Attorney Fee Arbitration: An Award Issued Under The Mandatory Fee Arbitration Act Does Not Necessarily Preclude A Right To Initiate Binding Arbitration

by Tamara Rider

Attorneys continue to be safe in relying upon mandatory contractual arbitration clauses in their client retainer agreements. In Greenberg Glusker Fields Claman & Machtinger LLP v. Rosenson (2012) 203 Cal.App.4th 688, a client argued that following a non-binding arbitration of a fee dispute under the Mandatory Fee Arbitration Act (“MFAA”), the only way the attorney could challenge the MFAA award was to file an action in the Superior Court. The lawyer could not, the client argued, challenge the MFAA award by serving a written demand for contractual binding fee arbitration pursuant to the retainer agreement. The Court of Appeal rejected this argument, and found that an MFAA award can be challenged by a contractual demand for arbitration with the same effect as if the attorney challenged the MFAA award by filing a lawsuit.

In the Greenberg case, the retainer agreement between the defendant law firm and the plaintiff client provided for binding arbitration for any fee disputes. The client, as was his right under the MFAA, requested an initial non-binding arbitration of the fee dispute. The client was awarded $75,000 plus $5,000 in costs in the MFAA arbitration. Within 30 days of the award, the law firm filed a demand to arbitrate under the California Arbitration Act (“CAA”), instead of filing an action in Superior Court to compel the arbitration. (Id. at 691.)

Rather than arbitrating under the CAA, the client filed a Petition to confirm his award. The law firm opposed his Petition, arguing that it had exercised its contractual right for binding arbitration under the CAA. This, it argued, preempted the non-binding MFAA arbitration award.

The client, on the other hand, argued that the only way which the law firm could prevent the finality of an MFAA award was by filing an action in Superior Court with the 30-day period following the award, not by filing a demand to arbitrate. Thus, the client argued that law firm’s demand was ineffective. (Id. at 692-694.)

Even though the trial court agreed the with the client, the appellate court disagreed. (Id. at 691-695.) In reaching its holding that the law firm’s written demand for arbitration was effective to challenge the MFAA award, the appellate court examined the differences between the MFAA and the CAA.

Both the MFAA and the CAA are arbitration methods. Both seek a quick and inexpensive resolution of disputes. MFAA is based on a statute, does not require a prior agreement between the parties, and it is applicable to disputes between law firms and clients with respect to fees and/or costs. And “[a]n award under the MFAA is not binding, absent a written agreement to make it binding by the parties.” (Id. at 693) (emphasis added).

The CAA, on the other hand, applies not just to attorney-client fee disputes, but to all civil action disputes. Arbitration under the CAA results in a binding award issued by the arbitrator.

The Greenberg court found that “[t]he finality of an award under the MFAA depends on the actions of the parties.” (Id.) Under the applicable statute, California Business and Professions Code section 6204, parties may agree in writing to be bound by an arbitration award. “In the absence of such an agreement, either party shall be entitled to a trial after arbitration if sought within 30 days . . .” (Id.) (quoting Cal. Bus. & Prof. Code § 6204(a).)

Upon review of this statute and a California Supreme Court opinion, the court stated:

“[T]he statute makes clear that, once the MFAA arbitration process is validly completed or terminated, leaving one or both parties dissatisfied, ‘[t]he action or other proceeding may thereafter proceed subject [only] to the provisions of Section 6204.’ (§ 6201, subd. (c)….) This ‘or other proceeding’ reference [] is a strong indication that, unless section 6204 clearly provides otherwise, binding arbitration, pursuant to a preexisting agreement, may go forward once the MFAA arbitration process is over.” (Id.) (quoting Schatz v. Allen Matkins Leck Gamble & Mallory LLP, 45 Cal.4th 557, 571 (2009) (emphasis added)).

In this case, a demand for binding arbitration was a permissible alternative to initiating a lawsuit. Furthermore, because the client had not yet refused to arbitrate, filing a court action to compel arbitration was unnecessary, and it would have been meritless and improper for the law firm to do in light of the client’s non-refusal.

Because the law firm (1) had a written retainer which provided a contractual right to arbitrate, (2) did not agree to be bound by the MFAA arbitration, and (3) timely filed its demand to arbitrate under the CAA, the law firm retained its right to have binding arbitration proceed under the CAA. (Id. at 694-695.)

Notwithstanding Greenberg, as a practitioner, you don’t want to leave your fate on an MFAA award in the hands of an appellate court. As a law firm, if you want to reserve the right to engage in binding arbitration to prevent a non-binding MFAA award from becoming final, be sure to review your retainer agreement and make sure that it expressly states that binding arbitration can be demanded within 30 days after an non-binding MFAA award is rendered.

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