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Benjamin, Weill & Mazer v. Nancy Hurwitz Kors

May 5, 2011

BENJAMIN, WEILL & MAZER, PLAINTIFF AND RESPONDENT,
v.
NANCY HURWITZ KORS, DEFENDANT AND APPELLANT.



(Contra Costa County Super. Ct. No. C07-00939) Trial Court Superior Court of Contra Costa County: Trial Judge: Hon. Thomas M. Maddock

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

Following petition rehearing granted 10/26/10

CERTIFIED FOR PUBLICATION

This case involves a fee dispute between a law firm, respondent Benjamin, Weill & Mazur, a professional corporation (BWM), and its former client, appellant Nancy Hurwitz Kors. After Kors refused to pay the full amount billed her, BWM sued her for breach of the parties' fee agreement. Based on the arbitration clause in the agreement, Kors moved to compel arbitration under the California Arbitration Act (CAA) (Code Civ. Proc., § 1280 et seq.).*fn1 The court granted the motion and directed binding arbitration pursuant to the rules of the Bar Association of San Francisco (BASF). After the arbitrators ruled in its favor, BWM petitioned the court to confirm the award. Opposing the petition, Kors moved to vacate the award due to the chief arbitrator's failure to disclose "matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial," as required by the CAA (§ 1281.9, subd. (a)). The trial court denied Kors's motion and confirmed the award. Kors appeals from that ruling.

As originally briefed, the questions presented on appeal were whether the trial court erred in rejecting Kors's claim that section 1281.9 required the chief arbitrator to disclose certain business relationships and in denying her request for attorney fees incurred in enforcing the parties' arbitration agreement. As in the trial court, the only question the parties addressed with respect to disclosure was whether the matters Kors pointed to were required to be disclosed under section 1281.9.

The fundamental problem in this case, however, 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, and shall take place in San Francisco." While the duty to arbitrate imposed by this provision is enforceable under the CAA (§ 1281), and was enforced by the trial court under that act, the arbitration process it mandates is not that contemplated by the CAA, but the different process prescribed by bar association rules promulgated under the Mandatory Fee Arbitration Act (MFAA) (Bus. & Prof. Code, § 6200 et seq.). Under the MFAA and the BASF Rules of Procedure, Attorney/Client Fee Disputes, Arbitration and Mediation (rev. Apr. 30, 2007) (BASF Rules), a law firm cannot require a client to submit to binding arbitration to resolve a fee dispute before the dispute arises, as was done in this case. (Bus. & Prof. Code, § 6204, subd. (a); BASF Rules, rule 4.A.2.) Furthermore, the MFAA and BASF Rules do not appear to require arbitrators to make the disclosure mandated by section 1281.9. The briefs of the parties and our initial opinion did not adequately address these issues.

Before our initial opinion became final, we ordered rehearing on our own motion and directed the parties to file supplemental briefs on the applicability of the CAA disclosure requirement set forth in section 1281.9 to the arbitration in this case. Kors continued to maintain that that statute applied because the arbitration was under the CAA, and that it, or the standard it codifies, should apply in MFAA arbitrations as well. Kors pointed out that throughout the trial court and appellate proceedings related to her claim of nondisclosure, BWM had consistently acknowledged application of the CAA; the legal dispute was simply whether the chief arbitrator failed to provide the disclosure required by the CAA in section 1281.9, not whether section 1281.9 applied. BWM, however, changed its position, arguing for the first time that section 1281.9 cannot be applied to the arbitration conducted by BASF.*fn2 BWM now argues that the arbitration was governed by the MFAA, not the CAA; that section 1281.9 does not apply in an MFAA arbitration; and that "Kors is estopped from challenging the consequences of the rules she deliberately chose" by moving to compel arbitration pursuant to the parties' agreement. In response to our request for further briefing on the propriety of submitting this dispute for arbitration under BASF Rules, Kors argues that the portion of the arbitration provision calling for binding arbitration under the CAA should be enforced, but not the portion requiring arbitration under BASF Rules. BWM contends the arbitration provision is enforceable in its entirety and, in any event, any error by the trial court was invited by Kors and waived by her participation in the arbitration.

We shall conclude that the arbitration agreement is enforceable under the CAA and the trial court erred in directing arbitration pursuant to a process governed by the MFAA. In the circumstances of this case, Kors had the right to the disclosure required by section 1281.9. Because the trial court's order for binding arbitration under BASF Rules erroneously deprived Kors of that right, we shall reverse the order confirming the arbitration award.

