RECOVERY OF LEGAL FEES AND COSTS IN ARBITRATION

RECOVERY OF LEGAL FEES AND COSTS IN ARBITRATION

HAROLD S. SMALL, J.D., CPA, and AEP

Under the “American” rule, each party pays its own attorney fees. California Civil Code (“Civ. Code”) §1717 modifies this rule and allows for the recovery of attorney fees when the parties, by contract, provide for the payment of attorney fees and they are paid to the “prevailing party.” The award of fees is at the discretion of the Court, but only when an attorney fee provision is included in the agreement executed by the parties, or when statutory provisions allow for the recovery of attorney fees. Also, the provisions of §1717 allow for the recovery of attorney fees by either side (whoever prevails) even when the language indicates that the attorney fees are unilateral. A request for attorney fees needs to be included in the pleadings and asked for at trial or in the arbitration.

In Carwash of America-PO LLC v. Windswept Ventures No. I (2002), Cal. App. 4^th, Third District, No. C035179 the Fourth District Court of Appeals visited the issue of awarding expert witness fees as a recoverable cost. In this case, the trial court (sustained by the Court of Appeals) reviewed the provisions of Code of Civil Procedure (“Civ. Pro.”) §§1032 and 1033.5 regarding recoverable costs and stated, “..while the parties may agree to allow recovery of expert witness fees by the prevailing party, this is a matter that must be pleaded and proven at trial rather than submitted in a cost bill [citations].”

The Fourth District Court of Appeals has visited the issue and provided additional guidance with regard to the recovery of legal fees in an arbitration. In the very recent decision of Corona v. Amherst Partners, No. D040084 (Cal. 4th App. Dist. April 1, 2003), Juvenal Corona entered into a standard real estate purchase contract to buy a residence. While the sale was in escrow, Amherst sold the property to a third party. Corona brought an action against Amherst and one of its principals and demanded that the matter be submitted to binding arbitration in accordance with the purchase contract. The parties agreed to submit the matter to binding arbitration. The arbitrator found in Corona's favor and awarded him $10,000. Corona made motions in Superior Court to confirm the arbitration award and for an award of $28,257.50 in attorney fees and $6,302.32 in costs, including the arbitrator's fees. The defendants stipulated to confirmation of the arbitration award, but opposed the motion for fees and costs, arguing that, under governing legal principles, the court could not make an award of costs and fees incurred in the arbitration, although it could award costs and fees incurred in the judicial proceedings. The superior court granted the motion to confirm the award, but denied the motion for fees and costs on the ground that only the arbitrator had the authority to make such an award and that it was incumbent on Corona to have sought it from the arbitrator.

Corona appealed, contending that the trial court erred in denying his request for fees incurred in the arbitration because he was entitled to seek such fees from the court even though he did not ask the arbitrator to make such an award and, in any event, he was entitled to recover his fees incurred in the judicial proceedings preceding and following the arbitration.

The Court of Appeals in Corona stated that Civ. Pro. “... section 1280 et seq. sets forth a comprehensive statutory scheme governing private arbitration in this state.” In Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9, the Court of Appeals held that the fundamental premise of the scheme is that a “written agreement to submit [either a present or a future controversy] to arbitration . . . is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” [Civ. Pro. § 1281] ... Where parties have agreed to submit their dispute to private arbitration, the scope of the arbitration and the powers of the arbitrator are defined in accordance with the ... agreement. ... [T]his does not mean that the parties to a private arbitration must specify every detail, ... Rather the statutory scheme sets forth the basic parameters of such proceedings unless the parties specifically agree otherwise; ... [which includes] limited judicial review of the arbitration award.” [citations omitted.]

In Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 831, the Court opined and quoted from the decision in Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9, stating, “‘... the parties, simply by agreeing to arbitrate, are deemed to accept limited judicial review...’”

The Court in Corona stated that “A court must award costs in a judicial proceeding to confirm, correct or vacate an arbitration award. [citations] Attorney fees are recoverable as costs if authorized by contract. [Civ. Pro., 1033.5, subd. (a)(10)(A).] “Pursuant to the statutory scheme, Corona is entitled to recover the attorney fees and costs he incurred in the judicial proceedings and, for this reason, the court erred in ... denying his request for such fees and costs in its entirety.” Since the Court did not make a determination regarding Corona’s challenge of the propriety of certain fees and costs, the Court remanded this matter for further proceedings regarding the issue of the amount of fees and costs to be awarded.

The Court of Appeals held that where a party is required by contract to submit a dispute to binding arbitration, but does not request that the arbitrator decide his entitlement to attorney fees (even though that issue was part of the submission), a trial court may not determine that issue and make an award of fees and costs incurred in the arbitration.

The lesson communicated in the Corona case is that when you are involved in litigation (including an arbitration) and you want to recover legal fees and costs, plead them and prove them during the arbitration proceeding in the same manner as you would in a courtroom or trial setting, and then ask for them as a part of the proceeding so that the arbitrator makes a finding concerning the award of attorneys’ fees and costs. Since a judgment made on the basis of an arbitration award is typically limited to the findings of the arbitrator and the decision of the arbitrator (as pointed out in the Corona decision), the Court cannot make a determination on an issue that should have been addressed by the arbitrator and made a part of the arbitration award.

THE FOREGOING CONCEPTS AND IDEAS ARE GENERAL STATEMENTS AND ARE INTENDED TO PROVIDE CONCEPTS FOR CONSIDERATION IN BUSINESS AND TAX PLANNING. CAREFUL CONSIDERATION NEEDS TO BE GIVEN BY THE USER REGARDING THE USE AND APPLICATION OF THE CONCEPTS. YOUR LEGAL AND TAX COUNSEL SHOULD BE CONSULTED BEFORE THE IMPLEMENTATION OF ANY OF THE IDEAS INDICATED HEREIN. SHOULD YOU HAVE QUESTIONS REGARDING THIS MATTER, HAROLD S. SMALL, ESQ., CAN BE REACHED AT 12526 HIGH BLUFF DRIVE, SUITE 200, SAN DIEGO, CALIFORNIA 92130 OR AT 858.350.8888.