Opinion
Rehearing Denied May 4, 1998.
Previously published at 62 Cal.App.4th 1466
Lang, Richert & Patch, Laurie L. Quigley and Charles L. Doerksen, Fresno, for Plaintiff and Appellant.
Jenkins, Barnes & Brady and J. Craig Jenkins, Bakersfield, for Defendant and Respondent.
OPINION
WISEMAN, Associate Justice.
Arbitration agreements are normally designed to simplify legal conflicts arising between their signators. Oftentimes, this is exactly what happens. Difficulties, however, can arise when a nonparty to the arbitration agreement is named in a lawsuit which is later subjected to binding arbitration as required by the agreement. In this medical malpractice case, George Orrick was admitted to San Joaquin Community Hospital where Dr. John Buxton performed gall bladder surgery upon him. Following complications, Orrick filed suit against his doctors and the hospital alleging all defendants were negligent. Orrick did not claim any harm as a result of the hospital's action that was not the result of Dr. Buxton's acts.
Orrick moved to compel arbitration pursuant to an arbitration clause contained in a health care contract between him and Dr. Buxton. The hospital successfully opposed its inclusion in the binding arbitration proceeding, and just Dr. Buxton and Orrick proceeded to arbitration. Orrick prevailed and was awarded $241,066.00 and Dr. Buxton We now address whether the principles of collateral estoppel apply under these circumstances. We conclude they do not and order the judgment granting motion for summary judgment be reversed.
PROCEDURAL AND FACTUAL HISTORY
In February of 1991, George Robert Orrick (plaintiff) was admitted to San Joaquin Community Hospital (defendant) under the care of Dr. John Buxton. Orrick was diagnosed as suffering from cholelithiasis (gallstones). Buxton performed a laparoscopic cholecystectomy on plaintiff. After the surgery, plaintiff continued to have a large amount of bile output, and suffered from a low grade fever, upper abdominal bloating, and persistent nausea. A second surgery was performed during which it was discovered that plaintiff's common bile duct and a branch of his hepatic artery had been cut during the first surgery. Because of potential complications arising from the problems discovered, the decision was made to transfer plaintiff to the UCLA Medical Center.
Removal of the gall bladder.
On February 19, 1992, plaintiff filed suit against defendant, Drs. Buxton, Fischer, and Shaner, and Does 1 through 100. Plaintiff alleged all the named individuals and entities were negligent in examining, diagnosing, treating, and caring for him. Plaintiff's theory of liability with respect to defendant was that it was negligent in: 1) not establishing proper standards for physicians performing laparoscopic cholecystectomies; 2) failing to ensure the doctors who performed the surgery on him were properly trained and experienced in performing the procedure; and 3) failing to provide and maintain adequate equipment for the procedure. Plaintiff prayed for judgment awarding him general damages, medical and related expenses, loss of income, costs of suit, and other relief deemed just and proper.
On April 27, 1993, defendant made a motion to sever its trial from that of the other defendants which was denied by the court. Dr. Buxton provided medical services to plaintiff under a Kaiser Permanente healthcare contract. This contract contained an arbitration clause which required any claim by plaintiff arising out of the agreement to be submitted to binding arbitration. On May 28, 1993, plaintiff made a motion to compel arbitration and to stay his action pending conclusion of the arbitration. Defendant opposed the motion, claiming it was not a party to the arbitration agreement. The trial court found defendant was not a party to the arbitration agreement and could not be compelled to submit to binding arbitration. The court, therefore, granted the motion with respect to Dr. Buxton, denied it with respect to defendant, and stayed the proceedings until arbitration had been completed. Plaintiff voluntarily dismissed Drs. Fischer and Shaner.
