, there is no dispute about the scope of the choice-of-law clause. As discussed ante, X10 stipulates that the parties agree that the CAA applies. (Cf. Biller v. Toyota Motor Corp. (9th Cir. 2012) 668 F.3d 655, 665 ["The parties here might have chosen to expand the scope of judicial review by providing for a merits review of the arbitration award and designating the California Arbitration Act as the controlling law under which review of an arbitral award was to occur"].)

Because they did not involve a choice-of-law clause, X10's other authorities are also inapposite. Indeed, neither Buckeye nor Nitro-Lift Technologies, L.L.C. v. Howard (2012) 568 U.S. 17 involved a choice of law clause or judicial review of arbitration awards. Rather, both cases concerned "a mainstay of the [FAA's] substantive law that attacks on the validity of the contract . . . are to be resolved 'by the arbitrator in the first instance, not by a federal or state court.'" (Nitro-Lift, at pp. 20-21 [whether noncompetition agreements were valid as matter of Oklahoma law was for arbitrator to decide in first instance]; Buckeye, supra, 546 U.S. at p. 446 [whether purportedly usurious contract was void for illegality was for arbitrator to decide "in the first instance"].)

Moreover, the IPA's choice-of-law clause uses different language than the provisions at issue in Preston or Mastrobuono. Thus, even without X10's admission, we would conclude the IPA expressly intends for the CAA's rules regarding judicial review to displace the FAA's procedural rules. (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 383 (Cronus) ["we examine the language of the contract to determine whether the parties intended to apply the FAA to the exclusion of California procedural law"]; Wolsey, Ltd. v. Foodmaker, Inc. (9th Cir. 1998) 144 F.3d 1205, 1210 ["In construing an arbitration agreement, courts must 'apply ordinary state-law principles that govern the formation of contracts' "].)

For this reason, and because there is no dispute regarding which procedural law the parties selected, we need not consider whether to adopt the Second District's position that "the FAA's procedural provisions (9 U.S.C. §§ 3, 4, 10, 11) do not apply unless the contract contains a choice-of-law clause expressly incorporating them." (Valencia v. Smyth (2010) 185 Cal.App.4th 153, 174.)

The IPA's relevant provisions are found in paragraph 15.5 titled "Governing Law; Arbitration." The first sentence is a choice-of-law clause that expressly selects the "law of California" to "govern, construe and enforce all the rights and duties of the Parties." (Bold emphasis added.) The rest of the paragraph constitutes an arbitration clause, defining a "Dispute" as "any dispute . . . arising out of or relating to this Agreement . . . or validity thereof, including the determination of the scope or applicability of this Agreement to arbitrate." It provides that if the parties fail to informally resolve a dispute within 45 days, the dispute will "be determined by confidential binding arbitration" that "shall be administered by JAMS pursuant to its Streamlined Arbitration Rules and Procedures ...."

Where a choice-of-law clause makes an "explicit reference to enforcement," it should be understood that the parties intended to apply California procedural law. (Mount Diablo Medical Center v. Health Net of California, Inc. (2002) 101 Cal.App.4th 711, 722 [affirming trial court's denial of petition to compel arbitration]; see Cronus, supra, 35 Cal.4th at p. 387 [finding a choice-of-law provision "substantially similar to the provisions in Mount Diablo" incorporates California's arbitration rules].) Thus, the parties' selection of California law to "enforce" the IPA incorporates the CAA. This reading breathes meaning into the term "enforce" as used in the IPA's choice-of-law clause. (Temple of 1001 Buddhas v. City of Fremont (2024) 100 Cal.App.5th 456, 481 [explaining courts give effect to all contractual terms and avoid rendering any superfluous].)

This interpretation of the choice-of-law clause does not conflict with the parties' concurrent selection of the JAMS Streamlined Arbitration Rules &Procedures (JAMS rules). The JAMS rules contemplate that parties may select state law to enforce or vacate an award. Specifically, JAMS rule 20 provides: "Proceedings to enforce, confirm, modify or vacate an Award will be controlled by and conducted in conformity with the Federal Arbitration Act, 9 U.S.C. Sec 1, et seq., or applicable state law." (<http://www.jamsadr.com/rules-streamlined-arbitration> (as of Feb. 21, 2025), boldface added.) Nor does our interpretation of the IPA limit the arbitrator's authority. As discussed above, the arbitrator determined the arbitrability and the merits of the dispute in the first instance. For this reason, there is no contradiction between enforcing the IPA pursuant to the CAA's rules for judicial review and the IPA's requirement that the arbitration be "administered by JAMS pursuant to its Streamlined Arbitration Rules and Procedures."

