Albers v. Naegele
Filed 11/6/13 Albers v. Naegele CA2/7
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and parties from citing or relying on opinions not certified for publication or
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IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
SEVEN
>
RAYMOND H. ALBERS et al., Plaintiffs and Respondents, v. TIMOTHY D. NAEGELE et al., Defendants and Appellants. | B240455 (Los Angeles County Super. Ct. No. LS018168) |
APPEAL from
a judgment of the Superior Court
of
County, Huey P. Cotton, Jr., Judge. Affirmed.
Timothy
D. Naegele & Associates and Timothy D. Naegele for Defendants and
Appellants.
Law
Offices of Lloyd J. Michaelson and Lloyd J. Michaelson for Plaintiffs and
Respondents.
_______________________
Appellants Timothy D. Naegele and
his law firm, Timothy D. Naegele & Associates, appeal from the judgment confirming
an attorney-client fee arbitration award
in favor of respondents Raymond H. Albers and Deanna J. Albers.
Alberses in a civil action, a fee dispute arose between the parties. The Alberses invoked their statutory right to
arbitrate the dispute pursuant to California’s Mandatory Fee Arbitration Act (MFAA;
Bus. & Prof. Code,
name="_ftnref2" title="">[2] § 6200 et. seq.), but Naegele refused to attend
the arbitration, claiming the arbitrators lacked jurisdiction over the dispute
based on a forum selection clause in the fee agreement. After the arbitrators issued an award in the
Alberses’ favor, Naegele filed a rejection of the award and request for trial
in a pending federal action that he had brought against the Alberses in the
United States District Court for the District of Columbia. Over the next four years, the federal court stayed
that action at various times without reaching the merits of Naegele’s request
for trial after arbitration or the Alberses’ motion to dismiss for lack of
jurisdiction.
Shortly before the expiration of
the four-year statute of limitations (Code Civ. Proc., § 1288), while the
federal action was being stayed, the Alberses filed a petition to confirm the
arbitration award in a new action commenced in Los Angeles County Superior Court. Naegele subsequently filed a
which he contended that the California action was barred as a matter of law by
the Alberses’ failure to timely serve him with the petition and by the federal
court’s exclusive jurisdiction over the dispute based on the forum selection
clause in the fee agreement and Naegele’s filing of the request for trial in
the federal action. The state trial court denied Naegele’s motion
for judgment on the pleadings and thereafter granted the Alberses’ petition to
confirm the arbitration award. For the
reasons set forth below, we affirm.
I.
The Alberses Request a Mandatory Fee Arbitration
Under the MFAA.
Naegele is an attorney licensed to
practice law in California and the Alberses are California residents. In 1998, the Alberses retained Naegele to
represent them in a civil action filed on their behalf in the United States
District Court for the Central District of California. On December 18, 1998, the Alberses entered
into a fee agreement with Naegele which included the following clause: “This agreement and the rights and
obligations of the parties hereto shall be governed by, and construed and
enforced in accordance with the laws of the District of Columbia; venue for any
disputes or litigation arising out of this agreement shall be in a court of the
District of Columbia and/or in the United States District Court for the
District of Columbia; and the [Alberses] hereby consent to the jurisdiction of
such court or courts with respect to any disputes or litigation arising out of
this agreement.†The fee agreement was
subsequently amended by three separate addenda, each of which included the same
forum selection clause. After several
years of litigation, the federal district court dismissed the Alberses’ action,
and following an appeal filed on their behalf by Naegele, the United States
Court of Appeals for the Ninth Circuit affirmed the dismissal.
At some point,
a dispute arose between the parties over the attorney’s fees owed to
Naegele. Represented by new counsel,
Lloyd J. Michaelson, the Alberses invoked their statutory right to a fee
arbitration under the MFAA (§ 6200 et. seq.).
On September 25, 2003, the Los Angeles County Bar Association’s (LACBA)
Dispute Resolution Services sent a letter to the Alberses, with a copy to
Naegele, regarding their pending request for arbitration and waiver of the
associated filing fees.
II.
Naegele Files a Federal Action Against the
Alberses in the District of Columbia.
On December 8,
2003, prior to the arbitration hearing, Naegele filed a civil action against
the Alberses and their new counsel, Michaelson, in the United States District
Court for the District of Columbia, seeking recovery of attorney’s fees and alleged
tort damages. On January 5, 2004, the
Alberses and Michaelson filed notices of automatic stay of the federal action
pending the fee arbitration pursuant to section 6201, subdivision (c). Rather than submit to mandatory arbitration,
Naegele responded with a flurry of filings in the federal action, including a
first amended complaint, a motion to strike the notices of stay, a motion for
entry of default, and two separate motions for sanctions. While Naegele continued to actively litigate
the federal action, the fee arbitration was scheduled to be held in California
in November 2004. As of the scheduled
arbitration date, however, the federal district court had not ruled on whether
the federal action should be stayed pending the California arbitration
proceedings.
III.
Naegele Fails to Appear at the Arbitration
Hearing and the Arbitrators Issue a Fee Award in the Alberses’ Favor.
On November 17, 2004, the mandatory
fee arbitration was held before a three-member arbitration panel through the
LACBA’s Dispute Resolution Services.
Prior to the arbitration hearing, Naegele was served with a notice to
appear and produce documents at the hearing.
He also was ordered by the arbitration panel to produce the Alberses’ case
file. Naegele submitted a written
memorandum to the arbitration panel in which he contested the panel’s
jurisdiction to hear the fee dispute based on the forum selection clause in the
parties’ fee agreement. However, the
presiding arbitrator for the State Bar’s Office of Mandatory Fee Arbitration
rejected Naegele’s argument and ruled that the arbitration panel had
jurisdiction to adjudicate the fee dispute.
