CALIFORNIA ATTORNEY'S FEES

Arbitration: Arbitration Fee Clause Saying That Both Sides Bear Their Own Fees, Subject To Reallocation By Arbitrator, Did Aid Substantive Unconscionability Determinations By Trial And Appellate Courts

CLRA Claims Require Bad Faith Prosecution To Award Prevailing Party Fees To Defendants, With The Clause Not Covering This Eventuality.

            Gostev v. Skillz Platform, Inc., Case No. A164407 (1^st Dist., Div. 2 Feb. 28, 2023) (published) is a must read for litigants and their attorneys on the enforceability of delegation and other arbitration damage/statute of limitation restrictions in an arbitration clause.  The conclusion in this opinion was that the arbitration clause was unconscionable, with transactional attorneys benefiting from the reasoning in Gostev.

            The arbitration clause had this fees provision: “Each party shall bear its own attorneys’ fees, costs and disbursements arising out of the arbitration, and shall pay an equal share of the fees and costs of the arbitrator and AAA; however, the arbitrator may award to the prevailing party reimbursement of its reasonable attorneys’ fees and costs (including, for example, expert witness fees and travel expenses), and/or the fees and costs of the arbitrator.”

            Among other aspects of the arbitration clause which rendered it substantively unconscionable, the fees clause was too generic (Newton v. American Debt Services, Inc., 854 F. Supp.2d 712, 725 (N.D. Cal. 2012)), not recognizing that fees under California’s Consumer Legal Remedies Act are not awardable to a prevailing defendant unless plaintiff’s case was found not to have been prosecuted in good faith.  This infirmity in the fees clause, along with other factors, cemented the conclusion that the arbitration clause was unconscionable. 

Arbitration, Employment: Where Defendant Employer Lost Small Merits Award And Fee Award After Reconsideration By Arbitrator, But Did Not Timely File Motions To Correct Or Vacate, Fee Award Had To Be Affirmed

Bright-Line Rules On Arbitration Procedures Adopted, With Plaintiff Employee Entitled To Fees On Appeal.

            This case may have more tips for practitioners and jurists when it comes to deadlines for parties seeking to correct and vacate arbitration awards, especially where a timely motion to confirm an arbitration award is made.  However, we briefly summarize what happened in Darby v. Sisyphian, LLC, Case No. B314968 (2d Dist., Div. 2 Jan. 26, 2023) (partially published), because an arbitration award was affirmed on appeal and the appellate court acknowledged that the winning plaintiff was entitled to fees on appeal, on remand, to the lower court.

            Plaintiff employee sued employer for various Labor Code violations.  The arbitrator found employee was owed $23,347.25 (only a partial win on the amounts she sought), and then initially found that no fees were awarded based on a prior motion to strike and plaintiff’s failure to apportion between successful/unsuccessful claims.  However, the arbitrator granted a motion for reconsideration by plaintiff, eventually awarding her $82,000 in attorney’s fees out of a requested $283,941.25 being sought.  Plaintiff timely filed a motion to confirm the arbitration award, with employer untimely filing a response to the confirmation petition and untimely filing a motion to vacate/correct the award.  The superior court judge found the employer’s papers were untimely filed, confirming the arbitration award—rulings which were appealed.   Those rulings were affirmed on review.

            Employer’s problem is that it did not timely file the response and vacate/correction papers.  The opinion has a good discussion of the time deadlines for post-arbitration award confirmation, correction, and vacatur papers at the superior court level—with a shorter 10-day deadline to respond or to vacate/correct applying to a petition to confirm awards filed fewer than 90 days after an award is served.  This deadline is jurisdictional, although there is some small amount of flexibility under the applicable statutes.  The import of the appellate decision is that these deadlines are strict in nature; and, if they are violated, the superior court must confirm the award and the appellate court is similarly bound. 

            In the end, the $82,000 in fees on a $23,347.25 award was affirmed, plus employer will be on the hook for plaintiff’s appellate fees (made clear in an unpublished portion of the opinion) as determined by the lower court on remand. 

Arbitration: Business Failing To Timely Pay Its Share Of Arbitration Fees Under Consumer Contract Can Be Headed To Court If The Other Side Balks

This Is The Third In A Recent Trio Of Cases To So Hold.

            In our November 25, 2022 post, we discussed DeLeon and Espinoza, two appellate cases holding that a business failing to timely pay its share of arbitration fees under a consumer contract eschews its right to arbitrate and can be forced to litigate in court.  We can now report that the same result was reached in Williams v. West Coast Hospitals, Case No. H049177 (6^th Dist. Dec. 22, 2022; posted Dec. 23, 2022) (published), finding an argument that the arbitrator had to first determine such a default was waived and further rejecting the argument that it only applies to mandatory (rather than voluntary) arbitration situations. 

