Thursday, September 29, 2011
S.C. Denies Review in Suit Over Failure to Explain Arbitration Clause
By Kenneth Ofgang, Staff Writer
The California Supreme Court yesterday declined to review a ruling that an attorney who asked his clients to sign a new retainer contract after the lawyer changed firms did not have a fiduciary duty to separately explain the agreement’s arbitration clause.
The justices, at their weekly conference in San Francisco, unanimously denied the plaintiffs’ petition for review of the First District Court of Appeal June 17 decision in Desert Outdoor Advertising v. Superior Court (Murphy) (2011) 196 Cal.App.4th 866.
Bahram Farahi and Paul Jurich cannot avoid arbitration of their malpractice suit against Gerald Murphy and Luce, Forward, Hamilton and Scripps, LLP, Div. One held, on the ground they did not read the arbitration clause. As sophisticated businesspersons, Presiding Justice James Marchiano wrote, the burden was on the clients to read the agreement and question any provisions they did not understand.
The panel denied writ relief from San Francisco Superior Court Judge Peter Busch’s order compelling arbitration.
Farahi, president of Desert Outdoor Advertising, and Jurich, a property owner who rented Farahi space for a billboard, retained Murphy eight years ago to represent them in a dispute with the City of Oakland over the installation of the sign.
Murphy was then with Jacobs, Spotswood, Casper & Murphy, LLP. In 2006, Murphy notified the clients that he was moving to Luce Forward and asked them to sign a new engagement agreement.
That agreement, unlike the previous one, required the parties to submit any dispute between them to arbitration. It specifically mandated that arbitration was to take place in San Francisco, and was to be conducted by JAMS or, if required by law, by the Bar Association of San Francisco.
The clause also required the losing party to pay the costs of arbitration, including the prevailing party attorney’s fees. The agreement also included an advisement of the clients’ right to seek independent counsel.
The litigation went poorly for the clients. The city obtained an injunction barring the billboard, along with a judgment for statutory penalties and restitution based on unfair business practices; and federal trial and appellate courts rejected the clients’ constitutional challenge to the city’s actions.
The clients then sued Murphy and Luce Forward for malpractice, and the lawyers moved to compel arbitration. The clients objected, saying the arbitration clause was “buried” in the retainer agreement and that they hadn’t read it.
Farahi said in a declaration that he did not read the agreement carefully because he was suffering from serious health problems and depression, and that Murphy knew he was seeing a psychiatrist. Jurich said that, as the lessor, he “had little to do with the case” and did not understand that there was a change in the terms of representation, not merely a change in law firms.
DOA’s corporate counsel said he did not understand that there was a substantive change from the prior agreement, and that he did not read the new agreement because it “contained too many pages.”
But Marchiano, in his opinion Friday, said the clients’ lack of attention did not excuse their failure to read the agreement.
“It strains credulity that Farahi and Jurich believed the new agreement was the same as the first one―it was twice as long,” he wrote.
Other relevant facts, he said, are that the clients were experienced businessmen, that Murphy urged them to read the agreement and advised them of their right to independent counsel, that the representation involved litigation important to DOA’s business, and that the agreement was sent not only to Farahi and Jurich, but also to the corporate counsel and another executive.
“These were not unsophisticated people unschooled in the ways of litigation,” the presiding justice wrote. “Nor was the agreement a contract of adhesion that was forced on them. The cover letter described a new retainer agreement with Luce Forward and explained that if the clients did not want to sign it Murphy would prepare a substitution to allow DOA’s corporate counsel to continue representing DOA.”
The arbitration clause itself, he added, “was readily discernible and clear” and there was “no assertion of any effort to conceal the arbitration clause or any affirmative misrepresentations about it “
Copyright 2011, Metropolitan News Company