Arbitration: Arbitrator's Decision To Reallocate Arbitration Attorney's Fees And Costs Award In Payment Of Mortgage For Winning Tenants In Common Parties Was Proper
$304,894.15 Was The Reallocation Remedy.
Ahn v. Sanger, Case Nos. A157260/157935 (1st Dist., Div. 1 Jan. 15, 2021) (unpublished) demonstrates the breadth of arbitrators' remedies as long as they rationally related to the contractual dispute being resolved.
There, in an initial arbitration, the Sangers won a contractual dispute against Ahn involving a multi-residential building in San Francisco which they owed as tenants in common, with a contractual fees clause being in play. In an earlier appeal, the 1/1 DCA confirmed the award and also reversed a lower court's refusal to award the Sangers fees for confirming the award. However, because these types of disputes can be bitter and contentious, a second arbitration occurred by which the arbitrator ordered Ahn to remove a lien on the property and pay prevailing party attorney's fees and costs to the Sangers in the sum of $304,894.15. Ahn did not remove the lien, so the arbitration devised a "reallocation remedy": the $304,894.15 in fees and costs in Sangers' favor were to be credited against the amount of the joint mortgage amount still outstanding with respect to their share. That prompted a second appeal, with the lower court confirming the award but rejecting the reallocation remedy.
The 1/1 DCA unequivocally confirmed the arbitration award, deciding that the reallocation remedy was rationally related as a remedy with regard to Ahn's breach of the tenant-in-common agreement. Although penalties cannot be awarded under certain circumstances by an arbitrator, this remedy was not one and was equitable under the circumstances.
Posted at 05:03 PM in Cases: Arbitration | Permalink | Comments (0)
Arbitration: Denial Of Attorney's Petition To Confirm Non-Binding Arbitration Award Under MFAA Affirmed
Client Timely And Properly Rejected Non-Binding Award By Commencing A Trial After Arbitration And Notifying Attorney's Counsel Of Client's Intent To Reject The Award.
The Mandatory Fee Arbitration Act (MFAA) (Bus. & Prof. Code, § 6200 et seq.) recognizes "the disparity in bargaining power in attorney fee matters which favors the attorney in dealings with infrequent consumers of legal services" (Schatz v. Allen Matkins Leck Gamble & Mallory LLP, 45 Cal.4th 557, 564-565 (2009)) and was established in 1978 "to protect clients as consumers of legal services in general." (Alternative Systems, Inc. v. Carey, 67 Cal.App.4th 1034, 1044 (1998).) Pursuant to § 6201(a), a client may request nonbinding arbitration under the MFAA despite having a contractual agreement for binding arbitration with his/her attorney, and if a client commences non-binding arbitration under the MFAA, it is mandatory for the attorney pursuant to § 6200(c). A non-binding arbitration award under the MFAA becomes binding if the parties agree in writing to make it binding, or upon the passage of 30 days after service of notice of the award – unless, within the 30 days, a party has sought a trial after arbitration. (§ 6204(a); §6203(b).)
This is what happened in Torru v. Price, Case No. A158400 (1st Dist., Div. 3 December 14, 2020) (unpublished), when a fee dispute arose between attorney and client. After receiving notice of the arbitrator's award to attorney of $26,046.70, after a reduction to attorney's fees of $875, client sent a letter to attorney's counsel with a confidential settlement offer and notice that she intended to reject the arbitrator's decision. Additionally, client timely filed a complaint against attorney following service of the notice of the award concerning the fees at issue.
When attorney initiated a separate action to confirm the arbitration award, the trial court denied the petition – finding client had timely rejected the award.
The 1/3 DCA affirmed. Client's letter to attorney's counsel was admissible as evidence she intended to reject the non-binding decision. Additionally, client's filing of complaint properly served as her rejection of the non-binding decision, and satisfied MFAA provisions requiring her to seek and commence a trial after arbitration.
Arbitration, Civil Rights, Costs: 4/3 DCA Reverses Fees Awarded To FEHA Defendants For Motion To Compel Arbitration Efforts And Costs Awarded For Prevailing In The Arbitration
Plaintiffs Achieved Partial Success In Their Opposition To Defendants' Motion To Compel Arbitration, And Fees/Costs Are Not Awardable To Prevailing FEHA Defendant, Pursuant To Gov. Code § 12965(b), Unless The Court Finds Action Was Frivolous, Unreasonable, Or Groundless When Brought, Or The Plaintiff Continued To Litigate After It Became Clearly So.
In Humphrey v. Harvest Holdings, Case No. G056614 (4th Dist., Div. 3 December 11, 2020) (unpublished), plaintiffs opposed FEHA defendants' motion to compel arbitration with limited success – with the trial court determining a confidentiality provision in the arbitration agreement was unconscionable, but severable, and compelling arbitration. Defendants defeated plaintiffs' FEHA claims in arbitration, and the arbitrator awarded defendants $3,181.35 in costs – consisting of copying charges and deposition transcript fees – as the prevailing party. Additionally, the arbitrator awarded defendants $10,000 in attorney fees for their motion to compel arbitration efforts. The trial court entered judgment confirming the arbitration award and denied plaintiffs' cross-petition to vacate the arbitration award. As to the fees/costs issue, the trial court concluded that analysis under FEHA was not necessary because prevailing defendants did not seek fees incurred for the arbitration proceedings – only for the motion to compel arbitration.
In a 3-0 opinion authored by Justice Goethals, the 4/3 DCA reversed in their entirety the fees and costs awarded to prevailing defendants.
Plaintiffs' opposition to defendants' motion to compel arbitration achieved some success – demonstrating plaintiffs' opposition was not frivolous, unreasonable, or groundless (the minimum threshold for FEHA defendants to recover fees under Chavez v. City of Los Angeles, 47 Cal.4th 970, 985 (2010)), so fees incurred by defendants to compel arbitration were not recoverable. Likewise, the California Supreme Court, under Williams v. Chino Valley Independent Fire Dist., 61 Cal.4th 97, 107-109, 115 (2015) has extended that rule to apply to costs (see also Gov. Code § 12965(b).).
Finally, although former employer's contract with plaintiffs contained an arbitration provision with a separate attorney fees and costs clause for the successful party on a motion to compel arbitration, the fee-shifting nature of the clause risked a chilling effect on employees' access to court on FEHA claims.
Posted at 07:37 AM in Cases: Arbitration, Cases: Civil Rights, Cases: Costs | Permalink | Comments (0)
Arbitration, Section 1717: Denial Of Plaintiff's Petition To Compel Arbitration And Award Of $32,757.04 In § 1717 Attorney Fees To Defendant Based On Fees Provision In Arbitration Clause Affirmed On Appeal
Inconspicuous Nature Of Arbitration Clause Deprived Defendant Of Procedural Due Process, And Denial Of Plaintiff's Petition Disposed Of The Action Entitling Prevailing Defendant To Attorney Fees Per Civil Code § 1717.
In Domestic Linen Supply Co., Inc. v. L J T Flowers, Inc., Case Nos. B292863/B294788 (2d Dist., Div. 6 December 4, 2020) (published), plaintiff filed a petition to compel arbitration based on an arbitration clause in its double-sided single page contract with defendant. Based on the "inconspicuous" nature of the arbitration provision – which was hidden among seventeen other closely spaced provisions on the backside, in 8-point type, with no heading, boldface, or italics, and with plaintiff's sales reps not trained to bring attention to the arbitration clause – the trial court determined there was no agreement to arbitrate and denied. Defendant was subsequently awarded $32,757.04 in Civ. Code § 1717 attorney fees based on the fee provision in the arbitration clause. Plaintiff appealed both the denial of its petition and the award of attorney fees.
In a 3-0 opinion authored by Justice Gilbert, the 2/6 DCA held that "[a]n arbitration clause in a contract is invalid because the clause is as inconspicuous as a frog in a thicket of water lilies. The prevailing party is entitled to attorney fees per Civil Code section 1717.1. Speaking of frogs, Frog Creek Partners, LLC v. Vance Brown, Inc. (2012) 206 Cal.App.4th 515 (Frog Creek) does not prohibit the award of attorney fees."
The trial court reasonably determined that there was no agreement to arbitrate – with the rental agreement being deceptive.
As to the fees, the arbitration provision contained a one-sided provision for fees in plaintiff's favor. However, as the purpose of § 1717 is to ensure mutuality of remedy for attorney fees under contractual fee provisions, the panel treated the provision as providing for an award of fees to the prevailing party. Plaintiff argued that, under Frog Creek, defendant was not entitled to fees for defeating the arbitration provision as it had not prevailed on the contract. Not so, said the 2/6 DCA. Frog Creek distinguished between cases where an arbitration petition is filed in an existing contract action and those in which the action is initiated by filing an arbitration petition. Plaintiff brought an independent petition to compel arbitration. Defeat of that petition terminated the action and left defendant as the prevailing party entitled to fees.
Posted at 08:40 PM in Cases: Arbitration, Cases: Section 1717 | Permalink | Comments (0)
Arbitration, Sanctions: $22,159.50 In § 128.7 Sanctions Affirmed Against Plaintiff's Attorney Who Filed Motion Seeking To Stay Arbitration And Remit The Parties To Judicial Remedies Based On Defendants' Failure To Pay Arbitration Fees
Attorney Was Notified By The American Arbitration Association That The Error In Applying Defendants' Fees Had Been Corrected, And The AAA Simply Needed Plaintiff's Confirmation Of Intent To Proceed.
