Caiafa Prof. Law Corp. v. State Farm Fire & Cas. Co

In Caiafa Prof. Law Corp. v. State Farm Fire & Cas. Co. (1993) 15 Cal.App.4th 800, an insurer brought a federal action against its insured's Cumis counsel (San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358) for fraud. (Id. at p. 802.) It alleged that Cumis counsel violated the Racketeer Influenced and Corrupt Organizations Act (RICO; 18 U.S.C. 1961 et seq.) by submitting fraudulent billings and undertaking unnecessary legal work. (15 Cal.App.4th at p. 802.) While the federal action was pending, Cumis counsel filed a petition in state court to compel arbitration of its unpaid attorney's fees. (Id. at pp. 802-803.) The insurer opposed the petition, arguing that the state court proceeding should be stayed pending resolution of the federal RICO action. (15 Cal.App.4th at p. 803.) The trial court denied the petition and granted the stay, and we affirmed. (Ibid.) The issue before us in Caiafa was whether the trial court abused its discretion in staying a state court action in favor of a pending federal court action between substantially identical parties affecting the same subject matter. Because the case directly concerned the relationship between state and federal courts, we rejected Cumis counsel's argument that the issue on appeal was "the same as whether the trial court could stay this mandatory arbitration in favor of some other state court proceeding, which proceeding sought to resolve the same issue through some means other than arbitration." (Caiafa, supra, 15 Cal.App.4th at p. 803.) The Court explained that "if the only issue in dispute truly was the amount of Cumis counsel fees the insurance company owed, it would be improper, in most circumstances at least, for a trial court to stay the arbitration proceeding mandated under section 2860 in order to allow a judicial proceeding in the California courts to decide that issue and that issue alone. But this is an entirely different issue than the propriety of staying a section 2860 arbitration while a federal court decides a case involving those same Cumis counsel fees." (Ibid.) We then addressed the distinction between Cumis fee disputes filed in state court and those filed in federal court. We recognized that section 2860's requirement that such fee disputes be resolved in arbitration is binding only on California courts. As such, "within the California courts these Cumis fee issues are to be decided in an arbitration forum, not the state's judicial forum." (Caiafa, supra, 15 Cal.App.4th at p. 803.) Federal actions involving Cumis fee issues, on the other hand, are not subject to section 2860's arbitration procedure. Instead, "federal courts retain the power to decide these and any other issues, when properly before them, through any dispute resolution method the federal statutes and rules provide." (15 Cal.App.4th at p. 804.) Applying these principles to the trial court's stay order, we noted that the federal action was filed prior to the state action and raised issues much broader than the amount of Cumis counsel fees. (Id. at pp. 805-806.) We therefore held that the trial court did not abuse its discretion in concluding that "the full-scale federal fraud trial is a better forum for deciding the full range of issues bearing on this subject matter than would a section 2860 hearing before a single arbitrator." (Id. at p. 806.)