Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County No. 06CC07413., Linda Shelton, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.)
Horizon Law Group and William J. King for Defendant and Appellant.
Kemnitzer, Anderson, Barron, Ogilvie & Brewer, Bryan Kemnitzer and Nancy Barron, for Plaintiff and Respondent.
OPINION
BEDSWORTH, ACTING P. J.
In this case, we are called upon to resolve an issue we never thought we’d have to address: whether an arbitrator’s promise to favor one party’s interests in the arbitration proceeding, made as an inducement to secure that party’s agreement to participate in the arbitration, is enforceable. As posed by appellant Kennedy Easton, LLC, dba Douglas Nissan of Orange, the question is whether the arbitrator’s failure to live up to his alleged promise is grounds for vacating the award which ultimately favored the opposing party. Either way, the answer is a resounding “no.”
Kennedy Easton is appealing from a judgment confirming an arbitrator’s award of fees and costs to plaintiff Ester Garcia. The arbitrator, who had acted as a mediator in resolving the parties’ dispute on the merits, was subsequently engaged by the parties to render a decision concerning the amount of attorney fees to be awarded to Garcia. Kennedy Easton argues it was essentially defrauded into agreeing to that arbitration by the arbitrator, who “intentionally and clearly implied” as part of a “hard sell” of his arbitration services, “that [Garcia] would not receive the ridiculous $200,000.00 in fees demanded.” Then, contrary to that implied promise, the arbitrator had the temerity to issue a decision awarding Garcia approximately $277,000 – far in excess of her “ridiculous” demand.
We conclude the trial court did not err in rejecting Kennedy Easton’s argument. In essence, Kennedy Easton is asserting that its agreement to engage in the arbitration was conditioned on the arbitrator’s implicit promise to issue a ruling favoring its interests. For obvious reasons, that is not a bargain we can uphold. And to the extent Kennedy Easton’s argument can be limited to the bare assertion that it had relied upon the arbitrator’s specific factual representation that Garcia’s counsel would be seeking compensation for no more than 400 hours of attorney time, we find no error in the trial court’s determination the allegation did not justify invalidating the arbitrator’s award. As the court pointed out, if such a limitation had been intended or agreed upon by both parties – which was disputed – it could easily have been included as a term of the arbitration agreement. Because it was not, and because Kennedy Easton interposed no objection to the number of hours sought by Garcia’s attorneys in their motion, the court was not bound to accept Kennedy Easton’s contention it had been materially misled.
Finally, we reject Garcia’s request for sanctions on appeal, although the issue is a close one. Had the appeal been limited to Kennedy Easton’s wholly improper contention it had relied upon the arbitrator’s alleged assurance that he had prejudged the matter in its favor, we would certainly agree sanctions were warranted. However, we conclude Kennedy Easton’s secondary argument, based upon the arbitrator’s alleged factual representation concerning the amount of work claimed by Garcia’s attorneys in the case, was merely wrong, rather than objectively frivolous. Moreover, there is no indication of any improper motive in pursuing the appeal, since Kennedy Easton did not file a bond to prevent Garcia from collecting the judgment during the pendency of the appeal, and the judgment has now been satisfied. Thus, no sanctions are warranted.
FACTS
Garcia filed suit against both Kennedy Easton and Bank of America in June of 2006, alleging statutory causes of action arising out of the improper repossession of an automobile she had purchased from Kennedy Easton. The parties ultimately settled those claims for $50,000 in April of 2007, in the course of a mediation conducted by retired Judge John W. Kennedy. However, although the parties did agree Garcia was entitled to be considered the “prevailing party” for purposes of a statutory fee award, they were unable to reach agreement as to the proper amount of fees to be awarded. Consequently, as part of their settlement, the parties agreed the fee issue would be submitted to Judge Kennedy for his decision.