In McCluskey v. Henry, Case No. A158851 (1st Dist., Div. 3 November 2, 2020) (partially published – fees discussion unpublished), plaintiff sued employees of Airbnb, Inc. for intentional infliction of emotional distress after her account was terminated. Pursuant to an arbitration clause in the parties' contract, the trial court granted defendants' motion to stay the action and compel arbitration. Plaintiff then filed her claim for arbitration with the American Arbitration Association, and each side paid their respective fees by the deadline set by AAA. Unfortunately, due to an error in AAA's system, defendants' payment was not properly credited – resulting in AAA's administrative closing of the case. Once the error was rectified, AAA notified the parties and requested confirmation from plaintiff that she wished to continue so the case could be reopened. After receiving no response from plaintiff's counsel by AAA's deadline, AAA sent out a second notice with a new deadline for responding. Plaintiff's counsel did not respond.
Instead, he went back to the trial court with an unsuccessful motion to lift the stay – asserting that, pursuant to Code Civ. Proc. § 1281.4, defendants had failed to timely pay their arbitration fee which "constituted a default, waiver, lack of good faith and fair dealing, or breach of the arbitration agreement." The defendants were successful, however, on their request for sanctions – with the trial court awarding $22,159.50 in fees incurred for opposing the motion to lift the stay.
Attorney appealed, raising a slew of arguments – violation of his due process rights; section 128.7 "not drawn with sufficient clarity such that it properly[] informed" him as to what he must do to avoid sanctions; defendants' motion papers failed to adequately inform him that sanctions were being sought for specific violating conduct; that section 128.7 requires a moving party to "incur" attorney fees and, since Airbnb was the entity paying defendants' fees, defendants could not seek and be awarded sanctions; and other substantive challenges – all of which failed. The 1/3 DCA found the trial court properly based its frivolity decision on its findings that the AAA had twice notified Attorney that the arbitration case would be reopened once Attorney confirmed plaintiff's intent to proceed.
Interestingly, Attorney made an argument that the trial court had exceeded its jurisdiction in issuing the sanctions order as Code Civ. Proc. § 1281.4 prohibited the trial court from hearing and ruling upon the sanctions motions during the stay. Ironically, pursuant to Code Civ. Proc. § 1281.4, the trial court had no jurisdiction to lift the stay and set the case for trial on the basis that defendants' conduct inhibited arbitration. However, because Attorney's violating conduct occurred before the trial court – not in the arbitration proceeding – and the trial court had retained jurisdiction over the original suit, the trial court had the jurisdiction and authority to address this situation.
Posted at 05:08 PM in Cases: Arbitration, Cases: Sanctions | Permalink | Comments (0)
Arbitration, POOF!: By Invalidating Portions Of An Arbitration Award And Remanding On Other Issues, Substantial Attorney's Fees And Costs Award Against Arbitration Claimant/Counter-Respondent Also Sent Back For A Revisit
Principal Reasons For Reversal Were That Certain Aspects Of The Employment Agreement Violated Business And Professions Code Section 16600.
Claimant/counter-claim respondent, former employee, was hammered pretty hard in an employment arbitration when the arbitrator rejected his claim for a $300,000 deferred bonus, found for employer on a counterclaim to the tune of $652,243 for an earlier bonus, dismissed a Business and Professions Code section 16600 challenge, and awarded employer $2.46 million in fees and $172,682 in costs under a discretionary fees/costs clause allowing such shifting if any party acts in bad faith. The trial judge confirmed the award and denied a motion to vacate it.
The 4/3 DCA reversed in Brown v. TGS Management Co., Case No. G058323 (4th Dist., Div. 3 Oct. 13, 2020) (unpublished), a 3-0 panel authored by Justice Aronson. It found that portions of the award violated section 16600 and other aspects had to be revisited on remand. That also meant the fees/costs award, for now, went POOF! because it could be revisited by the arbitrator after the remand issues were considered and in light of the appellate reversal. Employee has renewed life!
Posted at 07:51 PM in Cases: Arbitration, Cases: Poof! | Permalink | Comments (0)
Arbitration, Employment: Although Arbitration Clause Had Invalid Attorney's Fees/Costs Provision Relating To FEHA Claims, It Was Severed Such That Motion Denying Arbitration Was Reversed
Severability Saved The Day!
In Conyer v. Hula Media Services, LLC, Case No. B296738 (2d Dist., Div. 8 Aug. 26, 2020) (published), the appellate court reversed a trial judge's decision denying arbitration to an employer even though employee acknowledged receiving a handbook with the arbitration clause but argued that there was an employer duty to highlight the clause. However, the arbitration clause did have an infirm attorney's fees/costs provision, requiring each party to pay a pro rata share of the arbitrator's fees and costs. For FEHA claims, the employee does not have to pay fees and costs greater than the amount to file a claim under Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83, 112 (2000). The arbitration clause also provided that the arbitrator shall award fees to the prevailing party carte blanche, despite the fact that a prevailing defendant in a FEHA case can only recover fees if the plaintiff's action was frivolous in nature. (Chavez v. City of Los Angeles, 47 Cal.4th 970, 985 (2010).) However, the severability doctrine came to the rescue—the agreement was not so permeated with unconscionability such that the fees provisions could be severed out so as to leave an enforceable agreement. That is how the appellate court ruled, reversing the denial of the motion to compel arbitration.
Posted at 08:56 PM in Cases: Arbitration, Cases: Employment | Permalink | Comments (0)
Arbitration: Substantial Arbitration Award, A Lot Of It Attorney's Fees And Costs, Confirmed On Appeal After 2/3 DCA Reverses An Order Vacating The Award In A Homeowner-Contractor Home Renovation Dispute
Arbitrator's Failure To Disclose His Own Contractor Dispute 20 Years Earlier Did Not Justify Vacating The Award.
An arbitrator in R&R Construction, Inc. v. Roski, Case No. B293748 (2d Dist., Div. 3 July 22, 2020) (unpublished) awarded homeowner $265,036.40 in damages, $589,967.50 in attorney's fees and costs, and $60,005 for arbitration fees/expenses in a dispute with a contractor over home renovations. (We post on this to show how arbitration can be an expensive process, frequently resulting in large fees/costs where there is a fee-shifting basis available.) However, the arbitrator had failed to disclose that, more than 20 years earlier, he had a dispute with a pool contractor before the Contractors' State License Board. The superior court vacated the award, determining that the failure to disclose this past dispute might be an indication of arbitrator bias towards contractors. The 2/3 DCA, in a 2-1 opinion, disagreed and reinstated the award, finding this past dispute did not indicate a categorical bias on the part of the arbitrator under the circumstances. Reversal of fortune for the homeowner!
Arbitration, POOF! Arbitrator's Award To Defendant Of $258,181.03 In Attorney Fees Goes POOF! On Appeal
Arbitrator Exceeded Authority On Remand By Conducting Arbitration Inconsistent With Instructions From The 4/1 DCA
It may not happen often, but arbitration awards do occasionally get reversed. In this case, litigants are now returning for round three.
In the first round, plaintiffs received an arbitration award of $30,000,000 in compensatory and punitive damages. When defendant appealed, the 4/1 DCA reversed because plaintiffs had not provided adequate notice of their punitive damages claim. Because the $30 million award combined the compensatory and punitive damages without differentiation – thus making it impossible for the appellate court to correct the award by simply striking the punitive damages – the appellate court remanded with instructions to conduct a new arbitration hearing on damages only. Problem is that is not what happened.
On remand, the new arbitrator vacated the liability and damage findings and allowed the parties to relitigate all issues. After an evidentiary hearing, the arbitrator found plaintiffs did not prove their claims, and awarded defendant $258,181.03 in attorney fees plus interest – with the trial court confirming the award and entering judgment in defendant's favor.
On appeal, in NCHF AMS II Houston v. Kaplan, Case No. D075842 (4th Dist., Div. 1 July 13, 2020) (unpublished), three of four plaintiffs appealed – contending the trial court erred in confirming the award because the new arbitrator exceeded his authority by allowing defendant to relitigate liability issues. The 4/1 DCA agreed and reversed with instructions for the trial court to vacate the judgment confirming the award and attorneys fees, to issue an order vacating the original arbitration award against defendant, and to remand for a new arbitration hearing solely on the issue of the amount of damages suffered by plaintiffs.
We guess you could say defendant is suffering a reversal of a dramatic reversal of fortune!
Arbitration: "Award" For Arbitration Correction Purposes Depends On Whether Every Aspect Of A Dispute Is Resolved, With Post-Arbitration Judicial Proceeding Fees Allowable
Breadth Of Fees Clause Sustained The Post-Arbitration Judicial Fees.
In Lonky v. Patel, Case No. B295314 (2d Dist., Div. 2 July 2, 2020) (published), the Second District had to consider two issues: what is an arbitration final "award" for purposes of jurisdictional correction purposes and are post-arbitration judicial proceeding fees to the prevailing party awardable? The answers will follow.
