No Damages for Taking an Arb-able Case to Court

Sargon Enters., Inc. v. Browne George Ross LLP, No. B271718 (D2d3 Sept. 26, 2017)

This is one of those issues that clients ask about with some frequency, but that hasn’t been the subject of a published opinion. Until now. The question is this: If a contract contains an arbitration clause, but, notwithstanding it, a party sues in court, can the other party recover its costs of the court litigation as damages for breach of the arbitration contract? The answer, apparently, is no. 

The Code of Civil Procedure specifically foresees a route to arbitration that goes through state court—whether by an original petition to compel arbitration or by a petition filed in lieu of an answer. See §§ 1281.2, 1281.7, 1292.4. So filing a complaint, to which the defendant can respond if it wants to by seeking to compel arbitration, is entirely consistent with an agreement to arbitrate. A contractual right to arbitrate is not self-executing, does not divest the courts of jurisdiction, and indeed, can be waived. Filing a complaint is simply a plaintiff’s indication that it is willing to waive its right to have its claims arbitrated. If the other party disagrees, it can move to compel. 

Further, the Code sets out the remedy if the claims are arbitrable—specific performance of the agreement to arbitrate. It doesn’t say anything about a damages remedy. As the Code preserves the right of a party to an arbitration clause to nonetheless go to court, a party can’t breach an arbitration agreement by doing so. And by finding otherwise here and awarding damages for a breach, the arbitrator improperly deprived Plaintiff if its statutory right to have the court test the validity and enforceability of the arbitration agreement prior to being required to submit to arbitration. 

Here, an arbitrartor awarded damages for breach due to a court filing, and the trial court declined to vacate the award. Arbitration awards are only reviewable on narrow grounds. But one of them is if the arbitrator exceeded his authority. That can occur when confirming the award would be inconsistent with a party’s statutory rights. So the trial court here had the power to correct the award to remove the damages the arbitrator awarded for breach. 

Reversed.