AARON, J. —
Petitioner Safari Associates (Safari) and real party in interest Alan Tarlov arbitrated a dispute pursuant to a written agreement. The arbitrator awarded Safari damages, attorney fees, and costs. Safari petitioned to confirm the arbitration award in the trial court. In response, Tarlov filed a motion to
In opposition, Safari argued that the arbitrator had not exceeded his powers under the agreement, and that the arbitrator's application of section 1717 was, at most, a nonreviewable legal error. In the alternative, Safari maintained that the arbitrator had correctly applied the definition of prevailing party contained in section 1717 in awarding attorney fees because the agreement provided that it would be governed by California law, and California law is clear that the statutory definition is "`mandatory ... and contractual provisions conflicting with it are void.'" (Quoting Wong v. Thrifty Corp. (2002) 97 Cal.App.4th 261, 264 [118 Cal.Rptr.2d 276].)
The trial court ruled that the arbitrator's decision to apply section 1717 was subject to judicial review, and concluded that the arbitrator had erred in failing to apply the definition of "prevailing party" contained in the parties' agreement. The trial court corrected the award by ruling that the definition of prevailing party contained in the parties' agreement applied and remanding the matter to the arbitrator for further proceedings to apply the agreement's definition of prevailing party in determining whether to award attorney fees.
Safari filed a petition for writ of mandate requesting that this court direct the trial court to vacate its order correcting the arbitrator's award. In its petition, Safari reiterates its argument that the arbitrator acted within the scope of his powers in awarding attorney fees, and that the trial court did not have the authority to review the propriety of the arbitrator's prevailing party determination.
California law is clear that "arbitrators do not `exceed[] their powers' ... merely by rendering an erroneous decision on a legal or factual issue, so long
Accordingly, we grant Safari's petition and direct the trial court to vacate its order correcting the arbitration award, and to conduct further proceedings, consistent with this opinion, on Safari's petition to confirm the award.
Tarlov is the former managing general partner of Safari. Safari and Tarlov entered into a release agreement (Agreement) to resolve certain claims relating to Tarlov's management of Safari.
The Agreement specified that Safari's claims for "reimbursement of monies paid by [Safari] for the personal expenses of [Tarlov] or Tarlov's family" were not subject to the release, and that the parties would make a good faith effort to resolve these personal expense claims. The Agreement further provided that the parties would submit any unresolved disputes concerning the personal expenses to binding arbitration pursuant to the following arbitration provision: "5.4
Another provision of the Agreement provided that the Agreement "shall be governed by the laws of the State of California."
The parties were unable to resolve all of their disputes concerning the personal expense claims. Thus, pursuant to the Agreement, they submitted those claims to arbitration. In its arbitration brief, Safari argued that Tarlov was required to pay, at a minimum, $768,228, to reimburse Safari for Tarlov's personal expenses that Safari had paid. The arbitrator conducted an arbitration hearing, and issued an interim award determining that Tarlov was required to pay $152,611.48 to Safari.
Both Safari and Tarlov filed a motion for attorney fees, each arguing that it was the prevailing party. In its brief, Safari explained that section 1717, subdivision (b)(1) provides that "the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract," while the Agreement states that "`prevailing party' means the party, if any, that obtains substantially the relief sought in the arbitration." (Italics added.) Safari argued that "[Section 1717] — not the `prevailing party' provision of the [Agreement] — must control," because under well-established case law, "any definition of `prevailing party,' inconsistent with the definition contained in section 1717 is void." Safari further contended that it was the prevailing party because the arbitrator found "that ... Tarlov must repay more than $192,000 — less an offset for money admittedly wrongly taken," and thus, Safari was the "party who recovered a greater relief in the action on the contract." (Quoting § 1717, subd. (b)(1).)
In his brief, Tarlov argued that the arbitrator was required to apply the definition of prevailing party specified in paragraph 5.4 of the Agreement. Tarlov further argued that, applying this definition, he was the prevailing party because he obtained "`substantially' the relief sought in the arbitration." In support of this argument, Tarlov contended that Safari had obtained only a small percentage of the damages that it had sought in the arbitration.
Safari filed a petition in the trial court to confirm and enter judgment on the arbitration award.
