Filed
8/12/02
CERTIFIED FOR
PARTIAL PUBLICATION
IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE
DISTRICT
DIVISION FIVE
PHILIP KAHN et al.,
Plaintiffs
and Respondents, A096670
v. (San
Mateo County
Super.
Ct. No. 405408)
BENNY CHETCUTI, JR.,
Defendant
and Appellant.
_____________________________________/
In
this dispute arising from the sale of a home to respondents, seller Benny
Chetcuti, Jr., appeals from a judgment confirming an award in a contractual
arbitration and denying his petition to correct the award. He contends (1) the arbitrator exceeded his
powers, and (2) the arbitrator erred procedurally when he awarded attorney fees
and costs to respondents. In the
published portion of the opinion, we interpret the parties’ agreement to
authorize the arbitrator to determine whether the prevailing party’s act of
filing a complaint before an obligatory mediation barred the award of attorney
fees to that party. That determination,
we conclude, is not subject to judicial review. We reject the second argument
in the unpublished portion of our opinion and affirm the trial court’s
judgment.
I. FACTUAL AND PROCEDURAL BACKGROUND
In
March 1995, appellant purchased a residence located on Edgehill Drive in Burlingame
as a business investment. Appellant
renovated the property and then listed it for sale. Respondents Philip and Mara Kahn purchased
the residence from appellant in June 1996 for $455,000. The purchase agreement contained clauses
stating that any disputes arising out of the contract must be mediated, and if
that was unsuccessful, submitted to binding arbitration. The agreement also
provided that the prevailing party in any arbitration or other legal
proceedings was entitled to reasonable attorney fees, with a limitation on the
right to fees where an arbitrator determined that a party otherwise entitled to
fees resisted mediation.
In
April 1998, Lori Lutzker, an attorney representing respondents, sent a letter
to appellant alleging he had failed to disclose certain defects that were
present in the residence. Acknowledging
the alternative dispute resolution clauses in the purchase agreement, Lutzker
demanded that appellant submit the dispute to mediation.
Gerald
Filice, an attorney, replied to Lutzker’s letter on appellant’s behalf. He denied that appellant had made any
misrepresentations, but he agreed to “undertake” mediation. He urged Lutzker to submit the names of
potential mediators.
In
the weeks that followed, Lutzker and Filice exchanged a series of letters
trying to select an appropriate mediator.
That process was still not complete by late June 1998, and Lutzker
became concerned that the statute of limitations for certain claims respondents
had against appellant might pass. Hoping
to “avoid [an] unnecessary legal action” Lutzker drafted an agreement and sent
it to Filice, asking him to waive “all applicable statutes of limitations
during the time when we are attempting to resolve the dispute through mediation
and arbitration.”
Filice
refused to sign the agreement.
Therefore, on July 2, 1998, Lutzker filed a complaint against appellant
on respondents’ behalf. Respondents did
not intend to proceed with the litigation.
They filed the complaint solely to preserve their legal rights. In fact, Lutzker prepared a stipulation
proposing to stay the action pending the conclusion of the arbitration.
The
mediation was conducted in September 1998.
It was unsuccessful. The parties
then proceeded to arbitration.
An
arbitration hearing was conducted before an attorney selected by the parties,
William L. Nagle, on three days in January and February 2001. During the arbitration, both parties agreed
that the issue of attorney fees would be litigated after the arbitrator had
issued his initial award.
On
February 15, 2001, the arbitrator issued his award and memorandum of
decision. He ruled respondents were
entitled to $100,000 in damages, but that those damages were subject to a
$50,000 setoff based on sums respondents had received from their broker and
real estate agent. Thus respondents were
awarded $50,000 from appellant. The
arbitrator also ruled respondents were the prevailing parties and that they
were entitled to their attorney fees and costs under the terms of the
arbitration agreement.
On
April 3, 2001, respondents filed a memorandum with the arbitrator setting forth
the fees and costs they had incurred.
Appellant then filed what he described as a motion to strike and to tax
costs. He raised two issues that are
relevant here. First, appellant argued
the arbitrator exceeded his authority when he awarded attorney fees and costs
to respondents because respondents had filed a complaint
before the
mediation hearing. According to
appellant, that act (filing the complaint) precluded an award of fees and costs
under the terms of the purchase agreement.
