Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC369487, William F. Fahey, Judge.
John J. Ma; Cohen & Lord, Bruce M. Cohen, Karen D. Maher, Jonathan F. Golding and Rae Lamothe for Defendant and Appellant.
Pierry Law Firm, Joseph P. Pierry; Law Offices of Shin P. Yang, Shin P. Yang and Frank Carleo for Plaintiffs and Respondents.
JACKSON, J.
INTRODUCTION
Defendant Rong Sheng, Inc., doing business as Win All E-Z Inn, appeals from a judgment in favor of plaintiffs Lu Rong Li, Yong Qin Li and Xiao Guang Li. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiffs Lu Rong Li, Yong Qin Li and Xiao Guang Li (plaintiffs) were formerly tenants at a motel known as Win All E-Z Inn (motel) owned by Rong Sheng, Inc. (defendant). In April 2007, plaintiffs filed a class action complaint against defendant for breach of the warranty of habitability and other landlord-tenant causes of action. Plaintiffs engaged in extensive discovery and brought several related motions for the purpose of having the lawsuit certified as a class action. The trial court denied class certification.
The trial court held a mandatory settlement conference with the parties on June 25, 2008. The parties reached a settlement on terms set forth in a three-page handwritten agreement, which they immediately filed with the court (the June agreement).
The June agreement provided that, in return for defendant paying them a lump sum in the amount of $50,000, plaintiffs would release all their claims except to attorney fees claimed in their causes of action for violations of the prohibitions applicable to landlords set forth in Civil Code sections 1940.1 (first cause of action) and 1942.4 (second cause of action). The agreement stated that “[t]he attorney fee issue on plaintiff[s’] first two causes of action will be submitted to binding arbitration.... [¶]... [¶]... The parties agree that the decision of the arbitrator will be final with no rights of appeal per the relevant [Code of Civil Procedure] sections.” The parties also included a provision that, pursuant to Code of Civil Procedure section 664.6, the trial court would retain jurisdiction to enforce the settlement agreement.
In July 2008, the parties executed a typewritten settlement agreement and release of all claims (the July agreement). The July agreement expressly excepted the attorney fees issues in the first and second causes of action from the release and stated that “[t]he parties have agreed to submit this issue to binding arbitration....” The July agreement also incorporated by reference the June agreement. (The June and July agreements are referred to hereinafter as the settlement agreement.) Also in July, the parties entered into a stipulation to allow a dismissal with prejudice to be entered before the arbitration decision was rendered. The stipulation recited that “the parties... as part of the settlement agreement agreed to arbitrate the issue of attorney fees... on the first two causes of action....” The stipulation then stated that the parties “specifically stipulate and agree as follows: [¶] (1) A Dismissal of the entire action, with or without prejudice, will have no effect on the parties’ rights to proceed to arbitration and/or to obtain a final valid and binding arbitration decision on the attorney fees issue as set forth in the settlement agreement....”
Subsequently, on April 3, 2009, the trial court dismissed the case with prejudice.
The arbitration proceeded. Prior to the start of the arbitration hearing, counsel for the parties signed a handwritten stipulation dated December 15, 2008, which incorporated by reference the settlement agreement and clarified that the issues for the arbitrator to determine were who was the prevailing party and the amount of attorney fees, if any, to be awarded.
The December 2008 stipulation stated that “[t]he settlement agreement specifically reserved the issue of attorney fees on the first two causes of action in plaintiffs’ complaint for binding arbitration. [¶]... [¶]... It was further stipulated [and] agreed between the parties [and] counsel that the arbitrator will decide all issues pertaining to the award of attorney fees on the first two causes of action.... [¶]... The parties [and] counsel stipulate the decision of the arbitrator will be final with no rights of appeal.”
The arbitrator served his written decision entitled Binding Arbitration Award in January 2010. The arbitrator determined that plaintiffs were the prevailing parties. He awarded a total amount of $200,760 to attorneys for plaintiffs and listed the four attorneys with the specific amount of attorney fees awarded to each of them.
In February 2010, plaintiffs filed a petition asking the trial court to confirm the arbitration award and to enter judgment against defendant. Defendant filed a petition to vacate the arbitration award on the ground that the arbitrator exceeded his powers. According to defendant, the settlement agreement was void, in that a material part of the consideration for the agreement was an illegal provision wherein plaintiffs’ counsel promised not to represent other former tenants in future litigation based upon substantively similar causes of action. Defendant claimed that the provision “violate[d] California Rules of [Professional Conduct], Rule 1-500(A) (prohibiting an attorney from being a party to or participating in offering or making an agreement in connection with settlement of a lawsuit or otherwise if the agreement restricts the attorney’s right to practice law) and California Business and Professions Code section 16600 (making any contract that restrains a person from engaging in a lawful profession, trade or business void), and render[ed] the entire Settlement Agreement, including the arbitration agreement therein, illegal and, thus, void. Accordingly, ... the arbitrator had no powers to determine the issues... where no valid, lawful contract existed.”