In short, plaintiffs in Phase I won a $558,266 compensatory award, leaving punitive damages and fee/costs issues for a later phase. Then, this interim award was later modified to decrease the compensatory award to $310,838.62. In Phase II, the arbitrator reflected the compensatory damages correction and awarded $1 million in punitive damages, also containing blanks for fees and costs to be determined. Then, the Phase II award was modified upward to $434,158,25. Finally, in Phase III, there was a final award of $434,158.25 in compensatory damages, $1 million in punitive damages, and $791,826.26 in attorney's fees/costs. The trial court confirmed most of it, but the judge did slash the $434,158.25 compensatory award down to $310,138.62 based on the perception it could not be jurisdictionally corrected. However, it did award $65,197 in post-arbitration judicial proceeding fees based on plaintiffs having prevailed.
On appeal, the 2/2 DCA returned the compensatory award to $434,158.25 and affirmed everything else. It found that "award," for arbitration correction purposes, needed to be a pragmatic test of whether it resolved every part of the parties' controversy. When that test was used, the Phase III award was justified in toto. With respect to the post-arbitration judicial proceeding fees, they were allowable. So, that meant plaintiffs could now seek more fees and costs for winning on appeal.
Posted at 07:28 AM in Cases: Arbitration | Permalink | Comments (0)
Arbitration: $87,136.42 Final Arbitration Award—Most Of It Attorney's Fees—Affirmed On Appeal
Trope Waiver OK Between Sophisticated Parties (But Fees Were Not Awarded For Self-Representation Anyway), With Arbitrator Not Being Bound By Prevailing Party Statutory Test And Not Having To Allocate Between Contract/Tort Claims.
In Flint v. Koslyn, Case No. B289997 (2d Dist., Div. 7 June 16, 2020) (unpublished), former attorney/tenant of a client/landlord entered into a hybrid fee engagement, agreeing to represent client in exchange for a lower monthly rental amount. The retention agreement had a fees clause covering both fee agreement and malpractice claims, and it also allowed attorney to represent herself without disqualification from fee recovery (a Trope waiver). Based on an arbitration clause, a dispute over rent and attorney services between the two sides went to arbitration, where a minor compensatory award was made to former client/landlord but with the arbitrator awarding almost $87,132.42 to attorney/tenant (almost all attorney's fees and costs, determining she was the prevailing party after prevailing on 75% of the contract claims, minus a small $2,000 offset due to the former client/landlord). The arbitration award was confirmed by the superior court.
Former client/landlord's challenges to the arbitration award were unsuccessful.
Although seeming to endorse that a Trope waiver may well be enforceable between sophisticated parties, the appellate court did not have to confront the issue because the winning party in the arbitration did not seek self-representation fees. The retention agreement did authorize fees to the prevailing party, such that the arbitrator had broad leeway to determine who prevailed—not needing to use the routine costs definition of a prevailing party and not required to allocate fees between contract/tort claims. Arbitration award affirmed.
Arbitration: Arbitration Award Of $125,795.50 In Attorney Fee and $36,423.02 In Costs Against Subcontractor Achieving A Damages Award Of Only $5,582.59 Out Of Requested $272,548.19 Affirmed On Appeal
Under Moncharsh, Merits Rulings Are Generally Beyond Appellate Review.
We have often posted on arbitral finality and the limitations on judicial review over arbitration awards in the majority of cases based on Moncharsh v. Heily & Blase, 3 Cal.4th 1 (1992). Such is the situation with the next case.
Volpe Co. v. Lyle Parks, Jr. Construction, Case No. C084295 (3d Dist., May 26, 2020) (unpublished), involved a dispute between a subcontractor and general contractor. Subcontractor sued general contractor and its insurer seeking payment of an additional $272,548.19 for various materials and services provided for the development of a shopping center. General contractor demanded arbitration per the parties' agreement, and sought damages against subcontractor for breach of contract. When all was said and done, the arbitrator – finding subcontractor lacked evidence and credibility for costs it claimed to have incurred – determined subcontractor should have been paid about $30,000 more, but reduced that amount to $5,582.59 after factoring in general contractor's claims for damages. Additionally, the arbitrator found general contractor to be the prevailing party, based on it defeating "substantially all of" subcontractor's claims, and awarded general contractor $125,795.50 in attorney fees and $36,423.02 in costs.
On appeal, subcontractor argued that the arbitrator made factual and legal errors in determining damages, the prevailing party, and in awarding costs based on the arbitration agreement between the parties. Subcontractor further claimed the arbitrator exceeded his powers and allowed his prejudice and bias against the subcontractor to guide his damages award.
The 3rd District, citing Moncharsh, affirmed – finding subcontractor had provided no valid reason for vacating the arbitrator's decision, and explaining that courts will not find an arbitrator exceeded his/her powers merely by reaching an erroneous decision. Commenting on the finality of arbitration awards, the appellate panel stated, "First, those who agree to arbitrate their differences expect that an arbitrator's decision would mark 'the end, not the beginning, of the dispute.' Second, courts are often ill-equipped to review arbitration decisions, as arbitrators may decide matters on different criteria than judges." (See Moncharsh, at p. 10; and Sapp v. Barenfeld, 34 Cal.2d 515,523 (1949).)
Arbitration, Sanctions: 4/3 DCA Affirms $50,000 Code Civ. Proc. Section 128.5 Sanctions Awarded Against Client And Attorney For Their Frivolous Litigation and Dilatory Tactics
Broad Language In The Parties' Retainer Agreement Authorized Arbitrator's Review Of Ancillary Matters – Such As Litigation Conduct Rationally Related To The Underlying Dispute.
In ATG Electronics, Inc. v. The Mulcahy Law Firm, Case No. G056931 (4th Dist., Div. 3 January 16, 2020) (unpublished), Law Firm claiming Former Client owed almost $100,000 in outstanding legal bills demanded arbitration pursuant to the parties' retainer agreement. In response, Former Client filed a complaint in O.C. Superior Court alleging fraud, breach of fiduciary duty, claims for restitution and declaratory relief – seeking compensatory and punitive damages, and attorney fees. Law Firm successfully moved to compel arbitration. Former Client then filed a counterclaim against Law Firm, with the same allegations, and a response asserting numerous affirmative defenses against Law Firm's claim. In the end, the arbitrator found the case to be a simple dispute about unpaid attorney fees, Former Client's actions as a "despicable effort to 'stiff'" Law Firm, Former Client's affirmative defenses nothing but "red herrings" intended to avoid payment of the legal fees, and Law Firm's fees as "reasonable and extremely necessary" – awarding Law Firm $119,931.15 in damages, arbitration fees and future interest. Additionally, the arbitrator awarded $25,000 in monetary sanctions, under Code Civ. Proc. § 128.5, against Former Client and its counsel for what he found to be "bad faith activities or tactics that are frivolous" for the lawsuit filed in superior court, and another $25,000 for asserting affirmative defenses and pursuing a counterclaim that were meritless.
Former Client (and its counsel) fared no better on appeal of the sanctions award. In a 3-0 opinion authored by Justice Moore, the 4/3 DCA found the arbitrator had not exceeded his authority – given the broad language in the arbitration provision of the parties' retainer agreement did not limit the arbitrator's review and thereby allowed his review of ancillary matters. Additionally, pursuant to the principles underlying Moncharsch v. Heily & Blase (1992) 3 Cal.4th 1 and Heimlich v. Shivji (2019) 7 Cal.5th 350 [reviewed in our May 30, 2019 post], the 4/3 DCA reminded that an arbitrator's decision is generally not reviewable for errors of fact or law, and that by voluntarily agreeing to arbitration in their retainer agreement, the parties had agreed to bear the risk of uncorrectable legal or factual error in return for a quick, inexpensive, and conclusive resolution to their dispute.
Arbitration, Prevailing Party, Section 1717: Trial Court Properly Found That Respondent Did Not Prevail For Fee Recovery Even Though She Did Obtain A Ruling Denying A Petition To Confirm The Arbitration Award And Did Obtain A Vacatur Ruling
The Lower Court's Discretionary Determination That No One Prevailed Was Affirmed On Appeal.
In Goraya v. Stephens, Case No. F078335 (5th Dist. Jan. 3, 2020) (unpublished), property seller and property buyer submitted to arbitration and settled, with the listing agent joined as a party in the arbitration at his own request, eventually obtaining an award for commission and attorney's fees against property seller. Seller's arbitration claims against listing agent were found to lack merit. Listing agent petitioned to confirm the award, which was opposed, and seller requested to vacate the award against seller. The lower court refused to confirm the arbitration award and in fact vacated it—results which held up when listing agent's appeal was dismissed as being untimely. Seller then filed a motion for attorney's fees against listing agent based on a contractual fees clause in the listing agreement, with the lower court denying the fee motion because it found that seller was not the prevailing party.
The fee denial was sustained on appeal. Under Civil Code section 1717, there was no "clear winner" such that the trial judge's conclusion that each party had won-loss-tied record of 1-1-1 supported the determination that there was no prevailing party. Seller then claimed she was entitled to fees under CCP §§ 1293.2 and 1032. Section 1032 did not yield any definitive result, because both parties prevailed under that statutory provision.
Posted at 05:03 PM in Cases: Arbitration, Cases: Prevailing Party, Cases: Section 1717 | Permalink | Comments (0)
Arbitration, Nonsignatories, Quantum Meruit, Retainer Agreements: Judgment Confirming Arbitration Award Of $1,273,765.91 In Fees Owed To Two Law Firms Plus Another $508,678.82 For Fees And Costs Incurred In The Arbitration Affirmed
Arbitration Was Properly Ordered Because The Claims Between Client And The Two Law Firms Arose Out Of The Underlying Retainer And Arbitration Agreements Client Signed With The First Law Firm.
