Source: https://www.calmediation.org/arbitration-mfaa/
Timestamp: 2019-04-19 03:33:33+00:00

Document:
A Mistake By The Trial Court Did Not Affect The Outcome.
Client Nussbaum and attorney Liberty had a fee dispute that they arbitrated pursuant to the Mandatory Fee Arbitration Act (MFAA). The arbitration panel awarded Liberty $75K in fees and $30K in interest. After the notice of the award was mailed and more than 30 days had passed, the attorney moved to confirm the fee award. And after the fee award has been confirmed, the client appealed the order confirming the award. Liberty v. Nussbaum, A149830 (1/1 11/9/17) (Dondero, Margulies, Banke) (unpublished).
It appeared to the Court of Appeal that "the trial judge here mistakenly concluded that the parties had elected to have binding arbitration at the time of the arbitration hearing . . . " No matter. The MFAA creates a statutory scheme, and if the award is not challenged within 30 days after service by requesting a trial de novo or by moving to vacate, it becomes final. Such was the case here.
The arbitration provision also required that the parties mediate as a condition to arbitrating. Here, however, the client did not assert a right to mediate before the arbitration. The Court of Appeal analogized this failure to a waiver by delay of the right to arbitrate.
The order confirming the arbitration award was affirmed.
COMMENT: The Court of Appeal described the respondent plaintiff - attorney's failure to file an appellate brief as "plaintiff's dereliction of duty" -- especially so, because the respondent was an attorney. Lucky for respondent, the Court of Appeal sua sponte undertook the tasks of reviewing the record on the basis of defendants' brief, and the trial court's order and judgment for prejudicial error!
In May 2016, I posted on the then unpublished case Baxter v. Rock, and posted later that the case was partially published. 247 Cal.App.4th 775 (2016). Relying on the case, I pointed out that an arbitrator’s mistake about an attorney’s fees award was no basis for overturning the award under California’s Mandatory Fee Arbitration Act, but that a judge’s error in assigning different hourly rates to two attorneys, without a reasonable basis for doing so, was subject to a different standard of review, and could be more easily reversed – as it was.
The case, however, was also important for what it said about arbitrator disclosures. The arbitrator who failed to disclose prior experience auditing attorney’s fees, could not be later disqualified in an attorney fee arbitration held under the MFAA. Just because the arbitrator had experience auditing attorney’s fees did not necessarily mean that the arbitrator was biased for or against the attorney or the client.
the arbitrator should disclose the arbitrator’s practice as an attorney if it is focused on a particular area related to the subject matter of the litigation such that it would provide the arbitrator with an incentive to rule in favor of one side rather than the other.
vet your arbitrator early, because post-arbitration challenges to the sufficiency of disclosures will be viewed by the courts with a gimlet eye.
Interview In Orange County Lawyer Is Summarized Today In California Attorney’s Fees Blawg.
My colleague Mike Hensley and I publish a blawg about California Attorney’s Fees. A post today (July 10, 2016) in that blawg summarizes highlights of an interview appearing in the July 2016 edition of the Orange County Lawyer, in which the co-chairs of the Orange County Bar Association’s Mandatory Fee Arbitration Committee offer tips on what arbitrators look for in mandatory attorney fee arbitration.
On May 4, 2016, I posted about the Committee on Mandatory Fee Arbitration of the State Bar of California’s two new Advisories on Mandatory Fee Arbitration (MFA) brought under the Business & Professions Code. Advisory 2016-01, replacing Advisory 2011-02, is about the application of the Statute of Limitations for MFAs. Advisory No. 2016-02, replacing Advisory 2003-01, is an analysis of bill padding and other billing issues.
But Court’s Decision On Fee Award Is Vacated, Because There Was No Reasonable Basis For Assigning Different Hourly Rates To Two Attorneys.
Baxter v. Bock, A142372, A142984, A143689 (1/1 May 18, 2016) (Margulies, Humes, Dondero) (unpublished) rather starkly illustrates the application of different standards of review to the arbitration award in an attorney’s fees dispute, and to the trial judge’s award of attorney’s fees to the client who successfully defended against the attorney’s efforts to collect more.
Although the parties acknowledged that the arbitrator erred in stating the amount of fees paid by the clients when calculating the amount in dispute in fees between attorney and client, that was no basis for the trial court, which confirmed the award, to vacate the award. As we know, mistakes of law or fact are ordinarily not a basis for overturning an arbitrator’s award.
