DocketNumber： No. H027422
Citation Numbers： 129 Cal. App. 4th 1076, 2005 Cal. Daily Op. Serv. 4526, 2005 Daily Journal DAR 6194, 29 Cal. Rptr. 3d 499, 2005 Cal. App. LEXIS 868
Judges： Rushing
Filed Date： 5/27/2005
Status： Precedential
Modified Date： 11/3/2024
Opinion
The Mandatory Fee Arbitration Act (MFAA), under Business and Professions Code section 6200 et seq., provides a quick and inexpensive method for clients, at their option, to resolve fee disputes with their attorneys.
The Law Offices of Dixon R. Howell, doing business as Business Law Group (Law Firm or Firm) sued Michael W. Valley (Client) on a promissory note that he had signed to memorialize an obligation for unpaid fees. Client’s answer alleged a defense of estoppel based on Law Firm’s failure to give the requisite section 6201(a) notice. The lawsuit proceeded over the course of almost 15 months without any assertion by Client that he wished to arbitrate the fee dispute. The court denied Law Firm’s motion for summary judgment because of its noncompliance with section 6201(a). Six days later, on the eve of trial, the court granted Client’s ex parte motion in limine to dismiss the complaint. Client thereafter moved for an award of attorney fees of approximately $44,000 (i.e., nearly one and one-half times the amount in controversy in the action); the court granted the motion but awarded fees of $12,000. Law Firm appealed the dismissal of the action and Client appealed the fee order.
We are required to determine whether the court below applied the proper criteria in deciding Client’s motion to dismiss. Since we conclude that the
PROCEDURAL HISTORY
Law Firm filed its complaint for breach of written contract on November 19, 2002. The complaint alleged that Client executed a promissory note in favor of Firm on April 1, 2002, and that Client breached his obligations under the note by failing to pay the sum of $33,137.50 plus interest.
Client filed a general denial to the complaint on January 3, 2003. His response included 25 affirmative defenses—many of which appear to have had no application to the case—including a defense captioned “Estoppel” that read: “Defendant alleges that the Complaint, and each cause of action alleged therein, are barred and plaintiff is estopped from obtaining any recovery from this answering defendant because plaintiff has failed to comply with Business and Professions Code [section] 6201.”
The matter proceeded to judicial arbitration in August 2003, pursuant to Code of Civil Procedure section 1141.10 et seq.
Law Firm filed a motion for summary judgment, or, in the alternative, a motion for summary adjudication that Client’s estoppel defense under section 6201 was without merit (collectively, the summary judgment motion or motion). The court denied the motion. In concluding that summary judgment was not appropriate, the court reasoned that: (1) while Firm met its initial burden on summary judgment of proving each element of a breach of contract claim, its failure to give Client notice of his right to arbitration under section 6201(a) created a ground for dismissal of the action; and (2) Client did not waive his arbitration rights by answering the complaint. Likewise, the court denied summary adjudication because Firm did not meet its burden of establishing that the estoppel defense was without merit—again because Firm
Thereafter, on February 11, 2004—six days before the assigned trial date and after the case did not settle at a mandatory settlement conference—the court granted Client’s ex parte motion in limine to dismiss the action due to Law Firm’s noncompliance with section 6201(a). At the same time, the court denied Firm’s ex parte application to stay the action pending completion of MFAA arbitration. A notice of entry of dismissal was filed March 4, 2004. Client moved for an order awarding attorney fees of $44,051.25, as the prevailing party in the action under Code of Civil Procedure sections 1032, subdivision (a)(4) and 1033.5.
Law Firm filed a notice of appeal on May 3, 2004. Client filed an appeal from the attorney fees order on May 20, 2004.
The appeal from the dismissal was filed timely (Cal. Rules of Court, rule 2(a)(1)), and is a proper subject for appellate review. (See Code Civ. Proc., § 581d; Kahn v. Lasorda’s Dugout, Inc. (2003) 109 Cal.App.4th 1118, 1120, fn. 1 [135 Cal.Rptr.2d 790].) Likewise, Client’s appeal was timely as an original appeal from the order awarding attorney fees. (Cal. Rules of Court,
DISCUSSION
I. Issues On Appeal
Law Firm’s two claims of error are as follows:
1. The dismissal of the action on the basis of Firm’s noncompliance with section 6201(a) was improper because it was based on the erroneous view that such dismissal was mandatory.
2. Summary judgment should have been granted because Law Firm: (a) established all elements of its breach of contract claim; (b) negated the defense of estoppel under section 6201 by establishing that Client waived his right to assert that the dispute had to be arbitrated; and (c) established that Client’s other defenses raised in opposition to the motion had no merit.7
Client contends in his appeal that the court abused its discretion by “tak[ing] such a sharp scalpel” in awarding only $12,000 in attorney fees, instead of the $44,051 requested.
We will address these contentions below. At the outset, however, we provide a necessary overview of the MFAA.
II. The Mandatory Fee Arbitration Act
TGhe MFAA was enacted in 1978 following an earlier finding by the Board of Governors of the California State Bar that fee disputes constituted the most serious problem between attorneys and their clients. (See Aguilar v. Lerner, supra, 32 Cal.4th 974, 983-984.) “The policy behind the mandatory fee arbitration statutes [was] ... to alleviate the disparity in bargaining power in
Accordingly, the MFAA was enacted to require, at the option of the client, that the attorney arbitrate any fee dispute: “Unless the client has agreed in writing to arbitration under this article of all disputes concerning fees, costs, or both, arbitration under this article shall be voluntary for a client and shall be mandatory for an attorney if commenced by a client.” (§ 6200, subd. (c); see also Aguilar v. Lerner, supra, 32 Cal.4th at p. 981.)
