Tag: Arbitration

Utah Supreme Court holds that UPUAA allows “prevailing” plaintiff to recover “reasonable attorney’s fee” in Westgate v. Consumer Protection Group

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The Utah Pattern of Unlawful Activity Act (“UPUAA”) provides a private right of action for persons “injured by a pattern of unlawful activity.”  As part of this private right of action, the statute entitles a “prevailing party” to “recover … a reasonable attorney’s fee.”

In a recent appeal to the Utah Supreme Court handled by Christensen & Jensen (“C&J”) attorney Karra Porter, the Supreme Court held that while the Utah Uniform Arbitration Act (“UUAA”) does not authorize an arbitration panel to award attorney fees for court proceedings confirming the panel’s decision, the UPUAA allows prevailing plaintiffs to recover a reasonable attorney fee.  Accordingly, the Supreme Court confirmed the panel’s award of attorney fees expended during the arbitration, as well as granting the appellee’s request for attorney fees associated with the appeal.

On appeal, Westgate argued that the arbitration panel had no authority to award attorney fees for the court proceedings confirming the panel’s decision, and that the arbitration panel manifestly disregarded the law by awarding attorney’s fees in excess of the amount Consumer Protection Group (“CPG”) agreed to pay their lawyer.

C&J has been pursuing this case for more than a decade now.  In 2002, Westgate sued CPG for various alleged torts and breaches of contract.  Then, in 2005, CPG raised counterclaims under the UPUAA.  Under the UPUAA, a party may force arbitration of fraud claims, which Westgate took advantage of in 2008.

In 2010, an arbitration panel resolved the UPUAA claims in CPG’s favor.  However, before the arbitration panel ruled on CPG’s request for attorney fees, Westgate discovered that one of the arbitrators was a first cousin of a shareholder at the law firm representing CPG.  As a result, Westgate moved the district court to vacate the panel’s decision.  The district court granted Westgate’s motion, CPG appealed, and the Supreme Court reversed, but without ruling on CPG’s request for attorney fees.

The case then went back to the arbitration panel, which declined to award fees for pre-award arbitration litigation, but ordered approximately $558,810.30 for work performed during the arbitration and approximately $88,829.50 for work in what the panel called “post-arbitration proceedings.”  Westgate thereafter again moved the district court to vacate the panel’s decision, challenging the fee awards.  The district court denied Westgate’s motion, and Westgate appealed to the Utah Supreme Court.

As to whether the arbitration panel exceeded the scope of its authority by awarding attorney fees for post-arbitration proceedings, the Supreme Court held that the section 122 of the UUAA does not authorize an arbitration panel to award post-arbitration fees.  According to the Supreme Court:

The decision-makers most familiar with CPG’s attorneys’ work during the confirmation proceedings and resulting appeal were the courts that presided over those confirmation proceedings and resulting appeal. We think it best to assign those courts sole responsibility for granting attorney fees in those proceedings, and we therefore conclude that the panel exceeded its authority when it ordered Westgate to pay post- arbitration attorney fees.

In relation to the second issue raised on appeal, namely whether the arbitration panel acted in manifest disregard of the law by allowing CPG to collect attorney fees in excess of the contracted amount, the Supreme Court held that the arbitration panel did not manifestly disregard the law in awarding attorney fees to CPG as the prevailing party.  In fact, the Supreme Court said that not only was the panel allowed to make such an award, but also that such an award was compelled under the UPUAA.

Instead of challenging the panel’s authority to award fees for arbitration, Westgate challenged the method the panel used to calculate the fees it awarded to CPG.  The panel determined that the reasonable fee award to CPG was approximately $558,810.30, which it arrived at by multiplying reasonable hours by a reasonable market rate.  Westgate asserted that the panel’s calculations were in error, and that Utah law required the panel to cap the attorney fees at the amount that CPG contracted to pay.  The Supreme Court disagreed, holding:

Ultimately, because the UPUAA does not expressly limit a plaintiff’s attorney fees to those actually incurred and there is no controlling Utah case law interpreting this specific question, the arbitration panel did not commit an obvious error in its calculation of reasonable attorney fees. The district court’s order confirming the panel’s award of $558,810.30 is affirmed.

Finally, the Supreme Court addressed CPG’s request for attorney fees as it related to the instant appeal.  There, the Supreme Court granted CPG’s request for attorney fees as it related to the appeal, finding that the UPUAA authorized attorney fees related to an appeal.

Mandatory arbitration of fraud-based UPUAA claims

To maintain a civil or criminal case under the Utah Pattern of Unlawful Activity Act (UPUAA), the elements of one or more underlying criminal offenses must be shown.  The eligible “predicate” crimes range from gambling promotion to unlawful dealing with property by a fiduciary to tampering with a witness.

Perhaps the most common underlying criminal offense used to support a UPUAA claim or charge is Communications Fraud, Utah Code Annotated Section 76-10-1801.  If it is a civil case, a UPUAA claim based on Communications Fraud may be subject to mandatory arbitration.  Utah Code Ann. Section 76-10-1605 says: “All actions arising under this section which are grounded in fraud are subject to arbitration under Title 78B, Chapter 11, Utah Uniform Arbitration Act.”

At least one Utah trial court has construed this provision as requiring the submission of UPUAA claims to arbitration even when a corporate defendant litigated in court for years before moving to compel arbitration shortly before trial.  (Usually, proceeding with litigation waives a right to demand arbitration later.  However, the trial court said that concept may apply to contractual arbitration provisions, but not statutory arbitration provisions.)

Two potential wrinkles of compelling arbitration of UPUAA claims:

1) You may end up with two litigation/arbitration tracks, as UPUAA claims may be carved off from other claims.  For example, in that same case, after the defendant’s motion to compel arbitration of the UPUAA claims was granted, the trial court allowed the plaintiff to proceed to trial on his other state law claims – for example, common law fraud or Consumer Sales Practices Act claims – while simultaneously pursuing UPUAA claims against the same defendant in arbitration.

2) A successful plaintiff can claim attorney fees regardless of whether the case is in regular court or arbitration.  See Section 76-10-1605(2) (“(2)  A party who prevails on a cause of action brought under this section recovers the cost of the suit, including reasonable attorney fees.”)  Under a quirk of statutory wording, however, a successful defendant might only be able to seek fees if the case stays in court.  Section 76-10-1605  says:   “(8)  If an action, claim, or counterclaim brought or asserted by a private party under this section is dismissed prior to trial or disposed of on summary judgment, or if it is determined at trial that there is no liability, the prevailing party shall recover from the party who brought the action or asserted the claim or counterclaim the amount of its reasonable expenses incurred because of the defense against the action, claim, or counterclaim, including a reasonable attorney’s fee.”  An argument could be made that the words “trial” and “summary judgment” are terms of art that are limited to court proceedings.  An arbitration hearing is not a trial (for example, normal rules of evidence do not apply), and arbitrations are not governed by the rule of civil procedure providing for “summary judgment.”