ADR Case Updates
Law Firms Should Review Their Retainer Arbitration Clauses In Light of Roldan v. Callahan & Blaine, 10/31/2013
Law Firm Must Pay Arbitration Costs of Former Clients or Waive Right to Arbitrate Claims
In Roldan v. Callahan & Blaine (2013) 219 Cal. App. 4th 87, the Plaintiffs were elderly and of modest financial means qualifying for Section 8 housing subsidies. They hired attorney Richard Quintilone to represent them in litigation. Before trial, Quintilone associated with the firm of Callahan & Blaine as co-counsel. Callahan's retainer agreement included an arbitration provision. After the Plaintiffs settled the case, they sued Callahan claiming that they were pressured into settling for "sums far less than the real value of the case." Callahan successfully moved to compel arbitration. Plaintiffs requested the trial court to require Callahan to advance the up-front costs of the arbitration because they could not afford to arbitrate the case. The trial court denied their motion.
Reversed and remanded. California has a long-standing public policy of ensuring that all litigants have access to the judicial system irrespective of their economic status. Callahan's arbitration clause was devoid of any provision to insure their clients would enjoy equal access to the alternative forum of arbitration. In light of the fact that Plaintiffs were elderly clients on Section 8 housing who could not afford to arbitrate their claim, the arbitration clause effectively denied them access to the judicial system. Therefore, the trial court was directed to calculate the anticipated cost of the arbitration, and to give to Callahan the option of paying the Plaintiffs' arbitration costs, or waive its right to compel arbitration.
This holding strongly suggests that law firms should review their retainer arbitration clauses and include language that the firm will advance those costs in the event the client is unable to afford them at the time any claim is asserted. In addition, the arbitration clause should be inserted in a clear and conspicuous place in the retainer agreement. Prudent drafting would also include requiring the clients to initial the clause at the time they sign the agreement. Such steps would greatly enhance the firm's ability to compel arbitration in the event of a subsequent malpractice claim.
Arbitrator Beware — Disclose References On Your Resume
In Mt. Holyoke Homes L.P. v. Jeffer Mangels Butler & Mitchell LLP (2013) 219 Cal. App. 4th 1299, an arbitration award was vacated because the arbitrator failed to disclose that his resume listed Robert Mangels as a reference. Mangels was a named-partner of the defendant law firm appearing before the arbitrator.
Plaintiff hired Reznik and Reznik to represent her and her company in a real estate development project. Five years later, Reznik and Reznik joined Jeffer Mangels Butler & Mitchell LLP. Plaintiff then signed a legal service agreement for Jeffer to take over the matter, which contained an arbitration clause. The project was never approved and Plaintiff sued Jeffer for legal malpractice.
After the trial court compelled arbitration, the parties selected retired Judge Eli Chernow, who found in favor of Jeffer. Later, Plaintiff discovered for the first time that Chernow's resume, which was posted on the Internet, named Mangels as a reference. Based on this revelation, Plaintiff moved to vacate the award. The trial court denied the motion.
Reversed and remanded. The California Arbitration Act (Code Civ. Proc. § 1280 et seq.) provides that a proposed neutral arbitrator must disclose within 10 days of his or her appointment "all 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." A party may seek to disqualify a proposed arbitrator based upon the disclosures. If an arbitrator fails to timely make a required disclosure, then the trial court must set aside the award. Here, an objective observer could have reasonably concluded that Judge Chernow would not be able to be impartial in light of the fact that he listed Mangels, a named-partner of Jeffer, as a reference on his resume. Although his resume was available through an Internet search, Judge Chernow still had a duty to disclose the reference. Therefore, the trial court had no choice but to vacate the award.
The lesson to be learned from this case is clear — when in doubt, disclose. If serving as an arbitrator, make sure to review all personal information posted on the Internet and timely disclose any facts that could possibly suggest bias.
In Addition, the Following Recent Cases Regarding Arbitration Hold:
Mave Enters., Inc. v. The Travelers Indem. Co. of Conn., 2013 WL 5376068 (Cal. App. 2nd Dist., Div. 1, 2013) (In bad faith case against insurance carrier over fire loss that was initially filed in state court, Superior Court need not wait for federal court's decision before confirming arbitration award since Superior Court had taken authority over the case);
Peng v. First Republic Bank, (2013) 219 Cal. App. 4th 1462 (Former assistant manager must arbitrate her discrimination claim against bank because her employment offer that included an arbitration provision was not oppressive, surprising, or one-sided);
HM DG, Inc. v. Amini (2013) 219 Cal. App. 4th 1100 (Homeowner and remodeling contractor must arbitrate dispute over quality of work regardless of whether their agreement identified an arbitrator);
Little v. Pullman (2013) 219 Cal. App. 4th 558 (Co-owner of rights to royalty stream from bankruptcy estate of deceased actor from The Jeffersons may not compel arbitration of dispute with other co-owner because original agreement with arbitration clause was superseded by later agreement that did not include arbitration provision and unilateral rescission of later agreement would not by itself reinstate original agreement);
Richards v. Ernst & Young LLP, 734 F. 3d. 871 (9th Cir. 2013) (Ernst & Young may compel arbitration of former employee's state wage and hour claims despite initial delay in moving to compel arbitration because former employee failed to show prejudice to her resulting from the delay);
Wade v. Ports Am. Mgmt. Corp. (2013) 218 Cal. App. 4th 648 (Employee may not sue for wrongful termination under FEHA because prior labor arbitration pursuant to collective bargaining agreement encompassed his claim);
Murphy v. DirecTV, Inc., 724 F. 3d. 1218 (9th Cir. 2013) (In consumer class action case, DirecTV may compel arbitration against customers who allege they were deceived by scheme to make them think they had purchased equipment instead of leasing it in light of the holding in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 [2011]);
Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal. App. 4th 50 (Employees may proceed to arbitrate claims against employer on a class versus individual basis where employer revised policy to waive class arbitration claims after action had already been filed);
Mortensen v. Bresnan Commc'ns, LLC, 722 F. 3d. 1151 (9th Cir. 2013) (Arbitration agreement between consumers and Internet service provider is enforceable because federal law preempts Montana state law regarding arbitration agreements); and
Schlegel v. Wells Fargo Bank, N.A., 720 F. 3d. 1204 (9th Cir. 2013) (Homeowners may pursue their claim against lender for acceleration of their loan despite homeowners' compliance with loan modification agreement).
The California opinions are posted at: http://www.courts.ca.gov/opinions.htm;
The Ninth Circuit opinions at: http://www.ca9.uscourts.gov/opinions/.
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