The arbitrator or arbitrators of a fee dispute may: “(1) Take and hear evidence pertaining to the proceeding, [f] (2) Administer oaths and affirmations. [][] (3) Compel, by subpoena, the attendance of witnesses and the production of books, papers, and documents pertaining to the proceeding.” (§ 6200, subd. (g).) The award rendered in arbitration under the MFAA—unlike the final result where arbitration of other disputes is required by the parties’ agreement (see Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9 [10 Cal.Rptr.2d 183, 832 P.2d 899])—is not binding, and either the attorney or client may obtain a trial de novo. (§ 6204, subd. (a).)
Arbitration of attorney-client disputes under the MFAA, however, is strictly limited by subject matter. “The primary limitation of the MFAA is that it applies only to disputes concerning ‘[legal] fees, costs, or both’ (§ 6200, subd. (a)) and is specifically inapplicable to ‘[c]laims for affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct’ [citation].” (Aguilar v. Lerner, supra, 32 Cal.4th at p. 984, quoting § 6200, subd. (b)(2).)
In order to ensure that the client is made aware of its arbitration rights, the MFAA requires that the attorney give the client written notice of its right to arbitration at or before the time the attorney brings suit or other proceeding to collect on unpaid fees or costs. Section 6201(a)—the statute that is central to the present dispute—provides: “[A]n attorney shall forward a written notice to the client prior to or at the time of service of summons or claim in an action against the client, or prior to or at the commencement of any other proceeding against the client under a contract between attorney and client which provides for an alternative to arbitration under this article, for recovery of fees, costs, or both. The written notice . . . shall include a statement of the client’s right to arbitration under this article. Failure to give this notice shall
III. Dismissal of the Action
The court dismissed the action because of Law Firm’s failure to give Client notice of right to arbitration under section 6201(a). Firm challenges this decision, claiming that dismissal was based upon the court’s misconception that it was required to dismiss the case because of Firm’s noncompliance with section 6201(a).
The issue of whether failure to give notice under section 6201(a) requires dismissal of an action for attorney fees is a matter of statutory interpretation. Accordingly, we independently review the entry of dismissal below. (Richards, supra, 39 Cal.App.4th at p. 1179; see also Huang v. Cheng, supra, 66 Cal.App.4th 1230, 1233 [independent review of whether section 6201(a) notice must be served only after fee dispute has arisen].)
We conclude that under Richards, the court may, in its discretion, dismiss the action for attorney fees where the attorney fails to give the client the requisite section 6201(a) notice. In this instance, it is evident that the court felt compelled to dismiss the case because of Law Firm’s noncompliance with MFAA notice requirements. We therefore must reverse the court’s dismissal of the action.
The Court of Appeal rejected the widow’s claim that section 6201(a)’s use of the word “shall” (i.e., “failure to give notice ‘shall be a ground for the dismissal of the action’ ”) meant that dismissal was mandatory: “[Djismissal is discretionary is instead the correct interpretation.” (Richards, supra, 39 Cal.App.4th at p. 1179; see also Aheroni v. Maxwell (1988) 205 Cal.App.3d 284, 294-295 [252 Cal.Rptr. 369] [rejecting client’s contention that trial court was without jurisdiction to enter default judgment against him because attorney bringing suit for fees had not given notice under section 6201(a)].) It based this holding, inter alia, on the conclusions that (1) “if the Legislature had intended mandatory dismissal, it would have said so” (Richards, supra, 39 Cal.App.4th at p. 1179), and (2) “the policy behind section 6201 does not require mandatory dismissal.” (Id. at p. 1180.)
Richards is directly applicable. Here, we cannot say that the trial court exercised discretion in granting Client’s dismissal motion. Client argued below (as well as on appeal here) that an attorney’s failure to notify a client in writing of the right to arbitrate fee disputes “is fatal to the attorney’s claim,” and that Client was “entitled to a dismissal as a matter of law.” (Original boldface.) The record does not reflect that the court weighed facts in dismissing the case; instead, evidencing the view that dismissal was required, the court noted that it “[understood] the [notice] obligation to begin and end with Business [and] Professions Code Section 6201.” Moreover, the manner of the court’s decision—where it granted dismissal by ex parte motion without presentation of evidence and where there was some question whether Law Firm had even received the motion papers before the hearing
Accordingly, we conclude that dismissal under the MFAA is discretionary and the court misperceived that it was required to dismiss the case due to Law Firm’s noncompliance with section 6201(a)’s notice requirements. We must therefore reverse the order granting the motion in limine to dismiss,
IV. Denial of Summary Judgment
Having determined that the order of dismissal must be reversed—like peeling the outer skin from an onion—we examine the next layer: whether the court properly denied Law Firm’s summary judgment motion. While an order denying summary judgment is not directly appealable, it is reviewable after entry of judgment. (See Sturm, Ruger & Co. v. Superior Court (1985) 164 Cal.App.3d 579, 582 [210 Cal.Rptr. 573].) We first identify the applicable standards for reviewing the court’s order, then analyze the motion and its opposition, and lastly address the three defenses the Client asserted in such opposition, including the defense that Firm failed to give notice under section 6201(a).
