Unpublished Disposition, 879 F.2d 865 (9th Cir. 1989)

MEMORANDUM^* 

In this diversity action, L & A Juice Co., Inc. ("L & A") appeals from the order of the district court denying its motion to have an arbitration award entered in favor of Camerican International, Inc. ("Camerican") declared advisory and nonbinding. L & A similarly appeals from an award of attorneys' fees granted in connection with the previous order. We affirm.

* DISCUSSION

Although there are a multitude of contentions raised and discussed by the parties, many are extraneous to the core issue: whether L & A's attorney had authority to enter into a binding arbitration agreement on behalf of his client? State law provides the rule of decision on the question of an attorney's authority to bind his client to an agreement or stipulation when the action does not implicate rights and duties derived from federal law. See, e.g., Edwards v. Born, Inc., 792 F.2d 387, 389 (3d Cir. 1986); Glazer v. J.C. Bradford & Co., 616 F.2d 167, 169 (5th Cir. 1980) (state law defines attorney's authority in a diversity case).

Since an attorney acts in the position of an agent, agency principles guide our determination of authority. Blanton v. Womancare, Inc., 38 Cal. 3d 396, 696 P.2d 645, 649 (1985). California law recognizes, in general, two types of authority by which the client as principal is bound by the acts of his attorney-agent: (1) actual authority, and (2) apparent or ostensible authority. Id. Under California law, questions regarding the existence of agency are questions of fact that we review for clear error. Penthouse International, Ltd. v. Barnes, 792 F.2d 943, 947 (9th Cir. 1986); In re Nelson, 761 F.2d 1320, 1322 (9th Cir. 1985); Rookard v. Mexicoach, 680 F.2d 1257, 1261 (9th Cir. 1982). Under the clearly erroneous standard of review, we must accept the district court's findings unless we are left with the definite and firm conviction that a mistake has been committed. Dollar Rent A Car of Washington, Inc. v. Travelers Indemn. Co., 774 F.2d 1371, 1374 (9th Cir. 1985).¹ 

The California Civil Code defines actual authority as "such as a principal intentionally confers upon the agent, or intentionally, or by want of ordinary care, allows the agent to believe himself to possess." Cal.Civ.Code Sec. 2316 (West 1985). Thus, actual authority may be further classified according to its form as (1) express actual authority--authority which the principal intentionally confers upon the agent, or (2) implied actual authority--authority which the principal, either intentionally or negligently, allows the agent to believe himself to possess. See Columbia Outfitting Co. v. Freeman, 36 Cal. 2d 216, 223 P.2d 21, 23-24 (1950).

The evidence does not suggest, nor do the parties seriously contend, that appellant expressly and intentionally conferred on its attorney the authority to enter into binding, nonadvisory arbitration. The evidence does suggest, however, that L & A's attorney had implied actual authority. Implied actual authority exists if (1) the attorney believed he was authorized to enter into binding arbitration based on L & A's conduct known to him, and (2) such a belief was reasonable. See Penthouse International, 792 F.2d at 947; South Sacramento Drayage Co. v. Campbell Soup Co., 220 Cal. App. 2d 851, 34 Cal. Rptr. 137, 139-40 (1963) (citing Columbia Outfitting, supra, 223 P.2d at 23)).² 

While the district court never expressly held that L & A's attorney had authority to enter into binding arbitration on behalf of his client, such a holding was implicit in the district court's factual findings. Specifically, the district court found that "L & A Juice was advised no later than November, 1987, by its then counsel, Mark Beck and Anthony De Corso, that the arbitration it was about to enter with Camerican was binding and could be overturned only for the reasons enumerated in 9 U.S.C. § 10." Clerk's Record (CR) 57 at 2.

The evidence supports the district court's finding. The attorneys for L & A, Mark Beck and his partner, Anthony De Corso, repeatedly testified that they believed they were authorized by their client to enter into binding arbitration on its behalf. This belief was reasonable and appears to have been precipitated, at least in part, by L & A's conduct in failing to object to the limited challenges that would be available to it under 9 U.S.C. § 10. In this light, a reasonable person in the same position as the attorneys representing L & A would be justified in believing that he had been given actual authority to enter into binding arbitration.

