Wednesday, June 27, 2007
C.A.: Santa Monica Waived Right to Arbitrate Fee Dispute in MTBE Suit
By a MetNews Staff Writer
The City of Santa Monica waived its right to arbitrate a fee dispute with lawyers who represented it in a suit over contamination of its water supply by extensively litigating the issues before invoking the arbitration agreement, the Court of Appeal for this district ruled yesterday.
Div. One affirmed Los Angeles Superior Court Judge David Minning’s ruling in favor of the firms of Baron & Budd; Miller, Sher & Sawyer; and Cooper & Scully. The firms were retained after the city discovered that the gasoline additive methyltertiarybutylether and other gasoline components had had contaminated the municipal water wells.
Baron & Budd is a Dallas-based firm with an office in Beverly Hills; Miller, Sher & Sawyer is located in Sacramento; Cooper & Scully has offices in Dallas, Houston, and Sherman, Tex.
The retainer agreement included contingent fee provisions, together with a clause that said the attorneys were entitled to a reasonable fee if the contingency free provisions could not be enforced, and that the amount of the fee was subject to arbitration before JAMS.
In 2002, the city notified Cooper & Scully that it was being discharged from representation after Scott Summy, who had been handling the case there, left the firm and joined Baron & Budd. In December 2003, the city settled with a number of defendants, and eventually obtained court approval for settlement agreements that gave it more than $120 million and required the defendants to fund construction of a remediation facility.
While the settlements were being negotiated, the city and the lawyers realized that they had a disagreement as to how fees were to be calculated. After failing to resolve the issue, the city sued for declaratory relief in May 2004, later amending its complaint to allege breach of fiduciary duties, and the lawyers cross-complained for their fees.
In May 2005, Minning denied the city’s motion for summary adjudication, in which it argued, among other things, that the contingency provision was rendered unenforceable by the discharge of Cooper & Scully.
Five months later, the city moved to compel arbitration, but the judge denied the motion.
Justice Robert Mallano, in an unpublished opinion yesterday for the Court of Appeal, said the trial judge was correct.
He cited the 17-month delay between the filing of the suit and the demand for arbitration, the fact that the case had already been set for trial, the fact that the parties had extensively litigated the issues that would be the subject of the arbitration, and the prejudice the law firms would have suffered as a result of having to provide the city with more discovery than would have been required had the case been assigned to arbitration at the outset.
The justice rejected the contention that the city could not have pushed the case into arbitration before the trial court determined that the contingency fee was unenforceable. That “does not excuse the City’s failure to seek that very determination by earlier filing a motion to compel arbitration,” Mallano said.
“By its actions in the trial court and its contentions on appeal, the City seeks to enjoy all the benefits of litigation while holding a right to compel arbitration in reserve until the last minute, or in other words, to have its cake and eat it, too,” the justice wrote.
Los Angeles Superior Court Judge Frank Jackson, sitting on assignment, concurred in the opinion, while Justice Frances Rothschild concurred separately.
Rothschild agreed with the city that it did not waive its right to arbitrate by litigating the enforceability of the contingency fee, which was outside the scope of the arbitration clause. But because there were disputed questions of fact regarding the city’s purported discharge of the Cooper firm, which the trial court had no power to resolve, the motion to compel arbitration was properly denied, the concurring justice reasoned.
The case is City of Santa Monica v. Baron & Budd, B187425.
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