Calif. Supreme Court allows for binding fee arbitration

Legal News Line Jan. 27, 2009, 9:26am

Carlos Moreno

SAN FRANCISCO (Legal Newsline) - A ruling issued by the California Supreme Court clarifies the state's Mandatory Fee Arbitration Act by stating clients in fee disputes with lawyers do not necessarily have a right to a trial if they previously agreed to binding contractual arbitration.

The court issued its unanimous opinion, written by Justice Carlos Moreno, on Monday. The justice wrote that state law allows for both binding and non-binding fee arbitration if both parties agree in writing.

"The MFAA confers no immunity from valid defenses," Moreno wrote, "such as the existence of a contractual obligation to arbitrate."

The ruling, according to a lawyer involved in the case, sets a bad precedent in that clients of attorneys will sign away their rights to oppose unfair legal fees in court, long before any work is done and when the client "is most trusting" of the lawyer.

According to court records, the case before the court involved a dispute between a southern California doctor who obtained a Los Angeles lawyer in a 1999 trust dispute and a 2000 easement battle with a neighbor.

Dr. Richard Schatz paid about $180,000 in legal fees, but balked at a bill for another $170,000. Schatz alleged the firm had a conflict of interest in another case.

The firm of Matkins, Leck, Gamble, Mallory & Natsis sought to enforce a written agreement for binding arbitration. Schatz insisted on non-binding arbitration under the Mandatory Fee Arbitration Act.

The case then put the MFAA against the California Arbitration Act, as the former allows for trials after nonbinding arbitration and the later allows binding pre-dispute contractual arbitration agreements.

A San Diego judge ruled in favor of Schatz, ruling that the MFAA allowed a client who rejected a nonbinding arbitration award to seek a trial, which was later upheld on appeal.

The Supreme Court reversed that ruling Monday, which sends the case back to San Diego's 4th District court to determine if the original contract could actually compel contractual arbitration in the case.

Schatz, who was represented by his cousin -- Joseph Schatz of San Francisco -- said, according to, that the court's decision puts his client at a disadvantage.

"It means that a lawyer may extract from his client a waiver of the right to court trial of a later fee dispute when the client is most trusting and, therefore, most vulnerable, i.e., when he first signs the agreement.

"At that moment," Schatz wrote, "the client thinks he has found someone to protect him and is not thinking that his protector may be his future enemy."

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