Arbitration: Published And Unpublished Decisions Illustrate Deference Given To Arbitrator’s Final Awards Regarding Attorney’s Fees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 Aug. 31, 2010) (Unpublished).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.)