The Alberses and Michaelson
attended the arbitration hearing. Although
Naegele was represented by counsel at the arbitration, he did not personally
appear at the hearing nor did he produce the Alberses’ file. During the proceedings, Naegele’s counsel
made an opening statement and closing argument, cross-examined the Alberses,
and presented documentary evidence including a written statement from Naegele
and a copy of the fee agreement.
However, Naegele’s counsel denied knowledge of why his client had failed
to produce to Alberses’ file or to appear at the hearing, except to state that
Naegele continued to contest the arbitrators’ jurisdiction.
On January 14, 2005, the
arbitration panel issued a written award in favor of the Alberses. The panel found that Naegele repeatedly had
pursued meritless litigation in representing the Alberses in the underlying civil
action and that the Alberses had paid Naegele $735,481.32 in attorney’s fees
and costs. The panel further found that
the total amount which Naegele reasonably should have charged was $8,500 and
that Naegele was required to refund the Alberses the sum of $726,981.32. Additionally, the panel found that Naegele
willfully had failed to appear at the arbitration hearing and that he should
not be entitled to a trial after arbitration pursuant to the LACBA’s Rules for
Conduct of Arbitration of Fee Disputes and Other Related Matters. The arbitration award was served by mail on the
parties on January 24, 2005.
name="_ftnref4" title="">[4]
IV.
Naegele Files a Rejection of the Arbitration
Award and Request for Trial in the Pending Federal Action.
On January 3, 2005, after the
arbitration was held but prior to the issuance of the arbitration award,
the federal district court stayed the federal action pending the completion of
the arbitration proceedings. (Naegele
v. Albers, supra, 355 F.Supp.2d at
p. 132.) In granting the stay, the
federal court reasoned as follows: “The
court recognizes that states are generally responsible for the regulation of
lawyers. [Citation.] The court further recognizes California’s
substantial interest in providing clients with prophylactic tools to deal with
attorney-client fee disputes, that is, with an ‘effective inexpensive remedy .
. . which does not necessitate the hiring of a second attorney.’
[Citation.] For litigation to occur
simultaneously with such arbitration would not only frustrate California’s
policy reasons for these statutes, but would completely defeat them.
[Citation.] Because the plaintiff is an
attorney licensed to practice law in California and the events that gave
rise to this fee dispute and the instant ligation also arose in California, the
court stays the litigation of the attorney-client fee dispute pending the
completion of arbitration in California.â€
(Id. at p. 141.) The parties were ordered “not to file any
motions in this case until so directed†by the federal court, and within 30
days of the completion of the arbitration, “to submit a joint status report
informing the court of the outcome of the arbitration proceedings, whether they
wish to continue with this case in this venue, and their proposed briefing
schedule and deadlines for how this case will proceed from that point forward,
if at all.†(Id. at pp. 141-142.)
name="_ftnref5" title="">[5]
On February
22, 2005, Naegele filed a rejection of the arbitration award and request for
trial after arbitration in the pending federal action pursuant to section 6204,
subdivision (b). In a minute order
entered on March 10, 2005, the federal court stated that “[i]n light of the
failed arbitration proceedings, the parties are hereby ordered to file a joint
status report, by no later than March 24, 2005, proposing how the parties wish
to proceed in this case and proposing a briefing schedule.†In a March 24, 2005 minute order, following
the parties’ submission of the joint status report, the federal court ruled
that “[u]pon consideration of the parties’ joint status report and in an effort
to assist this case in progressing through a more conventional schedule, the
[Alberses] are hereby ordered to file a responsive pleading by no later than
April 25, 2005.†At that time, the
federal court did not make any ruling or set any briefing schedule concerning
Naegele’s request for trial after arbitration.
V.
The Alberses File and Then Dismiss, Without
Prejudice, a Petition to Confirm the Arbitration Award in Los Angeles County
Superior Court.
On March 28, 2005, the Alberses filed a
petition to confirm the arbitration award in Los Angeles County Superior
Court. The petition was served on
Naegele and his counsel in April 2005. On
April 15, 2005, Naegele’s counsel sent a letter to Michaelson demanding that the
petition be withdrawn in light of Naegele’s request for trial in the federal
action and threatening to seek sanctions if the Alberses failed to do so. In an April 19, 2005 response letter to
Naegele’s counsel, Michaelson acknowledged the pending federal action, but
noted that the federal district court still had not made any determination
concerning subject matter or personal jurisdiction as to the Alberses. Michaelson explained that, if the federal
court exercised jurisdiction over the action, then it might be the appropriate
court to entertain the petition to confirm the arbitration award; however, if
the federal court dismissed the action for lack of jurisdiction, the proper venue
for the petition would be the Los Angeles County Superior Court. Given the procedural posture of the case,
Michaelson agreed to dismiss the petition without prejudice pending the federal
court’s ruling on the Alberses’ motion to dismiss for lack of jurisdiction and
to re-file the petition in California if the motion was granted.
VI.
The Federal District Court Denies Naegele’s
Request for Trial Without Prejudice and Stays the Federal Action.
On April 20,
2005, the Alberses filed their motion to dismiss the federal action. On August 8, 2005, the federal district court
denied Naegele’s request for trial without prejudice in light of the Alberses’
pending motion to dismiss. Yet over the
next year, the federal court did not make any ruling on the
the issue of jurisdiction. Instead, on
June 6, 2006, the federal court granted Naegele’s motion to stay the action
pending the outcome of criminal bankruptcy fraud charges that had been filed
against him. On April 14, 2008, following
the completion of the criminal proceedings, the Alberses filed a motion to lift
the stay, but the federal court did not take any action on that motion.
VII.