Kors also appeals from the order denying her request for an award of reasonable attorney fees for enforcing the arbitration agreement. We shall conclude that this order was also erroneous and remand the matter to the trial court with directions to grant Kors's request for reasonable fees incurred in enforcing the arbitration clause of the fee agreement, in this court as well as in the superior court.

FACTS AND PROCEDURAL HISTORY

The Arbitration

In June 2004, Kors, a psychologist who serves as a professional adoption facilitator, was sued by Alette and Robert Temple after they learned that the putative birthmother they met through Kors had feigned her pregnancy and defrauded them out of several thousand dollars. In December 2004, Kors retained BWM to represent her. Five months later, after the parties clashed over a series of discovery and other disputes, the Temples voluntarily dismissed their complaint against Kors without prejudice. Kors thereafter filed a motion for an award of $224,564.74 in legal fees and costs under Family Code section 8635, asserting that, by virtue of the dismissal, Kors was the prevailing party for purposes of that section. The trial court disagreed and denied the motion, and that ruling was affirmed by Division One of this court. (Temple v. Kors (Aug. 29, 2006, A112619) [nonpub. opn.], 2006 WL 247951.)

Kors had at that time paid BWM $227,537.75 in fees and costs, but had failed to pay the balance of $68,986.38 she had been billed by the firm. In March 2006, BWM served on Kors a Notice of Client's Right to Arbitration under the MFAA. Kors applied for non-binding fee arbitration under the MFAA pursuant to rules of the Contra Costa County Bar Association (CCCBA). BWM objected on the jurisdictional ground that no attorney who provided services to Kors in the Temple lawsuit ever maintained an office in Contra Costa County, also noting that Kors's fee agreement with BWM specified that any fee dispute between the parties was to be resolved pursuant to the rules of the BASF. The CCCBA denied jurisdiction and, on May 1, 2007, BWM commenced this action for breach of contract in the Contra Costa Superior Court, seeking damages in the amount of $68,986.38.

Kors asked BWM to dismiss or stay the action and proceed to binding arbitration under the fee agreement. After BWM refused, Kors moved to enforce the arbitration clause under the CAA (§ 1281). BWM opposed the motion, arguing that Kors's effort to commence non-binding arbitration pursuant to the MFAA and rules of the CCCBA waived any belated request for binding arbitration under the CAA. Rejecting this argument, the trial court reasoned that Kors's conduct "resulted only in waiver of [her] right to non-binding arbitration under the [MFAA]. [Kors] retained her right to enforce the parties' agreement for binding contractual arbitration under the CAA."

On September 28, 2007, the court granted the motion to compel arbitration and directed the parties to promptly submit their dispute to the BASF "for binding contractual arbitration under BASF's Rules of Procedure for the arbitration of attorney/client fee disputes." The order states: "BASF has jurisdiction to conduct the arbitration, and the Court is unaware of any reason why BASF would decline to exercise that jurisdiction."

On October 23, 2007, Kors moved for attorney fees for services to enforce the arbitration agreement. Relying on Acosta v. Kerrington (2007) 150 Cal.App.4th 1124 (Acosta), she claimed immediate entitlement to such fees regardless of the outcome of the arbitration. The trial court denied the motion.

In December 2007, the BASF appointed a panel of three arbitrators, designating Sean M. SeLegue chief arbitrator.*fn3 Under BASF's Rules, the chief arbitrator "shall be responsible for the conduct of the arbitration and the writing of the Arbitration Award." (BASF Rules, rule 7.D.) Also, the chief arbitrator "shall be the sole judge of the relevance of any offered evidence and the hearing procedures employed." (BASF Rules, rule 9.E.)

The panel heard the matter on September 4, 2008, but did not issue its decision until February 25, 2009, 175 days later. The panel found "that the total amount of fee[s] and/or costs which should have been charged in this matter is $303,579.34, of which the client has paid $227,537.75, for a net amount of $76,041.59 in unpaid fees and costs." (Fn. omitted.)*fn4 Kors was also directed to pay $26,245.80 in accrued interest, so that the total award to BWM was in the amount of $102, 287.39. Together with the previously paid $227,537.75, the total cost to Kors of BWM's representation was $329,825.14 plus accruing interest on the unpaid portion. Although the 20-page arbitration award acknowledged Kors's timely complaints that the aggressive strategy BWM devised was costing more than she was able to pay, and she was afraid to tell the partner of the firm representing her that he "was on the wrong course," because she feared " 'he would go ballistic,' " the award nevertheless concluded that "while the overall total of BWM's fee claim does indeed seem high, the fees are not out of character with the stakes or the complexity of the legal and factual issues. . . . Dr. Kors persisted in her quest against the Temples even as BWM warned Dr. Kors that she was digging herself in deeper with no guarantee of a fee recovery from the Temples."

