California Mediation and Arbitration

Awards, Jurisdiction: Interim Award Dismissing Claims While Allowing Additional Submissions Was Not Final.

On The Difference Between A Final Award And An Interim Award Dismissing Claims But Leaving The Door Open For Additional Claims.

        In Ortiz v. Elmcrest Care Center, LLC, B330377 (2/3  pub. 11/7/24) (Egerton, Adams, Bershon), Ericka Ortiz, representing the Estate of Jose de Jesus Ortiz, sued Elmcrest Care Center and its staff, alleging elder abuse, neglect, negligence, and fraud. The trial court compelled arbitration. The arbitrator issued an initial "First Interim Award" dismissing the claims, but allowing for additional submissions if issues were identified. Following the Estate’s submission, the arbitrator issued a "Second Interim Award," finding Elmcrest liable for pre-death pain and suffering and awarding damages.

        Elmcrest contested this award, arguing the first was final, and the arbitrator’s amendment was outside her authority. The trial court sided with Elmcrest, confirming the First Interim Award and vacating the Final Award. On appeal, the Court of Appeal reversed the decision, holding that the arbitrator retained jurisdiction to amend the award to resolve omitted issues and directed the trial court to confirm the Final Award, which included the damages awarded for pre-death pain and suffering.

        COMMENT: An interim arbitration award expressly leaving open the door for additional submissions identifying additional issues is not a final award. 

Deadlines, Vacatur: Party Challenging Arbitration Award Must Satisfy Deadlines After Service Of Petition To Confirm Or Service Of The Award

Party Seeking To Vacate Arbitration Award Must Satisfy Separate Deadlines.

The thirty-two page slip opinion in Valencia v. Mendoza, B325803 (2/7  7/1/24) (Feuer, Martinez, Segal) affirms a $432 K award in favor of plaintiffs/respondents the Valencias. The underlying dispute concerned failure to disclose defects in a home sale.

The most important point relates to deadlines to challenge an award. The challenger seeking to vacate the award must respond within 10 days to service of a petition to confirm the award, and within 100 days to service of the award. And, not or: the challenger must satisfy both deadlines. Here, Mendoza satisfied the 100-day deadline, but not the 10 day deadline, which put Mendoza behind the 8 ball.

Award, Fees: Award Of Arbitrator Was Final And Could Not Be Changed By Later Efforts To Award Fees

Once The Arbitrator Determines All Issues Necessary To Resolve The Essential Dispute, The Arbitrator's Ruling Constitute A Final Award Under § 1283.4.

        The arbitrator issued an award, labeled neither final nor interim, on April 3, 2020, denying employee a finding of liability in her favor, and denying employee and respondent employer attorney's fees, on the grounds that employee's claim was neither frivolous nor meritless. After post-hearing briefing, the arbitrator awarded $53,705.43 in fees to employer on June 11 in a revised award. Finally, on June 29, the arbitrator issued a corrected final award of $73, 756.43. The employer then asked the trial court to confirm the award denying employee a finding of liability and awarding $73,756.43 to employer. The trial court confirmed the award, except as to the fees, and so the employer appealed in order to recover its fees. Elizabeth Taska v. The RealReal, Inc., A164130 (1/5  11/4/22) (Jackson, Burns, Wiseman).

        First, whether the award was labeled final, interim, revised, or corrected could not be dispositive, because the law values substance over form. Second, what was dispositive was that the initial award, issued on April 3, was in substance a final award: the arbitrator addressed the liability issue, ruling against the employee, and she addressed the fee issue, denying fees to the employer. Once she determined all issues necessary to resolve the essential dispute, the arbitrator had, in substance, issued the final award. She had no power, except on narrow grounds that were not present, to change her award. And so the Court of Appeal confirmed the trial judge's judgment.

        COMMENT: My colleague Mike Hensley and I have another blog entitled California Attorney's Fees. Our mission statement in that blog cites the words of  the late Justice Edward Wallin: "All too often attorney fees become the tail that wags the dog in litigation." 

Arbitration, Award, Finality, Correction, Vacatur: 4th Dist Div 4 Holds Arbitrator's Amendment Of Final Award Did Not Exceed Her Powers

Arbitrator Acted Within Nonstatutory Power To Amend Award and Also Exercised Equitable Powers.