The Alberses Re-file the Petition to Confirm the
Arbitration Award in Los Angeles County Superior Court.
On January 13,
2009, shortly before the expiration of the four-year statute of limitations
(Code Civ. Proc., § 1288), the Alberses re-filed their petition to confirm the
arbitration award in a new action commenced in Los Angeles County Superior
Court. However, the Alberses were unable
to locate Naegele to serve him with a copy of the re-filed petition within the
limitations period. According to a
declaration submitted by Michaelson, he attempted to personally serve Naegele
with the petition for over a year, but could not ascertain Naegele’s
whereabouts. Michaelson sent a copy of
the petition via first class and certified mail to a post office box in Malibu,
California which Naegele had identified as his address on the State Bar website
and his business website, but Naegele did not sign an acknowledgement of
receipt. On four separate occasions, Michaelson
attempted to personally serve Naegele at his last known home address in Oxnard,
California, but no one answered the door.
On December 22, 2009, after learning that Naegele was using a mail box
at a private mail box store in Oxnard, Michaelson left a copy of the petition
with the store owner. The following day,
he sent a copy of the petition via first class mail to Naegele’s registered mail
box.
VIII.
The Federal District Court Lifts the Stay of the
Federal Action, But Does Not Rule on the Alberses’ Motion to Dismiss.
At the time
the Alberses re-filed their petition to confirm the arbitration award on
January 13, 2009, the stay of the federal action remained in effect. On January 15, 2009, two days after re-filing
the petition, the Alberses filed a second motion in the federal action seeking
to lift the stay. Six months later, on
June 17, 2009, the federal district court lifted the stay, but did not
thereafter rule on the Alberses’ still pending motion to dismiss the action for
lack of jurisdiction. On March 31, 2010,
following an additional nine months of inactivity in the federal case, the
Alberses renewed their motion to dismiss. In response, on April 12, 2010, Naegele filed
an opposition to the Alberses’ motion to dismiss, along with a separate motion
for sanctions and a motion for leave to file a second amended complaint. Shortly after these filings, however, the
federal action again became inactive without any decision from the federal
court on the issue of jurisdiction.
IX.
The State Trial Court Denies Naegele’s Motion
for Judgment on the Pleadings.
Back in the California action, Naegele
filed an answer to the petition to confirm the arbitration award on June 1,
2010. Four months later, on October 7,
2010, Naegele filed a motion for judgment on the pleadings on the grounds that
the California action was barred by (1) the Alberses’ failure to timely serve
the petition within the four-year statute of limitations in Code of Civil
Procedure section 1288, and (2) the federal court’s exclusive jurisdiction over
the fee dispute based on the forum selection clause in the fee agreement and
Naegele’s timely filing of a rejection of the arbitration award and request for
trial in the federal action. In
connection with his motion for judgment on the pleadings, Naegele asked the
trial court to take judicial notice of certain documents, including the parties’
fee agreement, the civil docket in the pending federal action, and the April 19, 2005 letter from Michaelson.
On October 6,
2011, the trial court denied Naegele’s motion for judgment on the
pleadings. In its written order, the court
noted that Naegele never filed a response to the petition to confirm the
arbitration award as required by the Code of Civil Procedure, and even if the
motion for judgment on the pleadings could be construed as a response to the
petition, it was not timely filed. With
respect to the statute of limitations, the court found that, under Code of
Civil Procedure section 473 and the court’s inherent equitable powers, the
Alberses were entitled to relief from their failure to timely serve the
petition. The court reasoned that Naegele
had known of the Alberses’ intent to seek confirmation of the arbitration award
based on their timely filing and service of the prior petition, and that
Naegele had taken “steps to delay the litigation and to avoid being servedâ€
with the re-filed petition. With respect
to jurisdiction, the court rejected Naegele’s argument that the petition was
barred by his filing of a request for trial in the pending federal action. The court noted that a party who willfully
failed to appear at an arbitration hearing was not entitled to a trial de novo
and that the arbitrators had found that Naegele’s non-appearance was
willful. The court set the matter for an
order to show cause as to why the Alberses’ petition to confirm the arbitration
award should not be granted.
X.
The State Trial Court Grants the Petition to
Confirm the Arbitration Award.
On January 17, 2012, Naegele filed
a request for a four-month continuance of the order to show cause hearing to (1) permit
the federal district court to decide whether the California action should be
stayed pending the outcome of the federal action, and (2) allow Naegele to
obtain alternate counsel in the California action following the withdrawal of
his former attorney. In support of his
request for a continuance, Naegele repeated his prior arguments that the federal
court had exclusive jurisdiction over the fee dispute, and that even if the
state court had jurisdiction, the statute of limitations for enforcing the
arbitration award had expired. Naegele
also requested that the trial court take judicial notice of the fee agreement, the
civil docket in the federal action, and a recent motion that he had filed in
the federal action to stay the California proceedings.
On February 8,
2012, the trial court denied Naegele’s request for a continuance and granted
the Alberses’ petition to confirm the arbitration award. In its written order, the court stated that
it previously had found there was “no jurisdictional issue†and “no issues with
any statute of limitations regarding the enforcement of the arbitration award.†The court also noted that Naegele had “offered
no compelling reason to continue this hearing another four months nor has he
explained the calculation of why four months are necessary.†On February 24, 2012, the trial court entered
a judgment in favor of the Alberses on their petition to confirm the
arbitration award and ordered Naegele to pay the Alberses a total of
$731,831.25, which included the Alberses’ arbitration fees and court costs. Following the entry of judgment in the
California action, Naegele filed a timely notice of appeal.
XI.
The Federal District Court Denies Naegele’s Renewed
Request for Trial and Stays the Federal Action Pending the Resolution of This
Appeal.
