Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Los Angeles County, Richard B. Wolfe, Judge.
Southern California Law Group and Ross K. Reghabi for Plaintiffs and Appellants.
Veatch Carlson and Toni Kern; Champ & Associates and Michael Champ for Defendants and Respondents.
CROSKEY, J.
Appellants Khosro Reghabi (Reghabi) and Abrams, Tofer & Reghabi (law firm or firm) sued their former clients, respondents Farzad Tayebati and Advanced Health & Chiropractic Center (collectively, clients), for multiple causes of action, including money owed under attorney-client fee contracts, fraud, and slander. The clients consistently demurred to the amended complaints of Reghabi and the law firm on the ground that the clients did not receive notice of their right to arbitration pursuant to the Mandatory Fee Arbitration Act (MFAA) (Bus. & Prof. Code § 6200 et seq.). After repeated failures to show that effective notice was given, the trial court dismissed the entire action with prejudice. We conclude that effective notice was not given, but that (1) dismissal under the MFAA for lack of notice must be without prejudice; and (2) the MFAA does not apply to all the causes of action. We therefore modify the dismissal as it applies to the law firm to a dismissal without prejudice; and reverse the judgment as it applies to Reghabi’s slander cause of action.
Factual and Procedural Background
Reghabi alone initiated this lawsuit on January 24, 2008, when he sued his former clients for: (1) unpaid legal fees in reliance on a retainer agreement; (2) common counts for legal services rendered and costs advanced (both money had and received and account stated); (3) money due on dishonored check given by clients as partial payment; (4) fraud and deceit which induced him to provide legal services and advance costs; and (5) loss of income and reputation due to the clients’ false and defamatory statements. In response, the clients filed a demurrer to the complaint on April 30, 2008, based, in part, on Reghabi’s failure to properly plead a written contract. Before the hearing on the demurrer, Reghabi filed a first amended complaint for damages on June 11, 2008, alleging unpaid legal fees and costs in reliance on a number of new and different retainer agreements, in addition to the other original causes of action. The clients again filed a demurrer, contending that Reghabi lacked standing to bring the causes of action for breach of contract, and failed to allege or show that he sent notices to the clients of their right to arbitration pursuant to the MFAA (MFAA notices). The trial court sustained the demurrer with leave to amend. Following a discovery hearing held on September 10, 2008, the court ordered Reghabi to respond to the clients’ second demand for production of the for MFAA notices if he intended to allege the breach of contract causes of action in his next amended complaint.
The written retainer agreements were between the clients and law firm, not Reghabi individually.
A copy of the second demand for production of documents is not in the clerk’s transcript on appeal, and the trial court’s order compelling Reghabi to respond does not specifically state which documents were at issue. However, the clients stated at a later hearing, in May 2009, that Reghabi had been ordered since September 2008 to produce the MFAA notices, and neither Reghabi nor the law firm disagreed.
On September 17, 2008, Reghabi and the law firm filed a second amended complaint. The law firm alleged four causes of action for breach of contract based on four separate retainer agreements, in addition to pursuing Reghabi’s previous causes of action for money had and received, account stated, money due on dishonored check, and fraud. Reghabi alone brought the ninth cause of action for slander. On October 23, 2008, the clients filed a motion to strike, arguing that the complaint added parties without leave of the court, and another demurrer, emphasizing the continued failure to allege or show compliance with the MFAA. On December 4, 2008, the court granted both motions, but allowed Reghabi to amend his complaint.
This was the first time the law firm was mentioned in the proceedings.
After seeking and being granted leave to add the law firm as a party plaintiff, the law firm and Reghabi filed a third amended complaint on March 20, 2009, the operative complaint, which was virtually identical to the previous one. The complaint specifically alleged that the defendants were each given MFAA notices with respect to each of the four allegedly breached retainer agreements, however, no copies of the notices were attached. On March 30, 2009, the clients filed a demurrer and motion to strike parts of the third amended complaint.
