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What is the California Probate Code?

You are probably familiar with the California Probate Code, and the hassles that can come with it, If someone you love has passed away. The California Probate Code governs what happens to the property of a person after they die or become incapacitated. This Code provides provisions that regulate wills and other estate planning instruments, as well as laws that dictate what happens to a person’s possessions after they pass away if they did not have a will.

The California Probate Code can affect your estate because it can dictate how possessions can be passed on, how debts against the estate are settled, what waiting period must be followed before assets transfer, and what assets can skip the probate process entirely. Probate courts make decisions on guardianship for minor and handicapped children or conservatorships for the elderly. The Probate Code even dictates whether or not a will is valid– and if it isn’t (or if there is no will) who inherits. Most importantly, the Probate Code in California specifies what happens during probate (the process by which a deceased person’s estate is assessed, valued, and passed on).

How Does the California Probate Code Affect Me?

It’s easy to assume that the probate code hardly matters to the average person. If you want to take care of your family after you pass away, you need to carefully comply with the provisions in the California Probate Code when creating an estate plan. Otherwise, your best intentions can be thwarted by lesser-known provisions. This can lead to stress for your loved ones during an already difficult time, or even unintended outcomes that may leave individual you want to inherit your estate with nothing.

That’s why it’s important to gain a clear understanding of the Probate Code in California before ever drafting a will or drawing up a trust to bypass the months-long probate process. In fact, we suggest that you get expert help with any documents that may be subject to Probate Court. While the Probate Code isn’t intentionally confusing, it is quite specific, which means that even a small misunderstanding of the Code could have major consequences.

At MAJ, we have a team of experienced California probate attorneys ready to help you ensure that your estate plan complies with the Probate Code and even minimizes the impact of the probate process and other annoyances like estate taxes. Let our probate lawyers help you master the California Probate Code and take care of your loved ones with a carefully thought-out estate plan.

WHAT IS COMPLEX LITIGATION?

Understanding Complex Litigation

Every company faces litigation at some point. Many of these are fairly standard lawsuits related to real estate or disputes with vendors. Almost any experienced business lawyer can help you resolve these matters with the best possible outcome. Not so with complex litigation.

While any lawsuit may be complicated, complex litigation refers to a specific type of large civil case that companies may face. Complex litigation encompasses any court battle with multiple parties in multiple jurisdictions, large amounts of money at stake, lengthy trials, or complex legal issues. These are the kind of lawsuits that can draw serious media scrutiny, and they will likely cost the company serious time and money, even if you eventually win the case.

Many kinds of lawsuits can fall into the category of complex litigation. Class action lawsuits, contract disputes involving subcontractors, international arbitration, and even simple sale of goods agreements across state lines gone wrong can evolve into fairly complex legal battles. These involve unique legal issues rarely faced by corporate lawyers without complex litigation experience. Unless your attorney knows exactly what obscure laws may come into play, your company can wind up paying big, especially since complex litigation can involve thousands, millions, or even billion-dollar judgements.

 

How Can I Mitigate the Impact of Complex Litigation on My Company?

Complex litigation requires an expert touch, or cases can drag on for months and even years, draining your company of much-needed resources. Just any corporate lawyer won’t be prepared to handle the massive amount of due diligence these cases require, nor will they be able to quickly sift through the data to determine the key issues–and the best course of action to address them. The best way to mitigate complex litigation is to trust a lawyer with experience on other complex cases involving similar legal and factual issues.

It’s also important to consider all your options. A complex litigation attorney that you trust won’t just show you the best way to win a case in court. They will honestly assess other options, telling you frankly when an out-of-court settlement may ultimately impact your company the least or when a summary judgement in your favor may be available. They will put minimizing court expenses and keeping your good name and bottom line in mind as a priority in order to minimize the effects of the lawsuit on company operations. At MAJ Law, this means staffing cases as leanly as possible to get results without allowing litigation costs to get out of hand.

As our society gets ever more litigious, even small businesses regularly face litigation beyond what you may be prepared to handle. Luckily, there are lawyers who can minimize the damage of these complicated and expensive lawsuits. If your company is facing a lawsuit that sounds like it may be more complex than you expected, it can help to speak to a complex litigation attorney today to find out if you may need special help.

HOW TO PROTECT YOUR BUSINESS ASSETS

As a business owner, you know how important your assets are to your company’s success. That’s why it is vital to protect your business assets the best way possible from day one. Knowing exactly how to protect your business assets most effectively will depend in large part on the unique details that make your company competitive, including your industry, your business model, your IP, and many other aspects of the business. While all of these are important, here’s five things you can do immediately to better protect your business assets.

 

  1. Plan before a claim or data leak ever arises. The first and most important thing you can do to protect your assets is to start now. Once a claim or a leak has happened, it’s too late. This means that you also must regularly update your asset protection plan every time a major change in the status of your business or its assets occurs. Otherwise, you may find these instruments and plans to be lacking.
  2. Apply for as many trademarks, patents, and copyrights as possible. Every company has intellectual property–and in today’s business climate, intellectual property is just as, if not more, important as tangible assets. Keep all IP safe by registering it. At the very least, you’ll have a brand to protect by a trademark.
  3. Use confidentiality agreements and internal security measures to secure trade secrets, data, and business data. Trade secrets from client lists to business practices to operations procedures are often what makes you competitive in your industry. That’s why you must secure these as much as possible. Employee, third-party, and contractor confidentiality agreements will go far. Beyond that, it’s important to invest in other security systems, password protections, encryptions, and security methods to keep these vital business assets secure.
  4. Invest in proper insurance. Too often, small business owners neglect insurance, assuming that disaster won’t happen. When a physical (or digital) asset is compromised, insurance can minimize the impact of its loss. It may seem like an unnecessary expense, but all major company assets should be well-insured.
  5. Use all legal protections that work well for your company’s needs, but keep it simple. There are many other legal protections that your business lawyer can help you leverage to keep business assets safe, but keep in mind that a simple, straightforward plan is best. When the an asset protection plan becomes so convoluted that not even you can understand the basics, it’s easy to create an accidental gap in protection. The best way to avoid unnecessary complexity is to let a single attorney or firm keep track of the big picture, so you are getting a comprehensive approach to asset protection, not a piecemeal approach that will fall apart when you need it.

 

Of course, this alone isn’t enough to fully protect every company’s assets. After all, every business is unique, so your asset protection plan should be just as individualized. Talk to an asset protection lawyer today to see what more you can do to keep your business assets safe.

THIRD-CLASS MEDICAL REFORM WHAT DOES IT MEAN FOR YOU?

 

 

On July 15, 2016, as part of the Budgeting Act to fund the FAA, legislation was passed that included the Pilot’s Bill of Rights II.  This included medical reform for certain private pilots, an alternate to the third-class medical exam.  This legislation was due to the efforts of the AOPA and EAA.  I hope to answer some of those questions I had when I reviewed the legislation, and voice some concerns or unanswered questions.  There are some areas that were expanded to our benefit, but one substantial limitation from the original “driver’s license” medical originally proposed.  Regular exams are still required with your own doctor, every four years.  Further, the FAA still has six months to add their regulations and procedures on how to make this happen.

 

  1. Who Qualifies? An individual holding a driver’s license, who has had a medical certificate issued by an FAA medical examiner within the last ten years.  The most recent application for a medical examination may not have been withdrawn or denied.  It is okay that the medical has expired, as long as it was issued within ten years, and it must not have been revoked or suspended.

