AJIDA TECHNOLOGIES, INC., Plaintiff and Respondent,
v.
ROOS INSTRUMENTS, INC., et al., Defendants and Appellants.
Court of Appeal, Sixth District.
*689 Michael A. Vacchio, Wendy K. Kilbride, Morgan Lewis & Bockius, for Defendants and Appellants.
Kara M. Andersen, Henry C. Bunsow, Daralyn J. Durie, Keker & Van Nest, San Francisco, for Plaintiff and Respondent.
WUNDERLICH, J.
This is аn appeal from a judgment confirming an arbitration award. The appeal rests on a claim that the arbitrators exceeded their authority. At issue are two provisions of the award, both drawn from the parties' terminated agreement and both governing future controversies. The challenged provisions compel further arbitration and permit an award of attorneys' fees in the event of future disputes over the arbitration award. We conclude that the arbitrators acted within the scope of their powers in including the arbitration and fee provisions in the award. We therefore affirm the judgment.
FACTS AND PROCEDURAL HISTORY
The parties to this proceeding are Ajida Technologies, Inc. ("respondent") and Roos Instruments, Inc. and Mark Roos (сollectively, "appellant"). This dispute arose out of the parties' 1991 Joint Marketing and Development Agreement ("JMDA" or "the agreement").
The agreement contemplated that appellant and respondent would work together to develop and market a microwave measurement system for testing integrated circuits. Under the terms of the agreement, each party bore equal responsibility for the venture. By the same token, the parties were to share equally in any benefits from the resulting technology, both during the term of the agreement and for five years after its termination. The agreement required the parties to submit disputes to binding arbitration and empowered the arbitrators to determine and award attorneys' fees and costs.
After signing the agreement, the parties began developing a high-speed circuit-testing device, the RI 7100A. The first unit was sold in 1992. As development efforts increased, appellant hired additional employees to work on the project, while respondent contributed the services of two of its employees.
Eventually, disputes arose. Among other things, the parties disagreed about control of the joint venture and about the value of their respective contributions to the project. By September 1997, the parties' relationship had irretrievably broken down. Appellant terminated the agreement and locked respondents' employees out of its facility. Respondent sought arbitration.
As contemplated by the agreement, the parties selected a panel of three arbitrators.[1]*690 The panel commenced a hearing on the parties' claims in March 1998. The following month, the panel issued an interim award, which resolved some issues while reserving others for further hearing. The arbitrators then conducted a second hearing in early July 1998. Later that month, the panel issued a tentative final award. Thereafter, the parties submitted argument in a prearranged telephone conference and by subsequent letter briefs.
The panel issued a "final award" in August 1998, which expressly recognized that the parties' agreement had been terminated in September 1997. The award directed appellant to pay respondent specified damages, attorneys' fees, royalties, inventory payments, pre-award interest, post-award interest, and costs. It also required appellant to diligently develop and market the RI 7100A, and to make royalty payments to respondent as specified for five years from termination. In light of the award's royalty and joint-ownership provisions, the arbitrators gave each party certain audit rights. Finally, as pertinent here, the arbitrators ruled that the provisions in the agreement for arbitration and attorneys' fees would apply to any future disputes arising out of the award.[2]
After receiving the final award, appellant requested the panel to clarify, correct, and modify it in several respects. First, appellant sought clarification of a royalty provision. More significantly, appellant asked the panel to strike the provisions of the award that carried forward the contractual arbitration and attorneys' fees clauses. In support of that request, appellant argued that there was no contractual basis for ordering either party to submit to any future arbitration or to pay attorneys' fees, in light of the panel's acknowledgment that the agreement had been terminated. In response to appellant's requests, the panel corrected the royalty provision but refused to delete the arbitration and fee clauses from the award. In September 1998, the arbitrators issued and servеd their final award, as corrected.[3]
Respondent immediately petitioned the trial court to confirm the award. In response, appellant requested the court to correct the award prior to confirmation by eliminating the arbitration and attorneys' fees clauses. In seeking correction of the award, appellant argued that inclusion of the challenged clauses exceeded the arbitrators' powers. The trial court disagreed and granted respondent's petition to confirm the award in its entirety, without correction. The court later entered its formal judgment confirming the award in May 1999.
