Caro v. Smith

• Decision Date: 26 November 1997
• Docket Number: Nos. G016245,G016461,s. G016245
• Citation: 59 Cal.App.4th 725,69 Cal.Rptr.2d 306
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 8972, 97 Daily Journal D.A.R. 14,433 Julia A. CARO, Plaintiff and Respondent, v. Joan Irvine SMITH, Defendant and Appellant. Julia A. CARO, Plaintiff and Appellant, v. Joan Irvine SMITH, Defendant and Appellant.

Page 306

69 Cal.Rptr.2d 306

59 Cal.App.4th 725, 97 Cal. Daily Op. Serv. 8972,

97 Daily Journal D.A.R. 14,433

Julia A. CARO, Plaintiff and Respondent, v. Joan Irvine SMITH, Defendant and Appellant.

Julia A. CARO, Plaintiff and Appellant, v. Joan Irvine SMITH, Defendant and Appellant.

Nos. G016245, G016461.

Court of Appeal, Fourth District, Division 3, California.

Nov. 26, 1997.

As Modified Dec. 24, 1997.

Review Denied March 11, 1998.

[59 Cal.App.4th 728] James R. Traut, Santa Ana, for Plaintiff and Respondent and for Plaintiff and Appellant.

Baraban & Teske, Jeffrey H. Baraban and James S. Link, Pasadena, for Defendant and Appellant.

OPINION

CROSBY, Associate Justice.

Oral contracts, Samuel Goldwyn is widely quoted as saying, are not worth the paper they are written on. Defendant's lawyers would give the same short shrift to a stipulation signed by one of them to submit a personal injury claim to binding arbitration. They call the stipulation worthless because their client did not personally sign it. They say plaintiff's counsel acted at his peril in taking them at their word concerning their authority to stipulate on their client's behalf.

Defendant did not sign the stipulation. But she participated in the arbitration, expressly acknowledging to the arbitrator her understanding that it would be binding; she has never personally sought to repudiate her consent. Equally important, the "true" client (defendant's insurance carrier) agreed to binding arbitration after acknowledging its duty to defend and indemnify its insured. These factors clearly distinguish this case from Blanton v. Womancare, Inc. (1985) 38 Cal.3d 396, 212 Cal.Rptr. 151, 696 P.2d 645, the primary authority relied on by the lawyers to disavow the agreement.

Only after we pressed the issue of sanctions on appeal did the defense lawyers acknowledge they were upset with the arbitration award because it included an award of attorney fees. They saw Blanton as a fortuitous loophole to avoid the arbitration's binding effect.

Such tactics are unworthy of the humblest trade or occupation, and they should be unthinkable for a calling claiming to be a profession. The case law, including Blanton, plainly recognizes that clients may subsequently ratify arbitration agreements to which they did not initially subscribe. There is no question there was ratification by both defendant, the nominal client, and her carrier (which actually controlled the litigation).

We affirm the judgment on the arbitration award, including the attorney fees award, and impose sanctions for a frivolous appeal. We also affirm the post-judgment order awarding prejudgment interest based on defendant's refusal to accept a pretrial statutory offer.

I

Plaintiff Julia A. Caro was employed by defendant Joan Irvine Smith to perform secretarial, interior design, and other duties. She occasionally exercised and showed Smith's horses. On one occasion at work, she was asked to hold Smith's horse "Panache" during an acupuncture session. She was too inexperienced for the task, and the animal bolted and seriously injured her.

Smith had no workers' compensation insurance coverage for Caro. Consequently Caro sued in tort, and Smith's defense was provided by her liability carrier, Golden Eagle Insurance Company. It retained Jeffrey Baraban to represent her. Meanwhile, Smith's personal attorney assured James R. Traut, Caro's lawyer, that Golden Eagle assumed the defense with no reservation of rights and the potential liability fell within the policy limits.

Shortly after the mandatory settlement conference, Baraban informed Traut that Golden Eagle would stipulate to binding arbitration. Traut confirmed this by letter. The attorneys exchanged numerous letters and telephone calls concerning the selection of an arbitrator. In February 1994, Baraban stated Golden Eagle had agreed on attorney Clive Kemp as the arbitrator, and a date was set.

Baraban, purporting to act on Smith's behalf, signed a written "Stipulation Re Binding Arbitration." It stated, "The parties hereto, individually, and through their undersigned respective counsel of record, stipulate...." Baraban told Traut he was "authorized and instructed" to stipulate to binding arbitration. The stipulation stated the arbitration would be binding and "each party through their respective counsel waive and forever relinquish the right to a trial de novo as provided in California Rule of Court 1616."

All parties and attorneys were present. The arbitrator began the proceedings by asking Caro and Smith "whether they understood that it was a Binding Arbitration...." He explained " 'binding' meant that there would be no appeal of his award." Both Caro and Smith audibly responded, "Yes."