However, when the clients then moved the trial court successfully for an award of attorney’s fees expended defending against the attorney’s claims, a different standard of review applied – an abuse of discretion standard when reviewing a trial court order awarding attorney fees. Here, the Court of Appeal found no reasonable basis in the record for applying different rates to two of the client’s attorneys. therefore, the matter was remanded to the trial court solely for reconsidering the lodestar compensation rate for one of the attorneys.
Another issue involved in this case is whether the arbitrator should have made an additional disclosure relating to bias, because part of his business involved auditing attorney client bills. The Court of Appeal concluded that the general disclosure requirements of the MFAA and the California Arbitration “are, for practical purposes, the same, and decisions under the ‘impartiality’ disclosure requirements of the CAA may be applied in evaluating arbitrator disclosure obligations under the MFAA.” However, the arbitrator’s practice was not devoted exclusively to one side of fee disputes; his law firm’s expertise was “in reviewing attorney bills, rather than in representing one side or the other in fee disputes.” So the disclosures were adequate.
The Committee on Mandatory Fee Arbitration of the State Bar of California has two new Advisories on Mandatory Fee Arbitration (MFA) brought under the Business & Professions Code. Advisory 2016-01, replacing Advisory 2011-02, is about the application of the Statute of Limitations for MFAs. Advisory No. 2016-02, replacing Advisory 2003-01, is an analysis of bill padding and other billing issues. The Advisories are dated March 25, 2016.
1. Opinions Change: Statute of Limitations for Fee Arbitrations.
In a previous Advisory, the Committee “opined that the one-year statute of limitations in CCP Section 340.6 for wrongful acts or omissions by an attorney, other than for actual fraud, did not apply to fee arbitration under Bus. & Prof. Code Section 6200.” That conclusion was based on the special nature of MFA, which focuses on legal fees. The MFA arbitrators cannot award damages for legal malpractice or professional misconduct in MFA.
The new Advisory reaches a different conclusion: MFA cannot be commenced if a civil action requesting the same relief would be barred by an applicable statute of limitations set forth in the Code of Civil Procedure, and that includes Section 340.6, and recent case law, applying the one-year statute to disputes involving the propriety of the attorney’s legal services. Therefore, the Committee concludes that if the dispute over fees involves the propriety of the attorney’s legal services, the statute of limitations does apply. But there are many exceptions under Section 340.6, and Section 340.6 will not apply to claims where an attorney converted a client’s funds or defrauded the client. My advice about the Advisory: read it.
The new Advisory focuses on over-billing; other Advisories have more generally focuses on determining the reasonableness of attorney’s fees. I refer advisedly to “over-billing” rather than “bill padding”, because over-billing can result from billing procedures that involve no intentional effort to pad bills.
Look for certain patterns in the descriptions of the work performed, including time entries.
This Advisory provides many useful tips for investigating whether a bill is inflated, and is useful reading not just for persons involved in MFA, but for anyone who wants to probe deeper into the propriety of a legal bill.
Rothman v. Deshay, Case No. B245075 (2nd Dist. Div. 4 May 13, 2014) (Epstein, Manella, Edmon) (unpublished) is a Court of Appeal case that has its genesis in mandatory fee arbitration between attorney Rothman and client Deshay. Though unpublished, the case has some worthwhile lessons for clients and attorneys engaged in fee arbitration.
First, the review of a judgment confirming an arbitration award – like the review of arbitration awards in general – will be limited. The award won’t be subject to judicial review except on the grounds set forth in Code of Civ. Proc. sections 1286.2 (to vacate) and 1286.6 (for correction).
Second, even though elective arbitration before the County Bar may seem informal, there is a strict 30-day deadline to challenge the award by filing a rejection and request for trial. Bus. & Prof. Code section 6203(b). Here, the appellant failed to observe the 30-day deadline, and that tanked, tubed, torpedoed, and doomed the appeal.
Fourth, the opinion discusses whether the trial court erred by denying a motion for leave to file a cross-complaint. Deshay wanted to file a cross-complaint for malpractice. The MFAA prohibits clients from raising malpractice claims during the arbitration, except insofar as the claim bears upon fees. Here, the trial court denied appellant’s motion for leave to file a cross-complaint (i) because it was untimely; and (ii) because the malpractice issues, though they could not have been raised affirmatively as a cross complaint in MFAA arbitration, should have been raised defensively.
Fifth and finally, the case discusses whether the attorney was entitled to recover fees under Trope v. Katz, 11 Cal. 4th 274 (1995) (holding that an attorney who chooses to litigate his own case cannot recover fees under Civ. Code section 1717). Here, attorney Rothman was entitled to recover, because he employed independent contractors. For further discussion of the attorney’s fees aspect of the case, see the May 14, 2014 blawg post on California Attorney’s Fees.