This timely appeal followed.
ISSUES ON APPEAL
Appellant's sole claim on appeal is that the trial court erred in refusing to correct the arbitrаtion award. To resolve that claim, we must determine whether the arbitrators exceeded their authority in extending the arbitration and fee provisions from the parties' terminated contract to future controversies.
*691 In addition to the issue raised by appellant, we are called upon to decide whether respondent is entitled to attorneys' fees on appeal.
APPEALABILITY
After submission of the parties' briefs on appeal, we requested further briefing on the issue of whether appellant is an "aggrieved party" under Code of Civil Procedure, section 902.[4] "One is considered `aggrieved' whose rights or interests are injuriously affected by the judgment. [Citations.] Appellant's interest `"must be immediate, pecuniary, and substantial and not nominаl or a remote consequence of the judgment."'" (County of Alameda v. Carleson (1971)
At the time of our request for additional briefing, the record did not disclose any current dispute between the parties that might result in an order to arbitrate or the imposition of attorneys' fees. For that reason, it appeared that any adverse consequence of the challenged judgment would be so remote or contingent as to render our opinion advisory. But in further briefing, the parties have informed us of a pending controversy, which respondent seeks to arbitrate, concerning the scope of the parties' audit rights under the award. Both parties assert that appellant is an aggrieved party within the meaning of section 902, and both parties request us to consider this appeal on its merits.
We are mindful of appellant's observation that section 902 is a remedial statute, which should be "liberally construed," with "any doubts resolved in favor of the right to appeal." (Aries Dev. Co. v. California Coastal Zone Conservation Com. (1975)
Having concluded that the judgment is appealable, we turn to a consideration of this appeal on its merits.
STANDARD OF REVIEW
"It is well settled that the scope of judicial review of arbitration awards is extremely narrow. [Citations.]" (California Faculty Assn. v. Superior Court (1998)
In short, we review the superior court's order de novo, while the arbitrator's award is entitled to deferential review. (Advanced Micro Devices, Inc. v. Intel Corp., supra,
DISCUSSION
A Did the Arbitrators Exceed Their Authority by Compelling Future Arbitration?
As a starting point for our analysis, we accept appellant's basic premise that a party cannot be compelled to arbitrate without its consent. It is beyond cavil that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." (Steelworkers v. Warrior & Gulf Co. (1960)
The question here is whether appellant's initial agreement to arbitrate survived termination of the contract. Neither party has cited any California authority that squarеly answers that exact question, nor has our independent research disclosed any. This appeal thus presents an issue of first impression in this state. We are not without guidance in resolving it, however.
We analyze the issue against the backdrop of California's "`strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution. [Citations.]'" (Moncharsh v. Heily & Blase (1992)
The strong public policy favoring arbitration is further promoted by judicial recognition that arbitration awards may be vacated or corrected only on very limited statutory grounds. (See, e.g., Moncharsh v. Heily & Blase, supra, 3 Cal.4th at pp. 27-28,
1. Agreement to Arbitrate.
Our assessment of appellant's claim begins with this fundamental proposition: "The powers of an arbitrator derive from, and are limited by, the agreement to arbitrate." (Advanced Micro Devices, Inc. v. Intel Corp., supra,
Here, in a broadly-worded arbitration clause, the parties agreed that "[a]ny disputes over this Agreement ... shall be resolved by final and binding arbitration in accordance with the rules then obtaining under the provisions of the California Code of Civil Procedure." That clause has sufficient breadth to include "`all controversies, whether legal, factual, equitable, contractual or tortious, having their roots in the [parties'] relationship....'" (Tate v. Saratoga Savings & Loan Assn. (1989)
2. Application to Future Disputes.
Notwithstanding the breadth of the arbitration clause, appellant objects to its application to future controversies, contending *694 that the contractual obligation to arbitrate expired with termination of the agreement. On the same grounds, appellant also objects to the extension of the contractual attorneys' fees clause to future disputes. Not surprisingly, respondent disputes those contentions.