The present case is clearly distinguishable from that of Blanton v. Womancare, Inc., supra. Blanton makes clear only that a lawyer has no authority merely by virtue of his status as a retained attorney to agree to submit a case to binding arbitration. The attorney in Blanton conceded that he acted not only without his client's express authority, but contrary to her express instructions. Id. at 647 & n. 1. See also Sanker v. Brown, 167 Cal. App. 3d 1144, 213 Cal. Rptr. 768, 770 (1985) (distinguishing Blanton on the basis that former attorney supported his ex-client's claim that she did not agree to binding arbitration). In Blanton, it was undisputed that the issue of binding arbitration was never discussed with the plaintiff,³  and there was no evidence, other than the mere retention of the attorney, from which it could reasonably be inferred that the plaintiff had authorized the attorney to enter into binding arbitration on her behalf. In short, the situation in Blanton is a far cry from the circumstances which exist in this case.⁴ 

Appellant contends the district court erred in failing to conduct an evidentiary hearing "before making its adverse determination of the disputed facts." We review the failure to conduct an evidentiary hearing for abuse of discretion. Callie v. Near, 829 F.2d 888, 890 (9th Cir. 1987).

In support of its contention, appellant relies on Callie, supra, where we observed that " [w]here material facts concerning the existence or terms of an agreement to settle are in dispute, the parties must be allowed an evidentiary hearing." 829 F.2d at 890 (court's emphasis). Appellant's reliance on Callie is misplaced and, indeed, misperceives the issue before this court. By the time the arbitration hearings were held, there was no dispute over the terms of the arbitration agreement insofar as both parties, acting by and through their attorney-agents, were concerned. The issue in this case boils down, pure and simply, to whether Mr. Beck was authorized to bind L & A to the undisputed terms of the agreement. Because he was an authorized agent for this purpose, L & A is bound irrespective of its subjective interpretation of the terms of the arbitration agreement. See Restatement Sec. 26, comment a (manifestation of authority, not the intent of the principal, controls). The authority of the agent was simply not at issue in Callie, and the case is therefore distinguishable.

The district court ordered extensive discovery in this case. This discovery produced, as appellant concedes, "literally hundreds of pages of testimony, correspondence, and notes of communications between L & A and its attorneys." App.Br. at 29. Judge Tashima considered no fewer than nine sworn declarations, as well as lengthy papers submitted by the parties. The initial hearing on the issue consisted of twenty-five minutes of argument during which both sides spoke at length. As noted by respondent, " [i]t is hard to imagine a more wide-ranging inquiry into this narrow issue." Resp.Br. at 20. In light of the extensive discovery allowed, we find that failure to conduct an evidentiary hearing was not an abuse of discretion.

C. Attorney-Client Waiver and Other Evidentiary Matters

Appellant contends the district court erred in ruling that L & A had waived its attorney-client privilege as to communications pertaining to the scope and nature of the arbitration. This contention is wholly without merit. Cal.Evid.Code Sec. 958 expressly states that " [t]here is no privilege under this article as to the communications relevant to an issue of breach, by the lawyer or by the client, of a duty arising out of the lawyer-client relationship." See also 2 J. Weinstein & M. Berger, Weinstein's Evidence p 503(d) (3), at 503-72 to -73 n. 2 (1988) (" [W]henever the client, even in litigation between third persons, makes an imputation against the good faith of his attorney in respect to his professional services, the curtain of privilege drops so far as necessary to enable the lawyer to defend his conduct") (quoting McCormick, Evidence Sec. 91 at 191 (2d ed. 1972)).

After careful review, we find that appellant's other evidentiary challenges are equally unavailing and merit no further discussion.

Appellant contends that the district court erred in awarding attorneys' fees to Camerican pursuant to the Disincentive Agreement entered into between the parties.

In their Disincentive Agreement, the parties to this action contractually provided for "attorneys' fees, costs and related expenses" should the arbitrator's award be "challenged, in whole or in part, and the challenging party ... not obtain a better result." The Agreement clearly plays an "integral part in defining the rights of the parties" with respect to the enforcement of the arbitration agreement at issue. See Lafarge Conseils et Etudes, S.A. v. Kaiser Cement, 791 F.2d 1334, 1340 (9th Cir. 1986); Cal.Civ.Code Sec. 1717.

Appellant argues that the attorneys' fees provision in the Disincentive Agreement has yet to be triggered. It argues that "L & A has never sought to challenge the arbitration award," but merely "sought a determination ... that the award was not binding." App.Br. at 34-35.

The actions of L & A in attempting to avoid the binding nature of the award for want of its attorney's authority clearly constitutes a "challenge" for purposes of the Disincentive Agreement. The attorneys' fee award is therefore upheld, particularly in light of the extensive documentation and explanation provided in the record.

II

ATTORNEYS' FEES ON APPEAL

Consistent with the Disincentive Agreement entered into between the parties, we award Camerican its attorneys' fees incurred on appeal. Pursuant to Ninth Circuit Rule 39-1.6, appellee will file an itemized proposal of its attorneys' rates and hours worked within 30 days of the filing of this memorandum decision. The amount of fees will be fixed by separate order.

III

CONCLUSION

The district court's decision in all respects is AFFIRMED.