 

  1. What Are My Obligations to Qualify? If you do not have a current medical, you must have completed a medical education course (to be developed), and completed a “comprehensive medical examination from a state licensed physician.”  I could not find a definition of a “physician,” and am looking into who might qualify as an appropriate physician.  When your current third-class medical expires, you will need to complete the medical course online, and have your personal physician complete an exam.  Then, every 2 years you will have to complete the online course, and every 4th year, complete the course, printout a sheet and see your doctor.

 

  1. What is the Extent of the Exam Required Every 48 Months? The airmen must complete a checklist, which is still being developed.  You then provide that checklist to your own physician.  The physician must review that checklist with the applicant and perform a “comprehensive medical examination,” in accordance with the checklist.  The full extent of the examination is still to be determined, but it will involve 22 separate items a physician must cover, which concludes with “anything else the physician in his/her medical judgment, considers necessary.”  It also appears a physician can order tests and must discuss all drugs that the applicant might be taking.  Further, the doctor must sign a statement that he certifies you are safe to operate an aircraft.

 

  1. What Are the Limitations? You cannot carry more than five passengers (applicable to flying a six passenger aircraft only).  Must be at or below 18,000 feet, within the U.S. and not exceed 250 knots indicated.  It is not clear whether the aircraft cannot be capable exceeding 250 knots, or if the aircraft is capable of that, you must restrict operations to 250 knots.  But, the new medical can apply without limitation to the number of engines, horsepower or gear type.

 

  1. When Can I Start Relying Upon The New Procedure? It looks like it will be sometime in January 2017, before the new procedure can take effect.  The legislation states that no later than 180 days after the passage of the Bill, the FAA must issue or revise regulations to ensure that you can operate an aircraft under the new standards that would be January 15, 2017.  If your medical expires before that date, you will have to see an AME and obtain a new medical certificate (if you want to continue to fly) or wait until the FAA has issued their regulations procedures.  We will have to wait to see what regulations are developed by the FAA.

 

  1. Can I Still Just Go to an AME? Yes.  Any pilot flying for compensation and hire will need a second-class medical, or for aircraft exceeding the limitations, will need at least a third-class medical.  The prior procedures remain in effect, and this legislation provides an additional way to qualify to act as pilot of command of certain aircraft.  You can always elect to see an AME every two years and obtain a third-class medical.  Further, if you are a new pilot or your last medical was more than ten years ago (before July 15, 2006), you need to get an exam with an AME.

 

  1. Can I Qualify If I Have Had a Special Issuance Medical? Yes.  This may be who benefits the most from the new regulations, especially if you can get a licensed physician to say you are safe to fly.

 

  1. What Issues Do I See As Being Unanswered? The liability of your physician, and whether or not they will be willing to sign the statement.  What about medical programs, such as Kaiser?  Will their doctors be willing or allowed to sign the statements?  Is there language in some insurance policies that might require an AME issued medical certificate?

 

  1. What Are My Obligations After Completing The Examination? You must keep the checklist and document signed by the physician in your logbook and make it available upon request.

 

Hopefully, this will evolve into real reform and not just more ways of doing something, that is as cumbersome as the prior exams with an AME.

THE “NITTIE-GRITTIES” OF THE SONOMA COUNTY BAR ASSOCIATION MANDATORY FEE ARBITRATION PROGRAM

by Michael J. Fish
Chair, SCBA Mandatory Fee Arbitration Committee

 

Occasionally, a client or in propia persona litigant may ask other attorneys, court personnel or family law advisors for information about how to deal with a fee dispute with his or her own attorney. The purpose of this article is to provide a summary of the basics (“NITTIE-GRITTIES”) of the Mandatory Fee Arbitration Fee Arbitration Program in Sonoma County (and California) to enable everyone to correctly identify when a dispute is a proper subject for mandatory fee arbitration and refer parties or themselves to the Sonoma County Bar Association program.

 

What is the Mandatory Fee Arbitration Program?

The Mandatory Fee Arbitration Program (“the Program”) provides an extraordinary opportunity to have a volunteer arbitrator (or panel of arbitrators) resolve attorney fee and cost disputes between clients and attorneys through an informal, low-cost alternative to the court system.  This has tremendous value to both the attorney and client. The arbitrator determines whether the fees and costs charged by the attorney are reasonable for the services provided.  The Program is authorized by Business and Professions Code section 6200 et seq.  Fee arbitration is voluntary for the client, unless the parties previously agreed to arbitrate their disputes with the Program.  Conversely, Fee Arbitration is mandatory for the attorney if the client requests it.  (See Bus. & Prof. Code §6200, subd. (c).)

 

How does the Program work?

Virtually all of the Sonoma County fee arbitrations are conducted through the SCBA’s State Bar approved Mandatory Fee Arbitration Program.  Jurisdiction to hear these matters lies in the county where the legal services were provided, where the attorney maintains an office, or where the client lives.  If our program lacks jurisdiction, or, in a rare occurrence, if either party declares that he or she cannot obtain a fair hearing at the local level, the State Bar Office of Mandatory Fee Arbitration will assume jurisdiction of the matter. Either way, the process is the same as described hereinbelow.

 

Are All Disputes With an Attorney Covered by the Mandatory Fee Arbitration Program?

No.  Fee disputes where the fee or cost to be paid by the client has been determined pursuant to statute or court order are not covered.  (See Bus. & Prof. Code §6200, subd.(b)(3).) For example, court ordered or statutorily set attorney’s fees in bankruptcy or probate cases are not covered by the Program.  Nor are claims for affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct.  (See Bus. & Prof. Code §6200(b)(2).)  However, evidence of professional negligence or misconduct is admissible in the fee arbitration hearing and may have an impact on the reduction of fees. (Bus. & Prof. Code §6203, subd. (a.).)

 

What are the Client’s Rights Before an Attorney May File a Lawsuit to Collect Unpaid Attorney’s Fees?

Attorneys are very often ignorant of the state-mandated prerequisites to collecting fees from their clients. Prior to or at the time of service of summons or claim in an action against the client, or prior to commencing a proceeding  as an alternative to arbitration under the Mandatory Fee Arbitration Program (i.e., contractual arbitration), the attorney shall forward a written notice to the client of his or her right to arbitration under the Program.  The Notice shall be on the State Bar-approved Notice of Client’s Right to Arbitration form and not a letter from the attorney. It must be on the State-approved form, which may be obtained on the SCBA website:  (http://www.sonomacountybar.org/wp-content/uploads/2010/05/Notice-of-Clients-Rights-to-Arb-Revised-Mar-20131.pdf ) or at the SCBA office.  Otherwise, the notice is invalid for Fee Arbitration purposes and the time for the client’s election to avail themselves of the program is extended.  The client’s failure to request fee arbitration within 30 days of his or her receipt (not service) of the Notice is deemed to be a waiver of the right to arbitration under the Program.  (See Bus. & Prof. Code §6201, subd.(a)) and the attorney may then proceed to collection by filing a complaint and proceeding through the judicial process or contractual arbitration.