Plaintiff prevailed at the arbitration proceeding, and obtained an arbitration award of $241,066.00. The award included general damages, the cost of past and future medical expenses, and lost wages. On April 18, 1995, plaintiff filed a petition to confirm the arbitration award and for judgment. The petition was approved and plaintiff was directed to prepare the order and judgment. Dr. Buxton paid plaintiff the full amount of the arbitration award plus the costs recoverable as a result of the award for a total of $249,516.26. On July 24, 1995, defendant filed a supplemental answer to plaintiff's complaint in which it raised additional defenses based on res judicata, collateral estoppel, and offset. On December 1, 1995, defendant made a motion for summary judgment. After a hearing, the trial court granted the motion finding there was no triable issue as to any material fact, and that plaintiff was barred from the recovery of any further damages from defendant under the doctrine of res judicata/collateral estoppel.
Plaintiff filed a timely appeal, raising one contention: the trial court erred in granting the motion for summary judgment. DISCUSSION
The collateral estoppel effect of an arbitration award
Plaintiff contends the trial court erred in granting defendant's motion for summary judgment because it misconstrued the effect of the arbitrators' determination of the amount of damages and the payment of that sum in full by Dr. Buxton. Plaintiff argues this award does not preclude his action against defendant under the doctrine of collateral estoppel for several reasons. First, he claims the arbitration award was nothing more than an interlocutory judgment that did not dispose of his entire action. Second, he argues all the requirements for application of the doctrine of collateral estoppel were not satisfied. Specifically, he claims the requirement of due process of law was not satisfied because he could not reasonably have expected to be bound by the arbitration with respect to his claim against defendant. Finally, plaintiff argues that application of collateral estoppel in this situation would be contrary to public policy. He contends this application would reduce the effectiveness of arbitration as an alternative method of dispute resolution, and frustrate the public policy interest in providing a cause of action for a hospital's negligent training and supervision as set forth in Elam v. College Park Hospital (1982) 132 Cal.App.3d 332, 183 Cal.Rptr. 156.
Plaintiff claims the correct effect of the arbitration award is to be found in the rule against double recovery. Rather than acting as a bar to an action against defendant, the arbitration award which was satisfied in full by Dr. Buxton should have been treated as an offset against any damages which were awarded as a result of plaintiff's suit. Thus, the issue we face is focused squarely on what effect is to be given to an arbitrator's award when the individual asserting collateral estoppel was not a party, or in privity with a party, to the arbitration proceeding.
Standard of Review
When reviewing a motion for summary judgment on appeal, we determine de novo "whether an issue of material fact exists and whether the moving party was entitled to summary judgment as a matter of law." (Brantley v. Pisaro (1996) 42 Cal.App.4th 1591, 1601, 50 Cal.Rptr.2d 431.) In other words:
"In reviewing an order granting summary judgment, we must assume the role of the trial court and redetermine the merits of the motion. In doing so, we must strictly scrutinize the moving party's papers. [Citation.] The declarations of the party opposing summary judgment, however, are liberally construed to determine the existence of triable issues of fact. [Citation.] All doubts as to whether any material, triable issues of fact exist are to be resolved in favor of the party opposing summary judgment. (Ibid.)" (Martinez v. County of Los Angeles (1996) 47 Cal.App.4th 334, 341, 54 Cal.Rptr.2d 772.)
However, our review is limited, as is the trial court's, to determining if "there is evidence requiring the fact-weighing procedures of a trial. [Citation.]" (Frank and Freedus v. Allstate Ins. Co. (1996) 45 Cal.App.4th 461, 468, 52 Cal.Rptr.2d 678.) We do not decide the merits of the issues themselves. (Ibid.)
