Fourth District, Division 3 Finds Alleged Promise No Basis For Vacating the Award.
The opening in Garcia v. Easton, Case No. G040111 (4th Dist., Div. 3 Apr. 30, 2009) (unpublished) summarizes well what was at stake: “In this case, we are called upon to resolve an issue we never thought we’d have to address: whether an arbitrator’s promise to favor one party’s interests in the arbitration proceeding, made as an inducement to secure that party’s agreement to participate in the arbitration, is enforceable. As posed by appellant, the question is whether the arbitrator’s failure to live up to his alleged promise is grounds for vacating the award which ultimately favored the opposing party. Either way, the answer is a resounding ‘no.’”
Defendant reached a mediated settlement with plaintiff, agreeing to use the mediator as the arbitrator for purposes of deciding the amount of attorney’s fees to be awarded plaintiff as the prevailing party. Defendant claimed that the fee arbitrator essentially “hoodwinked” it by indicating that he would not award the ridiculous $200,000 in fees demanded by plaintiff—implicitly promising to issue a ruling favoring the defense interests, although no limitations of this sort were put in the fee arbitration agreement between the parties. Plaintiff sought fees of $344,000 (based upon a total of 553 hours of legal work), plus costs. The arbitrator subsequently awarded plaintiff fees of $277,254 and costs of $11,000. Feeling ambushed, plaintiff sought to vacate the arbitration fee award, but lost and appealed the adverse decision.
Acting Presiding Justice Bedsworth, acting on behalf of a 3-0 panel of the Fourth District, Division 3, affirmed and remanded so that plaintiff could seek more contractual fees for prevailing on appeal (denying appellate sanctions, but barely denying them in the process).
The appellate panel, on the merits, found that the alleged “agreement” to favor defense interests, if it even existed, would have been wholly unenforceable, because an arbitrator cannot agree to predetermine things before hearing the evidence and arguments by both sides. Beyond that, it had credibility problems with the so-called arbitrator inducement because the defense, had it so desired, could have secured the limitation in writing in the arbitration agreement. The absence of this limitation was a significant factor leading the Court of Appeal to call into question the existence of such an inducement.
However, there was one caveat that may well favor the defense. Plaintiff assigned the fee award to her attorneys. That meant the matter had to be remanded to determine further fees incurred in enforcing the settlement agreement, with her attorneys needing to show they hired different counsel to enforce the agreement in order to not run afoul of Trope v. Katz, 11 Cal.4th 274 (1995) [one of our Leading Cases].
BLOG UNDERVIEW—It is not unusual for litigants in an arbitration proceeding to agree to “high/low” limitations that are kept confidential from the arbitrator, but will still serve as a ceiling and a floor for any award. The absence of any limitations here was a powerful factor that swayed the appellate court to view with suspicion the defense claim that an arbitrator inducement ever occurred.
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