At the May 1, 2009 discovery and demurrer hearing, the clients argued that Reghabi and the law firm had not yet complied with the September 2008 order to produce the MFAA notices. The court ordered the law firm to produce the notices and continued the demurrer hearing to June 18, 2009. By the June 18 hearing, the clients still had not received copies of the notices, and the law firm was again ordered to produce them. The court again continued the demurrer hearing to July so that the law firm could produce the notices. On June 23, 2009, the law firm produced two MFAA notices relating to two of the four contracts. However, in a status report to the court, the clients observed that the notices were improperly addressed, identifying an address other than the one used by the firm in its correspondence with the clients during the same period of time. Also, neither notice had an attached proof of service.
To the extent the September 2008 production order applied to Reghabi only and not the law firm, this order clearly applied to the law firm.
At the July 7, 2009 hearing, both sides stipulated to dismiss the second and third causes of action, because the law firm could not find the notices corresponding to these two contracts. The court proceeded to address the two breach of contract causes of action for which the two challenged notices allegedly had been sent. Given the absence of any proof of service and the clients’ insistence that MFAA notices were never received, the court could not find that effective notices were sent. During the hearing, the court also asked whether the law firm would be willing to arbitrate; the law firm wanted to proceed with litigation. The clients, on the other hand, said that they “more likely than not” would elect arbitration. Accordingly, the court dismissed the case pursuant to the MFAA, and commented that if the law firm sent out notices immediately and the clients followed through on their professed intention, the parties could resolve this matter in arbitration. At the close of the hearing, the court asked whether the parties would like the dismissal to be with prejudice, so that it would be an appealable order. Both parties agreed.
The law firm also could not produce the retainer agreement that was the subject of the third cause of action.
Although the court had initially observed that the MFAA notice requirement appeared to be a condition precedent to filing the lawsuit, the court subsequently acknowledged it had the discretion to dismiss for lack of compliance with the MFAA when the law firm advised the court that dismissal was not automatic.
The law firm and Reghabi subsequently moved for a new trial. In support of their motion for new trial, the law firm and Reghabi attached a declaration from Tina Emani, who had been employed by the law firm, stating that she had in fact mailed the two disputed MFAA notices. After a hearing on September 4, 2009, the trial court denied the motion for new trial.
The law firm and Reghabi appeal the dismissal of their entire action.
Issues on Appeal
The law firm argues that the court erred in dismissing its third amended complaint for lack of compliance with the MFAA, because the complaint alleged compliance. In addition, the law firm argues that, even if the notices were not property served, dismissal is merely discretionary, and the trial court abused its discretion. Moreover, the law firm argues that dismissal should be without prejudice. Lastly, the law firm and Reghabi argue that the fraud and slander causes of action are not subject to the notice requirement, and therefore should not have been dismissed.
Discussion
1. The Trial Court’s Procedure Does Not Amount to Reversible Error
The law firm initially contends that the trial court erred by resolving the issue of MFAA compliance on demurrer. The law firm argues that, as it alleged compliance with the MFAA in its complaint, the trial court was not permitted to look beyond the allegations to resolve the disputed issue on the facts. We disagree. Here, although the trial court technically looked beyond the scope of what is proper for a demurrer, it was disturbed by the lack of notice and required the law firm to demonstrate that it had fulfilled its statutory obligation to inform the clients of their arbitration rights. The law firm was ordered to produce the MFAA notices at least twice, and was given additional time in which to locate and produce them. The law firm was given every opportunity to present its evidence that MFAA notices were properly served (including two demurrer/discovery hearings and its motion for new trial). Under these circumstances, it would be an improper elevation of form over substance to ignore the evidence of the law firm’s failure to comply with the MFAA notice requirement in favor of bald allegations of compliance in the pleadings.
We note that, as to the two of the causes of action which the law firm ultimately dismissed, the law firm effectively conceded that its pleading was false, in that it had alleged proper service of MFAA notices when, in fact, it had not served such notices.
Interestingly, the law firm argues, for the first time on appeal, that the clients waived their arbitration rights by filing a series of demurrers. The law firm cannot simultaneously argue that the clients waived their arbitration rights by filing demurrers and that demurrers were too soon to raise the issue of compliance with the MFAA.