The informal agreement, signed by all parties on April 27, 2007, provided that Garcia would file her motion for fees by June 1, 2007, and defendants would thereafter have 30 days to file opposition. Garcia would be given an additional 20 days after that to file a reply, and Judge Kennedy would then set a hearing on the issue within two weeks. The agreement further specified that the fees awarded by Judge Kennedy were to be paid a soon as reasonably possible, but no later than 30 days after the award was made. Those provisions were later incorporated into a formal, comprehensive settlement agreement, signed in counterparts. Garcia signed that formal agreement in May of 2007, and defendants signed it during July and August of 2007.
Meanwhile, Garcia had filed her motion seeking an award of $344,000 in fees, based upon a total of 553 hours of legal work, plus costs. Bank of America filed an opposition decrying the fee request as inflated and excessive. It argued that work had been needlessly duplicated among plaintiffs’ counsel; that counsel had engaged in disfavored “block billing” such that the time spent on particular tasks could not be ascertained; that counsel had billed for purely clerical work; and that no multiplier or enhancement should be applied to the hourly rates. Kennedy Easton joined in Bank of America’s brief, but did not file its own. After considering the parties’ briefs, Judge Kennedy held a hearing via conference call with all parties on August 8, 2007.
Three days later, Judge Kennedy issued his ruling. He awarded Garcia fees of $277,254 and costs of $11,000. He concluded the 553 hours of legal work claimed by Garcia’s counsel, although surprisingly large, was nonetheless reasonable when compared to the 356 total hours billed on behalf of the two defendants (each of whom was represented by different counsel). Judge Kennedy noted that “[i]t is almost always true that more hours are expended in the prosecution of a case than in defending one.”
In the wake of the arbitration decision, Kennedy Easton filed a form “Request For Trial De Novo After Judicial Arbitration,” although it acknowledged on the form that the arbitration proceeding had actually been “private,” rather than a judicial arbitration ordered pursuant to Code of Civil Procedure section 1141.10 et seq. Garcia filed a motion to enter judgment pursuant to the terms of the settlement agreement, and to strike the request for trial de novo. Kennedy Easton then filed a motion to void or cancel the settlement agreement.
In its motion, Kennedy Easton asserted it had been fraudulently induced into the agreement to allow Judge Kennedy to arbitrate the issue of attorney fees and costs. It argued, alternatively, that the arbitration agreement had been the product of either a mutual mistake of the parties, or its own unilateral mistake. Underlying each of these arguments were Kennedy Easton’s contentions that the arbitrator had made certain representations to it as part of an effort to secure its agreement to having him decide the fee issue. Among other things, the arbitrator was alleged to have informed Kennedy Easton that Garcia’s counsel were claiming to have invested a total of 400 hours into the case, and “verbalized his shock and surprise that Plaintiff’s counsel had alleged such a high number of hours.” He also supposedly “intentionally and clearly implied... that [Garcia] would not receive the ridiculous $200,000 in fees demanded.” According to Kennedy Easton, the arbitrator’s “most telling statement” was “that ‘it would take six figures to settle this case’, which included the $50,000 settlement on the principal amount, implying it would be in the low $100,000s.” When the arbitrator announced his ruling on the fee issue, Kennedy Easton felt “completely duped.”
Of course, a six-figure amount does not necessarily imply a figure in the $100,000 range, as Kennedy Easton apparently assumed. Any number between $100,000 and $999,999 is within the six-figure range. The overall award of $327,000 in this case, including damages and attorney fees, would actually fall in the low six-figure range.
