Sargon Enterprises v. Browne George Ross
B271718
| Cal. Ct. App. | Sep 26, 2017Background
- Sargon retained Browne, Woods & George LLP (BWG, now Browne George Ross LLP — BGR) in 2005 under a retainer with a broad arbitration clause covering "any and all disputes."
- After appeal/remand in litigation with USC, Sargon signed a 2008 letter release when BGR agreed to represent it in an interpleader; the arbitrator later found that release barred Sargon’s malpractice claims.
- In May 2014 Sargon sued BGR in superior court for legal malpractice based on advice to enter a stipulated judgment; BGR filed a JAMS arbitration demand asserting breach of the arbitration clause and declaratory relief, and BGR petitioned to compel arbitration.
- The superior court compelled arbitration; the arbitrator (1) dismissed Sargon’s malpractice claim as released by the 2008 release and (2) held Sargon breached the retainer by filing in court and awarded BGR $200,000.
- The superior court confirmed the arbitration award; Sargon appealed, arguing the breach-of-contract award violated statutory and constitutional rights to petition and that arbitrability issues may be determined by courts under the California Arbitration Act.
- The Court of Appeal reversed in part: it struck the portion of the award finding a breach and awarding $200,000, concluding the award impermissibly penalized Sargon for filing a court action protected by the Act and that the arbitrator exceeded his powers as to that portion; it otherwise affirmed the award (including dismissal of malpractice as released).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Sargon waived challenge to arbitrator awarding contract damages | Sargon preserved challenge; failure to litigate pre-award did not waive review of award that violates statutory rights | BGR: Sargon waived objections by participating in arbitration and not raising pre-award | Held: No waiver — Moncharsh controls; issue was preserved for judicial review |
| Whether arbitrator could award damages for filing a court action given arbitration clause | Filing a lawsuit and seeking court determination of arbitrability is protected by the California Arbitration Act and constitutional petition rights; damages for that act are barred | BGR: Arbitration clause waived right to sue; parties delegated arbitrability and arbitrator could decide breach | Held: Arbitrator erred — retainer clause is not self-executing; Act permits initiating court action and statutory right to judicial determination of arbitrability must be respected |
| Whether the arbitration award exceeded arbitrator’s powers such that judicial correction/vacatur is appropriate | Award exceeded powers because it punished conduct the Act expressly preserves, violating unwaivable statutory rights and public policy | BGR: Award consistent with arbitration and not reviewable; parties may delegate arbitrability | Held: Arbitrator exceeded powers as to breach-damages portion because it violated statutory rights; that part is subject to correction |
| Proper remedy: vacate entire award or correct part? | Sargon sought vacatur of unlawful portion; malpractice dismissal should stand | BGR implicitly sought confirmation of entire award | Held: Correct the award by striking breach-of-contract damage portion and confirm remainder; malpractice dismissal unaffected because claims are separate and the error does not infect the merits of that ruling |
Key Cases Cited
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (Sup. Ct. 1992) (arbitration awards generally final but are reviewable when they violate statutory rights or public policy)
- Round Valley Teachers Assn. v. Board of Education, 13 Cal.4th 269 (1996) (vacatur warranted when arbitrator’s award conflicts with statute governing public policy)
- Richey v. AutoNation, Inc., 60 Cal.4th 909 (2015) (arbitrator exceeds powers by issuing award that violates unwaivable statutory rights)
- Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4th 665 (2010) (arbitrator’s procedural error affecting statutory tolling subject to judicial review)
- Vandenberg v. Superior Court, 21 Cal.4th 815 (1999) (overview of California Arbitration Act and its comprehensive statutory scheme)
- Jones v. Humanscale Corp., 130 Cal.App.4th 401 (2005) (court may correct parts of an award that exceed arbitrator’s power without vacating the whole award)
- Ling v. P.F. Chang’s China Bistro, Inc., 245 Cal.App.4th 1242 (2016) (partial correction appropriate where error does not affect merits of arbitrated claims)
- Brock v. Kaiser Foundation Hospitals, 10 Cal.App.4th 1790 (1992) (a party may initially sue in court despite an arbitration clause; the opponent must petition to compel arbitration)
- Spence v. Omnibus Industries, 44 Cal.App.3d 970 (1975) (arbitration clause does not divest courts of jurisdiction; filing suit is a party’s prerogative)
- Tiri v. Lucky Chances, Inc., 226 Cal.App.4th 231 (2014) (discusses delegation of arbitrability to arbitrator but recognizes court’s role as to enforceability of delegation)