Arbitration/1286.2 Vacatur: Second District, Div. 2 Affirms Judgment Confirming Arbitration Award in Attorney-Client Fee Dispute
“Manifest Disregard of the Law” Doctrine Inapplicable to Arbitrator’s Decision Concerning Attorney’s Fees Dispute Between Law Firm and Client
Appellant Fuchs & Associates, Inc. (Law Firm) sued former client, Elke Lesso, for unpaid attorney’s fees of $647.688.13. An arbitrator found Law Firm was not entitled to recover additional fees, and its attorney fee lien was invalid. On appeal, the Law Firm attacked the arbitration award – unsuccessfully. Fuchs & Associates, Inc. v. Lesso, Case No. B239246 (2nd Dist. Div. 2 January 8, 2013) (Doi Todd, Acting P.J., author) (unpublished).
The Court of Appeal rejected arguments that the Arbitrator exceeded his powers by rewriting the fee agreement, failing to decide issues submitted, or deciding issues not submitted. The Court also rejected an argument that the arbitration hearing should have been continued, because the Law Firm did not identify what additional evidence it wished to present that it was precluded from presenting, or how it was prejudiced.
The Law Firm also argued that the arbitration award should be vacated because of the Arbitrator’s “manifest disregard of the law.” This is a basis for rejecting an award in federal cases, but in state cases, a strict review standard for legal error “does not include a ‘manifest disregard’ exception, while at the same time leaving open the possibility of greater judicial review . . . in the case of rulings inconsistent with the protection of statutory rights.” (citing Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4th 665, 679, n. 3 (2010)).
Evidently, however, the Court of Appeal viewed this attorney-client fee dispute as a private affair that did not trigger protection of statutory rights and heightened scrutiny, for it observed: “[Law Firm] has not cited any authority showing than an arbitrator’s decision on a law firm’s action for attorney fees has ever been reviewed on the merits by a trial court under the exceptional circumstances involving a statutory or public policy decision.”
Is it possible that the Court’s view of the case was somewhat colored by Law Firm’s failure to “advise Lesso to seek independent legal counsel before she signed the loan” (to make possible the payment of in pendente lite attorney fees); by Law Firm’s concession “that it did not inform Lesso that it would be taking the position that the [attorney’s fees] lien would attach to all of her assets”; or by the fact that at the time of the arbitration, the attorney had been disciplined by the State Bar three times? See Fuchs & Associates, Inc., n. 3.
Scope of Arbitrator’s Power: Arbitrator Did Not Exceed Scope of His Power When He Denied A Motion For An Uncontested Arbitration
Result Is Dictated By Stipulation to Arbitrate, Weak Record, and Failure To Object Earlier
Wheel of Fortune. Carol M. Highsmith, photographer. Between 1980 – 2006. Library of Congress.
Plaintiff Jin Gang Zhao was on a bus headed to a casino, when a bus accident occurred, he fell to the floor, and injured his back. In the ensuing arbitration, Mr. Zhao was awarded $15,000 in damages against a dissolved bus company located in China, and defendant was awarded $26,268.03 in costs. The Arbitrator apparently rejected the plaintiff’s objection that injury in the bus accident drove plaintiff to drink “Red Sorghum,” a strong Chinese liquor, causing him to suffer liver damage. Plaintiff appealed confirmation of the arbitration award on the grounds that the stipulation to arbitrate was invalid, and the Arbitrator exceeded the scope of his power by denying plaintiff’s motion for an uncontested arbitration. Zhao v. Ming Du International Trade, Inc., Case No. B236813 (2nd Dist. Div. 5 January 7, 2013) (Turner, P.J., author) (unpublished).
The wrinkle here is that the defendant was dissolved and absent from the US, did not sign the stipulation to arbitrate, and did not show up at the hearing. Because the defendant did not sign the stipulation, plaintiff argued it was invalid. And because defendant did not show up at the hearing, despite a notice to attend, plaintiff argued that the arbitration should have been tried as an uncontested matter.
But the Court of Appeal did not agree with plaintiff. The defendant didn’t sign the stipulation, but its carrier did, and no evidence was offered that plaintiff objected, or that the carrier lacked agency authority. True, defendant failed to appear for the hearing, but the Court of Appeal explained, “it is clear that the very intention of the stipulation was to have the matter proceed to a contested binding arbitration, otherwise the stipulation itself makes no sense.” The stipulation provided that the Arbitrator “[i]n his sole discretion” would control proceedings and regulate the order of proof, and determine all questions submitted to the Arbitrator. Result: “The arbitrator acted well within the scope of his powers.”
Thus, the plaintiff was stuck with the outcome, as the arbitration award was affirmed.
Of course, the plaintiff and his counsel didn’t have to sign the stipulation to arbitrate, but absent 20/20 hindsight, plaintiff and his counsel could not know the result would be unfavorable.