2. Voluntary Dismissal
To the extent the law firm argues that the two causes of action which it dismissed were erroneously dismissed, we disagree. The common law doctrine of retraxit provided that a plaintiff who voluntarily renounces a cause of action in open court forever loses it. (Morris v. Blank (2001) 94 Cal.App.4th 823, 828.) “In California, the same effect is now accomplished by a dismissal with prejudice.” (Ibid.) In the instant case, the second and third causes of action were properly dismissed with prejudice because the law firm agreed and stated on the record that it would no longer pursue them. Thus, the trial court’s order dismissing these causes of action was pursuant to counsel’s stipulation and there was no error with respect to the dismissal of these two causes of action.
3. Notice of Client’s Arbitration Rights
a. Standard of Review
Dismissal of an attorney or law firm’s action for failure to comply with the MFAA notice requirement is not mandatory, but rather discretionary. (Law Offices of Dixon R. Howell v. Valley (2005) 129 Cal.App.4th 1076, 1089 (Howell).) Thus, we review the trial court’s decision to dismiss based on the failure to give notice for abuse of discretion. (Ibid.)
b. Applicability to Attorney-Client Fee Disputes
The MFAA requires an attorney to give a client written notice of the client’s right to arbitrate before or at the time the attorney brings suit to recover fees, costs, or both under a contract between the attorney and client. (Bus. & Prof. Code, § 6201, subd. (a).) Since the purpose of the notice requirement is to “alleviate the disparity in bargaining power in attorney fee matters... by providing an effective, inexpensive remedy to a client, ” the MFAA requires that the attorney arbitrate “any fee dispute” at the option of the client. (Howell, supra, 129 Cal.App.4th at pp. 1086-1087.)
All further statutory references are to the Business and Professions Code unless otherwise indicated.
Here, the first eight causes of action, including the fraud claim, were subject to the MFAA notice requirement. The first four causes of action for breach of contract based on the retainer agreements were standard situations in which MFAA notices must be given. The causes of action for money had and received, account stated, and money due on dishonored check all sought to recover attorney fees and were likewise subject to the MFAA, which the law firm does not contest. Furthermore, contrary to the law firm’s contention, the cause of action for fraud was also within the scope of the notice requirement. The fraud cause of action was based on “the sums advanced for costs and the value of [legal] services rendered” and essentially sought the combined sum of damages sought under the four retainer agreements, making it clear that the fraud claim was just an alternate theory of recovery for attorney fees and costs. Since the notice requirement applies to causes of action seeking to “recover fees, costs, or both under a contract between the attorney and client, ” the fraud allegation here was within the purview of the notice requirement.
In contrast, Reghabi’s cause of action for slander was not subject to the MFAA notice requirement, and should not have been dismissed for lack of compliance. Here, Reghabi sought damages for the loss of business due to the publication of allegedly slanderous statements. Thus, this cause of action was not seeking the recovery of fees and costs under retainer agreements. Having determined the causes of action to which the MFAA notice requirement applies, we now proceed to examine whether effective notice was given.
To the extent that Reghabi incorporated the law firm’s breach of contract causes of action in his slander allegation, he can amend the slander allegation to exclude them since those causes of action are not needed to properly plead the slander cause of action.
c. Giving Effective Notice
Notice must be given in the form prescribed by the California State Bar, (§ 6201, subd. (a)), which defers to the Code of Civil Procedure section 1013. (Rules of Proc. for Fee Arbitration & Enforcement of Awards, Guidelines & Minimum Stds., rule 51.1.) Accordingly, the notice should either be given personally to the client or sent to the client’s last known address, (Code Civ. Proc., § 1013, subd. (a)), and if mailed, must be accompanied by a proof of service, (id. at § 1013, subd. (b)). In Philipson & Simon v. Gulsvig (2007) 154 Cal.App.4th 347, 365 (Philipson & Simon), a copy of a purported notice accompanied by an attorney’s declaration stating notice was served, absent a proof of service, was insufficient to establish that notice was actually given.