The court denied the motion to void or cancel the settlement agreement, and confirmed the fee award. The court determined the parties’ agreement to allow Judge Kennedy to resolve the fee dispute constituted an agreement for binding arbitration. With respect to the merits, the court concluded Kennedy Easton had failed to show it was fraudulently induced into entering into the arbitration agreement, or that it had done so based upon a mistake of fact. The court concluded when Kennedy Easton “agreed to submit the issue of attorney’s fees, without any reservations or limitations regarding the amount of fees to be awarded, to the arbitrator, [it] knew that it was agreeing to the arbitrator’s right to evaluate the amount of fees and costs sought by and supported by the plaintiff’s counsels and make a determination as to the reasonableness of plaintiff’s fees and costs. [Kennedy Easton] could have sought to condition its submission on a maximum amount of attorney’s fees that could be awarded, but failed to do so.” The court also considered it significant that Kennedy Easton had actually signed the formal settlement/fee arbitration agreement, without protest, after having been served with Garcia’s motion seeking fees to compensate her attorneys for 554 hours of work – far in excess of the 400 hours those attorneys had allegedly claimed to have invested in the case at the time fee arbitration was proposed. Moreover, the court noted that Kennedy Easton never filed any points and authorities with the arbitrator, pointing out that the number of hours claimed by Garcia’s attorneys was far in excess of what had been represented. Finally, the court noted that an arbitration award can be vacated only for extrinsic, as opposed to intrinsic, fraud, meaning that one party was denied the opportunity for a fair and impartial hearing. In this case, the court concluded that Judge Kennedy had actually provided that fair and impartial hearing, and had explained his reasons for awarding the amount he had.
The court also rejected Kennedy Easton’s contention that the arbitrator had miscalculated the fee award. The court noted the award did not establish that the arbitrator had used an hourly rate of $525 for all of Garcia’s attorneys’ work, and Kennedy Easton had failed to establish that fees had been awarded for unnecessarily duplicative work.
I
Before addressing Kennedy Easton’s substantive arguments, we must dispose of its contention the agreement to have Judge Kennedy decide the fee dispute was not “a contractual agreement for binding arbitration.” This claim is based upon the bare assertion that “there is no written agreement, nor has there ever been a written agreement between the parties that mentions the word arbitration.” (Italics added.) However, it is well-settled that the title given to a proceeding does not determine whether it qualifies as an arbitration. “[T]he failure of the agreement to identify the... procedure as ‘arbitration’ is not fatal to its use as a binding mechanism for resolving disputes between the parties. [Citations.] [¶] More important is the nature and intended effect of the proceeding.” (Painters Dist. Council No. 33 v. Moen (1982) 128 Cal.App.3d 1032, 1036.) Even when the parties expressly characterize their dispute resolution procedure something other than an “arbitration,” the court remains free to evaluate its substance. (Sy First Family Ltd. Partnership v. Cheung (1999) 70 Cal.App.4th 1334, 1342 [“Although the stipulation’s title used the term reference, labels are not controlling.”]; see also Elliott & Ten Eyck Partnership v. City of Long Beach (1997) 57 Cal.App.4th 495; Heenan v. Sobati (2002) 96 Cal.App.4th 995, 1003 [“nomenclature is not controlling.”].)
Instead, in determining whether a mechanism for dispute resolution qualifies as an arbitration agreement, we look to its substance. The “attributes of a true arbitration agreement [are]: (1) a third party decision maker; (2) a mechanism for ensuring neutrality with respect to the rendering of the decision; (3) a decision maker who is chosen by the parties; (4) an opportunity for both parties to be heard, and (5) a binding decision.” (Cheng-Canindin v. Renaissance Hotel Associates (1996) 50 Cal.App.4th 676, 684.) In this case, it is clear the parties intended Judge Kennedy’s decision on the fee issue to be binding, as they specifically agreed that the amount he awarded must be paid within 30 days of his decision. Thus, based upon the factors listed, it is clear the agreement to have Judge Kennedy decide the fee award qualified as an arbitration agreement.
Nor are we persuaded by Kennedy Easton’s assertion that this arbitration agreement was not a “standard arbitration agreement,” and that the parties intended to preserve their rights to have the arbitrator’s decision “reviewed by the judicial system.” In making this argument, Kennedy Easton relies upon Cable Connection, Inc., v. DIRECTV, Inc. (2008) 44 Cal.4th 1334. However, the arbitration agreement in that case specifically provided that “the award may be vacated or corrected on appeal... for any [errors of law or legal reasoning.]” (Cable Connection, Inc., v. DIRECTV, Inc., supra, 44 Cal.4th at p. 1340.) The case provides no support for the proposition that judicial review might be preserved in cases such as this, where no such provision was included. To the contrary, the court expressly recognizes that absent such a specific provision, “‘the parties, simply by agreeing to arbitrate, are deemed to accept limited judicial review by implication.’” (Cable Connection, Inc., v. DIRECTV, Inc., supra, 44 Cal.4th at p. 1358, quoting Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 831.)
