Callahan & Blaine v. Bejvl

Filed 6/18/07 Callahan & Blaine v. Bejvl CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, Hugh Michael Brenner, Judge. Affirmed.

Law Offices of Thomas P. Aplin and Thomas P. Aplin for Defendants and Appellants.

Callahan & Blaine and Jim P. Mahacek for Plaintiff and Respondent.

* * *

The trial court entered judgment awarding plaintiff Callahan & Blaine, a law firm, nearly $71,000 in unpaid attorney fees, expenses, and prejudgment interest against defendants George Bejvl and Teresa Clark, its former clients. The judgment was based on the courts prior confirmation of an arbitration award obtained under the California Arbitration Act. (Code Civ. Proc.,  1280 et seq.; CAA) Defendants appeal, contending they were entitled to pursue nonbinding arbitration of the dispute under the Mandatory Fee Arbitration Act (Bus. & Prof. Code, 6200 et seq.; MFAA), and both the arbitration service that administered the arbitration and the individual arbitrator should have been disqualified because of conflicts of interest. Since defendants waived their rights under the MFAA and have failed to establish any conflict of interest, we affirm the judgment.

FACTS

Defendants retained plaintiff to represent them in a civil action. The parties executed a retainer agreement that contained a clause stating, in bold print, Any controversy between the parties regarding the construction or application of this Agreement, and all claims for damages or other relief based upon or pertaining to this Agreement or its breach, including . . . disputes concerning fees, . . . shall be submitted to binding arbitration . . . upon the written request of either party, with all proceedings conducted pursuant to the California Arbitration Act, California Code of Civil Procedure section[] 1280 et[] seq. . . . .  The arbitrator must be . . . affiliated with the JAMS facility located in Orange County, California.

In October 2004, plaintiff filed a petition to compel binding arbitration of a dispute over defendants failure to pay for legal services and costs advanced

or . . . incurred . . . under the Retainer [agreement] . . . . Plaintiff also alleged that, Concurrent with the service of this Petition . . . [it] will serve [defendants] . . . with notice of their right to arbitrate this dispute pursuant to the [Orange County Bar Associations] Rules and Regulations and that more than thirty . . . days will have [e]lapsed since service thereof prior to the hearing . . . .

Plaintiff filed documentation reflecting defendants were served by substituted service on November 6 and on November 8, respectively. On November 30, the trial court granted plaintiffs petition and appointed JAMS affiliated arbitrator, retired Judge Richard W. Luesebrink, to conduct the arbitration.

In February 2005, defendants retained attorney Thomas P. Aplin. In May, Aplin objected to the appointment of Judge Luesebrink who then recused himself. The next day the parties agreed to the appointment of retired Judge John W. Kennedy, Jr., as arbitrator. In June, Judge Kennedy authorized the parties to conduct discovery. Defendants submitted to plaintiff a demand for certain documentation and sought to schedule a deposition of plaintiffs most knowledgeable person regarding the underlying action.

Two weeks later, defendants sent Judge Kennedy a letter contesting [his] jurisdiction of this action on the ground plaintiff never gave [defendants] a real opportunity to elect arbitration under the MFAA. Although question[ing] whether [he] had jurisdiction to entertain [d]efendant[s] motion, Judge Kennedy denied the request [o]n the merits, finding the notice sent to [d]efendant[s] by [plaintiff] . . . adequately apprised [them] of [their] rights to seek arbitration under the MFAA. The ruling also observe[d] that Mr. Aplin expressly did not waive his right to further raise the . . . issue in the appropriate forum.

The parties conducted an arbitration hearing before Judge Kennedy in September. Plaintiff was represented by attorney Sarah C. Serpa, an associate with the firm. Judge Kennedy issued an award in favor of plaintiff, who then petitioned the superior court to confirm the award. Defendants opposed that request and also petitioned to vacate the award on two grounds: JAMS . . . lacked jurisdiction to consider the merits of the fee dispute, and Judge Kennedy was biased due to an alleged close working relationship with Serpa that had not been properly disclosed.

The superior court granted plaintiffs petition and denied defendants requests. It issued a minute order finding the binding arbitration clause in [plaintiffs] retainer agreement is enforceable, providing . . . the clients . . . [are] given notice of their right to stay this arbitration and proceed with the [MFAA] procedure. While conceding plaintiffs form was somewhat ambiguous, the court found it gave defendants adequate notice of their . . . rights, which they waived by failing to timely assert them. In addition, the court found defendants failed to meet their burden of proving that Judge Kennedy was disqualified from acting as arbitrator . . . .

DISCUSSION

1. The Validity of the Parties Predispute Binding Arbitration Agreement

Defendants first argue [a] fee dispute between a law firm and its former client is subject to the provisions of the MFAA, and that Act takes jurisdictional precedence over the CAA in attorney-client fee disputes. We disagree.

