California Mediation and Arbitration

Arbitration, MFAA: CCA 1st Dist. Div. 4 Holds That A Malicious Prosecution Cannot Rest On An MFAA Arbitration, Reversing Trial Court

And Because The Malicious Prosecution Plaintiff Cannot Win, An Anti-SLAPP Motion By Defendant Succeeds.

        The holding of Dorit v. Noe, A157433  (1/3  5/26/20) (Brown, Pollak, Tucher) is that a malicious prosecution cause of action cannot be based on a mandatory fee arbitration act (MFAA) arbitration. Along the way to its conclusion, the case teaches about arbitration, MFAA arbitration, malicious prosecution, and anti-SLAPP motions.

        Dorit, an attorney, represented Noe, who was unhappy with his representation and who brought an MFAA fee arbitration against Dorit. Noe did not recover any fees from his attorney, and the arbitrator required Noe to pay the  filing fee. Neither party appealed within 30 days for a trial de novo in the Superior Court, and thus the arbitration award became final. 

        Dorit then sued Noe in Superior Court for malicious prosecution, and Noe brought an anti-SLAPP motion against Dorit, arguing that the MFAA would not support a malicious prosecution  claim. The trial court denied the motion, ruling that, while Noe's MFAA arbitration arose from protected activity, Dorit's claim had more than minimal merit -- the two-pronged analysis that must be made when evaluating anti-SLAPP motions.

        The Court of Appeal agreed that the MFAA arbitration arose from protected activity, because it was an official proceeding established by statute, and once the client chooses the proceeding as an alternative to filing a lawsuit against the attorney, the attorney is required to participate. 

        The attorney reasoned that if the matter is in the nature of an official proceeding, then it should support a cause of action for malicious prosecution. The problem with this argument is that MFAA arbitrations are neither fish nor fowl: they have aspects of litigation, as well a of voluntary arbitration. And so the question whether an MFAA arbitration will support a claim for malicious prosecution, which is a question of first impression, turns out to hinge on policy.

        The interests promoted by a cause of action for malicious prosecution are to prevent baseless lawsuits from being filed, and to prevent injury to the victims of malicious prosecution. In the case of MFAA arbitrations, however, the arbitration is an alternative to  litigation encouraged by the legislature, because it is thought to even the playing field between attorney and client, and to be speedy, cost effective, and efficient. A party unhappy with the outcome of the fee arbitration can proceed de novo to the Superior Court, something that did not happen here. And while the attorney may suffer injury from a meritless fee arbitration, the Court of Appeal explained that the injury is likely to be slight, because the attorneys typically does not go out and hire another attorney. Here, in fact, Dorit represented himself, and the proceeding was confidential.

        Comment: The Court of Appeal also found  a technical and more obscure reason for holding that the MFAA arbitration would not support a claim for malicious prosecution. In order to prove malicious prosecution, the plaintiff must be able to show that the plaintiff prevailed. At first blush, it would appear that Dorit prevailed in the MFAA arbitration, because Noe was denied relief and had to pay filing fees. However, the outcome of the MFAA arbitration cannot be used in court, except for the very limited purpose of establishing whether the party seeking a de novo trial in Superior Court did better or worse than that party did in the fee arbitration, an issue relevant to whether fee shifting can occur. Given that  there was no appeal to the Superior Court here, the evidence of Dorit's success was technically inadmissible, and thus the attorney could not have established that he prevailed -- even though we know he did.

        

 

MFAA, Appealibility, Jurisdiction: An Order Denying A Petition To Compel A Mandatory Fee Arbitration Act Arbitration Is Not Appealable

Appealability Under The Mandatory Fee Arbitration Act Is Different Than Appealability Under The California Arbitration Act.

            The holding of Levinson Arshonsky & Kurtz LLP v Kim (2/1  5/29/19) (Weingart, J.), is that an order denying a petition to compel an MFAA arbitration is not appealable. Therefore, the Court of Appeal lacks jurisdiction to hear it.

