The full case caption appears at the end of this opinion.
Like the companion case of Moshonov v. Walsh (Apr. 17, 2000, S076103) ___ Cal.4th ___ (Moshonov), this case presents a question as to whether a bindingarbitration award may be judicially corrected to award a party attorney fees the arbitrator declined to provide. Although the facts of the two cases differ significantly,we conclude the award here, like that in Moshonov, is not subject to correction. The trial court ordered this dispute over the validity and enforcement of secured loan agreements to contractual arbitration pursuant to predispute arbitration clausesin the loan agreements. The arbitration panel decided generally for plaintiffs, awarding them all the relief they had sought, at least in the arbitration itself, on theircontract causes of action. Because the loan agreements and deeds of trust contained provisions entitling defendant to attorney fees on these causes of action haddefendant prevailed, plaintiffs themselves were arguably entitled to recover such fees as costs under Civil Code section 1717. Without making a finding as to theexistence or nonexistence of a prevailing party, however, the arbitrators instead decided that each party was to bear its own attorney fees. The superior court denied plaintiffs’ motion to correct the award (Code Civ. Proc., � 1286.6) [FOOTNOTE 2]
to include an award of attorney fees; the Court ofAppeal affirmed. We conclude the lower courts acted correctly: where the entitlement of a party to attorney fees under Civil Code section 1717 is within the scopeof the issues submitted for binding arbitration, the arbitrators do not Aexceed their powers (� � 1286.2, subd. (d), 1286.6, subd. (b)), as we have understood thatnarrow limitation on arbitral finality, by denying the party’ s request for fees, even where such a denial order would be reversible legal error if made by a court in civillitigation. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 28 (Moncharsh); Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376-381(Advanced Micro Devices).) Procedural Background Plaintiffs James, Ruth Ann and C. Dean Moore, Mary and Gary Smee, and Andrew and Leslie Cone sued the First Bank of San Luis Obispo (the Bank) for severalcauses of action arising out of a transaction in which plaintiffs, shareholders in a privately held real estate development corporation, had indebted themselvespersonally to the Bank, granting the Bank deeds of trust on their private residences, in an effort to obtain additional funds for the corporation’ s propertydevelopment scheme. Specifically, plaintiffs pleaded causes of action for fraud, cancellation of written instruments, breach of contract, injunctive and declaratoryrelief, violation of the Racketeer Influenced Corrupt Organizations Act (RICO), and unfair or fraudulent business practices. In addition to equitable relief (i.e., ordersvoiding the loan agreements and deeds of trust, cancelling liens and enjoining the Bank from foreclosing on plaintiffs’ property), plaintiffs prayed for compensatorydamages under their causes of action for fraud, breach of contract, RICO and unfair business practice, and for exemplary damages under their fraud, RICO andunfair business practice causes of action. The Bank cross-complained for judicial foreclosure of the subject deeds of trust and for a deficiency judgment. Both plaintiffs’ complaint and the Bank’ scross-complaint prayed for an award of attorney fees. The loan agreements contained a clause by which the parties agreed to arbitration, under American Arbitration Association (AAA) rules, of Aall disputes, claimsand controversies between us . . . arising from this Agreement or otherwise . . . . The same documents contained a provision by which the plaintiff borrowers agreedto pay the Bank’ s Acollection costs, including Aour [the Bank' s] attorneys’ fees. The incorporated deeds of trust contained a provision entitling the Bank, but notthe borrowers, to reasonable attorney fees A[i]f Lender institutes any suit or action to enforce any of the terms of this Deed of Trust . . . . On the Bank’ s petition to compel arbitration, pursuant to the arbitration clause in the loan agreements, the controversy was ordered to arbitration before an AAApanel of three arbitrators. The appellate record does not contain the order compelling arbitration. Plaintiffs, however, concede the superior court did indeed orderthe matter to binding arbitration pursuant to the loan agreements’ arbitration clause. Nowhere do they suggest that the court ordered arbitration of less than theAcontroversy in its entirety, as the Bank sought in its petition. On