MFAA arbitration subserves a legislative and public purpose to apply the relatively informal and inexpensive arbitral process to a class of disputes whose nature merits such facility. [Citation.] (Corell v. Law Firm of Fox and Fox (2005) 129 Cal.App.4th 531, 537.) Its policy is 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.] The process favors the client in that only the client can elect mandatory arbitration of a fee dispute; the attorney must submit the matter to arbitration if the client makes that election. (Manatt, Phelps, Rothenberg & Tunney v. Lawrence (1984) 151 Cal.App.3d 1165, 1174-1175.)

But it is now settled a former client can waive its right to invoke the MFAAs procedural protections. (Aguilar v. Lerner (2004) 32 Cal.4th 974, 987-988; Ervin, Cohen & Jessup, LLP v. Kassel (2007) 147 Cal.App.4th 821, 827, 828-829; Law Offices of Dixon R. Howell v. Valley (2005) 129 Cal.App.4th 1076, 1094-1095.) A statutorily authorized form of waiver is a clients failure to invoke the MFAA within 30 days after receiving a notice from counsel of his or her rights under the Act. (Bus. & Prof. Code, 6201, subd. (a).) [A] client may [also] waive MFAA arbitration rights on nonstatutory grounds . . . . (Law Offices of Dixon R. Howell v. Valley, supra, 129 Cal.App.4th at p. 1095.)

If 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, as here, the preexisting arbitration agreement is enforceable against the client, with no residual MFAA protections standing as an obstacle. (Aguilar v. Lerner, supra, 32 Cal.4th at p. 989, fn. omitted.)

Consequently, we reject defendants jurisdictional challenge to the binding arbitration award in this case.

2. Defendants Waiver of Their Rights Under the MFAA

a. Defendants Initial Failure to Seek Arbitration Under the MFAA

Plaintiff contends defendants waived their right to nonbinding arbitration under the MFAA by failing to timely respond to the service of the written notice of their right to request MFAA arbitration.

Business and Professions Code section 6201, subdivision (a) declares an attorney shall forward a written notice to the client prior to or at the time of service of summons or claim in an action against the client, or prior to or at the commencement of any other proceeding against the client under a contract between attorney and client which provides for an alternative to arbitration under this article, for recovery of fees, costs, or both. The written notice shall be in the form that the board of governors prescribes, and shall include a statement of the clients right to arbitration under this article. . . .  [] . . . [T]he clients failure to request arbitration within 30 days after receipt of notice from the attorney shall be deemed a waiver of the clients right to arbitration under the provisions of this article.

Defendants challenge the validity of plaintiffs notice on several grounds. We agree with their claim plaintiffs in-house generated form failed to comply with requirements prescribed by law.

The MFAA notice form maintained on the State Bars website at the time this dispute arose, and a similar one appearing on the Orange County Bar Associations website, provided a space at the top to identify the client to whom it was addressed. Below that the forms contained three paragraphs, each preceded by a box, allowing counsel to indicate whether he or she has filed a lawsuit, filed an arbitration proceeding, or intend[s] to file a lawsuit or arbitration against the client along space to insert the name of the court, arbitration agency, case number of any pending matter, plus information on the nature of counsels services and the amount of unpaid fees. Below these paragraphs and separate from them, is a paragraph stating: As an alternative to the above, you have the right under Sections 6200-6206 of the California Business and Professions Code to request arbitration of this fee dispute by an independent, impartial arbitrator or panel of arbitrators through a bar association program created solely to resolve fee disputes between lawyers and clients.

Plaintiffs form has the same three paragraphs appearing below the client identification line with the box next to the second paragraph marked to indicate it had filed a Petition to [C]ompel Arbitration in the Orange County Superior Court and identifying the underlying lawsuit. But plaintiffs form merged the above-quoted paragraph with the preceding unmarked paragraph concerning counsels inten[t] to file a lawsuit or arbitration . . . . Contrary to the arbitrators and trial judges interpretation, we conclude that, unless the third paragraph is marked, a reasonable client reading plaintiffs notice would not understand his or her right to demand nonbinding arbitration under the MFAA in lieu of the previously filed action or arbitration request. Thus, plaintiff cannot rely on defendants mere failure to timely request an MFAA hearing after receiving plaintiffs notice.

b. Defendants Delay in Asserting the MFAA

Alternatively, plaintiff argues defendants waived their rights under the MFAA by their delay in challenging the order sending the matter to JAMS for binding participation, the manner in which they finally raised the issue, and by participating in the binding arbitration. We agree with this argument.

