Opinion
C056691
2-17-2009
HALL-MARK SERVICES, INC., Plaintiff and Respondent, v. HARRIS & ASSOCIATES, INC., Defendant and Appellant.
Not to be Published
Defendant Harris & Associates, Inc. (Harris) filed a successful petition to compel arbitration against plaintiff Hall-Mark Services, Inc. (Hall-Mark). Harris filed a motion for attorney fees, which the trial court denied. Harris appeals, arguing the courts ruling on the motion to compel arbitration was a final resolution of a discrete proceeding, not an interim procedural victory. Therefore, the court erred in denying Harris attorney fees. Hall-Mark insists that the courts ruling is not an appealable order. We agree and shall dismiss the appeal.
FACTUAL AND PROCEDURAL BACKGROUND
At the root of this dispute is a public works project (the Project) to modernize three schools in the Washington Unified School District (the District). The District entered into a contract with Gen-Con, Inc. (Gen-Con), in which Gen-Con agreed to do all work and furnish all materials needed to complete the Project. Gen-Con entered into a subcontract with Hall-Mark wherein Hall-Mark agreed to complete electrical work on the Project. The District hired Pacific Program Management, Inc. (Pacific) to act as construction manager for the Project. Harris is the successor-in-interest to Pacific.
The Hall-Mark/Gen-Con contract includes an arbitration clause that states: "If neither direct discussions nor mediation successfully resolve the dispute, the parties agree that the following shall be used to resolve the dispute. [¶] . . . [¶] Arbitration[.] Arbitration shall be pursuant to the Construction Industry Rules of the American Arbitration Association unless the parties mutually agree otherwise. A written demand for arbitration shall be filed with the American Arbitration Association and the other party to the Agreement within a reasonable time after the dispute or claim has arisen, but in no event after the applicable statute of limitations . . . has run. The arbitration award shall be final. This agreement to arbitrate shall be governed by the Federal Arbitration Act, and judgment upon the award may be confirmed in any court having jurisdiction."
The contract also includes an attorney fees provision, which states: "The cost of a mediation proceeding shall be shared equally by the parties participating. The prevailing party in any dispute that goes beyond mediation arising out of or relating to this Agreement or its breach shall be entitled to recover from the other party reasonable attorneysfees, costs and expenses incurred by the prevailing party in connection with such dispute."
In May 2004 Hall-Mark filed suit, alleging breach of contract against Gen-Con, Pacific, and Harris. Hall-Mark subsequently filed a second amended complaint alleging that following Gen-Cons bankruptcy filing, Pacific assumed Gen-Cons responsibilities under the Hall-Mark/Gen-Con contract. The complaint alleged six causes of action against Harris: breach of written contract, breach of oral contract, unjust enrichment, promissory estoppel, negligence, and negligent interference with prospective economic advantage.
Harris contacted Hall-Marks counsel and requested that Hall-Mark agree to arbitrate under the contracts mandatory arbitration clause. After failing to receive a response, Harris sent a second letter again requesting arbitration. Hall-Marks counsel responded that Hall-Mark refused to arbitrate unless St. Paul Fire and Marine Insurance Company, which provided the public works payment bond, agreed to participate.
St. Paul Fire and Marine Insurance Company remains in the case and has filed a motion for leave to file a cross-complaint against Hall-Mark, Harris, and the Washington Unified School District, the party that contracted with Harriss predecessor in interest as the general contractor.
Harris filed a petition to compel arbitration against Hall-Mark. Hall-Mark opposed the petition, arguing Harris waived its right to arbitration by bringing two demurrers to the original complaint. The trial court denied the petition to compel arbitration.
Harris appealed the order denying the petition. We reversed the trial courts order denying arbitration, remanded the matter for the trial court to grant Harriss petition, and awarded Harris costs on appeal.
Harris filed a memorandum of costs and motion for attorney fees seeking $37,589 in attorney fees. Hall-Mark opposed the motion, arguing our decision was an interim decision and that attorney fees are not recoverable until a final decision on the merits. During oral argument, the trial court observed: "[U]nless the Court of Appeal specifically awards fees on appeal, when it comes back to the trial court, were still wondering who the prevailing party is before awarding attorneys fees. There is no final judgment."
The trial court granted Harriss request to recover costs on appeal. As to the request for attorney fees, the court stated: "Harris motion for attorneys fees incurred on appeal is denied without prejudice. An award of attorneys fees on appeal pursuant to Civil Code section 1717 and pursuant to the provision in the contract is not recoverable until final disposition of the case. [Citations.]" Harris filed a timely notice of appeal.