The last paragraph of the June agreement (the “no sue” clause) stated: “Plaintiffs[’] counsel agree not to accept the representation of any other tenants of the Win All E-Z Inn in claims involving habitability [or] Civil Code [sections] 1940, 1940.1, 1942.4 who were tenants prior to the date of this agreement.” Plaintiffs’ counsel each signed the agreement, together with plaintiffs, defendant, defendant’s counsel, and Judge Fahey.
Defendant also filed a response to plaintiffs’ petition to confirm the award, opposing the petition based upon the same allegations of illegality of the settlement agreement. Defendant further objected that the trial court had no jurisdiction to confirm the award and enter judgment in favor of plaintiffs’ counsel, as plaintiffs requested, in that plaintiffs’ counsel were not parties to the underlying action.
On March 18, 2010, after a hearing on each petition, the trial court issued a minute order granting plaintiffs’ petition to confirm the award and denying defendant’s petition to vacate. As to the alleged illegality of the settlement agreement, the court ruled as follows: “Assuming arguendo that the last paragraph of the June 25, 2008 handwritten settlement agreement is a technical violation of State Bar Rule 1-500, the provision does not permeate the entire settlement agreement and can be, and hereby is, severed from the agreement.... [D]efendant participated in the arbitration and failed to raise the illegality issue either before or during the arbitration. This constitutes a waiver. See Moncharsh v. Heily & Blase, 3 Cal.4th 1, 30-31 (1992).” The trial court entered judgment on behalf of plaintiffs and plaintiffs’ counsel of record, jointly, against defendant “in conformity with the arbitration award of January 13, 2010... in the amount of $204,280.”
DISCUSSION
The illegality of the entire agreement may be raised for the first time in a proceeding for an order confirming or vacating an arbitration award. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 29.) On that basis, defendant contends the issue of whether the settlement agreement was illegal and, thus, void was properly before the trial court and, therefore, the trial court erred in ruling that defendant had waived the issue. We disagree, in that defendant alleges that only one provision of the agreement, the “no sue” clause, violates the law.
If the alleged illegality arises from only a portion of a contract, other than the arbitration agreement itself, the issue of illegality is arbitrable. (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 30 [“[W]hen... the alleged illegality goes to only a portion of the contract (that does not include the arbitration agreement), the entire controversy, including the issue of illegality, remains arbitrable.”].) If the party does not raise the issue before the arbitrator, the issue is waived. (Ibid.)
As the Moncharsh court explained, “Any other conclusion is inconsistent with the basic purpose of private arbitration, which is to finally decide a dispute between the parties. Moreover, we cannot permit a party to sit on his rights, content in the knowledge that should he suffer an adverse decision, he could then raise the illegality issue in a motion to vacate the arbitrator’s award. A contrary rule would condone a level of ‘procedural gamesmanship’ that we have condemned as ‘undermining the advantages of arbitration.’ [Citations.] Such a waste of arbitral and judicial time and resources should not be permitted.” (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 30.) Defendant sat on its rights and did not raise the issue of illegality of the “no sue” clause until after the arbitrator issued an award for over $200,000 in favor of plaintiffs and against defendant. We conclude that defendant waived its claim based upon the illegality of the “no sue” clause by not raising it in the trial court preceding arbitration or before the arbitrator. (Id. at pp. 29-30.) No further use of arbitral or judicial resources is warranted with regard to the issue.
Defendant mistakenly seeks to justify bringing the illegality issue to the court for the first time in its motion to vacate the arbitration award by claiming that the “no sue” clause was consideration for the entire settlement agreement, with the result that the illegality of the clause permeated the entire agreement and the clause could not be severed from it. As defendant asserts, if an entire contract is based on unlawful consideration, the entire contract is void. (See Keene v. Harling (1964) 61 Cal.2d 318, 320-321.) As to illegality of a contract in general, “[i]f the central purpose of the contract is tainted with illegality, then the contract as a whole cannot be enforced.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 124.)
In the settlement agreement, however, the “no sue” clause was not the consideration for the entire contract and did not permeate the entire contract. As frequently occurs in settlements, the consideration in the settlement agreement was payment by defendant to plaintiffs in return for plaintiffs’ dismissal of their suit with prejudice, together with the mutual release by defendant, as well as plaintiffs, of all similar claims against the other party, foregoing their rights to sue on such additional claims. The consideration to defendant was plaintiffs’ agreement to forbear continuing to litigate their pending claims against defendant and bringing any other similar claims in the future. (See Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 174 [“Forbearance—the decision not to exercise a right or power—is sufficient consideration to support a contract....”].)
