Arbitration/Rules/Fees: Court Of Appeal Affirms Denial Of Request For Attorney’s Fees As AAA Rules Were Insufficient Basis For Fee Entitlement
AAA Clause Does Not Contain Required Prevailing Party Language Necessary For Fee Recover Under Civ. Code section 1717
In Fujian Peak Group, Inc. v. Huang, No. D063296 (4th Dist. Div. 1 May 15, 2014) (Huffman, McConnell, O’Rourke) (unpublished), defendant Huang was deleted from an arbitration award because he had neither been served nor had he consented to arbitration. Denied a request to recover his attorney’s fees, he appealed – unsuccessfully.
While there were several grounds for denying Huang’s request for fees, the most relevant one to the subject of arbitration is that AAA rule-43 did not include “prevailing party” language that would allow for fee recovery under Civ. Code section 1717 principles of reciprocity. Under AAA rule 43(d), the award could include an award of attorney fees if all parties have requested such an award or it is authorized by law or their arbitration agreement. Here, because the arbitration clause also did “not contain the required prevailing party language” applicable to the individual defendant/appellant, the AAA rules alone could not authorize fee recovery.
Affirmed.
Mandatory Fee Arbitration Act/Deadlines/Standard of Review
Failure To Observe 30-Day Deadline To File Rejection Or Request Trial Tubes Appeal
Rothman v. Deshay, Case No. B245075 (2nd Dist. Div. 4 May 13, 2014) (Epstein, Manella, Edmon) (unpublished) is a Court of Appeal case that has its genesis in mandatory fee arbitration between attorney Rothman and client Deshay. Though unpublished, the case has some worthwhile lessons for clients and attorneys engaged in fee arbitration.
First, the review of a judgment confirming an arbitration award – like the review of arbitration awards in general – will be limited. The award won’t be subject to judicial review except on the grounds set forth in Code of Civ. Proc. sections 1286.2 (to vacate) and 1286.6 (for correction).
Second, even though elective arbitration before the County Bar may seem informal, there is a strict 30-day deadline to challenge the award by filing a rejection and request for trial. Bus. & Prof. Code section 6203(b). Here, the appellant failed to observe the 30-day deadline, and that tanked, tubed, torpedoed, and doomed the appeal.
Third, a party needs to be careful about whom they say they represent in arbitration. Appellant contended that the arbitration award was invalid because it only bound Deshay, and failed to bind other affiliated parties in the dispute. Despite some confusion in the record, however, appellant had written earlier to the arbitrators and the court to clarify he sought arbitration on behalf of all appellants who were affiliated with him. “Under these circumstances, the arbitration award bound appellants referenced in respondent’s underlying complaint, Deshay’s letter to the arbitrators and the court, and the ‘et al’ reference in their request for arbitration.”
Fourth, the opinion discusses whether the trial court erred by denying a motion for leave to file a cross-complaint. Deshay wanted to file a cross-complaint for malpractice. The MFAA prohibits clients from raising malpractice claims during the arbitration, except insofar as the claim bears upon fees. Here, the trial court denied appellant’s motion for leave to file a cross-complaint (i) because it was untimely; and (ii) because the malpractice issues, though they could not have been raised affirmatively as a cross complaint in MFAA arbitration, should have been raised defensively.
Fifth and finally, the case discusses whether the attorney was entitled to recover fees under Trope v. Katz, 11 Cal. 4th 274 (1995) (holding that an attorney who chooses to litigate his own case cannot recover fees under Civ. Code section 1717). Here, attorney Rothman was entitled to recover, because he employed independent contractors. For further discussion of the attorney’s fees aspect of the case, see the May 14, 2014 blawg post on California Attorney’s Fees.
Arbitration/Collateral Estoppel/Res Judicata: Second District, Division 2 Holds Arbitrator’s Findings Do Not Bar Indemnification Claims Against Third-Party Subcontractors, And Reverses Judgment
An Exercise In Drawing Bright Lines
Home seller Reagan Silber sought indemnification from subcontractors after rather decisively losing an arbitration with a home buyer, who discovered extensive and undisclosed water intrusion in the Bel Air home. “The groundskeeper recalled that, on one occasion, Silber had joked to him that the house was worth over $20 million, but had to be ‘covered with plastic’ every time it rained.” However, the subcontractors successfully demurred to Mr. Silber’s indemnification claim, “arguing the arbitrator’s finding that Silber had deceived the purchaser barred any subsequent claim for indemnification.” Basically, the subcontractors argued that the arbitrator’s findings meant that Silber’s damages were his own bloody fault.
Given that the arbitrator awarded approximately $2.65 million in compensatory damages, $1.25 million in attorneys fees, and $850,000 in punitive damages, it is not surprising that Mr. Silber appealed. Silber v. Hanover Builders, Case No. B246975 (2nd Dist. Div. 7 May 12, 2014) (Zelon, Woods, Segal) (unpublished). And it was wise of him to do so (though obviously Mr. Silber did not seek indemnification for the punitive damages award).
The outcome hinges on the Court of Appeal’s analysis and conclusion that neither res judicata (claim preclusion) nor collateral estoppel (issue preclusion) barred Silber’s indemnification claim against third-party subcontractors.
Vandenberg v. Superior Court, 21 Cal.4th 815, 834 (1999) “established a bright-line rule that ‘a private arbitration award, even if judicially confirmed, can have no collateral estoppel effect in favor of third persons unless the arbitral parties agreed, in the particular case, that such a consequence should apply.’” Here, as there was no such private agreement among the arbitral parties, there could be no collateral estoppel effect.
Nor could there be claims preclusion, for the simple reason that the arbitration, based on deceit claims, and the indemnification action, arising from the subcontractors’ alleged failure to complete repairs they were hired to perform, did not involve the same “primary rights”, and hence did not involve the same cause of action. In the case of the arbitration, the buyer’s “primary right” was to be free from the injury caused by deception, whereas in the lawsuit against subcontractors, Silber’s “primary right” was the right to be free from harm caused by a subcontractor’s inadequate performance.
Reversed.
Arbitration/Unconscionability/Employement: Carmona v. Lincoln Millenium Car Wash, Inc. Is Now Certified For Publication
Unconscionability Of Arbitration Clause Involved In Car Wash Employees’ Contracts Was At Issue In This Case
Today, Carmona v. Lincoln Millenium Car Wash, Inc., Case No. B248143 (2nd Dist. Div. 8 filed April 21, 2014) (certified for publication May 9, 2014), originally not certified for publication, has been ordered to be published in the Official Reports. On April 23, 2014, I posted about this case. The Court of Appeal affirmed the trial court’s order, finding the arbitration agreement to be permeated by unconscionability, and refusing severance. An interesting aspect of the case is the weight given by the Court, in concluding that there was a high degree of procedural unconscionability, to the employer’s failure to translate key provisions into Spanish for Spanish-speaking employees.
News: Consumer Arbitration–Fair and Efficient?
Comment on a Comment: The Consumer Financial Protection Bureau Arbitration Study Preliminary Results
Is consumer arbitration fair and efficient?
On May 6, 2014, Steven I. Zeisel of the Consumer Bankers Association, “The Voice of the Retail Banking Industry,” posted a comment about the Consumer Financial Protection Bureau Arbitration Study Preliminary Results, under the heading: “Arbitration Is Fair and Efficient for Consumers.”
Pointing to conclusions of the preliminary report that “larger institutions are more likely to use arbitration clauses, arbitration clauses in account agreements can often be complex, and the agreements often contain class-action waivers,” Mr. Zeisel comments that the CFPB’s preliminary report may leave a misleading impression that arbitration clauses disadvantage consumers.
He concludes, “we are pleased the CFPB now says it will compare the costs and benefits to consumers from arbitration with those derived from individual and class action litigation.” Indeed, such a result would be an excellent outcome, because it is devilishly difficult to compare litigation and arbitration costs and benefits, and such a comparison would be of great benefit to consumers, corporations, and legislators.
