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Schatz v. Allen Matkins Leck Gamble & Mallory LLP

January 26, 2009; as modified March 11, 2009


Ct.App. 4/1 No. D047347 San Diego County Super. Ct. No. GIN045182. Judge: Joel M. Pressman.

The opinion of the court was delivered by: Moreno, J.

Under the mandatory fee arbitration act (MFAA, Bus. & Prof. Code, § 6200 et seq.),*fn1 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. The arbitration will be binding, however, only if the attorney and client so agree in writing after the dispute has arisen. Otherwise, either party may request a trial de novo within 30 days after the arbitration has concluded.

We consider in this case the relationship between arbitration under the MFAA, which authorizes a trial de novo, and a predispute contractual arbitration agreement entered into by an attorney and client pursuant to the California Arbitration Act (CAA, Code Civ. Proc., § 1280 et seq.). In Aguilar v. Lerner (2004) 32 Cal.4th 974 (Aguilar), as explained at greater length below, we determined that a client who had not chosen MFAA arbitration could not oppose a motion to compel contractual arbitration under the CAA by invoking the MFAA's right to a trial de novo, because in not choosing MFAA arbitration, the client had waived any rights he or she may have had under the MFAA. We left undecided the issue of whether a client who does choose MFAA arbitration may request a trial de novo after that arbitration has concluded, when to do so would defeat the attorney's motion to compel contractual arbitration under the CAA.

Although the majority of the court declined to reach this question in Aguilar, Justice Chin, joined by Justices Baxter and Brown, addressed the issue in a concurring opinion. Justice Chin concluded, for reasons discussed below, that the MFAA's right to a trial de novo was not intended to override a contractual obligation to arbitrate disputes pursuant to the CAA. He, therefore, would have disapproved of a Court of Appeal case that held to the contrary, Alternative Systems, Inc. v. Carey (1998) 67 Cal.App.4th 1034 (Alternative Systems).

The Court of Appeal in the present case declined to follow Justice Chin's concurring opinion and held that the MFAA's right to a trial de novo after statutory arbitration defeats any contractual obligation to arbitrate attorney-client fee disputes. We granted review to resolve this issue.

We conclude that the Court of Appeal is incorrect. Although the language of the statute is not entirely free from ambiguity, construing the statute in light of the presumption against implied repeal leads to the conclusion that the MFAA does not limit the ability of attorneys and clients to enter into binding contractual arbitration. We reverse the judgment of the Court of Appeal.


The essential facts, as quoted from the Court of Appeal opinion, are not in dispute. In a February 1999 agreement, Dr. [Richard A.] Schatz retained [the law firm of Allen Matkins Leck Gamble & Mallory (Allen Matkins)] to represent him in a dispute with [another doctor] concerning the assignment of income from a partnership. The agreement stated it would also apply to "any additional matters we handle on your behalf or at your direction." The agreement contained an arbitration section, which provided: "If you do not agree to arbitrate disputes with us, simply line out this section. Arbitration is not a precondition to us representing you. By signing this letter without deleting this section, you agree that, in the event of any dispute arising out of or relating to this agreement, our relationship, or the services performed (including but not limited to disputes regarding attorneys' fees or costs... ), such dispute shall be resolved by submission to binding arbitration in San Diego County, California, before a retired judge or justice...." Dr. Schatz signed the agreement without lining out the arbitration section.

In February 2000, without entering into another agreement, Dr. Schatz retained Allen Matkins to represent him in an easement dispute with a different party or parties affecting the rear access road to his Rancho Santa Fe home. Dr. Schatz paid Allen Matkins $179,088.69 in fees and costs incurred in the matter . . . . Allen Matkins proceeded to trial . . . , and in an April 2003 letter to Dr. Schatz, it demanded [an additional] $169,917.42 in outstanding fees and costs so ¬Ďarbitration will not be necessary.¬í

Dr. Schatz did not respond, and Allen Matkins apparently did nothing for some time. In a January 2004 letter to him, Allen Matkins invoked the arbitration clause of the agreement in the [previous partnership dispute] matter. In a written response, Dr. Schatz asserted his fee dispute concerned undisclosed conflicts of interest in the easement matter. Dr. Schatz claimed the agreement's arbitration provision [did not apply] because it did not refer to the easement litigation and its reference to additional matters was not highlighted or otherwise emphasized. Alternatively, Dr. Schatz claimed the arbitration provision was illegal under Alternative Systems, supra, 67 Cal.App.4th 1034. Dr. Schatz advised he wished to exercise his 'statutory rights to non-binding fee arbitration, and, if he so elects, trial de novo before a jury."

Allen Matkins advised Dr. Schatz it believed the arbitration provision applied], but it agreed to non-binding arbitration under the MFAA through the San Diego County Bar Association (Bar Association). Allen Matkins provided Dr. Schatz with an application for the arbitration along with rules and instructions on the procedure. Allen Matkins requested that Dr. Schatz notify it within 10 days if he elected non-binding arbitration.

At Dr. Schatz's insistence, Allen Matkins then provided him with a statutory "Notice of Client's Right to Arbitration." The notice provides a client has 30 days from the date of its receipt to apply for arbitration.

The matter was arbitrated in April 2005 through the Bar Association, and the following month the arbitrators ruled in favor of Allen Matkins. Dr. Schatz then filed a complaint seeking a trial de novo, declaratory relief and refund of attorney fees. In response, Allen Matkins petitioned to compel binding arbitration under the pre-existing agreement. In his opposition, Dr. Schatz argued that [the MFAA, as construed by the Alternative Systems court,] invalidate[d] the binding arbitration provision, and in reply, Allen Matkins argued that in Aguilar the Supreme Court impliedly abrogated the holding in Alternative Systems, and binding contractual arbitration would satisfy the MFAA's de novo trial requirement. The court agreed with Dr. Schatz and denied the petition to compel arbitration.

The Court of Appeal, for reasons discussed below, agreed with the trial court, and we granted Allen Matkins's petition for review.


A. Overview of the MFAA and CAA

In Aguilar, we contrasted the MFAA and CAA arbitration schemes. "The CAA 'represents a comprehensive statutory scheme regulating private arbitration in this state. (§ 1280 et seq.) Through this detailed statutory scheme, the Legislature has expressed a "strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution." ' [Citation.] 'The statutes set forth procedures for the enforcement of agreements to arbitrate ([Code Civ. Proc.,] §§ 1281.2-1281.95), establish rules for the conduct of arbitration proceedings except as the parties otherwise agree (id., §§ 1282-1284.2), describe the circumstances in which arbitrators' awards may be judicially vacated, corrected, confirmed, and enforced (id., §§ 1285-1288.8), and specify where, when, and how court proceedings relating to arbitration matters shall occur (id., §§ 1290-1294.2).' [Citation.]...

"By contrast, the MFAA constitutes a separate and distinct arbitration scheme. The 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' (Hargarten & Ardisson, Fine Tuning California's Mandatory Attorney Fee Arbitration Statute (1982) 16 U.S.F. L.Rev. 411, 415), that many clients could not afford hiring additional counsel to litigate fee disputes in the civil courts (ibid.), and that previous schemes that called for voluntary arbitration were ineffective (id. at pp. 413-414), the Legislature enacted the MFAA. The original legislation provided in pertinent part: 'The Board of Governors [of the State Bar of California] shall, by rule, establish, maintain, and administer a system and procedure for the arbitration of ...

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