National Union Fire Ins. Co. v. Stites Prof. Law Corp.

• Decision Date: 25 October 1991
• Citation: 1 Cal.Rptr.2d 570,235 Cal.App.3d 1718
• Court: California Court of Appeals Court of Appeals
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., a corporation, Plaintiff and Appellant, v. STITES PROFESSIONAL LAW CORPORATION, a California corporation, Defendant and Respondent. B050749.

Page 570

1 Cal.Rptr.2d 570

235 Cal.App.3d 1718

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., a corporation, Plaintiff and Appellant, v. STITES PROFESSIONAL LAW CORPORATION, a California corporation, Defendant and Respondent.

B050749.

Court of Appeal, Second District, Division 5, California.

Oct. 25, 1991.

Rehearing Denied Nov. 18, 1991.

As Modified Nov. 20, 1991.

Lewis, D'Amato, Brisbois & Bisgaard, David E. Reynolds, Timothy J. Watson, Los Angeles, for plaintiff and appellant.

Dave Lenny, Calabasas, for defendant and respondent.

I. INTRODUCTION

TURNER, Presiding Justice.

National Union Fire Insurance Company of Pittsburgh, Pa. (National) appeals from a superior court order denying National's petition to confirm an arbitration award and awarding costs to the respondent, Stites Professional Law Corporation (Stites). The order is appealable pursuant to Code of Civil Procedure section 1294, subdivision (d). The trial court concluded that the attorney's fee dispute between National and Stites was not subject to arbitration pursuant to Business and Professions Code section 6200 et seq. ¹ The trial court directed, "Judgment denying the petition is ordered entered for [Stites] for costs." We agree that the dispute between Nationaland Stites was not subject to arbitration under section 6200 et seq. Therefore, we affirm the order insofar as it denied National's petition. However, we find that it was error to award costs to Stites. Therefore, we reverse the order in that limited respect.

II. BACKGROUND

National issued a "Directors and Officers Liability and Corporation Reimbursement" policy of insurance to Commercial Bank of California (Bank). The policy provided coverage for losses suffered by the Bank arising from any wrongful act by a director or officer of the Bank acting in that capacity, but only insofar as the officer or director would be entitled to indemnification by the Bank "for damages, judgments, settlements, costs, charges or expenses incurred in connection with the defense of any action, suit or proceeding...." The policy also provided that "[n]o costs, charges and expenses shall be incurred without the Insurer's consent which shall not be unreasonably withheld ..." and, "[t]he Insureds shall not be required to contest any legal proceedings unless counsel (to be mutually agreed upon by the Insureds and the Insurer) shall advise that such claim should be contested by the Insureds and the Insurers consent thereto, such consent not to be unreasonably withheld."

Anthony R. Bazurto (Bazurto), an assistant vice president and cashier of the Bank, was sued by the Federal Deposit Insurance Corporation (FDIC) in July 1984, along with other officers and directors of the Bank, in connection with the failure of the Bank (the FDIC action). Bazurto retained Stites to represent him in the FDIC action. National agreed, subject to certain reservations of rights, to pay Bazurto's reasonable defense costs in the FDIC action. The FDIC action was settled in March 1986. Thereafter, National disputed the charges claimed by Stites for the defense of Bazurto.

National initiated arbitration of the fee dispute pursuant to section 6200 et seq. Stites refused to participate in the arbitration. In April 1987, the arbitrators issued an award in favor of National. The arbitrators found that the bills submitted by Stites to National were "unreliable, at best," and appeared to be "grossly excessive." In addition, the arbitrators found that "the services allegedly performed do not appear to have been necessary or reasonably required for the defense of Mr. Bazurto." The arbitrators concluded that some of the Stites billings were fraudulent. Because Stites had made no showing as to its reasonable fees and the arbitrators were unable to determine what fees were reasonably incurred, they found that National was not required to pay Stites any attorney's fees and was entitled to recover fees National had already paid to Stites.

National filed a petition to confirm the arbitrator's award. The trial court determined that Stites was Bazurto's "Cumis counsel" (San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 375, 208 Cal.Rptr. 494). The trial court concluded that fee disputes between insurers and an insured's Cumis counsel were not subject to arbitration under section 6200 et seq. ²

III. DISCUSSION

The principal issues raised in this case are whether: (1) Stites could first raise the arbitrators' purported lack of subject matter jurisdiction in the trial court and (2) the dispute between National and Stites was subject to arbitration pursuant to section 6200 et seq.