In response, Tarlov filed a motion to modify or correct the arbitration award pursuant to Code of Civil Procedure section 1286.6, subdivision (b), on the ground that the arbitrator had "exceeded [his] powers" (ibid.) in awarding Safari attorney fees. Specifically, Tarlov argued that the arbitrator exceeded his powers in awarding attorney fees by applying the definition of "prevailing party" in Civil Code section 1717, subdivision (b)(1), rather than the definition of prevailing party provided in the Agreement. Tarlov contended that an arbitrator's power is "confined by the express limitations of the arbitration agreement," and that when an "arbitrator acts in disregard of such an express provision, he or she acts in excess of his or her powers." Tarlov maintained that the arbitrator in this case had acted in excess of his powers through his "decision ... to void the prevailing party definition in the [Agreement]." Tarlov supported his motion with numerous documents from the arbitration, including the briefing that the parties had submitted to the arbitrator, in which they addressed which definition of prevailing party the arbitrator was to apply in determining whether, and/or to whom, to award attorney fees.
Safari filed an opposition to Tarlov's motion in which it argued that the law is clear that an issue submitted in arbitration is immune from judicial correction pursuant to Code of Civil Procedure section 1286.6, subdivision (b). Specifically, Safari argued, "[W]hen the parties submit the issue of `prevailing party' and attorney fee entitlement to an arbitrator, and the arbitrator interprets their agreement and awards fees, or does not, that decision — whether factually or legally correct, whether even reversible error in civil litigation — is not subject to correction under [Code of Civil Procedure section] 1286.6 as made `in excess of' the arbitrator's powers." Safari
The trial court held a hearing on Safari's petition to confirm the arbitration award and Tarlov's motion to correct the award. At the conclusion of the hearing, the trial court entered an order correcting the award and remanding the matter to the arbitrator for further proceedings. In its order, the trial court ruled that "[t]he arbitrator's finding that `Civil Code [section] 1717 is applicable' to the arbitration proceeding and that the `definition of "prevailing party" in Civil Code [section] 1717, [subdivision] (b)(1) is controlling over the definition found in the Release Agreement (Para. 5.4)' are subject to judicial review ...." The court further concluded that, "The arbitrator's finding that `Civil Code [section] 1717 is applicable' to the arbitration proceeding was in error." The court "corrected" the arbitration award by stating that "the definition of `prevailing party' in paragraph 5.4 of the Release Agreement must be applied," and remanded the matter to the arbitrator to determine "(1) the `prevailing party,' if any, and (2) the amount of attorney fees and costs to be awarded the `prevailing party,' if any."
Safari timely filed a petition for writ of mandate. This court issued an order to show cause, stayed all further proceedings in the trial court, and invited Tarlov to file a return. Tarlov filed a memorandum in opposition to the petition and Safari filed a reply.
Safari contends that the trial court erred in correcting the arbitrator's award. Safari maintains that the arbitrator acted within the scope of his
"[T]his court conducts a de novo review, independently of the trial court, of the question whether the arbitrator exceeded the authority granted him by the parties' agreement to arbitrate." (California Faculty Assn. v. Superior Court (1998) 63 Cal.App.4th 935, 945 [75 Cal.Rptr.2d 1]; see Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376, fn. 9 [36 Cal.Rptr.2d 581, 885 P.2d 994] ["whether an award is in excess of the arbitrator's powers `"is a question of law we review de novo on appeal"'"].)
Code of Civil Procedure section 1286.6 specifies the grounds upon which a trial court shall correct an arbitrator's award. That statute provides in relevant part:
In Gueyffier, supra, 43 Cal.4th 1179, the Supreme Court outlined the following law governing the question whether an arbitrator has exceeded his powers in rendering an arbitration award such that the award is subject to correction pursuant to Code of Civil Procedure section 1286.6:
Applying this law, the Gueyffier court considered whether an arbitrator exceeded his powers by rendering an award that included a finding that a party's failure to comply with a notice-and-cure provision in the parties' agreement was excused. The notice-and-cure provision provided: "`This is a material term of this Agreement and may not be modified or changed by any arbitrator in an arbitration proceeding or otherwise.'" (Gueyffier, supra, 43 Cal.4th at p. 1183.) The Gueyffier court concluded that despite this limitation on the arbitrator's powers, the arbitrator had not exceeded his powers, reasoning: "While the contract limitation on arbitral powers to change the parties' agreement was explicit, it did not unambiguously prohibit the arbitrator from excusing performance of a contractual condition where the arbitrator concluded performance would have been an idle act. The contract's nomodification provision would have been effective to bar an actual change or modification. Had the arbitrator, for example, decided the parties' agreement should be reformed by changing the required 60 days' notice to 30 days' notice, he would have exceeded his powers. But to excuse performance of a contract term in a specific factual setting is not, in ordinary usage at least, to `modif[y] or change[]' the term. The no-modification clause did not `explicitly and unambiguously' [citation] bar the arbitrator from deciding that ... [the] notice-and-cure provision was inapplicable on the facts of the case as he found them." (Id. at p. 1185.)