Second, appellant argued the arbitrator lacked jurisdiction to award
fees and costs because respondents’ application for those fees and costs was a
“correction” to the arbitration award that was not “timely” under the
California arbitration statutes. (See
Code Civ. Proc.,
§ 1280 et seq.)
The
arbitrator held a hearing on the fee request on May 14, 2001. On May 31, 2001, the arbitrator issued his
written ruling awarding respondents $83,289.75 in attorney fees, plus
$13,638.95 in costs.
Appellant
then filed a petition in the San Mateo Superior Court seeking to correct the
arbitration award. As is relevant here,
he raised the same two issues that he raised before the arbitrator in his
motion to strike and to tax costs.
On
June 18, 2001, respondents filed a petition to confirm the arbitration award.
Both
petitions were heard by the court at a hearing on July 17, 2001. The court denied appellant’s motion to
correct the award and granted respondents’ request to confirm. In addition, the court awarded respondents an
additional $3,690 in attorney fees. This
appeal followed.
II. DISCUSSION
A. Did the Arbitrator Exceed his Power?
Appellant
contends the trial court should have granted his motion to correct the
arbitration award because the arbitrator exceeded his powers when it awarded
attorney fees and costs to respondents.
Whether the arbitrator exceeded his powers presents a question of law
that we decide de novo on appeal.
(Creative Plastering, Inc. v. Hedley Builders, Inc. (1993) 19
Cal.App.4th 1662, 1666.)
The
pivotal question a court must answer when deciding whether an arbitrator
exceeded his powers is whether the arbitrator had the authority to rule on a
particular issue under the terms of the controlling arbitration agreement. (Creative Plastering, Inc. v. Hedley
Builders, Inc., supra, 19 Cal.App.4th at p. 1666; Southern Cal. Rapid
Transit Dist. v United Transportation Union (1992) 5 Cal.App.4th 416, 422;
cf. DiRussa v. Dean Witter Reynolds, Inc. (2d Cir. 1997) 121 F.3d 818,
824.) Here, the purchase agreement
contains a clause that specifically authorized an award of attorney fees and
costs. It states, “Should any legal or
equitable action, arbitration or other proceeding between Buyer and Seller
arise out of this agreement, the prevailing party shall be awarded reasonable
attorney’s fees and court or arbitration costs in addition to any other
judgment or award.” Clearly the arbitrator
had the power to award fees and costs.
Appellant
contends the arbitrator exceeded his powers because he awarded fees and costs
to respondents even though such an award was prohibited under the facts of this
case. Appellant bases his argument on
the mediation clause contained in the purchase agreement which states in part,
“Buyer [and] Seller . . . agree to and shall mediate any dispute or claim
between them arising out of this contract. . . . The mediation shall be held prior to any
court action or arbitration. . . .
Should the prevailing party attempt an arbitration or a court action
before attempting [to] mediate, THE PREVAILING PARTY SHALL NOT BE ENTITLED TO
ATTORNEY FEES THAT MIGHT OTHERWISE BE AVAILABLE TO THEM IN A COURT ACTION OR
ARBITRATION. . . .” (Italics in
original.) Appellant contends
respondents were not entitled to fees and costs under this language because
they filed a complaint against him before the mediation hearing and thus
they “attempt[ed] . . . a court action before attempting [to] mediate.” Under these circumstances, appellant
contends, the arbitrator exceeded his powers when he made such an award.
We
must reject appellant’s argument. The
arbitration clause in the purchase agreement states that the arbitrator was
authorized to decide “[a]ny dispute or claim in law or equity arising out of
this contract or any resulting transaction . . . . “ One dispute or claim the arbitrator was
authorized to decide under this broad language was whether respondents had in
fact “attempt[ed] . . . a court action before attempting [to] mediate.” By rejecting appellant’s motion to strike and
to tax costs, the arbitrator impliedly concluded respondents had not
“attempt[ed] . . . a court action before attempting [to] mediate.” (Cf. Rosenquist v. Haralambides (1987)
192 Cal.App.3d 62, 67 [“courts must indulge every reasonable intendment to give
effect to arbitration proceedings”]; Griffith Co. v. San Diego Col. for
Women (1955) 45 Cal.2d 501, 516, [same]; see also Advanced Micro
Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 381 [courts must defer
to an arbitrator’s implied findings].)