 

If the attorney has already filed a lawsuit against the client for unpaid fees, the client may elect to either respond to the lawsuit or request fee arbitration.  If the client files a response to the lawsuit, after Notice of the right to arbitration is given, his or her right to arbitrate the fee dispute is deemed waived.  (See Bus. & Prof. Code §6201, subd.(b).)   If the client requests fee arbitration, the lawsuit is automatically stayed.  (Bus. & Prof. Code §6201, subd. (c).) To alert the court, the client should file the appropriate notice of automatic stay where the lawsuit is pending using Judicial Council Form CM-180.  To preserve the right to arbitrate, the client should file a request for arbitration with the SCBA promptly. If the client is unaware of the automatic stay provisions, it would be in good form for the attorney to prepare and file the Notice with the court.

 

What Happens Once Arbitration Is Requested?

To request arbitration, a party submits a completed arbitration request form from the SCBA fee arbitration program and pays any required filing fee.  A telephone call or letter to the program requesting arbitration will not protect the right to arbitration. Most attorneys appreciate the value of the program and, as such, sometimes, in order to keep the matter out of the court system, attorneys initiate the arbitration by paying the filing fee. However, it remains the client’s right to ultimately elect Fee Arbitration unless a provision for such mandatory arbitration is included within the written fee agreement between the attorney and client.

The program will assign a sole arbitrator or a panel of three arbitrators (depending on the amount in dispute) to hear the dispute and determine whether the attorney’s fees and costs were reasonable (or unconscionable in the case of the existence of a valid, enforceable written fee agreement).  If the arbitrator determines that the attorney’s fees were not reasonable (or unconscionable, as the case may be), the client may be awarded a refund of attorney’s fees or costs.  Alternatively, the arbitrator may determine that no refund is owed or that the client owes fees to the attorney.

Depending on the circumstances, the arbitrator will consider a number of factors in making a decision.  These may include: whether there was a valid, enforceable written fee agreement; the reasonable value of the attorney’s services; the amount of time the attorney spent on the case; and whether any misconduct or incompetency by the attorney affected the value of the services.  The arbitrator will decide the matter based only upon the evidence presented at the hearing.  The arbitration award will be served on the parties by the SCBA after the hearing is submitted for decision.

 

Is an Attorney Necessary for a Party in a Fee Arbitration?

Absolutely not. This is the simple beauty and value of the program. Because the program is intended to be a low cost alternative to the court system, parties do not need an attorney to represent them in fee arbitration. While either party may choose to hire an attorney at his or her own expense, the arbitration award cannot include the attorney’s fees incurred for the preparation for, or appearance at the arbitration hearing, regardless of any contractual provision to the contrary.  Any such contractual provision is simply unenforceable by law (See Bus. & Prof. Code §6203, subd. (a).)

 

What if the Client Believes that the Attorney Engaged in Misconduct or Malpractice?

The Mandatory Fee Arbitration Program cannot help recover damages or offset expenses incurred by attorney malpractice or misconduct.

If the arbitrator determines that the attorney’s malpractice or professional misconduct reduced the value of the attorney’s services, the arbitrator can reduce the attorney’s fees accordingly.  However, the arbitrator cannot offset the fee or order the attorney to pay for any damages the attorney’s conduct may have caused. (See Bus. & Prof. Code §6203, subd. (a).)  If there are concerns about attorney malpractice, they should be discussed with an independent attorney.

In addition, a disciplinary complaint may be filed with the State Bar of California by calling the State Bar’s toll-free number: (800) 843-9053.  A copy of the pamphlet “What Can I Do If I Have A Problem With My Lawyer?” is available on the State Bar website (http://www.calbar.ca.gov/Public/Pamphlets/ProblemwithaLawyer.aspx) or by calling the State Bar.

A discipline complaint and a request to arbitrate a fee dispute are separate matters.  Filing a complaint may result in disciplinary action against the attorney; however, the result may or may not require the attorney to pay restitution or unearned fees to the client.

 

Can the Client Still Litigate a Fee Dispute In Court If He or She Is Dissatisfied with the Arbitration Award?

It depends on whether the fee arbitration proceeded as binding or non-binding.  Fee arbitrations are non-binding unless the parties agree in writing to binding arbitration after the dispute arises but prior to the hearing.  This usually occurs by checking the appropriate box requesting “binding arbitration” when the parties request fee arbitration. If the arbitration is binding, the award is final and neither party may request a new trial in court.  A binding award can only be corrected or vacated for very limited reasons (i.e., bias, failure to allow the introduction of evidence, etc.) within a limited period of time as set forth in Code of Civil Procedure section 1285 et seq.  The time period for filing a petition to correct or vacate the award is 100 days from the date of service of the award. (Code. Civ. Proc.§1288.2.)

If the award is non-binding, a party has 30 days from the date of service of the award to file an action in court requesting a trial to reject the award and to request a trial de novo (Bus. & Prof. Code §6204 (c).)  If a trial is not requested within the 30 days by either party, the award automatically becomes binding, with the same effect as if the parties had agreed to binding arbitration.  In small claims court, the parties may use the Judicial Council forms SC-100 and SC-101 to request a trial de novo. Form SC-101 contains useful information on this process.

 

 

How Does the Client Enforce An Arbitration Award Against the Attorney?  

An arbitration award must become final before it is enforceable.  Generally, that means that the 30- day time period to request trial de novo or the 100-day period to petition to vacate or correct the award must pass.  Either party may then request the court to enter a judgment confirming the arbitration award. The client may then enforce the judgment against the judgment debtor (attorney).  (See Code Civ. Proc.§1287.4.)

Something to consider and understand: If the arbitration award rendered is in favor of the client for a refund of attorney’s fees or costs, the client may request the State Bar for assistance in enforcing the award or judgment. (See Bus. & Prof. Code §6203, subd.(d).) The attorney’s reply may consist of a payment proposal, a claim of financial inability to pay or lack of liability.  By statute, the State Bar is authorized to enforce an unpaid award by imposing administrative penalties on the attorney member.  It may also seek a State Bar Court order enrolling the attorney on inactive status until the award is paid. (Ibid.)

 

For further information about the Sonoma County Mandatory Fee Arbitration Program, please contact the address below:

 

Sonoma County Bar Association
Mandatory Fee Arbitration Program
Win Rogers, Legal Program Manager
37 Old Courthouse Sq., Ste. 100
Santa Rosa, CA 95404-4938
(707) 542-1190 ext. 19
win@sonomacountybar.org

 

 

Michael J. Fish is a partner with the firm of Merrill, Arnone & Jones, LLP with locations in Santa Rosa and Novato.  He is a past chair of The State Bar of California Mandatory Fee Arbitration Committee and the Marin County Bar Association Client Relations Committee and the current Chair of the SCBA Mandatory Fee Arbitration Committee.

 

GENDER DISCRIMINATION IN EMPLOYMENT – A NEW FOCUS

 gender discrimination in employmentGender discrimination comes to the forefront this year in confirming that an employer shall not pay any of its employees at wage rates less than the rates paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions, except where the employer demonstrates:

(1) The wage differential is based upon one or more of the following factors:

(A) A seniority system.

(B) A merit system.

(C) A system that measures earnings by quantity or quality of production.

(D) A bona fide factor other than sex, such as education, training, or experience – which factor shall not be based on a sex-based difference in compensation, related to the job in question and consistent with a business necessity – which factor will still not apply if the employee can demonstrate that an alternate business practice exists that would serve the same purpose with causing the wage differential.

This more robust approach to determining gender discrimination is to be viewed industry-wide not just within the confines of the individual employer’s workforce.