A. Lack of Subject Matter Jurisdiction Was Not Waived Nor Was Stites Barred From Raising the Issue in the Trial Court

National asserts that the arbitrators' implied determination that they had jurisdiction to resolve the fee dispute was binding on the trial court and Stites waived any objection to the arbitrators' jurisdiction by failing to contest it in the arbitration proceedings. That contention fails. Jurisdiction means different things in different situations. (Abelleira v. District Court of Appeal (1941) 17 Cal.2d 280, 287, 109 P.2d 942.) Lack of "jurisdiction" in its "strict sense" refers to a court or other tribunal's power or authority over the subject matter of or the parties to a dispute. (Id. at p. 288, 109 P.2d 942.) Subject matter jurisdiction, in this case meaning the arbitrators' authority or power to adjudicate a certain type of fee dispute, cannot be conferred by consent, waiver, or estoppel. (People v. Chadd (1981) 28 Cal.3d 739, 757, 170 Cal.Rptr. 798, 621 P.2d 837; In re Griffin (1967) 67 Cal.2d 343, 346-347, 62 Cal.Rptr. 1, 431 P.2d 625; Summers v. Superior Court (1959) 53 Cal.2d 295, 298, 1 Cal.Rptr. 324, 347 P.2d 668.) Lack of subject matter jurisdiction can be raised at any time, even for the first time on appeal. (DeTomaso v. Pan American World Airways, Inc. (1987) 43 Cal.3d 517, 520, fn. 1 235 Cal.Rptr. 292, 733 P.2d 614; Consolidated Theatres, Inc. v. Theatrical Stage Employees Union (1968) 69 Cal.2d 713, 721, 73 Cal.Rptr. 213, 447 P.2d 325.) Applying those principles to the present case, there has been no showing that the question of the arbitrators' jurisdiction to decide the fee dispute was raised or considered in the arbitration proceedings. But even if the arbitrators had specifically determined that they did have jurisdiction, that finding would not have been binding on the trial court.

Trial courts have the independent power to set aside an arbitration award under very limited circumstances. Code of Civil Procedure section 1286.2, subdivision (d), is one of the very limited situations where a court may refuse to enforce an arbitration award. Code of Civil Procedure section 1286.2, subdivision (d), provides in relevant part: "Subject to Section 1286.4, the court shall vacate the award if the court determines that ... (d) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted...." Citing Code of Civil Procedure section 1286.2, subdivision (d), in Morris v. Zuckerman (1968) 69 Cal.2d 686, 691, 72 Cal.Rptr. 880, 446 P.2d 1000, the California Supreme Court held that a trial court may vacate an arbitration award if the " 'arbitrators exceeded their powers.' " It is well established that an arbitrator has the power to decide issues "so long as they are a part of the 'controversy' which is subject to arbitration." (Marcus v. Superior Court (1977) 75 Cal.App.3d 204, 210, 141 Cal.Rptr. 890.) In San Luis Obispo Bay Properties, Inc. v. Pacific Gas & Elect. Co. (1972) 28 Cal.App.3d 556, 564, 104 Cal.Rptr. 733, the Court of Appeal concluded, "[C]ourts will vacate an award where the arbitrator exceeded his [or her] powers and the award cannot be corrected without affecting the merits. [Citation.]" For example, in Delta Lines, Inc. v. International Brotherhood of Teamsters (1977) 66 Cal.App.3d 960, 968-969, 136 Cal.Rptr. 345, the court reversed an arbitration award because "the arbitrator decided an issue that was entirely outside the scope of the submission agreement." In Cobler v. Stanley, Barber, Southard, Brown & Associates (1990) 217 Cal.App.3d 518, 532-533, 265 Cal.Rptr. 868, the court refused to enforce an arbitration award where the arbitration agreement did not extend to permit determination by an arbitrator of emotional distress claims. In National Indemnity Co. v. Superior Court (1972) 27 Cal.App.3d 345, 347, 103 Cal.Rptr. 606, an uninsured motorist arbitration agreement provided for submission to an arbitrator of disputes as to whether the insured was "legally entitled to recover damages from the owner or operator of an uninsured automobile because of bodily injury to the insured...." The insurer at the arbitration convinced the arbitrator to determine whether fraudulent misrepresentations rendered the policy which contained the uninsured motorist arbitration clause voidable. The arbitrator concluded that but for the fraudulent misrepresentations which allowed for rescission of the policy the insured would be entitled to damages. The superior court vacated the award because the question of whether the policy could be rescinded was outside the scope of the arbitration agreement. The Court of Appeal noted, "the trial court properly vacated the award as rendered...." (Id. at p. 349, 103 Cal.Rptr. 606.) Clearly, Code of Civil Procedure section 1286.2, subdivision (d), allows a trial court to vacate an arbitrator's implied or expressed determination that she or he has the jurisdiction to determine matters when they are outside the scope of an arbitration agreement. The same reasoning would necessarily apply to an arbitrator's decision when an award has been rendered outside the scope of statutes permitting or requiring arbitration. Section 6203, subdivision (b), explicitly incorporates the...