The arbitrator did not “exceed his powers” when he decided an issue he
was clearly authorized to decide.
Appellant
seems to contend that because respondents filed a complaint against him before
the mediation hearing the arbitrator had no alternative but to conclude
that respondents had “attempt[ed] . . . a court action before attempting [to]
mediate.” However “the merits of a
controversy that has been submitted to arbitration are not subject to judicial
review. This means that we may not
review the validity of the arbitrator’s reasoning, the sufficiency of the
evidence supporting the award, or any errors of fact or law that may be
included in the award.” (Harris v.
Sandro (2002) 96 Cal.App.4th 1310, 1313.)
Our
deference to the arbitrator’s implied ruling should not be interpreted as
meaning that we somehow disagree with his decision. Absent a restriction to the contrary,
“‘arbitrators . . . may base their decision upon broad principles of justice
and equity, and in doing so may expressly or impliedly reject a claim that a
party might successfully have asserted in a judicial action.”’ (Moncharsh v. Heily & Blase (1992)
3 Cal.4th 1, 10-11, quoting Sapp v. Barenfeld (1949) 34 Cal.2d 515,
523.) “‘[A]rbitrators are not bound to
award on principles of dry law, but may decide on principles of equity and good
conscience, and may make their award ex aequo et bono [according to what
is just and good].’” (Id. at p.
11, quoting Muldrow v. Norris (1852) 2 Cal. 74, 77.)
Here,
the evidence shows respondents filed a complaint against appellant prior to the
mediation hearing. However, the evidence
also shows respondents only did so because the statute of limitations for some
of their claims was about to pass, and appellant’s counsel refused to sign an
agreement waiving the statute of limitations.
Furthermore, the evidence shows respondents did not intend to pursue the
suit, and that they filed it only to preserve their legal rights. The arbitrator reviewing this evidence could
reasonably conclude respondents did not, in any real sense, “attempt . . . a
court action before attempting [to] mediate.”
Appellant’s
final argument on this issue is that the arbitrator exceeded his power as that
concept is interpreted in
DiMarco v. Chaney (1995) 31 Cal.App.4th
1809. We disagree. In
DiMarco, the parties to a real
estate transaction submitted their dispute to arbitration under a contract that
said the prevailing party “shall be entitled to reasonable attorney’s fees and
costs.” (
Id. at p. 1812, fn.
1.) The arbitrator ruled the seller was
the prevailing party but declined to award her fees and costs. The appellate court ruled the arbitrator had
exceeded his powers under those circumstances because “having made a finding
[the seller] was the prevailing party, the arbitrator was compelled by the
terms of the agreement to award her reasonable attorney fees and costs.” (
Id. at p. 1815.)
DiMarco
is distinguishable because here, the arbitrator did not find that
respondents had “attempt[ed] . . . a court action before attempting [to]
mediate.” Indeed precisely the opposite
is true. By rejecting appellant’s motion
to strike and tax costs, the arbitrator impliedly made an opposite
finding. DiMarco is inapposite.
We
conclude the arbitrator did not exceed his powers when he awarded respondents
their attorney fees and costs.
B. Did the Arbitrator Err Procedurally when he
Awarded Attorney Fees and Costs?
Appellant
contends the arbitrator erred procedurally when he awarded respondents their
attorney fees and costs. His argument in
premised upon the fact that the arbitrator issued his initial award in favor of
respondents on February 15, 2001, that respondents filed their application for
fees and costs on April 3, 2001, and that fee award itself was made on May 31,
2001. Appellant contends the fee award
was a “correction” to the initial award that was governed by section 1284. According to appellant, the fee award was
invalid because respondents did not file their application for a correction
within 10 days of the initial award, and the arbitrator made his corrections
within 30 days of the initial award, both of which are required by section
1284.
