Sargon Enters., Inc. v. Browne George Ross LLP
15 Cal. App. 5th 749
| Cal. Ct. App. 5th | 2017Background
- Sargon retained Browne, Woods & George LLP (later BGR) in 2005 under a retainer containing a broad arbitration clause covering "any and all disputes" including malpractice claims.
- After protracted litigation with USC, in Feb 2008 Sargon (through its CEO Dr. Lazarof) signed a letter releasing past claims and retaining BGR for an interpleader matter; later Sargon sued BGR for legal malpractice in 2014.
- BGR demanded arbitration and filed a petition to compel; the trial court ordered arbitration and the matter went to a JAMS arbitrator.
- The arbitrator: (1) dismissed Sargon’s malpractice claim as released by the 2008 letter; and (2) held Sargon breached the arbitration clause by suing in superior court, awarding BGR $200,000 for contract damages. The trial court confirmed the award.
- On appeal, the court addressed whether (a) filing a civil action in superior court (and opposing a petition to compel) breached the arbitration clause and (b) the arbitrator exceeded his powers by awarding damages for that conduct in light of statutory protections in the California Arbitration Act.
Issues
| Issue | Plaintiff's Argument (Sargon) | Defendant's Argument (BGR) | Held |
|---|---|---|---|
| Whether filing a court action before a court orders arbitration breached the arbitration agreement | Filing a lawsuit and asking a court to decide arbitrability is statutorily protected; not a breach | The arbitration clause waived court remedies; Sargon’s suit violated that clause | Court held filing suit was permitted by the Act; arbitrator erred in treating the filing as breach |
| Whether Sargon waived the right to challenge the arbitrator’s contract-damages award by not raising pre-award objections in superior court | No waiver; the objection went to substantive merit and was preserved before the arbitrator | BGR: Sargon waived by participating without timely pre-award objection | Court held Sargon did not waive the issue; Moncharsh controls (no pre-award requirement for this objection) |
| Whether arbitral awards that conflict with unwaivable statutory rights or explicit public policy are reviewable | Award violates Sargon’s statutory right to seek court determination of arbitrability and thus is reviewable | Award is final and not subject to substantive judicial review absent narrow statutory grounds | Court reaffirmed that awards exceeding arbitrator’s powers by violating statutory rights/public policy are subject to judicial correction/vacatur (Richey, Round Valley, Pearson Dental) |
| Appropriate remedy for arbitrator’s error (vacate entire award vs. correct) | Strike only the breach-of-contract portion so the valid malpractice disposition stands | Urged confirmation of whole award | Because the breach award was separable from the malpractice ruling, the court directed correction (strike breach portion) and confirmation of the corrected award |
Key Cases Cited
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (1992) (arbitration awards generally final; certain legal errors reviewable; preservation principles)
- Round Valley Teachers Assn. v. Board of Education, 13 Cal.4th 269 (1996) (arbitrator’s award vacated where it conflicted with statutory scheme and public policy)
- Pearson Dental Supplies, Inc. v. Superior Court, 48 Cal.4th 665 (2010) (arbitrator’s procedural error that deprived party of statutory protections can be judicially reviewed and vacated)
- Richey v. AutoNation, Inc., 60 Cal.4th 909 (2015) (awards exceeding arbitrator’s powers or violating unwaivable statutory rights are reviewable)
- Vandenberg v. Superior Court, 21 Cal.4th 815 (1999) (overview of California Arbitration Act as comprehensive statutory scheme)
- Brock v. Kaiser Foundation Hospitals, 10 Cal.App.4th 1790 (1992) (party may initially sue in court despite arbitration clause; opposing party must seek to compel)
- Spence v. Omnibus Industries, 44 Cal.App.3d 970 (1975) (arbitration clause does not divest courts of jurisdiction; parties may choose to sue first)
- Jones v. Humanscale Corp., 130 Cal.App.4th 401 (2005) (courts may correct an award by striking separable erroneous portions rather than vacating the whole)
- Ling v. P.F. Chang's China Bistro, Inc., 245 Cal.App.4th 1242 (2016) (same principle: correct separable errors to preserve merits of the award)
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (delegation clauses can assign arbitrability questions to arbitrators but courts first decide enforceability of delegation clauses)