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Vigilant Investors' L.P., et al v. Wayne Lamprey et al

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION ONE


December 6, 2010

VIGILANT INVESTORS' L.P., ET AL., PLAINTIFFS AND APPELLANTS,
v.
WAYNE LAMPREY ET AL., DEFENDANTS AND RESPONDENTS.

The opinion of the court was delivered by: Dondero, J.

Vigilant Investors v. Lamprey

CA1/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

After coming out on the wrong end of an 18-day private arbitration proceeding, plaintiffs Vigilant Investors' L.P. and Vigilant Investors' Asset Management LLC appeal from the judgment confirming an arbitration award in favor of defendants Robert Goodin, Robert A. Goodin, Inc., Goodin, MacBride, Squeri, Day & Lamprey LLP, Robert Crowe*fn1 and Wayne Lamprey. We affirm.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

On September 25, 2007, plaintiffs filed a first amended complaint (FAC) against defendants Wayne Lamprey, Robert Goodin, Robert A. Goodin, Inc., Goodin, MacBride, Squeri, Day & Lamprey LLP, Robert Crowe (collectively referred to as Goodin), David Markun, Markun Zusman & Compton LLP (collectively referred to as Markun), Jeffrey Ross, and Anthony Ostulund & Baer, P.A. The FAC alleges 13 causes of action against the defendants, including claims for professional negligence (legal malpractice), breach of fiduciary duty (constructive fraud), negligent misrepresentation, breach of contract, breach of implied covenant of good faith and fair dealing, abuse of process, and declaratory relief.

In the FAC, plaintiffs stated that they are a hedge fund that "develops and executes proprietary investment strategies using options on equities and equity indices." The named defendants are four sets of attorneys and their respective law firms who jointly and/or successively represented plaintiffs in a securities litigation matter in an arbitration before the National Association of Securities Dealers (NASD). The underlying action sought damages from plaintiffs' broker ABN Amro (ABN) "for issuing erroneous margin calls on the basis of systemically miscalculated margin requirements . . . ." Plaintiffs alleged that defendant Markun failed to adequately prepare for the NASD arbitration, forcing them to seek new counsel on the eve of the arbitration hearing. Plaintiffs then retained Goodin. Plaintiffs were subsequently dissatisfied with Goodin's performance at the arbitration hearing, and the firm withdrew from the case after attempting to negotiate a settlement with ABN. At that point, the FAC alleges Goodin failed to fulfill its contractual obligation to find and secure experienced and competent replacement counsel. As a result, plaintiffs were forced to find their own replacement counsel, who ultimately was able to secure a "substantially higher" settlement than that which Goodin had negotiated. The FAC further complains that Markun and Goodin then sought to use the higher settlement figure as the basis for calculating their 30 percent contingency fee payment in spite of their deficient representation.

On November 26, 2007, Markun filed a petition to compel arbitration or, in the alternative, for change of venue. The petition to compel was based on a provision within its retainer agreement with plaintiffs.*fn2

On December 7, 2007, Goodin filed its answer to the FAC. As one of its affirmative defenses, Goodin alleged that the causes of action against it were subject to binding arbitration pursuant to the parties' contingency fee agreement. That same day, Goodin filed a cross-complaint against plaintiffs, alleging causes of action for breach of contract, breach of implied covenant of good faith and fair dealing, quantum meruit, account stated, fraud, and conversion.*fn3

In its cross-complaint, Goodin painted a very different picture of the ABN matter. The law firm stated it had fully prepared for the NASD hearing, in spite of the fact that it only had six weeks to do so. Goodin claimed the arbitration proceeded well until Mr. Elliot Blumberg, the sole owner of Vigilant, testified. During his testimony, Blumberg reportedly " 'froze' and could not speak for a period of time." Thereafter, his behavior "became increasingly bizarre as the hearing progressed," causing Goodin to "have concerns about Mr. Blumberg's honesty and truthfulness." Ultimately, Goodin obtained a settlement offer from ABN in the amount of $2,275,000. Plaintiffs rejected the offer and retained new counsel, who secured a settlement of $3.5 million.

On December 10, 2007, Goodin filed a statement of non-opposition to Markun's petition to compel arbitration. In its statement, Goodin expressly consented to submitting all the causes of action alleged in the FAC and the cross-complaint to binding arbitration. That same day, plaintiffs filed their opposition to Markun's petition.

