Moncharsh v. Heily & Blase

Page 183

10 Cal.Rptr.2d 183

3 Cal.4th 1, 832 P.2d 899

Philip I. MONCHARSH, Plaintiff and Appellant, v. HEILY & BLASE et al., Defendants and Respondents.

No. S020997.

Supreme Court of California In Bank.

July 30, 1992.

Rehearing Denied Sept. 24, 1992.

[832 P.2d 900] [3 Cal.4th 5] Philip I. Moncharsh, in pro. per.

Townsend & Townsend, Paul W. Vapnek and Mark L. Pettinari, San Francisco, for plaintiff and appellant.

DeWitt F. Blase, in pro. per.

Heily & Blase, and John R. Johnson, Ventura, for defendants and respondents.

LUCAS, Chief Justice.

We granted review in this case to decide, inter alia, the extent to which a trial court may review an arbitrator's decision for errors of law. For the reasons discussed below, we conclude an arbitrator's decision is not generally reviewable for errors of fact or law, whether or not such error appears on the face of the award and causes substantial injustice to the parties. There are, however, limited exceptions to this general rule, which we also discuss below.

FACTS

On June 16, 1986, appellant Philip Moncharsh, an attorney, was hired by respondent Heily & Blase, a law firm. As a condition of employment as an associate attorney in the firm, Moncharsh signed an agreement containing a number of provisions governing various aspects of his employment. One provision (hereafter referred to as "paragraph X-C") stated: "X C. EMPLOYEE-ATTORNEY agrees not to do anything to cause, encourage, induce, entice, recommend, suggest, mention or otherwise cause or contribute to any of FIRM'S clients terminating the attorney-client relationship with FIRM, and/or substituting FIRM and retaining or associating EMPLOYEE-ATTORNEY or any other attorney or firm as their legal counsel. In the event that any FIRM client should terminate the attorney-client relationship with FIRM and substitute EMPLOYEE-ATTORNEY or another attorney or law firm who[m] EMPLOYEE-ATTORNEY suggested, recommended or directed as client's successor attorney, then, in addition to any costs which client owes FIRM up to the time of such substitution, as to all fees which EMPLOYEE-ATTORNEY may actually receive from that client or that client's successor attorney on any such cases, BLASE will receive eighty percent (80%) of said fee and EMPLOYEE-ATTORNEY will receive twenty percent (20%) of said fee."

Moncharsh terminated his employment with Heily & Blase on February 29, 1988. DeWitt Blase, the senior partner at Heily & Blase, contacted 25 or 30 of Moncharsh's clients, noted that they had signed retainer agreements with his firm, and explained that he would now be handling their cases. Five clients, whose representation by Moncharsh predated his association with Heily & Blase, chose to have Moncharsh continue to represent them. A sixth client, Ringhof, retained Moncharsh less than two weeks before he left the firm. Moncharsh continued to represent all six clients after he left the firm.

When Blase learned Moncharsh had received fees at the conclusion of these six cases, he sought a quantum meruit share of the fees as well as a percentage of the fees pursuant to paragraph X-C of the employment agreement. Blase rejected Moncharsh's offer to settle the matter for only a quantum meruit share of the fees. The parties then invoked the arbitration clause of the employment agreement ¹ and submitted the matter to an arbitrator.

The arbitrator heard two days of testimony ² and the matter was submitted on the briefs and exhibits. In his brief, Moncharsh argued (1) Heily & Blase was entitled to only a quantum meruit share of the fees, (2) Moncharsh and Blase had an oral agreement to treat differently the cases Moncharsh brought with him to Heily & Blase, (3) the employment agreement had terminated and was therefore inapplicable, (4) the agreement was one of adhesion and therefore unenforceable, and (5) paragraph X-C is unenforceable because it violates public policy, the Rules of Professional Conduct of the State Bar, and because it is inconsistent with Fracasse v. Brent (1972) 6 Cal.3d 784, 100 Cal.Rptr. 385, 494 P.2d 9, and Champion v. Superior Court (1988) 201 Cal.App.3d 777, 247 Cal.Rptr. 624.

In its brief, Heily & Blase contended paragraph X-C (1) is clear and unequivocal, (2) is not unconscionable, and (3) represented a reasonable attempt to avoid litigation and was thus akin to a liquidated damages provision. In addition, "To the extent it becomes important to the Arbitrator's decision," Heily & Blase alleged that Moncharsh solicited the six clients to remain with him, and further suggested that Moncharsh retained those six because it was probable that financial settlements would soon be forthcoming in all six matters. Heily & Blase contrasted these six matters with the other cases Moncharsh left with the firm, all of which allegedly required a significant amount of additional legal work.