Additionally, it may be enforced by a complaint filed with the Labor Commissioner’s Department of Labor Standards Enforcement or a private right of action that provides for the recovery of attorney fees, interest on the claim and liquidated damages equal to the wages recovered; together with reinstatement to the position if applicable.

Discrimination also includes discharge and/or being retaliated against in in the terms and conditions of an employee’s employment.

All employers need to take a new look at their workforce where men and women are doing the same job with a view towards avoiding a zealous visit from the Department of Labor Standards Enforcement!

THE “NITTIE-GRITTIES” OF THE MARIN COUNTY BAR ASSOCIATION MANDATORY FEE ARBITRATION PROGRAM

 

by Michael J. Fish

            Occasionally, a client or in propia persona litigant may ask other attorneys, court personnel or family law advisors for information about how to deal with a fee dispute with his or her own attorney. The purpose of this article is to provide a summary of the basics (“NITTIE-GRITTIES”) of the Mandatory Fee Arbitration Fee Arbitration Program in Marin County (and California) to enable everyone to correctly identify when a dispute is a proper subject for mandatory fee arbitration and refer parties or themselves to the Marin County Bar Association program.

 

What is the Mandatory Fee Arbitration Program?

The Mandatory Fee Arbitration Program (“the Program”) provides an extraordinary opportunity to have a volunteer arbitrator (or panel of arbitrators) resolve attorney fee and cost disputes between clients and attorneys through an informal, low-cost alternative to the court system.  This has tremendous value to both the attorney and client. The arbitrator determines whether the fees and costs charged by the attorney are reasonable for the services provided.  The Program is authorized by Business and Professions Code section 6200 et seq.  Fee arbitration is voluntary for the client, unless the parties previously agreed to arbitrate their disputes with the Program.  Conversely, Fee Arbitration is mandatory for the attorney if the client requests it.  (See Bus. & Prof. Code §6200, subd. (c).)

 

How does the Program work?

Virtually all of the Marin County fee arbitrations are conducted through the MCBA’s State Bar approved Mandatory Fee Arbitration Program.  Jurisdiction to hear these matters lies in the county where the legal services were provided, where the attorney maintains an office, or where the client lives.  If our program lacks jurisdiction, or, in a rare occurrence, if either party declares that he or she cannot obtain a fair hearing at the local level, the State Bar Office of Mandatory Fee Arbitration will assume jurisdiction of the matter. Either way, the process is the same as described hereinbelow.

 

Are All Disputes With an Attorney Covered by the Mandatory Fee Arbitration Program?

No.  Fee disputes where the fee or cost to be paid by the client has been determined pursuant to statute or court order are not covered.  (See Bus. & Prof. Code §6200, subd.(b)(3).) For example, court ordered or statutorily set attorney’s fees in bankruptcy or probate cases are not covered by the Program.  Nor are claims for affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct.  (See Bus. & Prof. Code §6200(b)(2).)  However, evidence of professional negligence or misconduct is admissible in the fee arbitration hearing and may have an impact on the reduction of fees. (Bus. & Prof. Code §6203, subd. (a.).)

 

What are the Client’s Rights Before an Attorney May File a Lawsuit to Collect Unpaid Attorney’s Fees?

Attorneys are very often ignorant of the state-mandated prerequisites to collecting fees from their clients. Prior to or at the time of service of summons or claim in an action against the client, or prior to commencing a proceeding  as an alternative to arbitration under the Mandatory Fee Arbitration Program (i.e., contractual arbitration), the attorney shall forward a written notice to the client of his or her right to arbitration under the Program.  The Notice shall be on the State Bar-approved Notice of Client’s Right to Arbitration form and not a letter from the attorney. It must be on the State-approved form, which may be obtained on the MCBA website:  (http://www.marinbar.org/docs/FeeArb_Client_Notice_Arbitrate.pdf) or at the MCBA office.  Otherwise, the notice is invalid for Fee Arbitration purposes and the time for the client’s election to avail themselves of the program is extended.  The client’s failure to request fee arbitration within 30 days of his or her receipt (not service) of the Notice is deemed to be a waiver of the right to arbitration under the Program.  (See Bus. & Prof. Code §6201, subd.(a)) and the attorney may then proceed to collection by filing a complaint and proceeding through the judicial process or contractual arbitration.

If the attorney has already filed a lawsuit against the client for unpaid fees, the client may elect to either respond to the lawsuit or request fee arbitration.  If the client files a response to the lawsuit, after Notice of the right to arbitration is given, his or her right to arbitrate the fee dispute is deemed waived.  (See Bus. & Prof. Code §6201, subd.(b).)   If the client requests fee arbitration, the lawsuit is automatically stayed.  (Bus. & Prof. Code §6201, subd. (c).) To alert the court, the client should file the appropriate notice of automatic stay where the lawsuit is pending using Judicial Council Form CM-180.  To preserve the right to arbitrate, the client should file a request for arbitration with the MCBA promptly. If the client is unaware of the automatic stay provisions, it would be in good form for the attorney to prepare and file the Notice with the court.

 

What Happens Once Arbitration Is Requested?

To request arbitration, a party submits a completed arbitration request form from the MCBA fee arbitration program and pays any required filing fee.  A telephone call or letter to the program requesting arbitration will not protect the right to arbitration. Most attorneys appreciate the value of the program and, as such, sometimes, in order to keep the matter out of the court system, attorneys initiate the arbitration by paying the filing fee. However, it remains the client’s right to ultimately elect Fee Arbitration unless a provision for such mandatory arbitration is included within the written fee agreement between the attorney and client.

The program will assign a sole arbitrator or a panel of three arbitrators (depending on the amount in dispute) to hear the dispute and determine whether the attorney’s fees and costs were reasonable (or unconscionable in the case of the existence of a valid, enforceable written fee agreement).  If the arbitrator determines that the attorney’s fees were not reasonable (or unconscionable, as the case may be), the client may be awarded a refund of attorney’s fees or costs.  Alternatively, the arbitrator may determine that no refund is owed or that the client owes fees to the attorney.

Depending on the circumstances, the arbitrator will consider a number of factors in making a decision.  These may include: whether there was a valid, enforceable written fee agreement; the reasonable value of the attorney’s services; the amount of time the attorney spent on the case; and whether any misconduct or incompetency by the attorney affected the value of the services.  The arbitrator will decide the matter based only upon the evidence presented at the hearing.  The arbitration award will be served on the parties by the MCBA after the hearing is submitted for decision.

 

Is an Attorney Necessary for a Party in a Fee Arbitration?

Absolutely not. This is the simple beauty and value of the program. Because the program is intended to be a low cost alternative to the court system, parties do not need an attorney to represent them in fee arbitration. While either party may choose to hire an attorney at his or her own expense, the arbitration award cannot include the attorney’s fees incurred for the preparation for, or appearance at the arbitration hearing, regardless of any contractual provision to the contrary.  Any such contractual provision is simply unenforceable by law (See Bus. & Prof. Code §6203, subd. (a).)

 

What if the Client Believes that the Attorney Engaged in Misconduct or Malpractice?

The Mandatory Fee Arbitration Program cannot help recover damages or offset expenses incurred by attorney malpractice or misconduct.

If the arbitrator determines that the attorney’s malpractice or professional misconduct reduced the value of the attorney’s services, the arbitrator can reduce the attorney’s fees accordingly.  However, the arbitrator cannot offset the fee or order the attorney to pay for any damages the attorney’s conduct may have caused. (See Bus. & Prof. Code §6203, subd. (a).)  If there are concerns about attorney malpractice, they should be discussed with an independent attorney.