A. Summary Judgment: Standard of Review
“The purpose of the law of summary judgment is to provide courts with a mechanism to cut through the parties’ pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 [107 Cal.Rptr.2d 841, 24 P.3d 493] (Aguilar).) As such, the summary judgment statute (Code Civ. Proc., § 437c), “provides a particularly suitable means to test the sufficiency of the plaintiff’s prima facie case and/or of the defendant’s [defense].” (Caldwell v. Paramount Unified School Dist. (1995) 41 Cal.App.4th 189, 203 [48 Cal.Rptr.2d 448].)
The moving party “bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law.” (Aguilar, supra, 25 Cal.4th at p. 850, fn. omitted.) “In moving for summary
Our review of the granting or denial of summary judgment is de novo. (Buss v. Superior Court (1997) 16 Cal.4th 35, 60 [65 Cal.Rptr.2d 366, 939 P.2d 766]; Orrick Herrington & Sutcliffe v. Superior Court (2003) 107 Cal.App.4th 1052, 1056 [132 Cal.Rptr.2d 658].) In conducting such de novo review, we “consider[] all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained. [Citation.]” (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334 [100 Cal.Rptr.2d 352, 8 P.3d 1089].) This review consists of “an independent assessment of the correctness of the trial court’s ruling, [in which we] apply[] the same legal standard as the trial court in determining whether there are any genuine issues of material fact or whether the moving party is entitled to judgment as a matter of law.” (Iverson v. Muroc Unified School Dist. (1995) 32 Cal.App.4th 218, 222 [38 Cal.Rptr.2d 35].) We need not defer to the trial court and are not bound by the reasons in its summary judgment ruling; we review the ruling of the trial court, not its rationale. (Kids’ Universe v. In2Labs (2002) 95 Cal.App.4th 870, 878 [116 Cal.Rptr.2d 158].)
B. General Analysis of Law Firm’s Motion
The court considering the motion found that Law Firm had met its initial burden of presenting admissible evidence supporting each element of its breach of contract claim. We concur with that finding. Indeed, Client admitted in his opposition to the motion that (1) he executed the promissory note in favor of Firm dated April 1, 2001, (2) he did not pay on the note when it became due on April 1, 2002, and (3) the full amount on the note plus interest remained unpaid. Thus, putting aside any affirmative defenses (discussed below), Firm was entitled to summary judgment. (See Coyne v. Krempels (1950) 36 Cal.2d 257, 261-262 [23 P.2d 244] [plaintiff entitled to summary judgment where he established by competent evidence the existence of contract, defendants’ breach, and damages, and defendants did not controvert such facts].)
We address below these three defenses asserted by Client and conclude that none has merit.
C. Law Firm’s Failure to Give Notice Under Section 6201(a)
1. Waiver of MFAA arbitration rights generally
We begin by asking whether a client, under appropriate circumstances, may waive MFAA arbitration rights, notwithstanding an attorney’s noncompliance with section 6201(a). By “waive MFAA arbitration rights,” we mean the client’s abandonment
Since we have concluded above that the failure to give notice under section 6201(a) does not compel dismissal of an attorney’s action against a client for attorney fees or costs (see pt. Ill, ante), the answer to this waiver question may seem obvious. Given the specific language of the MFAA and the absence of case law, however, the matter requires closer consideration.
The MFAA provides for specific circumstances under which a client who receives the required notice under section 6201(a) may waive its arbitration rights. (See §§ 6201(a) [waiver by failing to request arbitration within 30 days of receipt of attorney’s notice of right to arbitrate], 6201, subd. (b) [waiver by failing to request arbitration prior to filing answer or equivalent response after receipt of section 6201(a) notice].) The statute also identifies two instances in which the client waives arbitration, irrespective of whether the attorney gave written notice informing the client of its arbitration rights, namely, where the client commences “an action or fil[es] any pleading seeking either of the following: [][] (1) Judicial resolution of a fee dispute to which this article applies. [f] (2) Affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct.” (§ 6201, subd. (d).)
Further, our conclusion that a client may waive MFAA arbitration rights on nonstatutory grounds does no violence to the statute’s intent of encouraging arbitration of fee disputes and thereby reducing the inherent inequality between the attorney and client in such disputes. Instead, we reject the view that a client may waive MFAA arbitration rights only as provided in the MFAA. Such an inflexible rule would be based on two unwarranted presumptions: (1) that the client in all cases will be unaware of its arbitration rights simply because the attorney failed to give the section 6201(a) notice; and (2) “that in every fee dispute, no matter who the parties are and no matter what the circumstances may be, the attorney will always have the upper hand.” (Richards, supra, 39 Cal.App.4th 1176, 1180.)
Having determined that a client theoretically may waive MFAA arbitration rights for reasons other than as provided by statute, we must ascertain the legal principles under which such waiver may occur. There being little authority addressing the subject in the context of the MFAA,
As our Supreme Court has recently noted, “no single test delineates the nature of the conduct that will constitute a waiver of arbitration. [Citations.]” (Saint Agnes, supra, 31 Cal.4th 1187, 1195-1196; see also Christensen, supra, 33 Cal.3d at p. 782.) Cases have found arbitration waiver “in a variety of contexts, ranging from situations in which the party seeking to compel arbitration has previously taken steps inconsistent with an intent to invoke arbitration [citations] to instances in which the petitioning party has unreasonably delayed in undertaking the procedure. [Citations.] The decisions likewise hold that the ‘bad faith’ or ‘wilful misconduct’ of a party may constitute a waiver and thus justify a refusal to compel arbitration. [Citation.]” (Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 425-426 [158 Cal.Rptr. 828, 600 P.2d 1060].)