Arbitration, Fee Clause Interpretation: $1,648,620.17 Contractual Fee Award By An Arbitration Award Against FeeDx Affirmed In A Ninth Circuit Opinion

Arbitration Tribunal’s Fee Award Was Not Completely Irrational In Nature Under The FAA.

            In HayDay Farms, Inc. v. FeeDx Holdings, Inc., Case Nos. 21-55650/21-55698 (9^th Cir. Dec. 19, 2022) (published), two parties (HayDay and FeeDx) entered into an exclusive distribution agreement with each other through Nippon, providing for arbitration and making Nippon liable for HayDay’s breaches.  Later, the three parties entered into a settlement agreement, which modified but did not replace the exclusive distribution agreement.  The settlement did not resolve the disputes, which went to arbitration resulting in substantial arbitration awards in favor of HayDay and Nippon as against FeeDx.  The arbitration award was over $26.2 million, augmented by a contractual fees and costs award of $1,648,620.17.  The district court vacated about $7 million of the merits award, but it left the remaining portion and fees/costs awards intact.

            The parties appealed.  This was a good move by HayDay and Nippon, because the Ninth Circuit reinstated the $7 million previously vacated portion of the award.  With respect to FeeDx’s challenges, they did not win on appeal.  The main problem is that the standard for vacatur under the FAA, 9 U.S.C. § 10(a)(4), is exceedingly high, meaning that the arbitration tribunal manifestly disregarded the law or the award was completely irrational.

            The main fee clause in the settlement agreement provided: “If FeeDx or Hayday brings legal action to enforce its rights under this Settlement Agreement, the prevailing party will be entitled to recover its expenses (including reasonable attorneys’ fees) incurred in connection with action and any appeal.” FeeDx argued that Nippon could not be awarded fees because it was not a party to the agreement.  The Court of Appeals disagreed, given that the “prevailing party” language was broad and given that Nippon was potentially liable for HayDay’s breaches—the tribunal’s interpretation of this clause as allowing fees to Nippon was not completely irrational under the circumstances. 

Arbitration: Employer’s Failure To Pay Its Share Of Required Arbitration Fees And Costs Within 30 Days Breached The Arbitration Agreement So That Employee Could Pursue Claims In Court

Issue Was Failure To Pay Fees/Costs For An Arbitration Continuance, But Arbitration Initiation Case Reasoning Was Analogous. 

            DeLeon v. Juanita’s Foods, Case No. B315394 (2d Dist., Div. 3 Nov. 23, 2022) (published) is the next progression from Espinoza v. Superior Court, 83 Cal.App.5^th 761, 775-776 (2022), which held that an employer’s failure to timely pay required arbitration initiation fees within 30 days was in material breach of the arbitration agreement so the employee could instead pursue claims in superior court.  DeLeon involved a similar arbitration payment statute applying to arbitration continuance fees under CCP § 1281.98, with the appellate court reaching the same result under this statute.  This should be a huge reminder for employers, demanding arbitration, to timely pay fees; if not, you might find yourself back in superior court!

Arbitration: Arbitration Claimant Failing To Raise Fee Entitlement Basis As A Ground For Fee Award Waived The Argument In Later Arbitration Confirmation Proceedings

This Was No Ground To Correct The Award.

            In Hollander v. Tennenbaum Capital Partners, LLC, Case No. B314018 (2d Dist., Div. 1 Nov. 21, 2022) (unpublished), the appellate court rejected an arbitration claimant’s argument that Labor Code fees were unwaivable when the claimant did not articulate that ground as a basis for the fee award before the arbitrator.  It was too late to raise in superior court confirmation proceedings. 

Arbitration: Arbitrator’s Revised Award Of Fees To Prevailing Defendant Reversed Where Initial Merits Award Expressly Denied Fees To Defendant

Revised Award Was Not A Mere Correction, But A Substantive Merits Reconsideration And Impermissible New Award.

            Taska v. TheRealReal, Inc., Case No. A164130 (1^st Dist., Div. 5 Nov. 4, 2022) (published) was a situation where an arbitrator found in employer’s favor on the merits and denied employer’s fee request after finding employee’s case was not frivolous in an initial award.  But that was hardly the end of the matter.  Employer took a “second bite” at a fees/costs request, with the arbitrator reversing course and awarding it $53,705.43 in a revised arbitration award after finding employee’s failure to testify truthfully did render her case frivolous in nature.  (Then, later, the arbitrator issued a corrected final award increasing the fees and costs award to $73,756.43.) When it came time to confirm and vacate the revised arbitration award, the lower court sustained the merits determination but struck the award of fees and costs because the arbitrator exceeded her authority by amending the initial award denying fees and costs.