We take judicial notice of the then-effective streamlined rules of JAMS, after having afforded the parties an opportunity to address the propriety of judicial notice. (Cooper v. Lavely & Singer Professional Corp. (2014) 230 Cal.App.4th 1, 6, fn. 1 [noticing JAMS Rules]; Gabriel M. v. Superior Court of Riverside (2024) 107 Cal.App.5th 446, 449, fn. 1 [parties provided notice in a tentative opinion].)

In sum, the superior court did not err in conducting its own plenary review to determine whether the IPA was an illegal insurance contract.

B. The IPA Is Not An Insurance Contract

Turning to the merits, Jackson argues the arbitration award must be vacated under Code of Civil Procedure section 1286.2, subdivision (a)(4), because the arbitrator exceeded his power in enforcing an illegal insurance contract. We disagree.

"Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event." (Ins. Code, § 22.) To meet this definition, a contract generally must satisfy two elements:"' "(1) a risk of loss to which one party is subject and a shifting of that risk to another party; and (2) distribution of risk among similarly situated persons." '" (Heckart v. A-1 Self Storage, Inc. (2018) 4 Cal.5th 749, 758.) But "not every contract that meets these criteria is an insurance contract for purposes of regulation by the Insurance Code." (Ibid.) Accordingly, courts consider a contract holistically to determine whether its "principal object and purpose" is indemnity. (Id. at p. 759.) Under this approach," '[e]ach contract must be tested by its own terms as they are written, as they are understood by the parties, and as they are applied under the particular circumstances involved.'" (Ibid.)

Our analysis is straightforward because, by its own terms, the IPA does not provide indemnity against loss. The IPA provides that in "consideration for the right to receive [a 15% interest in Jackson's future income] . . . X10 Capital shall pay [Jackson] . . . the Purchase Price." No loss is or was required for Jackson to obtain or retain the $3 million payment.

This is at variance with the" 'sole purpose'" of an insurance contract to" 'guaranty against loss or damage.'" (Davis v. Phoenix Ins. Co. (1896) 111 Cal. 409, 415; see also Pacific Employers' Ins. Co. v. Arenbrust Farahan &Loran (1927) 85 Cal.App. 263, 267 ["an insurance policy is a contract of indemnity for loss"].) Because X10's payment to Jackson was not contingent on a loss, it cannot be said that the IPA's purpose and object is indemnity; it is therefore not an insurance contract.

Pointing to the IPA's definition of "Excluded Income," Jackson nonetheless contends the agreement did indemnify him in the event of injury. Not so. The IPA specifies that Jackson's payments to X10 equal 15 percent of his gross income less "Excluded Income" and other deductions not relevant here. "Excluded Income" means "all amounts that would have been payable" to Jackson for his "participation in any League game . . ., if [Jackson] is excused from such participation without pay by the League or Participant's Team as a result of any injury, illness, physical or mental condition ...." (Italics added.) This merely means Jackson would not owe

X10 an interest in contractual income that he is not paid due to injury; it does not indemnify Jackson for such unpaid amounts.

We acknowledge the transaction shifted risk from Jackson to X10 in the short term by allowing Jackson to hedge against a potential loss in expected future earnings. X10 paid Jackson $3 million in exchange for an interest in future earnings which may have never materialized or may not have been enough to recoup X10's investment. But such a shift of risk is insufficient to establish an insurance contract. (Heckart v. A-1 Self Storage, Inc., supra, 4 Cal.5th at p. 758.)

Moreover, the IPA permitted Jackson to profit, belying any notion it is an insurance contract. (Davis v. Phoenix Ins. Co., supra, 111 Cal. at p. 415 ["The very meaning of the term 'indemnity' excludes all idea of profit to the insured"]; Burns v. California FAIR Plan. Assn. (2007) 152 Cal.App.4th 646, 656 [stating "the well-established rule of law that insurance proceeds are to indemnify, not to generate a profit"].) As the superior court observed, Jackson would have profited if he had been "cut from the roster or injured at the beginning of the parties' relationship."