And finally, the fact that the final version of the parties’ settlement agreement, which contains the fee arbitration provision at issue here, states that the agreement is “governed by California law” does not change the analysis. It is “California law” which requires that arbitration agreements be enforced in accordance with the California Arbitration Act (Code Civ. Proc., § 12980 et seq.), and which restricts the bases upon which arbitration awards can be challenged in court.
II
We next turn to the merits of Kennedy Easton’s challenges to the arbitrator’s decision. Its first, somewhat surprising, contention is that it was misled into agreeing to arbitrate by an arbitrator who promised it, before even seeing Garcia’s fee motion, that if he were hired to arbitrate the dispute, she would “not be recovering anywhere near” the $200,000 in fees she had demanded as part of the settlement negotiations. Then, in contravention of that alleged promise, the arbitrator actually awarded Garcia far more than $200,000. Kennedy Easton claims that had it known the arbitrator might award such a high amount of fees, it would not have agreed to let him decide the issue.
Try as we might, we cannot construe this argument as anything other than an assertion the arbitrator reneged on an ex parte agreement entered into with Kennedy Easton to issue a ruling which favored its interests. Obviously, such an agreement would be wholly unenforceable, as an arbitrator cannot bind himself to rendering a decision which favors one side or the other, before hearing the evidence and arguments presented by both. “The object of a contract must be lawful when the contract is made, and possible and ascertainable by the time the contract is to be performed.” (Civ. Code, § 1596.)
Nor can we accede to Kennedy Easton’s contention it is entitled to relief on a theory of extrinsic fraud. “Extrinsic fraud arises where a party has been denied a fair adversary hearing because he has been ‘“deliberately kept in ignorance of the action or proceeding, or in some other way fraudulently prevented from presenting his claim or defense.”’” (In re Marriage of Umphrey (1990) 218 Cal.App.3d 647, 655, quoting Kulchar v. Kulchar (1969) 1 Cal.3d 467, 471, italics added.) In this case, the fraud alleged by Kennedy Easton is that the arbitrator actually did conduct a fair adversary hearing, and allowed his decision to be influenced by the merits of Garcia’s fee motion, rather than just dismissing her request out of hand as he had allegedly promised to do. Certainly, Kennedy Easton offered no evidence, or even any argument, that the arbitrator had refused to consider its side of the dispute, and thus there is certainly no basis to conclude it might have been the victim of the extrinsic fraud.
Kennedy Easton’s next contention is that, apart from any opinions or promises articulated by the arbitrator concerning the merits of Garcia’s fee claim, he also made a specific factual representation that her attorneys would be seeking fees based upon only 400 hours of time invested in the case. Kennedy Easton allegedly relied upon that representation – which it considered to be a very important limitation on its potential liability, in agreeing to arbitrate the issue – only to have the attorneys actually seek, and the arbitrator actually award, fees corresponding to 553 hours of work.
Kennedy Easton asserts that even though Garcia’s attorneys deny ever having made such a representation to the arbitrator, that assertion did not directly contradict its contentions that (1) the arbitrator had made the representation to it; and (2) the representation was a material factor in its decision to arbitrate. It contends the court was thus bound to accept those contentions as true. We disagree. As the court took pains to explain in its decision, there was plenty of circumstantial evidence casting doubt on Kennedy Easton’s factual claims.
For purposes of both a claim alleging fraudulent inducement, and a claim alleging that a contract is void based upon mistake, the plaintiff must establish that the fact alleged to have been untrue was material to its agreement. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638 [fraudulent inducement]; Stewart v. Preston Pipeline, Inc. (2005) 134 Cal.App.4th 1565, 1588 [unilateral mistake of fact.].)