In addition, a disciplinary complaint may be filed with the State Bar of California by calling the State Bar’s toll-free number: (800) 843-9053.  A copy of the pamphlet “What Can I Do If I Have A Problem With My Lawyer?” is available on the State Bar website (http://www.calbar.ca.gov/Public/Pamphlets/ProblemwithaLawyer.aspx) or by calling the State Bar.

A discipline complaint and a request to arbitrate a fee dispute are separate matters.  Filing a complaint may result in disciplinary action against the attorney; however, the result may or may not require the attorney to pay restitution or unearned fees to the client.

 

Can the Client Still Litigate a Fee Dispute In Court If He or She Is Dissatisfied with the Arbitration Award?

It depends on whether the fee arbitration proceeded as binding or non-binding.  Fee arbitrations are non-binding unless the parties agree in writing to binding arbitration after the dispute arises but prior to the hearing.  This usually occurs by checking the appropriate box requesting “binding arbitration” when the parties request fee arbitration. If the arbitration is binding, the award is final and neither party may request a new trial in court.  A binding award can only be corrected or vacated for very limited reasons (i.e., bias, failure to allow the introduction of evidence, etc.) within a limited period of time as set forth in Code of Civil Procedure section 1285 et seq.  The time period for filing a petition to correct or vacate the award is 100 days from the date of service of the award. (Code. Civ. Proc.§1288.2.)

If the award is non-binding, a party has 30 days from the date of service of the award to file an action in court requesting a trial to reject the award and to request a trial de novo (Bus. & Prof. Code §6204 (c).)  If a trial is not requested within the 30 days by either party, the award automatically becomes binding, with the same effect as if the parties had agreed to binding arbitration.  In small claims court, the parties may use the Judicial Council forms SC-100 and SC-101 to request a trial de novo. Form SC-101 contains useful information on this process.

 

 

How Does the Client Enforce An Arbitration Award Against the Attorney?  

An arbitration award must become final before it is enforceable.  Generally, that means that the 30- day time period to request trial de novo or the 100-day period to petition to vacate or correct the award must pass.  Either party may then request the court to enter a judgment confirming the arbitration award. The client may then enforce the judgment against the judgment debtor (attorney).  (See Code Civ. Proc.§1287.4.)

Something to consider and understand: If the arbitration award rendered is in favor of the client for a refund of attorney’s fees or costs, the client may request the State Bar for assistance in enforcing the award or judgment. (See Bus. & Prof. Code §6203, subd.(d).) The attorney’s reply may consist of a payment proposal, a claim of financial inability to pay or lack of liability.  By statute, the State Bar is authorized to enforce an unpaid award by imposing administrative penalties on the attorney member.  It may also seek a State Bar Court order enrolling the attorney on inactive status until the award is paid. (Ibid.)

For further information about the Marin County Mandatory Fee Arbitration Program, please contact the address below:

 

Marin County Bar Association
Mandatory Fee Arbitration Program
101 Lucas Valley Road
San Rafael, CA 94903
(415) 499-1314

 

Lengthy Fee Fight Settles In $6 Million Harass Case

The Supreme Court to ruled that lawyers splitting fees need the client’s written consent.

By Michael Fish

Vice Chair of the State Bar Mandatory Fee Arbitration Committee
And Chair of the MCBA Client Relation’s Committee

 

A ten-year fee fight, which prompted the state Supreme Court to provide strict rules governing attorneys’ fee-sharing agreements, has been settled.

For five years, attorneys Arthur Chambers and Philip Kay litigated over fees earned in a historic sexual harassment case. Their dispute reached the California Supreme Court, which used the case to, among other things, declare that fee-sharing agreements between lawyers are void without written consent from the client. Chambers v. Kay (2002) 29 Cal.4th 142.

The litigation came to a when both parties agreed to settle. Terms were undisclosed.

The Chambers case brought increased focus to fee-sharing agreements by both the state Supreme Court and the state bar.

A review of the fee disputes in Marin County reveals that many attorneys are not aware of the Chambers rule and the perils of fee division agreements, who are practicing on handshake agreements for division of fees.

The case began when Kay asked Chambers for help on a sexual harassment case filed by a legal secretary against the giant law firm Baker & McKenzie.

The two lawyers agreed that Chambers would receive 28 percent of the attorneys’ fees if the case went to trial. During discovery, however, the lawyers disagreed over tactical matters, and Kay dismissed his co-counsel.

At trial, a jury awarded the secretary $6.9 million in punitive damages, which the trial judge knocked down to $3.5 million. The case ultimately generated about $2.5 million in attorneys’ fees. Weeks v. Baker & McKenzie (1998) 63 Cal.App.4th 1128.

Kay reneged on the fee-splitting arrangement, saying Chambers had failed to perform his duties and billed for services improperly. Chambers sued in 1999.

The State Bar’s Rule of Professional Conduct 2-200 mandates that lawyers shall not divide a fee for legal services with another lawyer who is not a partner, associate or shareholder, unless the client consents in writing. In Chambers, the California Supreme Court held that, absent such approval, a fee-splitting agreement is void.

The decision left open the possibility that Chambers could recover for the reasonable value of the work he did on the case, and the two lawyers returned to the trial court to litigate that claim. They were weeks away from their trial date when they reached the settlement.

 

“NON-REFUNDABLE” RETAINER PROVISIONS IN FEE AGREEMENTS ~ ARE THEY PROPER?

Submitted by
Michael Fish

Based in large part on
STATE BAR MANDATORY FEE COMMITTEE
ARBITRATION ADVISORY 2011-01

 

As a former Chair and former member of the State Bar Mandatory Fee Arbitration Committee, I was often called upon to review and evaluate the provisions of a fee agreement that characterizes a payment by the client as “non-refundable” or “earned upon receipt.” There are important differences, however, as to how we as attorneys are required to treat such payments, depending on the true nature of the payment and regardless of the language used in the fee agreement. Principally, these differences concern (1) the attorney’s obligation, if any, to refund some or all of an advance payment upon discharge or withdrawal and (2) whether the advance payment should be placed in the attorney’s client trust account or in the attorney’s own proprietary account. These are important distinctions to understand because if handled incorrectly by the attorney, it may be grounds for discipline.

DOES AN ATTORNEY HAVE AN OBLIGATION TO REFUND PAYMENTS MADE BY THE CLIENT?

A. Distinction Between “True” Retainers and Other Advance Payments.

As attorneys we should understand that when the attorney-client relationship has concluded the attorney must:

“Promptly refund any part of a fee paid in advance that has not been earned. This provision is not applicable to a true retainer fee which is paid solely for the purpose of ensuring the “availability” of the member for the matter.”

 Rule 3-700(D)(2) of the Rules of Professional Conduct (“Rules”) provides that unless the attorney and client have contracted for a “true retainer” (also known as a “classic retainer”), the attorney must refund any portion of an advance fee that the attorney has not yet earned. This raises the question of how to distinguish a “true retainer” from other forms of advance payments. Rule 3-700 (D)(2) itself suggests that a “true retainer” is one that is paid “solely for the purpose of ensuring the availability of the member.” (emphasis added.) This definition of a “true retainer” was adopted by the California Supreme Court in Baranowski v. State Bar (1979) 24 Cal.3d 153.

