Arbitrator Had Authority to Impose Sanctions Under CCP §128.5

Tuesday, January 21, 2020

Page 3

Court of Appeal:

Arbitrator Had Authority to Impose Sanctions Under CCP §128.5

Opinion Says That Where Parties Agreed to Submit ‘Any Dispute’ to Binding Arbitration, AuthorityWas Broadly Conferred and Included Taking Actions in Response to Litigation Conduct

By a MetNews Staff Writer

Div. Three of the Fourth District Court of Appeal has affirmed a judgment confirming an arbitration award that included $50,000 in sanctions imposed on a law firm and its client under Code of Civil Procedure §128.5, rejecting their contention that the arbitration agreement did not specify any such power, rendering the act in excess of the authority that was conferred.

The unpublished opinion by Justice Eileen Moore, filed Thursday, affirms a decision by Orange Superior Court Judge Thomas A. Delaney confirming, in full, an arbitration award in favor of the Mulcahy Law Firm of Irvine for fees against its former client ATG Electronics, Inc., and against it and its present counsel, the Irvine law firm Morten & Fairchild, PC, for sanctions. The only portion of the award that was in issue in the appeal was that relating to the sanctions.

Noting the narrow jurisdiction of courts to scrutinize arbitration awards, Moore found that certain contentions by the appellants are reviewable, but found them invalid.

Wording of Agreement

The engagement agreement sets forth, with respect to fee disputes:

“Any disagreement will be submitted to a mutually agreed upon neutral retired judge or justice who will make a final and binding decision about the outcome of the dispute, which neither of us will be able to appeal.”

It adds:

“Accordingly, it is agreed between you and the firm that any dispute which cannot be resolved amicably shall be resolved exclusively through binding arbitration as outlined above.”

Moore declared:

“This broad ambit includes litigation conduct that may be subject to sanctions.”

The appellants argued that the arbitrator exceeded his authority by awarding attorney fees to Mulcahy because law firms that are self-represented are not entitled to an award of fees. Moore responded that the arbitrator was not awarding fees, but imposing two $25,000 penalties, under §128.5, for “‘bad faith activities or tactics that are frivolous.”

If the intent had been to award attorney fees, she added, that would have been ordinary legal error which would not have been judicially reviewable.

The case is ATG Electronics, Inc. v. The Mulcahy Law Firm, G056931.

Precedent Not Discussed

Moore’s opinion did not discuss previous published decisions dealing with sanctions imposed by arbitrators.

In its 1993 decision in Luster v. Collins, Div. One of the Fourth District reversed an order confirming an arbitration award to the extent that it included $50 sanctions for each day there was a delay in carrying out an order. Then-Justice Howard Wiener (now retired) said:

“We are unaware of any legal impediment precluding the parties from agreeing the arbitrator could concurrently impose economic sanctions to effect performance of the award. There is nothing in the agreement, however, to this effect….”

“Because the arbitrator did not have the statutory power nor the parties’ agreement to compel compliance with his orders by imposing monetary sanctions for…future violations of the award, the arbitrator acted outside his authority in imposing $50 daily sanctions for future violations of his orders.”

Vogel’s Opinion

Then-Justice Miriam Vogel (now returned to law practice), writing for Div. One of this district, in the 1996 decision in David v. Abergel, found a sanction imposed by an arbitrator to be enforceable. Differentiating the case from Luster, she pointed out that the arbitrator there “imposed a monetary penalty designed to accrue on a daily basis until one of the parties complied with the arbitrator’s other orders, not a sanction qua sanction under section 128.5.”

Rejecting the contention by appellant Laurence M. David, a medical doctor, that the arbitrator exceeded his powers in imposing a $75,000 sanction on him pursuant to §128.5, Vogel wrote:

“Simply put, when parties have agreed in writing to binding arbitration and to confer upon their arbitrator the power to “grant any remedy or relief to which a party is entitled under California law,” we presume they meant what they said….

“We summarily reject David’s suggestion that the reference to ‘California law’ does not include section 128.5 because (according to David) that statute, by its terms, applies ‘only’ to trial courts and judicial arbitration proceedings. The problem with this argument is that the ‘only’ comes from David’s imagination, not from the statute, and there is nothing in section 128.5 to suggest the Legislature intended to prohibit an award of sanctions in a nonjudicial arbitration where, as here, the parties have agreed to confer upon the arbitrator the right to grant ‘any remedy or relief’ available under California law.”