On December 21, 2007, the trial court held a hearing on Markun's petition to compel arbitration. Plaintiffs counsel indicated that he was not opposing the court's tentative decision to grant the motion, but that he wanted the order to reflect that all the parties, including Goodin, would fully participate in the arbitration. The trial court directed the parties' attorneys to leave the courtroom in order to discuss the form of the ruling. After all counsel met, they advised the court the entire matter would proceed to arbitration. Plaintiffs requested that the action not be dismissed in order "to deal with any issues that fall outside the arbitration and, additionally, to provide a vehicle for a judgment to enforce the arbitration award when it is finally done to avoid the refiling and the expense of a new complaint." The court filed its order granting the petition to compel arbitration and dismissing the FAC without prejudice. The order signed by the trial court clearly indicates all legal issues would be addressed at the arbitration. The issue of whether Goodin's cross-complaint should also be dismissed was not raised by the parties or the court.

The arbitration was held over a period of 18 days between October 27, 2008, and January 29, 2009. The final arbitration award in favor of Goodin was made on May 13, 2009. The arbitrators rejected plaintiffs' claims against Goodin and awarded $1,319,384.73 to Goodin as follows: $387,490 for the reasonable value of its services, $86,840.22 in prejudgment interest, and $845,054.51 in attorney fees and costs. Additionally, demonstrating the scope of the arbitration, the panel ruled in favor of the Lampreys in their claim against plaintiff Blumberg relating to the invasion of privacy, awarding damages in the amount of $10,000.

On May 29, 2009, Goodin filed a petition to confirm the arbitration award.

On June 8, 2009, plaintiffs filed a petition to vacate the arbitration award.

On June 22, 2009, the trial court held a hearing on the petitions and filed its order confirming the arbitration award. That same day, the court entered judgment on the award. This appeal followed.

DISCUSSION

I. Standard of Review

"On appeal from an order confirming an arbitration award, we review the trial court's order (not the arbitration award) under a de novo standard. [Citations.] To the extent that the trial court's ruling rests upon a determination of disputed factual issues, we apply the substantial evidence test to those issues." (Lindenstadt v. Staff Builders, Inc. (1997) 55 Cal.App.4th 882, 892, fn. 7.)

II. Code of Civil Procedure section 1281.2

Plaintiffs' central argument in this appeal is that the judgment must be reversed because they never agreed to arbitrate their dispute with Goodin. Along this line, they first claim the order compelling them to arbitrate with Goodin is unsound because the law firm filed only a statement of non-opposition to Markun's petition, and never filed its own petition to compel arbitration under Code of Civil Procedure section 1281.2 (section 1281.2).

Section 1281.2 provides: "On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists . . . ." Plaintiffs assert Goodin is barred from securing judicial intervention to confirm the arbitration award because it never filed a petition to compel arbitration, thereby committing a fatal "procedural shortcut." Seeking to prove this proposition by analogy, they rely on the case of Loeb v. Record (2008) 162 Cal.App.4th 431 (Loeb). Their reliance is misplaced.

In Loeb, a law firm and its client arbitrated a fee dispute through the California State Bar in accordance with California's Mandatory Fee Arbitration Act (MFAA) (Bus. & Prof. Code, § 6200 et seq.). (Loeb, supra, 162 Cal.App.4th 431, 435.) After the arbitrator awarded the law firm a fee in the amount of 30 percent of the client's personal injury settlement, plus costs, the firm filed a motion for partial disbursement of the settlement proceeds. (Id. at pp. 440-441.) The trial court granted the motion. Importantly, the firm never filed a petition to confirm the arbitration award. The appellate court held that the trial court had erred both in granting the motion for partial disbursement, and in treating the arbitration award as though it were an enforceable judgment. (Id. at pp. 450-451.)

The present case is distinguishable from Loeb. Here, the arbitration was not conducted pursuant to the MFAA, but instead pursuant to the California Arbitration Act (CAA) (Code Civ. Proc., § 1280 et seq.). The distinction is significant because arbitration under the MFAA is voluntary with respect to the client, and therefore an attorney cannot file a motion to compel a client to participate in arbitration under the MFAA. Secondly, Loeb does not concern the status of an arbitration award where the party moving to affirm the award did not previously file a motion to compel arbitration. Accordingly, with respect to the circumstances of the present case, Loeb does not stand for the proposition that the absence of a petition to compel arbitration is fatal to an order confirming an arbitration award.

