CALIFORNIA ATTORNEY'S FEES

Arbitration/Costs/Section 998: Where Arbitration Submission Agreement Is Broad, Seek Winning 998 Enhancements From Arbitrator, Not Just The Court

 

Denial of 998 Cost Enhancements Was Not Improper.

     Maaso v Signer, Case No. B228314 (2d Dist., Div. 2 Feb. 7, 2012) (certified for publication) is one of those lessons for all of us practitioners who arbitrate to take to heart--make sure you check the arbitration submission agreement for breadth of issues, meaning that fees and costs must be sought from arbitrators, and not confirming trial courts after a win.

     Succinctly put, plaintiff lost a first arbitration but won a second arbitration after the initial one was vacated based upon an ex parte contact between a party arbitrator and neutral arbitrator. Plaintiff won a significant monetary award in the second arbitration, exceeding a CCP § 998 offer made by plaintiff and rejected by defendant prior to the first arbitration. However, plaintiff sought 998 costs as the prevailing party at the trial court level after granting of the petition to confirm the arbitration award. The trial court denied all arbitration costs on the basis that they were within the sole purview of the arbitrators.

     Plaintiff’s appeal of the cost denial was unsuccessful. The arbitration submission was broad such that the 998 cost enhancements should have been sought from the arbitrators. See Corona v. Amherst Partners, 107 Cal.App.4th 701, 706 (2003). (The appellate court did reject the defense argument that the 998 offer made during the first arbitration somehow had to be renewed to be effective.) The alternative language in section 998 that the costs enhancement could be made by “the court or arbitrator” did not mean that the court could override arbitral authority where the submission agreement was broad in nature; otherwise, arbitrator finality would be eroded if that ADR route is truly chosen.

Arbitration/Employment: Contractual Arbitration Clause Invalidated, Among Other Things, Because Attorney’s Fees Granted To Mere Prevailing Party On FEHA Claims

 

Employee Won Substantive Unconscionability Argument Based on Absence of Frivolousness Requirement for Employer FEHA Fee Recovery.

     Normally under FEHA, a prevailing defendant (usually, an employer) can only recoup fees if it proves that plaintiff employee’s claims were frivolous, unreasonable, without foundation, or brought in bad faith. What happens when an employer inserts an arbitration clause into a contract with an employee allowing the arbitrator to award the prevailing party fees as to FEHA claims sans the elevated requirements for a winning defendant? Short answer: it is a factor which can lead to judicial nonenforcement of the arbitration clause.

     Mayers v. Volt Management Corp., Case No. G045036 (4th Dist., Div. 3 Feb. 2, 2012) (unpublished) is an illustration of this, where a 3-0 panel (author: Justice Fybel) affirmed a lower court’s denial of a motion to compel arbitration under a fees clause with just such a provision. Such a clause did manifest a degree of substantive unconscionability when, combined with other factors, led to it not being honored. As far as the prevailing party fees clause, the appellate court found that it was too pro-employer and weakened the frivolous-based protections normally available under FEHA to losing employees. (Trivedi v. Curexo Technology Corp., 189 Cal.App.4th 387, 394-395 (2010).)

     So, employers, consult Trivedi and Mayers on this issue, not to mention the California Supreme Court’s seminal decision of Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000) when drafting arbitration clauses.

Arbitration/Fee Clause Interpretation: Broadly-Worded Fee Clause Allowed Litigants Successfully Asserting Third Party Claims To Recoup Fees Against Arbitration Winner In Post-Arbitration Judicial Proceedings

 

$74,124 in Fees/$1,529.40 to Successor Trustees Were the Winning Awards.

     Portico Management Group, LLC v. Harrison, Case No. C062060 (3d Dist. Dec. 28, 2011) (unpublished) is a chilling opinion--forget that it is the Holidays that are not as chilly in California as other areas of the country--both about making sure proper parties are named as well as the breadth of fee clauses encompassing arbitration and related proceedings.

     In a word, an arbitration claimant won a damages action for a real estate purchase agreement breach, but the arbitrator made the award against the trust. Claimant did not seek to correct or vacate the award, with catastrophic results. The trustees and successor trustees avoided, for years, claimant’s efforts to collect against the trust property or its proceeds. In fact, claimant lost some third-party claim judicial proceedings against a couple of successor trustees, who won prevailing party fees of $74,124 and costs of $1,529.40, against claimant based on a broad purchase agreement fee clause covering events “arising out of the agreement,” including any arbitration.

     The fee/costs awards were affirmed on appeal. The Third District found that the third-party claim post-arbitration proceedings did arise out of the purchase agreement, even though they were judicial in nature--justifying the lower court’s decisions on fees and costs. (Ajida Technologies, Inc. v. Roos Instruments, Inc., 87 Cal.App.4th 534, 552 (2001).)

     There is another moral to this story, so to speak--if suing a trust, name the trustees and make sure they are named in the judgment in representative capacities.

Arbitration: U.S. District Judge Does Have Inherent Authority To Award Attorney’s Fees To Irani Ministry Winning Arbitration

 

Nothing in New York International Convention Negated Inherent Court Authority.

     The Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran won a breach of contract arbitration award against a U.S. corporation, which was confirmed under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). However, the district judge did not believe she had discretion to award attorney’s fees in the action to confirm the award under the Convention.

     That determination was reversed in The Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Defense Systems, Inc., Case Nos. 99-56380/99-56444 (9th Cir. Dec. 15, 2011) (for publication).

     Because Ministry’s motion for fees was based on what it contends was Cubic’s willful bad faith in failure to abide by the arbitration award, federal courts retain authority to award fees when the losing party has acted in bad faith, vexatiously, wantonly or for oppressive reasons--with a refusal to abide by an arbitrator’s award equating to bad faith activity. (Int’l Union of Petroleum & Indus. Workers v. W. Indus. Maint., Inc., 707 F.2d 425, 428 (9th Cir. 1983).) Although nothing in the New York Convention expressly mandated fees, nothing in it or in federal implementing statutes negated this inherent federal court authority. The case was remanded to have the district court reconsider the fee request.

Arbitration: MFAA Nonbinding Fee Award Confirmed Because Losing Attorney Did Not File A Court Action 30 Days After Rendition Of Award

 

Award Rejection and Petition to Vacate Arbitration Award Are Not “Action” Filing Equivalents.

     We have posted in the past on the importance of observing formalities when it comes to rejecting a nonbinding award in an attorney-client arbitration under the Mandatory Fee Arbitration Act (MFAA). Well, here is another unpublished decision that tells attorneys, when they lose, to strictly adhere to the rules. Or, put more forcefully, make sure you have a collection action already on file or file it within 30 days of the nonbinding arbitration award.

     In Avetisyan v. Gordon, Case No. D057916 (4th Dist., Div. 1 Sept. 30, 2011) (unpublished), attorney and client arbitrated a fee/costs dispute under MFAA via the nonbinding track with respect to attorney’s client handling of an immigration matter for client. Client won a nonbinding award of $7,600 plus a $375 arbitration filing fee against attorney, who filed a rejection of the award and later moved to vacate the arbitration award within the 30 day deadline from the transmittal of the award. However, attorney did not file a court action in connection with the award. Mistake.

     The lower court granted client’s petition to confirm the award, this time escalating the amount of the judgment to $19,316.70 (after other fees and costs were added).

     Attorney appealed.

     Not so good for attorney on appeal. The problem here was that attorney failed to file an action to collect fees within 30 days of the arbitration award. Simply filing a rejection of the award or a petition to vacate the award did not suffice. Judgment based on award in client’s favor was affirmed in this one, which has object lessons to teach all attorneys attempting to collect fees (and subject to MFAA arbitration, which usually is the case).

Fees Clause Interpretation/Arbitration: “Such Proceeding” Language Broad Enough To Encompass Fee Recovery For Litigation, Where Parties Waived Arbitration Rights

 

Breadth of Language Made the Difference in this One.

     Here is an interesting one that confirms that the breadth of language in a fees clause can make a difference. It especially did here, where the parties waived arbitration rights but the fees clause, but the use of “proceeding” language was broad enough to allow recovery in normal court litigation (over and above any fees incurred in an arbitration).

