Arbitration: Choice of Law; Standard of Review: Arbitrator’s Award Of $183,000 In Allocated Fees To One Successful Defendant In Joint Defense Arrangement And Trial Court’s $21,000 In Post-Arbitration Fees To All Defendants Were Proper

Losing Plaintiff Claimed Arbitration Award Was “Manifest Disregard Of Law,” But This Was A Federal Standard Rather Than The More Limited State Standard Applicable To Review Of Arbitration Awards.

            HUB International Ins. Services v. Morales, Case No. E067095 (4th Dist., Div. 2 June 14, 2018) (unpublished) was an imbroglio involving non-interference, non-solicitation, confidential disclosure, and non-recruit provisions in certain documents between employees and an insurance company, triggered once certain employees departed and went to work for a rival insurance company. The pertinent agreements had arbitration clauses under California law, with the signatories waiving appeal rights. The real dispute was between the insurance companies, but all parties stipulated to arbitration even though some parties had agreed to contractually arbitrate previously.

            The arbitrator found against plaintiff and in favor of defendants. The thrust of the arbitrator’s decision was that a liquidated damages clause for breach of the pertinent agreements was unenforceable given that plaintiff would not introduce lost profits evidence so to allow the arbitrator to gauge whether the liquidated damages were reasonable in relation to actual damages. The arbitrator then ordered that defendant Morales recover prevailing party fees of $183,000, with the trial judge affirming the arbitration award and then further ordering that all defendants obtain post-arbitration fees of $21,000.

            Plaintiff challenged the arbitration award on the merits and on the $183,000 fee award, but none of those challenges resonated with the 4/2 DCA.

            Although the arbitrator actually did allocate out the fees attributable to arbitration efforts for the rival insurance company, plaintiff’s challenge that the arbitrator made a “manifest disregard of law” was incorrect. This was a federal criterion challenge under the FAA, not a state challenge which does not generally allow challenges to the merits of an award—especially given that the signatories to the arbitration agreement and arbitration stipulation agreed California law would apply. (Siegel v. Prudential Ins. Co., 67 Cal.App.4^th 1270, 1280, 1290 (1998).) Also, the parties did waive the right to appeal, but the appellate court construed this as waiving appellate rights except on the limited grounds applicable under the California appellate restrictions relating to arbitration awards. (Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4^th 1334, 1358 (2000).)