            The 1/5 DCA affirmed.  The initial award did determine the merits and fees/costs entitlement, with the appellate court rejecting that this initial determination was just a “placeholder” for a further final fees/costs determination or correction.  Rather, the revised and corrected awards were not mere math corrections or inadvertent corrections, but substantive new determinations which were not allowed under the contractual arbitration statutory scheme.  (See Cooper v. Lavely & Singer Professional Corp., 230 Cal.App.4^th 1, 14, 18-19 (2014); Landis v. Pinkertons, Inc., 122 Cal.App.4^th 985, 992 (2004).) 

Arbitration: FAA Does Not Preempt State Court Provisions Requiring Business To Timely Pay Its Share Of Arbitration Expenses In An Arbitration Involving An Employee Or A Consumer

Order Compelling Arbitration Was Vacated And $2,310 In Monetary Sanctions Against Company Affirmed On Appeal.

            The California Legislature recently enacted Code of Civil Procedure sections 1281.97, 1281.98, and 1281.99 which obligate a company which drafts an arbitration agreement relating to an employee or a consumer to pay its share of arbitration fees no later than 30 days after the due date, with a failure to do so being a material breach of the arbitration agreement that gives the employee or consumer, in addition to a mandatory award of attorney’s fees and costs related to the breach as well as other discretionary sanctions, the options of either (1) continuing to arbitrate, with the company paying fees and costs related to the arbitration as a whole, or (2) withdrawing from arbitration and resuming the litigation in a judicial forum.

            In Gallo v. Wood Ranch USA, Inc., Case No. B311067 (2d Dist., Div. 2 July 25, 2022) (published), the lower court vacated an order compelling arbitration and awarded $2,310 in monetary sanctions against a company which paid late its arbitration expenses under the state statutory provisions.  The defense argued that the result was preempted by the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq.  The appellate court agreed with the trial court’s conclusion that the result was not preempted by the FAA, in line with consonant federal court decisions. 

Arbitration: Where Arbitration Costs Are Only Allowed To Be Granted By An Arbitator, That Contractual Clause Is Binding

Subsequent Post-Trial Proceeding Costs Not Subsumed In Contractual Clause.

            In Crowder v. Freeman, Freeman & Smiley LLP, Case No. B309001 (2d Dist., Div. 1 Mar. 22, 2022) (unpublished), an appellate court reversed a superior court fee denial relating to arbitration proceedings, where only the arbitrator was allowed to award fees and costs.  The appellate court enforced the plain meaning of the arbitration fee provision, which only allowed for the arbitrator to award costs. 

Arbitration, Mediation: $38,000 Fee/Costs Award By Arbitrator To Prevailing Seller Was No Abuse Of Discretion

Arbitrator’s Ruling That Seller Did Not Unreasonably Refuse Mediation Was Upheld.

            Unless an arbitration agreement has language indicating that the arbitrator’s award is subject to review under a heightened standard for legal error, it will be close to impossible to reverse an arbitrator’s legal, much less factual, determinations.  Faro v. Garnero, Case No. C093870 (3d Dist. Mar. 21, 2022) (unpublished) demonstrates that in a fees/costs award context.

            There, seller in a real estate disclosure dispute prevailed, later awarded $38,000 in fees and costs after the arbitrator decided that seller did not unreasonably refuse to mediate (“it was open to interpretation”) under a contract which required mediation as a condition precedent to arbitration.  Buyer’s appeal did not change the result.  The main problem was that the arbitration agreement did not call for anything other than a deferential review of the arbitrator’s legal and factual determinations, which can be based on “justice and equity.”  There was no heightened requirement that the arbitrator’s decision could be reviewed for legal errors.  So, the arbitrator’s call that Seller did not refuse mediation was the “end game” call. 

Appealability, Arbitration: Trial Court’s Denial Of Motion For Costs And Attorney’s Fees Incurred In Opposing And Conducting Arbitration Proceedings Denied As Interlocutory Because Merits Of Action Was Not Yet Decided

Lots Of Arguments Raised, But Merits Had To Be Decided To Determine Who Prevailed.

            What occurred in Harris v. University Village Thousand Oaks CCRC LLC, Case No. B311972 (2d Dist., Div. 6 Mar. 21, 2022) (unpublished) is that a lower court’s confirmation of an arbitration award was reversed because the appellate court determined that the arbitration clauses were void.  Plaintiffs, thinking they prevailed, sought costs on appeal and in the arbitration, as well as attorney’s fees in the prior appeal and the arbitration.  The lower court denied the substantial fee and costs requests relating to appellate and arbitration expenses, without prejudice to renewing upon a merits-based adjudication in the lawsuit.