          The case arose from restaurateur David Kim's fee dispute with his attorneys, Levinson Arshonsky & Kurtz LLP. After LAK provided notice of disputed billing matters to Kim and his attorney, Kim's attorney filed a petition for fee arbitration with the LACBA on behalf of a Kim-related entity. However, the petition was not filed on behalf of Kim personally, and thus the right to seek county bar mandatory fee arbitration ended up being waived.  Kim's attorney filed a petition to compel MFAA fee arbitration with the Superior Court, which was denied. Kim filed a timely notice of appeal from the order denying his petition to compel arbitration, and did not seek review of an order granting LAK's motion to vacate the stay.

        By analogy to the CAA, Kim argued that a denial of a petition to arbitrate should be appealable. The opinion is interesting because it points out that we have distinct statutory regimes in California, and each needs to be considered separately: (1) judicial arbitration of civil cases with limited amounts in controversy; (2) private contractual arbitration; and (3) mandatory fee arbitration. "[W]hereas a party in a CAA proceeding must move to stay the parallel non-arbitration proceeding, the MFAA adopts the reverse approach -- the parallel nonarbitration matter is automatically stayed, and the party seeking to proceed outside arbitration must move to lift the stay."

        COMMENT: Fee expert Gerald G. Knapton has an article in the June 17, 2019 issue of the Daily Journal entitled, "MFAA versus CFA: Jurisdictional traps for the unwary in arbitration". The article discusses Levinson Arshonsky & Kurtz LLP, as well as the previous case we posted about on May 30, Heimlich v. Shivji. Unfortunately, the Daily Journal is behind a paywall.

        

    

 

Arbitration, Nonsignatories, Agents, and Fees: Second District, Div. 7 Explains When Signatory To Arbitration Agreement Can Compel Nonsignatory Parent Of Signatory Subsidiary To Arbitrate

Court Of Appeals Also Distinguishes Between Arbitrator's Power To Deny Attorneys' Fees To Prevailing Party And Court's Error In Denying Attorneys' Fees Incurred In Postarbitration Proceedings.

    The Court of Appeal has done something very useful in this 57-page slip opinion concerning arbitration proceedings, and we like that. The Court has summarized its holding up front: "(1) an attorney does not have standing to petition to compel arbitration of his clients’ claims; (2) a signatory to an arbitration agreement can compel a nonsignatory parent company of a signatory subsidiary on an agency theory where (a) the parent controlled the subsidiary to such an extent that the subsidiary was a mere agent or instrumentality of the parent and (b) the claims against the parent arose out of the agency relationship; (3) the arbitrator did not exceed his authority by substituting the attorney’s clients as the real parties in interest in the arbitration; and (4) the arbitrator did not exceed his authority by denying attorneys’ fees to a party that prevailed in the arbitration. The last holding requires us to part company with DiMarco v. Chaney (1995) 31 Cal.App.4th 1809 (DiMarco) and agree with Safari Associates v. Superior Court (2014) 231 Cal.App.4th 1400." Cohen v. TNP 2008 Participating Notes Program, LLC, and TNP 2008 Participating Notes Program, LLC v. Mark Cohen, B266702 (7/2  1/29/19) (Segal, Perluss, Feuer).

    COMMENT: This case involved an attorney, his law firm, his clients, a parent company used for a real estate investment program, two subsidiaries, and a real estate investment plan that went south. The case is interesting for two reasons. First, some of the persons or entities had signed arbitration agreements, others had not. Therefore, the Court of Appeal delves in depth into when a signatory can bind a nonsignatory, when a principal can bind an agent, when an agent can bind a principal, and when a subsidiary can bind a parent corporation. Second, as Justice Segal explains, the Court parts company with DiMarco v. Chaney on the issue of attorney's fees. The Court holds that the arbitrator, acting in equity, need not award attorney's fees under a prevailing attorney's fees clause, unless the agreement is stated in mandatory terms that limit the arbitrator's discretion. However, post-arbitration fees are a different matter. Cal. Code of Civ. Proc., section 1293.2, provides, "The court shall award costs upon any judicial proceeding under this title as provided in Chapter 6 (commencing with Section 1021) of Title 14 of Part 2 of this code." Under the Code of Civil Procedure, costs must be awarded to the prevailing party, and attorney's fees may be costs. There is a nice blog post on the attorney's fees aspect of the case in the California Attorney's Fees blog today.