We also observe that the record evidence reveals Jackson's advisors forecast Jackson could "more than cover" the maximum payments to X10 if he invested the proceeds.

The IPA's "clawback" provision did not preclude Jackson from profiting in the event he was involuntarily cut or injured. That provision permits X10 to recoup the difference between the $3 million purchase price and Jackson's payments to-date if Jackson "retires or resigns . . . prior to the fifth (5th) anniversary of the Closing for any reason other than Good Reason." "Good Reason" means a major injury that renders Jackson incapable of playing professional sports or imposes significant risk to Jackson's health if he continues playing. The clawback provision further provides that Jackson's "involuntary release" from his team "shall not, in and of itself, trigger" X10's clawback rights.

Accordingly, Jackson did not need to be "cut from the roster or injured at the beginning of the parties' relationship" to profit from the IPA. For example, if Jackson earned $19 million over the 5 years following execution of the IPA and then voluntarily retired, he would have paid X10 less than $3 million yet no longer be subject to the clawback provision. This hypothetical highlights that the payment to Jackson was not contingent on a "loss."

Jackson's contention that his payments to X10 constituted "premium[s]" and "the 'upfront' money was either payment for indemnity or an offset on the premium" is also unavailing. In an insurance contract, the insured's premiums are consideration for the insurer "to indemnify the insured against loss, damage, or liability arising from a contingent or unknown event." (Fraser-Yamor Agency, Inc. v. County of Del Norte (1977) 68 Cal.App.3d 201, 213.) As discussed ante, because the upfront payment was not contingent on any loss, Jackson's payments cannot be characterized as insurance premiums.

We need not resolve whether a similarly structured contract with "unconventional" premiums could constitute insurance, nor do we need to resolve whether X10 "pools" risk across similarly situated professional athletes. Likewise, it matters not whether X10 "pitched" the IPA to Jackson as" 'insurance' against serious injury."

Accordingly, the superior court did not err in holding that the arbitrator did not exceed his powers.

C. The Arbitrator Did Not Substantially Prejudice Jackson

Jackson argues the arbitration award must be vacated under Code of Civil Procedure section 1286.2, subdivision (a)(5), because the arbitrator's decision to exclude witnesses and record evidence substantially prejudiced him. He further contends Judge Kleinberg's rulings and conduct evidenced bias and misconduct. We reject these claims.

An arbitrator's erroneous factual determinations or legal conclusions are not subject to correction, nor do they serve as a basis for vacating an award. (Heimlich, supra, 7 Cal.5th at p. 367.) To vacate an award, section 1286.2, subdivision (a)(5), "requires that the trial court find that a party has been 'substantially prejudiced . . . by the refusal of the arbitrators to hear evidence material to the controversy ....'" (Hall v. Superior Court (1993) 18 Cal.App.4th 427, 439 [citing earlier version of statute].) "To find substantial prejudice, the court must accept, for purposes of analysis, the arbitrator's legal theory and conclude that the arbitrator might well have made a different award had the evidence been allowed." (Ibid.; see Royal Alliance Associates, Inc. v. Liebhaber (2016) 2 Cal.App.5th 1092, 1109 (Royal) ["The prejudice query . . . is an examination of the proffered but rejected evidence to determine the impact of its omission under the theory adopted by the arbitrators"].)

Jackson fails to demonstrate substantial prejudice. The arbitrator concluded the IPA was not an insurance contract under several independent legal theories, including the one discussed ante - i.e., "[t]he IPA does not provide indemnity." The excluded evidence does not speak to that issue. (See Hall v. Superior Court, supra, 18 Cal.App.4th at p. 439 ["the reviewing court should generally focus first on prejudice, not materiality"].) Jackson merely asserts the excluded witnesses each "had material information" regarding "X10's marketing of the Agreements as insurance and X10's witnesses' credibility." As the superior court found, "the arbitrator relied mostly on the objective mechanics of the IPA to render his ruling that it was not a contract of insurance and there is no reason to believe that he would have changed his mind even if there were evidence that respondent marketed the IPA as 'insurance'." Similarly, the arbitration awards between nonparty athletes and nonparty Fantex do not speak to the terms or mechanics of the IPA. Thus, even if the excluded evidence would have demonstrated that X10 misleadingly marketed the IPA as insurance, Jackson fails to show how such evidence would have resulted in a different award.

