Hagan v. Park Miller LLC ( 2022 )

1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 KEVIN HAGAN, et al., Case No. 20-cv-06818-CRB 9 Plaintiffs, ORDER DENYING MOTION FOR 10 v. INTERIM ATTORNEYS’ FEES 11 PARK MILLER LLC, et al., 12 Defendants. 13 Plaintiffs Kevin and Laura Hagan (“the Hagans”) brought this action against Park 14 Miller LLC (“Park Miller”) in September 2020, seeking to compel Park Miller to arbitrate 15 the Hagans’ claims against it. The Court granted that motion as to Park Miller in 16 December 2020 and the parties proceeded with the arbitration. Hagan v. Park Miller LLC, 17 No. 20-CV-06818-CRB, 2020 WL 7319357 (N.D. Cal. Dec. 11, 2020) (“Hagan I”), order 18 clarified, No. 20-CV-06818-CRB, 2021 WL 1688347 (N.D. Cal. Apr. 29, 2021) (“Hagan 19 II”). The Court also held that, pursuant to California Civil Procedure Code § 1281.97, the 20 Hagans were entitled to reasonable attorneys’ fees and costs relating to the arbitration. 21 Hagan I, 2020 WL 7319357, at *4. The Hagans now move for interim attorneys’ fees 22 based on the Court’s prior order. As explained below, finding this matter suitable for 23 resolution without oral argument pursuant to Civil Local Rule 7-1(b), the Court DENIES 24 the Hagans’ motion. 25 I. BACKGROUND 26 Park Miller is a registered investment adviser based in Walnut Creek, California. 27 Compl. (dkt. 1) ¶ 3. On April 7, 2018, the Hagans and Park Miller entered into an 1 Subject to the conditions and exceptions noted below, and to the extent not inconsistent with applicable law, in the event of any 2 dispute pertaining to ADVISER’s services under this Agreement that cannot be resolved by mediation, both ADVISER and 3 CLIENT agree to submit the dispute to arbitration in accordance with the auspices and rules of [the American Arbitration 4 Association], provided that the AAA accepts jurisdiction. ADVISER and CLIENT understand that such arbitration shall 5 be final and binding, and that by agreeing to arbitration, both ADVISER and CLIENT are waiving their respective rights to 6 seek remedies in court, including the right to a jury trial. CLIENT acknowledges that CLIENT has had a reasonable 7 opportunity to review and consider this arbitration provision prior to the execution of this Agreement. CLIENT 8 acknowledges and agrees that in the specific event of non- payment of any portion of Adviser Compensation pursuant to 9 paragraph 2 of this Agreement, ADVISER, in addition to the aforementioned arbitration remedy, shall be free to pursue all 10 other legal remedies available to it under law, and shall be entitled to reimbursement of reasonable attorneys’ fees and 11 other costs of collection. 12 Agreement (dkt. 1-4) ¶ 14. Park Miller managed approximately $10 million in assets on 13 behalf of the Hagans and advised the Hagans to loan $4 million to Durham Capital, a New 14 York company that later collapsed such that the Hagans lost their entire investment. See 15 Compl. ¶¶ 19, 21, 25. The Hagans allege that Park Miller is liable to them under federal 16 securities law and for breach of contract. Id. ¶¶ 7, 26. 17 On December 10, 2019, the Hagans filed a claim against Park Miller before the 18 AAA, but Park Miller objected to arbitrating under the AAA Consumer Rules rather than 19 the AAA Commercial Rules. Id. ¶¶ 10–11. Because Park Miller did not pay the AAA’s 20 required fee, the AAA notified the parties that it would decline to administer the case. 21 Id. ¶ 13. 22 The Hagans then filed a complaint before this Court and moved to compel 23 arbitration. See Compl. ¶ 17; Mot. to Compel (dkt. 11). In December 2020, the Court 24 granted the motion and concluded that, because Park Miller did not pay arbitration fees as 25 a result of the AAA’s initial decision to apply the Consumer Rules, it had violated Cal. 26 Civ. Proc. Code § 1281.97. Hagan I, 2020 WL 7319357, at *4. The Court ordered that 27 “the Hagans will be entitled to reasonable attorneys’ fees and costs relating to the 1 arbitration.” Id. In a subsequent order, the Court clarified that Park Miller “must pay all 2 of the reasonable attorneys’ fees and costs for the entire arbitration.” Hagan II, 2021 WL 3 1688347, at *2. 