We
reject this argument because it is based on a false premise: i.e., that the
omission of attorney fees and costs from the initial award, and their
subsequent addition in the May 31, 2001 fee award was a mistake to which
section 1284 applied. In fact, the
parties agreed at the initial arbitration hearing that the issue of attorney
fees would be decided by the arbitrator after the initial arbitration
award. Thus, when respondents filed
their application for attorney fees after the initial award, they were not
seeking a correction that triggered the provisions of section 1284. They were simply following the procedure to
which the parties had agreed.
It
is certainly not unusual to bifurcate an arbitration hearing in this
manner. As a well respected treatise
explains, “Where an attorney fees award is authorized, the arbitrator will
usually advise the parties after the conclusion of the initial hearing who is
the prevailing party so that an application for fees can thereafter be made by
that party. (It is inefficient to
require presentation of such evidence in the initial hearing because the
information will necessarily be incomplete and both parties would be required
to go to the effort of making such presentations.) [¶] The arbitrator’s decision or order
at the conclusion of this initial phase is not an ‘award’ as that term is used
in [section] . . . 1284.” (The Rutter
Group, Cal. Practice Guide, Alternative Dispute Resolution (2001)
§ 5:422.5, p. 5-164.)
We
conclude the arbitration award was not invalid because respondents and the
arbitrator failed to comply with section 1284.
The
primary case appellant cites, Rosenquist v. Haralambides, supra, 192
Cal.App.3d 62, does not convince us a contrary conclusion is appropriate
here. In Rosenquist, a dispute
arose between a property owner and an architect. The parties had signed an agreement that
contained an arbitration clause, so they submitted their dispute to binding
arbitration. The arbitrator conducted a
hearing and took the matter under submission.
The arbitrator needed additional time to make his decision, so the
parties agreed to an extension of time until October 5, 1984. On October 2, 1984, the arbitrator issued his
ruling in favor of the architect. The
arbitrator also said he was reserving jurisdiction for the purpose of making an
award of attorney fees. After additional
briefing by the parties, the arbitrator awarded fees and costs to the architect
on November 2, 1984.
On
appeal, the property owner argued the court had acted in excess of his
jurisdiction because the November 2, 1984 award was issued after the October 5,
1984 date agreed to by the parties. The
appellate court rejected this argument explaining its decision as follows, “the
question of the entitlement of attorney fees had been submitted to the
arbitrator by both parties by virtue of their posthearing briefs. Yet, the record of the arbitration
proceedings establishes that neither the briefs nor hearing testimony provided
the arbitrator with evidence upon which he could base an award of attorney
fees. Implicit in this procedure is the
fact that the parties agreed that the amount of attorney fees would be
determined subsequent to the arbitrator’s decision on the merits of the
controversy. In light of these facts, it
was both necessary and proper for the arbitrator to extend the time for the
purpose of fixing an amount in attorney fees to be paid by [the property
owner]. [¶] The procedure for
determining the amount in fees to be paid ordinarily follows the decision as to
who is the prevailing party. To do
otherwise would require both sides to file all of their documentation in
support of attorney fees prior to the decision of the arbitrator on the merits
of the dispute. It is clear this was not
the intention of the parties. The record in this case establishes that the
parties contemplated the award of attorney fees would follow a determination on
the merits of the dispute.” (Id. at
p. 67.)
Appellant
cites Rosenquist as holding that the decision to award attorney fees is
a “correction” that triggers the application of section 1284. We find nothing in the case that stands for
that proposition. Rosenquist is
inapposite.
We
conclude the arbitrator did not err procedurally when he awarded respondents
their attorney fees and costs.
III. DISPOSITION
The
judgment confirming the award and denying appellant’s petition to correct the
award is affirmed.
_________________________
Jones,
P.J.
We concur:
________________________
Stevens, J.
________________________
Simons, J.
Trial court: San
Mateo County Superior Court
Trial judge: Hon.
Phrasel L. Shelton
Counsel for plaintiffs
and respondents: Robert
A. Nebrig
Carr,
McClellan, Ingersoll, Thompson
&
Horn
Counsel for defendant
and appellant: Gerald
W. Filice
Filice
Law Offices
