Supreme Court Rules: Malpractice Suit Waived Client’s Rights Under Fee Arbitration Act
By KENNETH OFGANG, Staff Writer/Appellate Courts
A client who sued his lawyer for malpractice waived his contention that the fee arbitration statute prohibits a lawyer from forcing the client to submit a fee dispute to binding arbitration, the California Supreme Court ruled yesterday.
By upholding a San Francisco Superior Court judge’s ruling that Raul V. Aguilar—himself an attorney—waived his objections to arbitration of his dispute with San Francisco lawyer Esther R. Lerner, the high court left open the question of whether clients may generally be bound by pre-dispute compulsory fee arbitration agreements with their lawyers.
But three justices signed a concurring opinion saying that such agreements are just as enforceable as other types of agreements subject to the California Arbitration Act, and a fourth agreed, at least with respect to agreements signed prior to the 1996 revision of the Mandatory Fee Arbitration Act.
The case involved an agreement Aguilar signed in 1994, when he retained Lerner to replace the attorney who had previously represented him in his divorce. Aguilar signed a retainer agreement that included a binding arbitration clause covering “any disagreement between the CLIENT and ATTORNEY concerning fees, this Agreement or any other claim relating to CLIENT’S legal matter which arises out of CLIENT’S legal representation.”
The agreement also provided for recovery of attorney fees and costs by the prevailing party in arbitration.
The representation ended in dispute, and Aguilar filed a 1997 suit charging Lerner with malpractice and breach of fiduciary duty. Lerner responded by petitioning to compel arbitration of those claims, as well as her own claim for unpaid attorney fees; the judge agreed that all of the claims were encompassed by the arbitration clause of the retainer agreement and granted the petition.
The arbitrator rejected Aguilar’s claims and awarded Lerner $32,700 in unpaid attorney fees and costs, plus $7,000 in fees and $23,500 in costs for the arbitration proceedings. San Francisco Superior Court Judge Ronald E. Quidichay confirmed the award, rejecting Aguilar’s contention that the MFAA precludes the attorney from enforcing a pre-dispute fee arbitration agreement.
The statute provides that arbitration “shall be voluntary for a client and shall be mandatory for an attorney if commenced by a client.” The client, however, waives his rights under the statute if he seeks a judicial resolution of the fee dispute or of a malpractice claim.
Arbitration is conducted by the State Bar or local bar association, and is non-binding unless both parties agree in writing to be bound by it.
Prior to a 1996 amendment, the binding arbitration provision of the MFAA read: “The parties may agree in writing to be bound by the award of the arbitrators.” The amendment, however, added the words “at any time after the dispute over fees, costs, or both, has arisen” at the end of the sentence.
The First District Court of Appeal affirmed Quidachay’s ruling confirming the arbitration award. By filing his malpractice suit, the court ruled, Aguilar had waived any objection to enforcement of the arbitration clause of the retainer agreement.
The lower courts were correct, Justice Kathryn M. Werdegar wrote for the high court. She rejected Aguilar’s contention that under the 1996 amendment, a client may assert his rights under the MFAA post-dispute, regardless of the content of a pre-dispute agreement.
Aguilar “misconceives the issue,” Werdegar wrote, explaining:
“Our conclusion he waived his rights under the MFAA rests not on the arbitration agreement he executed when he retained Lerner, but, rather, on the malpractice lawsuit he filed against her. Thus, whether he entered his arbitration agreement pre- or post-dispute is irrelevant, as is which version of the statute applies to the agreement.”
Aguilar, she explained, could not waive his right to arbitrate under the MFAA yet continue to insist that the act gives him a right not to be forced into binding arbitration under the California Arbitration Act.
Werdegar’s opinion was joined by Chief Justice Ronald M. George and Justices Joyce L. Kennard, Marvin Baxter, and Ming Chin.
Chin also authored a separate concurrence, which was joined by Baxter and Justice Janice Rogers Brown. Aguilar was required to arbitrate, Chin said, not only because he waived his rights but “for a far more fundamental reason: An agreement for binding arbitration between an attorney and a client is enforceable under the California Arbitration Act whether or not the client requests and receives nonbinding arbitration under the MFAA.”
The two statutes, Chin insisted, are completely independent of each other, serving different policies.
Chin acknowledged a 1998 Court of Appeal decision construing the MFAA as precluding the attorney from enforcing an agreement for binding arbitration if the client exercises the right to non-binding arbitration. But the decision is wrong, the justice insisted, because it would “make meaningless” the MFAA’s “acknowledgment that the parties may agree to some form of dispute resolution other than judicial action and its repeated references to some proceeding other than court action.”
Justice Carlos Moreno wrote his own concurrence, agreeing with all of his colleagues that the arbitration award should be upheld and agreeing with Chin that the MFAA does not preclude binding arbitration under the California Arbitration Act, “at least not in this case,” since the agreement was signed before 1996.
Whether the 1996 amendment changed the law in this regard, Moreno said, need not be decided at this time.
The case is Aguilar v. Lerner, 04 S.O.S. 2005.
Copyright 2004, Metropolitan News Company