Court of Appeal, in Unpublished Opinion, Reverses Trial Court Ruling of Unconscionability.
In order to avoid being relegated to quantum meruit recovery, most attorneys obtain client signatures on written attorney fee retainer agreements, which set forth the terms and conditions on which they will provide services to the particular client. Business and Professions Code sections 6147-6148 set forth certain terms that must be stated in both contingency and noncontingency matters so that attorneys can sue for breach of contract rather than having to only seek the reasonable value of their services (which could be much less than the hourly rates stated in the contract).
Increasingly, attorneys are inserting arbitration clauses in fee agreements. These clauses typically state that any disputes over bills or the quality of representation will be resolved, to the extent permitted by California law, through binding contractual arbitration under Code of Civil Procedure sections 1280 et seq. (CROSSOVER ISSUE—As will be discussed in a future blog, fee arbitration clauses like this must be carefully structured to not abridge the client’s rights to resort to the Mandatory Fee Arbitration protections of Business and Professions Code sections 6200 et seq,)
A fee arbitration clause was at issue in DeBlasis v. Cohen & Lord, Case No. B198229 (2d Dist., Div. 2 May 21, 2008), a recent unpublished Second District decision.
There, a very standard arbitration clause mimicked the contents we just described, plus had two other features: (1) indicated both parties were agreeing to a simplified procedure that did not have all of the safeguards of a court proceeding, such as a jury trial, full discovery, or the right to an appeal; and (2) required the clients to sign the retainer agreement acknowledging that they “AGREED” to its terms. Also, the retainer agreement had the following traditional language—“Please carefully look [the agreement] over and, if it is acceptable, sign and return it as soon as possible.”
After clients signed such a retainer agreement with an arbitration clause, they eventually sued their attorneys for legal malpractice in a separate suit. The malpractice related to attorneys’ services in two different lawsuits, one of which was pending at the time the agreement was originally signed and another which was taken on later without the signing of a further fee agreement. Attorneys demanded arbitration in line with the contract. Clients did not respond. Attorneys moved the court to compel arbitration. Clients opposed the motion, primarily claiming the fee agreement did not govern the representation in both lawsuits and it was unconscionable in nature. The trial court refused to compel arbitration.
The trial court found the arbitration clause did not apply to the representation of the second lawsuit where no separate agreement was signed between clients and attorneys. With respect to the first lawsuit representation, the lower court found the arbitration clause was unconscionable on two fronts: (1) it was procedurally infirm because the clients were unsophisticated and the agreement did not contain magic language “that the client has read and understands the agreement”; and (2) it was substantively suspect because the arbitration clause contained “unenforceable discovery provisions or other provisions that deprive a party of a fair opportunity to be heard or present one’s case.” Attorneys then appealed.
The Second District reversed and ordered the parties to arbitrate.
First, the appellate court found the retainer agreement, while only talking about representation in the first lawsuit, had saving language to cover the second lawsuit. The fee agreement expressly stated “[a]dditional matters that we agree to undertake will be under the same terms as stated in this letter unless otherwise agreed in writing.” Unlike the trial court, the Court of Appeal found nothing ambiguous about this language, having the power to reverse because interpretation of a written arbitration agreement is a judicial function.
Next, the Second District, Division 2 turned to the unconscionability determination. It found no procedural unconscionability because the parties simply entered into a business relationship, a far cry from employment relationships that have spawned more rigid protections. (Contrasted with Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000) [certain additional “badges of fairness” for arbitration clauses required in employment situations].) The appellate court pragmatically noted there happen to be no shortage of attorneys, such that the clients could have simply gone elsewhere. It also had no sympathy for the unsophistication argument, which was based on the premise that the clients did not read the agreement—the law usually requires this diligence, the Second District wrote. The Court of Appeal also rejected the argument that there needed to be magic “read and understood” terminology, noting that the fee agreement did have “carefully look over before signing” language and a conspicuous “AGREED” signal above the signature lines of a sufficiently clear nature.
The substantive unconscionability finding was also found unsatisfactory on appeal. Because this case involved private rights (a legal malpractice action) rather than a one involving public rights (such as an employment relationship), there is no additional requirement of guaranteeing the right to discovery in the arbitration forum.
The result: the parties were ordered to arbitrate, as the written fee agreement required them to do.