            The 2/6 DCA affirmed.  The fundamental reason for sustaining the lower court’s order was that the fees/costs denials were interlocutory because the merits of the underlying case had not been finally determined; this meant the orders were not appealable until future events occurred to establish a prevailing party.  However, for purists and appellate attorneys, this is nice reading on these issues: (1) split in thinking on when an appellate court ruling on costs is an independent judgment for appeal purposes—discussing Rostack Investments, Inc. v. Sabella, 32 Cal.App.5^th 70, 79, which talks about Barnes versus Krikorian; and (2) split in thinking on whether a trial court order granting attorney’s fees on appeal was appealable under the collateral order doctrine—discussing Apex LLC v. Korusfood.com, 222 Cal.App.4^th 1010, 1015 n. 1 (2013), which talks about Barnes and Krikorian split on the issue—but it did not have to get into the weeds because it was dealing with a fee denial, not an order to pay fees. 

Arbitration: Arbitration Claimants Creating No Distinct Fund And Only Obtaining $1 Nominal Damages Properly Denied Fees And Costs By Arbitrators Under Substantial Benefit Doctrine

Even If The Ruling Was Erroneous, The Fee Ruling Could Not Be Reviewed On The Merits.

            Arbitration can be a tough process, because the arbitrator’s rulings—even on attorney’s fees and costs—are seldom ones which can be reviewed on the merits.  Sirott v. East Bay Medical Oncology, Case Nos. A161353/A161555 (1^st Dist., Div. 2 Jan. 28, 2022) (unpublished) demonstrates that aptly.  There, arbitration claimants were successful on two claims, not creating a distinct fund benefitting a group of persons and only winning nominal compensatory damages of $1.00.  The arbitrators refused to award them attorney’s fees and costs.  The appellate court affirmed, determining that (1) the substantial benefit doctrine did not justify any such awards given the lack of a distinct fund and the nominal compensatory awards; and (2) a review of the fee decisions was foreclosed on the merits by the California Supreme Court’s decisions in Moshonov and Moore.

Arbitration: After Having An Arbitration Award Previously Vacated And Having A New Petition To Compel Arbitration Denied, $181,375 Fee And $42,828.88 Cost Awards Affirmed On Appeal

Appellate Court Found That Fee/Costs Awards Were Not Premature.

            In Borisoff v. The Pullman Group, LLC, Case No. B297162 et al. (2d Dist., Div. 1 Jan. 11, 2022) (unpublished), a substantial prior arbitration award was vacated, a lower court refused to grant a new motion to compel arbitration, and the lower court awarded the party fending off the arbitration award and motion $181,375 in fees and $42,828.88 in costs (many of which were arbitration costs).  The arbitration petitioning party challenged the awards as being premature and not within the scope of the contractual agreements between the parties.

            The 2/1 DCA affirmed.  Although acknowledging that there was no final judgment because the other side’s affirmative claims still existed, the appellate court found that the contractual clause between the parties was broad enough to allow for arbitration and post-arbitrations fees/costs because Borisoff forestalled arbitration.  In doing so, it relied on Marcus & Millichap Real Estate Inc. Brokerage Co v. Woodman Inv. Grp., 129 Cal.App.4^th 508, 514-515 to decide that Borisoff prevailed at the arbitration and post-arbitration stage. It also found that the arbitration expenses were recoverable based on the wording of the fees clause.

            BLOG OBSERVATION—The problem here is the appellate court’s resolution of the prematurity argument.  This same Division reached a contrary result in Roberts v. Packard, Packard & Johnson, 217 Cal.App.4^th 822 (2013), where there were remaining claims to be resolved.  Roberts was not even discussed in the opinion.

Arbitration: Arbitration Award Of Attorney Fees And Costs To Prevailing Defendant Attorney Reversed On Appeal

Consumer Arbitration Rules Concerning Prevailing Party Attorney Fees Do Apply In The Context Of An Attorney-Client Dispute.

            In Milder v. Holley, Case No. B299122 (2d Dist., Div. 5 December 16, 2021) (unpublished), client plaintiff initiated arbitration proceedings pursuant to an arbitration clause after a dispute arose between him and his attorney/her law firm. After defeating plaintiff’s claims in arbitration, defendants attorney/law firm were awarded $59,892.50 in attorney fees plus $19,705.98 in costs – with the arbitrator determining defendants were the prevailing parties and entitled to  fees/costs incurred in the arbitration pursuant to the arbitration clause in the retainer agreement.  The trial court rejected plaintiff’s arguments that the retainer agreement’s fee-shifting provision was illegal – finding consumer arbitration rules do not apply to attorney fee disputes – and entered judgment confirming the arbitration award.