First, despite the alleged significance of the hours limitation to Kennedy Easton, it made no attempt to incorporate it within the written terms of the arbitration agreement. If, as Kennedy Easton would have us conclude, it sincerely believed that Garcia’s attorneys had acknowledged an investment of no more than 400 hours in the case, it would have been easy to secure Garcia’s agreement to a provision limiting the fee recovery accordingly. The fact that Kennedy Easton made no attempt to secure that limitation calls into question both its belief in the accuracy of the representation, and the purported significance of the issue in connection with its decision to arbitrate.
Second, as the court further pointed out, Kennedy Easton’s argument is also significantly undermined by the fact it actually signed the formal settlement/fee arbitration agreement after it had been served with Garcia’s motion seeking recovery of fees based upon 553 hours of work. Presumably, if the 400 hour figure had been a significant factor in its agreement to participate in the arbitration, it would have interposed some sort of objection at that point. Likewise, one might have expected Kennedy Easton to file some sort of opposition to the fee motion with the arbitrator, pointing out the discrepancy. It did not.
All of this circumstantial evidence, taken together, was more than sufficient to support the court’s determination that either the arbitrator made no such representation concerning the number of hours Garcia’s counsel would be claiming in her fee motion, or if made, the representation was actually not a significant factor in Kennedy Easton’s decision to arbitrate. On appeal, we have neither cause nor power to reassess that issue. “When considering a claim of insufficient evidence on appeal, we do not reweigh the evidence, but rather determine whether, after resolving all conflicts favorably to the prevailing party, and according the prevailing party the benefit of all reasonable inferences, there is substantial evidence to support the judgment.” (Scott v. Pacific Gas & Electric Co. (1995) 11 Cal.4th 454, 465, disapproved on another ground in Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 352, fn. 17.)
Because the evidence supports the court’s conclusion Kennedy Easton was neither defrauded by the arbitrator’s alleged representations, nor induced to enter into the arbitration agreement based upon its mistaken understanding of the number of hours Garcia’s counsel would be claiming as a basis for a fee award, we conclude the court did not err in rejecting Kennedy Easton’s attempts to vacate the award.
III
Garcia has both requested an award of additional fees based upon the attorney fee provision contained in the parties’ settlement/fee arbitration agreement, and moved for an award of sanctions based upon the contention this appeal is frivolous. We conclude the former has merit.
The parties’ written agreement provides that “In the event that any Party hereto should bring any action, suit, or other proceedings – including, but not limited [to] a Motion to Enforce under Code of Civil Procedure § 664.6 – against any other Party hereto, whether sounding in contract or in tort, contesting the validity hereof, or attempting to rescind, negate, modify or reform the Agreement, any of the terms or provisions hereof, or any of the matters referenced herein, the prevailing party shall recover its reasonable attorneys’ fees incurred in each and every such action, suit, or other proceeding, including any and all appeals or petitions therefrom. In the event that any action, suit, or other proceeding is instituted to remedy, prevent, or obtain relief from a breach of this Agreement, or arising out of a breach of this Agreement, whether sounding in contract or in tort, the prevailing party shall recover all of such Party’s reasonable attorneys’ fees incurred in each and every such action, suit or other proceeding, including any and all appeals or petitions therefrom.”
The parties’ agreement also explicitly required Kennedy Easton to pay the arbitrator’s fee award within 30 days of its issuance. However, rather than complying with that obligation, Kennedy Easton proceeded to file notices and briefs with the trial court, and then an appeal with this court, all as part of an attempt to invalidate the fee arbitration provision of the agreement. For her part, Garcia (or her counsel, acting in the capacity of her successor in interest) was apparently forced to undertake collection efforts, as a direct result of Kennedy Easton’s breach of its obligation to pay the fee award within 30 days. Garcia and her counsel have apparently prevailed on all of these efforts, and thus pursuant to the fee provision contained in the parties’ agreement, they are entitled to recover reasonable attorney fees incurred in doing so.