Mediation/Condition Precedent/Attorney’s Fees: Second District, Division 2 Reverses Award Of Attorney’s Fees To Prevailing Tenant Who Failed To Request Mediation
Magnitude Of Loss Of Fees Based On Failure To Mediate Eclipses Substantive Win
Eclipse Chewing Tobacco. c1871. Library of Congress.
Our blog has a sidebar category “Mediation: Condition Precedent” that conveniently summarizes the problem that arose for the plaintiff/respondent/tenant in the next case. The accompanying tobacco label for a solar eclipse provides a graphic for the outcome.
In this landlord/tenant dispute, tenant prevailed, with the trial court awarding the tenant $12,140.84 in actual damages, and $25,485 for landlord’s bad faith retention of a security deposit. The tenant moved for attorney’s fees pursuant to a clause in the lease. Of the $107,217 in fees sought by the tenant, the court awarded $73,125 in attorney fees. The calculus, however, changed substantially after the landlord appealed. De Carlo v. Kosser, Case No. B237278 (2nd Dist. Div. 5 January 7, 2013) (Armstrong, Acting P.J., author) (unpublished).
On appeal, the judgment was affirmed, except that it was reversed as to attorney fees. The reason? Here, the opinion hedges. If the tenant’s suit was a suit on a lease, then the tenant failed to request mediation, a condition precedent to the recovery of fees under the lease. And if it was not a suit on a lease? Then it was a suit on a settlement agreement that did not provide for an award of fees. Ouch either way.
Arbitration/Unconscionability/Severability: First District, Division 1 Affirms Denial Of Petition To Arbitrate Car Sales Contract Dispute On Grounds Of Unconscionability
The Issue Is Also Pending In The California Supreme Court
The latest in the crop of cases concerning car sales contracts and petitions to compel arbitration is Natalini v. Import Motors, Inc., Case No. A133236 (1st Dist. Div. 1 January 7, 2013) (Simons, J., author) (unpublished). The Court had no trouble affirming the denial of the petition to arbitrate on grounds of procedural and substantive unconscionability. As recently as New Year’s Day, I posted about arbitration, unconscionability, and an auto sales contract involving a Dodge Avenger in another case.
The analysis here in Natalini fits the template for these cases: the contract is an adhesive “take it or leave it” contract, and there is an element of surprise, because the arbitration provision is not particularly conspicuous, on the back of a form, and not pointed out to the buyer. That satisfies the “procedural unconscionability” prong.
As to the “substantive unconscionability” prong, the arbitration provision shares characteristics of other one-sided arbitration provisions designed to favor the car dealer in car sales contracts. Thus, the arbitration provision authorizes an appeal resulting in new arbitration before a three-arbitrator panel only for an award of $0 or in excess of $100,000, the provision authorizes an appeal resulting in a new arbitration before a three-arbitrator panel if the award includes injunctive relief, and the provision exempts self-help remedies, perhaps the car dealer’s most significant remedies. Those provisions, treated as one-sided in other cases, added up to substantive unfairness. And because the arbitration provision can be considered “permeated by unconscionability” if it has more than one unlawful provision, the trial court does not abuse its discretion by declining to sever unconscionable aspects of provision.
Keep in mind that Sanchez v. Valencia Holding Company (S199119) is pending before the California Supreme Court. The issue presented in Sanchez is: “Does the Federal Arbitration Act . . . as interpreted in AT&T Mobility LLC v. Concepcion . . . preempt state law rules invalidating mandatory arbitration provisions in a consumer contract as procedurally and substantively unconscionable.”
Arbitration/Section 1295/Section 1281.2: Fourth District, Division 2 Affirms Denial Of Petition To Arbitrate Wrongful Death Claim Against Senior Living Center Outside Context of CCP Section 1295
In Which We Inaugurate A New Side Bar Category: Section 1295 (Medical Malpractice)
“The Patient.” Frederic Dorr Steele, artist. 1901. Library of Congress.
The plaintiff in the next case, Norma Daniels, is alive. Her mother, Margaret Barcenas, is dead. Ms. Daniels sued a residential care facility for the elderly (RCFE), its owners and its operators, for elder abuse and related claims (survivor claims), as well as for wrongful death. The trial court denied defendants’ petition to compel arbitration on the grounds(i) that Daniels was a third party to the arbitration agreement, and also, (ii) that there was a possibility of conflicting rulings if the survivor claims were arbitrated, and the wrongful death claim was not arbitrated. Daniels v. Sunrise Senior Living, Inc., E054472 (4th Dist. Div. 2 January 4, 2013) (King, J., author) (certified for publication).
The Court of Appeal affirmed, despite the fact that the agreement with the RCFE contained a broad arbitration clause, covering all claims relating to the mother’s care received at the RCFE, the clause was binding on the mother’s heirs, and Daniels had signed the agreement. Notwithstanding those bumps in the road, the road to affirmance was relatively direct.
First, Daniels did not sign in her personal capacity, but as her mother’s attorney in fact, allowing her to be treated as a third party to the agreement.
Second, while the survivor claims were brought in Daniel’s capacity as an heir, the wrongful death claim was brought in her personal capacity. “Unlike some jurisdictions wherein wrongful death actions are derivative, Code of Civil Procedure section 377.60 ‘creates a new cause of action in favor of the heirs as beneficiaries, based upon their own independent pecuniary injury suffered by loss of a relative, and distinct from any the deceased might have maintained had he survived. . . . ‘” Horwich v. Superior Court, 21 Cal.4th 272, 283 (1999). In her personal capacity, Daniel retained her third party status.
Third, the case is distinguishable from Ruiz v. Podolsky, 50 Cal.4th 838 (2010) and Herbert v. Superior Court, 169 Cal.App.3d 718 (1985), cases holding nonsignatories to an arbitration agreement must arbitrate wrongful death claims against a health care provider when the decedent agreed to arbitrate medical malpractice claims pursuant to Cal. Code Civ. Proc. 1295. Section 1295 governs agreements to arbitrate professional negligence or medical malpractice claims in medical services contracts. Section 1295, however, includes notice safeguards to ensure a person makes an informed choice about arbitration – none of which were present here. The Court explains that “this is the critical distinction between Herbert and Ruiz and the present case.”” Thus, a policy argument based on an analogy to cases involving 1295, which has its own built-in safeguards, held no attraction here. (Note: the Court points out there is no “statutory analog to section 1295, applicable to RCFE’s nonhealth care providers or to claims other than professional negligence . . . “. Perhaps a lobbyist will now step forward to try and plug the gap.)
Fourth, Cal. Code of Civ. Proc. 1281.2(c) allows a court to refuse to compel arbitration if there is a danger of inconsistent rulings on common questions of law or fact. Here, the possibility that survivor claims could be ordered to arbitration, whereas Daniels’s wrongful death claim could not be, presented “a possibility of inconsistent rulings on the claims given that the claims are based on the allegation that Barcenas received inadequate care at Sunrise. . . . Because the trial court’s discretionary ruling does not exceed the bounds of reason, we will not disturb it.”
This case involves no analysis of federal case law or of the Federal Arbitration Act. Perhaps federal law was simply irrelevant, given the Court’s conclusion that Daniels was not a party to an arbitration agreement.
Does anyone believe that the gross facts alleged in this case – pressure sores on heels and ankles, followed by “septic shock, pneumonia, dehydration, and a staph infection”, followed by death of the plaintiff’s 93 year old mother, had any impact on the judges’ decision allowing the plaintiff her day in court?
The Supreme Court and Arbitration – 2012 and 2013
Recommended reading: two posts by attorney Liz Kramer in Arbitration Nation: “2012 in Arbitration Law: Is Class Arbitration Naughty or Nice?” and “Preview of SCOTUS’s 2013 Double Feature on Class Action.”
That Was the Year That Was
In 2012, the big issue was class arbitration, with several states having pro-class-arbitration decisions reversed based on the Supreme Court’s 2011 ruling in Concepcion. In the federal courts, divergent views emerged on how to apply Stolt-Nielsen, a SCOTUS case holding arbitrators exceeded their authority under the Federal Arbitration Act by permitting class-wide arbitration under circumstances where the parties had stipulated that their agreement was silent as to the availability of class-wide arbitration. Ms. Kramer observes that this is a rapidly changing area of law about which SCOTUS seems “passionate”, and concludes, “I can’t wait to see what’s on Scalia’s naughty list in 2013!”
Double Header in 2013
“Two Games Today.” Puck. 1913. Library of Congress.
Based on the preoccupation with class-wide arbitration, and with the split over Stolt-Nielsen, SCOTUS’s work on the arbitration front is cut out for it in two cases it has accepted for 2013: Oxford Health Plans, LLC v. Sutter, and American Express Co. v. Italian Colors Restaurant (Amex III).
On November 20, 2012, I posted about American Express Co. under the heading, “Can An Arbitration Class Action Waiver Be Enforced If The Plaintiff Would Not Be Able To Effectively Vindicate Federal Statutory Rights Through Arbitration?”
“In my view,” writes Liz Kramer, “the real issue here is will SCOTUS acknowledge any expense-based exception to its arbitration precedent?” In other words, are economic realities ever a sufficient reason to nix arbitration? The Second Circuit believed the answer was yes, in the case of antitrust litigation. But Ms. Kramer opines that this decision is likely to be reversed.
Oxford Health Plans affords SCOTUS an opportunity to resolve the split over the application of Stolt-Nielsen. Does class-wide arbitration require express authorization, or can it be implied through the traditional methods of contract interpretation by the arbitrator?
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