Second District, Division 5 Finds Arbitral Discretion Prevails on Fee Award.
In Youssefzadeh v. 740 S. Broadway Associates, LLC, Case No. B220726 (2d Dist., Div. 5 Sept. 30, 2010) (unpublished), two matters were ordered to arbitration pursuant to identical binding arbitration clauses in two different LLC operating agreements. The clauses were broad in nature, covering “any controversy or dispute arising out of this Agreement, the interpretation of any of the provisions hereof, or the action or inaction of any Member or Manager hereunder . . . .” The arbitrator issued an interim award finding that plaintiffs were the prevailing parties and entitled to recover their attorney’s fees as against one LLC/related defendants. The other LLC filed a motion to correct the interim award to reflect it prevailed and was entitled to fees as against plaintiffs, a motion that was granted. The arbitration award found that plaintiffs, as against one LLC group, were entitled to recover $345,569 in fees and costs, whereas the other LLC was entitled to recover $495,225 in fees and costs from plaintiffs.
Plaintiffs filed a petition to correct and confirm the arbitration award, which was granted—with the trial court excising the fee award in favor of the other LLC and against plaintiffs. The basis for this correction was the trial court’s view that the arbitrator lacked jurisdiction to correct his interim award. Appeals from this and other issues ensued.
The Court of Appeal agreed with the other LLC that the trial court’s excision of a favorable attorney’s fees award was erroneous. Because arbitrators possess broad discretion in adopting an incremental approach to arbitration awards, the interim award was subject to correction before it became final. Beyond that, the trial court could not correct the arbitration fee award because it was a correction affecting the merits. (Moshonov v. Walsh, 22 Cal.4th 771, 776 (2000).)
All defendants argued that they were entitled to recover $266,740.50 in attorney’s fees incurred in pre-arbitration judicial proceedings, rather than the much lower $34,120.89 in fees limited only to petition to compel arbitration work. The appellate court agreed with this, too. The operating agreement fees clauses was broad enough to cover this court litigation work, because it was worded this way: “In the event that any dispute between the Company and the Members or among the Members should result in litigation or arbitration, the prevailing party in such dispute shall be entitled to recover from the other party all reasonable fees, costs and expenses of enforcing any right of the prevailing party, including without limitation, reasonable attorneys’ fees and expenses.”
So, the matter was remanded for a trial court ruling on this issue.