Wednesday, August 24, 2011
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C.A. Says Law Firm’s Fee Arbitration Agreement Was Invalid
By KENNETH OFGANG, Staff Writer
A provision in a law firm’s retainer agreement that purports to require binding arbitration under Los Angeles County Bar Association rules is invalid because those rules do not permit binding arbitration by pre-dispute agreement, this district’s Court of Appeal ruled yesterday.
Div. Seven, in an unpublished opinion by Presiding Justice Dennis Perluss, reversed a Los Angeles Superior Court judge’s order confirming an arbitration award in favor of the Beverly Hills firm Weissmann Wolff Bergman Coleman Grodin & Evall LLP. The panel did, however, agree with the firm that the invalid provision was severable, and that the firm is entitled to a new, binding arbitration proceeding under the California Arbitration Act, before the same or a different arbitrator.
The dispute grows out of the firm’s representation of Jasbir Singh, a principal of Canyon Meadows Estates, LLC who retained the firm in July 2005 to litigate over disagreements with other members. The agreement provided that any fee dispute would be “arbitrated before the Arbitration Committee of the Los Angeles County Bar Association pursuant to the Rules of Conduct of Arbitration of Fee Disputes and Other Related Matters” and that any award would “ be final and binding upon the parties hereto.”
Singh paid the firm about $142,000 in fees, but ultimately took over his own representation and settled the case himself, leaving nearly $140,000 owing, according to the law firm. He claimed that much of the firm’s work was substandard or unnecessary and that the firm committed malpractice.
In May 2008, the firm sent him a notice of his statutory right to non-binding arbitration, informing him that the right would be deemed waived if he did not respond within 30 days. Singh did not respond, and the firm petitioned the County Bar, through its Dispute Resolution Services, Inc. subsidiary—now the Center for Civic Mediation—for binding arbitration under the fee agreement.
The petition was on a preprinted form stating that unless the firm “and the client agree in writing to binding arbitration, this arbitration will proceed as a non-binding arbitration.”
DRS subsequently served Singh with a copy of the petition and a notice of arbitration under the Mandatory Fee Arbitration Act. The notice stated:
“This arbitration is non-binding. However, if, at the time of the hearing or prior to the hearing, all parties to this dispute agree in writing to be bound, this arbitration will become binding.”
Singh’s new counsel responded that Singh agreed to mediation but did not agree to binding arbitration.
An attorney with the Weissmann firm wrote to the DRS case coordinator, with copies to Singh’s counsel and the arbitrators, expressing the understanding that Singh had waived his statutory right to non-binding arbitration and that the case would proceed to binding, contractual arbitration.
The parties eventually agreed that Michael Mathias would serve as loan arbitrator, rather than go before a three-member panel, but Singh’s counsel reiterated that he did not agree that arbitration would be binding.
Mathias told the parties that he had been instructed by DRS that arbitration would be binding, but in his award, which was for nearly the full amount sought by the firm, he said he had not taken testimony on the issue and that he did not render a decision on it.
Los Angeles Superior Court Judge Lisa Hart Cole, in granting confirmation and denying Singh’s petition to vacate, ruled that Singh had waived his right to non-binding arbitration and that the firm was not required to obtain a prior court order for the arbitration to be binding under the California Arbitration Act.
But Perluss, writing yesterday for the Court of Appeal, cited Aguilar v. Lerner (2004) 32 Cal.4th 974, in which the court explained the interplay between the Minimum Fee Arbitration Act and the California Arbitration Act when a fee agreement contains an arbitration clause. Under that ruling, nonbinding arbitration under the former statute and binding arbitration under the latter are completely separate proceedings.
The DRS rules, Perluss explained, implement the MFAA, not the CAA. While the MFAA permits the parties to agree to binding arbitration, the DRS rules make clear that arbitration is not binding unless both parties agree, in a post-dispute submission, to be bound by the award, the presiding justice noted.
This was made clear, he said, in the information cover sheet to the DRS petition form, stating:
“In an arbitration filed by an attorney, the program cannot enforce a ‘binding clause’ in a retainer agreement. Under Business & Professions Code 6204(a), the parties may agree in writing to binding arbitration after the dispute arises. We will close the file if we do not receive written consent from both parties in a voluntary arbitration.”
While the firm could have provided for binding arbitration under the CAA in its retainer agreement, Perluss elaborated, “that is not what happened.” Instead, he explained, the parties purported to enter into a pre-dispute binding arbitration agreement under a set of rules that do not permit such an agreement.
The firm’s argument that the rules permit such an agreement, he said, “rests on a fundamental misreading of those rules.”
But Perluss also concluded that firm’s objective of obtaining binding arbitration of fee disputes was a lawful one, so the provision for arbitration could be severed from the invalid requirement that the proceeding be conducted under DRS rules.
Attorneys on appeal were Roger A.S. Manlin for Singh and Steven Glaser for the law firm.
The case is Weissmann Wolff Bergman Coleman Grodin & Evall LLP v. Singh, B225813.
Copyright 2011, Metropolitan News Company