Arbitration Agreement Containing Inconsistencies Between California Arbitration Act (CAA) and Mandatory Fee Arbitration Act (MFAA) is Interpreted Against the Law Firm That Drafted It
“The fundamental problem in this case . . . arises from an internal inconsistency in the arbitration clause, which states that "[a]ny dispute pertaining to the fees owed under this agreement . . . shall, to the extent permitted by law, be submitted to binding arbitration pursuant to the rules of the Bar Association of San Francisco [BASF], and shall take place in San Francisco." Benjamin, Weill & Mazer v. Kors, 195 Cal.App.4th 40 (2011).
The law firm (BWM) sued its client, Nancy Kors, for fees, and she moved to compel arbitration under the CAA. Binding arbitration pursuant to the rules of the BASF took place. The arbitrator did not make disclosures required under the CAA, but not under the BASF, and did not disclose a purported institutional bias representing law firms in malpractice disputes. The outcome of the arbitration was not to Ms. Kors’ liking, and she moved to vacate the award, based on the arbitrator’s failure to disclose, and also moved for attorney’s fees incurred in enforcing the arbitration position. The trial court denied the motion to vacate the award, as well as the request for fees. She appealed.
The appeal, concerning the arbitrator’s impartiality, required de novo review, because it presented a mixed question of fact and law. Haworth v. Superior Court, 50 Cal.4th 372, 384-385, 112 Cal.Rptr.3d 853 (2010).
On appeal, the BWM argued that the MFAA did not require disclosures. However, the parties had both acted as if they were arbitrating under the CAA, which does require disclosures. The arbitration provision requiring binding arbitration under the rules of the BASF was unenforceable, because binding fee arbitration under the MFAA may only occur now if the agreement to make it binding is entered into after rather than before the dispute arises. The result was that, though the parties arbitrated in front of the BASF, the rules of the MFAA did not apply here. The CAA rules requiring disclosures applied, and because those disclosures did not occur, the resulting award was unenforceable.
The matter of the fee award was remanded, with directions to grant Kors’ request for reasonable fees. See the post on CalAttorneysFees.
TIP: In drafting an arbitration agreement in an attorney-client fee agreement, it is imperative to keep the differences between the CAA and the MFAA in mind. “Whereas arbitration under the CAA is based on the parties' agreement to arbitrate, arbitration under the MFAA is based on a statutory directive; arbitration under the MFAA is voluntary for a client and mandatory for an attorney if initiated by a client. . . . Arbitration under the CAA is binding and "`parties choosing to resolve their dispute in standard arbitration pursuant to the CAA "typically expect" that the arbitrator's decision will be final, [but] an award rendered pursuant to an arbitration under the MFAA is nonbinding, and either party may seek a trial de novo (§ 6204, subd. (a))'" unless the parties agree after a dispute has arisen that the arbitration will be binding. . . . A contractual right to binding arbitration survives if arbitration under the MFAA is waived or fails to resolve the dispute.” 195 Cal.App.4th at 53.
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