            The 2/5 DCA disagreed and reversed the fees/costs portion of the arbitration award. The panel concluded that the arbitrator acted in excess of his authority by awarding fees/costs against plaintiff because law firm clients are not excluded as “consumers” (Schatz v. Allen Matkins Leck Gamble & Mallory LLP, 45 Cal.4th 557, 564 (2009); Aguilar v. Lerner, 32 Cal.4th 974, 981 (2004)) and are therefore entitled to the consumer protections provided under Code Civ. Proc. § 1284.3(a) [“No neutral arbitrator or private arbitration company shall administer a consumer arbitration under any agreement or rule requiring that a consumer who is a party to the arbitration pay the fees and costs incurred by an opposing party if the consumer does not prevail in the arbitration, including, but not limited to, the fees and costs of the arbitrator, provider organization, attorney, or witnesses”].

Arbitration, Retainer Agreements: $192,000 Arbitration Award To Ex-Attorney Affirmed On Appeal

After MFAA Arbitration, Ex-Attorney Rightly Went To Contractual Arbitration; Argument That Block Billing Violates B&P Section 6148 Is Rejected Although Retainer Said Attorney Could Block Bill.

            In Kling v. Horn, Case No. B305967 (2d Dist., Div. 7 Dec. 14, 2021) (unpublished), defendant ex-attorney, after engaging in a Mandatory Fee Arbitration Act (FAA) under which ex-client obtained partial relief from paying delinquent fee bills and after rejecting the award, won a contractual arbitration award of $192,000—with ex-client, in a bad move, not participating in the subsequent arbitration.  Among other arguments, ex-client argued that ex-attorney did not comply with the MFAA procedures and that a provision in the retainer agreement allowing ex-attorney the option to block bill violated B&P § 6148(b) [“Bills for the fee portion of the bill shall include the amount, rate, basis for calculation, or other method of determination of the attorney’s fees and costs.”].

            The trial court confirmed the award and denied a petition to vacate it, determinations affirmed on appeal.  Ex-attorney did comply with the MFAA by participating in the MFAA arbitration and then demanding contractual arbitration, as allowed under Rosenson v. Greenberg Glusker Fields Claman & Machtinger LLP, 203 Cal.App.4^th 688, 693-694 (2012).  With respect to block billing, the appellate court concluded that (a) ex-client did not cite authority indicating it violated section 6148 (which does not require disclosing the date of services or specifically describing the services rendered, although indicating that block billing can require a discount of a fee request), and (b) the block billing provision was severable even if was considered to be illegal in nature.

Arbitration, Fee Clause Interpretation, Landlord/Tenant: 1/3 DCA Affirms Trial Court’s Denial Of Attorney Fees To Prevailing Tenant

Fees Incurred For The Court Proceedings Were Part Of The Arbitration Process Called For In The Lease For Resolving Fair Market Rent Value And Not Recoverable Under The Prevailing Party Provision Which Applied To An Action Involving A Breach Of The Contract Or Determination of Rights

            In California Union Square L.P. v. Saks & Company LLC, Case No. A162043 (1^st Dist., Div., 3 October 29, 2021) (published), defendant tenant exercised its option to renew its lease following the initial 25-year term.  Because landlord and tenant were unable to agree on the fair market value of the base rent, the dispute resolution provision of the lease was triggered – which mandated arbitration.  Tenant ultimately prevailed after two arbitrations and multiple litigation proceedings in superior, federal, and appellate courts – including a petition for review with the California Supreme Court (which was denied).   Tenant then moved for roughly $1 million in attorneys’ fees – expressly noting that, pursuant to the fees provision of the lease, it was seeking fees incurred only in court proceedings, not any of the fees or costs incurred in the two arbitrations.   The trial court denied tenant’s motion following full briefing and a hearing.

            Tenant argued on appeal that the trial court erred because the parties’ lease – although providing that arbitration costs were to be divided equally between the parties – included a provision mandating “that the prevailing party in any action or proceeding to enforce the [l]ease or obtain a declaration of rights under the [l]ease recover its attorneys’ fees and costs from the losing party.”  Tenant claimed this prevailing party provision controlled the allocation of fees for the various court proceedings.  The appellate panel disagreed – finding the court proceedings were not undertaken for the purpose of enforcing or obtaining a “declaration of rights” under the lease, such as a dispute over a contractual term or obligation.  Rather, the court proceedings arose from the parties’ obligations under the provision for disputes on the fair market value of the base rent requiring arbitration.  As a result, the fees incurred for the court proceedings were a part of the process for resolving the value of the base rent and not recoverable under the prevailing party provision.