Plaintiffs further contend that the statement of non-opposition filed by Goodin cannot be construed as a proper motion to compel arbitration. Regardless, the record unquestionably shows plaintiffs actively sought to include Goodin in the arbitration, along with the other defendants. At the hearing on Markun's petition to compel, plaintiffs' counsel advised the trial court they were not opposing the court's tentative decision to grant the petition. The court then asked the defendants' attorneys if their clients were seeking arbitration as to all the defendants, to which Goodin's counsel responded "correct." After the court granted the petition, counsel for Vigilant stated "I just wanted to make clear that, when the court issues its order, it is not ambiguous as to who is coming into the arbitration. My interest is in having everybody joined in the arbitration initiated by Markun." (Italics added.) Regarding the form of the court's order, plaintiffs' counsel stated that the draft was acceptable "with the understanding--I'll put it on the record--that 'all parties' means everybody involved in both the complaint and the cross-complaint . . . ." At that point, Goodin's counsel stated that he did not oppose the petition and affirmed that all the parties, including Goodin, would be participating in the arbitration.

Under these circumstances, we agree with Goodin that because the parties consented to arbitration, there was no need for it to have filed a petition to compel arbitration. This conclusion is obvious. A petition to order arbitration under section 1281.2 is only necessary if a party refuses to arbitrate the controversy. (See Toal v. Tardif (2009) 178 Cal.App.4th 1208, 1219 ["Prior to arbitration, if a party to an arbitration contract refuses to arbitrate the controversy, the other party may petition the court to order arbitration under section 1281.2."]) Plaintiffs' consent to participating in binding arbitration with all parties, including Goodin, clearly obviated the need for the law firm to petition for an order compelling arbitration.*fn4

Importantly, after the petition to compel arbitration was granted, the parties proceeded to the arbitration hearing. They engaged in discovery and other pre-hearing matters. At the same time, plaintiffs filed periodic case management statements in superior court confirming their participation in binding arbitration.*fn5 For example, in December 2008, plaintiffs stated to the court that "The parties are currently participating in a multi-session, binding arbitration proceeding before a three-arbitrator AAA panel to resolve all issues raised in the [FAC] and the Cross-Complaint." We also note that a week before the arbitration hearing began, plaintiffs settled with Markun by paying it $259,250.41 and providing a general release. Yet plaintiffs never raised any objection to going forward in the arbitration hearing against Goodin. They did not seek a return to the trial courts of San Francisco. Instead, an 18-day hearing was held, concluding with an award in favor of Goodin. In sum, because the parties agreed to arbitrate their dispute, Goodin was not required to file a petition to compel arbitration.

III. Whether the Parties Agreed to Binding Arbitration

Plaintiffs next contend that the judgment must be reversed because the parties never agreed to binding arbitration, instead agreeing only to non-biding fee arbitration under the MFAA. The record does not support this contention.

The arbitration clause of the Goodin fee contract states: "Any dispute with respect to your liability for fees and costs shall be submitted to arbitration in accordance with the California Business & Professions Code, Section 6200, et seq., and the California Code of Civil Procedure, Sections 1280 et seq." (Italics added.) The italicized language indicates that the parties agreed to submit any fee dispute to binding arbitration under the CAA as well as the MFAA. Plaintiffs claim the clause referencing the CAA reflects no more than an intention that the parties agreed to be bound by California arbitration law rather than the Federal Arbitration Act in resolving an MFAA dispute. We do not see anything in the clause that would mandate such a narrow reading.

In any event, again, at the hearing on Markun's petition to compel, plaintiffs voluntarily agreed to submit all the parties' claims, including those involving Goodin, to binding arbitration. And, after they settled their dispute with Markun, they participated without objection in an 18-day arbitration hearing involving the claims pertaining to Goodin. As they themselves note, "A party's conduct occurring between execution of the contract and a dispute about the meaning of the contract's terms may reveal what the parties understood and intended those terms to mean." (City of Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 393.) We conclude the parties agreed to submit their dispute to binding arbitration.

IV. Whether Vigilant's Affirmative Claims Against Goodin Were Arbitrable

Finally, plaintiffs contend their affirmative claims against Goodin for legal malpractice, fraud, and related claims, were not encompassed by the arbitration clause in the Goodin agreement because that clause is limited to " '[a]ny dispute with respect to your liability for fees and costs . . . .' " Again, as noted above, the record fully supports the conclusion that plaintiffs consented to have all the claims submitted to binding arbitration. Further, as noted by the trial court when confirming the award, their affirmative claims, including the malpractice claim, were raised in the arbitration as a defense to Goodin's claim to attorney fees. The court expressed the view that "everything that was done with respect to trying to prove malpractice is nonetheless relevant to and was also undertaken as a defense to the claim which was properly arbitrable . . . ."