Review of a motion for summary judgment involves a three-step analysis:
"Appellate review of summary judgment is limited to the facts contained in the documents presented to the trial court. This court exercises its independent judgment as to the legal effect of the undisputed facts disclosed by the parties' papers. [Citations.] In so doing, we apply the same three-step analysis required of the trial court: We first identify the issues framed by the pleadings, since it is these allegations to which the motion must respond. Secondly, we determine whether the moving party has established facts which negate the opponents' claim and justify a judgment in the movant's favor. Finally, if the summary judgment motion prima facie justifies a judgment, we determine whether the opposition demonstrates the existence of a triable, material factual issue. [Citation.]" (Torres v. Reardon (1992) 3 Cal.App.4th 831, 836, 5 Cal.Rptr.2d 52.) Analysis
The basis for defendant's motion for summary judgment can be summarized succinctly as follows:
1) The harm suffered by plaintiff as a result of Dr. Buxton's actions was the same harm he suffered as a result of any alleged action by defendant;
2) plaintiff fully litigated the issue of the damages he suffered in the arbitration proceeding involving Dr. Buxton;
3) the amount of plaintiff's damages was determined in an arbitration award which was reduced to a judgment, thus precluding plaintiff from litigating the issue in any subsequent proceeding;
4) the judgment was satisfied in full by Dr. Buxton;
5) plaintiff was precluded from recovering any further amount of damages from defendant; and
6) therefore, there was no triable issue of fact with respect to damages, an essential element of plaintiff's cause of action.
It is apparent the trial court agreed with defendant. During the hearing on the motion for summary judgment, the trial court queried plaintiff's counsel concerning whether plaintiff was claiming any harm as a result of defendant's action which was not the result of Dr. Buxton's acts.
"THE COURT:
"Mr. Doerksen, did the San Joaquin Hospital cause any injury or damage that was not caused by the medical practitioner, Dr. Buxton?
"MR. DOERKSEN [plaintiff's counsel]: Well, if the Court is asking whether the hospital itself caused any physical injury other than the incision and such made by the Doctor, the answer would be 'no.'
"THE COURT: There was only one harm, right?
"MR. DOERKSEN: There was only one physical injury. But I don't think that the loss, the hospital set things in motion by its failing to establish a proper
"THE COURT: (Interposing) Okay, I understand that with respect to the negligence of the hospital, that that has not been adjudicated in any sense of the word.
"The question is, though, assuming that they were negligent, did they cause any harm or damage that was not caused by the Doctor, that has been litigated.
"...
"THE COURT: (Interposing) Is the harm caused by San Joaquin, their failure to supervise, monitor and the rest of it as alleged?
"Is that harm any different than the harm that was caused by the Doctor himself?
"MR. DOERKSEN: No ."
The trial court found the issue of plaintiff's damages was determined in the arbitration proceeding. The court's conclusion was correct. The evidence is clear that any harm suffered by plaintiff was the result of the acts performed by Dr. Buxton. The harm caused by defendant was alleged to be the result of its negligence with respect to Dr. Buxton's acts. Therefore, plaintiff had only one cause of action.
"For purposes of identifying a cause of action under the doctrine of res judicata, 'California has consistently applied the "primary rights" theory, under which the invasion of one primary right gives rise to a single cause of action' [Citation.] But ' the "cause of action" is based upon the harm suffered, as opposed to the particular theory asserted by the litigant. [Citation.] Even where there are multiple legal theories upon which recovery might be predicated, one injury gives rise to only one claim for relief.' [Citation.]" (Branson v. Sun-Diamond Growers (1994) 24 Cal.App.4th 327, 340-341, 29 Cal.Rptr.2d 314, fn. omitted.)
The court concluded plaintiff was barred from recovering any damages in excess of the arbitration award which was satisfied in full, under the doctrine of res judicata/collateral estoppel. Thus, the court concluded defendant was entitled to summary judgment.
The first step in determining whether the trial court was correct in granting defendant's motion for summary judgment is to determine which doctrine applied- "Under the requirement of privity, only parties to the former judgment or their privies may take advantage of or be bound by it. [Citation.] A party in this connection is one who is 'directly interested in the subject matter, and had a right to make defense, or to control the proceeding, and to appeal from the judgment.' [Citations.] A privy is one who, after rendition of the judgment, has acquired an interest in the subject matter affected by the judgment through or under one of the parties, as by inheritance, succession, or purchase. [Citations.]" (Ibid.)
On the other hand, the requirements for invocation of the doctrine of collateral estoppel do not include the requirement of privity or mutuality of estoppel.