Just as the factors determinative of arbitration waiver are not formulaic, there is no particular stage of litigation prior to judgment that is the line of demarcation between the proper assertion and waiver of arbitration. (See
The Supreme Court in Saint Agnes agreed that the six factors identified by the appellate court in Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980 [72 Cal.Rptr.2d 43] (Sobremonté) were “relevant and properly considered in assessing waiver claims.” (Saint Agnes, supra, 31 Cal.4th at p. 1196.) Those factors are: “ ‘(1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether “the litigation machinery has been substantially invoked” and the parties “were well into preparation of a lawsuit” before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) “whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place”; and (6) whether the delay “affected, misled, or prejudiced” the opposing party. [Citations.]’ [Citation.]” (Sobremonte, supra, at p. 992, quoting Peterson v. Shearson/American Exp., Inc. (10th Cir. 1988) 849 F.2d 464, 467-68.)
While no single factor is determinative, it is nonetheless true that “[i]n California, whether or not litigation results in prejudice also is critical in waiver determinations. [Citations.]” (Saint Agnes, supra, 31 Cal.4th at p. 1203; see also Christensen, supra, 33 Cal.3d at p. 782.) The mere fact that the opposing party has incurred some litigation expense before the arbitration right is claimed is not a sufficient form of prejudice. (Saint Agnes, supra, at p. 1203; Groom v. Health Net (2000) 82 Cal.App.4th 1189, 1197 [98 Cal.Rptr.2d 836].) Prejudice, however—and a resultant finding of arbitration waiver—may be found where the party seeking arbitration has used the
We acknowledge that the above principles apply to waiver of contractual arbitration rights and that there are clear differences between contractual arbitration and arbitration under the MFAA. (See Aguilar v. Lerner, supra, 32 Cal.4th at p. 984 [MFAA arbitration differs from standard arbitration in that fee arbitration is nonbinding and is based on statutory directive giving the client the option to arbitrate].) While we believe that these waiver principles are generally applicable here, we must view them in the specific context of a client’s statutory right to arbitration of fee disputes under the MFAA. With that perspective in mind, we now address Law Firm’s contention in the summary judgment motion that Client waived his MFAA arbitration rights.
3. Whether Client waived MFAA arbitration rights
“Generally, the determination of either waiver or estoppel is a question of fact.” (Platt Pacific, Inc. v. Andelson, supra, 6 Cal.4th at p. 319.) When the facts are undisputed, however, and “ ‘only one inference may reasonably be drawn, the issue is one of law and the reviewing court is not bound by the trial court’s ruling.’ [Citation.]” (Saint Agnes, supra, 31 Cal.4th at p. 1196; see also id. at p. 1206.)
Here, without treating them as inflexible or formulaic, we find it useful to analyze waiver by considering the six Sobremonte factors approved by the Supreme Court. (See Saint Agnes, supra, 31 Cal.4th at p. 1196.) We conclude that the record demonstrates that five of the six factors strongly suggest waiver. Only the fourth factor—i.e., “ ‘whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings’ ” (Sobremonte, supra, 61 Cal.App.4th at p. 992)—does not support the view that Client waived MFAA arbitration rights.
a. action inconsistent with arbitration (factor 1)
Applying the first Sobremonte factor to the undisputed evidence here, Client’s actions were entirely “ ‘inconsistent with the right to arbitrate.’ ” (Sobremonte, supra, 61 Cal.App.4th at p. 992.) Indeed, there is no evidence that Client ever requested MFAA arbitration.
b. litigation machinery substantially invoked (factor 2)
There is no doubt here that the second Sobremonte factor points to Client’s waiver. Clearly, “ ‘ “the litigation machinery [was] substantially invoked.” ’ ” (Sobremonte, supra, 61 Cal.App.4th at p. 992.) Over the 15-month history of this lawsuit, the parties engaged in discovery, submitted the case to judicial arbitration, had the court consider Law Firm’s summary judgment motion, participated in a mandatory settlement conference, and allowed the case to proceed to the brink of trial before Client brought his affirmative motion to dismiss. Further, it was Client himself who conducted significant discovery, namely, the depositions of Law Firm’s principal attorney (Dixon Howell) and
The other aspect of the second Sobremonte factor is “ ‘whether ... the parties “were well into preparation of a lawsuit” before the party notified the opposing party of an intent to arbitrate.’ ” (Sobremonte, supra, 61 Cal.App.4th at p. 992.) Although Client at no time notified Law Firm that he wanted to arbitrate the dispute, waiver is suggested here since Client did not move to dismiss the suit until the eve of trial.
c. lengthy delay (factor 3)
The mere existence of some delay in asserting arbitration, of itself and without resulting prejudice, will be insufficient to support a finding of waiver. (See Christensen, supra, 33 Cal.3d at p. 782.) It is, however, “normally desirable that [a litigant wishing to assert arbitration rights] do so promptly, if [the party] intends to do so at all.” (Ibid.) Thus, in some of the contractual arbitration cases discussed, ante, the court found that the asserting party had waived arbitration under circumstances much less compelling than those existing here. (See, e.g., Guess?, supra, 79 Cal.App.4th 553 [defendant waived arbitration by waiting three months after filing answer to bring motion to compel arbitration]; Davis v. Continental Airlines, Inc., supra, 59 Cal.App.4th 205 [waiver found where defendants waited over six months after answering to bring motion to stay]; Kaneko Ford Design v. Citipark, Inc., supra, 202 Cal.App.3d 1220 [plaintiff waived arbitration by delay of five months].)