We are also unpersuaded that the arbitrator's rulings unfairly hindered Jackson's opportunity to present his case. Royal, the sole authority on which Jackson relies, is instructive. As our high court has explained, Royal "is the paradigmatic example of when a refusal to hear evidence will justify vacation of an award." (Heimlich, supra, 7 Cal.5th at p. 369.) In Royal, an arbitration panel permitted one party to speak "unsworn and at length" while denying the other party the opportunity to speak or cross-examine. (Heimlich, at p. 369; Royal, supra, 2 Cal.App.5th at pp. 1097-1100 .) Moreover, the panel gave the former party "an unfettered opportunity to bolster the written record but denied [the other party] even a limited chance to do the same." (Heimlich, at p. 369; Royal, at pp. 11001102.)

In contrast, Jackson did testify, including about how X10 pitched the IPA. His counsel cross-examined X10's witnesses regarding the same. The exclusion of Jackson's witnesses, who planned to testify about similar issues, does not reveal unequal treatment. Jackson did not cite any objections to X10's witnesses' testimony concerning Fantex. Conversely, after a hearing and "review[ing] all the papers multiple times," Judge Kleinberg sustained X10's objection to Jackson's witnesses on timeliness grounds. Relatedly, while the arbitration awards involving nonparty Fantex were excluded on relevance grounds, Judge Kleinberg permitted Jackson to introduce, and to cross-examine witnesses about, an X10 presentation that inaccurately referenced Fantex's clients as X10's.

Finally, we reject Jackson's claims of prejudicial bias. The standard for vacating an arbitration award on grounds of bias requires record facts that create an impression of possible bias from "the perspective of the hypothetical reasonable person." (Betz v. Pankow (1993) 16 Cal.App.4th 919, 928.) Jackson fails to make such a showing.

First, Jackson's quotation of an out-of-context statement by Judge Kleinberg following a sustained argumentative objection does not evidence prejudgment. (See People v. Snow (2003) 30 Cal.4th 43, 78 [" '[i]t is well within [a trial court's] discretion to rebuke an attorney, sometimes harshly, when that attorney asks inappropriate questions, ignores the court's instructions, or otherwise engages in improper or delaying behavior' "].) We decline to read the arbitrator's tone as "sarcastic." (Cf. People v. Allen and Johnson (2011) 53 Cal.4th 60, 70 ["the court's tone of voice is not revealed" from the transcript].) Jackson also failed to object to the perceived prejudgment and create a record of the problem for appellate review. (See Arave v. Merrill Lynch, Pierce, Fenner &Smith, Inc. (2018) 19 Cal.App.5th 525, 543.)

Second, Judge Kleinberg's privilege rulings do not meet the objective test to show bias. Jackson focuses on the amount of time it took X10 and Jackson to seek claw back of inadvertently produced materials - three months and two days, respectively - and concludes the disparate rulings "exhibited further bias and misconduct." But Jackson fails to refute the arbitrator's analysis in rejecting his clawback request. For example, Judge Kleinberg reached a legal conclusion that "California does not recognize an accountant-client privilege under [the] circumstances," and he made a factual finding that Jackson failed to keep a privilege log or "take steps to prevent disclosure." Jackson does not dispute either statement or deny that X10 kept a privilege log. Jackson fails to show unfair one-sidedness.

Finally, we find no misconduct in Judge Kleinberg's adjudication of Jackson's defenses or award of attorney fees and costs. The final award considered and rejected each of Jackson's arguments. And Jackson does not explain how the arbitrator's evidentiary rulings prejudiced those defenses. (Hall v. Superior Court, supra, 18 Cal.App.4th at p. 439.) Likewise, the final award walks through X10's billing practices, concluding "after a thorough review of X10's billing records, that the staffing of the case and time spent by X10's counsel was appropriate." Again, there is no evidence of misconduct or bias. And even if the award of costs was flawed, we may not vacate the award on that basis. (Heimlich, supra, 7 Cal.5th at p. 367.)

DISPOSITION

We affirm. X10 is entitled to costs. (Cal. Rules of Court, rule 8.278(a)(2).)

WE CONCUR: BROWN, P. J., STREETER, J.

[*] Judge of the Superior Court of California, County of Sonoma, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.