     The case is AmericaHomeKey, Inc. v. Powerhouse Associates, Inc., Case Nos. B224147/B226597 (2d Dist., Div. 5 Sept. 9, 2011) (unpublished), where plaintiff residential finance company won summary adjudication against mortgage brokers for $209,621.87 plus fees and costs when the parties litigated in court and waived contractual arbitraion rights. The court later awarded $81,316.43 is fees and $947.25 in costs, a total award of $82,263.68 to plaintiff as the as prevailing party under a contractual fees clause. Unhappy brokers appealed.

     Unhappiness continued when the judgment and fees/costs award were affirmed.

     Brokers claimed that the fees provision was limited to binding arbitration, so that no fee recovery could be had in normal court litigation. Not so, ruled the appellate court. The fees clause had broad “such proceeding” language, broad enough to encompass civil litigation. The parties’ waiver of an arbitration provision did not alter the result, because it left intact the broad fees clause allowing recovery in normal litigation The fees clause was severable and governed. Fee/costs award sustained on appeal.

Arbitration: $192,286 Fees/Costs Award In Arbitration Vacated And Affirmed On Appeal

 

Reason: Lack of Due Process!

     Here is a wild one, but one that shows appellate (and trial) courts will not hesitate to reverse awards when unfairness and due process concerns are present.

     In Wang v. Sun Led Sign Supply, Inc., Case No. B224195 (2d Dist., Div. 2 Aug. 17, 2011) (unpublished), an arbitrator entered a hefty $192,286 fees award to one party in an arbitration although he did not let the opposition look at any billing statements in support of the award (but nevertheless reviewed the billings in camera). This did not set well with the lower court, which vacated the award. The appellate court felt the same way.

     “Nothing is more fundamental to our legal system than the idea that a legal proceeding is unfair if a party is denied the opportunity to know the evidence against him and respond to it. We easily conclude that the arbitrator’s in camera review of billing records was inimical to justice . . . . the trial court was required to vacate the arbitration award.” Even the deferential Moncharsh standard does not “negate the power of courts to review a fundamentally unfair procedure.” Because the opposition was denied an opportunity to respond to the in camera evidence submitted in support of the attorney’s fees motion, “it is safe to say that vacatur is mandatory. All other issues are moot.”

Inside the Star Chamber.

MFAA Arbitration: Two Unpublished Decisions Explore MFAA Issues

 

#1: Post-Rejection Suit After Nonbinding Award Must Signal Award Rejection and Request for Trial De Novo; If Not, the Nonbinding Award May Become Binding.

     Kessinger v. Pepper, Case No. D057680 (4th Dist., Div. 1 July 28, 2011) (unpublished) is a very important decision for litigants rejecting a non-binding arbitration award made in an arbitration under the Mandatory Fee Arbitration Act (MFAA). What essentially happened is that a losing litigant in a non-binding MFAA arbitration did timely file a post-rejection complaint, but (and you know what happens when you see a but) the complaint did not mention the arbitration, the award, or a de novo trial request. Legal boo-boo. The arbitration, rejected award, and new trial need to be mentioned in the complaint (Shiver, McGrane & Martin v. Littell, 217 Cal.App.3d 1041, 1045 (1990); see also Jud. Council of Cal. Forms ADR-104, ADR-105.) That meant that the appeal of the non-binding award was not timely made, so that the non-binding award was fully enforceable.

#2: Winning Client in MFAA Arbitration Not Entitled to Attorney’s Fees and Costs In Post-Arbitration Confirmation Battles, Because There Was No Trial After Arbitration--the Missing Predicate For An Award.

     Client in Isaacson v. Maatuk, Case No. B224217 (2d Dist., Div. 2 July 28, 2011) (unpublished) must have felt pretty good. After all, he filed a MFAA petition to resolve a fee dispute with his former trial attorneys, winning $112,155 plus interest based on what client apparently deserved from a settlement in a contingency case (at least from the arbitral perspective). The arbitration award eventually was confirmed to judgment, with client seeking to recoup $19,662.50 in fees and $1,422.66 in costs under Business and Professions Code section 6204(d)--which allows a prevailing party in a post-award rejection trial to obtain fees and costs in the court’s discretion. The trial court denied fees, finding no entitlement because there was no trial after the arbitration. The reviewing court affirmed. Even though there were post-arbitration confirmation battles, any determination in them was not the equivalent of a trial, but only an evaluation of whether a new trial should proceed. The statute was clear, and the appellate court was not going to rewrite it despite client’s policy arguments to the contrary.

Arbitration: Failure to Comply With MFAA Notice Requirements Required Dismissal Of Contractual Claims Without Prejudice And Did Not Impact Slander Claims

 

Except for Slander Claim, Attorneys Relegated to Arbitrating Remaining Fee Claims.

     This next one is an interesting dispute between (former) clients and attorneys, where the lawyers sued for standard breach of contract, fraud, and slander. The problem is that lawyers could not effectively showe that they served a notice of right to arbitrate to clients under the Mandatory Fee Arbitration Act, Bus. & Prof. Code § 6200 et seq. [BLOG NOTE--This notice must be given personally or sent to the client’s last known address, accompanied by a proof of service if mailed, before an attorney can sue to collect fees. Philipson & Simon v. Gulsvig 154 Cal.App.4th 347, 365 (2007).] Frustrated with some hemming and hawing on whether the MFAA notice was sent, the trial court finally dismissed the entire action with prejudice, with the parties agreeing to do so for purposes of creating an appealable order. [BLOG NOTE #2--This was no go under Don Jose’ s Restaurant, Inc. v. Truck Ins. Exchange, 53 Cal.App.4th 115, 118-119 (1997).] Lawyers appealed.

     They obtained mixed success in Khosro Reghabi et al. v. Tayebati, Case No. B219122 (2d Dist., Div. 3 July 20, 2011) (unpublished).

     The claims dismissed with prejudice based on failure to provide MFAA notice had to be reinstated as “without prejudice” dismissals, otherwise attorneys had no remedy. The appellate court at least decided that the parties should be able to proceed to arbitration, which is what the parties intended in attempting to impermissibly create an appealable order so that lawyers had some remedy on the contract-based/fraud claims. With respect to the slander claim, no MFAA notice was needed, so that the “with prejudice” dismissal had to be reversed on that count.

Arbitration: Court of Appeal, Fourth District, Division 3, Rejects Appellant's Argument that Arbitrator Needed to Disclose that His Parents Were German Jewish Refugees from Nazi Germany.

 

Court Affirms Judgment that Includes Arbitrator's Award of $1,136,000 in Attorney's Fees and Costs.

     The Hon. Stephen E. Haberfeld (Ret.), was valedictorian at UCLA, an articles editor at Harvard Law School, a law clerk on the U.S. Court of Appeals, 2^nd Circuit, an Assistant Watergate Special Prosecutor, and a U.S. Magistrate Judge. Acting as a JAMS arbitrator, in a dispute involving the Rebmann and the Rohde parties, Haberfeld awarded $1000 in damages to the Rebmann parties, and also awarded them a wopping $1,136,000 in attorney's fees and costs. Rebmann v. Rohde, G043665 (4^th Dist. Div. 3, June 28, 2011) (certified for publication). Apparently the attorney's fees award set off bells and whistles.

     Defendant/Appellant Peter Rohde informed the trial court that if only he had "known about his religious affiliation, his cultural affiliation, and the dedication to keeping the memory of the Holocaust alive, I never would have allowed him to be the arbitrator in my case." Mr. Rohde's father, and his wife's father served in the SS during WWII.

     Judge Luesebrink found that the defendants had not presented any evidence that Haberfeld had knowingly failed to disclose any material facts, issued a protective order preventing the defendants from taking Haberfeld's deposition, and confirmed the arbitration award. Defendants appealed.

     First, the Court of Appeal ruled that Haberfeld had no duty to disclose. The standard is not whether the arbitrator's background might have led defendants to question his ability to be impartial, but whether a person aware of the facts might have reasonably so believed. Here, "[t]here was nothing at all in the arbitrator's professional record that indicated bias toward Germans (or anyone else)."

     The Court was displeased that information about the arbitrator's background, available by Googling, was not raised as an issue until after defendants lost. "'[I]t is inappropriate to allow any party to 'trifle with the courts by standing silently by, thus permitting the proceedings to reach a conclusion in which the party could acquiesce if favorable and avoid if unfavorable,’" citing Dietz v. Meisenheimer & Herron, 177 Cal.App.4^th 771, 800 (2009).