"Collateral estoppel precludes relitigation of issues argued and decided in prior proceedings. [Citation.] Traditionally, we have applied the doctrine only if several threshold requirements are fulfilled. First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding. [Citations.] The party asserting collateral estoppel bears the burden of establishing these requirements. [Citation.]" (Lucido v. Superior Court, supra, 51 Cal.3d at p. 341, 272 Cal.Rptr. 767, 795 P.2d 1223, fn. omitted; accord Lumpkin v. Jordan (1996) 49 Cal.App.4th 1223, 1230, 57 Cal.Rptr.2d 303.)
Thus, issue preclusion may be asserted in a subsequent action by a litigant who was not a party or in privity with a party in the original suit so long as the party against whom issue preclusion is asserted was a party or in privity with a party in that action. (See Rest.2d Judgments, § 29.)
Defendant asserts plaintiff is bound by only one aspect of the arbitration award--the determination of the amount of plaintiff's damages. Further, defendant was not a party or in privity with a party in the arbitration proceeding. As defendant emphatically asserted in its objection to being compelled to submit to arbitration, it was not a party or privy to the original agreement between plaintiff and Dr. Buxton under which plaintiff received health care. The fact defendant could also be found responsible for the same harm caused by Dr. Buxton does not change that fact. Thus, the issue is whether defendant was entitled to assert issue preclusion as a basis for its motion for summary judgment.
As the trial court found, plaintiff ostensibly met all the requirements for application of the doctrine of issue preclusion. The issue of the damages plaintiff suffered as the result of Dr. Buxton's actions was identical to the question of what damages he suffered as a result of defendant's actions. The amount of plaintiff's damages was litigated and decided in the arbitration proceeding. Contrary to plaintiff's argument, the decision of the arbitrators was final and on the merits of his claim. "Thus, an arbitration decision is final and conclusive because the parties have agreed that it be so. By ensuring that an arbitrator's decision is final and binding, courts simply assure that the parties receive the benefit of their bargain." (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 10, 10 Cal.Rptr.2d 183, 832 P.2d 899.) The fact plaintiff may have a claim arising out of the same harm against another tortfeasor who is not a party to the arbitration, does nothing to Notwithstanding the fact the threshold requirements for application of issue preclusion exist, the doctrine is not automatically applied. "But as so often is the case, no one set of facts, no one collection of words or phrases, will provide an automatic formula for proper rulings on estoppel pleas. In the end, decision will necessarily rest on the trial courts' sense of justice and equity." (Blonder-Tongue v. University Foundation (1971) 402 U.S. 313, 333-334, 91 S.Ct. 1434, 1445, 28 L.Ed.2d 788.) Application of the doctrine requires consideration of whether the public policies underlying it are served.
"Even assuming all the threshold requirements are satisfied, however, our analysis is not at an end. We have repeatedly looked to the public policies underlying the doctrine before concluding that collateral estoppel should be applied in a particular setting. [Citation.] . Accordingly, the public policies underlying collateral estoppel--preservation of the integrity of the judicial system, promotion of judicial economy, and protection of litigants from harassment by vexatious litigation--strongly influence whether its application in a particular circumstance would be fair to the parties and constitutes sound judicial policy. [Citation.]" (Lucido v. Superior Court, supra, 51 Cal.3d 335 at pp. 342-343, 272 Cal.Rptr. 767, 795 P.2d 1223.)
A primary consideration in plaintiff's case is whether the public policy underlying issue preclusion is furthered by applying it to an arbitration award. "Viewed as a tool of judicial administration, res judicata protects the prestige and moral authority of court judgments and promotes efficient use of the courts by requiring parties to bring all of their claims arising from a particular transaction in a single lawsuit." (Shell, Res Judicata and Collateral Estoppel Effects of Commercial Arbitration (1988) 35 UCLA L.Rev. 623, 641, fns. omitted (hereafter Res Judicata ).)
The applicability of claim preclusion to an arbitration award has been recognized for some time in California.