Client retained a law firm to represent her in an ongoing dissolution action – signing a Retainer Agreement and a binding Arbitration Agreement. During the next 15 months, the law firm billed Client more than $4.5 million in fees and costs, which included fees/costs incurred for the first 23 days of trial (with an estimated 45 additional trial days to follow). Around this time, the trial court denied the law firm's request for an award of $1 million in interim attorneys' fees to continue representing Client. That same day, an attorney from the law firm notified Client that the law firm had dissolved and that he was forming a new law firm where the same staff would be available to continue working on her case. He requested Client sign an acknowledgment that the new firm would represent her under the same terms as the Retainer and Arbitration Agreements from the first firm. She refused to sign, but requested the new firm represent her. The new firm and Client did not sign a retainer agreement.
About a week-and-a-half later, the attorney filed a motion to withdraw as Client informed him she would not make additional payments until completion of the trial. Client opposed the motion – stating she had "no irreconcilable differences with [the attorney]" and only disputed his demand for additional fees. A year after the motion to withdraw was granted, the attorney, dissolved firm, and the new firm collectively filed a lawsuit against Client for breach of contract – among other causes of action – resulting from the unpaid fees. On the same day, Client filed a lawsuit against the attorney and firms alleging breach of fiduciary duty, breach of contract, and legal malpractice – based on representations Client alleged were made to her when she agreed to retain the now dissolved law firm.
The trial court related the two lawsuits, and attorney/firms successfully moved to compel arbitration of all claims raised in both lawsuits based on the Arbitration Agreement signed between Client and the now dissolved firm. Several months after completion of the multi-day arbitration, the arbitrator issued written award in favor of the firms – awarding the now dissolved firm $1,037,719.16 in unpaid fees and costs, plus interest, under breach of contract; awarding the second law firm $236,046.75 for the reasonable value of its services, under the theory of quantum meruit, using the same billing rates outlined in the Retainer Agreement signed with the now dissolved firm; and awarding an additional $508,678.82 to the "prevailing party" attorney/firms for fees/costs incurred in the arbitration. After the trial court confirmed the arbitration award, Client filed a motion for a new trial – arguing the trial court erred in granting the petition to confirm the arbitration award. Upon denial of that motion, Client appealed.
On appeal, Client argued that none of the claims concerning the new law firm arose out of the obligations created by the Retainer Agreement and Arbitration Agreement signed with the now dissolved firm, and that she never signed such agreements with the new firm. The 2/3 DCA in Kolodny v. Wondries, Case No. B293985 (2d Dist., Div. 3 November 25, 2019) (unpublished) disagreed.
Citing Strasbourger Pearson Tulcin Wolff Ins. v. Wiz Technology, Inc. (1999) 69 Cal.App.4th 1399, 1404, the 2/3 DCA found "an attorney-client relationship can be created by an express or implied agreement; the terms of an implied agreement 'are manifested by conduct'." Here, although Client refused to sign anything with the new law firm, she requested that the attorney continue representing her through the new firm. She never proposed different terms, nor did she ask to negotiate a different retainer agreement, when she requested the continued representation. Further, Client pursued claims against the new law firm based on obligations originating out of the Retainer Agreement signed with the now dissolved firm. Therefore, the trial court was correct in determining that the original Retainer and Arbitration Agreements were the source of the attorney-client relationship between Client and new firm, and that the disputes between the law firms and Client arose from those original agreements.
Posted at 07:16 AM in Cases: Arbitration, Cases: Nonsignatories, Cases: Quantum Meruit, Cases: Retainer Agreements | Permalink | Comments (0)
Arbitration: Based On Law Of The Case And Preclusion Doctrines, Prevailing Arbitration Law Firm Properly Denied Fees In Post-Arbitration Judicial Proceeding Relating To Arbitration Award
Prior Appellate Decision Basically Sealed The Result, With The Trope Prohibition Also Requiring Denial Of Fees Relating To Another Law Firm Attorney Whose Personal Interests Were Not Implicated.
On May 25, 2019, we earlier posted on a prior decision which was implicated more recently in eGumball, Inc. v. Call & Jensen, Case No. G056650 (4th Dist., Div. 3 Oct. 10, 2019) (unpublished). In that earlier decision, our local Santa Ana appellate court ruled that an arbitrator's denial of $1 million in fees to prevailing law firm was not legally reviewable given the arbitrator's conclusions that the retainer fees clause did not encompass malpractice claims at issue in the arbitration and that the Trope prohibition against fee recovery for self-representation was triggered.
However, while the first appeal was festering, law firm sought fees for post-arbitration judicial proceeding activities, which the trial judge denied. That prompted another appeal by law firm.
The fee denial was affirmed, in a 3-0 decision authored by Justice Fybel.
The appellate panel had trouble discerning why law of the case or preclusion principles did not apply to judicial, postarbitration activities just as much as they applied to prior decisions by the arbitrator on related fee requests. (After all, preclusion principles do apply to arbitration awards. Thibodeau v. Crum, 4 Cal.App.4th 749, 755 (1992).) In fact, the panel found no meaningful distinction to upset application of prior rulings to the postarbitration fee request before it. With respect to the argument that fees were allowed for the law firm's representation of one attorney at the firm, that was dispatched because the Trope self-representation bar was intact given that nothing showed the one attorney's personal interests were at issue in the dispute. (Carpenter & Zuckerman, LLP v. Cohen, 195 Cal.App.4th 373, 375-376, 387-388 (2011).)
Arbitration, Employment: 4/3 DCA Affirms Lower Court's Denial Of Motion To Compel Arbitration Because, Among Other Things, Arbitration Clause Gave Arbitrator Mandatory Authority To Award Fees To Employer Even Where Fee-Shifting Statutes Favored Employe
Mandatory Language Of Fee Clause Demonstrated Substantive Unconscionability, Which Was Not Supplanted By More General Reference To JAMS Employment Rules Which Were More Discretionary In Nature.
We commend employment attorneys to read Randall v. Veros Credit, LLC, Case No. G056463 (4th Dist., Div. 3 Sept. 17, 2019) (unpublished), where a trial judge denied an employer's motion to compel arbitration against an employee based on a determination that the arbitration clause was procedurally and substantively unconscionable. Numerous grounds are discussed, but we focus on the one area which is relevant for our blog.
The problematic clause basically stated that the losing party in an arbitration would ("shall") pay to the prevailing all costs plus a reasonable sum for attorney's fees. The defect was that this mandatory clause also encompassed one-way fee-shifting provisions in the Labor Code which would not allow exposure to a losing employee even though no such exposure could be faced in a civil forum. Neither the lower nor appellate courts found this substantively tolerable because awarding mandatory fees to a prevailing employer in an action concerning overtime wages does not conform to the employee's statutory rights. Employer argued that the arbitrator obviously knew how to apply Labor Code fee shifting, but the appellate court was not impressed given the mandatory nature of the clause. (Cf. Serpa v. California Surety Investigations, Inc., 215 Cal.App.4th 695, 709-710 (2013).) Employer then fell back on the argument that JAMS Employment Arbitration Rule 24(g) permits arbitrators to award fees if "allowed by applicable law," but this generally worded rule does not supplant the specifically-worded arbitration fees clause to the contrary. (Rebolledo v. Tilly's, Inc., 228 Cal.App.4th 900, 920 (2014).) Given that there were other infirmities in the arbitration clause, the offending sections could not be severed.
This case certainly gives drafting tips to employment attorneys wanting to enforce arbitration clauses; at the least, there needs to be language qualifying the arbitration provision to say the losing party need only pay costs and attorney's fees employees would have been liable for in a civil forum. (See Slip Op., p. 14.) Presiding Justice O'Leary authored the 3-0 opinion.
Arbitration, Fee Clause Interpretation, Indemnity: Narrow Fee Clause, Allowing Recovery In Arbitration Only, Did Not Confer Fee Recovery For Fees Relating To Litigation
Indemnity Clause Gave No Basis For Fee Recovery, Because It Was Unilateral In Favor Of Unsuccessful Party, Not Allowing For Fee Entitlement--$628,587.50 In Fees Went Away!
In Club Acacia Community Assn. v. Professional Community Management of California, Inc., Case No. G056313 (4th Dist., Div. 3 July 11, 2019) (unpublished), a long-time dispute between an HOA, property manager, and contractor over the problematic installation of a fire alarm system at a condominium building resulted in property manager being found liable to HOA for $88,500 after allocation of comparative negligence against HOA and contractor in litigation, but no one pursuing claims in arbitration. There were two potential fee entitlement provisions: (1) an arbitration clause, but fees to the prevailing party only applied to an arbitration; and (2) an indemnification clause between HOA and property manager, in favor of property manager, for claims arising out of performance of the HOA-property manager contract. Eventually, the lower court awarded HOA fees in the amount of $628,587.50 against property manager based on the arbitration clause. Property manager appealed the fee award, to its credit.
First of all, the indemnity clause did not allow for fee entitlement. An indemnity clause is not made mutual by operation of Civil Code section 1717, such that HOA could not get fees, because it only favored property manager. (Building Maintenance Service Co. v. AIL Systems, Inc., 55 Cal.App.4th 1014, 1029 (1997).)