In the instant case, the law firm did not show that it effectively gave notices despite being repeatedly ordered to produce such notices. Throughout the litigation process, the court had granted numerous opportunities to amend the complaint and conducted several discovery hearings on the issue of MFAA notices. The two notices that the law firm finally produced did not adhere to the standards set forth in the Code of Civil Procedure section 1013. First, it appears that the notices were not properly addressed. Second, even if the notices had been properly addressed, there were no proofs of service showing that the notices were served on the clients, whether personally or through the mail. Similar to Philipson & Simon, in which a copy of a notice along with a declaration that the notice was sent were not enough to satisfy the MFAA, here, without the actual proofs of service, the copies of the notice and the declaration of Tina Emani were likewise insufficient to establish effective notice.
d. Discretion to Dismiss Due to Noncompliance With Notice Requirement
If the attorney does not give the required notice, it “shall be a ground for the dismissal.” (§ 6201, subd. (a).) However, dismissal for noncompliance with the notice requirement is not automatic. (Howell, supra, 129 Cal.App.4th at p. 1089; Richards, Watson & Gershon v. King (1995) 39 Cal.App.4th 1176, 1180 (Richards).) The burden is placed on the client to move for dismissal. (Aheroni v. Maxwell (1988) 205 Cal.App.3d 284, 293.) Then, the trial court has the discretion to dismiss, which it must acknowledge and exercise. (Howell, supra, at p. 1089-1090; Richards, supra, 39 Cal.App.4th at p. 1180.) If the trial court does not consider evidence or weigh facts, it is a strong indication that the court has abused its discretion. (See Howell, supra, at p. 1080.)
Here, the trial court properly acknowledged and exercised its discretion to dismiss the causes of action pertaining to the fee dispute, as the trial court weighed facts and conducted evidentiary hearings to ascertain whether the law firm complied with the MFAA and considered the appropriate course of action. The law firm was given many opportunities to amend its complaint and establish that it had sent out the notices, but it could not do so. Ultimately, the court was concerned that the clients would be denied their rights since it was the clients’ choice to proceed to arbitration and in this instance, the clients wanted to arbitrate the dispute. Thus, the court was within its discretion to dismiss the case so that notices could be sent and, given the clients’ inclination to arbitrate, the matter could proceed in that forum.
e. Dismissal – With or Without Prejudice & Appealability
Even though failure to send a notice of the client’s right to arbitration is a ground for dismissal, dismissal should be without prejudice so that the attorney still has a potential remedy in arbitration despite its noncompliance. (See Howell, supra, 129 Cal.App.4th at 1091, fn. 12.) In an attempt to create an appealable order in the instant case, the court dismissed all the causes of action with prejudice, even though it had intended to allow the parties to proceed to arbitration. However, the court’s order effectively denied the law firm access to any forum, whether arbitration or otherwise, leaving it with no remedy should its appeal fail. Thus, it was error to dismiss with prejudice the causes of action subject to the MFAA (that were not voluntarily renounced) based on the failure to provide notice.
It was improper for the court to suggest and for the parties to agree to dismissal with prejudice so as to create appealability. (See Don Jose’s Restaurant, Inc. v. Truck Ins. Exchange (1997) 53 Cal.App.4th 115, 118-119; Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725.)
The clients argue that the law firm and Reghabi voluntarily agreed to dismiss the entire action with prejudice and therefore should now be precluded from reviving all of their causes of action on appeal. We disagree. The law firm and Reghabi did not voluntarily dismiss their entire action. The court intended to dismiss the action, and the law firm’s choice was between dismissal with or without prejudice. Unlike the second and third causes of action, this was not meant to be a final judgment on the merits, but was an attempt to create an appealable order.
Disposition
We affirm the order of dismissal of the law firm’s second and third causes of action pursuant to the parties’ stipulation. The judgment is also modified to provide that the following causes of action of the law firm are dismissed without prejudice: first and fourth for breach of contract, fifth for money had and received, sixth for account stated, seventh for money due on dishonored check, and eighth for fraud. The judgment as it applies to the law firm is affirmed as so modified.
We reverse the order dismissing Reghabi’s ninth cause of action for slander, and the matter for Reghabi is remanded. Reghabi shall recover his costs on appeal. The law firm and clients shall bear their own costs.
We Concur: KLEIN, P. J., ALDRICH, J.