The federal action again became
active in December 2011 when, following the denial of his motion for judgment
on the pleadings in the California action, Naegele returned to the federal district
court seeking a stay of the state court proceedings. The federal court, however, did not take any
immediate action on Naegele’s request for a stay. In
February 2012, after the state court granted the Alberses’ petition to confirm
the arbitration award, Naegele again asked the federal court to issue an
injunction staying the state court proceedings.
On February 21, 2012, the federal court denied Naegele’s request for a
stay on the grounds that he had failed to show a likelihood of success on the merits
or that he would suffer an irreparable injury.
(Naegele v. Albers,
Shortly thereafter, the Alberses
filed a motion for a ruling on their still pending motion to dismiss the
federal action. In March 2012, the
federal court granted Naegele’s motion for leave to file a second amended
complaint, and denied the Alberses’ motion to dismiss as moot in light of the
filing of a new operative complaint. In
April 2012, Naegele filed a motion for reconsideration of his rejection of the
arbitration award and request for trial, which previously had been denied
without prejudice. One year later, on
April 18, 2013, the federal court set the matter for an order to show cause as
to (1) why the federal action should not be stayed pending the resolution
of Naegele’s appeal in the California action, and (2) why the federal court
should not find that Naegele willfully failed to appear at the arbitration hearing
within the meaning of section 6204, subdivision (a). (Naegele
v. Albers, supra, 2013 U.S. Dist.
Lexis 55288 at pp. *12-*13, *25-*26.)
On July 18,
2013, the federal court denied Naegele’s motion for reconsideration and request
for trial, and ordered that the federal action be stayed in its entirety pending
a final resolution of the California action.
(Naegele v. Albers,
p. *25.) The court found that Naegele
was not entitled to a trial de novo from the arbitration proceedings because he
willfully failed to appear at the arbitration hearing, and thus, the award
rendered by the arbitration panel was binding.
(Id. at pp. *23-24.) In making that finding, the court rejected
Naegele’s argument that he was not required to attend the arbitration based on his
objection to the arbitrators’ jurisdiction, reasoning as follows: “Had Naegele simply participated in the
arbitration proceedings and appeared for the hearing notwithstanding--obviously
preserving his objections along the way (as he did)--and thereafter filed a
timely request for trial (as he did), it seems he could have achieved the very
result he was seeking: to have the fee dispute and his related claims
adjudicated anew before [the federal court] as though the MFAA arbitration had
never happened. [Citation.] Instead, Naegele doubled down on his
obstinance, refusing to abide by the MFAA’s provisions and willfully failing to
appear at the arbitration hearing.†(
the federal action was proper because the outcome of Naegele’s appeal in the
California action likely would impact how the federal action should proceed. (Id.
at p. *24.)
DISCUSSION
In his appeal, Naegele challenges
the trial court’s order granting the petition to confirm the arbitration award
on several grounds. He argues that the
arbitration award is unenforceable as a matter of law because the arbitrators
lacked jurisdiction to hear the fee dispute based on the forum selection clause
in the fee agreement. He further asserts
that the trial court lacked jurisdiction to confirm the arbitration award based
on the same forum selection clause as well as Naegele’s filing of a rejection
of the award and request for trial in the pending federal action. In addition, he claims that, even if the trial
court had jurisdiction to confirm the award, the Alberses’ action was barred by
their failure to timely serve the petition before the four-year statute of
limitations expired.
I.
The Arbitrators’ Jurisdiction to Hear the Fee
Dispute Under the MFAA
Naegele first contends
that the arbitration panel lacked jurisdiction to hear the parties’ fee dispute
under the MFAA because the forum selection clause in their fee agreement vested
exclusive jurisdiction over any dispute arising out of the agreement in the
District of Columbia courts. Based on
the statutory terms and purpose of the MFAA, and the applicable case law
construing it, we conclude that this claim lacks merit.
A.
Relevant Law
Under the MFAA, “when there is a
fee dispute between an attorney and a client, the client may choose to submit
the matter to arbitration by a local bar association. If the client elects such arbitration,
the attorney must agree to arbitrate.†(
Mallory LLP (2009) 45 Cal.4th 557, 561 (Schatz).) As the California Supreme Court has
explained, “[t]he MFAA was first proposed by the Board of Governors of the
State Bar of California in 1976 when, finding that disputes concerning legal
fees were the most serious problem between members of the bar and the public,
the board sought to create a mechanism for arbitrating disputes over legal fees
and costs. Recognizing the ‘disparity in
bargaining power in attorney fee matters which favors the attorney in dealings
with infrequent consumers of legal services’ [citation.], that many clients could not
afford hiring additional counsel to litigate fee disputes in the civil courts
[citation], and that previous schemes that called for voluntary arbitration
were ineffective [citation.], the Legislature enacted the MFAA.†(Aguilar
v. Lerner (2004) 32 Cal.4th 974, 983 (Aguilar).)
“The nature of the obligation to
arbitrate under the MFAA differs from that under standard arbitration in two
important ways. First, the obligation to
arbitrate under the MFAA is based on a statutory directive and not the parties’
agreement. Thus, a client may invoke the
MFAA and proceed to arbitration despite the absence of any prior agreement to
do so. . . . [¶] Second, section 6200,
subdivision (c) provides: ‘[A]rbitration under this article shall be voluntary
for a client and shall be mandatory for an attorney if commenced by a
client.’ In other words, whereas a
client cannot be forced under the MFAA to arbitrate a dispute concerning legal
fees, at the client’s election an unwilling attorney can be forced to do
so.†(Aguilar, supra, 32
Cal.4th at p. 984.)
