Arbitrator Did Have Jurisdiction to Award Fees/Costs Despite Jurisdictional and Procedural Challenges By Losing Parties.
Be careful what you ask for. In this one, both sides brought dueling requests for fees and costs before an arbitrator after a decision primarily in plaintiff’s favor, but the losing defendants “hedged” by arguing in opposition to plaintiff’s request that the arbitrator lacked jurisdiction or arbitral finality, precluding any fee recovery against them. This did not work, as the appellate court found when affirming the fee/costs award.
In EFund Capital Partners v. Mayor, Case No. B223420 (2d Dist., Div. 5 Apr. 11, 2011) (unpublished), a derivative/breach of fiduciary duty suit was ordered to arbitration, which eventually produced a de facto merger award by which plaintiff obtained portions of defendant’s ownership interests in a corporation–with the arbitrator fashioning a creative remedy as he is allowed to do. (Advanced Micro Devices, Inc. v. Intel Corp., 9 Cal.4th 362, 388 (1994) [“arbitrators are not generally limited to making their award on principles of dry law”].) One of the individual defendants was absolved completely based on the agent immunity defense. Both sides filed dueling requests for attorney’s fees/costs despite the fact the first arbitration award was silent on this issue. The arbitrator issued a supplemental award of fees and costs in the amount of $175,000 in favor of plaintiff and against certain defendants. Losing defendants appealed.
The fee/costs award was affirmed by the Second District, Division 5.
Defendants initially argued that the supplemental fee/costs award should have been stricken under the functus officio doctrine. (Wow, Latin phrases still crop us, don’t they?) This doctrine acts to prevent arbitrators from changing their award based upon re-examination of a final decision given that arbitrators are not judicial officers. However, as with most legal principles, there are three exceptions: correction of a facial mistake, completion of an award that is not complete, and clarification of an ambiguous award. (International Brotherhood of Teamsters v. Silver State Disposal Service, Inc., 109 F.3d 1409, 1411 (9th Cir. 1997).) Here, the failure to complete the award exception–which was done later through the supplemental award–governed.
Defendants next argued that the arbitral finality doctrine was dispositive. This one did not resonate with the appellate court because the fee/costs award was a supplemental award, with no case law imposing a limitation on the arbitrator’s authority to supplement a final arbitration award. Also, the strategic relationships agreement did have a fee entitlement clause which gave the arbitrator authority to issue such an award such that the “jurisdictional” challenged lacked merit.