4 The arbitration then proceeded before arbitrator Howard L. Pearlman, who issued 5 an interim order in October 2021 addressing which arbitration rules apply and whether an 6 interim order of attorneys’ fees is permitted under Section 1281.97 and the arbitration 7 rules. Interim Order (dkt. 33-2) at 2. Pearlman found that (1) the AAA Commercial 8 Rules, rather than the Consumer Rules, applied to the arbitration; (2) Park Miller still must 9 pay the Hagans’ reasonable attorneys’ fees and costs, as ordered by the Court; and (3) 10 neither the Commercial Rules nor Section 1281.97 authorize interim attorneys’ fee awards, 11 and thus the Hagans’ reasonable attorneys’ fees and costs would be included in the final 12 arbitration award. See id. at 14. The Hagans, unsatisfied with this result, move for interim 13 attorneys’ fees related to the arbitration. Mot. (dkt. 33). 14 II. LEGAL STANDARD 15 Under § 2 of the Federal Arbitration Act, a “written provision in any . . . contract 16 evidencing a transaction involving commerce to settle by arbitration a controversy 17 thereafter arising out of such contract . . . shall be valid, irrevocable, and enforceable, save 18 upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. 19 § 2. Such “agreements to arbitrate are enforced according to their terms.” Volt Info. Scis., 20 Inc. v. Bd. Of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989). 21 III. DISCUSSION 22 The Hagans argue that, because the Court has decided that Cal. Civ. Proc. Code 23 § 1281.97 requires Park Miller to pay the Hagans’ attorneys’ fees and costs related to the 24 arbitration, the Court also has the authority to decide how and when those fees may be 25 awarded. See Mot. at 4; Reply (dkt. 42) at 3–5. This argument overlooks both the 26 procedural nature of this question and the express terms of the parties’ arbitration 27 provision, both of which leave this decision to the arbitrator. 1 certain “gateway” issues raise “‘question[s] of arbitrability’ for a court to decide,” other 2 “‘procedural’ questions which grow out of the dispute . . . are presumptively not for the 3 judge, but for an arbitrator, to decide.” 537 U.S. 79, 84 (2002). In Howsam, these 4 gateway “question[s] of arbitrability” involved disagreements about whether an arbitration 5 clause was binding, or whether it applies to a particular issue; while the “procedural” 6 questions included “issues of procedural arbitrability,” including defenses like “time limits, 7 notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have 8 been met.” Id. 9 The question of whether and when to award interim attorneys’ fees is not a gateway 10 “question of arbitrability” to be presumptively decided by a court. In Tizekker v. Bel-Air 11 Bay Club LTD, No. 22-cv-3989, 2021 WL 124495 (C.D. Cal. Jan. 13, 2021), for example, 12 the plaintiffs requested that the Court “provide clarity and direction to the arbitrator” 13 regarding a discretionary award of attorneys’ fees and costs, arguing that it was a 14 “gateway” issue. Id. at *2. The court flatly disagreed, stating that “‘gateway’ issues 15 concern ‘questions of arbitrability, such as whether the parties have a valid arbitration 16 agreement or are bound by a given arbitration clause, and whether an arbitration clause in a 17 concededly binding contract applies to a given controversy,’” and that “the potential for an 18 award of attorneys’ fees simply do[es] not fit that bill.” Id. at *3 (quoting Momot v. 19 Mastro, 652 F.3d 982, 987 (9th Cir. 2011)). Therefore, this question falls into the category 20 of “procedural” issues, which are “presumptively not for the judge, but for an arbitrator, to 21 decide.” Belyea v. GreenSky, Inc., No. 20-CV-01693-JSC, 2022 WL 14965532, at *3 22 (N.D. Cal. Oct. 26, 2022) (quoting Howsam, 537 U.S. at 84). Thus a court presumes that 23 the arbitrator should decide the issue, unless the parties’ agreement indicates otherwise. 24 Howsam, 537 U.S. at 85. 25 The parties’ arbitration agreement states that they “agree to submit the dispute to 26 arbitration in accordance with the auspices and rules of [the AAA].” Agreement ¶ 14. 