The MFAA also “specifies the
conditions under which the client can waive its protections.†(Aguilar,
supra, 32 Cal.4th at p. 985.) Where the attorney has provided the client
with the requisite notice of the right to arbitrate under the MFAA, the client
may waive the right to arbitration either by failing to request arbitration
within 30 days of receipt of the notice or by filing an answer in an action
commenced by the attorney. (§ 6201,
subds. (a), (b).) The client also may
waive the right to arbitration by commencing an action or filing a pleading
seeking either judicial resolution of a fee dispute or affirmative relief
against the attorney for malpractice or professional misconduct. (§ 6201, subd. (d).) Upon the client’s timely filing and service
of a request for arbitration, any pending action between the parties is
automatically stayed until the arbitration award is issued or the arbitration
is otherwise terminated. (§ 6201, subd.
(c).)
The finality
of an award under the MFAA depends upon the actions of the parties. “The parties may agree in writing to be bound
by the award of arbitrators . . . at any time after the dispute over fees,
costs, or both, has arisen. In the
absence of such an agreement, either party shall be entitled to a trial after
arbitration if sought within 30 days, . . . except that if either party
willfully fails to appear at the arbitration hearing in the manner provided by
the rules adopted by the board of trustees, that party shall not be entitled to
a trial after arbitration.†(§ 6204,
subd. (a).)
title="">[6] “If there is an action pending, the trial
after arbitration shall be initiated by filing a rejection of arbitration award
and request for trial after arbitration in that action within 30 days after
service of notice of the award.†(§
6204, subd. (b).) “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.†(§ 6204, subd. (c).) To the extent that a party is entitled to a
trial after arbitration, such trial “is conducted de novo, essentially as if no
arbitration had occurred.†(
364, 373 (Maynard).)
B.
The Alberses Did Not Waive Their Statutory Right
to Arbitration Under the MFAA.
We are unaware of any California
case that has addressed whether a pre-dispute forum selection clause in a fee
agreement may preclude a client from invoking his or her statutory right to
arbitration under the MFAA. However, the
California Supreme Court has addressed an analogous issue in considering the
relationship between arbitration under the MFAA and a pre-dispute contractual
arbitration agreement. In
recognized that “[i]f the client chooses to arbitrate ‘under this article’
(i.e., pursuant to the MFAA), the client has the right to do so whether or not
the parties had also executed an arbitration agreement. If the client fails to invoke his or her
rights under the MFAA, such rights are waived entirely and . . . the
preexisting arbitration agreement is enforceable against the client, with no
residual MFAA protections standing as an obstacle.†(Aguilar,
supra, 32 Cal.4th at p. 989, fn.
omitted.) As Justice Chin similarly noted
in his concurring opinion, “[c]lients may, if they wish, request and obtain
nonbinding arbitration under the MFAA.
That arbitration may, and often will, resolve the dispute. But if the client does not request nonbinding
arbitration, or if it is held but does not resolve the dispute, then the MFAA
has played its role, and the matter would continue without it. Either party may then pursue judicial action
unless the parties had agreed to binding arbitration.†(Id.
at p. 991 (conc. opn. of Chin, J.).)
Likewise, in Schatz, the Supreme Court explained that the MFAA’s provision for a trial
de novo after arbitration “does not purport to speak to whether the parties to
a nonbinding MFAA arbitration may
otherwise agree, or have agreed, on how to resolve the case if the MFAA
arbitration leaves one or both parties dissatisfied.†(Schatz,
supra, 45 Cal.4th at p. 572.) Rather, the statute contemplates that,
subject to the exception for a willful failure to attend the arbitration
hearing, “unless the parties agree to be bound by the MFAA arbitration, and
thus to end the dispute then and there, the case may, following MFAA
arbitration, proceed by normal means. . . . [T]hose normal means may include
not only court litigation, but ‘other proceedings’ such as binding arbitration
pursuant to a predispute agreement between the parties.†(Ibid.;
see also Maynard,
most part a trial following fee arbitration proceeds in the trial court as if
there had been no arbitration at allâ€].)
Therefore, even where the parties have entered into a pre-dispute contractual
arbitration agreement, as in Schatz and
Aguilar, the client retains the statutory
right to arbitration under the MFAA. If
the client properly invokes the right to arbitrate, the MFFA arbitration takes
place first and any award issued by the arbitrators is non-binding unless the
parties otherwise agree or a party willfully fails to appear at the arbitration
hearing. Once the non-binding MFAA
arbitration is completed, either party is free to seek enforcement of the preexisting
arbitration agreement.
Applying similar reasoning to this
case, we conclude that the existence of a pre-dispute forum selection clause in
a fee agreement, in which a client agrees to litigate fee disputes in a
designated judicial forum, does not deprive the client of the right to
arbitration under the MFAA. If the
client timely requests and maintains a MFAA arbitration, the forum selection
clause only comes into play after the arbitration proceedings have concluded. Following the MFAA arbitration, to the extent
the fee dispute has not been resolved and a judicial action is commenced,
either party may seek enforcement of the forum selection clause in the fee
agreement. However, if a party willfully
fails to appear at the arbitration hearing, as determined by a court with
proper jurisdiction, that party will not be entitled to a trial de novo in the
judicial proceedings.
Our conclusion that a client does
not automatically waive his or her rights under the MFAA by consenting to a
forum selection clause in a fee agreement is also consistent with the express
provisions and legislative purpose of the MFAA.
As discussed, the MFAA prescribes the specific conditions under which a client
may waive the protections of the statute. A client waives the right to arbitrate under
the MFAA (1) by failing to request arbitration within 30 days of receipt
of a notice of the right to arbitrate (§ 6201, subd. (a)); (2) by failing to
request arbitration before filing an answer in an action by an attorney who has
provided the client with notice of the right to arbitrate (§ 6201, subd. (b));
(3) by filing an action or other pleading seeking judicial resolution of a fee dispute
with the attorney (§ 6201, subd. (d)(1)); or (4) by filing an action or other
pleading seeking affirmative relief against the attorney for malpractice or
professional misconduct (§ 6201, subd. (d)(2)).