Most importantly, the arbitration clause only applied to arbitration activities, such that the litigation attorney's fees award went POOF! Respondent HOA offered numerous theories—conduct of the parties and drafting party adverse ambiguities (contra proferentem) arguments—but they were to no avail, based on the unambiguous language that only arbitration fees were to be awarded. So, in the end, $628,587.50 in adverse fees went away on appeal, in a 3-0 unpublished decision authored by Justice Moore.
Posted at 09:06 AM in Cases: Arbitration, Cases: Fee Clause Interpretation, Cases: Indemnity | Permalink | Comments (0)
Appeal Sanctions, Arbitration: Broad Operating Agreement Fees Clause Justified $238,000 Fees/Costs Award To Arbitration Prevailing Party, Plus Fees For Winning On Appeal
Appealing Party Just Avoided Sanctions For Frivolous Appeal, But Fees On Appeal Found To Be The Appropriate Remedy.
Walters v. Boustead Securities, LLC, Case No. G056250 (4th Dist., Div. 3 July 11, 2019) (unpublished) is an interesting Fourth District, Division 3 opinion affirming a $238,000 fees/costs arbitration award in favor of a prevailing party where the compensatory award was $186,354. The operative fees clause in an operating agreement between the parties was broad, fully supporting fees, costs, and expenses to the prevailing party in any litigation or arbitration. The merits of the arbitration award, including the fees/costs components, were beyond review.
That brought to the appellate court to a request for sanctions by the non-appealing party. Admitting that silly arguments were advanced on appeal and that the matter was "a close call," the 4/3 DCA panel, in a 3-0 opinion authored by Justice Moore, believed that the respondent was entitled to attorney's fees on appeal (in remand proceedings before the lower court), because the other side made no argument why the operating agreement fees clause did not allow for this result. So, in the end, a less restrictive alternative was adopted, even though we could say that sanctions were narrowly averted.
HAT TIP—We give a hat tip to Richard A. Jones, who is a local attorney known by co-contributor Mike. He is a locally-based Santa Ana attorney who successfully represented respondent on appeal. Congrats!
Posted at 09:01 AM in Cases: Appeal Sanctions, Cases: Arbitration | Permalink | Comments (0)
Arbitration, Section 998: $1,036,773.68 Fees/Costs Award To Losing Arbitration Claimant Affirmed On Appeal
Arbitrator's Consideration of 998 Offer After Close Of Evidence Did Not Alter The Result.
In Hartzler v. 110 Management, Inc., Case No. B290134 (2d Dist., Div. 4 June 12, 2019) (unpublished), property manager of Amy Lee Hartzler, who co-founded the rock band Evanescence, sued for alleged unpaid commissions under a management agreement with a mandatory arbitration provisions and a mandatory attorney's fees/costs provision in favor of the prevailing party. The matter proceeded to arbitration and, after the close of evidence, Ms. Hartzler disclosed a CCP § 998 offer for $100,000. Property manager only won $4,833.66 in unpaid commissions, a tiny fraction of amounts claimed as owing, with the arbitrator deeming Ms. Hartzler to be the prevailing party. She won $1,036,773.68 in fees and costs under the fees clause. The lower court confirmed the arbitration award.
Property manager, obviously "mad as a wet hen," appealed. Didn't work. The appellate court, in line with the lower court, believed that property manager was challenging the merits of the arbitrator's rulings, something that is generally unreviewable (and was unreviewable here). On the 998 issue, Mr. Hartzler's disclosure of the 998 offer after the close of evidence did not affront section 998, which only indicates that the offer "cannot be given in evidence upon the trial or arbitration." It also found that Heimlich v. Shivji, the Second District appellate district recently reversed by the California Supreme Court (see our May 30, 2019 and May 31, 2019 posts), did not dictate a contrary result. Substantial fee/costs award affirmed.
Posted at 08:18 PM in Cases: Arbitration, Cases: Section 998 | Permalink | Comments (0)
Appeal Sanctions, Arbitration: $55,764.40 Fee Award By An Arbitrator In Defective Car Case Could Not Be Reviewed On The Merits
Appeal Sanctions Was Not Imposed For Frivolous Appeal Because Respondent's Request Was Patently Excessive.
Justice Goethals, in Housen v. Ultimate Autoline, Case No. G055878 (4th Dist., Div. 3 June 10, 2019) (unpublished), reminds litigants and practitioners that the merits of arbitrator's decisions are by and large not reviewable and that the arbitrator has limited powers to revise/correct awards (the latter being known as the "anti-revision rule"). He, on behalf of his panel, did so based on his perception that these principles "may be surprising even to experienced practitioners."
In this one, the arbitrator basically granted total relief to a car owner in a fraud/Song Beverly Act hybrid action as against the dealer, dealer's principal, and loan paper holder standing in the shoe of the dealer. (The arbitrator even awarded one component that was wrong, but it was not corrected so the merits could not be reviewed.) To add insult to injury to the defense's perspective, the arbitrator also awarded $55,764 in fees to plaintiff (the full request). The appellate court confirmed that the merits of the compensatory and fee awards could not be second-guessed.
What is very interesting about this opinion is the discussion on appellate sanctions. Respondent moved for sanctions, seeking $47,795 for fees expended on the frivolous appeal. The 4/3 DCA panel did believe that the appeal was frivolous, but it was taken aback when respondent's counsel at oral argument indicated he was requesting just over $12,000 in sanctions. Given that the initial request was patently excessive, the appellate court refused to award sanctions of any amount to respondents. (BLOG COMMENT—Key takeaway here is to make sure your sanctions requests are reasonable and documented with precision; don't make an inflated request and think a "scale back" at oral argument will necessarily save the day. It might, but do not count on it.)
Posted at 06:56 PM in Cases: Appeal Sanctions, Cases: Arbitration | Permalink | Comments (0)
Arbitration, Section 998: California Supreme Court Announces Bright-Line Rule For Presentation of Rejected CCP § 998 Offers To Arbitrators—Within 15 Days After Issuance Of Final Award
However, Arbitrator Still Has Wide-Ranging Discretion To Allow Costs-Shifting Or Not.
The California Supreme Court, in Heimlich v. Shivji, Case No. S243029 (Cal. Supreme Court May 30, 2019), in a 7-0 opinion authored by Justice Corrigan, established a bright-line rule for presentation of a rejected CCP § 998 offer to an arbitrator for fee/cost-shifting purposes. "Consistent with practice in civil litigation, for 15 days after issuance of a final award, a party to an arbitration may submit a cost request asserting rejection of an earlier 998 offer. The arbitrator has implicit power under section 998 to consider the request and amend any award accordingly." (Slip Op. at p. 15.) Our state supreme court also indicated that the 998 offer should not be presented before issuance of a merits award. Finally, in an interesting twist, the arbitrator's cost denial was sustained anyway, because the merits of the costs refusal decision could not be reviewed and did not fall within the "refusal to hear material evidence" vacatur ground.
Posted at 07:57 AM in Cases: Arbitration, Cases: Section 998 | Permalink | Comments (0)
Arbitration: Arbitration Claimants Losing Real Estate Dispute With Different Respondents Could Not Obtain Review Of Arbitrator's Rulings By Which $1.3 Million In Adverse Fee Awards Were Granted
Merits Of Fee Rulings Were Beyond Review.
As we have posted on many occasions, contractual interpretation or merits rulings are generally beyond trial court or appellate review in a vast majority of situations under Moncharsh v. Heily & Blaise, 3 Cal.4th 1, 11-12, 33 (1992). The arbitrator, in a real estate dispute, found against claimant and in favor of two respondents, awarding respondents altogether about $1.3 million in attorney's fees. This was affirmed on appeal in Pacific Pinnacle Real Estate Services, Inc. v. Melton, Case No. D073475 (4th Dist., Div. 1 May 23, 2019) (unpublished). Nothing in the arbitration agreement or ADR rules prohibited the arbitrator's interpretation of the fees clause, even if the ultimate decision contradicted the terms of the parties' agreement. (Gueyffier v. Ann Summers Ltd., 43 Cal.4th 1179, 1185 (2008).)
Arbitration, Ethics: Ethics Lapse Not Violating Any Rules Of Professional Conduct Did Not Disqualify Law Firm From Collecting Unpaid Receivable
However, Arbitrator's Decision Not To Award Almost $1 Million In Arbitration Fees Based On Trope Prohibition Was Nonreviewable "Arbitrator Judgment Call."
In eGumball, Inc. v. Call & Jensen, et al., Case Nos. G055852 and G055989 (4th Dist., Div. 3 May 17, 2019) (unpublished), a well-known Orange County law firm initiated arbitration to collect unpaid fees from a client, with the client's subsequent malpractice suit also ordered to arbitration. After a lengthy arbitration in which the law firm used internal attorneys and expended close to $1 million in seeking to recoup fees, the arbitrator found that one attorney's failure to advise the client he might be a witness based on an "advice of counsel" defense, albeit below the standard care, was not egregious enough to impede collection of fees. However, he denied the firm's request for about $1 million in arbitration fees and expert witness fees, prompting appeals by both firm and ex-client.
Everything was affirmed on appeal, in a 3-0 decision authored by Justice Fybel.