     The Court also rejected the "tacit assumption" that "a judge who is a member of a minority cannot be fair when a case somehow related to that minority status – no matter how remote or tenuous that relationship might be – comes before that judge." "While defendants purport to rely on Haberfeld's 1939 Club involvement and family history," explained the Court, "they use these factors as a proxy for arguing that Haberfeld should have disclosed that he is Jewish and of German ancestry." (Curiously, all the parties to the arbitration, and the arbitrator, were of German ancestry.)

     We note in passing that attempts to remove a judge, because of religion, race, or ethnicity, have a history of failure.

     Item: Judge Constance Baker Motley, who was African American, a woman, and a former civil rights activist, explained the faulty logic in a case involving whether a female judge needed to recuse herself from hearing a sex discrimination case: "indeed, if background or sex or race of each judge were, by definition, sufficient grounds for removal, no judge on this court could hear this case, or many others, by virtue of the fact that all of them were attorneys, of a sex, often with distinguished law firm or public service backgrounds. See Blank v. Sullivan and Cromwell, 418 F. Supp. 1, 4 (S.D.N.Y. 1976).

     Item: In U.S. v. El-Gabrowny, 844 F.Supp. 955 (S.D.N.Y. 1994), United States District Court Judge Mukasey refused to recuse himself "on the ground that I follow the precepts of Orthodox Judaism and hold Zionist political beliefs " The case involved a wide-ranging conspiracy to, among other things, bomb the World Trade Center, and vehicular tunnels in NYC. "The objection here is not based on race or sex or the Mormon religion, but the motion in this case is in all relevant ways the same as the motions in those cases; it is the same rancid wine in a different bottle."

     Item: More recently, in Perry v. Schwarzenneger (N.D. Cal., No.C-09 02292 JW, June 14, 2011), the effort to remove a judge based on minority membership surfaced with Judge Vaughn Walker, the federal judge who heard the case involving Prop. 8, California's no on same-sex marriages proposition, because Judge Walker is involved in a committed relationship with another man. Chief District Court Judge James Ware rejected the recusal effort. “The fact that a federal judge shares a fundamental characteristic with a litigant, or shares membership in a large association such as a religion, has been categorically rejected by federal courts as a sole basis for requiring a judge to recuse her or himself,” wrote Judge Ware.

     Second, the Court rejected the argument that it was error to quash the deposition subpoena of the arbitrator. Defendants never served the notice of appeal or the briefs on Haberfeld or his attorney. As a matter of due process, Haberfeld needed to be a party to the appeal. Moreover, an arbitrator's deposition may only be taken if the information sought is relevant to "a statement or conduct that could . . . give rise to disqualification proceedings . . ." Here, the arbitrator’s identity and family background constituted neither a statement nor conduct..

     Third, the Court rejected the notion that a statement of decision was required. A petition to confirm or vacate an arbitration award is not a trial, and therefore not subject to Code of Civ. Proc. § 632, governing the statement of decision requirement.

     The 3-0 opinion was authored by Justice Moore. Respondents were awarded costs on appeal.

     PRACTICE TIP: Cite legal authority and the record with specificity. The Court of Appeal (footnote 3) chastised appellants for their citations to the record, finding them to be "profoundly unhelpful to this court."

     HAT TIP: We thank our friend, attorney Susan R. Medwied, for bringing this opinion to our attention.

Arbitration/InThe News: $22 Million Base And $6 Million Fee Award Gets Vacated

 

Reason: Nondisclosure of Social Relationship Between Claimant’s Attorney and JAMS Arbitrator.

     As reported by a June 29, 2011 post on Thomson Reuters News & Insight, a Texas appeals court vacated a $22 million base award and $6 million fee award in favor of a claimant based on claimant’s attorney’s failure to disclose his social relationship with the JAMS arbitrator. Seems like the failure to disclose country club dinners and outings to Mavericks games showed the appellate court that impartiality was not necessarily in place.

     BLOG UNDERVIEW--According to the article, the National Law Journal has reported that less than about 15% of challenges to arbitration awards result in a higher court vacating them. Interesting statistic, especially for some of our readers who we assume do not like the process in the first place. (We find that lawyer perceptions about arbitration are decidedly mixed, some liking, some hating, and others making the decision based on the arbitrator/venue/amount in controversy/etc.)

 

Daumier, the judge.

Arbitration: Client Rejecting Nonbinding Arbitration Award But Failing To File Complaint About Fee Recovery Precluded Challenge To Award

 

Appellate Court Has Great Discussion on Fee Arbitration Rejection Requirements.

     Here is one that reminds everyone--clients and attorneys--engaging in fee arbitrations to keep a very open eye on complaint filing prerequisites applicable to rejection of adverse non-binding fee arbitration awards.

     The opinion discussing these topics is Clyne v. Hoover, Case No. H035539 (6th Dist. June 29, 2011) (unpublished), where an ex-client lost her bid to get a new trial after losing a fee arbitration award of over $69,000 to her ex-lawyer under Business and Professions Code section 6204. We will tell you why she lost her bid soon.

     There are two sets of rules that operate, as the appellate court cogently reminded us. Set number 1 is that the losing party need only file a rejection of the award and request for trial de novo within 30 days of the award if a court action is pending. (Bus. & Prof., § 6204(b).) Set number 2, which is where ex-client stumbled, specifies that the loser must initiate the commencement of a court action within 30 days after service of the fee arbitration award. (Bus. & Prof., § 6204(c).)

     Client, unfortunately, did not file a complaint. She argued that her Judicial Council Form ADR-104 (rejection form) did the trick, but the appellate court was not impressed. After all, the form itself has language indicating that a complaint was being filed by which a new action was commenced--something not done by client. Ouch, we say.

Arbitration/Prevailing Party: Client’s Efforts In Compelling Contractual Arbitration Under Arbitration-Bearing Fee Clause Gives Rise To Fee Recovery

 

Appellate Court So Holds in Prior Case After a Rehearing.

     In a prior post on October 13, 2010, we reviewed the case of Benjamin, Weill & Mazer v. Kors, Case No. A125732 (1st Dist., Div. 2), which was published but then erased from the books after the appellate court granted a rehearing on its own motion on October 26, 2010. Now, the same case has been republished, following rehearing, on May 5, 2011. No change in result, but another section added on an attorney’s fees issue.

Arbitration: Substantial Supplemental Arbitrator Fee Award Of Almost $1.9 Million Affirmed On Appeal

 

Deadline Argument Did Not Prevail Under the Circumstances.

     Here is a real corker in our “Arbitration” category, especially for those of you who are procedurally oriented.

     In Williams v. Joseph Phelps Vineyards LLC, Case No. A127708 (1st Dist., Div. 2 Apr. 19, 2011) (unpublished), vineyard and affiliated individuals were ordered by an arbitrator to pay about $26 million in damages, interest, attorney’s fees, and costs for dishonoring vineyard’s contract with former employees Williams and Shelton. The fee/costs proceedings, suffice it to say, were interesting. After the 90-day period within which the parties had contractually specified the arbitrator would render a final decision, the arbitrator entered a “supplemental” fee/costs award of almost $1.9 million. The Operating Agreement between the parties indeed had an attorney’s fees provision, so entitlement was not the issue. Timing of the award was everything here, with the defense claiming that the arbitrator was without jurisdiction to enter a fee award. (The actual fee award ballooned even further after time spent in the superior court confirmation battle.)

   

Arbitration/Prevailing Party/Construction: Dueling Prevailing Party Determinations May Sting One Party To Its Dismay

 

One Party Prevails, But Still Suffers Adverse Judgment of Over $2 Million When Opponent Also Prevailed.

     This next case is a sobering reminder that “prevailing party” determinations do not necessarily result in one winner in multi-claim litigation. Even though one party might prevail and obtain a substantial fee/costs award, the other party--if that party prevails too--might outstrip a fee/costs recovery depending on how the facts fall. Bear with us and see.

