When Does Trial Commence In “Dual Track” Arbitration/Litigation?
The Danger Signal. Currier & Ives. 1884. Library of Congress.
Parties routinely avoid exposure to attorneys fees under Cal. Civ. Code section 1717 by voluntarily dismissing their action before “the actual commencement of trial”. The meaning of “the actual commencement of trial” presented a novel question where “dual track” arbitration/litigation occurred -- the facts presented in Mesa Shopping Center-East, LLC v. O Hill, Case No. G049205 (4/3 Dec. 23, 2014) (Ikola, O’Leary, Aronson) (published).
Parties are permitted to follow a “two-forum approach to litigation (i.e., court for provisional remedies, arbitration for the merits) . . . but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without provisional relief.” And that’s exactly what occurred here, where two sets of real estate investors disputed spending and management issues. Plaintiffs filed a court action seeking – unsuccessfully – to obtain preliminary injunctive relief – and plaintiffs and defendants agreed to arbitrate the merits. After an unfavorable interim award analyzing the merits was issued by the Arbitrator, plaintiffs “voluntarily” dismissed their court action, hoping to avoid attorney’s fee exposure. The trial judge agreed the voluntary dismissal of the court action, prior to commencement of trial, meant attorney’s fees could not be awarded against plaintiffs in the court action (as contrasted to the arbitration, in which plaintiffs clearly lost).
Closely scrutinizing the meaning of “commencement of trial,” the Court of Appeal disagreed with the trial court, and reversed. Essentially, the Court of Appeal refused to view the court action and the arbitration as two entirely separate proceedings: “it is self-evident from the record that this action and the arbitration were interdependent, featuring the same parties fighting over the same causes of action.” The Court concluded, “The parties commenced arbitration on the merits . . . when they presented evidence and argument before the arbitrator. This qualified as the ‘commencement of trial’ referenced in section 581, subdivisions (b)(1) and (c), thereby cutting of the Mesa Investors’ unilateral right to dismiss this action without prejudice."
Proceed with caution, because if the litigation train is running out of steam, you cannot depend on a “voluntary” dismissal of the court action prior to a court trial to avoid exposure to attorney’s fees once a dual-track arbitration hearing has commenced. Trial may have actually commenced – in arbitration!
Mesa Shopping Center-East, LLC v. O Hill is also the subject of a December 28, 2014 post in Mike and Marc’s California Attorney’s Fees blog.