Using the analytical framework set forth in Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc., 6 Cal.5th 59 (2018), client could not show a violation of any Rules of Professional Conduct such that fee forfeiture was not appropriate. With respect to the denial of arbitration attorney's fees to the law firm, the appellate court did not believe it could review the merits of the arbitrator's conclusions that fee recovery butted up against the Trope prohibition (collecting attorneys who litigate fee recovery cannot obtain fees for collection efforts) and that the retainer letter did not have an applicable Lockton v. O'Rourke, 184 Cal.App.4th 1051 (2010) waiver (in essence, a Trope waiver). The reason is that questions of contract interpretation by an arbitrator, on the merits, are not subject to general review. Finally, on the denial of expert witness fees, nothing in the arbitration agreement or JAMS rules required such an award, meaning that the denial, too, was unreviewable.
Posted at 02:31 PM in Cases: Arbitration, Cases: Ethics | Permalink | Comments (0)
Arbitration, Section 998: 2/2 DCA Affirms Denial Of All But $60 Post-Confirmation Award Filing Cost To Prevailing Arbitration Claimant
Rejected CCP § 998 Offer Did Not Change The Result, Because Claimant Did Not Ask Arbitrator To Cost Shift And Failed To Show Contractual Expenses Were Post-Offer In Nature.
In Lipton & Margolin, APC v. Ko, Case No. B288038 (2d Dist., Div. 2 February 7, 2019) (unpublished), former law firm sued client for $39,455.45 on an unpaid receivable, prompting client to cross-claim for legal malpractice. The whole matter was referred to contractual arbitration. Nothing was awarded by the arbitrator except for $435 in filing costs for the firm to answer the malpractice complaint, with each side ordered to bear other fees and costs. Earlier, plaintiff/claimant had made a CCP § 998 offer to drop the cross-complaint and pay $1,800 in satisfaction of the receivable, an offer expiring without acceptance by the law firm. In the superior court post-confirmation award proceeding, plaintiff/claimant requested $15,161.66 in costs (mostly contractual arbitration expenses). The lower court confirmed the arbitration award, but it denied plaintiff's costs request except for the $60 motion to confirm arbitration award fee. Plaintiff appealed that denial.
The 2/2 DCA upheld the costs denial. With respect to arbitration costs, they were not warranted because CCP § 1284.2 is the "pay your own freight" default rule unless the arbitration clause provides otherwise, and it did not in this case. Next, regarding superior court post-confirmation expenses, the trial judge did properly allow the $60 fee to plaintiff but any pre-arbitration judicial work needed to be presented to the arbitrator (as it was by the law firm). Finally, plaintiff's argument that post-998 offer costs were justified (CCP § 998(c)(1)) was rejected because these were never presented to the arbitration for adjudication and plaintiff failed to show that these claimed costs actually were incurred after the 998 offer was made/then expired. (The appellate panel did cite Heimlich, which is being considered by the California Supreme Court, for the proposition that the section 998 costs-shifting nuance needs to be presented before the arbitrator in some way, at least after the merits arbitration award and before superior court confirmation efforts are undertaken. We note that Heimlich has been scheduled for argument before the California Supreme Court on March 5, 2019.)
Arbitration: 2/7 DCA Decides, Absent Clearly Worded Arbitration Submission, That Arbitrator Refusing To Award Contractual Fees To Prevailing Party Can Do So Without Fearing Reversal
Appellate Court Follows Safari Over DiMarco, Although Reversing Denial Of Postarbitration Fees To Prevailing Party In Superior Court Proceedings.
The Second District, Division 7, in Cohen v. TNP 2008 Participating Notes Program, LLC, Case No. B266702 (2d Dist., Div. 7 Jan. 29, 2019; posted Jan. 30, 2019) (published) dealt with a situation where a superior court confirmed an arbitrator's decision to deny contractual fees to an arbitration prevailing party based on the unclean hands of the party's founding member who had culpability. The superior court also denied attorney's fees to the prevailing party in postarbitration confirmation/vacatur/correction proceedings.
The appellate court affirmed the arbitrator's fee denial but reversed the denial of postarbitration fees ruling.
In deciding that the arbitrator has the power to deny fees to a clearly prevailing party (which cannot happen at the California state court level), the 2/7 DCA decided that reasoning in DiMarco v. Chaney, 31 Cal.App.4th 1809 was flawed and followed instead the opposite rationale acknowledging the arbitrator's power to do so as set forth in Safari Associates v. Superior Court, 231 Cal.App.4th 1400 (2014). It recognized that an arbitrator can make his/her award ex aequo et bono (according to what is just and good). [Who says Latin is completely dead in judicial decisions?] APPELLATE HINT—However, the panel in this matter did indicate that precise drafting in an arbitration submission agreement might compel the arbitrator to award fees to the prevailing party, if drafted the right way.
With respect to the postarbitration fee denial, that was error because fees are awardable under Code of Civil Procedure section 1293.2, in tandem with the definition of fees as "costs" in other CCP provisions.
Arbitration, Prevailing Party: Party Defeating Petition To Compel Arbitration, The Only Contractual Claim, Was Entitled To Fee Recovery Despite No Completed Arbitration On The Noncontract Claims
Finality Was Present With Respect To The One Contractual Issue, Justifying Civil Code Section 1717 Recovery.
In an earlier published decision, general contractor was found to have waived the right to compel arbitration in construction defect and mechanic's lien cases which ultimately were consolidated. The winning party on the arbitrability dispute, the only contractual claim, moved for contractual fees and was awarded $14,805. The appellate court in Von Becelaere Ventures, LLC v. Zenovic, Jr., Case No. D073108 (4th Dist., Div. 1 Nov. 29, 2018) (unpublished) found that the situation was not premature for a fee recovery because the winner did win on the only contractual issue even though remaining noncontractual claims had not yet been arbitrated.
Posted at 05:09 PM in Cases: Arbitration, Cases: Prevailing Party | Permalink | Comments (0)
Arbitration: Arbitrator's Decision On Awarding Fees To One Party On One Dispute And Denying To Same Party Another Dispute No Abuse Of Discretion
Moncharch Discretion To Arbitration Decisions Ultimately Prevailed.
No huge recitation of the facts or conclusion is required in Axten v. Axten, Case No. D073089 (4th Dist., Div. 1 Oct. 30, 2018) (unpublished). What basically happened was that one party obtained an arbitration award of $94,972 in attorney's fees under a settlement agreement fees clause on one disputed matter (although the other disputed matter went the other way). The losing party claimed she should be awarded $99,322.50 in fees for prevailing in the matter not won by the prevailing party. The problem was that the arbitrator denied the latter fee request. In the end, even though some procedural challenges might have won the day anyway, the arbitrator's merits determinations were unassailable such that the arbitrator did not act in excess of jurisdiction in ruling as the arbitrator did.
Arbitration: Trial Judge Properly Awarded Fees To Contractor Winning Indian Tribal Sovereign Immunity Defenses In Prior Appeal
Sovereign Immunity Issue Did Not Divest Lower Court Or Require A Stay For Multiple Reasons.
For any practitioners having to sue an American Indian tribe, sovereign immunity is a crucial issue. It must be waived in some manner; if not, there may be no recovery no matter how bad the equities are. Well, we now have a California intermediate appellate decision involving Indian tribal issues in the context of a lower court order awarding fees to a contractor prevailing on appeal against a tribe. Better yet, it is published!
In Findleton v. Coyote Valley Band of Pomo Indians, Case No. A150444 (1st Dist., Div. 2 Sept. 25, 2018) (published), a contractor had won a previous appeal in which an American Indian tribe was found to have waived its sovereign immunity for purposes of arbitrating the contract disputes, with the waiver extending to judicial enforcement of the right to arbitrate and of any arbitration award. This prior appeal reversed an award of fees and costs to the tribe as the prevailing party. On remand, contractor moved for fees incurred in successfully appealing, with the lower court awarding costs of $4,591.79 and attorney's fees of $28,148.75.
Tribe's appeal did not change the result.
As to the first argument (that contractor did not prevail), this was never contested below such that it was waived on appeal. (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2017) ¶¶ 8:231, 8:233, p. 8-175.) Beyond that, the appellate court, based on the law of the case doctrine, did decide sovereign immunity had been waived, so that it was binding; otherwise litigants would "continually reinvent their positions on legal issues that have been resolved against them by an appellate court." The second argument was that the lower court should have abstained until the tribe determined its own jurisdiction—an exhaustion of remedies argument. This was dispatched because contractor showed there was no tribal court in existence at the time the action was commenced, so no abstention was necessary. With respect to the last argument that the ruling on the fees/costs motion was premature, the lower court did have jurisdiction to consider the motion given the prior ruling on the sovereign immunity issue.
Arbitration: Arbitrator Award Of Incremental Attorney's Fees And Costs After Merits Award Was Proper, Plus Superior Court Did Not Err By Awarding Additional Post-Confirmation Fees And Costs To Prevailing Arbitration Party
Fee Clause Interpretation By Arbitrator, Even If Incorrect, Was Unreviewable In Nature.
Arbitration is in vogue, but it gives tremendous discretion to the arbitrator and, in most instances, the awards are not reviewable even if factually and/or legally erroneous in nature.
