Arbitration/Collateral Estoppel: Admission Of Arbitral Award In Jury Proceeding Was Error, But No Matter, The Error Was Harmless Here
The Context: Arbitral Award Against LLC, Jury Trial Against Members Of LLC.
Following a default prove-up, plaintiff listing broker CB Richard Ellis, Inc. obtained a substantial arbitral award from an LLC owing CBRE a commission for the sale of real property. Because the LLC had no assets, CBRE then sued the individual members of the LLC. Over the objections of the defendants, the trial judge admitted into evidence the arbitral award against the LLC. CBRE obtained a judgment against the defendants, prompting an appeal. CB Richard Ellis, Inc. v. Terra Nostra Consultants, No. G049803 (4/3 Oct. 7, 2014) (Ikola, O’Leary, Aronson) (partially certified for partial publication).
In a part of the opinion not certified for publication, the Court of Appeal found the court erred by admitting the entire arbitral award, complete with the arbitrator’s factual findings and reasoning, because the arbitral award against the LLC could not collaterally estop the members of the LLC, who were the defendants. As a result, the arbitral award was irrelevant (except to provide background and context), though it could prejudice the jury. But the Court of Appeal concluded that the error was harmless, and did not make a difference to the outcome, because there was plenty of evidence to support the judgment.
The Court of Appeal affirmed the judgment, and reversed a postjudgment order denying recovery of attorney fees. For discussion of the attorney’s fees issue, see post on California Attorney’s Fees.
PRACTICE TIP from the Court of Appeal: “To the extent the jury needed background information concerning the arbitration to make sense of the case, the information could have been provided to the jury without revealing the arbitrator’s factual findings and legal reasoning.”
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
![[Royal Canadian northwest mounted policemen on horseback, Dawson, Yukon Territory, Canada]](http://lcweb2.loc.gov/service/pnp/cph/3c00000/3c09000/3c09700/3c09718r.jpg)
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/Employment/Enforceability: Fifth District Holds Agreement For Advisory Arbitration Is Not Enforceable Under The California Arbitration Act
But Federal Law Is Not So Clear
The issue in Operating Engineers Local Union No. 3 v. City of Porterville, Case No. F067635 (5th Dist. Oct. 2, 2014) (Kane, Levy, Detjen) (unpublished) is whether an agreement between a city and a union to submit an employment dispute to advisory arbitration is enforceable under the California Arbitration Act. The Court’s answer: No.
An advisory arbitration does not satisfy all three elements necessary to be considered arbitration under the CAA: “[1] a third party decision maker, [2] a final and binding decision, and [3] a mechanism to assure a minimum level of impartiality with respect to the rendering of that decision.” Cheng-Canindin v. Renaissance Hotel Associates, 50 Cal.App.4th 676, 687-688 (1996). An advisory opinion does not satisfy the “final and binding” requirement.
NOTE: Federal law appears to be unclear as to whether a different result would follow under the Federal Arbitration Act. Cf. Wolsey Ltd. v. Foodmaker, Inc., 144 F.3d 1205, 1209 (9th Cir. 1998) (arbitration need not be binding in order to fall within scope of the FAA) and Advanced Bodycare Solutions v. Thione Intern., 514 F.Supp.2d 1326, 1333 (S.D. Fla. 2007) (arbitration agreement that does not require parties to arbitrate to final decision “does not mesh with the concept of ‘arbitration’ within the contemplation of the FAA”). Of course, the California Court of Appeal was not required to follow Wolsey, and instead it followed Cheng-Canindin.
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/Public Policy/Correction Of Judgment: Policy Against Certain Fee Splitting Arrangements Does Not Justify Judicial Review Of Arbitration Award Enforcing Oral Fee Splitting Arrangement
Arbitrator Did Not Exceed His Powers By Enforcing Oral Fee Splitting Arrangement
Attorneys Cohen and Sheinkopf had an oral agreement to split client fees: 75% to Cohen, 25% to Sheinkopf. After the two attorneys went their separate ways, they arbitrated a fee dispute in which the arbitrator enforced their oral fee splitting agreement, resulting in an award that the trial court confirmed as a judgment. Sheinkopf appealed, arguing that because the arbitrator’s enforcement of an oral fee splitting arrangement violated Rule of Professional Conduct 2-200, and was contrary to public policy, the arbitrator had exceeded his powers. Cohen v. Sheinkopf, Case No. B252301 (2/3 Oct. 2, 2014) (Edmon, Kitching, Aldrich) (unpublished).