Arbitration, FAA, Adequacy of Record, Collateral Estoppel, Fees: Five Unpublished Cases Involving Hodgepodge Of Issues Result In Four Affirmances And One Dismissal.

Arbitration Cases Fly Under The Radar.

    In recent years, I have concentrated more on published arbitration cases than on unpublished cases -- first, because the unpublished cases are not citable in California state courts, and second, because there are simply so many of them. However, today, I have gathered five unpublished cases appearing in just the last five days to make three points:

    First, all five cases involve affirmances, or in one case, a grant of defendants'/respondents motion to dismiss the appeal. And this is an example of what we know to be true: it is very difficult in the courts to undo results of an arbitration.

    Second, the five unpublished cases demonstrate just how widely arbitration is now used to resolve myriad disputes: Loeffler v. RSM 8, LLC, No. G055100 (4/3 10/25/18) (Thompson, Fybel, Ikola) (dispute between home buyer and seller); Kivorkian v. Star Insurance Company, No. B272162 (2/3 10/26/18) (Egerton, Lavin, Dhanidina) (dispute between injured driver and insurance company); Belnap v. Pierce, No. D071245 (4/1  10/26/18) (O'Rourke, Nares, Haller) (partnership dispute between two dentists); Axten v. Axten, No. D073089 (4/1  10/30/18) (Guerrero, O'Rourke, Dato) (dispute between ex-spouses concerning attorney fees and costs award); Kote v. Blonska et al., No. G055436 (4/3  10/30/18) (Thompson, Aronson, Ikola) (dispute concerning accounting by trustee).

    Third, the five unpublished cases provide an example of how arbitration-related issues tend to fly under the radar. First, the arbitration itself is usually a private affair, without precedential importance. Second, when arbitration issues do end up in the appellate courts, resulting in written opinions, then the written opinions, like most generated by the California Courts of Appeal, are unpublished and uncitable. That is the case with all five of these unpublished opinions, appearing over a span of five calendar days. During the same time period, as of the time of this post, I had not seen any published California state court appellate opinion involving arbitration.

    As to the issues addressed by these five opinions, here is a brief and incomplete rundown:

•  Loeffler -- whether the FAA governed, whether the arbitration award was untimely, and whether the arbitrator should have issued a statement of decision;
• Kivorkian  -- whether a bad faith action filed to attack an arbitration constituted an improper collateral attack on the arbitration award;
• Belnap -- whether plaintiff's claims were barred by res judicata and collateral estoppel;
• Axten -- whether an adequate record allowed review of a claim on the merits and whether the arbitrator determined appellant was a prevailing party;
• Kote -- whether a notice of appeal of an order confirming an award was proper in the absence of a judgment.

   

Arbitration, Fees, Jurisdiction: First District, Div. 2 Holds That California Court, Rather Than Tribal Court, Had Jurisdiction To Award Fees For Successful Motion To Compel Arbitration

Tribal Sovereign Immunity Was At Issue.

        Lawsuits filed against Indian tribes trigger issues of tribal sovereign immunity and jurisdiction. Such was the case in Findleton v. Coyote Valley Band of Pomo Indians, A150444 (1/2  9/25/18) (Stewart, Kline, Richman). This is the third appeal concerning contractor Findleton's efforts  to enforce arbitration clauses against the Coyote Valley Band of Pomo Indians (Tribe). We previously posted on August 2, 2016, about the first appeal, in which the Court held that the Tribe had waived its sovereign immunity for purposes of arbitrating the contract disputes and that the waiver extended to judicial enforcement of the right to arbitrate and any arbitration award. In the second appeal, the Court reversed the trial court's grant of the Tribe's motion for prevailing party attorney fees because the Tribe was not a prevailing party. 