In Baranowski, an attorney was disciplined for failing to return advance payments to three clients. The court explained that:

“An advance fee payment as used in this context is to be distinguished from a classic retainer fee arrangement. A [classic] retainer is a sum of money paid by a client to secure an attorney’s availability over a given period of time. Thus, such a fee is earned by the attorney when paid since the attorney is entitled to the money regardless of whether he actually performs any services for the client.” [Id., at 164 fn.4].

It is important to note that the key defining characteristic of a “true” or “classic” retainer is that it is paid solely to secure the availability of the attorney over a given period of time and is not paid for the performance of any other services. In a true retainer situation, if the attorney’s services are eventually needed, those services would be paid for separately and no part of the retainer would be applied to pay for such services. Thus, if it is contemplated that the attorney will bill against the advance payment for actual services performed, then the advance is not a true retainer because the payment is not made solely to secure the availability of the attorney. Instead, such payments are more properly characterized as either a security deposit or an advance payment of fees for services.

An “advance payment” would typically be applied toward the client’s bill at the end of the current billing period. A “security deposit” is one held by the lawyer throughout the representation and refunded to the client once all services are completed and the attorney has been paid. For convenience, a security deposit is sometimes applied to the final invoice.

A true retainer is earned upon receipt (and is therefore non-refundable) because it takes the attorney out of the marketplace and precludes him or her from undertaking other legal work (e.g., work that may be in conflict with that client). It also requires that the attorney generally be available for consultation and legal services to the client. Sometimes a true retainer will take the form of a single payment to guarantee the attorney’s future availability for a specified period of time and other times as payments made on a recurring basis, such as a monthly retainer, to assure the attorney’s availability to represent the client for that month. Sometimes this is referred to as having the attorney “on retainer.” This is the ONLY type of retainer that is truly non-refundable.

As might be expected, true retainers are rare in today’s legal marketplace. Due to the abundance of competent attorneys in virtually all fields of law, there are probably only a handful of situations in which a client would want to pay a true retainer. Nonetheless, true retainers do have a legitimate, if infrequent, use in the legal marketplace. As one court has noted, “A lawyer of towering reputation, just by agreeing to represent a client, may cause a threatened lawsuit to vanish.” [Bain v. Weiffenbach (Fla.App. 1991) 590 So.2d 544]. In some cases, a client may perceive that only the retained attorney has the requisite skills to handle a particular matter and may want to guarantee that attorney’s availability. In other cases, a true retainer may be used simply to prevent the attorney from representing an adverse party. We used to see this on Wall Street where large brokerages wanted to tie up the services of the best firms to eliminate them from use by their competitive brokerage house or customers, or in small communities where doctors might pay a retainer to all of the local divorce specialists to keep them from being used by their spouses. Other than these examples though, true retainers would seem to be of little use to clients in everyday legal matters.

In other instances, a so-called “retainer” is effectively merely a security deposit or an advance payment of fees. This is an important distinction because a payment that represents a security deposit or an advance payment for services to be performed in the future remains the property of the client until earned by the attorney, and any unearned portion is to be returned to the client [Rule 3-700(D)(2); S.E.C. v. Interlink Data Network (9th Cir. 1996) 77 F.3d 1201]. An example of an advance payment for services would be where the attorney charges $200 per hour and collects a “retainer” of $2,000, giving the client credit for 10 hours of legal services to be performed in the future. If the attorney is discharged or the matter is otherwise concluded before the attorney has expended 10 hours of his or her time, the attorney must refund the balance of the advance payment that has not yet been earned. Thus, if the attorney had only expended four hours of time prior to being discharged, under Rule 3-700(D)(2) the attorney must promptly refund $1,200 to the client. In S.E.C. v. Interlink Data Network, supra, the law firm’s characterization of the fee as a “present payment for future work,” which it alleged was earned when paid, was unsuccessful in avoiding a refund of the unused portion of the fee to the client’s bankruptcy trustee.

B. Language of Fee Agreement Not Controlling.

You just can’t get around the fact that advance payments that are not “true” retainers are refundable under Rule 3-700(D)(2) to the extent they are unearned, no matter how the fee agreement characterizes the payment [Matthew v. State Bar (1989) 49 Cal.3d 784; see also Federal Savings & Loan v. Angell, Holmes and Lea (9th Cir. 1988) 838 F.2d 395, 397-398]. This is a trap for the unwary attorney who thinks he or she can keep these funds merely because they characterize them in their fee agreements as “non-refundable.” In Matthew, two fee agreements provided for a “non-refundable” retainer payment. In each instance it was contemplated that the attorney would bill against the “retainer”, but the attorney failed to fully perform the required services. The attorney was disciplined both for client abandonment and for failure to account for and return the unearned portion of the fees. Thus, the attorney’s characterization of the retainer as “non-refundable” in the fee agreement did not abrogate the attorney’s duty to return any portion of the fee that had not been earned. The Supreme Court emphasized that “Retention of unearned fees [is] serious misconduct warranting periods of actual suspension, and in cases of habitual misconduct, disbarment.” [Id. at 791]. Simply stated, “A member’s failure to promptly account for and return the unearned portion of an advance fee warrants discipline” [In the Matter of Fonte (Review Dept. 1994) 2 Cal. State Bar Ct. Rptr. 752].

Another case in which the language of the fee agreement did not control the characterization of the advance payment is In re: Matter of Lais (1998) 3 Cal. State Bar Ct. Rptr. 4 907. In the Lais case the attorney’s fee agreement read as follows:

“Client agrees to pay attorney for his services a fixed, non-refundable retainer fee of $2,750 and a sum equal to $275 per hour after the first ten hours of work. This fixed, nonrefundable retainer is paid to the attorney for the purpose of assuring his availability in the matter.”

This language is very clever on its face, but unenforceable. Even though the language of the agreement stated that the advance was being paid to assure the attorney’s availability and was nonrefundable, the advance was clearly also to be applied to the first ten hours of work. Therefore, the advance was obviously not paid solely to assure the attorney’s availability. The court held that the $2,750 payment was not a true retainer and that the attorney was required to refund any amount that had not been earned.

C. Unconscionability

There is another trap for the unwary practitioner. Civil Code section 1670.5 provides that a contract may be found to be unenforceable if its terms are unconscionable. In addition, Rule 4-200 of the Rules of Professional Conduct provides that an attorney may not charge or collect an illegal or unconscionable fee. It is therefore not surprising that in some cases, a payment that is properly characterized as a true retainer may nonetheless be unenforceable if it is found to be unconscionable.

The concept of unconscionability has both procedural and substantive elements [Samura v. Kaiser Foundation Health Plan, Inc. (1993) 17 Cal.App.4th 1284, 1296]. Substantive unconscionability refers to the harshness of the contract terms. “Substantive unconscionability is indicated by contract terms so one-sided as to shock the conscience.” [American Software, Inc. v. Ali (46 Cal.App.4th 1386, 1391; see also Bushman v. State Bar (1974) 11 Cal.3d 558, 563-566 (attorney’s fee found unconscionable where it was “so exorbitant and wholly disproportionate to the services performed as to shock the conscience.”)]. Procedural unconscionability refers to the manner in which the contract was negotiated and the circumstances of the parties at that time [Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329]. Examples of issues relevant to a procedural unconscionability analysis are the inequality in bargaining power between the parties and the absence of real negotiation or meaningful choice [American Software Inc. v. Ali (1996) 46 Cal.App.4th 1386, 1391].