To resolve the issue, we consider whether the provisiоns in the award that compel future arbitration and permit the imposition of attorneys' fees bear "some rational relationship to the contract and the breach." (Advanced Micro Devices, Inc. v. Intel Corp., supra,
Interpreting the agreement here, the arbitrators found that the parties intended joint ownership of the technology for a period of five years after contract termination. The arbitrators painstakingly spelled out the details of that continuing joint ownership. They recounted the history of the joint venture, detailing the actions of each party. Without expressly finding a breach by either party, the arbitrators declared the agreement terminated by mutual consent. Finally, in the portion of the award challenged here, the arbitrators extended the contract's arbitration provisions, including the attorneys' fees clause, to any controversies arising under the award.
We conclude that the challenged portions of the award are rationally drawn from the parties' agreement as interpreted in the arbitration proceeding. (Advanced Micro Devices, Inc. v. Intel Corp., supra,
In affirming the award in this case, we expressly hold that a party's contractual duty to arbitrate disputes may survive termination of the agreement giving rise to that duty. "While neither statutory nor case law addresses the precise issue before us, the judicial policy of deference to the judgment of arbitrators provides appropriate guidance." (Swan Magnetics, *695 Inc. v. Superior Court (1997)
The conclusion we reach here is further bolstered by several persuasive federal cases. For example, in interpreting collective bargaining agreements, the United States Supreme Court has determined that "the parties' obligations under their arbitration clause survived contract termination when the dispute was over an obligation arguably created by the expired agreement." (Nolde Bros., Inc. v. Bakery Workers (1977)
*696 3. Jury Trial Rights.
Appellant also complains that the award violates its constitutional jury trial rights by compelling involuntary participation in future arbitratiоn proceedings. We disagree.
The parties waived their jury trial rights by consenting to arbitrate their contract disputes. (Madden v. Kaiser Foundation Hospitals (1976)
A. Retained Jurisdiction.
Appellant next claims that the arbitrators improperly retained jurisdiction by mandating arbitration in the event of future disputes. Appellant points out that the arbitrators' tentative final award expressly declined to reserve jurisdiction absent both parties' consent. But the later versions of the award included the arbitration provision challenged here. Appellant objects to that provision аs an improper attempt to retain arbitral jurisdiction.
Respondent counters that the arbitrators did not retain jurisdiction in including those provisions; they merely decided that the parties' contractual arbitration provision would apply to future disputes over the award. Respondent thus distinguishes between the reservation of jurisdiction, which permits a pending arbitration to continue, and the provision challenged here, which mandates the institution of a new arbitration proceeding in the event of future disputes. We appreciate that distinction and its procedural implications. (See, e.g., § 1284 [arbitrators lose jurisdiction to correct award 30 days after its service].) In the context of this particular appeal, however, that distinction need not affect our analysis sinсe appellant resists the prospect of any future arbitration, whether it results from the retention of jurisdiction or from the institution of a new proceeding. (Cf. Colvig v. RKO General, Inc. (1965)
An arbitrator's continuing authority may properly be drawn both from the parties' agreement to arbitrate their disputes and from the nature of the remedy itself. (Cf. Swan Magnetics, Inc. v. Superior Court, supra,
5. Finality.
Appellant also takes issue with the award on the ground that its provision for future arbitration robs it of finality. As appellant properly points out, our high court has underscored the importance of finality in arbitration awards. "`Even in the absence of an explicit agreement, conclusiveness is expected; the essence of the arbitration process is that an arbitral award shall put the dispute to rest.'... [¶] This expectation of finality strongly informs the parties' choice of an arbitral forum over a judicial one. The arbitrator's decision should be the end, not the beginning, of the dispute." (Moncharsh v. Heily & Blase, supra,
The fact that an arbitration award contemplates additional future proceedings does not necessarily destroy its character as "final and binding." (Compare San Jose Federation etc. Teachers v. Superior Court, supra,
As appellant correctly observes, a judgment confirming an arbitration award is enforceable in the same manner as any other judgment in a civil action. (§ 1287.4.) But appellant takes that observation a step further, arguing that the retention of arbitral jurisdiction and the prospect of future arbitration proceedings are "anathema" to the comprehensive statutory scheme governing enforcement of judgments. (§§ 680.010-724.260.) We disagree.