"Arbitration is a voluntary procedure for settling disputes, leading to a final determination of the rights of the parties. The policy of the law is to favor arbitration, and every reasonable intendment is indulged to give effect to such proceedings. [Citation.] Once a valid award is made by the arbitrator, it is conclusive on matters of fact and law and all matters in the award are thereafter res judicata." (Lehto v. Underground Constr. Co. (1977) 69 Cal.App.3d 933, 939, 138 Cal.Rptr. 419.)
This position is consistent with the Restatement Second of Judgments, as well as the position taken by other courts. "The courts have long held that res judicata applies to arbitration awards. An analysis of decisions utilizing res judicata based on arbitral awards reveals that the courts have modified the traditional doctrine somewhat to fit the peculiar procedural characteristics of arbitration." (Res Judicata, supra, at p. 641, fns. omitted.)
"(1) Except as stated in Subsections (2), (3), and (4), a valid and final award by arbitration has the same effects under the rules of res judicata, subject to the same exceptions and qualifications, as a judgment of a court." (Rest.2d Judgments, § 84.)
Although the applicability of claim preclusion to an arbitration award is almost universally accepted, the applicability of issue preclusion to such an award is subject to question.
"c. Issue Preclusion. The third stage in which an obligation to arbitrate may have significance arises when, after an award, the arbitration is relied on in connection with determination of some claim other than that originally arbitrated. In this context, the question is whether the arbitration award should be given issue preclusive effects.
"Giving claim preclusive effect to an arbitration award does not necessarily imply that such an award should also be given issue preclusive effects. It is coherent to treat an arbitration proceeding as wholly self-contained, conclusive as to the claims represented in the award but inoperative Defendant has cited Thibodeau v. Crum (1992) 4 Cal.App.4th 749, 6 Cal.Rptr.2d 27, as authority for the proposition that issue preclusion is applied to arbitration awards in California. However, a close examination of that case belies defendant's claim.
In Thibodeau, the plaintiffs contracted to have a home built. After they moved in, the plaintiffs complained of numerous construction deficiencies. As a result, they initiated arbitration proceedings against the general contractor pursuant to the construction contract. (Thibodeau v. Crum, supra, 4 Cal.App.4th at pp. 752-753, 6 Cal.Rptr.2d 27.) The arbitrator awarded the general contractor the original contract price, and awarded the plaintiffs certain credits for damages due to poor workmanship and delay in construction. (Id. at p. 753, 6 Cal.Rptr.2d 27.) The defendant was the subcontractor who did the cement work on plaintiffs' house, including the driveway. Prior to the arbitration proceeding, the plaintiffs sent a letter to the general contractor complaining about cracks and chunks breaking off from the driveway. During the arbitration proceeding, the plaintiffs included a claim for driveway repair necessary to replace the chunks which broke off. (Ibid.)
After the arbitration, the cracks in the driveway increased and worsened. An expert who examined the driveway told the plaintiffs it had not been properly constructed and it would cost over $26,000 to repair. The plaintiffs filed suit against the defendant to recover the cost to repair the driveway. (4 Cal.App.4th at pp. 753-754, 6 Cal.Rptr.2d 27.) The defendant asserted as a defense that the issue had already been litigated at the arbitration proceeding. The trial court found for the plaintiffs, reducing the award by the amount the plaintiffs had received for repair of the driveway in the arbitration proceeding. (Id. at p. 754, 6 Cal.Rptr.2d 27.)
On appeal the court reversed, relying on the doctrine of res judicata. In reaching this decision, however, the court found the arbitration proceeding involved all claims by the plaintiffs against the general contractor and subcontractors.
"There were no successive breaches of obligations owed the [plaintiffs], no separate and distinct torts, and no new rights accrued after the first proceeding. The arbitration, mandated by the [ ] construction agreement, was intended to settle all existing claims between the [plaintiffs] and their general contractor and subcontractors regarding the [construction] project." (Thibodeau v. Crum, supra, 4 Cal.App.4th at p. 758, 6 Cal.Rptr.2d 27, italics added.)