The arbitrator ruled in Heily & Blase's favor, concluding that any oral side agreement between Moncharsh and Blase was never documented and that Moncharsh was thus bound by the written employee agreement. Further, the arbitrator ruled that, "except for client Ringhof, [paragraph X-C] is not unconscionable, and it does not violate the rules of professional conduct. At the time MR. MONCHARSH agreed to the employment contract, he was a mature, experienced attorney, with employable skills. Had he not been willing to agree to the eighty/twenty (80/20) split on termination, he could simply have refused to sign the document, negotiated something different, or if negotiations were unsuccessful, his choice was to leave his employment.... .... [p] ... The Arbitrator excludes the Ringhof client from the eighty/twenty (80/20) split because that client was obtained at the twilight of MR. MONCHARSH' S relationship with HEILY & BLASE, and an eighty/twenty (80/20) split with respect to that client would be unconscionable."

Moncharsh petitioned the superior court to vacate and modify the arbitration award. (Code Civ.Proc., § 1286.2; all subsequent statutory references are to this code unless otherwise stated.) Heily & Blase responded by petitioning the court to confirm the award. (§ 1285.) The court ruled that, "The arbitrator's findings on questions of both law and fact are conclusive. A court cannot set aside an arbitrator's error of law no matter how egregious." The court allowed an exception to this rule, however, "where the error appears on the face of the award." Finding no such error, the trial court denied Moncharsh's petition to vacate and granted Heily & Blase's petition to confirm the arbitrator's award.

On appeal, the Court of Appeal also recognized the rule, announced in previous cases, generally prohibiting review of the merits of the arbitrator's award. It noted, however, that an exception exists when "an error of law appears on the face of the ruling and then only if the error would result in substantial injustice." Although Moncharsh claimed paragraph X-C violated law, public policy, and the State Bar Rules of Professional Conduct, the appellate court disagreed and affirmed the trial court judgment.

We granted review and directed the parties to address the limited issue of whether, and under what conditions, a trial court may review an arbitrator's decision.

DISCUSSION

1. The General Rule of Arbitral Finality

The parties in this case submitted their dispute to an arbitrator pursuant to their written agreement. This case thus involves private, or nonjudicial, arbitration. (See Blanton v. Womancare, Inc. (1985) 38 Cal.3d 396, 401-402 & fn. 5, 212 Cal.Rptr. 151, 696 P.2d 645 [discussing the differences between judicial and nonjudicial arbitration].) In cases involving private arbitration, "[t]he scope of arbitration is ... a matter of agreement between the parties" (Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 323, 197 Cal.Rptr. 581, 673 P.2d 251 [hereafter Ericksen ] ), and " '[t]he powers of an arbitrator are limited and circumscribed by the agreement or stipulation of submission.' " (O'Malley v. Petroleum Maintenance Co. (1957) 48 Cal.2d 107, 110, 308 [3 Cal.4th 9] P.2d 9 [hereafter O'Malley ], quoting Pac. Fire etc. Bureau v. Bookbinders' Union (1952) 115 Cal.App.2d 111, 114, 251 P.2d 694.)

Title 9 of the Code of Civil Procedure, as enacted and periodically amended by the Legislature, represents a comprehensive statutory scheme regulating private arbitration in this state. (§ 1280 et seq.) Through this detailed statutory scheme, the Legislature has expressed a "strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution." (Ericksen, supra, 35 Cal.3d at p. 322, 197 Cal.Rptr. 581, 673 P.2d 251; Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 706-707, 131 Cal.Rptr. 882, 552 P.2d 1178; Victoria v. Superior Court (1985) 40 Cal.3d 734, 750, 222 Cal.Rptr. 1, 710 P.2d 833 [dis. opn. of Lucas, J.]; City of Oakland v. United Public Employees (1986) 179 Cal.App.3d 356, 363, 224 Cal.Rptr. 523; see also Shearson/American Express Inc. v. McMahon (1987) 482 U.S. 220, 226, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 [Federal Arbitration Act, 9 U.S.C. § 1 et seq., establishes federal policy in favor of arbitration].) Consequently, courts will " 'indulge every intendment to give effect to such proceedings.' " (Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180, 189, 151 Cal.Rptr. 837, 588 P.2d 1261, quoting Pacific Inv. Co. v. Townsend (1976) 58 Cal.App.3d 1, 9, 129 Cal.Rptr. 489.) Indeed, more than 70 years ago this court explained: "The policy of the law in recognizing arbitration agreements and in providing by statute for their enforcement is to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing." (Utah Const. Co. v. Western Pac. Ry. Co. (1916) 174 Cal. 156, 159, 162 P. 631 [hereafter Utah Const.].) "Typically, those who...