In our view, the judgment enforcement laws do not impair a party's right "to arbitrate new disputes which might affect its performance under ... earlier awards." (Valsan Partners Limited Partnership v. Calcor Space Facility, Inc. (1994)
We thus reject all of appellant's challenges to the arbitration award. We reiterate that arbitrators enjoy "wide discretion both to determine the scope of their powers and to fashion a just remedy ... rationally related to the contract and the breach." (Swan Magnetics, Inc. v. Superior Court, supra,
B. Is Respondent Entitled to Attorneys' Fees on Appeal?
Respondent requests its attorneys' fees on appeal, both by motion аnd in its brief. Respondent asserts two bases for its fee request. First, it claims entitlement to fees under the parties' contract. In the alternative, respondent seeks appellate fees as a sanction.
1. Sanctions.
We first address the request for sanctions. Sanctions are appropriate when an appeal is "frivolous or taken solely for delay." (§ 907. See also, Cal. Rules of Court, rule 26(a)(2).)[10] An appeal is frivolous "only when it is prosecuted for an improper motiveto harass the respondent *699 or delay the effect of an adverse judgmentor when it indisputably has no meritwhen any reasonable attorney would agree that the appeal is totally and completely without merit. [Citation.]" (In re Marriage of Flaherty (1982)
By that standard, this is not a frivolous appeal. There is no evidence of improper motive or subjective bad faith on appellant's part. The appeal challenged only the arbitration provisions of the award; it did not delay appellant's payment of the money due respondent under the judgment. Furthermore, in this case of first impression, we do not agree that appellant's arguments indisputably lack merit. (See, In re Marriage of Flaherty, supra,
2. Fees Pursuant to Contract.
We next consider respondent's claim for аppellate fees under the contract. The agreement provided that "[e]ach party's cost of arbitration, attorneys' fees and costs of experts shall be borne in such proportion as the Arbitration Panel may determine." The arbitration panel awarded fees respondent incurred in the arbitration proceeding itself. From the award, we may infer that the panel considered respondent the prevailing party. Its award of fees was therefore justified. (See, e.g., Pierotti v. Torian, supra,
But appellant argues against an award of attorneys' fees on appeal, based princiрally on its contention that the obligation to pay fees was extinguished on termination of the agreement. We have previously rejected that contention in affirming the award. The award provides that the contractual attorneys' fees clause "shall be applicable to any dispute arising under or related to this Final Award." Clearly, this appeal constitutes a dispute arising under the award. (Cf. Imperial Bank v. Pirn Electric, Inc. (1995)
Appellant also suggests that "the most appropriate resolution" in the exercise of our "sound discretion" would be an order directing each party to bear its own attorneys' fees on appeal. We respectfully decline appellant's suggestion.
In our view, such an order would not comport with the parties' expressed intentions regarding fees. The contractual fee provision permits an award of attorneys' fees in the arbitrators' discretion. Although that clause clearly is directed at the arbitration proceeding itself, it is broad enough to cover fees on this appeal. We have previously recognized that "a contract provision for recovery of attorney fees if a party is required to `bring suit' is broad enough to include fees arising in arbitration proceedings." (Tate v. Saratoga Savings & Loan Assn., supra, 216 Cal. App.3d at pp. 856-857,
Giving meaning to the parties' expressed intent regarding fees, we conclude that respondent is entitled to contractual attorneys' fees on this appeal. We therefore grant respondent's motiоn for fees, in an amount to be determined by the trial court upon petition.[11]
DISPOSITION
We affirm the judgment. We remand this matter to the trial court, with instructions to determine and award respondent's reasonable appellate attorneys' fees and costs upon petition.