Arbitration, Civil Rights, Employment: Employee’s Petition For Writ Of Mandate Granted Where Employer Was Awarded $6,912 In Attorney Fees For Successfully Bringing Motion To Compel Arbitration Of FEHA Claims

Based On The Standards Set Forth For Imposition Of Fees Under FEHA, Employer’s Arbitration Agreement Did Not Authorize Recovery Of Attorney Fees Absent A Finding That Employee’s Opposition To Motion To Compel Arbitration Was Groundless.

            California Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.) provides that a prevailing FEHA defendant may not recover attorney fees or costs absent a finding that the action was frivolous, unreasonable, or groundless when brought, or the plaintiff continued to litigate after it clearly became so. (§ 12965(b).)

            In Patterson v. Superior Court, Case No. B312411, (2d Dist., Div. 7 October 18, 2021) (published), employer successfully sought to compel arbitration of plaintiff employee’s FEHA claims.  Afterward, employer sought $10,583 in attorney fees pursuant to a prevailing party fee provision in its arbitration agreement – with the trial court awarding it $6,912 in fees and determining that the standard set forth in § 12965(b) applied only after adjudication of the case on the merits.

            Employee petitioned for writ of mandate – with the question before the 2/7 DCA being whether an employer’s arbitration agreement may authorize the recovery of attorney fees for a successful motion to compel arbitration of a FEHA lawsuit even if the plaintiff’s opposition to arbitration was not frivolous, unreasonable or groundless.     

            Pursuant to the standards set forth under FEHA regarding the imposition of fees and costs, the answer was no – with the panel concluding “[b]ecause a fee-shifting clause directed to a motion to compel arbitration, like a general prevailing party fee provision, risks chilling an employee’s access to court in a FEHA case absent section 12965(b)’s asymmetric standard for an award of fees, a prevailing defendant may recover fees in this situation only if it demonstrates the plaintiff’s opposition was groundless.”

            The panel granted employee’s petition and directed the trial court to vacate its order granting employer’s fees and to conduct a new hearing on the fee request to determine whether employee’s opposition to the motion to compel arbitration was frivolous, unreasonable or groundless.

Arbitration: Superior Court Judge Properly Vacated An Arbitrator’s Correction Of A Fee/Costs Award From The Amount Contained In The Original Final Award

The Miscalculation Was Not Evident From The Face Of The Prior Award.

            Crooymans v. Givner, Case No. B305916 (2d Dist., Div. 3 Sept. 7, 2021) (unpublished) demonstrates how narrow the power of an arbitrator is to correct an arbitration award under CCP § 1286.6(a).  There, children, the executors/trustees of their late father’s estate/trust, filed an arbitration claim against father’s tax planning attorneys.  The attorneys were found liable to the tune of $654,800.  Children then asked for prevailing party attorney’s fees and costs of about $3.2 million, with the arbitrator filing an original final fees/costs award of around $1.738 million.  However, upon a request by children to correct a miscalculation under section 1286.6(a), the arbitrator indicated he failed to factor in a supplemental fee declaration and upped the fees/costs award to about $2.025 million.  However, a superior court judge vacated the correction after finding that there was no miscalculation evident from the face of the final award.

            The 2/3 DCA affirmed the undoing of the arbitrator’s correction.  At the outset, it found that the requirement of a “reasoned award” in an arbitration contract or ADR neutral rules likely does not apply to a fees/costs award, but just to a merit adjudication of claims.  Then, it sustained the lower court’s conclusion because there was no evident miscalculation under case law construing section 1286.6(a).  (Severtson v. Williams Construction Co., 173 Cal.App.3d 86, 95 (1985).) 

Arbitration: $13,000 MFAA Arbitration Award To Law Firm Affirmed Even Though No Arbitration Right Notice To Send To Client

Sophisticated Client, An Attorney, Participated In MFAA Arbitration Such That Failure To Provide Notice Was Not Jurisdictional.

            After participating in a Mandatory Fee Arbitration Act (MFAA), Bus. & Prof. Code, §§ 6200-6206, fee arbitration and losing to the tune of about $13,000, ex-client—a licensed attorney--appealed a confirmed fee award in favor of her ex-attorneys.  The award was confirmed on the merits in Knitter & Knitter, LLP v. Du Par, Case No. A157660 (1^st Dist., Div. 3 May 26, 2021) (unpublished).   However, she did raise the issue that her former attorneys’ failures to provide a notice to arbitrate under B&P Code § 6201(a) necessarily required a dismissal of the arbitration proceeding.  Not so, said the appellate court.  The failure to give this notice only makes dismissal a discretionary, not mandatory decision.  Relevant to the decision is whether the client is sophisticated and aware of the arbitration rights even in the absence of notice.  (Richards, Watson & Gerson v. King, 39 Cal.App.4^th 1176, 1180 (1995).)  Here, ex-client was an attorney and fully participated in the arbitration during which the ex-attorneys’ client action was stayed.  As such, no dismissal was required, as well as no prejudice shown given that ex-client was an attorney and participated in proceedings below. 