Here, Client never asserted an intention to arbitrate, and waited nearly 15 months—and until six days before trial—to bring a motion to dismiss. Therefore, the third Sobremonte factor supports a waiver finding since Client “ ‘delayed for a long period before seeking’ ” dismissal. (Sobremonte, supra, 61 Cal.App.4th at p. 992.)
Courts will consider the existence or absence of a reasonable explanation for the party’s delay in asserting its arbitration right in making a determination of waiver. (See Guess?, supra, 79 Cal.App.4th at p. 557 [defendant
First, while the defendants in Huang brought their motion to dismiss at trial, it is apparent that they did so because they originally represented themselves in propria persona and had no knowledge of their MFAA rights until they retained an attorney before trial.
Second, there is substantial authority under the MFAA that is contrary to Client’s contention that a challenge for lack of section 6201(a) notice must be made at the time of trial. Indeed, in many instances, the asserting party brought the issue to a head at the early stages of litigation. For instance, in Richards, supra, 39 Cal.App.4th 1176, 1178, the defendant filed a motion to dismiss based on the attorney’s noncompliance with section 6201(a) only three months after the action was filed. (See also Aguilar v. Lerner, supra, 32 Cal.4th at p. 980 [petition to compel arbitration filed in response to complaint]; Alternative Systems, Inc. v. Carey (1998) 67 Cal.App.4th 1034, 1039 [79 Cal.Rptr.2d 567] [motion to stay made at case management conference].)
Third, contractual arbitration waiver cases likewise do not support Client’s position. Proper methods to enforce agreements to arbitrate include a petition or motion to compel arbitration (Code Civ. Proc., §§ 1281.2, 1292.4), or motion to stay action (Code Civ. Proc., § 1281.4). Such motion should be brought at the earliest opportunity. (See Christensen, supra, 33 Cal.3d at p. 782.)
Therefore, Client’s explanation for his delay in moving to dismiss is legally insufficient. He unreasonably delayed in bringing the lack of notice issue to the attention of the court.
It is without question that “ ‘important intervening steps’ ” (Sobremonte, supra, 61 Cal.App.4th at p. 992) took place in this action. As noted, these intervening steps included significant discovery, a nonbinding judicial arbitration, the hotly contested summary judgment motion, and a mandatory settlement conference; the only “step” remaining was the trial itself. Clearly, this fifth Sobremonte factor also suggests Client’s waiver.
e. prejudice (factor 6)
The sixth Sobremonte factor, prejudice, is, of course, “critical.” (Saint Agnes, supra, 31 Cal.4th at p. 1203.) We note that the mere fact that Law Firm incurred litigation expense (ibid.) does not establish prejudice. We conclude that there was significant undisputed evidence that Firm was prejudiced beyond mere delay or incurring litigation expense. Indeed, under the contractual arbitration waiver cases discussed ante, there was clear prejudice.
Client here—through discovery, participation in judicial arbitration proceedings, vigorous opposition to the summary judgment motion, and participation at a mandatory settlement conference—obtained extensive information about Law Finn’s case. This information was clearly not available through MFAA arbitration, since the statute does not authorize prearbitration motions or discovery. (See Rules Proc. for Fee Arbitrations and Enforcement of Awards by State Bar, rule 31.0, 23 pt. 5 West’s Ann. Ct. Rules (2005) p. 725 [voluntary prearbitration exchange of documents encouraged].) Such use by Client of the judicial process is both inconsistent with the assertion of MFAA rights and supports a finding of prejudice. (See Berman v. Health Net (2000) 80 Cal.App.4th 1359, 1366 [96 Cal.Rptr.2d 295] [prejudice found where defendant obtained substantive information in plaintiff’s discovery responses, even if responses were deficient, because defective responses might reveal case’s lack of merit]; Guess?, supra, 79 Cal.App.4th 553, 558 [expense of pretrial discovery and motions and disclosure of trial tactics warranted finding of prejudice]; Kaneko Ford Design v. Citipark, Inc., supra, 202 Cal.App.3d at p. 1228 [prejudice found from plaintiff delaying in seeking arbitration while participating in settlement negotiations and obtaining information on defendant’s legal theories].)
The impact of the delay in assertion of arbitration rights on the policy objectives of arbitration is an important consideration in the prejudice analysis. As the Supreme Court has noted: “[Cjourts assess prejudice with the
Since arbitration under the MFAA is similarly intended to provide clients with a speedy and inexpensive method of resolving fee disputes with their attorneys (see Liska v. Arns Law Firm (2004) 117 Cal.App.4th 275, 281-282 [12 Cal.Rptr.3d 21]), this prejudice inquiry under contractual arbitration waiver cases is equally applicable here. Clearly in this instance, Client’s substantial (nearly 15-month) delay in filing his dismissal motion “substantially undermined [the] important public policy” (Saint Agnes, supra, 31 Cal.4th at p. 1204) in favor of MFAA arbitration of providing an inexpensive and speedy method of resolving fee disputes. By delaying the motion’s filing until the eve of trial, Client caused himself and his adversary alike to run up substantial legal expense before pulling the plug; in so doing, he deprived himself and Law Firm of “whatever efficiencies that would otherwise have been available to [them] through arbitration.” (Guess?, supra, 79 Cal.App.4th at p. 558.) Client’s delay thus had a substantial negative impact on the policies that the MFAA was intended to promote, and as a result, prejudice was clearly shown.
f. conclusion re: waiver
Applying the six Sobremonte factors to the evidence here, five of the factors support strongly the conclusion that Client waived his MFAA arbitration rights.