In his written opinion, the arbitrator found Caro was acting within the course and scope of her employment when she was injured and her employer did not rebut the presumption she was negligent. (Lab.Code, § 3708.) He awarded $331,111 in compensatory damages.

Caro also sought statutorily mandated attorney fees pursuant to Labor Code section 3709, based on Smith's failure to provide workers' compensation insurance for her. ¹ Baraban objected because "[t]here was no agreement by the parties that attorney fees would be considered in the Arbitration." Following supplemental briefing, the arbitrator awarded plaintiff an additional $59,500 in statutory attorney fees. The arbitrator concluded, "it appears clear to the undersigned that both plaintiff and defendant did, by signing the Stipulation, intend to litigate all issues which would include attorney fees." Caro dismissed her lawsuit against Smith and filed a petition to confirm the award pursuant to Code of Civil Procedure section 1285.

Baraban was displeased with the award of attorney fees, allegedly believing it fell outside the agreement to arbitrate. ² He asked James S. Link, who was of counsel to his law firm and who handled its appellate work, "if there was any way to attack the stipulation...." Link, after examining Blanton v. Womancare, Inc., supra, 38 Cal.3d 396, 212 Cal.Rptr. 151, 696 P.2d 645, developed the stratagem of challenging the stipulation on the ground that Smith had not signed it. Link concluded a subsequent appellate opinion, Sanker v. Brown (1985) 167 Cal.App.3d 1144, 213 Cal.Rptr. 768, authorized "the possibility of manipulation--of withholding an objection unless and until an unfavorable decision is announced" by placing the burden on the opposing party (namely Traut) " 'to ascertain at his or her peril whether the other parties have, in fact, agreed to waive their right to a trial de novo.' "

Link prepared the opposing papers to the motion to confirm, and Baraban signed them. Baraban asserted he was not authorized to stipulate to arbitration and argued Smith's signature was essential. Although Baraban and Link filed opposition papers on three separate occasions (May 4, June 3 and June 24), they never filed a declaration from Smith purporting to repudiate her oral agreement to arbitrate, or reflecting she was unavailable.

The superior court found Smith had actual knowledge that the arbitration was binding and entered a judgment confirming the arbitration award in the amount of $390,611. (Code Civ. Proc., § 1287.4.) Baraban signed and filed a notice of appeal on Smith's behalf.

Following the entry of judgment on the order confirming the arbitration award, the court awarded Caro prejudgment interest of $73,431 based on her recovery of a more favorable "judgment" than her pretrial statutory offer of $151,213. (Code Civ. Proc., § 998; Civ.Code, § 3291.) The court denied Caro's other costs of $2,234.20 for such expenses as filing fees, deposition transcripts, and process charges. In a separate appeal, both parties challenge the trial court's post-arbitration order on these statutory costs.

II

Nothing in the Supreme Court' opinion in Blanton v. Womancare, Inc., supra, 38 Cal.3d 396, 212 Cal.Rptr. 151, 696 P.2d 645 allows attorneys to renege on agreements for binding arbitration because they are displeased by an award. In Blanton a client told her attorney she would consent to arbitration only so long as her right to go to trial was preserved. Ignoring these directions, her attorney stipulated to binding arbitration. Three months later the client learned for the first time the facts concerning the stipulation. She immediately objected, fired the attorney, and through new counsel sought to invalidate the stipulation.

The Supreme Court agreed with the client, holding her lawyer lacked implied authority to relinquish her fundamental right to a trial and needed her express consent. The court based its ruling on principles of agency law, holding the attorney had "no apparent authority to bind his client to an agreement for arbitration." (Id. at p. 407, 212 Cal.Rptr. 151, 696 P.2d 645.)

But Blanton emphasized the equally important agency principle of ratification through which "unauthorized acts of an attorney may be binding upon [a] client...." (Id.at p. 408, 212 Cal.Rptr. 151, 696 P.2d 645.) The court noted that ratification did not apply because the client arbitrated her case only after her new attorney was unable to persuade the trial court to set aside the order negotiated by her previous attorney. (Ibid.)

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." (Alvarado Community Hospital v. Superior Court (1985) 173 Cal.App.3d 476, 481, 219 Cal.Rptr. 52.) This is the functional equivalent of the "heads I win, tails you lose" proposition that has troubled this court in one-sided de novo attacks on arbitration awards. (Saika v. Gold (1996) 49 Cal.App.4th 1074, 1079-1080, 56 Cal.Rptr.2d 922.) As we stated in Saika, "[t]he promise of an inexpensive, speedy resolution to the claim evaporated with one party's unilateral ability to avoid results it did not like." (49...