While there may be other circumstances where a client’s post-dispute
conduct in unreasonably delaying arbitration can be found to constitute a waiver
of the right to arbitrate (Law Offices of
Dixon R. Howell v. Valley (2005) 129 Cal.App.4th 1076, 1103-1104), nothing
in the plain language of the statute supports a conclusion that a client can
effectively waive the protections of the MFAA before a dispute has arisen.
Additionally, the MFAA was enacted
to require, at the option of the client, that the attorney arbitrate any fee
dispute. Absent the client’s written
agreement, arbitration of fee disputes “shall be voluntary for a client and
shall be mandatory for an attorney if commenced by a client.†(§ 6200, subd. (c); see also
supra, 32 Cal.4th at p. 984.) “The policy behind the mandatory fee
arbitration statutes [was] … to alleviate the disparity in bargaining power in
attorney fee matters which favors the attorney by providing an effective, inexpensive
remedy to a client which does not necessitate the hiring of a second
attorney. [Citation.]†(Manatt,
Phelps, Rothenberg & Tunney v. Lawrence (1984) 151 Cal.App.3d 1165,
1174; see also Huang v. Cheng
(1998) 66 Cal.App.4th 1230, 1234 [MFAA’s “purpose and policy . . . are to
ensure the fair resolution of attorney fee disputesâ€].) If an attorney could require a client to contractually
waive any and all rights to arbitration under the MFAA as a condition of the
parties’ fee agreement, such waiver would seriously undermine the protections
of the statutory scheme. It thus would
be contrary to the legislative purpose of the statute to allow an attorney’s
inclusion of a forum selection clause in a fee agreement to trump a client’s
right to mandatory arbitration under the MFAA.
Finally, even assuming that a
client could waive his or her right to a MFAA arbitration in a fee agreement,
the Alberses did not do so here. The
forum selection clause in the Alberses’ fee agreement states that the “venue
for any disputes or litigation arising out of this agreement shall be in a
court of the District of Columbia and/or in the United States District Court
for the District of Columbia.†It also states
that the Alberses “consent to the jurisdiction of such court or courts with
respect to any disputes or litigation arising out of this agreement.†Notably, the fee agreement makes no reference
to the Alberses’ statutory right to arbitration under the MFAA or to any purported
waiver of such rights. It simply
designates the courts of the District of Columbia as the selected judicial
forum for any disputes or litigation arising out of the agreement. Hence, under the terms of the fee agreement
itself, the Alberses were not precluded from arbitrating their fee dispute pursuant
to the MFAA and from staying any pending judicial action between the parties
until the arbitration proceedings were completed.
In sum, the
Alberses did not waive their statutory
right to arbitration under the MFAA by consenting to a forum selection
clause in the fee agreement. The
arbitration panel accordingly had jurisdiction to hear the parties’ fee dispute
and to issue an arbitration award in the Alberses’ favor.
II.
The Trial Court’s Jurisdiction to Confirm the
Arbitration Award
Naegele also
contests the state trial court’s jurisdiction to confirm the arbitration award
based on the forum selection clause in the fee agreement and his filing of a
rejection of the award and request for trial after arbitration in the pending
federal action. Based on the specific
factual and procedural history surrounding the parties’ fee dispute and ensuing
litigation, we conclude that the trial court did not abuse its discretion in deciding
to exercise its jurisdiction in this case.
A.
Relevant Law
The proper judicial forum for adjudicating
the Alberses’ petition to confirm the arbitration award involves consideration
of both the forum selection clause in the parties’ fee agreement and the
procedural requirements of the MFAA. In
California, “forum selection clauses are valid and may be given effect, in the
court’s discretion and in the absence of a showing that enforcement of such a
clause would be unreasonable.†(
Superior Court (1976) 17 Cal.3d 491, 496 (Smith).) However, contrary
to Naegele’s contention, an agreement to litigate a dispute in a forum outside
California does not deprive California courts of subject matter jurisdiction. It merely empowers the court to decline to
exercise its jurisdiction under the circumstances of the case. (Miller-Leigh
LLC v. Henson (2007) 152 Cal.App.4th 1143, 1149; see also
agreement[,] . . . courts possess discretion to decline to exercise jurisdiction in recognition of the parties’
free and voluntary choice of a different forumâ€].)
“California courts will refuse to
defer to the selected forum if to do so would substantially diminish the rights
of California residents in a way that violates our state’s public policy.†(America
Online, Inc. v. Superior Court (2001) 90 Cal.App.4th 1, 12.) In addition, because California has a
strong interest in ensuring its residents an adequate forum for the redress of
grievances, “the law generally allows only for a stay, and except in rare
circumstances precludes dismissal, of an action filed by California residents.â€
(Berg v. MTC Electronics Technologies Co.
(1998) 61 Cal.App.4th 349, 356.) The
proper procedure for seeking enforcement of a forum selection clause is not a
demurrer or motion for judgment on the pleadings based on a lack of
subject matter jurisdiction. Rather, it
is a motion to stay or dismiss an action on the ground of forum non conveniens
pursuant to Code of Civil Procedure section 410.30 or 418.10. (Miller-Leigh
LLC v. Henson, supra, 152
Cal.App.4th at p. 1149.) The trial
court’s ruling on a forum non convenience motion is reviewed for abuse of
discretion. (Trident Labs, Inc. v. Merrill Lynch Commercial Finance Corp. (2011)
200 Cal.App.4th 147, 154.)
The MFAA also
sets forth specific procedures for a party seeking to either contest or enforce
an arbitration award in a judicial forum.