D. Claimed Ethical Violation
In his opposition to the summary judgment motion, Client contended that Law Firm’s procurement of the underlying promissory note was a breach of its ethical obligation to avoid interests adverse to Client under California Rules of Professional Conduct, rule 3-300 (rule 3-300).
Our Supreme Court has held that an unsecured promissory note executed by the client—as contrasted with a promissory note given by the client secured by a deed of trust with a power of sale—does not give the attorney a present interest in the client’s property required to trigger rule 3-300. “An unsecured promissory note, by contrast, gives an attorney only a right to proceed against the client’s assets in a contested judicial proceeding at which the client may dispute the indebtedness. The note allows the attorney to obtain a judgment, and to seek to enforce the judgment against the client’s assets, if any. It does not give the attorney a present interest in the client’s property which the attorney can summarily realize.” (Hawk v. State Bar (1988) 45 Cal.3d 589, 600-601 [247 Cal.Rptr. 599, 754 P.2d 1096]; see also Hulland v. State Bar (1972) 8 Cal.3d 440, 450 [105 Cal.Rptr. 152, 503 P.2d 608] [attorney’s use of confession of judgment for client’s obligation improper and “unnecessary, since a promissory note is equally effective to embody the obligation for legal fees into a readily enforceable form”].) Thus, Client’s assertion that Law Firm’s procurement of the promissory note violated rule 3-300 was without merit.
Client asserted in opposition to the motion that there was a dispute as to whether the underlying obligation was owed by corporations that Client controlled, as opposed to being an individual obligation. This unpleaded defense likewise posed no bar to summary judgment.
Client’s claim is, in essence, that Law Firm failed to join the corporations controlled by him as necessary parties defendant. As such, this misjoinder contention was one that Client was required to plead; he could not simply raise it in opposition to the summary judgment motion. (See Security-First Nat. Bk. v. Cooper (1944) 62 Cal.App.2d 653, 664 [145 P.2d 722] [misjoinder of defendants was matter that defendant was required to raise by demurrer or answer, and could not be raised for the first time in nonsuit motion].) Thus, aside from the apparent lack of merit of the contention,
V. The Order Awarding Attorney Fees
Law Firm contends that since the dismissal of the action must be reversed, the order awarding Client attorney fees of $12,000 cannot stand. This position is correct. (See Giles v. Horn (2002) 100 Cal.App.4th 206, 241 [123 Cal.Rptr.2d 735] [order awarding attorney fees falls with a reversal of judgment on which it was based].) We therefore reverse the trial court’s postdismissal order awarding Client attorney fees.
The order dismissing the action and postdismissal order awarding attorney fees are reversed. Law Firm’s motion for summary judgment should have been granted. Accordingly, we remand to the trial court with directions that it enter an order granting summary judgment and judgment in favor of Law Firm.
Premo, J., and Elia, J., concurred.
All further statutory references are to the Business and Professions Code unless otherwise stated.
As one court has observed: “Judicial arbitration is basically a creature of statute (Judicial Arbitration Act, Code Civ. Proc., § 1141.10 et seq.), but ‘ ... the system it describes is neither judicial nor arbitration. The hearing is not conducted by a [sitting] judge, and the right to a trial de novo removes the finality of true arbitration. “Extrajudicial mediation” would be [a more apt term].’ [Citation.]” (Parker v. Babcock (1995) 37 Cal.App.4th 1682,1686 [44 Cal.Rptr.2d 602].)
“As used in this section, unless the context clearly requires otherwise: [][]... [][] (4) ‘Prevailing party’ includes the party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any relief,.. .” (Code Civ. Proc., § 1032, subd. (a).) Code of Civil Procedure section 1033.5, subdivision (a) provides: “The following items are allowable as costs under [Code of Civil Procedure] [sjection 1032: HO ••• ffl (10) Attorney fees, when authorized by any of the following: HQ (A) Contract. HO (B) Statute. HQ (C) Law.”
The promissory note read: “In the event action is required to enforce the terms [of the promissory note, Client] promises to pay, in addition to all costs thereof, such sum as the court may award as attorneys’ fees.” Under Civil Code section 1717, subdivision (a), such obligation to pay attorney fees was deemed mutual: “In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to other costs.”
The judge who decided the attorney fees motion was not the same judge who ruled on the summary judgment motion and ex parte dismissal motion.
Client’s appeal was designated a purported “cross-appeal.” While this designation was not technically accurate, it was nonetheless timely even were it a true cross-appeal. (See Cal. Rules of Court, rule 3(e)(1).)
Law Firm’s notice of appeal stated that, in addition to challenging the order dismissing the action and the order denying the summary judgment motion, it appealed from the order denying its application to stay the action. Firm does not make the direct argument on appeal that the denial of the stay was erroneous. Because we conclude, post, that the court erred in dismissing the action and that it should have granted Firm’s summary judgment motion, we need not address the issue—which we believe was waived on appeal in any event—of whether the court erred in denying Firm’s stay application.