    Findleton then filed a motion to compel mediation and arbitration and a motion for an award of attorney fees incurred on appeal. The trial court granted the fee motion and the Tribe appealed. 

    By the time the third appeal rolled around, the key issue of a waiver of tribal sovereign immunity had been (mostly) resolved. However, one issue had not yet been resolved: "whether judicial enforcement of arbitration included a potential motion by Findleton for attorney fees." That's a pretty narrow issue, and as the Court explained in Findleton III, it had already held in Findleton I that "the Tribe's waiver of sovereign immunity encompassed judciaial enforcement of Findleton's contractual right to arbitrate." And, critically, "Judicial enforcement of the right to arbitrate includes awarding fees specifically incurred to enforce that right."

    The Court affirmed the order granting attorney fees and costs incurred by Findleton to enforce his right to arbitrate.

Indian court, Federal Building, Golden Gate International Exposition, San Francisco, 1939 Pomo Indian basket, California. Library of Congress.

Arbitration, Fees: Cal Supreme Court Agrees That Law Firm's Conflict Of Interest Prevents It From Recovering Fees, But

Majority Remands So That Quantum Meruit Recovery Can Be Considered; Dissent Believes Neither Contractual Nor Quantum Meruit Recovery Should Be Awarded.

    Dear Readers, as we approach the three-day Labor Day Weekend, which I hope each of you will enjoy, I would like to spare your having to read a California Supreme Court majority slip opinion that is 43 pages long, followed by a dissent that is 30 pages long. However, if you want to read the majority opinion and the dissent too, just click here. Sheppard, Mullin, Richter & Hampton v. J-M Manufacturing Company, Inc., S232946 (Sup. Ct.  8/30/18) (maj: Kruger, Corrigan, Liu, Cuellar, Nares) (dsst: Chin, Cantil Sakauye, C.J.).

    The law firm represented J-M Manufacturing Company, Inc. in the defense of a federal qui tam action. It also represented South Tahoe Public Utility District, one of the parties suing J-M. The law firm also obtained conflict waivers from the parties, without, however, disclosing to the parties that it represented their opponents in other matters. A fee dispute arose between J-M and the law firm. The fee dispute was sent to arbitration, and the arbitrator awarded fees on the contract to the law firm. The superior court confirmed the award. However, the Court of Appeal reversed, holding that the law firm was precluded from obtaining contractual fee recovery because of its failure to disclose the existing conflict. I blogged about the Court of Appeal opinion on January 31, 2016.

    The Supreme Court majority, as well as the two dissenters, agreed that the Court of Appeal was correct to deny contractual fee recovery based on the undisclosed conflict. However, the majority remanded for consideration of the possibility of equitable recovery in quantum meruit, whereas the dissenters would have held that the disqualification from fee recovery should be total.

Fees, Section 1286.2 Vacatur: Recent 2/1 DCA Unpublished Opinion Is A Stark Reminder To Raise Fees And Costs Issue To An Arbitrator Before A Final Award Is Issued

Otherwise, Fees/Costs Recovery Could Be Forfeited; Best Is To Ask For An Interim Award On Merits And Reserve Other Issues For Later Interim Award.

            The next case really is a stark reminder to litigators to make sure an arbitrator reserves fees and costs issues for decision in a subsequent interim award after an interim award on the merits. If you do not do so, you may face the unhappy conclusion in the next case.

           The unhappy conclusion in Buckley v. El Dorado Enterprises, Inc., Case No. B282204 (2d Dist., Div. 1 May 16, 2018) (unpublished) was that a claimant recovering on a pregnancy discrimination and failure to accommodate claims (but not awarded damages based on a subsequent reinstatement) did not gain a substantial award of attorney’s fees and costs as the prevailing party. We describe how this came about.