On February 25, 2009, BASF mailed Kors the award together with a notice that she had 100 days within which to request that the award be vacated or corrected, as required by section 1288.2.

Trial Court Proceedings

On March 13, 2009, BWM filed a petition in the pending superior court action to confirm the award. On April 1, BWM submitted a proposed judgment confirming the award, representing that Kors had not responded and the time within which she was required to do so had expired. (See § 1290.6.) The court signed the judgment, which was thereafter entered. Kors moved to vacate the judgment and sought leave to file a response to the petition to confirm, arguing that BWM had failed to give notice of the time for a response to its petition. Kors also asked the court to vacate the arbitration award due to the arbitrator's nondisclosure. Over BWM's objection, on May 22, the court vacated the judgment on the ground that BWM had failed to serve Kors notice of a hearing on its petition to confirm, as required by section 1290.4. Kors's request to vacate the arbitration award was denied without prejudice.

The parties then filed briefs on BWM's petition to confirm and Kors's request to vacate or correct the award. Though she also raised other issues,*fn5 Kors's request to vacate rested primarily on the chief arbitrator's asserted failure to disclose "matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial," as required by section 1281.9. Kors relied upon section 1286.2, subdivision (a)(6)(A), which, as material, provides that "the court shall vacate the award if the court determines [that] [¶] . . . [¶] (6) An arbitrator making the award . . . (A) failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware . . . ."

Kors's nondisclosure claim was based upon information her counsel obtained shortly after issuance of the arbitration award. In April 2009, while reading the recent opinion of the Supreme Court in Schatz v. Allen Matkins Leck Gamble & Mallory LLP (2009) 45 Cal.4th 557 (Schatz), Kors's counsel "fortuitously" noticed that SeLegue, the chief arbitrator, was counsel for the defendant law firm in Schatz, which was challenging the denial of its petition to compel arbitration of a fee dispute with a client. Making further inquiry, Kors's counsel learned that SeLegue had represented the law firm in Schatz since at least February 2006, and had filed a brief in the Supreme Court shortly before his appointment as chief arbitrator in the present case. Shortly after he filed the Schatz brief, nine prominent law firms entered the case as amici curiae in behalf of SeLegue's client. SeLegue personally argued the case in the Supreme Court six days after he presided over the arbitration hearing in this case. Kors's counsel also learned that during December 2008, while he was writing the award in this case, SeLegue filed petitions for writs of mandate in behalf of another large law firm, DLA Piper US, LLP, in an action against it for attorney malpractice and related torts.

As an exhibit to her request to vacate the arbitration award, Kors produced a description of SeLegue's legal practice set forth on his law firm's webpage. The description states, among other things, that "[a]ttorneys who face charges of misconduct . . . often turn to Mr. SeLegue and his colleagues," and that "[h]is business litigation background and extensive experience with the unique issues and dynamics involved in claims against lawyers allow him to provide effective representation of his clients, which include some of the nation's largest law firms."

BWM's response to Kors's nondisclosure claim argued that Kors could not sustain her burden of proving bias. BWM's brief maintained that SeLegue's failure "to disclose that he was representing a prominent law firm in an attorney-client fee arbitration dispute" cannot, "under any stretch of the imagination, be considered a matter for disclosure" under section 1281.9. BWM argued, "Dr. Kors'[s] claim reduces to nothing more than an argument that any attorney who represents law firms should be considered biased in favor of law firms. If accepted, the result would be that all attorneys who represent major law firms are disqualified from arbitrating fee disputes," and "[n]othing in reason or law supports the argument."

Prior to the hearing and on the basis of the briefs, the court issued a tentative ruling granting BWM's petition to confirm and denying Kors's requests to vacate or correct the award. After Kors indicated her unwillingness to accept the tentative ruling, a brief hearing was held on July 10, 2009, and the court issued an order adopting the tentative ruling. A timely notice of appeal was filed on July 13, 2009.

STANDARD OF REVIEW

The appeal from the superior court's decision on an award challenged due to the arbitrator's alleged failure to disclose circumstances creating an appearance of partiality presents a mixed question of law and fact. (Haworth v. Superior Court (2010) 50 Cal.4th 372, 384-385 (Haworth).) Our review is de novo. (Ibid.)

DISCUSSION

I. The Enforceability of the Fee Agreement

A. The Provision of the Agreement Requiring Submission of the Fee Dispute to Binding Arbitration Pursuant to BASF Rules is Legally ...


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