     In Erreca’s, Inc. v. Safeco Ins. Co of America, Case No. D056420 (4th Dist., Div. 1 Apr. 18, 2011) (unpublished), a construction defect case giving rise to prior appellate decisions, an arbitration panel and confirming superior court determined that plaintiff was the prevailing party on a wrongful construction retention claim but that certain defendants prevailed on a breach of contract claim subject to Civil Code section 1717 fee shifting. Plaintiff eventually recovered $1,220,785.01 on the wrongful retention claim (recovering the improperly retained amounts, interest, attorney’s fees and costs). That sounded good, didn’t it? However, that enthusiasm soon dissipated because defendants were awarded $3,228,939.70 in fees and costs for prevailing on a contract claim against plaintiff, meaning that defendants had a net recovery of $2,008,154.69.

     The miffed plaintiff appealed.

Arbitration: $175,000 Fee/Costs Supplemental Arbitration Award Affirmed On Appeal

 

Arbitrator Did Have Jurisdiction to Award Fees/Costs Despite Jurisdictional and Procedural Challenges By Losing Parties.

     Be careful what you ask for. In this one, both sides brought dueling requests for fees and costs before an arbitrator after a decision primarily in plaintiff’s favor, but the losing defendants “hedged” by arguing in opposition to plaintiff’s request that the arbitrator lacked jurisdiction or arbitral finality, precluding any fee recovery against them. This did not work, as the appellate court found when affirming the fee/costs award.

     In EFund Capital Partners v. Mayor, Case No. B223420 (2d Dist., Div. 5 Apr. 11, 2011) (unpublished), a derivative/breach of fiduciary duty suit was ordered to arbitration, which eventually produced a de facto merger award by which plaintiff obtained portions of defendant’s ownership interests in a corporation--with the arbitrator fashioning a creative remedy as he is allowed to do. (Advanced Micro Devices, Inc. v. Intel Corp., 9 Cal.4th 362, 388 (1994) [“arbitrators are not generally limited to making their award on principles of dry law”].) One of the individual defendants was absolved completely based on the agent immunity defense. Both sides filed dueling requests for attorney’s fees/costs despite the fact the first arbitration award was silent on this issue. The arbitrator issued a supplemental award of fees and costs in the amount of $175,000 in favor of plaintiff and against certain defendants. Losing defendants appealed.

     The fee/costs award was affirmed by the Second District, Division 5.

     Defendants initially argued that the supplemental fee/costs award should have been stricken under the functus officio doctrine. (Wow, Latin phrases still crop us, don’t they?) This doctrine acts to prevent arbitrators from changing their award based upon re-examination of a final decision given that arbitrators are not judicial officers. However, as with most legal principles, there are three exceptions: correction of a facial mistake, completion of an award that is not complete, and clarification of an ambiguous award. (International Brotherhood of Teamsters v. Silver State Disposal Service, Inc., 109 F.3d 1409, 1411 (9th Cir. 1997).) Here, the failure to complete the award exception--which was done later through the supplemental award--governed.

     Defendants next argued that the arbitral finality doctrine was dispositive. This one did not resonate with the appellate court because the fee/costs award was a supplemental award, with no case law imposing a limitation on the arbitrator’s authority to supplement a final arbitration award. Also, the strategic relationships agreement did have a fee entitlement clause which gave the arbitrator authority to issue such an award such that the “jurisdictional” challenged lacked merit.

Judicial Arbitration: Two Attorney’s Fees Of About $35,000 Each To Different Defendant Groups Affirmed After Plaintiffs Dismissed Complaint After De Novo Trial Request

 

Arbitration Award Reinstated, Which Meant Substance of Attorney’s Fees Award Not Reviewable Absent Trial De Novo Request.

     Here is one of the first decisions we have summarized dealing with a fee award in a judicial arbitration award which became binding after plaintiffs dismissed a complaint without prejudice after filing a trial de novo request. The impact was that the arbitration award was reinstated, and the substance of the fee award was not reviewable (although the appellate court decided it was correct substantively, too).

     Lee v. Kwong, Case No. A126027/A126670 (1st Dist., Div. 5 Mar. 29, 2011) (certified for partial publication; fee discussion not published) was a situation where plaintiffs suffered an unfavorable judicial arbitration award, complete with adverse fee orders of about $35,000 each in favor of different defendant groups, and filed a trial de novo request, only to later voluntarily dismiss the complaint without prejudice. The defense moved to reinstate the arbitration award, complete with the fee award--a request that was granted. Plaintiffs separately appealed the merits and fee components of the award.

Arbitration/Construction Prompt Payment Statute: Fourth District, Division 3 Finds Fee Recovery Allowable For Withholding Progress Payments To Contractor

Court of Appeal Agrees With Reasoning in Hinerfeld-Ward.

     Plaintiff contractor sued defendant owner for breach of contract, mechanic’s lien foreclosure, violation of the Civil Code section 3260.1 prompt payment statute relating to withheld progress payments, promissory fraud, and conspiracy to commit fraud. The case was arbitrated, with plaintiff eventually awarded $245,763.09 in damages against defendant. The arbitrator then awarded plaintiff $342,360 in attorney’s fees under Civil Code sections 3260.1 and 3260(g).

     Defendant, among other things, appealed the fee award in PacificaWest General Contracting v. Calvada Development, Case No. G042804 (4th Dist., Div. 3 March 11, 2011) (unpublished).

Arbitration: JAMS Introduces Optional Expedited Arbitration Procedures

Target is 150 Day Resolution From Date of Preliminary Conference.

     Co-contributor Mike participated in a JAMS Roundtable last year in the Orange, California office. One of the themes addressed was the need to address the rising costs of private arbitration as an ADR process in general (including the attorney's fees to engage in arbitration).

     JAMS has responded to this concern by adopting a new Optional Expedited Arbitration Procedure. Here are the highlights of this new program:

· The expedited arbitration targets completion of the arbitration within approximately 150 of the preliminary conference with the arbitrator;

· The commencement process, arbitrator selection, disclosure requirements, cancellation policies, and collection of fees and retainers remain the same;

· If a respondent objects or fails to respond to the expedited procedures, attorneys will be required to bring their clients to the preliminary conference, which can be telephonic unless otherwise indicated;

· Voluntary exchange of non-privileged information is the norm, with limitations on depositions, document requests, and e-discovery.

     The new procedures under this option are found in JAMS' Rules 16.1 and 16.2 to its updated Comprehensive Arbitration Rules and Procedures (effective October 1, 2010) and can be viewed in the "Rules/Clauses section" of www.jamsadr.com.

Arbitration: $952,451.51 Fee Recovery In Partnership Dispute Is Upheld

 

Arbitrator’s Reading of Prior Mediator Decision Did Not Upset Award.

     If you believe that an arbitrator exceeded his powers or did something improper, make sure you raise it clearly--in writing--during arbitration proceedings. If you proceed, without making a record, the next case tells us you do so at your peril!

     BH Partnership v. Zytko, Case No. D056241 (4th Dist., Div. 1 Dec. 13, 2010) (unpublished) involved an arbitration during which plaintiffs referred to a mediator’s findings in a prior mediation in contravention of the mediation confidentiality statutes, with the arbitrator reaching the same result as the mediator--namely, an anti-litigation clause in partnership agreements triggered a forced buyout of defendants’ interests in the partnerships. The arbitrator also awarded plaintiffs $952,451.51 in attorney’s fees and costs.

     Defendants unsuccessfully appealed.

     The main problem was forfeiture: defendants did not raise the issue in the arbitration, and freely participated in the proceedings. Beyond that, defendants conceded a lack of prejudice, admitting that the arbitrator’s reading of the mediator’s letter was inadvertent. The arbitrator also diffused prejudice by indicating that he did not consider the letter when coming to a decision (although we would bet it made his final determination a lot easier to make).

Arbitration: Failure To Petition Trial Court Or Arbitrator For Amendment Of Award For Inclusion of Attorney’s Fees Justified Denial Of Fees

Brokers Were Also Not Parties to Purchase Agreement With Fees Clause.

     In Anter v. Pitts & Bachmann Realtors, Case No. B213519 (2d Dist., Div. 6 Nov. 23, 2010) (unpublished), residential property purchaser won a substantial $2.54 million arbitration award, jointly and severally, against sellers as well as sellers’ sales agent and broker. However, the arbitrator did not determine the prevailing party issue even though there was a purchase agreement with a fees clause. There was a mistake here--purchaser should have pressed for a fee recovery determination.

