Moore v. First Bank of San Luis Obispo

• Decision Date: 17 April 2000
• Docket Number: No. S076239.,S076239.
• Citation: 996 P.2d 706,22 Cal.4th 782,94 Cal.Rptr.2d 603
• Parties: James W. MOORE et al., Plaintiffs and Appellants, v. FIRST BANK OF SAN LUIS OBISPO, Defendant and Respondent.
• Court: California Supreme Court

94 Cal.Rptr.2d 603

22 Cal.4th 782

996 P.2d 706

James W. MOORE et al., Plaintiffs and Appellants, v. FIRST BANK OF SAN LUIS OBISPO, Defendant and Respondent.

No. S076239.

Supreme Court of California.

April 17, 2000.

Gibson & Rivera and Clark Rivera, Pasadena, for Plaintiffs and Appellants.

Smith, Helenius & Hayes, Smith, Tardiff & Hayes, Carl E. Hayes and James E. Smith, San Luis Obispo, for Defendant and Respondent.

WERDEGAR, J.

Like the companion case of Moshonov v. Walsh (2000) 22 Cal.4th 771, 94 Cal. Rptr.2d 597, 996 P.2d 699 (Moshonov), this case presents a question as to whether a binding arbitration award may be judicially corrected to award a party attorney fees the arbitrator declined to provide. Although the facts of the two cases differ significantly, we conclude the award here, like that in Moshonov, is not subject to correction.

The trial court ordered this dispute over the validity and enforcement of secured loan agreements to contractual arbitration pursuant to predispute arbitration clauses in the loan agreements. The arbitration panel decided generally for plaintiffs, awarding them all the relief they had sought, at least in the arbitration itself, on their contract causes of action. Because the loan agreements and deeds of trust contained provisions entitling defendant to attorney fees on these causes of action had defendant prevailed, plaintiffs themselves were arguably entitled to recover such fees as costs under Civil Code section 1717. Without making a finding as to the existence or nonexistence of a prevailing party, however, the arbitrators instead decided that each party was to bear its own attorney fees.

The superior court denied plaintiffs' motion to correct the award (Code Civ. Proc, § 1286.6)¹ to include an award of attorney fees; the Court of Appeal affirmed. We conclude the lower courts acted correctly: Where the entitlement of a party to attorney fees under Civil Code section 1717 is within the scope of the issues submitted for binding arbitration, the arbitrators do not "exceed[] their powers" (§§ 1286.2, subd. (d), 1286.6, subd. (b)), as we have understood that narrow limitation on arbitral finality, by denying the party's request for fees, even where such a denial order would be reversible legal error if made by a court in civil litigation. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 28, 10 Cal.Rptr.2d 183, 832 P.2d 899 (Moncharsh); Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376-381, 36 Cal.Rptr.2d 581, 885 P.2d 994 (Advanced Micro Devices).)

PROCEDURAL BACKGROUND

Plaintiffs James, Ruth Ann and C. Dean Moore, Mary and Gary Smee, and Andrew and Leslie Cone sued the First Bank of San Luis Obispo (the Bank) for several causes of action arising out of a transaction in which plaintiffs, shareholders in a privately held real estate development corporation, had indebted themselves personally to the Bank, granting the Bank deeds of trust on their private residences, in an effort to obtain additional funds for the corporation's property development scheme. Specifically, plaintiffs pleaded causes of action for fraud, cancellation of written instruments, breach of contract, injunctive and declaratory relief, violation of the Racketeer Influenced Corrupt Organizations Act (RICO), and unfair or fraudulent business practices. In addition to equitable relief (i.e., orders voiding the loan agreements and deeds of trust, cancelling liens and enjoining the Bank from foreclosing on plaintiffs' property), plaintiffs prayed for compensatory damages under their causes of action for fraud, breach of contract, RICO and unfair business practice, and for exemplary damages under their fraud, RICO and unfair business practice causes of action.

The Bank cross-complained for judicial foreclosure of the subject deeds of trust and for a deficiency judgment. Both plaintiffs' complaint and the Bank's cross-complaint prayed for an award of attorney fees.

The loan agreements contained a clause by which the parties agreed to arbitration, under American Arbitration Association (AAA) rules, of "all disputes, claims and controversies between us ... arising from this Agreement or otherwise...." The same documents contained a provision by which the plaintiff borrowers agreed to pay the Bank's "collection costs," including "our [the Bank's] attorneys' fees." The incorporated deeds of trust contained a provision entitling the Bank, but not the borrowers, to reasonable attorney fees "[i]f Lender institutes any suit or action to enforce any of the terms of this Deed of Trust...."

On the Bank's petition to compel arbitration, pursuant to the arbitration clause in the loan agreements, the controversy was ordered to arbitration before an AAA panel of three arbitrators.² On June 5, 1997, at the arbitration hearing, plaintiffs' counsel, in response to an inquiry from one of the arbitrators, stated that plaintiffs were no longer pursuing a claim for damages, other than attorney fees. In a postarbitration brief dated June 19, 1997, however, counsel requested that the arbitrators award plaintiffs exemplary damages on their cause of action for fraud. In the postarbitration brief, as well as in a prehearing brief dated May 21, 1997, plaintiffs asked the arbitrators to award them their attorney fees as prevailing parties.