Engel & Engel, LLP v. DeLong, Case No. B279576 (2d Dist., Div. 2 Aug. 29, 2018) (unpublished) illustrates that well with respect to incremental fees and costs awards by arbitrators.
Accounting firm plaintiff won a binding arbitration against defendants, with the arbitrator making a merits award of $27,100.13 plus undetermined interest and costs. Later, the arbitrator awarded plaintiff $15,213.89 in costs and $28,000 in attorney's fees under a contractual arbitration clause on an "incremental basis." The superior court confirmed the arbitration award, granting additional fees and costs to the successful arbitration panel.
The appellate court affirmed. The arbitrator's fee clause interpretation, right or wrong, was unreviewable, even though the broad authority over "disputes between the parties" did allow fee entitlement for quantum meruit awards. Incremental awards by arbitrators are very common, and a proper method to award fees and costs after merits awards. (Hightower v. Superior Court, 86 Cal.App.4th 1415, 1434 (2001); EHM Productions, Inc. v. Starline Tours of Hollywood, Inc., 21 Cal.App.5th 1058, 1065-1066 (2018).) Finally, a superior court does have authority to award additional fees and costs for post-arbitration confirmation activities.
Arbitration, Employment: Arbitrator's Possible Fee Award To Employer For Wage Hour Bad Faith Prosecution Reversed For Arbitrator To Determine If Recovery Allowable
Most Of Arbitration And Fees Were Sustained Except For A Remand To Arbitrator On Unwaivable Nonallowance Of Wage/Hour Fees To Employer Unless Employee's Claims Brought In Bad Faith.
In Dorne v. Vascular and Interventional Specialists, Case No. G054213 (4th Dist., Dist. 3 Aug. 27, 2018, received for posting Aug. 28, 2018, unpublished), a medical doctor former employee brought both contractual and Labor Code wage/hour claims against his former employer medical group. The matter went to arbitration, with doctor losing all of his claims and with the arbitrator awarding $366,098 in attorney's fees and costs pursuant to a contractual fees clause and the superior court awarding another $30,000 in post-arbitration fees to medical group for prevailing after the lower court confirmed the award/refused to vacate it.
Former employee prevailed, getting some limited relief—but subject to the arbitrator making a narrower determination of what fees might not be allowable on remand.
Most of the arbitrator's determinations got affirmed under the Moncharsh deferential standard for reviewing arbitration decisions given the arbitrator was largely interpreting the employment agreement between the two sides. However, a limited remand was in order to determine if the arbitrator awarded fees against employee which fell within the ambit of Labor Code section 218.5(a), a public policy provision specifying that employees are not liable for fees for unsuccessful wage/hour claims unless they were brought in bad faith. The appellate court, in a 3-0 decision authored by Acting Presiding Justice Bedsworth, decided that this provision was an unwaivable public policy statute which could not be ignored in arbitration. The proper remedy, in this situation, was to resubmit the matter to the arbitrator to see if fees were excludable on this basis. Otherwise, the arbitration expenses and superior court post-arbitration fees were properly awarded to former employer medical group. (See Ling v. P.F. Chang's China Bistro, Inc., 245 Cal.App.4th 1242, 1263 (2016) [statutory Labor Code fee provisions do not extend to post-arbitration activities before superior court].)
Arbitration, Sanctions: After Compelling Arbitration And Then Failing To Pursue It, Fitbit And Its Litigation Attorneys Liable For Bad-Faith Sanctions In Heart-Tracking Devise Action
Fitbit Did Finally Agree To Arbitrate, But Only After District Judge Expressed Concerns Over Its Litigation Conduct, Which Will Result In Some Amount Of Sanctions And Other Prospective Actions Ordered By District Judge.
Arbitration frequently is invoked by defendants because of the perception that it is more user friendly in many types of cases, including consumer disputes. U.S. District Judge James Donato of the Northern District of California put it this way in the case we post on next: "[The defense conduct in this case] has also bolstered the perception that arbitration is where consumer lawsuits go to die. While the merits of that view can be debated, it's no surprise that many people, including judges, are skeptical about arbitration agreements in light of situations like this one. Fitbit's conduct undermines the public's confidence in getting a fair shake when arbitration is compelled."
In McClellan v. Fitbit, Inc., Case No. 3:16-cv-00036-JD (N.D. Cal. July 24, 2018 [Doc. 153 "Order re Arbitration Proceedings," Dkt. No. 146]), Fitbit moved to compel arbitration against a plaintiff consumer in a suit alleging that the company made misrepresentations about the accuracy of its heart rate monitoring devices. District Judge Donato granted the request, but Fitbit failed to pay AAA arbitration fees and told plaintiff it had no intention of arbitrating her claims or the arbitrability issues delegated to the arbitration for determination, ostensibly because the AAA fees were way more than her actual claim was worth. One of plaintiff's attorneys' paralegal took notes of a phone call with Fitbit's counsel Morrison & Foerster where this intention was announced, which spurred a conference with the district court and drew some concerns "in plain terms" at a hearing so as to cause Fitbit to pay its fees before the AAA suspended the case and then proceed with the arbitration.
However, the story did not end there. District Judge Donato, although denying more draconian relief requested by Ms. McClellan, did find that Fitbit and its attorneys were going to have to pay sanctions for bad-faith litigation conduct as well as do filings in prospective actions and do 90-day update filings in the case before him.
Ms. McClellan first argued that by failing to pay the arbitration fee, Fitbit had lost the right to arbitrate. The district court rejected that argument, because Fitbit had changed course and paid the arbitration fee before AAA suspended the case. She then suggested that the district court should find the arbitration agreement unenforceable for all of Fitbit's customers as a punishment for its conduct in her case. District Judge Donato also rejected this suggestion, reasoning that the tactics in this one case did not necessarily undermine arbitration in future cases or inherently waive a consumer's right to pursue statutory remedies under Fitbit's terms of service with the arbitration provision.
But, the district judge found that Fitbit and its attorneys would have to pay some amount of yet-to-be-determined sanctions for bad-faith litigation conduct under Chambers v. NASCO, Inc., 501 U.S. 32, 43, 45-46 (1991), which allows courts to assess fees against counsel where a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. Beyond that, he ordered that Fitbit was ordered to file a copy of his decision in all cases where it sought to compel arbitration with consumers for a period of one year from the order's date and directed that the parties file joint status statements every 90 days until the arbitration proceedings were completed.
The moral of the story is that if you elect to compel arbitration, you better stick with it or risk sanctions.
Arbitration: Arbitrator's Award Of $183,000 In Allocated Fees To One Successful Defendant In Joint Defense Arrangement And Trial Court's $21,000 In Post-Arbitration Fees To All Defendants Were Proper
Losing Plaintiff Claimed Arbitration Award Was "Manifest Disregard Of Law," But This Was A Federal Standard Rather Than The More Limited State Standard Applicable To Review Of Arbitration Awards.
HUB International Ins. Services v. Morales, Case No. E067095 (4th Dist., Div. 2 June 14, 2018) (unpublished) was an imbroglio involving non-interference, non-solicitation, confidential disclosure, and non-recruit provisions in certain documents between employees and an insurance company, triggered once certain employees departed and went to work for a rival insurance company. The pertinent agreements had arbitration clauses under California law, with the signatories waiving appeal rights. The real dispute was between the insurance companies, but all parties stipulated to arbitration even though some parties had agreed to contractually arbitrate previously.
The arbitrator found against plaintiff and in favor of defendants. The thrust of the arbitrator's decision was that a liquidated damages clause for breach of the pertinent agreements was unenforceable given that plaintiff would not introduce lost profits evidence so to allow the arbitrator to gauge whether the liquidated damages were reasonable in relation to actual damages. The arbitrator then ordered that defendant Morales recover prevailing party fees of $183,000, with the trial judge affirming the arbitration award and then further ordering that all defendants obtain post-arbitration fees of $21,000.
Plaintiff challenged the arbitration award on the merits and on the $183,000 fee award, but none of those challenges resonated with the 4/2 DCA.
Although the arbitrator actually did allocate out the fees attributable to arbitration efforts for the rival insurance company, plaintiff's challenge that the arbitrator made a "manifest disregard of law" was incorrect. This was a federal criterion challenge under the FAA, not a state challenge which does not generally allow challenges to the merits of an award—especially given that the signatories to the arbitration agreement and arbitration stipulation agreed California law would apply. (Siegel v. Prudential Ins. Co., 67 Cal.App.4th 1270, 1280, 1290 (1998).) Also, the parties did waive the right to appeal, but the appellate court construed this as waiving appellate rights except on the limited grounds applicable under the California appellate restrictions relating to arbitration awards. (Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4th 1334, 1358 (2000).)
Arbitration: Recent 2/1 DCA Unpublished Opinion Is A Stark Reminder To Raise Fees And Costs Issue To An Arbitrator Before A Final Award Is Issued
Otherwise, Fees/Costs Recovery Could Be Forfeited; Best Is To Ask For An Interim Award On Merits And Reserve Other Issues For Later Interim Award.
The next case really is a stark reminder to litigators to make sure an arbitrator reserves fees and costs issues for decision in a subsequent interim award after an interim award on the merits. If you do not do so, you may face the unhappy conclusion in the next case.