As discussed, a party may challenge a non-binding arbitration award
by filing a rejection of the award and request for trial after arbitration in any
pending action between the parties, or if no action is pending, by commencing a
new action in a court having jurisdiction over the amount in controversy. (§ 6204, subds. (b), (c).) A request for trial after arbitration must be
made within 30 days after service of notice of the award. (Ibid.) A party also may file a petition to confirm,
correct, or vacate an arbitration award.
(§ 6203, subd. (b).) If an action
previously has been filed in any court, the petition “shall be to the
court in which the action is pending. . . . If no action is pending
in any court, the award may be confirmed, corrected, or vacated by petition to
the court having jurisdiction over the amount of the arbitration award. . .
.†(Ibid.) A petition to confirm an arbitration award
must be filed and served within four years after service of the award. (Code Civ. Proc., § 1288.)
B.
The Trial Court Properly Exercised Jurisdiction
Over the Alberses’ Petition to Confirm the Arbitration Award.
At the time the Alberses re-filed
their petition to confirm the arbitration award in Los Angeles County Superior
Court, there was a pending action between the parties in the United States
District Court for the District of Columbia.
Therefore, irrespective of any forum selection clause in the fee
agreement, the Alberses ordinarily would have been required to file their
petition in the pending federal action pursuant to section 6203, subdivision
(b). However, as discussed in more
detail below, this was not an ordinary case. Due to the tangled procedural history of the
federal action, the Alberses were effectively precluded from seeking
enforcement of the arbitration award in that action within the four-year statute
of limitations, and were left with no reasonable alternative but to re-file
their petition to confirm the award in a state court proceeding.
Specifically, when the arbitration panel
served the parties with the notice of the arbitration award on January 24,
2005, a stay of the federal action was in effect. The federal district court had ordered the
parties to submit a joint status report within 30 days of completion of the
arbitration proceedings and not to file any other motions in the case until
directed by the court. On February 22,
2005, within 30 days of service of the notice of the award, Naegele filed his
rejection of the award and request for trial after arbitration in the federal
action. On March 24, 2005, following the
parties’ submission of the joint status report, the federal court decided that
the case should progress “through a more conventional schedule†and ordered the
Alberses to file a responsive pleading to Naegele’s complaint. In response, the Alberses timely filed a
motion to dismiss the federal action for lack of personal jurisdiction and
subject matter jurisdiction. The federal
court then denied Naegele’s request for trial without prejudice in light of the
Alberses’ pending motion to dismiss, but did not thereafter rule on the
Alberses’ motion. Instead, at Naegele’s
request, the federal court stayed the action on June 6, 2006, and despite the
Alberses’ subsequent efforts to move the case forward, that stay remained in
effect for the next three years.
On April 14, 2008, prior to
re-filing their petition to confirm the arbitration award in state court, the
Alberses moved to lift the stay of the federal action. However, the federal court did not rule on
the Alberses’ motion to lift to the stay or on their still pending motion to
dismiss for lack of jurisdiction. After another
nine months passed without a ruling from the federal court, the Alberses were
faced with a procedural dilemma. The statute
of limitations for filing the petition to confirm the arbitration award was set
to expire in late January 2009. The
Alberses could not re-file their petition in the pending federal action because
that action was stayed and the federal court still had not ruled on their
motion to lift the stay. The federal
court also had not made any ruling on the motion to dismiss and the Alberses
continued to contest the jurisdiction of the federal court. Under these circumstances, the Alberses properly
took action to preserve their rights by re-filing their petition to confirm the
arbitration award in a state court with jurisdiction over the controversy. The Alberses thus filed the instant petition
in Los Angeles County Superior Court on January 13, 2009, which was within the
limitations period, and two days later, filed a second motion in the federal action
to lift the stay.
Furthermore, as of February 8,
2012, when the trial court granted the Alberses’ petition to confirm the
arbitration award, it appeared that the federal action was nowhere close to
being adjudicated. Although the federal
court had lifted the stay of the action two and a half years earlier in June
2009, it still had not ruled on Alberses’ motion to dismiss for lack of
jurisdiction or made any further orders in the case. As previously discussed, the public policy
behind the MFAA was to provide clients, at their option, with an efficient and
inexpensive method for resolving fee disputes with their attorneys. Yet after nine years of litigation in a forum
outside California, the resolution of the Alberses’ fee dispute with Naegele
had proven to be neither efficient nor inexpensive. In light of California’s substantial interest
in regulating the enforcement of MFAA awards and in ensuring its residents an
adequate judicial forum, the trial court reasonably could find that requiring
the Alberses to file their petition in the pending federal action was unreasonable
under the circumstances of the case. The
trial court’s refusal to enforce the forum selection clause in the fee
agreement was accordingly not an abuse of discretion.
Naegele also argues that the trial court
was precluded from taking any action on the Alberses’ petition because his
filing of a rejection of the arbitration award and request for trial in the
federal action somehow “removed†the California action to federal court. Given that Naegele commenced his suit against
the Alberses in federal court and there was no California action pending at the
time he filed his request for trial in the federal action, Naegele’s removal argument
has no merit. In addition, the federal
court denied Naegele’s request for trial (albeit without prejudice) in August
2005, and Naegele did not file a motion for reconsideration of that ruling
until April 2012, two months after the state court confirmed the arbitration
award. Consequently, there was no
request for trial pending before the federal court at the time the state court
granted the Alberses’ petition.