June 5, 1997, at the arbitration hearing, plaintiffs’ counsel, in response to an inquiry from one of the arbitrators, stated that plaintiffs were no longer pursuing aclaim for damages, other than attorney fees. In a postarbitration brief dated June 19, 1997, however, counsel requested that the arbitrators award plaintiffsexemplary damages on their cause of action for fraud. In the postarbitration brief, as well as in a prehearing brief dated May 21, 1997, plaintiffs asked the arbitratorsto award them their attorney fees as prevailing parties. The arbitrators’ award ordered the Bank to cancel all obligations under the loan agreements, deeds of trust and liens, to obtain reconveyances of the deeds of trust,and to execute releases from the liens and promissory notes. The award further provided that A[n]o monetary sum is owed to [plaintiffs] in this matter. Without anyexplanation, the arbitrators further ordered that A[e]ach party shall pay its own attorney’ s fees. The Bank petitioned the superior court to confirm the award, while plaintiffs, relying on DiMarco v. Chaney (1995) 31 Cal.App.4th 1809 (DiMarco), petitionedfor correction of the award pursuant to section 1286.6, subdivision (b), so as to award them their attorney fees. The superior court granted the petition to confirmand denied the petition to correct, finding the question of fees had been submitted to and decided by the arbitrators and was, therefore, unreviewable by the courtunder our decisions in Moncharsh, supra, 3 Cal.4th 1 and Advanced Micro Devices, supra, 9 Cal.4th 362. The Court of Appeal affirmed, reasoning thatalthough plaintiffs were, as a matter of law, the prevailing parties for purposes of Civil Code section 1717, the arbitration panel’ s refusal to award fees, an error oflaw on an issue within the arbitrators’ power to decide, could not be corrected under Moncharsh. The Court of Appeal declined to follow DiMarco, supra, 31Cal.App.4th 1809, deeming its reasoning inconsistent with the holding of Moncharsh. We granted plaintiffs’ petition for review. Discussion The opinion filed today in our companion case, Moshonov v. Walsh, supra, ___ Cal.4th ___, reviews the holdings and reasoning of Moncharsh, supra, 3 Cal.4th1, Advanced Micro Devices, supra, 9 Cal.4th 362, and DiMarco, supra, 31 Cal.App.4th 1809. Rather than repeat those portions of the discussion, we proceeddirectly to analyze the present case in light of those decisions. As in Moshonov, supra, ___ Cal.4th ___, we agree with the courts below that, under the principle of arbitral finality as explained in Moncharsh (3 Cal.4th at p.28), the arbitrators’ award in the present case could not be judicially corrected to award plaintiffs their attorney fees. By agreement of the contracting parties, the feequestion was within the arbitrators’ powers to decide. Both plaintiffs and defendant prayed for fees in their complaints. The controversy was ordered to bindingarbitration pursuant to an agreement to arbitrate Aall disputes, claims and controversies between us and without, as far as the record shows, any judicially imposedlimitation on the issues to be arbitrated. (See ante at p. 3, fn. 2.) At the outset of arbitration, plaintiffs abandoned some claims but continued, in their briefs and orallybefore the panel, to request an award of attorney fees. Under the agreed AAA rules of arbitration, the arbitrators were empowered to grant Aany remedy or reliefthat [they] deem just and equitable. (AAA, Commercial Arbitration Rules (1993) rule 43, p. 17.) A The AAA rule has been described as ‘ a broad grant of authority to fashion remedies’ [citation], and as giving the arbitrator ‘ broad scope’ in choice of relief[citations]. (Advanced Micro Devices, supra, 9 Cal.4th at pp. 383-384.) Under these circumstances the arbitrators had the power to decide the entire matter of recovery of attorney fees. The recovery or nonrecovery of fees being one ofthe Acontested issues of law and fact submitted to the arbitrator for decision (Moncharsh, supra, 3 Cal.4th at p. 28), the arbitrators’ decision was final and couldnot be judicially reviewed for error. AThe arbitrator’ s resolution of these issues is what the parties bargained for in the arbitration agreement. (Ibid.) Like the prevailing defendants in Moshonov, supra, ___ Cal.4th ___, plaintiffs here seek to distinguish between the substantive merits of the arbitratedcontroversy and the Aancillary question of costs, including attorney fees. Only the former aspect of the caseCthe question of who was to prevail on thecontract-related claims in disputeCwas submitted, plaintiffs argue, for the arbitrators’ decision. Once that decision