The court reiterated this determination when it distinguished Kahn v. Pelissetti (1968) 260 Cal.App.2d 832, 67 Cal.Rptr. 517: "Unlike the situation in Kahn, the parties in this case anticipated the involvement of third parties, i.e., subcontractors, at the time the construction contract was executed and the arbitration was intended to resolve disputes arising out of the work of such third parties." (Thibodeau v. Crum, supra, 4 Cal.App.4th at p. 761, 6 Cal.Rptr.2d 27.) Thus, the court applied claim preclusion and determined the defendant was in privity with one of the parties to the arbitration proceeding.
As stated earlier, the five threshold requirements for application of issue preclusion set out in Lucido v. Superior Court, supra, 51 Cal.3d at p. 341, 272 Cal.Rptr. 767, 795 P.2d 1223, appear to be satisfied in this case. However, as established by our Supreme Court in People v. Sims (1982) 32 Cal.3d 468, 186 Cal.Rptr. 77, 651 P.2d 321, a predicate to applying those factors at all is a determination that the decision in the prior proceeding is one which may be accorded issue preclusion effect.
In Sims, the court was called upon to decide whether the "doctrine of collateral estoppel bars the prosecution from relitigating in the criminal proceeding issues that were previously resolved in the administrative hearing." (People v. Sims, supra, 32 Cal.3d at p. 473, 186 Cal.Rptr. 77, 651 P.2d 321.) The defendant in Sims was a welfare recipient who was alleged to have received In Sims, our Supreme Court held the finding of the administrative hearing should be given collateral estoppel effect in the criminal action. (People v. Sims, supra, 32 Cal.3d at p. 489, 186 Cal.Rptr. 77, 651 P.2d 321.) In reaching this decision, the court stated the outcome turned on whether the administrative proceeding possessed a "judicial character." (Id. at p. 479, 186 Cal.Rptr. 77, 651 P.2d 321.) The court concluded the administrative hearing in Sims possessed a judicial character based on the existence of several factors. First, the court noted the hearing was a "judicial-like adversary proceeding." (Id. at p. 479, 186 Cal.Rptr. 77, 651 P.2d 321.) Second, a verbatim record of the proceeding was maintained, and the hearing officer was required to give a written statement of reasons. (Id. at p. 480, 186 Cal.Rptr. 77, 651 P.2d 321) Third, the hearing officer's decision was "adjudicatory in nature" because it involved application of a rule to a specific set of facts. Finally, the court observed in Sims that the county had the right to seek review of the decision under Welfare and Institutions Code section 10962. (Ibid.) This section provides that either party may file a petition with the superior court "for a review of the entire proceedings in the matter, upon questions of law involved in the case." (Welf. & Inst.Code, § 10962, italics added.)
However, Sims, does not stand for the proposition that any administrative hearing decision must be given issue preclusion effect. "Sims merely states that an administrative hearing decision 'may' be given collateral estoppel effect despite the fact that the hearing utilizes procedural rules different from criminal trials. [Citation.]" (Lucido v. Superior Court, supra, 51 Cal.3d at p. 345, fn. 6, 272 Cal.Rptr. 767, 795 P.2d 1223.) Rather, "the proper focus is on substantive differences that integrally relate to the public policies underlying the doctrine." (Ibid.)
Applying the factors set forth in Sims to an arbitration proceeding, the critical consideration is the inability of the parties to obtain judicial review of the arbitrator's decision. Contrasted to the scope of judicial review of the administrative proceeding in Sims, in an arbitration proceeding the arbitrator's decision is "not generally reviewable for errors of fact or law, whether or not such error appears on the face of the award and causes substantial injustice to the parties." (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 6, 10 Cal.Rptr.2d 183, 832 P.2d 899.) Thus, neither the merits of the controversy nor the validity of the arbitrator's reasoning is subject to judicial review. (Id. at p. 11, 10 Cal.Rptr.2d 183, 832 P.2d 899.) The only basis for seeking judicial review of an arbitration award is to "'prevent[ ] misuse of the proceedings where corruption, fraud, misconduct, gross error or mistake has been carried into the award to the substantial prejudice of a party to the proceedings.' [Citation.]" (Id. at pp. 24-25, 10 Cal.Rptr.2d 183, 832 P.2d 899, fn. omitted.)