Some courts have indeed stated an arbitrator exceeds his or her powers by issuing an award violating “an explicit legislative expression of public policy.” But apparently not all public policies are equal. Here, the Court of Appeal viewed the dispute among attorneys as more of a private matter, with the public policy served by the prohibition against fee splitting not justifying judicial review of the arbitration award.
Sheinkopf’s argument that the trial court erred by concluding she waived the right to litigate a statute of limitations issue also made no headway, because she submitted the limitations issue to the arbitrator without objection.
However, Sheinkopf was successful in getting a modification of the judgment, because the trial court’s judgment simply failed to include an amount for $6,312 that the arbitrator had awarded to her – and she also received prejudgment interest on that omitted amount.
Arbitrator: Second District, Div 2 Holds That Trial Court Committed “Multiple Errors” When It Appointed Arbitrator
Judgment Confirming Arbitration Award Is Reversed, And Appeal From Sanction Order Is Dismissed.
Wendy Kronick appealed from the trial court’s judgment confirming an arbitration award in favor of her former family law attorney, Debra A. Opri. Kronick v. Opri, B241510 (2/1 Sept. 30, 2014) (Ashmann-Gerst, Chavez, Ferns) (unpublished). Ms. Kronick argued that the trial judge committed errors by failing to follow the procedure dictated by an arbitration clause when the judge appointed the arbitrator in an attorney-client fee dispute.
Kronick initially provided the names of two arbitrators to Opri, who rejected them, and Opri provided names that Kronick rejected. Opri complained to Kronick about a “circular display of how much you seek to frustrate the arbitration process.” Eventually, the trial judge took control of the situation, and appointed Justice Sheila Sonenshine, Ret., as the arbitrator.
The arbitration clause provided, in relevant part:
“The initiator of the proceedings shall do so in writing by submitting two names of retired California court judges to the responding party, and if the responding party does not agree to any of the two nominees, within ten [10] days the responding party shall provide two names of retired California superior court judges from which the initiating party may choose one. If the parties cannot agree on an arbitrator, one shall be chosen by a court of competent jurisdiction from the four nominees.”
The Court of Appeal concluded that “[t]he trial court committed multiple errors” when appointing the arbitrator – by my count, at least six errors: (1) the trial court required Opri to unilaterally select an arbitral forum before the arbitrator was agreed upon, whereas the arbitration clause required selection of the arbitrator to dictate the arbitral forum; (2) the trial court erroneously accused Kronick of failing to submit two nominees; (3) the trial court erred by rejecting the two nominees, requiring Kronick instead to submit two names from JAMS; (4) the court held a continued hearing date on September 23, 2010, despite having told Kronick the hearing date would be October 23; (5) the court rejected Kronick’s two nominees because unacceptable to Opri, and accepted two new nominees from Opri, essentially giving Opri four nominees; (6) the court chose Justice Sonenshine, though she was not one of Opri’s original two nominees, and did not give Kronick an opportunity to agree to a new nominee.
Needless to say, the Court of Appeal reversed the judgment confirming the arbitration award.
However, Kronick’s appeal of a discovery sanction of $3,200 was dismissed, because it was less than $5,000, and non-appealable. On the brighter side for Kronick, the Court of Appeal informs us that she and her husband “reconciled” – and it was legal work related to their marital dispute that led to Opri’s fee claim against Kronick in the first place.
BONUS: Ms. Opri’s website describes her as “widely considered to be one of the most recognizable female litigation attorneys of the 21st Century, both in the courtroom and on television.” Ms. Kronick was the plaintiff in another case posted about on February 11, 2014, on California Attorney’s Fees, in which case, among other things, she claimed that the defendant kicked her seven-month old Dalmatian puppy in a park.