Thursday, February 16, 2012

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Court of Appeal Throws Out Arbitration Award Against Law Firm

No Need to Petition Court After Invoking Arbitration Clause, Panel Rules

By KENNETH OFGANG, Staff Writer

A timely demand for binding arbitration of a contractual attorney fee dispute is effective to invalidate a nonbinding statutory award, without the need to petition the superior court to compel arbitration, the Court of Appeal for this district ruled yesterday.

Div. Five reversed a judgment giving business owner Bernard Rosenson an $80,000 recovery of fees he paid to Greenberg Glusker Fields Claman & Machtinger LLP.

Rosenson and the Beverly Hills firm entered into a retainer agreement, which included a provision requiring that all fee disputes be arbitrated before a retired judge, in 2003. Rosenson paid the firm more than $916,000, but a dispute arose and the client field for nonbinding arbitration, pursuant to the Mandatory Fee Arbitration Act, with the Beverly Hills Bar Association.

The arbitrators found that Rosenson had been overcharged by $75,000, and awarded that sum plus $5,000 in costs.

Less than 30 days later, however, Greenberg Glusker filed a demand for binding arbitration with JAMS. Rosenson did not participate in JAMS arbitration, but filed a petition with the Los Angeles Superior Court to confirm the BHBA award, which the law firm opposed on the ground that it had timely invoked its right to binding arbitration.

Trial Court Ruling

Judge Michael Stern ruled that Greenberg Glusker had not effectively contested the nonbinding award, and that because the time to do so had expired, the award had become binding and the client was entitled to judgment in his favor.

But Justice Sandy Kriegler, writing for the Court of Appeal, said the trial judge had misinterpreted the MFAA.

“If the parties have agreed in writing to binding arbitration, a demand for arbitration within 30 days of service of the MFAA award is a proceeding that prevents finality of the MFAA award,” the justice wrote.

Under Schatz v. Allen Matkins Leck Gamble & Mallory LLP (2009) 45 Cal.4th 557, an agreement for binding arbitration may be invoked if either party to a nonbinding MFAA arbitration rejects the award. Because the statute provides that a dispute in which a nonbinding award has been rejected may proceed to an “action or other proceeding,” the Schatz court held, the MFAA does not deprive either party of its contractual right to binding arbitration.

Kriegler elaborated:

“The reasoning of Rosenson and the trial court—that an action to compel arbitration in superior court is the only method of preventing an award under the MFAA from becoming final—is inconsistent with our Supreme Court’s determination that binding contractual arbitration is an alternative, acceptable form of dispute resolution.”

Besides, the justice wrote, at the time Greenberg Glusker demanded binding arbitration, it could not petition the court to compel “because Rosenson had not yet refused to arbitrate.”

‘Quick and Efficient’

Past cases, Kriegler explained, hold that a petition to compel arbitration is not ripe unless and until the other party refuses to arbitrate.

“The purpose of arbitration is to provide a quick and efficient form of alternate dispute resolution,” he wrote. “Requiring Greenberg Glusker to file a superior court action to compel arbitration before Rosenson refused to participate is inconsistent with the goals of arbitration. We decline to interpret the MFAA in a manner that compels this unreasonable result.”

Attorneys on appeal were Charles N. Shephard and Rachel Wilkes Barchie of Greenberg Glusker on behalf of the firm, and Richard P. Petersen on behalf of Rosenson.

The case is Greenberg Glusker Fields Claman & Machtinger LLP v. Rosenson, 12 S.O.S. 727.