Law Firm argued below that it was not required under section 6201(a) to give notice to Client of his right to arbitration because the action was for breach of promissory note, not one for recovery of attorney fees. Firm does not make the same argument on appeal. We need not decide the issue here since Law Firm has abandoned it. (See Tiernan v. Trustees of Cal. State University & Colleges (1982) 33 Cal.3d 211, 216, fn. 4 [188 Cal.Rptr. 115, 655 P.2d 317]; Wiz Technology, Inc. v. Coopers & Lybrand (2003) 106 Cal.App.4th 1, 9, fn. 1 [130 Cal.Rptr.2d 263].) Were we, however, faced with a case in which the attorney brought suit against the client under an instrument that plainly evidenced that it constituted a resolution of a prior fee dispute (e.g., promissory note or settlement agreement), we would likely conclude that the MFAA would not apply in such instance.
Client asserts that the standard for reviewing the dismissal of the action is whether the court below abused its discretion. We agree that, after our determination that dismissal is discretionary—not mandatory, as claimed by Client—we must then review the court’s ruling to determine whether it abused its discretion. Since we conclude, post, that the court failed to exercise its discretion because it viewed the MFAA as requiring dismissal, we hold that the court, indeed, abused its discretion by failing to exercise the discretion vested in it.
At the hearing on Firm’s ex parte application to stay the action, the court noted that it was inclined to grant Client’s ex parte motion to dismiss. Firm’s counsel responded that he was “not aware of a motion to dismiss, frankly. I was never put on notice that there was a motion to dismiss before the Court. I wasn’t given a motion to dismiss." Counsel for Client disputed this contention. Since the question of service of Client’s motion was not argued on appeal and
Although in limine motions are decided by the trial judge (People v. Morris (1991) 53 Cal.3d 152, 188-190 [279 Cal.Rptr. 720, 807 P.2d 949], disapproved on another ground in People v. Stansbury (1995) 9 Cal.4th 824, 830, fn. 1 [38 Cal.Rptr.2d 394, 889 P.2d 588]), Client’s motion in limine to dismiss was decided by the judge who was the “team leader” responsible for law and motion and the assignment of the case to a different department for trial. We conclude on the merits that it was error to grant the motion to dismiss. In doing so, however, we do not mean to condone or otherwise approve any procedure wherein a judge other than the trial judge decides an in limine motion, including a motion (as here) that is effectively a motion for nonsuit (Code Civ. Proc., § 581c) or motion for judgment in a court trial (Code Civ. Proc., § 631.8). (See Mechanical Contractors Assn. v. Greater Bay Area Assn. (1998) 66 Cal.App.4th 672, 677 [78 Cal.Rptr.2d 225] [granting of motion in limine to exclude all evidence was “ ‘tantamount to a nonsuit’ ”].) Notwithstanding efforts to streamline trials, there is no authority allowing a judge other than the trial judge to limit evidence that may be presented at trial. After all, motions in limine are simply vehicles available to guide the parties’ presentation of evidence at trial, and the trial judge may modify his or her rulings on such motions over the course of trial. (See Rufo v. Simpson (2001) 86 Cal.App.4th 573, 608 [103 Cal.Rptr.2d 492] [in limine ruling “is necessarily tentative because subsequent evidentiary developments may change the context”].)
At Client’s request, the court below dismissed the action “with prejudice.” Irrespective of whether the court improperly dismissed the complaint because of the view that Law Firm’s section 6201(a) noncompliance made such dismissal mandatory, it was error to dismiss the case with prejudice. (See, e.g., Meis and Waite v. Parr (N.D.Cal. 1987) 654 F.Supp. 867, 869 [law firm’s action for fees would be dismissed without prejudice where it was commenced while arbitration under MFAA was pending]; cf. Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 784-786 [191 Cal.Rptr. 8, 661 P.2d 1088] (Christensen) [dismissal with prejudice of suit where court determined plaintiffs waived contractual arbitration right would be a “Draconian result” that would leave plaintiffs without a remedy].)
Client also argued below-—but not on appeal—that any obligation to pay on the promissory note was contingent upon the close of a particular escrow, and that escrow never closed. He based this argument on language in a letter agreement entitled “Retainer Modification Agreement,” signed by Firm and Client and last dated June 26, 1995. While we believe that this contention has been abandoned, we find that, in any event, it lacks merit. On its face, the subject promissory note contains no contingency; rather, it fixes an absolute obligation to pay the entire principal amount together with 10 percent interest on or before April 1, 2002. To the extent that Client argued below that the promissory note contained an alleged contingency—unstated in the note—based upon a letter agreement signed almost six years earlier, we see no basis for that contention. Moreover, the argument suggested that the promissory note required substantial reformation; defendant’s answer contained no allegation supporting such a theory. Since summary judgment addresses only matters that have been pleaded (see Robinson v. Hewlett-Packard Corp. (1986) 183 Cal.App.3d 1108, 1131-1132 [228 Cal.Rptr. 591]), Client’s argument must be rejected.