            The arbitrator entered a final award on the merits in favor of claimant, but claimant never requested any attorney’s fees. After that award, claimant moved for fees and costs, with the arbitrator in a second award deciding she was the prevailing party and awarding about $120,000 in fees, costs, AAA administrative fees, and arbitrator compensation/expenses. However, the trial judge vacated the award of fees and costs, prompting an appeal by claimant.

            The 2/1 DCA decided that claimant had no basis to supplement the first award with the second award recovery given that there was no mathematical error or failure of the arbitrator to rule on a submitted issue. This was so under the California Arbitration Act and the AAA Rules. So, the moral of the story (so to speak), is to make sure that a merits award is interim and that the arbitrator is asked to reserve a ruling on fees/costs through a later interim award. If not, and a final award is issued instead, a claimant may be deprived of a recoupment of substantial fees and costs even though the arbitrator would have awarded them but for labeling the award a “final” one.

Arbitration/Fees/Enforceability: Party Who Has Engaged In Arbitration In Good Faith And Becomes Unable To Pay Arbitrator's Fees May Be Entitled To Day In Court

The Options:  The Other Side Can Pay Arbitration Fees, Or The Matter Can Move To Court.

        "In its majestic equality," wrote Anatole France, "the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread."  So does this principle of equality mean that the law forbids a party, who engages in good faith in arbitration, and loses the ability to pay the arbitrator, from turning to a judicial forum for relief?  As one of my law professors would have put it, do the stringent TS rules of common law contracts apply to bind the party who is unable to pay to the deal it made?

        In Weiler v. Marcus & Millichap Real Estate Investment Services, Inc., et al. G053953 (4/3  4/30/18) (Thompson, Bedsworth, Moore), the Court of Appeal holds in a published opinion, "as we did in Roldan [219 Cal.App.4th 87 (2013)], when a party who has engaged in arbitration in good faith is unable to afford to continue in such a forum, that party may seek relief from the superior court."  In Roldan, the subject of my August 28, 2013 post, the Fourth District, Division Three, concluded that plaintiffs, "each of whom were subsequently granted permission to proceed in forma pauperis in the trial court, could likewise be excused from the obligation to pay fees associated with arbitration." 

        The Court of Appeal faulted the trial judge for applying an unconscionability analysis to the enforceability of the arbitration provision in Weiler. Unconscionability is analyzed at the time the agreement to arbitrate is entered into, and at that time, the Weilers were relatively well-to-do, before  losing $2M in the ill-fated 1031 exchange in which they were represented by Marcus & Millichap.  It would be hard, under those facts, to say that there was overreaching at the time of contract formation.  Here, however, the issue was entirely different.  The circumstances had changed over time such that the Weilers, an elderly couple ground down by the arbitration, lost the ability to pay, as a result of which they confronted the possibility of not being able to proceed in any forum, unless Marcus & Millichap paid the arbitration fees, or the parties proceeded to court.  Perhaps too the Court's view was colored by the hardball tactics of the defendant, who, for example, insisted on the use of three arbitrators at an hourly rate of $1,450.

        Arguably the Federal Arbitration Act applied, because the 1031 exchange involved properties in different states, Nevada and Texas.  And so the Court also determined that the outcome would be the same under the Federal Arbitration Act and under the California Arbitration.  In reaching this conclusion, the Court relied on the federal case, Tillman v. Tillman, 825 F.3d 1069 (9th Cir. 2016), the subject of my June 15, 2016 post.  Tillman relied on the provision in the Federal Arbitration Act, 9 U.S.C. section 3, that a party can apply to stay trial of the action "until such arbitration has been had in term of the agreement . . . "  In Tillman, the party followed the procedure required by the AAA, participated in good faith in the arbitration process, and simply ran out of money to pay the arbitrator.  The Court held in Tillman that the arbitration "had been had" and the party could now seek a judicial forum.  The California Court of Appeal found the analysis in Tillman to be persuasive.

