Tuesday, January 27, 2009
Lawyers May Enforce Arbitration Agreements Over Fees—S.C.
By a MetNews Staff Writer
California’s fee arbitration statute does not prohibit a lawyer from forcing the client to submit a fee dispute to binding arbitration, the California Supreme Court said yesterday.
In a unanimous ruling, the justices resolved an issue left open in Aguilar v. Lerner (2004) 32 Cal.4th 974, in which the court held that a client who waived his right to nonbinding arbitration under the fee arbitration statute by suing his lawyer for malpractice had to submit to binding arbitration as provided by contract.
The high court overturned a 2007 ruling by the Fourth District Court of Appeal, which held that in making arbitration optional for a client and mandatory for an attorney, the Legislature had precluded lawyers from enforcing predispute agreements for binding arbitration of fee disputes.
“Although the language of the statute is not entirely free from ambiguity, construing the statute in light of the presumption against implied repeal leads to the conclusion that the [mandatory fee arbitration act] does not limit the ability of attorneys and clients to enter into binding contractual arbitration,” Justice Carlos Moreno wrote.
At issue was an agreement between Dr. Richard Schatz and Allen Matkins Leck Gamble & Mallory LLP, which had represented him in a partnership dispute and an unrelated easement dispute. Schatz paid about $180,000 in fees, but stopped making payments prior to a trial over the easement.
The firm billed him for another $170,000 in fees, which he did not pay, and the firm demanded binding arbitration under an agreement the client had signed when the firm first agreed to represent him.
A San Diego Superior Court judge held the agreement unenforceable, and the Court of Appeal agreed, ruling that Schatz—who lost in a fee dispute arbitration conducted by the San Diego County Bar Association—was entitled to a trial de novo in the Superior Court.
The Court of Appeal cited Alternative Systems, Inc. v. Carey (1998) 67 Cal.App.4th 1034, which held that a client could not be bound by a predispute arbitration agreement in a dispute over legal fees, but Moreno said that ruling was no longer good law in light of Aguilar.
The MFAA, Moreno concluded, “does not foreclose the possibility that, under a general agreement between the parties, the nonbinding MFAA process should be followed by binding arbitration, rather than by a lawsuit.”
The Legislature, the justice explained, could have exempted attorney fee arbitrations from the previously enacted California Arbitration Act, which covers contractual arbitrations generally, but did not do so. Nor is there any reason to overlook the presumption against repeal by implication or the public policy in favor of binding arbitration, Moreno said.
It would be “quite illogical,” the justice added, to allow clients to enter into binding arbitration agreements, then avoid them by requesting nonbinding arbitration, whereas an attorney who agreed in advance to binding arbitration could avoid it only if the client chose to waive nonbinding arbitration.
The case is Schatz v. Allen Matkins Leck Gamble & Mallory LLP, 09 S.O.S. 436.
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