was made, the argument goes, the arbitrators hadno power to deny fees to the prevailing party. Plaintiffs’ argument fails for the same reason as in Moshonov: the entire controversy, including all questions as to theingredients of the award, was in fact submitted to the arbitrators in this case. Plaintiffs submitted the question of fees to the arbitrators, first, by submitting the entirecontroversy created by the pleadings, including the prayer for fees contained in their complaint, and, second, by actually requesting an award of fees from thearbitrators themselves. Having submitted the fees issue to arbitration, plaintiffs cannot maintain the arbitrators exceeded their powers, within the meaning of section1286.6, subdivision (b), by deciding it, even if they decided it incorrectly. Plaintiffs further contend the arbitrators, by awarding them all requested relief on their contract causes of action (the claims for damages on these counts having beenabandoned at the outset of arbitration), must, as a matter of law, have implicitly designated plaintiffs the prevailing parties on the contract. Having done so, plaintiffsargue, the arbitrators had no power to refuse an award of attorney fees, for the parties’ underlying agreement made such an award mandatory. (See AdvancedMicro Devices, supra, 9 Cal.4th at p. 381 [arbitrators would exceed their powers by awarding remedies Aexpressly forbidden by the arbitration agreement orsubmission ]; DiMarco, supra, 31 Cal.App.4th at p. 1815 [award could be corrected to provide fees because Ahaving made a finding Chaney was the prevailingparty, the arbitrator was compelled by the terms of the agreement to award her reasonable attorney fees and costs].) Plaintiffs’ analysis fails because the arbitrators did not designate a prevailing party for purposes of Civil Code section 1717, either explicitly or implicitly. Plaintiffsmay be correct that, under the analysis in Hsu v. Abbara (1995) 9 Cal.4th 863, 876, they were the prevailing parties as a matter of law. Nonetheless the arbitratorswere asked, but failed, to designate them as such. That failure amounted at most to an error of law on a submitted issue, which does not exceed the arbitrators’powers under the holding of Moncharsh, supra, 3 Cal.4th at page 28. DiMarco, in which the arbitrator expressly designated a prevailing party but refused to awardthat party fees as mandated by the contract (31 Cal.App.4th at p. 1815), is thus distinguishable. Plaintiffs’ overall success in the arbitration does not compel the inference the arbitrators implicitly found them the prevailing parties. Although the arbitrators awardedplaintiffs the equitable relief they sought, because plaintiffs recovered no monetary damagesCas sought in their complaintCthe arbitrators may have consideredplaintiffs to have been only partly successful and for that reason refused to designate them as the prevailing parties. Moreover, the arbitrators issued no writtendecision explaining their one-page award. Because the grounds for relief are thus not set forth on the record, the possibility remains that the arbitrators based theaward to a significant degree on noncontractual theories, and thus saw no party that had unequivocally Aprevail[ed] on the contract. (Civ. Code, � 1717, italicsadded.) Even if legally erroneous, such an arbitral decision as to who, if anyone, prevailed in the contractual dispute would not ordinarily be reviewable undersections 1286.2 or 1286.6. (Creative Plastering, Inc. v. Hedley Builders, Inc. (1993) 19 Cal.App.4th 1662, 1666.) Conclusion Neither this case nor Moshonov, supra, ___ Cal.4th ___, presents the question whether, when an arbitrator designates a prevailing party and the contractexpressly calls for such a prevailing party to be awarded attorney fees, the arbitrator exceeds his or her powers, within the meaning of sections 1286.2 and 1286.6,by refusing the party’ s request for an award of fees. The DiMarco court answered affirmatively (DiMarco, supra, 31 Cal.App.4th at p. 1815), and the parties inboth our cases have argued variously for and against that answer. As explained above and in the Moshonov majority opinion, however, both our cases aredistinguishable from DiMarco. Here, the arbitrators did not designate plaintiffs as the prevailing parties either expressly or impliedly. In Moshonov, the arbitratorinterpreted the contract’ s attorney fees provision as inapplicable to the causes of action upon which the defendants had prevailed. (___ Cal.4th at p. ___ [pp. 3-4].)Consequently, this court has yet to decide whether, in view of the principle that A[t]he powers of an arbitrator derive from, and are limited