Moreover,
Naegele cannot show how he was prejudiced by the trial court’s refusal to stay
the California action pending the outcome of the federal suit. Following the state court’s order confirming
the arbitration award, the federal court denied Naegele’s motion for a stay of
the California proceedings. Shortly
thereafter, the federal court also denied Naegele’s renewed request for trial
after arbitration based on a finding that he willfully failed to appear at the
arbitration hearing within the meaning of section 6204, subdivision (a). The state court previously had made a similar
implied finding when it denied Naegele’s motion for judgment on the pleadings. As a result, regardless of where the Alberses
filed their petition to confirm the arbitration award, both the federal
district court and the state trial court agreed that Naegele was not entitled
to a trial de novo after arbitration and that the award issued by the
arbitrators was binding. Under these
circumstances, Naegele has failed to demonstrate any reversible error in the state
trial court’s decision to exercise jurisdiction.
III.
The Statute of Limitations on the Petition to
Confirm the Arbitration Award
Naegele next asserts
that, even if the state trial court had jurisdiction to hear the Alberses’
petition to confirm the arbitration award, the petition was time-barred as a
matter of law by the four-year statute of limitations set forth in Code of
Civil Procedure section 1288. While it
is undisputed that the Alberses failed to serve Naegele with their re‑filed
petition within the limitations period, we conclude that the trial court did
not abuse its discretion in granting equitable relief from the untimely service.
A.
Relevant Law
Section 1288 of the Code of Civil
Procedure provides as follows: “A
petition to confirm an award shall be served and filed not later than four
years after the date of service of a signed copy of the award on the
petitioner. A petition to vacate an
award or to correct an award shall be served and filed not later than 100 days
after the date of the service of a signed copy of the award on
petitioner.†Where a party fails to
comply with the time limitations of the statute, a court may exercise its
inherent equitable power to grant relief from the untimely filing or service. (Eternity
Investments, Inc. v. Brown (2007) 151 Cal.App.4th 739, 746;
989, 994; De Mello v. Souza (1973) 36
Cal.App.3d 79, 85.)
In particular,
a court may grant equitable relief “if, due to the fraud of the opponent or by
his own mistake, the aggrieved party was deprived of a fair adversary hearing
and was prevented from presenting his [or her] claim or defense.†(De
Mello v. Souza, supra, 36
Cal.App.3d at p. 85.) In such a case,
the aggrieved party also must show a satisfactory excuse for not having made
the claim or defense earlier and diligence in seeking relief after discovery of
the facts. (Ibid.) Additionally, under
the doctrine of equitable tolling, a court may “suspend or extend the statute
of limitations as necessary to ensure fundamental practicality and
fairness.†(Lantzy v. Centex Homes (2003) 31 Cal.4th 363, 370.) Application of the equitable tolling doctrine
requires (1) timely notice of the claim to the defendant within the
statutory period, (2) lack of prejudice to the defendant in gathering and
preserving evidence for its defense, and (3) reasonable and good faith
conduct on the part of the plaintiff in pursuing the claim. (Addison
v. State of California (1978) 21 Cal.3d 313, 316; Downs v. Department of Water & Power (1997) 58 Cal.App.4th
1093, 1100.) We review a trial court’s
decision to grant or deny equitable relief for abuse of discretion. (County
of San Diego v. Gorham (2010) 186 Cal.App.4th 1215, 1230.)
B.
The Trial Court Properly Granted the Alberses Equitable
Relief From Their Failure to Timely Serve the Petition.
Considering the totality of the
record in this case, the trial court acted well within its discretion in
granting the Alberses equitable relief from their untimely service of the
petition. As the trial court observed,
the Alberses timely filed and served their original petition to confirm the
arbitration award by April 2005, approximately two months after service of the
award. Therefore, long before the
statute of limitations expired, Naegele was on notice that the Alberses
intended to seek enforcement of the arbitration award and to argue that Naegele
was not entitled to a trial de novo based on his willful failure to appear at
the arbitration hearing. After Naegele
demanded that the petition be withdrawn in light of his pending request for
trial and further threatened to seek sanctions against the Alberses if they
failed to do so, the Alberses agreed to dismiss their petition without
prejudice pending the federal court’s ruling on their motion to dismiss for
lack of jurisdiction. The Alberses also informed
Naegele of their intent to re-file the petition in California if their
motion to dismiss was granted.
For the
reasons previously discussed, the Alberses did not re-file the petition to confirm
the arbitration award until January 13, 2009, shortly before the expiration of
the statute of limitations. Although the
Alberses timely filed that petition, they were unable to locate Naegele to
serve him with a copy within the limitations period. The Alberses’ attorney submitted a
declaration to the trial court in which he detailed his year-long effort to
locate and serve Naegele, and based on such evidence, the trial court
reasonably could find that Naegele had evaded service. On appeal, Naegele insists that he never attempted
to evade service and had no basis for knowing that the Alberses intended to
file a second petition. However, it was
the exclusive province of the trial court to resolve conflicts in the evidence
and to determine the credibility of witnesses, and it is not the role of this
court to second-guess the trial court’s credibility determinations. (Sav-On
Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 334;
Transportation Co. (1996) 44 Cal.App.4th 1160, 1204.) On this record, there was substantial
evidence to support the trial court’s conclusion that, based on the respective actions
of the parties, the Alberses were entitled to equitable relief from their
delayed service of the petition. The
petition accordingly was not time-barred.
DISPOSITION
The judgment
is affirmed. The Alberses shall recover
their costs on appeal.
ZELON,
J.
We concur:
PERLUSS, P.
J.
SEGAL, J.
name="_ftn1" title="">[1] Appellants
Timothy D. Naegele and Timothy D. Naegele & Associates shall be
collectively referred to as Naegele.
Respondents Raymond H. Albers and Deanna J. Albers shall be collectively
referred to as the Alberses.
name="_ftn2" title="">[2] Unless otherwise stated, all further
statutory references are to the Business and Professions Code.