As our Supreme Court has recently explained, although often phrased in terms of “waiver,” “the critical issue ... [in the context of loss of arbitration rights is] ‘whether a party’s filing of a lawsuit in the face of an agreement to arbitrate was conduct so inconsistent with the exercise of the right to arbitration as to constitute an abandonment of that right.’ [Citation.]” (Saint Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1201 [8 Cal.Rptr.3d 517, 82 P.3d 727] (Saint Agnes); see also Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 315 [24 Cal.Rptr.2d 597, 862 P.2d 158] [decisions concerning loss of arbitration rights “use the word ‘waiver’ in the sense of the loss or forfeiture of a right resulting from failure to perform a required act”].)
Indeed, Client made it clear in his motion to dismiss that, in his view, Law Firm’s noncompliance with section 6201(a) compelled dismissal, that there could be no proceedings related to Firm’s claim for fees after such dismissal, and that Client was not seeking to arbitrate the dispute at such a late juncture: “[Plaintiff’s counsel notified defense counsel that at the eleventh hour that plaintiff would finally agree to fee arbitration as required by statute, and would seek an ex parte stay of the trial. The time has long since passed for defendant [sz'c
It is clear from the context of Client’s motion that this is an error by Client, and that the intended word was “plaintiff.”
Our holding that the client may waive its MFAA arbitration rights in certain instances even though it did not receive notice of its right to arbitrate is not intended to minimize the importance of the attorney’s giving such notice as required under section 6201(a). To be clear, the MFAA provides that the attorney shall give the client notice of its right to arbitration at or before the time the attorney brings suit, and this notification requirement is an important feature of the statute. We simply hold here—consistent with the holding and reasoning of Richards, supra, 39 Cal.App.4th 1176—that the client may not assert universally the attorney’s noncompliance with section 6201(a) as a defense to the attorney’s action for fees, without regard to the circumstances of the case or the client’s conduct in defending the action.
For instance, in Richards, supra, 39 Cal.App.4th 1176, while the court concluded that dismissal for noncompliance with section 6201(a) was discretionary, it did not elaborate on the specific circumstances under which it would be appropriate to deny a client’s motion to dismiss. Instead, it stated: “On occasion, the lawyer will not have superior bargaining power and a sophisticated client will know of its right to arbitration whether or not it received notice. Under those circumstances, mandatory dismissal would not further the policy behind section 6201 and could, in fact, work an injustice. Making dismissal discretionary, however, avoids such problems by giving the trial court the opportunity to consider all the relevant facts before deciding whether to dismiss.” (39 Cal.App.4th at p. 1180.)
In Juodakis v. Wolfrum (1986) 177 Cal.App.3d 587 [223 Cal.Rptr. 95], the appellate court affirmed the trial court’s finding that the client had waived MFAA arbitration by filing a malpractice action against the attorney while arbitration was pending. The court rejected the client’s argument that relied on contractual arbitration cases to support the proposition that waiver was a factual question, distinguishing those cases because in Juodakis, the issue was one of the waiver of a statutory right to arbitration. (Id. at p. 591.) There, the court was not addressing a case in which the client was not given notice of his arbitration rights under section 6201(a). Moreover, in Juodakis, there was plain waiver of MFAA arbitration under the statute (§ 6201, subd. (d)). (Juodakis, supra, at p. 591.) To the extent, however, that Juodakis may be construed as holding that principles of waiver in the contractual arbitration setting are of no value in determining the circumstances in which a client who is not given section 6201(a) notice may waive MFAA arbitration rights, we decline to follow that holding.
Actually, Sobremonte asks “ ‘whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay.’ ” (Sobremonte, supra, 61 Cal.App.4th at p. 992, italics added.) Here, Client never sought to enforce his right to MFAA arbitration, and requested a dismissal with prejudice, not a stay, of the action.
Before Saint Agnes, supra, 31 Cal.4th 1187, the factors for determining arbitration waiver included “ ‘whether the party seeking arbitration (1) has “previously taken steps inconsistent with an intent to invoke arbitration,” (2) “has unreasonably delayed” in seeking arbitration, (3) or has acted in “bad faith” or with “wilful misconduct.” ’ [Citations.]” (Christensen, supra, 33 Cal.3d at p. 782.) As is evident from our discussion ante, Client’s waiver of MFAA arbitration rights is found in both the first and second factors identified by the Christensen court.
“A member shall not enter into a business transaction with a client; or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client, unless each of the following requirements has been satisfied: Q] (A) The transaction or acquisition and its terms are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which should reasonably have been understood by the client; and Q] (B) The client is advised in writing that the client may seek the advice of an independent lawyer of the client’s choice and is given a reasonable opportunity to seek that advice; and [f] (C) The client thereafter consents in writing to the terms of the transaction or the terms of the acquisition.” (Rule 3-300.)
Our holding does not imply that, were the subject transaction embraced by rule 3-300, Law Firm’s noncompliance with that rule would void the transaction. (See BGJ Associates, LLC v. Wilson (2003) 113 Cal.App.4th 1217, 1227 [7 Cal.Rptr.3d 140] [conclusion that transaction violated rule 3-300 did “not determine the enforceability of the alleged oral contract,” as rule
Client admitted in opposition to the motion that he personally executed a prior promissory note in the face amount of $21,517.74, dated April 1, 1997, and that no part of this sum was paid. This 1997 note was replaced in 2001 by the promissory note signed by Client on which this suit was based. Moreover, in his answers to interrogatories that called for, inter alia, information concerning any defenses that he claimed, Client did not contend that the underlying obligation for fees was the responsibility of corporations that he controlled.