Rule 4-200 sets forth eleven factors to be examined in determining whether an attorney’s fee is unconscionable. Some of these factors include: (1) the relative sophistication of the attorney and the client; (2) the amount of the fee in proportion to the value of the services rendered; and (3) the experience, reputation and ability of the attorney. One case held that a fee agreement requiring the client to pay a “minimum fee” upon discharge was unconscionable [In re: Scapa & Brown (1993) 2 Cal. State Bar Ct. Rptr. 635, 652].

Unconscionability in the context of a true retainer agreement would normally not be a consideration where the client is a sophisticated purchaser of legal services, a large insurance company or a corporation for example, or where the attorney’s skill and reputation are well known. As previously noted, however, the situations in which a client may have a valid reason for paying a true retainer fee are not very common. True retainers are therefore scrutinized to see if the fee is unconscionable. For example, a client may receive very little or no value at all by ensuring the availability of the attorney if the attorney has no particular reputation or expertise and if there is an abundance of other competent attorneys available to handle the client’s matter. In cases such as this, a true retainer might be unconscionable, particularly if the amount charged is very high and the client is not a sophisticated purchaser of legal services.

In examining whether a true retainer withstands an unconscionability analysis, it is important to remember that an agreement may only be voided on grounds of unconscionability based on the facts as they existed at the time the contract was formed [Civil Code section 1670.5; Rule 4-200(B)]. “The critical juncture for determining whether a contract is unconscionable is the moment when it is entered into by both parties, not whether it is unconscionable in light of subsequent events.” [American Software Inc. v. Ali (1996) 46 Cal.App.4th 1386, 1391].

Thus, if a client enters into a true retainer agreement with a famous criminal defense attorney because the client fears that he will be indicted and wants to ensure the defense attorney’s availability, the client could not void the contract on grounds of unconscionability merely because the indictment never occurred. On the other hand, if the same client entered into a true retainer agreement with an attorney who had no experience or reputation in handling criminal law matters, the retainer might be unconscionable depending upon the amount paid and the sophistication and bargaining power of the client, regardless of whether the indictment occurred or not.

 

WHERE SOULD AN PLACE ADVANCE FEES AND TRUE RETAINERS PIAID BY CLIENTS?

The issue of where attorneys should place advance payments depends on the nature of the payment. Rule 4-100 provides, in pertinent part:

“All funds received or held for the benefit of clients by a member or law firm, including advances for costs and expenses, shall be deposited in one or more identifiable bank accounts labeled “Trust Account”, “Client Funds Account” or words of similar import. No funds belonging to the member or the law firm shall be deposited therein or otherwise commingled.”

Because true retainers are earned upon receipt, they are not “funds held for the benefit of the client.” Therefore, Rule 4-100’s prohibition on commingling “funds belonging to the member” means that true retainers should be placed in the attorney’s proprietary account and not in the client trust account.

The California Supreme Court has not required “advance fees” to be deposited in the attorney’s trust account, but has instead expressly left the issue open. [See Baranowski v. State Bar (1979) 24 C3d 153, 164, 154 CR 752, 757]

Nevertheless, the Court has indicated its views on the subject. In Baranowski, supra, the Court did not impose discipline on the attorney for failing to deposit advance fees in a trust account (although discipline was warranted on other grounds). [Baranowski v. State Bar, supra, 24 C3d at 163–164, 154 CR at 756–757]. The Court did approve current CRPC 4–100 as proposed by the State Bar. In recommending the current Rule, the State Bar specifically noted that it did not intend the Rule to require advance fees to be deposited in a client’s trust account:

“The concept of including in paragraph (4–100)(A)) a requirement that ‘advances for fees’ be placed in the client trust account was considered but rejected because it is believed that such a provision is unworkable in light of the realities of the practice of law.” [In the Matter of the Proposed Amendments to the Rules of Professional Conduct, California Supreme Court Case No. Bar Misc. 5626, at “Request that the Supreme Court of California Approve Amendments to the Rules of Professional Conduct of the State Bar of California, and Memorandum and Supporting Documents in Explanation,“ at Memorandum, Dec. 1987, p. 42 (parentheses added); see also Cal. State Bar Form.Opn. 2007–172—”Under rule 4–100, as it has been construed by the courts, an attorney is ethically permitted, but not required, to deposit fees not yet earned into a client trust account“ (emphasis added)]

The California Supreme Court has thus far declined to approve a proposed Rule amendment requiring advance fees to be deposited into client trust accounts.   

CONCLUSION

In the context of the business operations of a law practice, when presented with circumstances where the client has made an advance payment and claims entitlement to a refund of all or a portion of the advance, attorneys should carefully consider the following issues:

  • Whether the retainer is a “true retainer” or a “classic retainer” that was paid solely to ensure the attorney’s availability and not paid for the performance of any particular legal services;
  • Whether the retainer merely represents an advance payment or security deposit for actual legal services to be performed in the future. A provision that the attorney will charge an hourly rate to be billed against the retainer is a conclusive indicator that the payment is an advance payment or a security deposit that is refundable unless fully earned;
  • If the payment represents a true retainer fee paid solely to ensure the availability of the attorney, whether the fee is unconscionable in light of the facts as they existed at the time the agreement was formed; and
  • To the extent it may bear upon the fees, costs, or both to which the attorney is entitled [See Business & Professions Code section 6203(a)], whether the attorney complied with Rule 4-100(A) in placing the advance payment in the appropriate account.

 

Michael J. Fish is a partner with the firm of Merrill, Arnone & Jones, LLP with locations in Santa Rosa and Novato.  He is a past chair of The State Bar of California Mandatory Fee Arbitration Committee and the Marin County Bar Association Client Relations Committee and a current member of the MCBA Board of Directors.

 

WHAT IS THIS THING CALLED “THE MANDATORY FEE ARBITRATION PROGRAM”?

On occasion, a client or litigant in propia persona may decide that they do not want to pay their attorney’s bill and may ask for information about their rights and responsibilities regarding a fee dispute. We have all heard it. “I could have done that myself!” “That Shyster! What did I pay him for?” “I was told that it would only cost $500, not $5,000.” The never-ending ulcer producing rhythm and chorus of the dissatisfied non-paying client.

In Marin County, we are fortunate enough to have a long-running successfully operated Mandatory Fee Arbitration with a committee of competent attorneys (and lay persons for the 3-person panel) ready, willing and able to serve to resolve these issues in a fair and expeditious manner.

The purpose of this article is to provide a summary of the essentials of the Mandatory Fee Arbitration Fee Arbitration Program in Marin County to enable you to correctly identify when a dispute is a proper subject for mandatory fee arbitration and refer parties to our bar association program, if appropriate.

 

What is the Mandatory Fee Arbitration Program?

The Mandatory Fee Arbitration Program (“the Program”) provides an opportunity to have a volunteer arbitrator resolve attorney fee and cost disputes between clients and attorneys through an informal, low-cost alternative to the court system.  The arbitrator determines whether the fees and costs charged by the attorney are reasonable for the services provided.  The Program is authorized by Business and Professions Code section 6200 et seq.  Fee arbitration is voluntary for the client, unless the parties previously agreed to arbitrate their disputes with the Program.  Fee Arbitration is mandatory for the attorney if the client requests it.  (See Bus. & Prof. Code §6200, subd. (c).)

 

How does the Program work?