Covenants, conditions and restrictions (CC&Rs) containing an arbitration provision often raise gnarly questions about enforceability. Is the provision enforceable, and if so, what group will be bound to arbitrate? Those issues were presented in the next case. Verano Condominium Homeowners Association v. La Cima Development, LLC, Case No. D058217 (4th Dist. Div. 1 May 8, 2012) (Benke, Acting P.J., author) (unpublished).
Defendant and Appellant, La Cima, converted apartments to condominiums. As part of the condominium conversion, La Cima drafted and recorded CC&Rs that included an arbitration provision. The arbitration provision required individual condo owners and the homeowner's association (Verano) to resolve claims against La Cima through binding arbitration under the Federal Arbitration Act (FAA). La Cima transferred ownership of common areas to the homeowners' association (Verano). Also, La Cima required individual condo purchasers to sign purchase agreements containing similar arbitration clauses.
Verano sued La Cima alleging defects to Verano's common areas, and also sued as a class representative for association members. La Cima moved to compel arbitration. The trial court denied the motion. La Cima appealed.
The Court of Appeal analyzed three classes of claims.
First, there are claims Verano raised on its own behalf against La Cima. Those were not subject to a valid agreement to arbitrate. Why? Essentially, because there was no binding contract between Verano and La Cima – property was transferred to La Cima, but no consideration was provided by Verano. Under the Davis-Sterling Act, Verano had to take the common areas subject to the CC&Rs.
Second, Verano sued as a class representative for owners who did not directly purchase from La Cima. Here too, applying contract principles, there was no binding contract between La Cima and owners who did not purchase from La Cima. Also, there was no privity of estate, because La Cima no longer had any interest in the property. Again, the claims were not arbitrable.
Third, there were original purchasers bound by an arbitration provision in their contracts with La Cima. Their claims were arbitrable. Also, the Court of Appeal had no trouble concluding that, because ""La Cima's development project was clearly intimately enmeshed with interstate commerce," the arbitration agreement would be covered by the FAA.
Accordingly, the trial court's order was reversed and remanded with instructions to segregate the third class of claims – claims by the original purchasers – and grant La Cima's motion to compel arbitration of those claims only.
The MFAA can be a trap for the unwary. The parties need to be aware of the following requirement: “If no action is pending, the trial after arbitration shall be initiated by the commencement of an action in the court having jurisdiction over the amount of money in controversy within 30 days after service of notice of the award.” Bus. & Prof. Code section 6204(c). In the next case, that requirement was at issue. Rosenson v. Greenberg Glusker Fields Claman & Machtinger LLP, 203 Cal.App.4th 688 (2012). What happens if, after receiving an adverse MFAA award, a party serves a demand for binding arbitration instead of initiating a trial de novo?
Plaintiff and Respondent Rosenson obtained an award under the MFAA, requiring his attorney to return of some of the fees he had paid for legal services, Defendant and Appellant Greenberg Glusker. However, Mr. Rosenson and Greenberg Glusker had a retainer agreement providing for binding arbitration. Within 30 days of the service of the MFAA award, Greenberg Glusker filed its demand for arbitration. Rather than participate in binding arbitration, Mr. Rosenson petitioned the superior court – successfully -- to confirm his favorable arbitration award. Greenberg Glusker appealed, arguing its timely arbitration demand prevented the MFAA award from becoming final.
The Court of Appeal, in an opinion authored by Justice Kriegler, agreed with Greenberg Glusker: “If the parties have agreed in writing to binding arbitration, a demand for arbitration within 30 days of service of the MFAA award is a proceeding that prevents finality of the MFAA award.” In reaching its conclusion, the Court of Appeal relied heavily on an earlier California Supreme Court decision, Schatz v. Allen Matkins Leck Gamble & Mallory LLP, 45 Cal.4th 557 (2009) (holding the MFAA does not stand as an obstacle to the enforcement of a valid agreement to arbitrate pursuant to the California Arbitration Act). Thus, “binding arbitration, pursuant to a preexisting agreement, may go forward once the MFAA arbitration process is over.” Schatz, supra, 45 Cal.4th at 57. Saved from The Bear Trap [below]!
The Court of Appeal pointed out that if Greenberg Glusker had filed a superior court action to compel arbitration instead, “it would have run afoul of settled California law prohibiting an action to compel arbitration until the opposing side has refused to arbitrate.” That, by the way, is another trap for the unwary – seeking to compel arbitration prematurely, before the other side refuses a demand to arbitrate.
Snow shoe travelling. The Bear Trap. 1866. Library of Congress.

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