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The California Court of Appeals held that a trial court had jurisdiction to confirm an arbitration award even though the aggrieved party dismissed the underlying court action in response to the order compelling arbitration.
In Lee v. California Pacific Bank, No. A112310, 2006 WL 3707824 (Cal. Ct. App. Dec. 18, 2006), the Lees borrowed money from California Pacific using real estate as collateral. When the Lees defaulted on the loan, California Pacific held a sale of the property. The Lees sued to set aside the sale. Based on an arbitration clause in the loan agreement, California Pacific filed a motion to compel arbitration. The trial court granted the motion.
After California Pacific filed a demand for arbitration with the American Arbitration Association (AAA), the Lees voluntarily dismissed the claims underlying their court action. A representative of AAA advised them that AAA retained jurisdiction in spite of the dismissal. Following an arbitration hearing, which the Lees did not attend, the arbitrator upheld the sale and awarded costs and attorney fees to California Pacific. The trial court confirmed the award over the Lees' objection.
On appeal, the Court rejected the Lees' argument "that the voluntary nature of the dismissal of their action affected the pending arbitration." As the Court observed, the cases relied on by the Lees did not turn on whether the dismissal was voluntary or involuntary. Instead, those cases support the proposition that dismissal of a court action does not affect a pending arbitration because arbitration is "a separate and distinct proceeding, not dependent upon the continuing existence of [a] legal action."
The Court also rejected the Lee's arguments that voluntary dismissal of their action divested the trial court of jurisdiction to confirm the arbitration award. In rejecting this argument, the Court reasoned that requiring California Pacific to return to court and set aside the dismissal would offend "the policy of avoiding delays and unnecessary contact with the courts, once a matter has been referred to arbitration."
Since the trial court had jurisdiction to confirm the arbitration award, the Court affirmed the order entering judgment on the award.
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