     Two weeks after the arbitration award, purchaser submitted a costs memorandum, but this was untimely because an arbitrator award correction request must be made 10 days after service of a signed copy of the award. (Code Civ. Proc., § 1284.) The arbitrator also felt the stipulations to arbitrate were ambiguous on his authority to award costs and attorney’s fees absent a stipulation or a court order. After judgment on the award was entered, purchaser filed separate motions seeking $102,373 in costs and about $600,000 in attorney’s fees plus interest. The lower court denied each motion.

     Agent/broker appealed the merits of the award, and purchaser cross-appealed the denial of costs/fees.

     Both lost, with the rulings affirmed across the board.

     The trial court did not commit error by failing to correct the arbitration award to allow purchaser his fees and costs as prevailing party in the arbitration. Although the arbitrator incorrectly concluded he did not have jurisdiction to award fees/costs against sellers, purchaser erred by failing to petition either the arbitrator or the trial court to correct or amend the award to include attorney’s fees and costs. (Corona v. Amherst Partners, 107 Cal.App.4th 701, 706 (2003).) With respect to agent and broker, neither of them was a party to the real estate purchase agreement, because the contract provided that participation in arbitration did not mean they were parties to the agreement. Neither signed the purchase agreement such that agent/broker could not be liable for fees and costs.

Arbitration: Defendants’ Gamesmanship In Litigating In Court For Over Seven Months Was A Waiver, Requiring Reversal Of An Arbitration Award

Second District, Division 1 Finds Waiver, in a 2-1 Decision.

     The next one is an interesting case which demonstrates that an appellate court may strike down an arbitration award where one side litigated in court for a long period of time and engaged in non-arbitration types of discovery. Waiver was the issue for consideration, with the Second District, Division 1 so finding in a 2-1 decision.

     Tip for gameplaying.

     Knight v. Toe Brights, Inc., Case No. B220648 (2d Dist., Div. 1 Nov. 12, 2010) (unpublished) involved a situation where plaintiff and defendant litigated in civil court for over 7 months, with the defense sending out lots of discovery and actually receiving responses from plaintiff--who indicated that she spent $58,000 in fees during the civil litigation. Then, with about 3 months remaining before the trial date, the defense successfully moved to compel arbitration. The matter proceeded to arbitration, where plaintiff won a little over $45,000 on some claims, but also lost some claims. The arbitrator denied her requests for fees and costs, but awarded the defense fees of $60,000 and costs of $1,160 as the prevailing parties on some of plaintiff’s lost claims.

     Plaintiff challenged the subsequent judgment confirming the arbitration award.

     Plaintiff did well to appeal.

Arbitration: Arbitration Fee Award Vacated By Trial Judge Is Reversed On Appeal

Second District, Division 8 Gives Precedence to Arbitral Finality Principle.

     In Commonwealth Land Title Co. v. Trembley, Case No. B218601 (2d Dist., Div. 8 Nov. 8, 2010) (unpublished), a buyer of retail cell phone business recovered a $34,530 damages award from an arbitrator as against a title company for negligence in failing to conduct a judgment lien search relating to persons affiliated with seller of the business. Also, buyer was awarded $ 58,260 in attorney’s fees and $1,888.84 in costs. The trial court did not like the fee award; after all, it was hinged on an escrow agreement fees clause that was very narrow in nature and maybe did not apply excepting in an interpleader situation. Buyer cross-appealed the fee award denial.

     The appellate court reversed.

     The reason? Arbitral finality. A trial court’s power to vacate an arbitration award is very limited, not even to correct erroneous contractual interpretation or merits rulings. (Gueyffier v. Ann Summers, Ltd., 43 Cal.4th 1179, 1184 (2008); see also Moshonov v. Walsh, 22 Cal.4th 771, 775 (2000); Moore v. First Bank of San Luis Obispo, 22 Cal.4th 782, 784 (2000).) “ ... case law establishes contractual misinterpretation is at most the arbitrator’s legal error not subject to judicial review.” (Slip Opn., p. 9.) The arbitrator’s fee award was reinstated.

     BLOG UNDERVIEW--If you think the arbitrator made a clearly erroneous or premature prevailing party determination based on a contractual clause that does not apply, ask the arbitrator to correct the award. That is the best point of attack, with co-contributor Mike having beat back a fee award in an arbitration because the arbitrator (correctly) was willing to revisit his interim decision on a prevailing party determination.

Arbitration: Arbitration Award Producing A Further Award of Over $43,000 In Attorney’s Fees Properly Awarded to Out Of State Attorney

 

Arbitrator’s Failure to File Certificate Approving Out of State Attorney Until After Filing of the Favorable Arbitration Award Was Deemed Harmless Error.

     For those practitioners that are involved in arbitrations (and most litigators are in this day and age), here is an interesting case about approval of out of state attorneys and their representations of clients in arbitrations.

     Code of Civil Procedure section 1282.4 enables out of state attorneys to represent clients in an arbitration if the arbitrator approves his appearance through a certificate that is signed and the certificate is then sent to the California State Bar. The purpose is to ensure that the out of state attorneys are subject to the jurisdiction of California courts, with the certificate also requiring that the client have associated in a California attorney in the process.

     In North By Northwest Productions, Inc. v. First Look Studios, Inc., Case No. B219503 (2d Dist., Div. 8 Oct. 18, 2010) (unpublished), out of state attorney did represent a client and reaped a successful arbitration award inclusive of over $9,000 in attorney’s fees (which increased to a little over $43,000 upon the lower court’s post-confirmation blessing of the award). The procedural hang-ups were that the arbitrator did not sign out of state attorney’s section 1282.4 certificate until after the arbitration award was filed and that the certificate was filed with the State Bar almost a month following the award.

     Losing party challenged the award as a nullity based on these mishaps.

     The appellate court disagreed, finding they were not prejudicial in nature. Usually, the prejudice would occur only to a party who lost an arbitration while being represented by an unlicensed person. Although not condoning what happened, any error was harmless.

     As to the amount of the fees award, the appellate court found the award to be proper given that out of state attorney had to travel back and forth for numerous defense-initiated proceedings and that the $225 hourly rate charged was quite reasonable in nature.

Trio Of Cases: Class Action Fee Distribution, Anti-SLAPP Fees To State Bar, And Reach Of Arbitrator Disclosures Highlighted California Appellate Court Thinking

Declaratory Relief Action Denial Reversed re Class Action Fee Distribution.

     In Carder v. Patten, Faith & Sandford, Case No. B221940 (2d Dist., Div. 5 Oct. 12, 2010) (certified for publication), the appellate court reversed judgment entered against a plaintiff class action lawyer in a declaratory relief action he brought against other class action co-counsel having differences over the distribution of awarded attorney’s fees in a successfully concluded class action. Declaratory relief under CCP § 1060 was found to be proper because there was a justiciable controversy over what proportion of fees were due to each set of attorneys and whether defendants were barred by accord and satisfaction after cashing a settlement check sent by plaintiff. The judge hearing the declaratory relief action also found exclusive jurisdiction was with a different superior court blessing the class action fee award, but the earlier ruling did not back that up and continuing jurisdiction rests with the court (rather than a particular superior court)--although the reviewing court noted “it generally makes sense for enforcement matters to return to the judge originally assigned the case” unless there are changed judicial assignments, retirement, or other unavailability.

California State Bar Entitled to Recovery of anti-SLAPP Fees.

     The second one, Henschel v. State Bar of California, Case No. B213595 (2d Dist., Div. 7 Oct. 12, 2010) (unpublished), involved an attorney’s challenge to an anti-SLAPP fee award of $7,751 against him and in favor of the State Bar. The primary challenge, outside of rebuffed challenges to the amount of the fee award, was that State Bar was barred under the Witte rule precluding fee recovery to self-represented attorneys. This argument did not prevail, according to the appellate court, because the attorney representing the State Bar is more analogous to an in-house counsel, who can be awarded anti-SLAPP fees. (Musaelian v. Adams, 45 Cal.4th 512, 520 (2009).) The result was that the fee award was affirmed.

Arbitrator Representing Law Firms In Fee Disputes Must Disclose His Practice Background to Client Being Chased for Fees by Law Firm in an Arbitration.