In a footnote following this language, the Gueyffier court added, "Had the parties wished to mandate that performance of material conditions never be excused, they could have done so by, for example, expressly agreeing that the arbitrator would have no power to `modify, change or excuse performance of' a material term." (Gueyffier, supra, 43 Cal.4th at p. 1185, fn. 3, italics added.)
In Moore, the parties' agreement contained an attorney fees provision and the "controversy was ordered to binding arbitration pursuant to an agreement to arbitrate `all disputes, claims and controversies between us' and without, as far as the record shows, any judicially imposed limitation on the issues to be arbitrated." (Moore, supra, 22 Cal.4th at p. 786.) Under these circumstances, the Moore court concluded that the arbitrators had the power to "decide the entire matter of recovery of attorney fees." (Id. at p. 787.) The Moore court reasoned, "Having submitted the fees issue to arbitration, plaintiffs cannot maintain the arbitrators exceeded their powers, within the meaning of [Code of Civil Procedure] section 1286.6, subdivision (b), by deciding it, even if they decided it incorrectly." (Ibid.)
The arbitration provision in this case expressly provides that the arbitrator is empowered to award attorney fees to the prevailing party in the arbitration. Further, the record demonstrates that Safari and Tarlov extensively briefed and argued the attorney fees issue in the arbitration, including whether the arbitrator should apply the definition of prevailing party specified in section 1717, subdivision (b)(1) or instead, the definition of prevailing party contained in the Agreement. "Having submitted the fees issue to arbitration,
Contrary to Tarlov's contention in his opposition to Safari's writ petition,
As noted above, the agreement at issue in Gueyffier explicitly precluded the arbitrator from modifying or changing the notice-and-cure provision. For this reason, the Gueyffier court stated that the arbitrator would have acted in excess of his powers if the arbitrator had modified the agreement by changing the notice provision. In contrast, in this case, as noted above, there is no provision limiting the arbitrator's powers in any respect, and there is certainly no provision providing that the prevailing party definition may not be "`modified or changed by any arbitrator.'" (Gueyffier, supra, 43 Cal.4th at p. 1183.)
Further, if the parties in this case had intended to attempt to limit the arbitrator's power to apply a definition of prevailing party other than the definition contained in the Agreement, they could have used language evincing such an intent.
Tarlov's remaining contentions are no more persuasive. Tarlov contends that the arbitrator exceeded his powers because the arbitrator "explicitly contradicted" the Agreement by refusing to apply the parties' definition of prevailing party specified therein. (Citing DiMarco v. Chaney (1995) 31 Cal.App.4th 1809 [37 Cal.Rptr.2d 558] (DiMarco).)
In any event, even assuming that we were to conclude that DiMarco was decided correctly under the facts of that case, we are aware of no authority that would support the conclusion that an arbitrator acts in excess of his powers in refusing to apply a provision in the parties' agreement that the arbitrator determines is void as violative of public policy. In this case, as noted above, the arbitrator concluded that the Agreement's definition of prevailing party was void under California law. We decline to extend DiMarco's reasoning to conclude that the arbitrator acted in excess of his powers in refusing to apply a provision that he determined violated California law.
Accordingly, we conclude that the trial court erred in correcting the arbitrator's award.
Let a writ of mandate issue directing the trial court to (1) vacate its January 31, 2014 order correcting the arbitration award and (2) to conduct further proceedings on Safari's "petition to confirm and enter judgment on the
Huffman, Acting P. J., and Irion, J., concurred.
Section 1717 provides in relevant part: "(a) In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs. [¶] ... [¶] (b)(1) ... [T]he party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract."