Claim arbitrator exceeded his powers in defining “prevailing party” is not reviewable on attorney fee determination.

Posted in: Arbitration, Attorney Fees by Steven Vartabedian on

attorneyIn Safari Associates v. Superior Court (Tarlov) (filed 12/2/14) 2014 DJDAR 15943, Tarlov had been the managing partner of Safari. The parties reached a settlement of disputes arising from the termination of this relationship in the form of a release agreement. That agreement specified that Safari’s claim for reimbursement for personal expenses paid by Tarlov from partnership assets was not covered by the release; the parties would made a good faith effort to resolve this claim, and they agreed to submit the matter to binding arbitration if unsuccessful.  The arbitration provision allowed the arbitrator to allocate all or part of the costs of arbitration including the award of reasonable attorney fees to the prevailing party; prevailing party “means the party, if any, that obtained substantially the relief sought in the arbitration.”

The matter proceeded to arbitration where Safari claimed it was entitled to $768,228 as reimbursement from Tarlov; arbitrator awarded Safari $152,611.48 on its claim. Both sides filed before the arbitrator a motion for attorney fees, each arguing it was the prevailing party. Safari argued it prevailed because Civil Code section 1717, subdivision (b)(1), controls the definition of prevailing party in providing the prevailing party shall be the party who recovered a greater relief in the action on the contract.   Tarlov argued he prevailed as Safari did not obtain substantially the relief sought in the arbitration, as stated in the contract, but he did.  The arbitrator agreed with Safari and awarded it an additional $248,844 in attorney fees and costs.

Safari petitioned the San Diego Superior Court to confirm the award; Tarlov countered by moving the court to modify or correct the award as exceeding the arbitrator’s powers. The trial court found that the arbitrator’s fee award was reviewable as applying a definition contrary to the parties’ agreement, and as such the award was in error, remanding the matter to the arbitrator to re-determine the matter of attorney fees and costs.   On Safari’s petition for writ of mandate, the Court of Appeal, Fourth Appellate District, Division One, issued an order to show cause, eventually issuing the writ of mandate directing the trial court to vacate its order.

Generally, arbitrators have the power to determine matters of contract interpretation; except for acts beyond broad powers of the arbitrator, awards are not subject to review, even if an award may be “erroneous.” (Code of Civil Procedure section 1286.6, Gueyffier v. Anne Summers, Ltd. (2008) 43 Cal.4th 1179, 1184-11855.)     “Where the entitlement of a party to attorney fees under . . . section 1717 is within the scope of the issues submitted for binding arbitration, the arbitrators do not exceed their powers.” (Moore v. First Bank of San Luis Obispo (2000) 22 Cal.4th 782, 784.)

The appellate court stated that, absent language expressly limiting the arbitrator’s power to apply a definition of prevailing party to something different than that defined in the agreement, the court may not construe the provision in the agreement as being an explicit and unambiguous limitation on the arbitrator’s power. If the parties wanted to limit the arbitrator’s powers, they could have used language expressing that intent. Absent that, to require the agreement’s definition of prevailing party standing alone, would intrude upon the arbitrator’s broad powers.

Even assuming that an arbitrator may be overruled by a trial court grounding vacation of award on the ground of contradicting the parties’ agreement, continued the court, the arbitrator is entitled to declare the disputed provision of the contract void as violative of public policy stated in section 1717, which was the arbitrator’s conclusion here.

This opinion follows clear California law that an arbitrator does not exceed his/her powers merely by rendering what may be viewed as an erroneous decision on a legal or factual issue, so long as the issue was within the scope of the controversy submitted to the arbitrator.   (See Moshonov v. Walsh (2000) 22 Cal.4th 771, 775-776.)

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