Legal Ethics Corner

Ethics Corner is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association for SDCBA members.  

The Client’s Right to Mandatory Fee Arbitration does not Trump an Arbitration Clause in an Attorney’s Fee Agreement”
 
When it comes to disputes between an attorney and the client, the Legislature has enacted and amended the Mandatory Fee Arbitration Act (“MFAA”) to provide clients with a process that favors the client due to the disparity in bargaining power and access to legal representation between clients and attorneys. Under the MFAA (Business & Professions Code sections 6200 et seq.), the client is given the exclusive right to demand arbitration of the fee dispute by a local bar association. The MFAA also provides that the client is entitled to demand a trial de novo if dissatisfied with the outcome but not if the client and attorney agreed to designate the arbitration as binding after the dispute arose.
 
If a trial de novo is demanded, what, then, is the impact of a provision in the attorney-client fee agreement requiring that disputes between them will be submitted to binding arbitration under the California Arbitration Act (C.C.P. sections 1280, et seq.)? In Schatz v. Allen Matkins Leck Gamble & Mallory, LLP (2009) 45 Cal.4th 557, the California Supreme Court found that the MFAA does not impliedly repeal the California Arbitration Act and affirmed the continued viability of prior agreements between attorney and client to submit disputes to binding arbitration under the CAA, after completion of any fee arbitration under the MFAA.
 
In the Schatz case, the client, after receiving an unsatisfactory outcome from an arbitration proceeding under the MFAA, demanded a trial de novo. The client argued he was entitled to a trial in Superior Court and opposed the law firm’s effort to compel binding arbitration in compliance with the terms of the fee agreement. While the statutory language explicitly gives the client the right to a “trial de novo”, the California Supreme Court reasoned that the right to a trial is subject to applicable law, including the right to assert all valid defenses. The Court pointed out that the existence of a contractual obligation to arbitrate is a defense to a judicial action. The Court acknowledged the availability of various procedural methods, including demurrers or motions for summary judgment, in addition to a motion to compel arbitration. (Schatz, supra, 45 Cal.4th at pp. 572-573.) Thus, while the right to a trial de novo is a statutory right, that term does not exclusively mean a trial in court, as opposed to an arbitration.
 
The Schatz decision affirmed the client’s absolute right to demand fee arbitration under the MFAA but refused to interpret the MFAA statutory scheme as impliedly repealing the California Arbitration Act in attorney-client fee disputes. By finding that the MFAA and CAA may “stand together,” the California Supreme Court affirmed the strong public policy favoring binding arbitration as means of resolving disputes. (Schatz, supra, 45 Cal.4th at p. 713.) What the Schatz decision does not address are the pros and cons of including an arbitration provision in a fee agreement or the requirements for an enforceable arbitration provision, both of which are subjects for another day. 
 
--Deborah A. Wolfe
 
**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.**