     Finally, Benjamin, Weill & Mazer v. Kors, Case No. A125732 (1st Dist., Div. 2 Oct. 12, 2010) (certified for publication) involved a disgruntled client’s challenge of a $102,287.39 contractual arbitration award for claimed delinquent fees owed to a law firm representing client in former expensive, acrimonious civil litigation. The main challenge was that the chief arbitrator failed to disclose that he had represented law firms in challenges by clients to fee awards and had an extensive practice base in this area. The appellate court agreed that this disclosure might be material under the ethical standards that are incorporated into the CCP arbitration disclosure requirements. For our readers who eschew arbitration, there is also an interesting discussion about why disclosure is heightened for arbitrators, given the deference accorded awards and the possible bias arising from an arbitrator’s economic self-interest in deferring to “repeat clients.”

Arbitration: Agreement Incorporating AAA Construction Industry Rules Allows For Fee Recovery If Both Sides Pray For Fee Recovery

Second District, Division 5 Applies AAA Rules Invoked By Each Side’s Arbitration Demands.

     When you are reviewing a contract for fee exposure, make sure you focus carefully on the remedies and arbitration sections. If the arbitration section incorporates American Arbitration Association rules, litigants may have fee exposure from the express rules incorporation made by the governing agreement—especially if both sides pray for fees in their respective arbitration demands.

     That is exactly what the appellate court ruled in Amalfi Capital, LLC v. Earl, Case No. B220896 (2d Dist., Div. 5 Sept. 30, 2010) (unpublished).

     Earl demanded arbitration after his final invoice for residential architectural design services was not paid. The matter proceeded to arbitration based on demands by both sides, and Earl eventually won and was awarded attorney’s fees as the prevailing party.

     The fee award was sustained on appeal. The agreement between the parties indicated that any dispute should be subject to the AAA Construction Industry Arbitration Rules, with Rule R-44(d) providing that the arbitrator may award fees if all parties have requested such an award or it is authorized by law or their arbitration agreement. Here, each side requested attorney’s fees, which meant the arbitration fee award was justified.

     BLOG OBSERVATION—This case highlights the differences between court litigation and arbitration. Under Civil Code section 1717 case law, the estoppel doctrine is not the majority rule, meaning that 1717 exposure will not follow simply because someone prays for fee recovery even though there is no substantive basis for a fee award. However, the result is obviously different in arbitration, where the arbitral agreement between the parties may well allow the estoppel doctrine to be triggered and result in fee exposure, depending on what particular arbitration provider rules are in force as incorporated into effect by the arbitration agreement.

     “Be careful what you wish for. You might just get it.”  -- From Heartbreak Ridge, with Clint Eastwood.

Arbitration: Trial Court’s Excising Of Attorney’s Fees Award By Arbitrator Reversed On Appeal

Second District, Division 5 Finds Arbitral Discretion Prevails on Fee Award.

     In Youssefzadeh v. 740 S. Broadway Associates, LLC, Case No. B220726 (2d Dist., Div. 5 Sept. 30, 2010) (unpublished), two matters were ordered to arbitration pursuant to identical binding arbitration clauses in two different LLC operating agreements. The clauses were broad in nature, covering “any controversy or dispute arising out of this Agreement, the interpretation of any of the provisions hereof, or the action or inaction of any Member or Manager hereunder . . . .” The arbitrator issued an interim award finding that plaintiffs were the prevailing parties and entitled to recover their attorney’s fees as against one LLC/related defendants. The other LLC filed a motion to correct the interim award to reflect it prevailed and was entitled to fees as against plaintiffs, a motion that was granted. The arbitration award found that plaintiffs, as against one LLC group, were entitled to recover $345,569 in fees and costs, whereas the other LLC was entitled to recover $495,225 in fees and costs from plaintiffs.

     Plaintiffs filed a petition to correct and confirm the arbitration award, which was granted—with the trial court excising the fee award in favor of the other LLC and against plaintiffs. The basis for this correction was the trial court’s view that the arbitrator lacked jurisdiction to correct his interim award. Appeals from this and other issues ensued.

Arbitration: Published And Unpublished Decisions Illustrate Deference Given To Arbitrator’s Final Awards Regarding Attorney’s Fees

 

     August 31 was a day in which two decisions were issued by Courts of Appeal, both demonstrating the deference that trial and appellate courts will give to arbitration attorney’s fees awards.

Miller v. Lifestyles Senior Housing Managers, Case No. C059843 (3d Dist. Aug. 31, 2010) (Unpublished).

     In the first one, plaintiff lost on four claims but won on two claims for retaliation/wrongful termination in an arbitration involving mixed tort/Labor Code violation claims. Plaintiff obtained a compensatory award of $39,030 ($10,000 being Labor Code penalties). Plaintiff then sought to recover $414,720 in attorney’s fees under Labor Code section 2699(g)(1), a mandatory fee-shifting provision. The arbitrator denied fee recovery based on the fact that Labor Code section 2699(a) specifies a penalty (which was awarded to Plaintiff) but had no provision allowing for attorney’s fees. The arbitrator also believed that Plaintiff had not clearly made the request for such exorbitant fees during the arbitration, presenting a due process problem.

     Plaintiff sought to vacate the fee denial under Code of Civil Procedure section 1286.2(a)(4), but the trial court confirmed the award. The Third District, too, sustained the fee denial.

     Basis? Arbitrators have the power to not award fees even under mandatory fee-shifting provisions. (Moshonov v. Walsh, 22 Cal.4^th 771, 778 (2002); Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4^th 665, 680 (2010) [distinguished between an untimely arbitration proceeding and an incorrect legal construction of a statute, with the latter not being a ground for vacating an award].) Plaintiff then tried to rely on good reasoning for her position in DiMarco v. Chaney, 31 Cal.App.4^th 1809, 1815 (1995), but the Third District found that DiMarco had repeatedly been questioned and never followed (listing numerous citations to support this conclusion).

Cotchett, Pitre & McCarthy v. Universal Paragon Corp., Case No. A126149 (1^st Dist., Div. 5 Aug. 31, 2010) (Certified for Publication).

     The second one involved a very complicated contingency agreement between a sophisticated corporate client and well-known Bay Area firm which based a contingency upon damage recovery and value of property received by corporation. The contingency agreement had been the subject of extensive negotiations and drafting between client and attorneys. An arbitrator awarded law firm $7,554,149.13 in attorney’s fees based upon the ultimate settlement recovery in litigation with a third party, but client challenged the amount as being unconscionable. (Attorneys initially had sent a demand requesting over $19 million in fees.)

     The fee award was affirmed on appeal. Aside from the fact that deference is given to an arbitrator’s factual and legal rulings (as in Miller), the appellate court found that the contingency fee arrangement was not unconscionable. It applied standard unconscionability analysis under Civil Code section 1670.5 to the prohibition against unconscionable fees set forth in Rule 4-200(B) of the Rules of Professional Conduct. The fee award was not substantively unconscionable because the ultimate award was only about 30% of the total settlement value. Beyond that, the litigation was complex and required a high degree of skill in bringing home a favorable settlement for the client.

     The contingency arrangement also reflected an attempt by equally sophisticated parties to share the risk of complicated litigation.

     Client argued that the fee was unconscionable because it effectively applied a multiplier of seven times the lodestar. This argument was rejected because it “would render unenforceable almost any contingency fee agreement in which the attorney procures an early settlement of a substantial claim.” (Slip Opn., p. 19.)

Settlement Stipulation: Stipulation To Arbitrate Clearly Waived Right To Appeal Arbitrator’s Award

 

Fourth District, Division 3 Honors Stipulation By Its Terms on Forfeiture of Appellate Rights.

     Appellate courts will enforce the bargains struck between parties, even when they involve waivers of fundamental rights (such as the right to appeal). That happened in the next case we discuss.

     In Fridman v. Beach Crest Villas Homeowners Assn., Case G042757 (4^th Dist., Div. 3 August 4, 2010) (unpublished), the parties stipulated to have their dispute resolved through binding arbitration. As part of the stipulation, they also agreed “[a]ll rights to jury trial, the right to trial de novo, and appeal are waived” and included a specific reference to California Rules of Court, rule 3.817(c), which states that a judgment entered under this rule is not subject to appeal. The trial court found in favor of homeowner, awarding him $100 in emotional distress damages and then awarding him $110,000 in attorney’s fees—all arising from a dispute about the installation of an air conditioning unit. HOA appealed.