Arbitration, Prevailing Party: $10,000 Attorney Fees Award To Prevailing Party On Motion To Vacate Arbitration Award Reversed On Appeal

The Parties’ Note Contained An Attorney Fees Provision, But Their Arbitration Agreement Did Not, And A Motion To Vacate An Arbitration Award Is Not An Action On A Note.

            In Bilodeau v. Modern Mobile Homes, Case No. B302791 (2d Dist., Div. 6 March 29, 2021) (unpublished), plaintiff buyers entered into an agreement for the purchase of a remodeled mobile home with defendant seller.  Seller financed buyers’ balance owed for the purchase by taking buyers’ note which was secured by a security agreement in the mobile home.  The note contained an attorney’s fee provision, but the purchase agreement – which included an arbitration clause – did not.

            When a dispute arose between the parties regarding structural issues, buyers invoked arbitration – seeking damages and rescission of the purchase transaction.  After the arbitrator awarded buyer’s $45,000 down payment to seller, declared buyers’ note would be cancelled upon return of the mobile home to seller, and did not award attorney fees, buyers moved unsuccessfully to have the trial court vacate the arbitration award.

            After denying buyers’ motion, the trial court, based on the attorney fee provision in the note, awarded seller $10,000 of its requested $21,000 as the prevailing party in the motion to vacate – a result reversed by the 2/6 DCA. 

            Because the arbitration agreement did not provide for an award of attorney fees, Code Civ. Proc. § 1284.2 precluded such an award.  Although the trial court awarded the fees under the fees provision contained in the parties’ note, a motion to vacate an arbitration award is not an action on a note.

Arbitration: $66,375 Fee Award In A Convoluted Arbitration Battle Over “Consumer Arbitration” Rights Issue Affirmed On Appeal

4/3 DCA Determines That Interim Fights On Arbitration Threshold Issues Gave A Basis For Fees.

            This next one, Just a Fluke, Inc. v. Litalien, Case No. G058535 (4^th Dist., Div. 3 Mar. 23, 2021) (unpublished), while convoluted, still shows that potentially arbitrating parties need to make sure they are not going to litigate and not prevail on threshold issues of a clearly discernible nature in a separate court action relating to an upcoming arbitration.  If you do, and win --you get fees; if you lose, you lose.  Plaintiff suffered a dismissal of a declaratory relief action seeking a declaration that an arbitration between plaintiff and defendants was not a “consumer arbitration.”  Plaintiff argued the lower court’s award of $66,375 in attorney’s fees was premature because the underlying construction defect dispute had yet to be arbitrated.  The 4/3 DCA, in a 3-0 opinion authored by Justice Thompson, affirmed the fee award.  In rejecting the prematurity argument, the appellate court determined that the sole “consumer arbitration” issue—the sole one in the action—had been finally resolved against plaintiff so as to authorize a fee recovery.  (Cf.  Turner v. Schultz, 175 Cal.App.4^th 974, 983, 985 (2009).)  However, not all was lost—if plaintiff prevails in the separate arbitration, it might be able to recover fees in that separate proceeding.  The fee award here was no fluke!  (Groan—very punny!)

Arbitration: Appeal Of Interlocutory Order Requiring One Party To Advance A $300 Filing Fee Draws A Chiding By An Appellate Court

After All, The $300 Filing Fee Was Subject To Adjustment By The Arbitrator—Why Tens Of Thousands Of Dollars Expended To Fight Such A Benign Order?

            The 2/7 DCA, in Metz v. Kavanaugh, Case No. B294388 (2d Dist., Div. 7 Mar. 17, 2021) (unpublished), had to deal with an appeal of a superior court order in which one party was required to reformat a pleading and file it as an arbitration, with the other party required to file the $300 arbitration filing fee (which could be reallocated later by the arbitrator).  One party appealed, and the other party cross appealed.  Cross-appellant agreed to dismiss his appeal if the appellate court dismissed the primary appeal because it was from a non-appealable order.

            The Court of Appeal did dismiss the primary appeal, finding the order to be interlocutory and with no exceptional circumstances to treat it otherwise.  However, here is what they had to say about the litigants’ activities: “The only thing exceptional about this matter is the extent to which the parties and their attorneys believed it was appropriate to spend tens of thousands of dollars in attorney’s fees, and consume judicial resources in the trial and appellate courts, to resolve a dispute over a $300 filing fee and relatively minimal initial arbitration costs that the arbitrator will have the authority to reallocate anyway.”  (Slip Opn., p. 14.)

