Fee Arbitration: Tips and Reminders

By Steven Berenson

As most of you know, the State Bar Act, Bus. & Prof. Code §§ 6200, et seq., mandates that before an attorney sues a client or former client to collect a fee and costs, the attorney must notify the client of the client’s absolute right to pursue mandatory fee arbitration through the state or a county bar association before the attorney files suit.  Similarly, if a client chooses to pursue a fee dispute with their current or former attorney, the client may compel the attorney to participate in mandatory fee dispute arbitration.  While it is hoped that you will never have a direct need to know the following information, attorney-client fee disputes are prevalent enough that the following information may come in handy for many of you at some point in your careers.

Mandatory fee arbitration has been designed to be a relatively fast, inexpensive, and informal means of resolving attorney-client fee disputes.  The San Diego County Bar Association has adopted rules of procedure that govern its fee arbitration hearings.  While the rules of evidence do not strictly apply, and procedures are fairly relaxed, basic rights of due process are observed.  For example, the parties have the rights to: 1) twenty days’ written notice of any hearing; 2) present witnesses and other evidence at the hearing; 3) cross-examine any witnesses; 4) have witnesses testify under oath; 5) be represented by counsel, and 6) have the arbitrator issue subpoenas to compel the attendance of witnesses.

If the amount of the disputed fee is $25,000 or less, the matter will be heard and decided by a single arbitrator.  The client may select whether the arbitrator is a lawyer who practices primarily civil or criminal law.  If the amount in dispute is greater than $25,000, the matter will be decided by a panel of three arbitrators, two attorney arbitrators and a non-attorney arbitrator.  The parties may elect to make the results of the arbitration binding, if they do so in writing after the arbitration proceeding has been initiated.  However, if either party declines to agree to binding arbitration, then both parties have the right to de novo review of the arbitration decision if the party invokes this right within 30 days of issuance of the arbitration decision.  However, if neither party seeks review within 30 days, then the arbitration decision becomes binding.

The California Bar Association has issued Arbitration Advisories addressing important and frequently occurring issues in fee arbitration matters.  The Arbitration Advisories are essentially the equivalent of ethics opinions, as they relate to the mandatory fee arbitration program.  They are available on the California Bar’s website at https://www.calbar.ca.gov/Attorneys/Attorney-Regulation/Mandatory-Fee-Arbitration/Arbitration-Advisories.  Attorneys participating in fee arbitrations would be well advised to review the Advisories to determine if there is one or more that are on point with any of the issues that will be raised in the arbitration matter.

Generally, the first question that must be resolved in any fee arbitration proceeding is whether there is a valid and enforceable written fee agreement.  Arbitration Advisory 1993-02.  The requirements for having a valid written fee agreement are generally set forth in Bus. & Prof. Code §§ 6147 (contingent fee agreements) and 6148 (all other types of fee agreements).  A fee agreement may also be invalidated if the attorney has failed to comply with the requirements for billing statements set forth in § 6148(b).  If there is a valid and enforceable fee agreement, then the client will generally bear the burden of demonstrating that fees charged by the attorney pursuant to the agreement were unreasonable.[1]  On the other hand, if there is no valid or enforceable written fee agreement, then the attorney will generally bear the burden of proving what a reasonable fee would be under the circumstance of the case.  However, the amount of the reasonable fee cannot exceed that amount that would have been charged pursuant to the written fee agreement had it been enforceable.  These standards provide yet another reason why attorneys should always obtain a clear and enforceable fee agreement from their client, even in situations where the law does not necessarily require a written fee agreement.

Whichever party bears the burden of proof, in determining a reasonable fee, arbitrators will be guided by the factors set forth in California Rule of Professional Conduct 1.5(b).[2]  Arbitration Advisory 1993-02.  While arbitrators cannot award clients damages or other compensation for legal services that fall below the appropriate standard of care, incompetent or unethical conduct by lawyers can undermine the reasonable value of the services provided, and arbitrators may adjust the fees awarded accordingly.      

 

[1] Clients may also have certain provisions of the fee agreement stricken if they violate contract law principles of unconscionability.  Arbitration Advisory 1993-02. 

[2]  These factors are: (1) whether the lawyer engaged in fraud or overreaching in negotiating or setting the fee; (2) whether the lawyer has failed to disclose material facts; (3) the amount of the fee in proportion to the value of the services performed; (4) the relative sophistication of the lawyer and the client; (5) the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (6) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (7) the amount involved and the results obtained; (8) the time limitations imposed by the client or by the circumstances; (9) the nature and length of the professional relationship with the client; (10) the experience, reputation, and ability of the lawyer or lawyers performing the services; (11) whether the fee is fixed or contingent; (12) the time and labor required; and (13) whether the client gave informed consent to the fee.

 

Steven Berenson is a Professional Liability attorney with Klinedinst PC. 

Read this article on the SDCBA blog


**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**