DISCUSSION
I
We begin by considering the impact of a case decided in the interim between the trial courts denial of Harriss request for attorney fees and resolution of this appeal: Otay River Constructors v. San Diego Expressway (2008) 158 Cal.App.4th 796 (Otay). In Otay, San Diego Expressway (Expressway) and Otay River Constructors (Otay) entered into two design-build contracts, the "Gap/Connector Contract" and the "Toll Road Contract," and a third agreement called the "Coordination Agreement." The Coordination Agreement and the Toll Road Contract required dispute resolution by binding arbitration. The Gap/Connector contract contained no such requirement. (Id. at p. 800.)
Otay filed a petition to compel arbitration, arguing Expressway breached the Coordination Agreement. The parties had engaged in no other litigation. The trial court denied the petition because the claims arose out of the Gap/Connector Contract, which allowed for litigation of disputes. (Otay, supra, 158 Cal.App.4th at pp. 800-801.)
Expressway filed a motion for attorney fees and costs, claiming it was the prevailing party on the contract because it obtained a final order denying Otays petition to compel arbitration. The trial court denied the motion, finding Expressway was not the prevailing party because the parties contemplated additional litigation. (Otay, supra, 158 Cal.App.4th at p. 801.)
Expressway appealed the denial of its motion for attorney fees. The appellate court concluded the order was appealable under Code of Civil Procedure section 1294, subdivision (e) as a "special order after final judgment" because the order denying Otays petition to compel arbitration was essentially a "judgment on the only issue before the trial court." (Otay, supra, 158 Cal.App.4th at p. 801.) The court also concluded the trial court erred in denying Expressways attorney fees motion, since Expressway obtained a "simple, unqualified win" on the only contract claim at issue in the action — "whether to compel arbitration under the Coordination Agreement." (Id. at p. 807.) The court noted: "Significantly, the merits of the contract claims under the Gap/Connector Contract that Otay sought to send to arbitration were not at issue in the court proceedings to compel arbitration and the fact that the parties will probably pursue these claims in another action does not lessen Expressways victory in this discrete legal proceeding." (Id. at p. 808.)
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
II
On appeal, Harris argues that a party who succeeds on a petition to compel arbitration is a prevailing party in that action on the contract even though the merits of the parties underlying contractual disputes have not been resolved. Therefore, according to Harris, the trial court erred in denying attorney fees. In addition, Harris, citing Otay, contends an order denying a motion for an award of attorney fees after a final decision on a petition to compel arbitration is an appealable order under section 1294, subdivision (e).
Hall-Mark counters that the order is not appealable because no final judgment has been entered in the case. Under Hall-Marks reasoning, the order to arbitrate the second amended complaint did not result in a final judgment. Instead, the parties must arbitrate the dispute in the second amended complaint and then seek court intervention to confirm or vacate the arbitrators award. At that point, Hall-Mark argues, there will be a final judgment under section 1294, subdivision (e).
III
Harris interprets Otay as finding that an order granting or denying a petition to compel arbitration is considered a final judgment because it resolves the only issues before the court in that proceeding. We decline to read Otay so broadly.
Otay summarized its holding at the outset: "Where an action is brought solely to compel arbitration of contractual disputes between the parties, we conclude that (1) a party who succeeds in obtaining an order denying the petition to compel arbitration is a prevailing party in the action on the contract even though the merits of the parties underlying contractual disputes have not yet been resolved and (2) an order denying a request for costs and attorney fees under such circumstances is appealable as a `special order after final judgment under . . . section 1294, subdivision (e)." (Otay, supra, 158 Cal.App.4th at p. 799.)
Otay concerned an action "brought solely to compel arbitration of contractual disputes between the parties" since the only judicial proceeding was the special proceeding brought by Otays petition to compel arbitration. In Otay, there was no underlying action for damages that Otay sought to avoid by compelling arbitration of the contractual disputes between the parties.
Here, in contrast, Hall-Mark brought legal action for damages against Harris and others prior to filing a petition to compel arbitration. When Harris ultimately sought to compel arbitration of its contractual disputes with Hall-Mark, Harris filed a petition in the present action, which is Hall-Marks action for damages. Unlike Otay, Harris did not bring a discrete special proceeding by filing its petition to compel arbitration, nor can Harriss action be characterized as one "brought solely to compel arbitration of contractual disputes between the parties." (Otay, supra, 158 Cal.App.4th at p. 799.)
Furthermore, in Otay, Expressway succeeded in obtaining an order denying Otays petition to compel arbitration, which terminated the only judicial proceeding that was then pending. Whether or not Otay would bring a different judicial proceeding against Expressway to litigate its breach of contract claims did not alter the fact that the judicial proceeding brought by Otay to compel arbitration was at an end. This finality was the equivalent of a judgment in that proceeding.