        Starr v. Mayhew, G060277 (4/2  9/1/22, cert for pub. 9/28/22) (Moore, Goethals, Moteike) involved a dispute among members of an LLC as to their respective ownership interests and as to whether Mayhew, who managed the LLC, had a right to be fully indemnified for legal fees and damages in an arbitration he lost to Starr and another LLC member. The "final award" did not fully clear up the issues, and the arbitrator issued an amended award, at the behest of Mayhew, that did clarify the issues, but not to Mayhew's satisfaction. The trial judge confirmed the award and Mayhew appealed.

        Ordinarily an award can only be corrected for limited statutory reasons, such as a miscalculation of figures, misdescription of a person, thing, or property, or imperfect form that does not affect substance. See Cal. Code Civ. Proc., §§ 1284 (correction) and 1286.6 (vacatur). But did you know that, in addition to the limited statutory grounds for correcting an award or vacating it, a final award can be amended based on nonstatutory law? Well, it's a possibility.

        And nonstatutory amendment of the award worked here. In an amended award, the arbitrator clarified that damages were to be paid by Mayhew, and that he was entitled to limited indemnity, but not full indemnity. The Court of Appeal explained that the arbitrator had acted upon equitable grounds. And she had not exceeded her powers, because the issues had been presented to the arbitrator for resolution. In any case, she had reached legal and factual conclusions, and if she was mistaken, that would not be a basis for overturning an arbitration award.

        COMMENT: The case is a reminder that an arbitration is an equitable proceeding. Thus, here an arbitrator was able to limit indemnity, though the indemnification clause seemed to provide for full indemnity, because she thought that given the conduct of Mayhew, limiting but not eliminating indemnity would be fair. The case is also a reminder that a seemingly final award can sometimes be amended on nonstatutory grounds. But beware: there is a split of authority as to whether the party seeking amendment has 30 days from the time the final award is served, or up to the time of confirmation of the award to obtain an amendment of the award. See note 3 of the Starr opinion.

Arbitration, Award: Arbitrator Awards $175M To Monster Energy And Orange Bang

Los Angeles Arbitrator Awards $175M Plus Attorney's Fees Plus Royalty.

        Daily Journal Staff Writer Federico Lo Giudice reported the award on April 7, 2022 in an article entitled, "Arbitrator awards $175M to Monster in energy drink dispute." The arbitrator is Bruce A. Isaacs. The law firm representing the successful parties Monster Energy Co. and Orange Bang is Hueston Hennigan LLP.  The award also is reported to include an additional $10M in attorney's fees, and a 5% royalty on future drinks sold.

        Next step? Presumably Monster Energy and Orange Bang will move to confirm the monster award, and Vital Pharmaceuticals will oppose confirmation, arguing that the award is monstrous.

Arbitration Awards: Time To Change "Award" And Add Attorneys Fees Did Not Expire, Because Award Was Not Final Award

This Case Is Must Reading For Determining Whether An Arbitrator's Ruling Is An Award.

        "As this case highlights, whether an arbitrator's ruling constitutes an 'award' is a significant event." Lonky v. Patel, B295314 consolidated with B297632 (2/2  7/2/20) (Hoffstadt, Lui, Chavez). Indeed. The arbitrator can continue to issue interim rulings before there is an award. But once there is a final award, the clock begins to run on the  time the arbitrator has to continue to rule and correct or amend an award. In this case, the Court of Appeal ruled that a Second Interim Ruling did not constitute an Award, and thus the Arbitrator's time to increase compensatory damages and add attorney's fees had not expired.

        Very helpfully, the Court explains upfront how a court determines whether a ruling constitutes an award: "We hold that a court does so (1) by asking whether the ruling (a) determines all issues necessary to resolve the entire controversy and (b) leaves unaddressed only those issues incapable of resolution at that time because those issues are potential, conditional or contingent, and (2) answers those questions by looking to the specific procedures adopted in the arbitration at issue."