27 This language does not indicate that the parties intended for this issue to be decided by a 1 Rule 47 authorizes a grant of “an award of attorneys’ fees” if “authorized by law or [the 2 parties’] arbitration agreement.” AAA Commercial Rule 47(d)(ii). That same section also 3 describes the arbitrator’s power to “make other decisions,” including granting “any 4 interim, interlocutory, or partial award.” Id. 47(b). By “agree[ing] to submit the dispute to 5 arbitration in accordance with the auspices and rules of [the AAA],” its rules regarding 6 when and how attorneys’ fees may be awarded in an arbitration were not excluded. 7 The Hagans’ argument to the contrary—that their motion is pursuant to the Court’s 8 order of attorneys’ fees under Section 1281.97 rather than the arbitration itself, and the fact 9 that the arbitration is ongoing is “irrelevant”—is unconvincing. See Reply at 4. Both the 10 language of the Court’s order and the text of the statute envision that an arbitration would 11 take place and that Park Miller shall pay the reasonable fees and costs incurred. Cal. Civ. 12 Proc. Code § 1281.97 (“[C]onsumer may . . . [c]ompel arbitration in which the drafting 13 party shall pay reasonable attorneys’ fees and costs related to the arbitration.” (emphasis 14 added)); Hagan II, 2021 WL 1688347, at *2 (“Park Miller must pay all of the reasonable 15 attorneys’ fees and costs for the entire arbitration under section 1281.97.” (emphasis 16 added)). As the arbitrator in this action noted, the text of the statute further envisions that 17 the fees and costs would be paid in the arbitration proceeding. See Interim Order at 13 18 (“By so providing for the payment of attorneys’ fees and costs under § 1281.97 in the 19 arbitration, it is reasonable to conclude that the legislature intended the arbitrator to render 20 the fee award.”). Reading the Hagans’ motion as they do—that it is only “interim” with 21 respect to the underlying arbitration and not “interim” with respect to the Court’s prior 22 order regarding Section 1281.97—would allow parties to move for attorneys’ fees related 23 to an arbitration without regard to the stage of the arbitration or the opinion of the 24 arbitrator. Indeed, it would allow parties to move for attorneys’ fees under Section 25 1281.97 without regard to whether the arbitration has even begun. Cf. Belyea, 2022 WL 26 14965532, *3 (outlining the possibility, under Section 1281.97, that “if a defendant refuses 27 to pay the arbitrator’s fees, no arbitration will ever take place”). 1 the arbitration is a question for the arbitrator, not the Court. In fact, the arbitrator has 2 || already decided these issues. See Interim Order at 12—14. “Neither the parties’ agreement 3 || nor any other authority cited by [the Hagans] empowers the Court to second-guess the 4 || [arbitrator’s] decision or otherwise short-circuit the arbitration process.” Hagan I, 2020 5 |} WL 7319357, at *4. The Court thus takes no position on the parties’ arguments 6 || concerning whether Section 1281.97 allows for an interim award of attorneys’ fees or 7 || whether such an award is prudent at this time.! 8 || IV. CONCLUSION 9 For the foregoing reasons, the Hagans’ motion for interim attorneys’ fees is 10 || DENIED. 11 IT ISSO ORDERED. iE 12 Dated: December 13, 2022 CHARLES R. BREYER «13 United States District Judge 14 15 16 5 17 18 19 20 21 22 23 24 25 1 Tn addition, the Court declines Park Miller’s invitation to relitigate the Court’s prior orders on the 26 || applicability of Section 1281.97 following the arbitrator’s decision to apply the AAA Commercial Rules, rather than the Consumer Rules, as the AAA initially decided. See Interim Order at □□□□□ 27 || Opp’nat 8-9. The Hagans are entitled to attorneys’ fees related to the entire arbitration as a result of Park Miller’s material breach of the arbitration agreement, pursuant to the Court’s prior orders 7g || onthe subject. Hagan I, 2021 WL 1688347, at *2. This order holds only that the question of when these reasonable fees and costs are to be paid is to be decided by the arbitrator in this action.