The unhappy conclusion in Buckley v. El Dorado Enterprises, Inc., Case No. B282204 (2d Dist., Div. 1 May 16, 2018) (unpublished) was that a claimant recovering on a pregnancy discrimination and failure to accommodate claims (but not awarded damages based on a subsequent reinstatement) did not gain a substantial award of attorney's fees and costs as the prevailing party. We describe how this came about.
The arbitrator entered a final award on the merits in favor of claimant, but claimant never requested any attorney's fees. After that award, claimant moved for fees and costs, with the arbitrator in a second award deciding she was the prevailing party and awarding about $120,000 in fees, costs, AAA administrative fees, and arbitrator compensation/expenses. However, the trial judge vacated the award of fees and costs, prompting an appeal by claimant.
The 2/1 DCA decided that claimant had no basis to supplement the first award with the second award recovery given that there was no mathematical error or failure of the arbitrator to rule on a submitted issue. This was so under the California Arbitration Act and the AAA Rules. So, the moral of the story (so to speak), is to make sure that a merits award is interim and that the arbitrator is asked to reserve a ruling on fees/costs through a later interim award. If not, and a final award is issued instead, a claimant may be deprived of a recoupment of substantial fees and costs even though the arbitrator would have awarded them but for labeling the award a "final" one.
Arbitration/Fees: Party Who Has Engaged In Arbitration In Good Faith, And Can No Longer Pay Arbitration Fees, May Be Entitled To Day In Court
Weiler v. Marcus & Millichap Real Estate Services Is A Case In Which The Party's Ability To Pay Arbitration Fees Must Be Taken Into Account.
Weiler v. Marcus & Millichap Real Estate Investment Services, Inc., G053953 (4th Dist. Div. 3 April 30, 2018) (published) is the subject of a May 1, 2018 post by blawg co-contributor Marc in California Mediation and Arbitration. The Court of Appeal requires the superior court to consider the plaintiff's ability to pay arbitration fees, and to determine whether defendant will agree to pay the fees, or whether the case should proceed to superior court. "Though the law has great respect for the enforcement of valid arbitration provisions," writes Justice Thompson, "in some situations those interests must cede to an even greater, unwavering interest on which our country was founded -- justice for all."
Arbitration/Reasonableness Of Fees: Attorney Won Arbitration Award Against Former Client For $78,154.49 In Unpaid Fees, Plus $126,406.25 In Fees And $36,681.57 In Costs For Arbitration Success, Plus $133,362.50 For Having To File Motion To Compel Arbitr
Case Demonstrates How Fees/Costs Easily Can Outstrip Base Compensatory Award.
Attorney had to sue a former client for unpaid bills, invoking an arbitration clause in the initial retainer agreement. One of the key issues was whether that initial retainer agreement was orally modified by the parties' conduct to encompass later matters, with the proof showing that it was. Attorney had to move to compel the matter into arbitration, proceeded to arbitration where he won a base award of $78,154.49 in unpaid fees plus $126,406.25 in fees and $36,681.57 in costs by the arbitrator after attorney prevailed, and then had to move to confirm the arbitration award—with former client vehemently opposing all the way.
The superior court awarded attorney another $133,362.50 in additional attorney's fees for the motion to compel and motion to confirm efforts at the superior court level.
Former client's appeal did not change anything in Caswell v. Jamgotchian, Case No. B271389 (2d Dist., Div. 3 Apr. 24, 2018) (unpublished).
The appellate court agreed with the oral modification theory and also found that the fees for superior court activities were justified under Code of Civil Procedure section 1293.2 and Ajida Technologies, Inc. v. Roos Instruments, Inc., 87 Cal.App.4th 534, 552 (2001). With respect to the reasonableness of the fees, the appellate court found (1) California cases do not disallow an award of fees to an attorney billing in quarter-hour increments, (2) attorney's counsel's $450 per hour was not unreasonable in the L.A. market, (3) there was no block billing issue, (4) no clerical time was requested much less awarded, and (5) attorney was entitled to fees on appeal, to be determined by a fee petition before the superior court judge. Ouch!
Posted at 04:14 PM in Cases: Arbitration, Cases: Reasonableness of Fees | Permalink | Comments (0)
Arbitration/Costs: Subsequently Confirmed Judgment Involving Costs Award Separate From Prior Merits Judgment Did Not Violate "One Final Judgment" Rule
Appellate Court Found Incremental Award Process Appropriate Under The Circumstances.
In EHM Productions, Inc. v. Starline Tours of Hollywood, Inc., Case No. B281594 (2d Dist., Divl 2 Mar. 28, 2018) (published), respondent in an arbitration obtained an arbitration award requiring appellant to defend respondent in a lawsuit brought by appellant's bus drivers, which arbitration award was confirmed as a judgment. While the petition to confirm the merits award as a judgment was pending, a JAMS appellate panel decided that appellant owed respondent $41,429.92 in arbitration costs, an award which was separately confirmed by the superior court as a judgment.
On appeal, appellant argued that the entry of two judgments resulting from the same arbitration violated the "one final judgment" rule. The appellate court said "naught." Instead, it found that an incremental award process is appropriate where not all of the issues were resolved at the time of the initial partial arbitration award. (Cf. Hightower v. Superior Court, 86 Cal.App.4th 1415, 1434 (2001).) With respect to a waiver/estoppel argument, this was rejected based on the conclusion that a winning party necessarily does not need to submit costs simultaneously for adjudication with the substantive arbitration award given no one knows who won or lost (or partially did so).
Posted at 03:06 PM in Cases: Arbitration, Cases: Costs | Permalink | Comments (0)
Arbitration/Section 1717: Attorney's Fees Incurred In Disqualification Motion And Other Associated Motions Before Arbitrator And Trial Court Properly Were Awarded To The Defense
Defense Did Prevail Because Arbitration Was Dismissed For Failure To Prosecute After Plaintiffs Failed To Pay Arbitration Fees.
Fiscal Funding Co., Inc. v. Dones, Case No. A146377 (1st Dist., Div. 3 Feb. 27, 2018) (unpublished) was quite an arbitration battle in which the Claimants lost a motion to disqualify their attorney as well as other motions, with the arbitration eventually dismissed for lack of prosecution due to plaintiff's failure to pay AAA fees. Along the way, the trial court granted substantial amounts of fees, inclusive of fees incurred by the other side in defending lower court rulings in two appeals. (Probably about $500,000 in fees was the final tally, although we did not do the precise math.)
Plaintiffs' challenges to the fee awards were unsuccessful.
Plaintiffs claimed that the trial court lacked jurisdiction to award fees, but the appellate court said that was not true because adjudging fees is a collateral matter which is properly considered to prevent abuse of the judicial process, citing Barry v. State Bar of California, 2 Cal.5th 318, 326=327 (2017) and Citizens for a Better Environment v. Steel Co., 230 F.3d 923, 926 (7th Cir. 2000).
Plaintiffs primarily argued that the other side did not prevail because the contractual dispute was ongoing and the defense had only achieved a mere procedural victory. The Court of Appeal disagreed. The state supreme court in DisputeSuite.com, LLC v. Scoreinc.com, 2 Cal.5th 968 (2017) [our Leading Case No. 21] did not rule out that some procedural victories could give rise to prevailing party status, and that was the case here: the arbitration had been dismissed for lack of prosecution such that the interim "wins" were indeed victories.
Arbitration: Second Arbitrator Cost Award Improperly Vacated By Superior Court
Swing In This One Was Around $500,000.
Swing. Theodor Horydczak, photographer. 1937. Library of Congress.
We have many times commented on the discretion given to arbitrators to decide the merits of disputes, including fees and costs awards. Dyna, LLC v. GreatCall, Inc., Case No. D071003 (4th Dist., Div. 1 Oct. 10, 2017) (unpublished) is a prime illustration of this principle.
There, a first arbitrator apportioned a small amount of costs even though a second, different arbitrator found discretion to award much more, namely, $547,660.41 in costs after passing on the res judicata impact of the first arbitrator's award. The trial judge excluded all but $56,925 in costs, a determination reversed on appeal.
The Court of Appeal ruled that the second arbitrator, even on a res judicata issue relating to a prior arbitrator's ruling, was entitled to deference. That meant the second arbitrator's costs award withstood appeal and the trial judge's reduction did not stand.
Arbitration: Losing Litigant In Arbitration Forfeited Illegality Challenge To Oregon Counsel Fees Where Issue Not Raised Before Arbitrator And Only Raised First Time In Reply Brief In Support Of Motion To Vacate Arbitration Award
Timeliness Of Challenges Highlighted In This One.
In Schwartz v. Schwartz, Case No. D071445 (4th Dist., Div. 1 Sept. 15, 2017) (unpublished), family members (the Schwartzs) got into a squabble, with William Schwartz winning against Joel Schwartz after a contested arbitration. The rub, and there usually is one from our perspective, is an attorney's fees clause in some of the operating agreements between the two sides. William won $264,559.89 in attorney's fees and costs against Joel, most of them fees and costs advanced by William's Oregon attorneys who were not licensed to practiced law or admitted pro hac vice in California, the venue where the arbitration was held. Joel challenged the fee award as illegal based on the extraterritoriality licensing issues, but to no avail. The end result: Joel waived the illegality consideration on two fronts: (1) he failed to raise the issue in the arbitration (waiving judicial review by the trial court); and (2) he failed to raise the issue in the superior court before submission of it in a reply brief which did not allow due process rebuttal by William (waiving judicial review by the appellate court).