        The case is a model of clarity and genuinely useful for practitioners, because it addresses the nettlesome question of when a ruling complete enough to constitute an award. Here, the arbitration was divided into three phases: 1) liability, amount of compensatory damages, and eligibility for punitive damages; 2) amount of punitive damages and entitlement to attorney fees and costs; and 3) amount of attorney fees and costs. The Court of Appeal ruled that the arbitration ruling in phase two did not constitute an award, because it did not determine the amount of attorney fees, i.e., it did not determine all the  issues submitted to arbitration, and the amount was not potential, conditional, or could not otherwise have been determined at the time.

        

       

Arbitration/Class Actions/Awards: Arbitrator Awards Fees Of $10.45 M To Class Counsel In Canadian Lawsuit

Arbitrator Focused On Risk Incurred By Counsel And Degree Of Success Achieved

     Above:  Ever-vigilant Canadian mounted policeman.  ca. 1917.  Library of Congress.

     Shawn Irving and Catherine Gleason-Mercier of the Canadian law firm Osler, Hoskin & Harcourt LLP reported on September 30, 2014, that an arbitrator has awarded $10.45 M to class counsel in Fulawka v. The Bank of Nova Scotia.  This very significant class action involved a class certified in 2010, consisting of approximately 14,000 persons, and suing to recover overtime wage claims.

     Interestingly, Canada has a Class Proceedings Act, 1992, providing a procedure for calculating a multiplier (“multiplicateur”) and the base fee (“honoraires de base”).

     Here, the parties took a creative approach, resorting to an arbitrator to address the issues remaining after a merits decision, one of which was the amount of class counsels’ fees.

      Despite defense objections to duplicative work, the arbitrator only reduced the base fee by 3%.  Focusing on the risk incurred by class counsel in undertaking novel and large-scale litigation, and the significant degree of success, the arbitrator determined the multiplier to be 2.75, resulting in fees of $10.45 M. 

      While employee class actions may be hobbled in the United States by arbitration clauses and class action waivers, Fulawka v. The Bank of Nova Scotia is evidence of a successful class action across the border.

Arbitration/Award/Standard Of Review: Judgment Is Largely Affirmed Based On Standard Of Review, With Modification Regarding Accrual Of Prejudgment Interest

An Episode Of “Real Real Estate Owners Of Orange County” . . .

     The opening paragraph clues us that the panel found this appeal tiresome:

     “This case is the result of a business relationship gone so bad that the arbitrator likened it to ‘a highly contested family law dissolution replete with acrimony, significant monetary loss, lack of trust, and “hard ball” tactics . . . ‘  Consistent with that assessment, both sides challenge the judgment rendered below.”

     The underlying dispute was between equal owners of Newport Harbor Offices and Marina, LLC (NHOM).  Plaintiff McNaughton was the tenant of NHOM, and McNaughton and defendant Copenbarger were equal owners of NHOM.  “When the parties’ relationship soured, McNaughton stopped paying rent and NHOM filed an unlawful detainer . . . “  After a prolonged arbitration slugfest, the arbitrator found McNaughton breached his lease, leaving the court to determine damages.  After the trial court confirmed the arbitration award and assessed damages against McNaughton, the parties predictably appealed.  Newport Harbor Offices & Marina, LLC v. McNaughton, Case Nos. G047424 and G048095 (4/3 Oct. 1, 2014) (Rylaarsdam, Bedsworth, Aronson) (unpublished).

     With one exception, the Court of Appeal found the parties’ various contentions without merit, upholding the judgment and concluding that in any case, an arbitrator’s errors of law and fact are generally unreviewable.  The exception related to retroactive prejudgment interest that the trial court had added to the arbitrator’s award, The Court of Appeal agreed that the trial court erred by adding retroactive interest into the judgment because it was nowhere mentioned in the arbitration award.  Indeed, Copenbarger’s petition specifically requested prejudgment interest from “the date of the arbitration award,” not from the date of breach to the date of the award. 

     “In the interest of judgment” each side gets to bear its own costs on appeal.

     PRACTICE TIP FROM THE COURT:  The Court found allegations of a “Cabal” – i.e., a suggestion that opponents had acted nefariously -- to be “neither legally significant nor analytically helpful.”