The limited judicial review of an arbitrator's decision does not work an injustice on the parties to the arbitration agreement. They contracted for and expect an arbitration award will be binding and final with respect to them. Thus, denying them the opportunity for review of an arbitrator's decision gives effect to their agreement.
"This expectation of finality strongly informs the parties' choice of an arbitral forum over a judicial one. The arbitrator's decision should be the end, not the beginning of the dispute. [Citation.] Expanding the availability of judicial review of such decisions 'would tend to deprive the parties to the arbitration agreement of the However, the same cannot be said when a nonparty to the arbitration agreement attempts to claim issue preclusion based on the arbitrator's decision. In this situation, the lack of any avenue to obtain meaningful review of the arbitrator's decision is recognized as a basis for not applying issue preclusion to the finding in a prior proceeding.
"Although an issue is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, relitigation of the issue in a subsequent action between the parties is not precluded in the following circumstances:
"(1) The party against whom preclusion is sought could not, as a matter of law, have obtained review of the judgment in the initial action; " (Rest.2d Judgments, § 28; Pacific Estates, Inc. v. Superior Court (1993) 13 Cal.App.4th 1561, 1573-1574, 17 Cal.Rptr.2d 434.)
Defendant was not a party to the arbitration. Further, it affirmatively objected when plaintiff attempted to compel it to participate in the arbitration. Nevertheless, it now attempts to effectively preclude plaintiff from pursuing his action against defendant based on the results of that arbitration proceeding. "It would be manifestly inequitable to allow a client 'both to have his cake and eat it too; that is, allow him both to accept the benefits and also repudiate the transaction.' [Citation.]" (Caro v. Smith (1997) 59 Cal.App.4th 725, 731, 69 Cal.Rptr.2d 306.) If defendant wished to reap the benefits of the arbitrators' decision, it could have agreed to binding arbitration as requested by plaintiff. Had defendant done so, we would not hesitate to affirm its right to raise the shield of issue or claim preclusion to bar any further action by plaintiff. This result would promote the "strong public policy in favor of arbitration" which we are required to do everything possible to promote. (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 9, 10 Cal.Rptr.2d 183, 832 P.2d 899.) However, having refused to submit to arbitration, it would be fundamentally unfair to allow defendant to now use the results of that proceeding as a sword against plaintiff. (See Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co. (1992) 6 Cal.App.4th 1266, 1271, 8 Cal.Rptr.2d 587 [no public policy favoring enforcement of arbitration agreements with respect to nonparties to the agreement].)
Although the inability of plaintiff to obtain review of the arbitration proceeding is sufficient basis for this court to not apply issue preclusion to the arbitrators' decision, the relaxed rules of law applicable to such a proceeding also justify this result. Unlike the hearing officer in Sims, supra, the arbitrators in plaintiff's case were not required to apply a rule of law to a specific set of facts. "'[A]rbitrators are not bound to award on principles of dry law, but may decide on principles of equity and good conscience, and make their award ex aequo et bono [according to what is just and good].' [Citation.]" (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 11, 10 Cal.Rptr.2d 183, 832 P.2d 899.) The parties' selection of arbitration as the means for resolving a dispute precludes them from subsequently complaining about the procedures used by the arbitrator to reach a decision. "Because the decision to arbitrate grievances evinces the parties' intent to bypass the judicial system and thus avoid potential delays at the trial and appellate levels, arbitral finality is a core component of the parties' agreement to submit to arbitration." (Id. at p. 10, 10 Cal.Rptr.2d 183, 832 P.2d 899.) The same rationale does not apply when a person who was not a party to an arbitration agreement attempts to take advantage of the arbitration award to assert issue preclusion.
"The[ ] differences between arbitration and court litigation make many of the rationales for applying preclusion based on court judgments inapplicable to preclusion based on arbitration awards. With respect to collateral estoppel, the arbitral system, with its compromise awards, loose evidentiary practices, and secret decisionmaking, places less of a priority than litigation on discovering and reporting historical fact. These characteristics of arbitral fact finding cast considerable doubt on the assumption, operative in traditional issue It is extremely doubtful this is the result plaintiff bargained for when he entered into the arbitration agreement.