     Justice Fybel, on behalf of a 3-0 panel, dismissed the appeal. The stipulation to arbitrate was clear and unequivocal in waiving appellate rights, so there was little to do but enforce the parties’ bargain. (Pratt v. Gursey, Schneider & Co., 80 Cal.App.4^th 1105, 1107 (2000).) He has a scholarly discussion of cases dealing with contractual waivers of appellate rights, but found this waiver was clear and express.

Client-Attorney Fee Arbitration: Failure To File Right Type Of Complaint And To Move To Vacate Arbitration Award Ended Client’s Hope For Reversal

Second District, Division 1 Enforces Procedural Aspects of Nonbinding Mandatory Fee Arbitration and Contractual Arbitration Enforcement Provisions.

     In Sands & Associates v. Juknavorian, Case No. B218019 (2d Dist., Div. 1 July 30, 2010) (unpublished), client initiated a nonbinding arbitration against law firm under the Mandatory Fee Arbitration Act after being disgruntled with law firm’s handling of a marital dispute. The arbitration panel awarded law firm about $24,000 in fees. Within 30 days of the award, the client initiated a malpractice action. Law firm demurred to the malpractice action based on it being time barred under the applicable statute of limitations, a determination ultimately affirmed on appeal. Law firm then sought to confirm the arbitration award, a request granted by the trial court.

     Client appealed, but was unsuccessful. Why? Two reasons, said the reviewing panel.

Arbitration: Arbitrator Correctly Denies Attorney’s Fees To Jerry Garcia’s Widow In Family LLC Termination Dispute

 

First District, Division Two Nixes $450,000-Plus Fee Request of Widow.

     Aside from the fact that it involved an arbitration between the survivors of music legend Jerry Garcia, we knew this one would be good when the arbitrator started out his decision denying attorney’s fees to the widow this way: “On the issue of attorney fees and costs the positions of the parties about the nature of this arbitration is akin to the story in the 1950 movie Rashomon

Rashomon trailer.

where four people seeing the same incident see it very differently.” Ultimately, the arbitrator (Retired Justice Donald King) denied widow’s request for $450,000-plus in legal expenses (mainly attorney’s fees).

     The First District, Division 2, in Garcia v. Jerry Garcia Estate LLC, Case No. A125892 (1^st Dist., Div. 2 July 12, 2010) (unpublished) agreed with Justice King’s assessment of the fee request.

     In essence, manager of an LLC set up to administer certain Garcia estate assets filed for arbitration to seek instructions on what to do given that the LLC expired by its terms. Mrs. Garcia waffled on joining the arbitration, but eventually did—prevailing on two major issues, but hardly prevailing overall when several of her management suggestions were rejected by the arbitrator. Both the superior and appellate court found no basis to “correct” the arbitration award on the fee issue, because of the arbitral finality rule. (San Francisco Housing Authority v. Service Employees Internat. Union Local 790 (2010) 182 Cal.App.4^th 933, 943.) However, respondents on appeal were denied any fees in the superior court law and motion proceeding, a determination also affirmed on appeal.

Reasonableness Of Fees And Arbitration: Appeals About Reasonableness Of Fee Awards Are Rebuffed

Second District, Division 8, in Opinions by Justice Flier, Affirms Two Fee Awards, One For Appellate Work In a Civil Case and One in an Arbitration Context.

#1: Moore v. Pro Value Properties, Inc., Case No. B216061 (2d Dist., Div. 8 July 6, 2010) (unpublished)

     In pro per plaintiffs/appellants challenged a $120,360.75 fee award for work in a prior appeal (out of a requested $139,330.25) that resulted in a successful result for defendants, with plaintiffs not challenging the amount of fees awarded by the trial court for a long-cause trial of a specific performance action. The lower court reduced requested appellate fees by about $19,000, finding that some of the work could have been performed by an associate or paralegal with a lower billing rate but generally finding that partner hourly rates of $505 and $560 were justified for much of the appellate work. On appeal, Division 8 found no abuse of discretion, especially because the appellate panel itself was aware that the prior appeal required the expenditure of a substantial amount of lawyer’s time. The reduction by the lower court showed that its award was well reasoned. Affirmed.

#2: Christensen, Glaser, Fink, Jacobs, Weil & Shapiro v. Cove Management Partners, LLC, Case No. B217316 (2d Dist., Div. 8 July 6, 2010) (unpublished)

     The second case involved defendants’ appeal of an arbitrator’s award of $938,457 in fees and costs to a well-known law firm, as well as $327,792 in attorney’s fees and $152,105 in costs associated with the arbitration. Defendants appealed, but faced some very big obstacles. They never asked the arbitrator to correct the award. They also never filed a petition with the superior court to vacate the award within the 100-day requirement but instead filed an incorrect request that the superior court correct the award. (Louise Gardens of Encino Homeowners’ Assn., Inc. v. Truck Ins. Exchange, Inc. (2000) 82 Cal.App.4^th 648, 659 [appeal of confirmation award cannot be used to circumvent petition to vacate deadline].) This failure to use a crucial specified procedural resulted, yet again, in affirmance of the entire arbitration award, with costs on appeal also ordered to the winning plaintiffs.

Consumer Arbitrations: Consumer Contract Authorizing Fees Runs Afoul Of CCP § 1284.3 Statutory Protections

 

Fourth District, Division 1 Reverses Arbitration Fee Award on Public Policy Grounds on Appeal.

     Code of Civil Procedure section 1284.3(a) is a pro-consumer arbitration provision that states an arbitrator/neutral cannot administer an arbitration for a consumer in a way that makes the consumer responsible to pay attorney’s fees or costs if he/she is not a prevailing party. That statutory protection came into direct conflict with an arbitration clause in a homeowner-contractor pool replastering contract that allowed an arbitrator to award fees to the prevailing party.

     Well, an arbitrator ruled in favor of contractor and hit homeowner with $23,834.24 in fees as the losing party. Homeowner tried to vacate or correct the fee award, but the trial court found that was not a prototypical “consumer” situation because the consumer had “agreed” to arbitration upfront.

     That brought the fee challenge to the Fourth District, Division 1 in Gardner Pool Plastering, Inc. v. Law, Case No. D055220 (4^th Dist., Div. 1 June 10, 2010) (unpublished).

Arbitration: Parties’ Stipulation To Allow Post-Arbitration Fee Recovery Allows Fees For Sustaining Arbitration Award On Appeal

 

Sixth District Honors Parties’ Stipulation Relating to Fee Recovery.

     In Kontoudakis v. Beri-Scott Co., Case No. H034544 (6^th Dist. May 24, 2010) (unpublished), the parties’ stipulation for arbitration had an important fee recovery provision. That provision stated: “Should either party be forced to seek enforcement of the arbitration award beyond simply filing it with this court, they shall be entitled to an award of all costs, fees and expenses including attorneys’ fees to be paid by the party against whom enforcement is ordered.” So, does this encompass attorney’s fees incurred when prevailing on appeal for purposes of enforcing the arbitration award?

Arbitration: Appeal From Denial Of Petition To Correct Arbitrator’s Failure To Award Fees Is Dismissed

 

Denial Order Is Not Appealable, Only the Judgment Confirming the Award.

     The next case is a reminder to all that you must research what can and cannot be appealed when dealing with corrections to arbitration awards. The aggrieved plaintiff learned that all too well in the next decision we examine.

     Bader v. Askins, Case No. G042032 (4^th Dist., Div. 3 Mar. 25, 2010) (unpublished) involved a post-arbitration dispute where plaintiff had obtained an arbitration award of a little over $15,000 but where arbitrator refused to award fees because recovery was predicated upon an oral agreement. Plaintiff filed a motion to compel the arbitrator to award fees with the superior court, which was denied.

     Plaintiff then appealed.

     The appeal was dismissed. The reason? Mid-Wilshire Associates v. O’Leary, 7 Cal.App.4^th 1450 (1992). Plaintiff’s motion was really a petition to correct the arbitrator’s award, and Mid-Wilshire established that no appeal lies from a denial of a petition to vacate an arbitration award (because the appeal actually lies from the judgment of confirmation, which did not yet exist). As luck would have it, Justice O’Leary of the Fourth District, Division 3 authored the Bader opinion on behalf of a 3-0 panel. Different O'Leary, same result. 

