Wednesday, August 28, 2013
C.A.: Firm Cannot Force Ex-Clients Into Unaffordable Arbitration
By KENNETH OFGANG, Staff Writer
A law firm cannot force a group of former clients, who sued for malpractice after settling their underlying claims for what they now say were inadequate amounts, to arbitrate their dispute with the firm if they cannot afford to pay the arbitration costs, the Fourth District Court of Appeal ruled yesterday.
Div. Three sent the suit, against the Santa Ana firm of Callahan & Blaine, back to the Orange Superior Court. On remand, the panel said, the trial judge must determine whether the clients are able to afford the costs, and—if the clients cannot pay—give the law firm the choice of paying those costs or litigating in court.
Callahan & Blaine describes itself on its website as “California’s Premier Litigation Firm.” Its managing partner, Daniel Callahan, has appeared in several publications’ lists of top attorneys.
Yesterday’s ruling came about after the firm joined a lawsuit, originally filed by Lake Forest attorney Richard Quintilone, alleging toxic mold contamination in the plaintiffs’ apartments.
Justice William Rylaarsdam, writing for the Court of Appeal, explained that the plaintiffs were largely elderly persons whose rents were subsidized under the federal housing program known as Section 8.
Prior to trial, Quintilone sent a letter informing the plaintiffs that Callahan & Blaine had agreed to enter the case as co-counsel. This would enable the plaintiffs to take advantage of the firm’s expertise in complex litigation and help finance the suit, he explained, without reducing the plaintiffs’ recovery.
With his letter, the attorney enclosed a nine-page retainer agreement, which contained an arbitration clause, although there were no spaces for initials or signatures on the page that contained that clause. The plaintiffs who later brought the malpractice suit, a couple and two individual tenants, signed the agreement, which provided for arbitration services to be provided by Judicate West’s Orange County office.
The plaintiffs who later sued for malpractice eventually settled the contamination claims for a total of $293,000. In their subsequent complaint, they said this was “far less than the real value of the case,” and further that the attorneys failed to promptly disburse their settlement proceeds, and refused to give them a copy of their file in the underlying case when requested.
They also said the case was settled only after the attorneys tried to have them declared mentally incompetent in order to have a guardian ad litem appointed, and that it was only after they successfully defended themselves against the claim of incompetency that the underlying suit was settled.
The Callahan firm moved to compel arbitration. The clients opposed the petition, but the trial judge granted it and the Court of Appeal denied relief.
In Forma Pauperis
The plaintiffs, who had been granted leave to proceed in forma pauperis then moved to compel the Callahan firm to pay the full “upfront” cost of the arbitration. The firm opposed the motion and moved to dismiss the proceedings based on the plaintiffs’ failure to advance their share of the costs.
Judge Ronald Bauer, in denying the clients’ motion—although he also denied the firm’s motion to dismiss—said that in forma pauperis status was merely “waiver of court charges,” and “d[id] not impose a cost upon the opposing counsel.” While he acknowledged that arbitrators “[a]re, apparently, pretty expensive,” he also noted “that’s life outside this courtroom.”
Rylaarsdam, however, in his opinion for the Court of Appeal, said the plaintiffs’ financial limitations could not be used to deny them a forum to resolve their claims.
The jurist acknowledged the “legal fictions” that the parties to an arbitration agreement are presumed to understand the terms of the agreement, and that where—as here—the agreement is silent as to costs, those costs will be initially borne by the parties equally, pursuant to the California Arbitration Law.
But the clients’ “presumed knowledge of the law does not afford us any basis to conclude they would have had any idea of just how much a pro rata share of those expenses and fees might be,” he wrote. “Code of Civil Procedure section 1284.2 does not specify amounts, and there is no evidence Callahan ever disclosed that information to plaintiffs—or even hinted to them that the out-of-pocket cost of an arbitration forum would be significantly higher than the cost of paying filing fees in court.”
While the court cannot order the law firm to pay the fees, he said, it can force it to choose between paying the fees and litigating in the less-expensive forum provided by the public justice system, if the clients’ claims of inability to pay are upheld.
He added that if the court finds that at least one, but not all, of the plaintiffs are able to pay the fees, it would have to decide whether to have the claims proceed in both forums, or to order that all of the claims be heard in court in order to avoid conflicting adjudications.
The case is Roldan v. Callahan & Blaine, 13 S.O.S. 4528.
Copyright 2013, Metropolitan News Company