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Arbitration Clause in Retainer Agreement Is Invalidated
Superior Court Judge Epstein Found Unfairness in Presenting Agreement to Clients Turned to Signature Page; Court of Appeal Sees More Significant That Clause Essentially Gives Law Firm the Choice of Arbitration Firm
By a MetNews Staff Writer
An attorney who handed his clients a retainer agreement turned to the page on which they were to affix their signatures has failed in his effort to persuade the Court of Appeal for this district to reverse an order denying his motion to compel arbitration despite an arbitration clause contained in that contract.
The unpublished opinion, filed Tuesday, affirms an order by Los Angeles Superior Court Judge Mark H. Epstein who determined that the clause is unenforceable because the clients were not made aware of its existence, rejecting the contention by attorney Joseph S. Fischbach of the Beverly Hills firm of Fischbach & Fischbach that he can’t be blamed if the clients signed the agreement without reading it.
San Diego Superior Court Judge Albert T. Harutunian III, sitting on assignment to Div. Eight, authored the opinion backing Epstein’s decision. Most significant to the visiting jurist, however, was a matter that was treated by the parties and by Epstein as a side-issue: that, under the agreement, the party demanding arbitration could designate the outfit that would conduct the arbitration (expressly excluding JAMS or the American Arbitration Association).
Initial Meeting
As Epstein discerned the facts, when Fischbach met with the clients, Eiman Shekarchi and April Heidarian, in March 2017, he told them that he usually requires a retainer of $25,000 but thought he could wrap up the entire matter, a real property dispute, for that sum, hand-wrote “$5,000” on the first page of the agreement as the retainer amount, then handed them the agreement, folded to Page 8 where they were to sign, and provided a pen. After they signed, Epstein found, Fischbach pledged to email them a copy of the agreement, but never did.
(In a declaration, Fischbach insisted he went over the terms of the agreement with the clients and provided them with a copy of it before they left).
Fischbach and his firm are being sued for malpractice by Shekarchi and Heidarian who claim that the opposing party in the real property dispute made a settlement offer which they would have accepted but Fischbach failed to relay to them, and they wound up settling on less favorable terms. They allege that Fischbach constantly fumbled in his handling of the case including filing a second amended complaint without a stipulation or leave of the court, racked up attorney fees of $176,558.83 of which they paid $112,445.65, made no progress, and moved to be relieved as counsel on the very day that discovery responses that he had failed to prepare were due.
Epstein’s Ruling
In ruling on the motion to compel arbitration, Epstein declared:
“[T]here are aspects of the contract that smack of procedural unconscionability. Handing the contract to plaintiffs turned to the signature line without giving them a chance to read the contract is a strong indicator. Defendants’ failure to ensure that plaintiffs were aware of the arbitration agreement before they signed it is another strong indicator. And not giving plaintiffs a copy of the agreement when they left (or at any other time until this motion was filed, according to plaintiffs) is still another.”
He added:
“To be sure, plaintiffs could have (and should have) insisted on reading the contract before they signed it. And, as with any contract, they are generally speaking bound by the contract’s provisions whether they read it or not once they sign. But an attorney forming an attorney-client relationship with a party ought not hide important terms or take steps to stop the soon-to-be-client from knowing about them. At least according to plaintiffs, that is what happened here. True enough, defendants did not have an affirmative duty to bring the clause to plaintiffs’ attention….But that does not mean that defendants can take actions that impede plaintiffs from seeing the clause for themselves.”
In addition to that determination of procedural unconscionability, Epstein found substantively unconscionable a clause that the party demanding arbitration would choose the arbitrator—given that only Fischbach and his firm could conceivably have made that demand since only they knew of the clause—and a recitation, which he concluded was false, that the clients were adequately cautioned before signing the agreement.
Also, he drew an inference unfavorable to the lawyers from the existence in the agreement that the client would be responsible for the payment of any sanctions imposed solely on Fischbach and/or the firm.
Contentions on Appeal
On appeal, Fischbach—represented by Mark Schaeffer and Marshall R. Cole of Nemecek & Cole, as well as by himself and his firm—quoted the U.S. Supreme Court’s 1875 opinion in Upton v. Tribilcock as saying:
“It will not do for a man to enter into a contract, and, when called upon to respond to its obligations, to say that he did not read it when he signed it, or did not know what it contained. If this were permitted, contracts would not be worth the paper on which they are written. But such is not the law. A contractor must stand by the words of his contract; and, if he will not read what he signs, he alone is responsible for his omission.”
He argued:
“In contravention of this fundamental rule of law, the trial court erroneously denied appellants’ petition to compel arbitration because plaintiffs claimed that they did not read the contract—and its binding arbitration provision—that they signed, although the court acknowledged that plaintiffs had the opportunity to do so.”
Fischbach maintained:
“Opening the contract to the signature page and giving a pen to plaintiffs does not impede their ability to review the contract, and objecting to any term therein, before signing it. That made it simple for plaintiffs so they know where to sign it. No gun was held to plaintiffs’ heads to sign the contract. They were free to read the contract and obtain legal services from other counsel if they did not like the contract. This is why the law does not allow a party to renounce a contract by claiming he did not read it.”
Harold Greenberg and Jenifer J. Anisman of Greenberg’s West Adams firm represented Shekarchi and Heidarian. Fischbach’s lawyers on appeal, though “well seasoned malpractice lawyers with extensive appellate experience,” they asserted, “intentionally fail to acknowledge the well-reasoned ruling” by Epstein “and bring this appeal merely to create delay and increase the cost of litigation.” The correctness of Epstein’s ruling, they argued, must be presumed.
Appeals Court Decision
Agreeing with Epstein, Harutunian wrote that Fischbach, in obtaining signatures on the retainer agreement, both by “turning to the signature page and failing to give a copy of the contract to the non-drafting party” provided evidence of procedural unconscionability.” Citing the 2020 case of Cabatit v. Sunnova Energy Corp., he said:
“In the context of an electronic agreement, our colleagues in the Third District found that one factor pointing towards procedural unconscionability was that the party who drafted the contract scrolled past the arbitration clause and directly to the places within the contract to be signed.”
Harutunian remarked:
“Similarly, when Fischbach turned directly to page eight, the signature page, and past the arbitration agreement on page six, he impeded the respondents from seeing the arbitration clause.”
Weightier Basis
The opinion appears to indicate that there would be an affirmance on the basis primarily relied upon by Epstein, saying that “there is evidence that Fischbach took steps to conceal the arbitration agreement from respondents to support the trial court’s finding of procedural unconscionability.” Harutunian commented, however, that there was “less evidence of procedural unconscionability” than there was of substantive unconscionability, saying that that there was “significant evidence” of the latter.
“Where, as here, the stronger (drafting) party is the only side that can realistically pick the choice of forum for dispute resolution, the clause is not mutual and is substantively unconscionable,” he wrote, adding:
“Effectively having control of selection of the arbitration organization is more than just a theoretical advantage to appellants. It is common knowledge among experienced litigators (and a matter of common sense) that some arbitration organizations are notoriously biased in favor of parties that could end up repeatedly selecting the organization in future arbitrations.”
The opinion did not explain why that was material given that there are arbitration clauses that are enforced which specify the particular alternate dispute outfit that will conduct the arbitration.
The case is Shekarchi v. Fischbach, B311989.
A comment on the Court of Appeal’s decision was requested of Fischbach. He responded:
“This is an unpublished opinion so I see no reason for you to highlight it. In so far as my permission is required or needed for any reason, I do not grant permission.”
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