PREMO, Acting P.J., and BAMATTRE-MANOUKIAN, J., concur.
NOTES
Notes
[*] Kennard, J., dissented.
[1] The three arbitrators were Malcolm M. Lucas, retired Chief Justice of the California Supreme Court, Edward A. Panelli, retired Justice of the California Supreme Court, and Richard Chernick.
[2] The arbitration provision in the award reads as follows: "[¶] 13. The JMDA [agreement] contains an arbitration provision. Consistent with the purposes of the JMDA, that provision shall be applicable to any dispute arising under or related to this Final Award." As to attorneys' fees, the award provides: "[H] 12. The JMDA contains an attorney fee provision. Consistent with the purposes of the JMDA, that provision shall be applicable to any dispute arising under or related to this Final Award."
[3] As noted above, the arbitrators had previously issued awards in April 1998 ("Interim Award"), July 1998 ("[Tentative] Final Award"), and August 1998 ("Final Award"). The award issued in September 1998 ("Final Award (Corrected)") constituted the arbitrators' final decision. Further references in this opinion to "the award" are to the September 1998 Final Award (Corrected).
[4] That statute provides as follows: "Any party aggrieved may appeal in the cases prescribed in this title. A party appealing is known as an appellant, and an adverse party as a respondent." Unless otherwise specified, further statutory referеnces in this opinion are to the Code of Civil Procedure.
[5] As relevant here, section 1286.6 requires the court to "correct the award and confirm it as corrected if the court determines that: [¶] ... [¶] (b) The arbitrators exceeded their powers but the award may be corrected without affecting the merits of the decision upon the controversy submitted." See also, section 1286.2, which provides for vacation of arbitration awards under specified circumstances, including in cases in which "(d) The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted."
[6] Patently, the arbitrators' inclusion of the challenged provisions was dеliberate. In response to appellant's request to delete the offending terms, the panel observed: "The parties' right and obligation to arbitrate their disputes, in accordance with the JMDA, survives the termination of that agreement, e.g., Aspero v. Shearson[ American Exp., Inc. (6th Cir.1985) ]
[7] In some situations, the agreement itself may not be the only source of restrictions on an arbitrator's authority. "Even where the parties' original contract included a broad arbitration clause, the arbitrator's powers may be restricted by the limitation of issues submitted." (Advanced Micro Devices, Inc. v. Intel Corp., supra,
[8] The factual framework of this case strongly informs our decision here. Thus, our holding flows both from the parties' underlying agreement, which expressly contemplated a continuing relationship for five years after contract termination, and from the remedy selected by the arbitrators, which is rationally drawn from that agreement. Our decision, therefore, should be read with the particular factual framework of this case in mind. (See, e.g., Brown v. Kelly Broadcasting Co. (1989)
[9] By separate motion, appellant has asked us to reconsider our earlier denial of its request for judicial notice of documents filed with the superior court in the Swan case, Specifically, appellant wants us to take notice that the arbitrator in Swan did not expressly terminate the parties' agreement. But that fact, even if true, is immaterial to our determination here. This proceeding, like Swan, "pertаins to a continuing dispute over a contract that contains an express agreement to arbitrate." (Swan Magnetics, Inc. v. Superior Court, supra,
[10] Section 907, reads as follows: "When it appears to the reviewing court that the appeal was frivolous or taken solely for delay, it may add to the costs on appeal such damages as may be just." California Rules of Court, rule 26(a)(2), provides: "If the appeal is frivolous or taken solely for the purpose of delay ... the reviewing court may impose upon offending attorneys or parties such penalties, including the withholding or imposing of costs, as the circumstances of the case and the discouragement of like conduct in the future may require."
[11] The agreement contemplates that the arbitration panel will determine fees. But remand to the arbitrators is no longer possible, for at least two reasons. First, as a practical matter, the panel is no longer constituted. Second, pursuant to statute, the arbitrators no longer have jurisdiction over this particular dispute. (§ 1284; cf. Rosenquist v. Haralambides (1987)