Of course, there is one caveat: to the extent the attorneys were actually representing themselves, because the fee award had been assigned to them by Garcia, they are not entitled to recover fees. (Trope v. Katz (1995) 11 Cal.4th 274.) We remand the matter to the trial court with directions to ascertain a reasonable fee award to compensate for the attorney fees incurred by Garcia or her counsel (because they hired some other counsel to represent them) in enforcing the settlement/fee arbitration agreement.
However, we deny Garcia’s motion for sanctions on appeal. Although such sanctions may be awarded when the appeal is either objectively frivolous or has been pursued for an improper motive, such as delay (Code Civ. Proc., § 907; In re Marriage of Flaherty (1982) 31 Cal.3d 637, 654), we must also bear in mind that “sanctions should be ‘used most sparingly to deter only the most egregious conduct’ (Flaherty, supra, 31 Cal.3d at p. 651), and [the fact] that an appeal lacks merit does not, alone, establish it is frivolous.” (In re Marriage of Gong and Kwong (2008) 163 Cal.App.4th 510, 518, citing Dodge, Warren & Peters Ins. Services, Inc. v. Riley (2003) 105 Cal.App.4th 1414, 1422.)
As explained above, we have no trouble concluding that Kennedy Easton’s contention the judgment should be reversed because it had been fooled into agreeing to arbitrate by the arbitrator’s alleged representation that he had prejudged the issue in its favor, is objectively frivolous. Clearly, even if such a promise had been made, it could never be enforced. The very nature of an arbitration, like any adjudicatory process, requires the arbitrator to refrain from deciding the merits before hearing all the evidence and arguments.
However, Kennedy Easton’s appeal was not limited to that contention. It also argued it had relied upon the arbitrator’s simple factual statement that Garcia’s counsel had represented to him they would be seeking compensation for no more than 400 total hours of work on her behalf. And as Kennedy Easton pointed out, the fact Garcia’s attorneys later denied making any such representation did not directly contradict Kennedy Easton’s evidence that the arbitrator had made that representation to it, and that it had relied. In Kennedy Easton’s view, that obligated the court to accept its assertions as true, and thus it is perhaps understandable Kennedy Easton argues on appeal that the evidence conclusively supports its contention the agreement to arbitrate was based upon a mistake of fact.
The argument is wrong, but understandable. What Kennedy Easton failed to recognize is that there was circumstantial evidence which undermined its claims, and thus the court was entitled to base its decision on that circumstantial evidence. This is a lamentably common error on appeal, and thus not one we are inclined to view as a basis for imposing sanctions.
Garcia’s sanction motion is further undermined by the fact that we can discern no improper motive for Kennedy Easton’s appeal. Although Kennedy Easton did not voluntarily pay the fee award as required by the terms of the settlement/fee arbitration agreement, it also did not file a bond to prevent execution of the judgment during the pendency of this appeal. As Kennedy Easton points out, the judgment has in fact been satisfied. Thus, it is difficult to see how the appeal itself could have been intended to delay Garcia’s recovery of the benefits of the judgment. Although we agree with the statement in Young v. Rosenthal (1989) 212 Cal.App.3d 96, 132, that mere payment of the judgment would not necessarily insulate a party from potential liability for a frivolous appeal, we nonetheless believe it is a factor to be considered. And absent some other motive for delaying the finality (as opposed to the collectability) of a judgment, we think it significant.
Moreover, the very ingenuousness with which Kennedy Easton has made its arguments herein, arguments which sound more in exasperation than legal analysis, tends to support the conclusion this appeal is born of righteous indignation at what is perceived to have been an unfair process, rather than any calculated effort to engage in procedural machinations. We therefore conclude sanctions are not warranted.
The judgment is affirmed, and the motion for sanctions on appeal is denied. The case is remanded to the trial court with directions to consider an award of contractual
attorney fees incurred by Garcia or her successors in interest to enforce the fee arbitration agreement in the wake of the arbitration. Garcia is to recover her costs on appeal.
WE CONCUR: ARONSON, J., FYBEL, J.