Most Marin County fee arbitrations are conducted through our local bar association’s State Bar approved Mandatory Fee Arbitration Program.  Jurisdiction usually lies in the county where the legal services were provided, where the attorney maintains an office, or where the client lives.  Our local bar rules should be consulted to determine if jurisdiction exists. If our local program lacks jurisdiction, or if either party declares that he/she cannot obtain a fair hearing at the local level, the State Bar Office of Mandatory Fee Arbitration will assume jurisdiction of the matter.

 

Are All Disputes With an Attorney Covered by the Mandatory Fee Arbitration Program?

No.  Fee disputes where the fee or cost to be paid by the client has been determined pursuant to statute or court order are not covered.  (See Bus. & Prof. Code §6200, subd.(b)(3).) For example, court ordered or statutorily set attorney’s fees in family law, bankruptcy or probate cases are not covered by the Program.  Nor are claims for affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct.  (See Bus. & Prof. Code §6200(b)(2).)  However, evidence of professional negligence or misconduct is admissible in the fee arbitration hearing.(Bus. & Prof. Code §6203, subd. (a.).)

 

What are the Client’s Rights Before an Attorney May File a Lawsuit to Collect Unpaid Attorney’s Fees?

Prior to or at the time of service of summons or claim in an action against the client, or prior to commencing a proceeding as an alternative to arbitration under the Mandatory Fee Arbitration Program, the attorney shall forward a written notice to the client of his or her right to arbitration under the Program.  The Notice shall be the Marin County Bar Association’s State Bar-approved Notice of Client’s Right to Arbitration.  The client’s failure to request fee arbitration within 30 days of his or her receipt of the Notice is deemed to be a waiver of the right to arbitration under the Program.  (See Bus. & Prof. Code §6201, subd.(a).) However, the court in this county has been known to order parties to fee arbitration through this program after the 30 days has elapsed and after the attorney has filed suit to collect fees and costs claimed due.

If the attorney has already filed a lawsuit against the client for unpaid fees, the client may elect to either respond to the lawsuit or request fee arbitration.  If the client files a response to the lawsuit, after Notice of the right to arbitration is given, technically his or her right to arbitrate the fee dispute is deemed waived.  (See Bus. & Prof. Code §6201, subd.(b).)   If the client requests fee arbitration, the lawsuit is automatically stayed.  (Bus. & Prof. Code §6201, subd. (c).)  To alert the court, the client should file the appropriate notice of automatic stay where the lawsuit is pending.  To preserve the right to arbitrate, the client should file a request for arbitration promptly. However, as stated hereinabove, the court in this county, recognizing the obvious benefits of our program, has ordered parties to participate in our mandatory fee arbitration as an alternative to the ADR program currently in place within our court process.

 

What Happens Once Arbitration Is Requested?

To request arbitration, a party submits a completed arbitration request form from the fee arbitration program and pays any required filing fee.  A telephone call or letter to the program requesting arbitration will not protect the right to arbitration.

The program will assign a sole arbitrator or a panel of three arbitrators (depending on the amount in dispute) to hear the dispute and determine whether the attorney’s fees and costs were reasonable.  If the arbitrator determines that the attorney’s fees were not reasonable, the client may be awarded a refund of attorney’s fees or costs.  Alternatively, the arbitrator may determine that no refund is owed or that the client owes fees to the attorney.

Depending on the circumstances, the arbitrator will consider a number of factors in making a decision.  These may include: whether there was a written fee agreement; the reasonable value of the attorney’s services; the amount of time the attorney spent on the case; and whether any misconduct or incompetency by the attorney affected the value of the services.  The arbitrator will decide the matter based only upon the evidence presented at the hearing.  The arbitration award will be served on the parties after the hearing is submitted for decision.

 

Is an Attorney Necessary for a Party in a Fee Arbitration?

Because the program is intended to be a low cost alternative to the court system, parties do not need an attorney to represent them in a fee arbitration. Either party may choose to hire an attorney at his or her own expense, but the arbitration award cannot include the attorney’s fees incurred for the preparation for, or appearance at the arbitration hearing.  (See Bus. & Prof. Code §6203, subd. (a).)

 

What if the Client Believes that the Attorney Engaged in Misconduct or Malpractice?

The Mandatory Fee Arbitration Program cannot help recover damages or offset expenses incurred by attorney malpractice or misconduct.

If the arbitrator determines that the attorney’s malpractice or professional misconduct reduced the value of the attorney’s services, the arbitrator can reduce the attorney’s fees accordingly.  However, the arbitrator cannot offset the fee or order the attorney to pay for any damages the attorney’s conduct may have caused. (See Bus. & Prof. Code §6203, subd. (a).)  If there are concerns about attorney malpractice, they should be discussed with an independent attorney.

In addition, a disciplinary complaint may be filed with the State Bar of California by calling the State Bar’s toll-free number: (800) 843-9053.  A copy of the pamphlet “What Can I Do If I Have A Problem With My Lawyer?” is available by calling the State Bar.  The pamphlet may also be accessed from the internet at www.calbar.ca.gov.

A discipline complaint and a request to arbitrate a fee dispute are separate matters.  Filing a complaint may result in disciplinary action against the attorney; however, the result may or may not require the attorney to pay restitution or unearned fees to the client.

 

Can the Client Still Litigate a Fee Dispute In Court If He/She Is Dissatisfied with the Arbitration Award?

 It depends on whether the fee arbitration proceeded as binding or non-binding.  Fee arbitrations are non-binding unless the parties agree in writing to binding arbitration after the dispute arises but prior to the hearing.  If the arbitration is binding, the award is final and neither party may request a new trial in court.  A binding award can only be corrected or vacated for very limited reasons as set forth in Code of Civil Procedure section 1285 et seq.  The time period for filing a petition to correct or vacate the award is 100 days from the date of service of the award. (Code. Civ. Proc.§1288.2.)

If the award is non-binding, a party has 30 days from the date of service of the award to file an action in court requesting a trial to reject the award.  (Bus. & Prof. Code §6204 (c).)  If a trial is not requested within the 30 days by either party, the award automatically becomes binding.  In small claims court, the parties may use the Judicial Council forms SC-100 and SC-101 to request a trial de novo. Form SC-101 contains useful information on this process.

 

How Does the Client Enforce An Arbitration Award Against the Attorney?  

An arbitration award must become final before it is enforceable.  Generally, that means that the 30- day time period to request trial de novo or the 100-day period to petition to vacate or correct the award must pass.  Either party may then request the court to enter a judgment confirming the arbitration award. The client may then enforce the judgment against the judgment debtor.  (See Code Civ. Proc.§1287.4.)

If the arbitration award rendered is in favor of the client for a refund of attorney’s fees or costs, the client may request the State Bar for assistance in enforcing the award or judgment. (See Bus. & Prof. Code §6203, subd.(d).) The attorney’s reply may consist of a payment proposal, a claim of financial inability to pay or lack of  liability.  By statute, the State Bar is authorized to enforce an unpaid award by imposing administrative penalties on the attorney member.  It may also seek a State Bar Court order enrolling the attorney on inactive status until the award is paid. (Ibid.)

 

That’s It!

So, take a deep breath! There is life after a disgruntled non-paying client and a reasonable means to reconcile your differences.

 

For further information about the Mandatory Fee Arbitration Program, please contact:

Robynn Gaspar,  Executive Director

Marin County Bar Association

(415) 499-1314