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Put the Blame on Mame - The Real Story Behind the Chicago Fire.

Arbitration: $12.3 Million Compensatory Award And $6.7 Million in Fees, Costs, And Interest Additional Award Affirmed On Appeal

Second District, Division 8 Does Find Procedural Issue Might Deserve Supreme Court Review, But Affirms Merits Awards.

     In Oaktree Capital Management, L.P. v. Bernard, Case No. B207865 (2d Dist., Div. 8 Feb. 22, 2010) (certified for publication), arbitration awards of $12.3 million for lost management fees and $6.7 million in attorney’s fees, costs, and interest were sustained on appeal.

     The appellate court found that defendant’s response to a petition to confirm the award—with a short-fused 10-day deadline—was timely, although noting the muddled state of the law when squaring this short deadline with the 100 day deadline for filing a petition to vacate. “We believe the time may have come for our Supreme Court to provide definitive guidance on the time deadlines a party who seeks to vacate an arbitration award faces when the prevailing party in an arbitration has filed a petition to confirm the award.” (Slip Opn., p. 8.) However, the Court of Appeal did find that the response by defendant was timely.

     However, that was hardly the end of the analysis. Because neither legal error nor merits flaws are usually reviewable when it comes to arbitration awards, the appellate panel found Moncharsh’s rule applicable, especially since the parties did not provide that legal errors were reviewable in court and further specified that the arbitrator’s decision was binding in nature.

Class Action And Arbitration Crossover: Appellate Court Affirms Arbitrator Computational Error Correction In Class Action Attorney’s Fee Allocation Dispute

First District, Division 1 Addresses Claimed Conflict Between JAMS Rules and CCP Arbitration Correction Provision.

     Here is a decision that involves consideration of class action and arbitration crossover issues.

     Two attorneys deserving of attorney’s fees in a substantial class action settlement entered into an agreement among themselves on the allocation of fees, calling for binding JAMS arbitration to resolve any allocation dispute. A lot was at stake—over $9.4 million in fees were subject to division.

     The case—Thierman v. Kelson, Case No. A124367 (1^st Dist., Div. 1 Feb. 5, 2010) (unpublished)—is interesting in its discussion on the rules that govern JAMS arbitration proceedings. The JAMS arbitrator made a post-award computational error correction, and the aggrieved party argued over whether JAMS rule 24(j) or Code of Civil Procedure section 1284 applied. The appellate court found no conflict between the two rules, but has a nice discussion on what parties can contractually agree to in an arbitration agreement. Also, the appellate court reversed an approximate $10,000 fee award arising out of the allocation dispute, finding no fee clause that allowed such entitlement in the allocation agreement.

Unconscionability: One-Side Arbitration Provision Found to Be Permeated by Unconscionability

One-Side Legal Costs and Fees Provision Was Part of the Problem

Most cases we report about involve an award of attorney's fees, or the denial of an award.  But we cast our net widely.  In the next case, an arbitration provision was held to be procedurally and substantively unconscionable, in part because it had a one-side fees and cost provision.  Elena Lhotka v. Geographic Expeditions, Inc., Case No. A123725 (1st Dist., Div. 3 1/29/10) (certified for publication).

Geographic Expeditions, Inc. (GeoEx) appealed from an order denying its motion to compel arbitration of a wrongful death action brought by the survivors of one of its clients who died on Mount Kilimanjaro.  In a 3-0 decision authored by Justice Siggins, the Court concluded that the arbitration clause was procedurally and substantively unconscionable, and affirmed the order.

The problem? First, the arbitration provision was a "Take It Or Leave It proposition", satisfying the procedural unconscionability prong.  Second, the arbitration clause was designed "not simply as an alternative to litigation, but as an inferior forum," satisfying the substantive unconscionability prong.   Examples of lopsidedness included limitation of the plaintiffs' recovery, requirements that plaintiffs pay half of any mediation fees and mediate and arbitrate in San Francisco (hey, we like San Francisco!), and -- the reason we report on the case -- the agreement required plaintiffs "to indemnify GeoEx for its legal costs and fees if they pursued any claims covered by the release agreement."

Arbitration: Homeowner Association’s Failure to Show it Requested Homeowner to Arbitrate Under CC&R Provision and that Homeowner Refused to Arbitrate Results in Denial of Petition to Arbitrate and Overturning of Fees Award.

Code of Civil Procedure Section 1281.2 Is Interpreted to Require a Party Seeking to Compel Arbitration to Plead and Prove a Prior Demand for Arbitration Under the Parties’ Arbitration Agreement and a Refusal to Arbitrate Thereunder.

In the next case, Homeowner Association successfully petitioned to arbitrate a dispute with a homeowner, only to have the order granting the Association’s petition overturned on appeal because it did not carefully follow the provisions of the arbitration provision.  As a consequence, the Association’s award of fees ($8,283.50) for its expense in bringing the petition to compel arbitration went . . . . poof.  Zari Mansouri v. The Superior Court of Placer County, Case No. C062366 (3d Dist. filed 1/28/10) (certified for partial publication).

The Association claimed that Mansouri extended the coverage of her patio beyond what had been approved by the Association, and requested Mansouri to submit the dispute to binding arbitration before a single arbitrator, unilaterally pre-selected by the Association.  However, the arbitration provision contained in the CC&Rs provided for three arbitrators – the first chosen by the Association, the second chosen by the homeowner, and the third chosen by the first two arbitrators.  Mansouri refused the invitation to arbitrate, but the trial court granted the Association’s petition to compel arbitration.  The Association’s petition to compel arbitration also sought attorney fees pursuant to a provision in the CC&Rs, and pursuant to fee-shifting statute Civil Code section 1354, allowing for an award of fees to the prevailing party in Association disputes involving CC&Rs.  The trial court awarded fees.

Section 1281.2 requires a petition to compel arbitration to allege, “the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy [.]”  In a 3-0 decision authored by Justice Cantil-Sakauye, the Court concluded that section 1281.2 required a party seeking to compel arbitration to plead and prove a prior demand for arb itration under the parties’ arbitration agreement and a refusal to arbitrate under the agreement.  The problem here was that the offer to arbitrate with a single arbitrator was not under the terms of the arbitration provision, and thus Mansouri’s refusal to arbitrate was not a refusal to arbitrate under the agreement.  Once the Court vacated the order granting the petition to compel, the fee award also disappeared.

Moral:  There are likely to be fee-shifting consequences in homeowner association disputes resulting from a provision in the CC&Rs, or resulting from Civil Code section 1354.  If you file a petition to compel arbitration, be prepared to plead and prove a prior demand for arbitration and a refusal to arbitrate under the agreement – or else be prepared to face the consequences, which may include the loss of attorney’s fees.

  Mike and Marc know attorney Benjamin G. Shatz, an appellate specialist, who represented the Petitioner.  We send him our regards, and congratulate him on the outcome.

Arbitration: Trial Court Erroneously Vacating Entire Arbitration Award, Rather Than Just Part Of Award Against Nonsignatories, Must Reconsider Propriety of Arbitrator’s Fee Award On Remand

Second District, Division 3 Remands for Reconsideration of Fee Issues.

     Tenzera, Inc. v. Osterman, Case No. B211656 (2d Dist., Div. 3 Jan. 21, 2010) (unpublished) involved a hefty arbitration award of $426,047.72 in favor of homeowners and against contractor (a corporate entity) and against contractor’s principals (father and son), as well as an $181,000 fee award against the contractor (because principals were not parties to the contract with the fees clause). The arbitrator had added the contractor’s principals to the arbitration proceeding, which the trial court found to be error and vacated the entire arbitration award. Homeowners appealed.

     The appellate panel found that the trial court erroneously vacated the entire award, because only the part against the contractor’s principals should have been vacated. This meant that the award against contractor stood up on appeal.

     What about the fees award? The Court of Appeal determined that the trial court’s across-the-board decision to vacate did not allow consideration of contractor’s challenge to the fee award. On remand, contractor could renew his fee challenges before the trial court in the case of the partially vacated arbitration award.