In the present case, the court issued an order granting the petition, not denying the petition. The courts order, unlike the order denying arbitration in Otay, did not terminate any discrete special proceeding. As such, the order granting the petition cannot be considered the equivalent of a judgment in such a proceeding. Instead, the order is an interlocutory procedural ruling directing that some of the claims at issue be resolved through arbitration, not litigation.
Although in Otay some claims remained to be resolved, there was no legal action for damages pending on those claims. The denial of the petition to compel arbitration brought an end to the only judicial proceeding that existed: the special proceeding brought solely for the purpose of compelling arbitration. The Otay court characterized this order denying the petition to compel arbitration as "essentially a judgment on the only issue before the trial court." (Otay, supra, 158 Cal.App.4th at p. 801.) In contrast, an order compelling arbitration does not terminate any proceeding in a way that would allow us to characterize it as the equivalent of a final judgment for purposes of section 1294, subdivision (e).
Decisions by other courts bolster our interpretation. In Lachkar v. Lachkar (1986) 182 Cal.App.3d 641 (Lachkar), the court considered a petition to compel arbitration filed in the absence of any other judicial proceeding. The parties requesting the petition prevailed and obtained an order compelling arbitration. The trial court also granted the plaintiffs request for costs and attorney fees. The defendants appealed the award of costs and fees. The appellate court concluded the order was appealable under the "collateral order" doctrine because it was a final determination of a collateral matter that required the payment of money. (Id. at p. 645, fn. 1.) However, the court also concluded "the ruling on the petition for order to compel arbitration was not a judgment." (Id. at p. 646.)
The Lachkar court referenced La Pietra v. Freed (1978) 87 Cal.App.3d 1025 (La Pietra), a case very similar to the present case. The defendant in La Pietra moved to compel arbitration over a breach of contract claim. The trial court granted the motion to compel arbitration, stayed the proceedings, and awarded the defendant attorney fees and costs. (Id. at p. 1028.) The plaintiffs appealed the award of fees and costs, arguing the ruling on the motion to compel arbitration was not a judgment entitling the defendant to attorney fees as a prevailing party. (Id. at p. 1030.)
The appellate court agreed, noting a judgment is final only when it determines all of the rights of the parties and requires no further action to give effect to its provisions. The court reasoned: "`The proceeding to compel arbitration is in essence a suit in equity to compel specific performance of a contract [citations]. The powers of the superior court in passing upon the petition are those prescribed and limited by the provisions of [section] 1281.2. [Citations.] [¶] There could be no final determination of the rights of the parties to this action at the time of the motion. The arbitrator may determine that the issues submitted to him are not arbitrable and return the case to the court for proceedings, or, if arbitration proceeds to award and such is returned for confirmation, an appeal from said confirmation would be the final determination of the rights of the parties." (La Pietra, supra, 87 Cal.App.3d at p. 1030.)
The court reasoned: "[T]he trial courts ruling on [the defendants] motion to compel arbitration was interlocutory in nature and as such not appealable as a final judgment. We further conclude that because such ruling was not final, and no appeal could be taken, there was no final determination of the rights of the parties and [the defendant] is therefore not a prevailing party pursuant to Civil Code section 1717 and Code of Civil Procedure section 577 and is not entitled to attorneys fees at this time." (La Pietra, supra, 87 Cal.App.3d at p. 1031.)
IV
This triumvirate of cases — Otay, Lachkar, and La Pietra — persuades us that the order granting Harriss petition to compel arbitration was not the equivalent of a final judgment, and therefore the trial courts denial of Harriss motion for attorney fees is not a special order after final judgment within the meaning of section 1294, subdivision (e). Accordingly, we must dismiss Harriss appeal as taken from a nonappealable order.
The order appealed from is not a final determination of the rights of the parties, nor was it the final determination of a discrete legal proceeding to compel arbitration. Instead, it was an interlocutory victory by Harris in the legal action for damages brought by Hall-Mark. The remainder of the action, involving Hall-Marks claims against the other defendant, St. Paul Fire and Marine Insurance Company, remains to be litigated. With these other claims remaining at issue, the trial court will determine whether to allow the litigation to proceed simultaneously with the arbitration, to stay the litigation pending the outcome of arbitration, or to stay the arbitration pending the outcome of the litigation of those claims. (§ 1281.2, subd. (c).)
Ultimately, there will be a final judgment in this case based, in whole or in part, on the result of the arbitration. At that point, the trial court can determine which party prevailed on the contract and award fees and costs accordingly.
DISPOSITION
The appeal is dismissed. Harris shall bear costs on appeal.
We concur:
ROBIE, J.
CANTIL-SAKAUYE, J.