Section 128.7 Sanctions Not Available Following Arbitration

When a client has obtained a defense verdict, judgment or arbitration award, they will frequently ask what recourse they have to recover attorney’s fees and costs obtained in defending against the claims.  In California, costs are awarded to the prevailing party as a matter of right.  (Code Civ. Proc., § 1032 subd. (c).) Attorney’s fees are awardable if allowed by contract or statute.  (Code Civ. Proc, § 1033.5 subd. (a)(10).) If no contract or statute provides for a fee award, a party might seek lesser used remedies such as the tort of malicious prosecution or a request for sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure or California Code of Civil Procedure, section 128.7.

These two lesser used remedies are no longer viable options following contractual arbitration.  Malicious prosecution claims will not lie from a contractual arbitration.  (Brennan v. Tremco Inc. (2001) 25 Cal.4th 310, 314).  Today, in an opinion authored by Associate Justice Miguel Márquez, the Sixth Appellate District Court of Appeal also closed the door to seeking Section 128.7 sanctions following an arbitration.  In Optimal Markets, Inc.v . Salant (Nov. 26, 2013 H038571), a prevailing defendant in a binding contractual arbitration, following confirmation of the arbitration award, sought sanctions pursuant to Section 128.7.  The trial court denied the award on the ground that they were not authorized by statute.  On appeal, the moving parties argued that:

plaintiff’s attorneys, in advancing frivolous claims in the binding arbitration on behalf of their clients, advocated a meritless complaint before the court within the meaning of…section 128.7, thereby warranting the imposition of sanctions under that statute.

The Optimal Markets, Inc. court rejected this argument on appeal finding that a trial court has no authority to impose sanctions under section 128.7 for three reasons:

First, because the parties agreed to binding arbitration without any complaint filed in the superior court, the claimant never “presented” a “pleading” to the court within the meaning of section 128.7.  Advocacy of the claim in arbitration is not conduct that falls within the requirements of 128.7.

Second, once parties have agreed to arbitration, the court’s power to act is stayed and sits in a “twilight zone of abatement” where the court’s only power is to appoint arbitrators, grant provisional remedies and conform, correct or vacate the award.

Third, given that the award of sanctions is inherently a discretionary act by a court, it is inappropriate to vest such a power in the court when the arbitrator – not the court- has the firsthand experience of dealing with counsel and the legal and factual positions taken.