"Would rational parties, bargaining before arbitrators have rendered any award, agree to be bound as to specific factual issues, the resolution of which could only be inferred from an unexplained arbitral decision that could be based, in whole or in part, on compromise, hearsay, and irrelevant evidence? Framing the question in this way, of course, predetermines the answer. Parties uncertain that they will prevail in arbitration would probably hesitate to insist that an award have issue preclusive effects." (Res Judicata, supra, at p. 667.)
The Ninth Circuit appears to have reached a different conclusion in Columbia Steel v. Ahlstrom Recovery (9th Cir.1995) 44 F.3d 800, cert. den. 516 U.S. 864, 116 S.Ct. 178, 133 L.Ed.2d 117 (1995). Columbia Steel involved the arbitration of dispute between the plaintiff and defendant after the plaintiff filed suit in California state court. The arbitrator found in favor of the defendant on certain of the claims, and in favor of the plaintiff on others. After the arbitration award was reduced to a judgment, the plaintiff brought a diversity suit in federal court on the causes of action on which it did not prevail in the arbitration proceeding. (Id. at p. 801.) One of the defendants in the diversity suit, AKO, was a subcontractor of the defendant, was not a party to the arbitration and did not make an appearance in the diversity action. Nevertheless, the trial court granted summary judgment for the defendants who appeared as well as for AKO based on res judicata and other grounds. (Id. at p. 802.)
On appeal, the Ninth Circuit Court of Appeals affirmed, stating the collateral estoppel applied to defendant, who was not a party to the arbitration.
"Columbia and Stevens correctly note that AKO was not a party to its arbitration with Ahlstrom. But collateral estoppel does not require that the party benefitting have been a party to the earlier litigation. Stevens presented against Ahlstrom in the arbitration all claims which it could have presented against Ahlstrom's engineering subcontractor, AKO. The arbitrators found that Stevens did not prove damages caused by the alleged error and delay. This basis for the arbitration award compelled the conclusion, inferred by the district court, that even if Ahlstrom's subcontractor AKO was responsible for whatever error and delay there was, Stevens had exhausted its opportunity to prove damages. It is well established that collateral estoppel can operate in favor of a party which did not litigate the earlier case, in appropriate circumstances. [Citation.] Columbia and Stevens have not demonstrated why they would not be precluded by the arbitration award and judgment in favor of Ahlstrom, which was in privity of contract with AKO." (Columbia Steel v. Ahlstrom Recovery, supra, 44 F.3d at p. 802.)
Thus, although the Ninth Circuit couched its decision in terms of collateral estoppel, it appears the court found AKO was entitled to claim the benefit of the arbitration award based on the fact it was in privity with one of the parties to the arbitration agreement. To the extent the case holds otherwise, we find it unpersuasive because it fails to explain why an arbitration award is entitled to collateral estoppel effect in light of the unavailability of review of the decision and the relaxed rules of law which are attendant to such a proceeding.
Because of the lack of any meaningful judicial review of the arbitrators' decision and the relaxed rules of law applicable to the arbitration proceeding, we conclude that issue preclusion does not bar plaintiff from attempting to prove damages in an action against defendant. Thus, there remains a triable issue of fact concerning damages and DISPOSITION
As correctly noted by plaintiff, in the event damages are awarded against defendant in the action, it is entitled to an offset equal to the monies plaintiff already recovered. (Rest.2d Judgments, § 50; Krusi v. Bear, Stearns & Co. (1983) 144 Cal.App.3d 664, 673, 192 Cal.Rptr. 793; see Sports Factory, Inc. v. Chanoff (E.D.Penn.1984) 586 F.Supp. 342, 348.)
The judgment granting the motion for summary judgment is reversed. Costs are awarded to plaintiff.
DIBIASO, Acting P.J., and THAXTER, J., concur.