The trial court's finding is evidenced in the answer submitted by plaintiffs in response to the written demand filed by Goodin in their arbitration proceeding. A basic review of plaintiff's legal filings in the arbitration reflect the actual understanding of the nature and scope of the arbitration's purpose. Plaintiffs' counsel argued at length about the poor performance, i.e., malpractice, of the Goodin attorneys. For example, with respect to the NASD proceeding, counsel claimed Goodin's attorneys "arrived at the arbitration completely unprepared for the Investec claim, and they were clobbered," and "[plaintiffs], recognizing the disadvantageous position [Goodin's] lack of preparation had put it in, reluctantly agreed to accept the now lower Investec [settlement] offer." The attorney also wrote: "As the time for the arbitration approached, it became increasingly evident to Mr. Blumberg (despite assertions and assurances to the contrary) that [Goodin] was woefully unprepared in virtually every facet of the case." Further the attorney defended Blumberg's allegedly bizarre behavior at the NASD arbitration by claiming it was the result of his "witnessing the destruction of a case by his own attorneys." The attorney also stated: "The list of disasters that played out in front of Mr. Blumberg are too numerous to lay out in this Answer, but will be fully shown at the hearing of this matter." It thus appears clear that plaintiffs saw the AAA arbitration as more than just a proceeding to resolve a fee issue.

Further evidence of plaintiffs' understanding that the malpractice claims were subject to arbitration is provided in the transcript discussing the issue of attorney fees for the arbitration proceedings. Plaintiffs' counsel argued that any fee award should be limited to the fee dispute: "This attorney[] fee provision [in the Goodin agreement] is not broad enough to encompass recovery for defense of the malpractice claim. [¶] Further, as the Panel is aware from the presentation of the evidence, not only were the fee dispute and the malpractice claims separate and distinct from one anther, the malpractice portion of the dispute consumed the vastly greater amount of time, effort, expert testimony and costs."

Additionally, the two pages of the interim arbitration award states: "In this arbitration [Goodin] seeks to recover its fee for representing [Vigilant] in a NASD arbitration. Vigilant cross-complains for legal malpractice, negligence, breach of fiduciary duty and misrepresentation, breach of contract and implied covenants, abuse of process and declaratory relief against [Goodin] in the underlying case." (Italics added.) This statement indicates the scope of the arbitration that the parties agreed to undertake. Hence, it is evident that plaintiffs presented evidence to the arbitration panel that dealt with the very same issues they now claim could not be arbitrated.

As the trial court noted at the hearing to confirm the arbitration award, the issue of whether the arbitration clause included Goodin's affirmative claims was not raised directly during the hearing on Markun's motion to compel arbitration. The court also noted plaintiffs did not raise the issue during the arbitration and that they consented to the arbitration of Goodin's claims. We agree with the court that having consented to have the claims arbitrated, plaintiffs' post-award repudiation of the proceedings runs counter to public policy in favor of the finality of arbitrations. As the Supreme Court stated in a case involving a similar issue: "Any other conclusion is inconsistent with the basic purpose of private arbitration, which is to finally decide a dispute between the parties. Moreover, we cannot permit a party to sit on his rights, content in the knowledge that should he suffer an adverse decision, he could then raise the illegality issue in a motion to vacate the arbitrator's award. A contrary rule would condone a level of 'procedural gamesmanship' that we have condemned as 'undermining the advantages of arbitration.' [Citations.] Such a waste of arbitral and judicial time and resources should not be permitted." (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 30.)*fn6 In our view, the arbitration that culminated in the award at issue here was entered into at the behest of plaintiffs who, understandably, desired to have all the disputes between all the parties resolved in a single proceeding. Having elected to take that course, plaintiffs cannot fall back on the courts to overturn the judgment that resulted from the arbitration proceeding. To tolerate any other result would amount to permitting a notion of "heads I win, tails you lose." It is difficult to perceive a stance more contrary to the public policy behind our arbitration process.

DISPOSITION

The judgment is affirmed.

We concur: Marchiano, P. J. Banke, J.


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