The arbitrators' award ordered the Bank to cancel all obligations under the loan agreements, deeds of trust and liens, to obtain reconveyances of the deeds of trust, and to execute releases from the liens and promissory notes. The award further provided that "[n]o monetary sum is owed to [plaintiffs] in this matter." Without any explanation, the arbitrators further ordered that "[e]ach party shall pay its own attorney's fees."

The Bank petitioned the superior court to confirm the award, while plaintiffs, relying on DiMarco v. Chaney (1995) 31 Cal. App.4th 1809, 37 Cal.Rptr.2d 558 (DiMarco), petitioned for correction of the award pursuant to section 1286.6, subdivision (b), so as to award them their attorney fees. The superior court granted the petition to confirm and denied the petition to correct, finding the question of fees had been submitted to and decided by the arbitrators and was, therefore, unreviewable by the court under our decisions in Moncharsh, supra, 3 Cal.4th 1, 10 Cal.Rptr.2d 183, 832 P.2d 899, and Advanced Micro Devices, supra, 9 Cal.4th 362, 36 Cal.Rptr.2d 581, 885 P.2d 994. The Court of Appeal affirmed, reasoning that although plaintiffs were, as a matter of law, the prevailing parties for purposes of Civil Code section 1717, the arbitration panel's refusal to award fees, an error of law on an issue within the arbitrators' power to decide, could not be corrected under Moncharsh. The Court of Appeal declined to follow DiMarco, supra, 31 Cal.App.4th 1809, 37 Cal.Rptr.2d 558, deeming its reasoning inconsistent with the holding of Moncharsh.

We granted plaintiffs' petition for review.

DISCUSSION

The opinion filed today in our companion case, Moshonov, supra, 22 Cal.4th 771, 94 Cal.Rptr.2d 597, 996 P.2d 699 reviews the holdings and reasoning of Moncharsh, supra, 3 Cal.4th 1, 10 Cal.Rptr.2d 183, 832 P.2d 899, Advanced Micro Devices, supra, 9 Cal.4th 362, 36 Cal.Rptr.2d 581, 885 P.2d 994, and DiMarco, supra, 31 Cal.App.4th 1809, 37 Cal.Rptr.2d 558. Rather than repeat those portions of the discussion, we proceed directly to analyze the present case in light of those decisions.

As in Moshonov, supra, 22 Cal.4th 771,94 Cal.Rptr.2d 597,996 P.2d 699 we agree with the courts below that, under the principle of arbitral finality as explained in Moncharsh (3 Cal.4th at p. 28,10 Cal. Rptr.2d 183,832 P.2d 899), the arbitrators' award in the present case could not be judicially corrected to award plaintiffs their attorney fees. By agreement of the contracting parties, the fee question was within the arbitrators' powers to decide. Both plaintiffs and defendant prayed for fees in their complaints. The controversy was ordered to binding arbitration pursuant to an agreement to arbitrate "all disputes, claims and controversies between us" and without, as far as the record shows, any judicially imposed limitation on the issues to be arbitrated. (See ante at p. 3, fn. 2, 10 Cal.Rptr.2d 183,832 P.2d 899.) At the outset of arbitration, plaintiffs abandoned some claims but continued, in their briefs and orally before the panel, to request an award of attorney fees. Under the agreed AAA rules of arbitration, the arbitrators were empowered to grant "any remedy or relief that [they] deem[ ] just and equitable." (AAA, Commercial Arbitration Rules (1993) rule 43, p. 17.) "The AAA rule has been described as `a broad grant of authority to fashion remedies' [citation], and as giving the arbitrator `broad scope' in choice of relief [citations]." (Advanced Micro Devices, supra, 9 Cal.4th at pp. 383-384,36 Cal.Rptr.2d 581,885 P.2d 994.)

Under these circumstances the arbitrators had the power to decide the entire matter of recovery of attorney fees. The recovery or nonrecovery of fees being one of the "contested issues of law and fact submitted to the arbitrator for decision" (Moncharsh, supra, 3 Cal.4th at p. 28, 10 Cal.Rptr.2d 183, 832 P.2d 899), the arbitrators' decision was final and could not be judicially reviewed for error. "The arbitrator's resolution of these issues is what the parties bargained for in the arbitration agreement." (Ibid.)

Like the prevailing defendants in Moshonov, supra, 22 Cal.4th 771, 94 Cal.Rptr.2d 597, 996 P.2d 699 plaintiffs here seek to distinguish between the substantive merits of the arbitrated controversy and the "ancillary" question of costs, including attorney fees. Only the former aspect of the case—the question of who was to prevail on the contract-related claims in dispute— was submitted, plaintiffs argue, for the arbitrators' decision. Once that decision was made, the argument goes, the arbitrators had no power to deny fees to the prevailing ...