Arbitration: Bacall v. Shumway Now Published

2/19/21 Unpublished Decision Now Citable For Confirming Wide Arbitrator Discretion In Dealing With A Substantial Fees Request.

            On February 19, 2021, we posted on Bacall v. Shumway, Case No. B302787 (2d Dist., Div. 8 Feb. 18, 2021), which was unpublished at the time.  Bacall affirmed an arbitrator’s award of $237,607.25 to a prevailing party despite admitting that the arbitrator’s response to the aggrieved side’s request for briefing was “vague.”  We now report that this opinion was certified for publication on March 16, 2021. 

Arbitration, Fee Clause Interpretation, Reasonableness Of Fees, Section 1717: $1,237,501 Million Fee Award For Arbitration, Creditors Action, And Related Proceedings Affirmed On Appeal

Broad Fee Clauses Were The Bases For The Affirmed Award.

            In Currency Corp. v. Wertheim, LLC, Case No. B276506 (2d Dist., Div. 1 Mar. 2, 2021) (unpublished), Wertheim initiated legal proceedings spanning 15 years, culminating in an arbitration in which it achieved nothing (according to the DCA panel) because part of the award was found to be illegal and branched into other lawsuits and appeals.  In the end, Currency and its affiliates sought fees for the arbitration portion of the dispute and related proceedings, with the trial court granting fees of $1,237,501 against Wertheim.

            That award was affirmed on appeal.  The principal reasons were the DCA’s perception that all of the proceedings were “bundled together” and sprang from the arbitration, as well as the broad nature of some contractual fees clauses.  Given this ruling, it counsels practitioners and litigants to narrowly draft fees clauses, given that a broadly worded fees clause can give rise to fees incurred in an arbitration and related proceedings. 

            Also, be careful when you sue parties as alter egos.  Even if the case is patently untenable, Civil Code section 1717 does allow for fee-shifting in these situations—something which did occur here even though the theory was that an individual was an alter ego of an individual (an impossible construct).

            As far as reasonableness of the fees, Wertheim could not surmount the deferential abuse of discretion standard even though there was evidence in the record that the fee substantiation was incompetent in nature.

Arbitration: $237,607.25 Arbitrator Fee Award Affirmed Despite Some Ambiguity On How Fee Proceedings Were Handled

We Don’t Necessarily Agree With The Result In This One—But It Does Reflect Deference To Arbitrator Decisions.

            Bacall v. Shumway, Case No. B302787 (2d Dist., Div. 8 Feb. 18, 2021) (unpublished) is an interesting affirmance of an arbitrator’s award of attorney’s fees in the amount of $237,607.25.  Although we do not opine often on the merits of the decision, this one is where the result seems to be unfair based on some statements by the arbitrator on how fees would be handled.

            Here, the arbitrator tried to do “equal justice” in a case where there was an inactive attorney claiming legal expenses and other costs for performing services for a successful actor/screenwriter Michael Bacall.  The underlying merits are not what we are discussing.  However, what happened was that the merits prevailing party requested fees/costs in a post-hearing arbitration brief.  The other side sent an email to the arbitrator indicating that these requests usually trailed the merits determination, but also indicated an immediate response would be filed if the arbitrator wanted to proceed more quickly.  The arbitrator said this in a responsive email: “Consideration of attorney fees will not take place until the case is decided and a prevailing party is determined.  Anything submitted in that regard will not be read until then.”  Based on this, no response was filed to the fees/costs request, but the arbitrator still issued a final award with a finding that respondents prevailed and were awarded $237,607.25 in fees/costs.  The aggrieved side tried to submit an opposition to the fees/costs request, but this was rebuffed by the arbitrator based on issuance of a final award.

            The 2/8 DCA affirmed, giving deference to the final award by the arbitrator, although candidly conceding that “the arbitrator’s response was vague.”  We agree.  The appellate panel said the other side had to seek clarification, which he did not do.  However, c’mon here … why shouldn’t the other side rely on the arbitrator’s earlier response that there would be subsequent activities on the fees/costs issue.  This one smacks of unfairness to us.

BLOG UPDATE: Bacall v. Shumway was certified for publication on March 16, 2021.

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 (1^st 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. 

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 (1^st 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 (4^th 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.

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.

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 (1^st 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.

 

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 (4^th 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!

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.4^th 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.4^th 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.

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 (4^th 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.

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.4^th 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 3^rd 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 (4^th 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.4^th 1 and Heimlich v. Shivji (2019) 7 Cal.5^th 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 (5^th 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. 

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.4^th 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.