by, the agreement toarbitrate (Advanced Micro Devices, supra, 9 Cal.4th at p. 375), an arbitrator’ s refusal to award fees expressly mandated by the underlying contract may bejudicially corrected under section 1286.6. Disposition The judgment of the Court of Appeal is affirmed. WERDEGAR, J. WE CONCUR: GEORGE, C.J., BAXTER, J., CHIN, J., and BROWN, J. CONCURRING OPINION BY KENNARD, J. At issue here is a decision by three arbitrators after resolving the merits of a dispute not to award attorney fees to a party. The majority holds that the arbitrators’decision is not judicially reviewable. I disagree. For the reasons I have stated in the companion case of Moshonov v. Walsh (Apr. 17, 2000, S076103) ___ Cal.4th___ (Moshonov), I would review the arbitrators’ decision under the standard set forth in my dissent in Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 40: Is thearbitrators’ decision erroneous on its face and does it cause substantial injustice? This dispute arose when plaintiffs, shareholders of a land development corporation, put up their homes as collateral for additional loans by defendant bank to thecorporation. When the corporation experienced financial difficulty and the bank sought to foreclose on plaintiffs’ homes, they sued the bank on a variety of contract,tort, and statutory causes of action, seeking damages and injunctive relief. The loan agreements contained an arbitration clause, which the bank invoked. The arbitrators ordered the bank to cancel the loans but did not award plaintiffs any damages (plaintiffs dropped their request for contract damages at the arbitrationhearing) and ordered each party to bear its own attorney fees, notwithstanding an attorney fee provision in the loan agreements entitling the bank to attorney fees (aprovision that becomes mutual and reciprocal by operation of Civil Code section 1717). Plaintiffs petitioned the trial court to correct the award by awarding themattorney fees. The trial court denied plaintiffs’ petition, reasoning that the arbitrators’ decision on attorney fees was unreviewable. The Court of Appeal affirmed,reasoning that although plaintiffs were the prevailing parties as a matter of law and therefore entitled to attorney fees by virtue of the contract and section 1717, thearbitrators’ denial of fees was an unreviewable error of law. The arbitrators gave no reason for refusing to designate a prevailing party or for refusing to award attorney fees. It is not clear on the face of the award that this waserror. Under Civil Code section 1717, a party has an absolute right to attorney fees only if it completely and unqualifiedly prevails on its contract claims; otherwisethe court (or the arbitrator if the matter is submitted to arbitration) has discretion to decide that no party is the prevailing party. (Hsu v. Abbara (1995) 9 Cal.4th863, 876.) In this case, because plaintiffs pleaded both contract and noncontract causes of action, it is unclear whether the arbitrators based their award of relief onthe contract causes of action. If they did not, then they did not err in refusing to award attorney fees. Even if the arbitrators did base their award of relief on thecontract cause of action, they may have concluded that plaintiffs, having relinquished at the arbitration hearing the request for contract damages, did not unqualifiedlyprevail on the contract, and that it was therefore within the arbitrators’ discretion whether to designate plaintiffs as prevailing parties entitled to attorney fees. For these reasons, the arbitrators’ decision to deny attorney fees to plaintiffs is not erroneous on its face, and should be upheld under the standard set forth in mydissent in Moncharsh v. Heily & Blase, supra, 3 Cal.4th 1, 40. Accordingly, I agree with the result reached by majority, the trial court, and the Court of Appeal:The arbitration award should not be corrected or vacated. FOOTNOTES FN1
Pursuant to California Constitution, article VI, section 21. FN2
Unless otherwise specified, all further statutory references are to the Code of Civil Procedure.
Moore v. First Bank of San Luis Obispo JAMES W. MOORE et al., Plaintiffs and Appellants, v. FIRST BANK OF SAN LUIS OBISPO, San Luis Obispo County Defendant and Respondent. No. S076239 Supreme Court of California Ct. App. 2/6 No. B117998 Super. Ct. No. CV78061 San Luis Obispo County Superior Court, Hon. Charles A. Piccuta, Temporary Judge [FOOTNOTE 1]
Counsel for Appellants: Gibson & Rivera and Clark Rivera Counsel for Appellees: Smith, Helenius & Hayes, Smith, Tardiff & Hayes, Carl E. Hayes and James E. Smith Filed: April 17, 2000 Before: Werdegar, George, Baxter, Chin, Brown, and Kennard