Mave Enterprises, Inc. v. Travelers Indemnity Co.
219 Cal. App. 4th 1408
| Cal. Ct. App. | 2013Background
- Mave Enterprises (insured) sued Travelers (insurer) in LA Superior Court for breach of contract and bad faith after a 2006 fire; suit filed 2009.
- During jury selection in August 2011 the parties orally stipulated to binding arbitration (JAMS), placed on the record; the superior court retained jurisdiction and required periodic status reports. Parties later executed a written JAMS stipulation. JAMS rules allowed the arbitrator broad equitable relief and stated enforcement proceedings would follow the FAA or applicable state law.
- The arbitrator awarded Mave compensatory damages, punitive damages (15:1 ratio), Brandt fees calculated as 40% of compensatory plus punitive, and costs — total ≈ $3.7M. Travelers sought corrections from the arbitrator and then filed a petition in federal district court to vacate or modify the award under the FAA; Mave moved to confirm in superior court. Travelers also moved in superior court for a stay pending federal review; superior court denied the stay and confirmed the award.
- The federal district court issued a tentative order finding manifest disregard as to Brandt fees but, after Mave moved for reconsideration and invoked abstention/comity, the federal court declined jurisdiction and closed the case. Travelers appealed to the Ninth Circuit.
- On appeal in California, the court addressed (1) whether the superior court abused discretion by denying a stay; (2) whether FAA or California Arbitration Act (CAA) procedures govern judicial review; and (3) whether the award (Brandt fees and punitive damages) should be vacated or corrected under applicable law.
Issues
| Issue | Plaintiff's Argument (Mave) | Defendant's Argument (Travelers) | Held |
|---|---|---|---|
| Whether superior court abused discretion by denying stay pending federal FAA review | Superior court had primary jurisdiction, retained control during arbitration, and was best-informed; no stay needed | Federal action filed to vacate award first on the discrete issue of vacatur; federal review under FAA appropriate and superior court should have stayed | No abuse of discretion: superior court first obtained jurisdiction, retained oversight, and comity/federal abstention supported denying stay |
| Whether FAA or CAA procedural provisions govern judicial review of the award | CAA procedures apply because parties did not expressly adopt FAA procedural review; JAMS rule 25 does not unambiguously incorporate FAA procedures | FAA applies (via interstate commerce and JAMS rule 25), so manifest-disregard standard should govern | CAA governs procedural review in state court absent express choice-of-law adopting FAA procedures; JAMS rule 25 ambiguous and insufficient to incorporate FAA review |
| Whether arbitrator exceeded powers by including punitive damages in Brandt- fee base (thus inflating fee award) | Arbitrator had broad remedial authority under JAMS rule 24(c); Brandt fees were authorized and calculation was within arbitrator's equitable discretion | Arbitrator manifestly disregarded law and exceeded powers because Brandt fees should be based only on compensatory (contract) damages | Under CAA, courts cannot vacate awards for mere legal error; arbitrator acted within broad authority and award stands |
| Whether 15:1 punitive-to-compensatory ratio violated due process / required vacatur | Punitive award was justified by reprehensible conduct and within arbitrator's discretion; state confirmation doesn't convert arbitration into state action requiring heightened review | Ratio excessive and unconstitutional under due process; federal review (manifest disregard) would reduce punitive award | Ratio did not warrant vacatur under the CAA; private arbitration and the parties' agreement limited judicial review; federal tentative view to the contrary became moot after abstention |
Key Cases Cited
- Brandt v. Superior Court, 37 Cal.3d 813 (Cal. 1985) (insured may recover attorney fees as tort damages in bad-faith insurance actions)
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (Cal. 1992) (judicial review of arbitration awards is narrowly limited under CAA)
- Advanced Micro Devices, Inc. v. Intel Corp., 9 Cal.4th 362 (Cal. 1994) (arbitrator has broad authority to fashion remedies; courts won’t overturn awards for legal error absent express limits)
- Cassim v. Allstate Ins. Co., 33 Cal.4th 780 (Cal. 2004) (concerning scope of recoverable fees/damages in insurance bad-faith contexts)
- Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4th 1334 (Cal. 2008) (FAA substantive preemption applies but FAA procedural provisions do not govern state-court proceedings absent express choice)
- Simon v. San Paolo U.S. Holding Co., Inc., 35 Cal.4th 1159 (Cal. 2005) (courts eschew rigid numerical limits on punitive damages; due-process review uses multi-factor analysis)
- State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (U.S. 2003) (punitive-damages review permits greater ratios where compensatory damages are small but conduct egregious)