Metropolitan News-Enterprise

 

Wednesday, September 2, 2020

 

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Court of Appeal:

Law Firm Not Bound by Client’s Agreement to Arbitrate Claims With Litigation Broker

Decision Relieves Panish Shea & Boyle of $130,000-Plus Judgment Against It

 

By Sandra Hong, Staff Writer

 

 An attorney who signed a statement acknowledging his client had entered into a third-party litigation funding agreement that includes an arbitration provision did not bind himself and his firm, Panish Shea & Boyle, to arbitrate disputes arising from that agreement, the Court of Appeal for this district has held.

Justice Brian S. Currey of Div. Three wrote the unpublished opinion, filed Monday. It reverses a Los Angeles Superior Court judgment confirming an arbitration award of more than $138,000, plus interest, legal fees, and costs, to litigation funding company Prospect Funding, LLC and directs that the court enter judgment in favor of West Los Angeles attorney Peter L. Kaufman and his firm.

Currey declared the arbitrator “exceeded his authority” in finding that Kaufman and his firm consented to arbitrate disputes based on an agreement drafted by Prospect and signed by their client, La-Phosa Sangkaphim, and making an arbitration award when neither Kaufman nor a representative from his firm was present at the arbitration hearing.

“Unless the parties ‘clearly and unmistakably’ so provide, however, whether they agreed to arbitrate the particular dispute must be decided by the court, not the arbitrator,” Currey wrote, quoting the 1986 U.S. Supreme Court decision AT&T Technologies. v. Communications Workers.

Here, however, “[i]t is far from a ‘clear and unmistakable’ agreement by Kaufman to arbitrate disputes with Prospect,” Currey concluded.

Funding Agreement

Prospect and Sangkaphim signed an agreement under which Sangkaphim received $10,000 and Prospect acquired a right to receive proceeds from any settlement or recovery through Sangkaphim’s “repurchase” of the interest sold to Prospect.

Prospect and Sangkaphim were the only parties to the agreement, which included liquidated damages and arbitration clauses. Kaufman signed a separate certification also drafted by Prospect, stating that he, as Sangkaphim’s attorney, has explained the terms and conditions of the agreement to Sangkaphim, whom he represents under a contingency fee agreement.

The certification also states:

“I agree that all disputes regarding this agreement will be resolved via arbitration and I have explained this to [Sangkaphim]. All proceeds of the legal claim will be disbursed via the attorney’s trust account and the attorney is following the written instructions of [Sangkaphim] with regard to this [Agreement] and the Irrevocable Letter of Directions which attorney has acknowledged.”

The letter, also drafted by Prospect, was addressed to Kaufman and signed by Sangkaphim. The letter directs Kaufman to pay Prospect its interest in settlement proceeds before disbursing funds to Sangkaphim.

Kaufman signed an “attorney acknowledgment” appearing below Sangkaphim’s signature on the letter.

Lawsuit Settlement

Sangkaphim’s action was settled for $350,000. Prospect was due $17,680.

Kaufman’s firm sent $5,000 to Prospect along with a letter stating that the settlement was “much less than the actual value” and no additional funds remained.

Prospect claimed it was owed more than $138,000, including liquidated damages, and initiated arbitration proceedings for breach of contract against Kaufman and Panish Shea & Boyle (“PS&B”).

Kaufman and his firm filed a motion to vacate the award. Murphy found Kaufman’s signature on the certification containing the language “I agree that all disputes regarding this agreement will be resolved via arbitration” bound Kaufman and Panish Shea & Boyle to arbitrate with Prospect.

Contract Ambiguity

However Currey concluded Murphy’s finding failed to take into account the entirety of the contract between Prospect and Sangkaphim.

“We cannot read the use of the phrase ‘I agree’ to mean that Kaufman also independently agreed to arbitration because that would be contrary to the stated purpose of the Certification (explaining the Agreement’s terms to Sangkaphim), and expand the scope of the Agreement’s arbitration provision to include Kaufman, a non-party,” Currey wrote.

“To the extent there is any uncertainty, we must construe the provision against the drafter, Prospect.”

Currey pointed to the attorney acknowledgement, which states that disputes arising from the transaction will be resolved through arbitration “per the [Agreement] and the irrevocable letter of direction,” and said:

“Neither the Agreement not the Letter requires Kaufman to arbitrate, so we have no reason to conclude Kaufman would have intended his statement that disputes would be resolved ‘per’ those documents to require him to arbitrate disputes involving him or his firm.”

Currey also noted the fiduciary and ethical obligations Kaufman and his firm had to Sangkaphim, which would have precluded Prospect from naming them as parties to the agreement without a conflict waiver from Sangkaphim.

“No such waiver was sought or obtained,” Currey observed. “Given this context, the only reasonable interpretation of the Acknowledgement is that Kaufman assented to do the things Sangkaphim requested of him in the Letter, and acknowledged that the terms of the Agreement and Letter include Sangkaphim’s consent to arbitrate disputes with Prospect.”

Currey added:

“As a result, Prospect cannot claim it reasonably relied on the isolated statements in the Certification and Acknowledgement such that PS&B and Kaufman are bound to arbitrate by principles of promissory estoppel.”

The case is Kaufman, Panish etc. v. Prospect Funding, B293259.

Counsel for Prospect was Patrick R. Mahoney of Beverly Hills and Tyson W. Kovash of Huntington Beach. Kaufman represented himself and Panish Shea & Boyle.

 

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