        COMMENT:  Tillman is a Ninth Circuit case.  Query whether the US Supreme Court, as currently constituted, would show solicitude to the impecunious plaintiff, or more inclined to apply the TS rules of common law contracts.

        PRACTICE TIP:  One in the position of the Weilers will need to make a compelling showing of inability to pay.  This matter is being remanded, and the trial court will need to find if the "party's financial status is not a result of the  party's intentional attempt to avoid arbitration."  If there is no intentional attempt to finagle finances, then the trial court can order the arbitration to continue if the defendant agrees to pay (or order it to pay!), or deem the arbitration to be "had", allowing the case to proceed in court.

        

 

Arbitration/Fees: Attorney Relies On Arbitration Provision To Arbitrate Fee Issue, And Obtains Very Substantial Award

$78,154.49 In Unpaid Fees Plus $126,406.25 In Fees Plus $36,681.57 In Costs Plus $133,362.50 In  Fees From Court For Motion To Compel And Motion To Confirm Award.

        On April 28, 2018, my colleague Mike Hensley posted on Caswell v. Jamgotchian, Case No. B271389 (2d Dist., Div. 3 Apr. 24, 2018) (unpublished) in our California Attorney's Fees blawg.  In this case, an attorney arbitrated a fee dispute with his client, obtained a substantial arbitration award for fees and costs, and the superior court judge then added fees for having to bring a motion to compel arbitration and confirm the award.  Mike cites this case as demonstrating "how fees/costs easily can outstrip base compensatory award."     And the former client is also on the hook for fees on appeal, to be determined by a fee petition before the superior court judge.

Arbitration/Fees: 2/1 DCA Accepts "Incremental Or Successive Award Process" To Allow Party To Obtain Cost Award After Trial Judge Entered Judgment On "Partial Final Award"

Court Of Appeal Couldn't Find Case Or Rule Preventing This Procedure.

        EHM Productions, Inc. v. Starline Tours of Hollywood, Inc., B281595 (2/2  3/28/18) (Chavez, Lui, Ashmann-Gerst), presents a situation that arises from time to time in arbitration:  a prevailing party seeks to recover attorney's fees, costs, or both, after an earlier entry of judgment requiring Starline Tours to defend EHM Productions in a wage and hours case brought by bus drivers.  This is problematic, because of the one judgment rule.   The procedure can be confusing in arbitration, because we are accustomed to following procedures in civil trials to obtain costs and fees. 

         In EHM Productions, Defendant and Appellant Starline Tours challenged the trial court's confirmation of a cost award obtained in arbitration after a so-called "partial final award" on the merits had already been entered as a judgment.   The trial court relied on Hightower v. Superior Court, 86 Cal.App.4th 1415, 1434 (2001) for the proposition that "utilization of a multiple incremental or successive award process may be appropriate." 

        The Court of Appeal, also relying on Hightower, accepted the approach taken by EHM Productions, the prevailing party in arbitration.  The Court of Appeal explained, "Hightower suggests that an incremental award process may be appropriate in situations where not all issues may be resolved at the time of the initial partial final award."  Also, the Court of Appeal could not find a case foreclosing obtaining the costs judgment here.  And the very last footnote in the opinion notes that the arbitrator reserved jurisdiction to enforce appellant's defense obligation going forward, that the arbitrator might enter future substantive and cost awards, and that application of the one judgment rule could prevent confirmation of such awards in the future.

         COMMENT: The Court's aside that it was unable to find a case preventing the approach it took, and that there was no requirement to amend the petition to confirm the substantive award "under the circumstances of this case," should make one cautious about what procedure to follow in the future.  Best to have the parties discuss the matter with the arbitrator, get everyone on the same page, and avoid the pleasure of obtaining a published appellate opinion.