Arbitration/Deadlines: After Time Ran Out To Modify Arbitration Award, Plaintiff Could Still Seek To Amend Judgment To Add Additional Party

Plaintiff Finds Way Around JAMS Deadline

     The next case illustrates the fundamental point that an arbitration award is not the same as a judgment, and that even after the time has expired under the governing arbitration rules to amend the award, it may still be possible to amend the judgment confirming the award.  Butler v. Lyons & Wolivar, Inc., Case No. G04766 (4th Dist. Div. 3 March 3, 2014) (Fybel, Rylaarsdam, Aronson) (unpublished).

     Plaintiff Butler arbitrated with his franchisor, the investigation firm Lyons & Wolivar Investigatins (Lyons), obtaining a net award of $512,244.67 against Lyons.  So far, pretty good for Plaintiff.  But when Plaintiff petitioned to confirm the arbitration award against both Lyons and its successor corporation, LWI, Inc. (LWI), the trial court refused to confirm the award against LWI, because the award only named Lyons.

     So Plaintiff went back to the arbitrator to seek “clarification” that the award included LWI.  Now the deadline in JAMS Rule 24 kicked in:  the arbitrator had lost any power to modify the Final Award, because that award was more than 30 days old.

      California Rule of Civil Procedure, section 187 came to the rescue:  “Under section 187, the court has the authority to amend a judgment to add additional judgment debtors.”  NEC Electronics Inc. v. Hurt, 208 Cal.App.3d 772, 778 (1989).

      The Court of Appeal complimented Defendants for correctly setting forth “the law regarding judicial review of arbitration awards.”  But then the Court retracted its compliment by pointing out that judicial review of an arbitration award is not the same as judicial review of a judgment – and here, the only issue was the correctness of the trial court’s order amending the judgment. 

     Judgment affirmed – also affirming the adage that “there’s more than one way to skin a cat.”

Arbitration/Award: 9th Circuit Rules Decision Arbitrator Decision To Award Interest On Contract Damages Does Not Foreclose District Court From Awarding Interest On Remaining Portions Of Award

 

Ninth Circuit Instructs District Court To Award Plaintiff/Appellant Interest On Non-Contract Damages In Arbitration Award

     Above:  Frenchman’s Flat, Nevada.  Atomic cannon test. 1953.  Library of Congress.

     Judge Duffy’s wry comment upfront signaled where the Ninth Circuit panel was going on this one:  “Lloyd’s pussyfooted for years only to eventually deny the claim . . . “  Pussyfooted.  After its policyholder Dr. Lagstein, a Nevada nuclear cardiologist, filed suit, Lloyd’s had moved to arbitrate a major disability claim with him, only to get whacked with a total damages award of over $6M, including $4M in punitive damages.  “Illustrating the maxim ‘be careful what you ask for’,” wrote Judge Duffy.  Lagstein v. Certain Underwriters at Lloyd’s of London, Nos. 11-17369; 11-17460 (9th Cir. August 5, 2013) (Duffy, D.J., sitting by designation) (published). 

     The arbitrators had awarded interest on $900,000 in contract damages.  Did this preclude the district court from awarding interest on the non-contract damages?  No.  “Courts do not lack authority to award interest where an arbitration award is silent.” [citations omitted].

     The district court’s calculation of interest is reviewed de novo, where as here, it turned on issues of statutory interpretation.  In diversity cases, such as this one, “the court looks to state law to determine the rate of pre-judgment interest, while federal law determines the rate of post-judgment interest.”

     A bit of judicial jujitsu was still necessary to determine the right to prejudgment interest here, because the leading Nevada case had stated, “absent statutory or contractual authority, a district court in a confirmation proceeding may not add prejudgment interest to the arbitration award . . . “  Mausbach v. Lemke, 866 P.2d 1146 (Nev. 1994).  Not to worry, says the Ninth Circuit – Mausbach really meant to say pre-award interest is not allowed in Nevada; it just used the wrong words.  So Dr. Lagstein gets post-award pre-judgment interest. 

     Additionally, post-judgment interest on a district court judgment is mandatory.  28 U.S.C. section 1861.  But since it wasn’t until the date of the 9th Cir. opinion that Dr. Lagstein’s “unconditional legal entitlement to pre[-]judgment interest was initially established,” Dr. Lagstein gets to collect post-judgment interest on the post-award, prejudgment interest as of the date of the 9th Cir. opinion.