ADR Case Updates
When Plaintiffs Petition to Compel Arbitration Is Denied, Defendant May Recover Attorney Fees, Even Though Only Interim Procedural Victory, 02/02/08
In case you have not seen them, the California Courts of Appeal have rendered three ADR decisions (all dealing with arbitration) since my last update of January 5, 2008. You may view them at: http://www.courtinfo.ca.gov/cgi-bin/opinions.cgi.
Perhaps the most interesting is Otay River Constructors v. San Diego Expressway, ___ Cal. App. 4th___, 2008 WL 60264 (Jan. 7, 2008), a construction contract case. Defendant planned to develop two related highway projects, and entered into two design-build contracts the Gap/Connector Contract, and the Toll Road Contract - with Plaintiff, a general contractor. The parties then entered into a third agreement, the Coordination Agreement, providing that disputes arising under it would be governed by the dispute resolution process in the Toll Road Contract (i.e., binding arbitration).
A dispute arose. Plaintiff sought to compel arbitration under the Coordination Agreement, even though it admitted in its arbitration demand that its claims arose under the Gap/Connector Contract, which provided for litigation, not arbitration. Nevertheless, Plaintiff argued that the Coordination Agreement applied thereby invoking the arbitration provision of the Toll Road Contract. The trial court rejected the argument and denied Plaintiffs petition to compel arbitration, but also denied Defendants motion for attorney fees on the grounds that Defendant was not a prevailing party since the underlying claims had not yet been litigated.
Reversed and remanded Defendant is entitled to attorney fees. Plaintiffs petition to compel arbitration under the Coordination Agreement was an action on the contract under Civil Code section 1717. Defendant obtained a simple, unqualified win on the only contract claim before the court whether to compel arbitration. Therefore, Defendant was the prevailing party as a matter of law because it defeated the only contract claim in this discrete special proceeding, notwithstanding the fact that it may be an interim procedural victory. Therefore, the case was remanded to the trial court to award Defendant its reasonable attorney fees.
This case demonstrates the risk of attorney fee exposure where a party unsuccessfully seeks to compel arbitration. Due care must be taken in complex fact patterns where different dispute resolution processes may apply, depending on the agreement under which the dispute arises.
The second case is Heritage Provider Network, Inc. v. Superior Court (Eastland Medical Group, Inc.), ___ Cal. App. 4th___, 2008 WL 115746 (Jan. 14, 2008), a business litigation case holding that the court must stay litigation pending arbitration if there are overlapping issues. Heritage Provider Network, Inc., unsuccessfully sought to acquire Eastland Medical Group, Inc. Following failed negotiations, Eastland sued Heritage, two related medical groups, and four physicians who had terminated their relationship with Eastland and entered into agreements with Heritage. After the physicians successfully moved to compel arbitration, the trial court denied Heritages motion to stay the litigation. The trial court had found that similar issues were involved in both the arbitration and litigation, but determined that not enough similar issues arose to warrant a stay of the litigation. Heritage petitioned for writ of mandate.
Petition granted. Code of Civil Procedure section 1281.4 mandates a stay of the litigation pending completion of the arbitration. The stay is mandatory if there are any overlapping issues, including a sole question of law or fact. Therefore, the trial court erred in denying the motion for a stay.
The third case is Baker v. Osborne Development Co., ___ Cal. App. 4th___, 2008 WL 256688 (Jan. 31, 2008), holding that a builder cannot compel arbitration of construction defect claims where a procedurally and substantively unconscionable arbitration agreement is presented to home buyers in builders application for warranty during escrow.
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