There was no connection between the “no sue” clause and plaintiffs’ pending or future claims against defendant. If anything, the “no sue” clause seemed to be intended to protect defendant against having plaintiffs’ attorneys help other tenants (who were not plaintiffs in the instant suit) initiate legal action against defendant. The clause did not embody the central purpose of settling plaintiffs’ claims against defendant. Where, as arguably in this case, “the illegality is collateral to the main purpose of the contract, and the illegal provision can be extirpated from the contract by means of severance or restriction, then such severance and restriction are appropriate.” (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 124.) If the “no sue” clause were determined to be illegal, it could be severed from the settlement agreement, but all other provisions of the agreement, including the arbitration provision, would remain enforceable. (Civ. Code, § 1599 [“Where a contract has several distinct objects, of which one at least is lawful, and one at least is unlawful, in whole or in part, the contract is void as to the latter and valid as to the rest.”]; Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 658-659.) Thus, the illegality of the “no sue” clause would not nullify or otherwise adversely affect the propriety of the trial court’s confirmation of the arbitration award.
Defendant claims that the judgment must be reversed, in that the trial court erred in rendering judgment in favor of plaintiffs’ attorneys, as well as the individuals who were named plaintiffs. Defendant asserts that the trial court had no jurisdiction to do so because the attorneys were not parties to the lawsuit.
The March 18, 2010 order confirming the arbitration award and entering judgment thereon stated: “e. Judgment, therefore, is to be entered this day on behalf of Plaintiffs LU RONG LI, YONG QIN LI, XIAO GUANG LI and plaintiffs[’] counsel of record, JOSEPH P. PIERRY, ESQ. of the Pierry Law Firm, and FRANK CARLEO, ESQ. and SHIN P. YANG, ESQ. of the Law Offices of Shin P. Yang, jointly, against defendants, RONG SHENG, INC. dba WIN ALL E-Z INN, in conformity with the arbitration award of January 13, 2010 and according to the within Order and Judgment in the amount of $204,280.”
In general, a trial court exceeds its jurisdiction if it issues an attorney fees order or a judgment in favor of a party’s attorney, in that the attorney was not a party to the action, and such order or judgment is void. (Cal-Western Reconveyance Corp. v. Reed (2007) 152 Cal.App.4th 1308, 1321-1322.) “‘The fact that [the attorney] has a right by contract to participate in the proceeds of any judgment that may be obtained does not make him in any true sense of the word a party in interest.’” (Id. at p. 1322, fn. 6.)
A narrow exception has been made in certain cases involving statutes which mandate the award of attorney fees. In Flannery v. Prentice (2001) 26 Cal.4th 572, for example, the California Supreme Court held that attorney fees awarded under the Fair Employment and Housing Act (FEHA) (Gov. Code, § 12965) “belong to the attorneys who labored to earn them, ” absent an enforceable agreement between the attorneys and their clients which allocated the fees to the clients. (Flannery, supra, at p. 575.) The court explained that by the time the predecessor to FEHA’s attorney fees provision was enacted, “California courts, including this court, had determined that courts awarding attorney fees, including statutory fees, could pay them directly to the prevailing litigant’s attorney.” The court cited examples of cases involving a private attorney general fee award under Code of Civil Procedure section 1021.5, attorney fees awarded under Welfare and Institutions Code section 10962 for successfully challenging a welfare regulation, and an award of attorney fees in a class action brought to enforce a city ordinance. (Flannery, supra, at p. 582.) The Flannery court explained, “There is no doubt that ‘“privately initiated lawsuits are often essential to the effectuation of the fundamental public policies embodied in constitutional or statutory provisions”’ [citation], and ‘“[w]ithout some mechanism authorizing the award of attorney fees, private actions to enforce such important public policies will as a practical matter frequently be infeasible.”’ [Citation.]” (Id. at p. 583, fn. omitted.) The court continued by noting that, in “cases that vindicate fundamental public policies” embodied in statutes, an attorney fees statutory provision serves the purpose of enabling private parties injured by violation of such a statute to engage an attorney to help them seek redress, given that the attorney has some statutory assurance that he or she will be paid a reasonable fee. (Ibid.)
In the instant case, plaintiffs sought attorney fees under their causes of action for violating the fundamental public policies embodied in Civil Code sections 1940.1 and 1942.4, governing landlord-tenant rights and obligations. Each of the statutory sections provides that, in any action brought pursuant to the section, the prevailing party “shall be entitled to” recover “reasonable attorney’s fees.” (Id., §§ 1940.1, subd. (b), 1942.4, subd. (b)(2)). The parties do not dispute the determination that plaintiffs were the prevailing parties. The trial court had the jurisdiction to, and properly did, enter judgment, jointly, in favor of plaintiffs and their attorneys of record. (Cf. Flannery v. Prentice, supra, 26 Cal.4th at pp. 575, 582-583.)
DISPOSITION
The judgment is affirmed. Plaintiffs are awarded their costs on appeal.
We concur: WOODS, Acting P.J., ZELON, J.