However, some of Mr. Zeisel’s comments deserve scrutiny:
- He says that for nearly 90 years, arbitration has been a valuable means for consumers to quickly and easily resolve disputes in an efficient and affordable manner. Ninety years – that’s almost the exact age of the Federal Arbitration Act of 1925. But as Prof. Imre Szalai convincingly shows in his historical study of arbitration in the United States, the Federal Arbitration Act was created with an intent to provide an efficient and affordable dispute mechanism for merchants of equal bargaining power. See my February 19, 2014 review of Outsourcing Justice. Whether consumer arbitration is cost efficient is precisely the subject that deserves further study by the CFPB.
- Mr. Zeisel comments, “Congress recognized the importance of arbitration as a means of resolving consumer disputes when it enacted the Federal Arbitration Act in 1925.” But “resolving consumer disputes” played a very minor part, if any, in the enactment of the Federal Arbitration Act. And that is precisely why the fairness and efficiency of consumer arbitration deserve further attention by Congress.
- In support of the argument that consumer arbitration is cost efficient, Mr. Zeisel states that studies show: “the upfront cost to the consumer was far less than the fee required to file a complaint in the federal courts.” But that’s not a simple comparison. The fee for filing a complaint in federal court is $350. Given the restrictive requirements of federal jurisdiction, the cases filed in federal court are not going to be small claims cases. If the matter is a consumer class action, a $350 filing fee is not an excessive entry cost. Consumer advocates argue that class actions provide economies of scale. On the other hand, most consumer disputes are much smaller than class action disputes, and the litigation alternative is not federal court, but small claims court, where filing fees will be less than $350. (And in fact, many consumer arbitration clauses have a “carve-out” provision allowing for the filing of small claims.).
Now if the CFPB is able to methodically compare costs and benefits to consumers of arbitration versus litigation, that may help to answer the question we started with: whether consumer arbitration is really fair and efficient.
Mediation/Confidentiality: First District, Division 2 Agrees That Trial Court Did Not Err By Excluding 46 Documents From Evidence Based On Mediation Confidentiality
Confidentiality Provisions Are “Clear And Absolute.”
Yet again, the Court of Appeal reminds us, “[w]e have repeatedly said that these [mediation] confidentiality provisions are clear and absolute.” Syers Properties III, Inc. v. Rankin, et al., Case No. A136018 (1st Dist. Div. 2 May 5, 2014) (Kline, Haerle, Brick) (unpublished). In fact, I am convinced that is one reason why we don’t have even more reported appellate decisions concerning the mediation privilege: because the Courts of Appeal have generally drawn a “bright line” by saying that mediation confidentiality in Evid. Code section 1119 is “clear and absolute.”
The Court of Appeal didn’t even have to address the issue here, because it concluded on other grounds that plaintiff/appellant landlord, in a malpractice suit against its attorney, had developed no viable theory of damages, thus justifying a nonsuit by the trial court. But that didn’t deter the Court of Appeal from saying one more time that mediation confidentiality is “clear and absolute.” Well, not entirely, because as the Court acknowledged, there are “rare circumstances” that will justify an exception.
Here, however, there was no exception. Plaintiff/appellant “conceded that ‘the entire case is part of the mediation. . . . ‘”
Furthermore, plaintiff did not “attempt to show that any particular document was not subject to mediation confidentiality or was erroneously excluded.”
TIP: Given how very difficult it is to find an exception to mediation confidentiality, if you are going to argue that documents should not have been excluded based on Evid. Code 1119, at least focus on specific evidence, and show that exclusion resulted in prejudice. “It is plaintiff’s burden on appeal to show not only error, but also prejudice from the exclusion of evidence.”
For a discussion of attorney’s fees in a companion case, Syers Properties III, Inc. v. Rankin, Case No. A137610, see the May 6, 2014 blawg post on California Attorney’s Fees.