Is the stipulation to “high-low” arbitration binding only if reflected in the judgment in the case?

Posted in: Arbitration by Steven Vartabedian on

In Horath v. Hess (filed 4/10/14) D063124 & D063709, prior to arbitration of an automobile personal injury case, the parties stipulated in writing to the acceptance of a minimum award of $44,000 and a maximum of $100,000; the agreement was not disclosed to the arbitrator who was to independently determine his award. Any costs awarded by the arbitrator would be added to the stipulated amount. The arbitrator awarded plaintiff $329, 644.61 in damages, plus $36,882.61 in costs. Plaintiff petitioned the trial court to confirm that award. After more than 100 days had passed, defendant filed two motions: the first to limit the judgment for damages to $100,000, and the second for relief from default. Both motions were denied, and the arbitrator’s award was confirmed.

After having paid the stipulated $100,000, plus $36,882.61 in costs, to plaintiff, defendant filed a motion in a separate action for acknowledgment of satisfaction of judgment. The trial court denied the motion, determining that judgment was as confirmed from the arbitrator’s award, the face of the arbitrator’s award governed, and defendant had untimely challenged that award.

On appeal of the two consolidated cases, the Court of Appeal, Fourth Appellate District, Division One, concluded the trial court erred by denying defendant’s motion for satisfaction of judgment. Determinative of the appeal was the application of Code of Civil Procedure section 724.050, the section under which defendant sought to obtain a court-entered satisfaction of judgment. That section provides, at subdivision (d), that a judgment debtor may apply to the court for satisfaction where the creditor refuses the debtor’s demand for such. Section 724.010, subdivision (a) states that a satisfaction does not require full payment of the amount of judgment where there has been “acceptance by the judgment creditor of a lesser sum in full satisfaction of the judgment.” The trial court had agreed with plaintiff that the parties’ pre-arbitration award stipulation did not exempt defendant from the requirement of timely seeking to vacate or correct the award before entry of judgment.

Plaintiff argued in its respondent’s appellate brief that, even if the statute provided the method for a judgment debtor to enforce a judgment creditor’s agreement to accept less than the full judgment, the statute calls for a situation where the stipulation or agreement arose after the judgment was entered rather than before entry, as was the case here. The court of appeal saw this as a distinction without a difference. Under general contractual principals, the parties mutually agreed to the “high-low” provision including that both parties benefited by taking a degree of the risk out of the arbitrator’s independent determination. It was understood that this independent award would not govern the payment necessary to satisfy the judgment; rather their stipulation would govern.

It is clear from this opinion that the parties’ stipulation controlled the parameters of the case’s ultimate resolution by payment, even if that occurred before the commencement of the arbitration proceedings. The stipulation takes precedence over the arbitrator’s award, even if recognized as the judgment in the case. To gain an order of satisfaction, the debtor need not set aside or modify the judgment, as satisfaction is governed by the party’s stipulation.

Nonetheless, a safer course of action would be for the debtor to timely oppose the entry of any judgment to be entered contrary to the stipulation, as things could get messy if the creditor exercised collection remedies. Section 724.050 merely provides a safety valve. Although the appellate opinion does not address the notion of unclean hands, I have to think that the court was distressed by the “hard-ball” tactic of the creditor in refusing to acknowledge satisfaction, while accepting the payment consistent with the stipulation.

I also wonder how the situation would work in the reverse: if the arbitrator had, for example, awarded damages in the total sum of only $20,000 (less than the $44,000 damage minimum). Pursuant to the stipulation, defendant would then have to pay a sum greater than the award in order to gain satisfaction. The express terms of section 724.010 address only the acceptance of a “lesser sum” in full satisfaction. I suppose the plaintiff would then be in a position to decline satisfaction of judgment unless the greater sum is paid. It just seems that the language of section 724.050 could not control in that situation, and the enforcement mechanism is not mutual.

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