[N]o single test delineates the nature of the conduct that will constitute a waiver of arbitration. [Citations.] (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1195-1196.) But factors relevant and properly considered in assessing waiver claims [citation] include whether the clients actions are inconsistent with the right to enforce nonbinding arbitration under the MFAA, the extent to which the client invoked an alternative dispute resolution process before seeking MFAA arbitration and the stage of that process when the request is made, and the extent to which the clients delay either misled or prejudiced the other party. (Law Offices of Dixon R. Howell v. Valley, supra, 129 Cal.App.4th at p. 1097; see also Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, 992.)

Just as the factors determinative of . . . waiver are not formulaic, there is no particular stage of litigation . . . that is the line of demarcation between the proper assertion and waiver of a partys right to seek MFAA arbitration. (Law Offices of Dixon R. Howell v. Valley, supra, 129 Cal.App.4th at p. 1096.) [T]he determination of waiver is a question of fact, and the trial courts finding, if supported by sufficient evidence, is binding on the appellate court. [Citations.] (St. Agnes Medical Center v. PacifiCare of California, supra, 31 Cal.4th at p. 1196; see also Law Offices of Dixon R. Howell v. Valley, supra, 129 Cal.App.4th at p. 1098.)

The record supports the conclusion defendants waived their right to nonbinding arbitration under the MFAA. Bejvl admitted receiving plaintiffs, albeit defective, MFAA notice. He retained Aplin in February 2005. Rather than immediately challenging the order granting binding arbitration, defendants counsel actively participated in the JAMS proceeding for four months. During that time, defendants challenged the arbitrator initially appointed to hear the case, participated in choosing his replacement, and engaged in discovery authorized by the arbitrator. Even after the arbitrator denied their jurisdictional motion on the merits, defendants took no action to challenge that ruling during the two months between it and the arbitration hearing. Finally, rather than merely appear and object to JAMSs jurisdiction to conduct binding arbitration (see Alternative Systems, Inc. v. Carey (1998) 67 Cal.App.4th 1034, 1039), defendants and their counsel participated in that hearing on the merits. Defendants thus waived their rights to conduct nonbinding arbitration under the MFAA.

3. Conflict of Interest

In the trial court, defendants opposed confirmation of the arbitration award on the ground of arbitrator bias. They claimed Judge John W. Kennedy[] and Petitioners attorney at the arbitration, Sarah Serpa, had a close working relationship just prior to the arbitration in this case that was not fully and accurately disclosed when Judge Kennedy was selected. (Underscoring omitted.) The close working relationship alleged was the fact that Serpa had recently completed a lengthy arbitration before Judge Kennedy that had resulted in a multi-million dollar ruling. Judge Kennedy disclosed this matter, including Serpas participation as attorney for one of the parties on his prehearing disclosure form. The trial court rejected this claim finding defendants did not meet their burden to show the grounds for disqualification.

We agree. Not only did Judge Kennedy disclose the prior arbitration involving one of plaintiffs clients and Serpas participation in it, but, contrary to defendants suggestion, he issued a large award to the opposing party in that matter. If anything, Judge Kennedys prior ruling would appear to suggest plaintiff might be disinclined to conduct future arbitrations or mediations before him.

On appeal, defendants cite Code of Civil Procedure section 1281.92 and argue, for the first time, that JAMS has a financial interest . . . in [plaintiff] because [plaintiff] is a frequent customer of JAMS. Defendants waived this contention by failing to timely raise it. As a general rule an appellate court will consider only such points as were raised in the trial court, and this rule precludes a party from asserting, on appeal, claims to relief not asserted or asked for in the court below. [Citations.] (Cinnamon Square Shopping Center v. Meadowlark Enterprises (1994) 24 Cal.App.4th 1837, 1844.)

But even on the merits, defendants claim is frivolous. Code of Civil Procedure section 1281.92 declares a private arbitration company cannot administer a consumer arbitration, or provide any other services related to a consumer arbitration, if the company has, or within the preceding year has had, a financial interest, as defined in Section 170.5, in any party or attorney for a party. (Code Civ. Proc.,  1281.92, subd. (a).) First, the statute only applies to consumer arbitrations. (Code Civ. Proc.,  1281.92, subd. (d).) Second, Code of Civil Procedure section 170.5 defines a Financial interest to mean an ownership of more than a 1 percent legal or equitable interest in a party, or a legal or equitable interest in a party of a fair market value in excess of one thousand five hundred dollars ($1,500), or a relationship as director, advisor or other active participant in the affairs of a party . . . . (Code Civ. Proc.,  170.5, subd. (b).) While plaintiff may be a frequent customer of JAMS, there is not a scintilla of evidence JAMS held an ownership interest of any nature whatsoever in the firm.

DISPOSITION

The judgment is affirmed. Respondent shall recover its costs on appeal.

RYLAARSDAM, J.

WE CONCUR:

SILLS, P. J.

IKOLA, J.

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