Appellate Court Did Not Find Unenforceability, But Framed A Choice Based on Unequal Bargaining Leverage.
Our local Santa Ana appellate court, in a 3-0 decision authored by Justice Rylaarsdam, has sent a message in our opinion about attorney retainer agreements containing mandatory arbitration provisions. Roldan v. Callahan & Blaine, Case No. G047306 (4th Dist., Div. 3 Aug. 26, 2013, mod. Sept. 18, 2013) (published) is the decision and it has a lot of pointers on how to craft/present an arbitration provision to clients with unequal bargaining/financial power.
In this one, plaintiffs/clients settled a case reluctantly after defendants/attorneys unsuccessfully tried to play a “legally incompetent” card, with plaintiffs suing attorneys based on the claimed inadequacy of the “reluctant” settlement. Attorneys successfully moved to compel arbitration based on a mandatory arbitration clause in the retention agreement. Plaintiffs, arguing indigency, filed a motion to have attorneys pay the entire upfront costs of arbitration, a motion denied by the trial court. Plaintiffs appealed and won a reversal/remand.
The appellate court observed that the arbitration clause in the retention agreement was awkwardly contained contained on page 8 of a nine-page retainer agreement, never signed by the client and signed by a firm representative after the fact. The arbitration provision also did not explain the extent of costs which might have to be borne by clients if arbitration was elected by the firm before a Judicate West neutral.
After an eloquent discussion of the “legal fictions” surrounding contractual formation (namely, a presumption that parties read the contract, understood the contract so objective intent prevailed, and knew about all laws at the time of signing), the Court of Appeal then found that these presumptions did not rebut the reality that plaintiffs/clients did not know about the extent of costs they would bear in arbitration, especially given that they were Title 8 housing-subsidized elderly clients--with the retainer agreement’s arbitration provision effectively denying them a forum to litigate their case. Although the appellate court did not go so far as to find the arbitration provision unenforceable, it did find fairness dictated giving attorneys a choice: either pay clients upfront arbitration costs if they were found to be indigent (to go with arbitration) or waive arbitration (and let the matter proceed in court). End result: remanded for the lower court to consider a variety of issues, but mainly the financial disparity of clients and whether arbitration/superior court was the venue based on possible conflicting rulings.
BLOG FAVORITE QUOTE--”In theory, a written contract is the embodiment of a fully and fairly negotiated agreement setting forth the terms and conditions governing a particular transaction or relationship. It reflects the mutual intentions and expectations of both parties, who have an equal understanding of the contract‟s legal and practical effect. However, in cases where parties to the contract have widely divergent levels of sophistication, a written contract is often less the embodiment of true mutual agreement than it is the product of the drafting party’s desire and a series of legal fictions.”
This case is also the subject of an August 28, 2013 post in California Mediation and Arbitration.
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