Opinion
B307408
03-15-2022
CALIFORNIA BAIL AGENTS ASSOCIATION, Plaintiff and Respondent, v. DHILLON LAW GROUP INC., Defendant and Appellant.
The Fortress Law Firm, Inc., and David P. Nemecek, Jr., for Defendant and Appellant. Mahoney & Soll, Richard A. Soll and Paul M. Mahoney for Plaintiff and Respondent.
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County, No. 20STCV03554 Richard L. Fruin, Judge.
The Fortress Law Firm, Inc., and David P. Nemecek, Jr., for Defendant and Appellant.
Mahoney & Soll, Richard A. Soll and Paul M. Mahoney for Plaintiff and Respondent.
WILLHITE, J.
INTRODUCTION
Plaintiff California Bail Agents Association signed defendant Dhillon Law Group Inc.'s retainer agreement, which included an arbitration clause for any fee dispute arising out of the agreement. After plaintiff filed its operative complaint for a single breach of contract claim based on defendant allegedly overcharging for legal services, defendant moved to compel arbitration pursuant to the agreement. The trial court denied the motion, finding the arbitration clause was unconscionable because it failed to provide an accurate statement of the law governing attorney-client fee disputes as well as outlining the costs associated with private arbitration. We conclude the arbitration clause is not procedurally unconscionable and therefore we need not address substantive unconscionability. Accordingly, we reverse the trial court's order denying the motion to compel arbitration.
FACTUAL AND PROCEDURAL BACKGROUND
Defendant is a law firm organized as a professional corporation, with its principal place of business in San Francisco. Plaintiff is a nonprofit corporation representing the interests of California bail agents. In 2015, plaintiff and defendant entered into a Legal Services Engagement Agreement (retainer agreement), in which defendant agreed to provide legal services to plaintiff in a class action lawsuit in the United States District Court for the Northern District of California (Buffin v. City and County of San Francisco, case No. 15-CV-04959-YGR).
Paragraph 11 of the retainer agreement, entitled "Mandatory Arbitration and Legal Fees," addressed resolution of fee disputes. It stated, in pertinent part: "In the event that we are unable to resolve issues between us by agreement, you are entitled to submit the fee matter to mandatory fee arbitration by the San Francisco Bar Association . . . . If you elect such arbitration, we must agree to [mandatory fee arbitration] in San Francisco. Any decision in the [mandatory fee arbitration] is non-binding, meaning that either party may request a trial de novo in court within 30 days after the . . . award is served. By executing this Agreement, you agree to waive your right to a trial de novo following non-binding [mandatory fee arbitration], and agree to submit any fee dispute regarding or arising out of professional services rendered by us under the terms of this Agreement to binding arbitration. The arbitration shall be administered by JAMS alternative dispute pursuant to its Comprehensive Arbitration Rules and Procedures, venued in San Francisco, California, with one neutral arbitrator. If you elect to forego your right to [mandatory fee arbitration by the San Francisco Bar Association] entirely, you agree to waive any right to trial and agree to submit any fee dispute regarding or arising out of professional services rendered by us under the terms of this Agreement to binding arbitration administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures, in San Francisco, California, with one neutral."
In the retainer agreement, plaintiff was "encouraged to seek the advice of independent legal counsel of [its] choice regarding the arbitration terms set forth in Paragraph 11."
Plaintiff's then-president Maggie Kreins signed the retainer agreement on plaintiff's behalf. By signing the agreement, and as part of the signature line, Ms. Kreins warranted that "I understand, have fully considered, and agree to the terms of the Arbitration clause set forth in Paragraph 11 of this Agreement."
On December 2, 2019, defendant sent a letter addressed to Ms. Kreins, informing plaintiff that it was closing the file in the federal lawsuit and that plaintiff had an outstanding balance of $14,216.18 for legal services rendered. Defendant enclosed a one-page form advising plaintiff of its right to request nonbinding arbitration of the fee dispute pursuant to the Mandatory Fee Arbitration Act (MFAA) (Bus. & Prof. Code, § 6200 et seq.). The San Francisco Bar Association's mandatory fee arbitration program was listed as the local program having jurisdiction to hear the matter. Plaintiff did not initiate arbitration or otherwise respond to the MFAA notice.
"Notice of Client's Right to Fee Arbitration." Defendant used the California State Bar approved form entitled,
In January 2020, plaintiff filed a breach of contract action against defendant in Los Angeles County Superior Court. Plaintiff alleged defendant breach the retainer agreement "by overcharging Plaintiff in sums in excess of $100,000 for the legal services rendered."
On March 2, 2020, defendant filed a motion to compel arbitration and dismiss the action for improper venue. In opposition, plaintiff contended the retainer agreement's arbitration clause (also known as paragraph 11) was procedurally unconscionable because it is a contract of adhesion, and it made no mention of giving up the right to a jury trial. Moreover, Ms. Kreins did not understand the mandatory fee arbitration program established by Business and Professions Code section 6200 et seq. Plaintiff further argued the arbitration clause was substantively unconscionable because it lacked mutuality, in that defendant alone had the option of litigation or arbitration while plaintiff had no choice but to arbitrate a dispute. Also, if plaintiff obtained a net recovery after terminating defendant's legal services, plaintiff was obligated to pay defendant for the reasonable value of legal services rendered from the date of the retainer agreement to the date of discharge. Finally, plaintiff contended there was no basis to sever the unconscionable terms, and if the court was inclined to grant the motion, it should not dismiss the case.
The trial court issued a tentative ruling granting defendant's motion. On August 12, 2020, the court heard argument from the parties and took the matter under submission. The following day, the court issued a final ruling, withdrawing the tentative ruling and denying the motion. Relying on grounds not raised by plaintiff in its opposition to the motion to compel, the court found that the arbitration agreement "is substantively deficient because [defendant] did not provide to its prospective client an accurate statement of the law governing attorney-client fee disputes. It is [also] procedurally defective because in misstating the governing law and not describing the costs imposed by [defendant's] selected alternative, the client was not given the information it needed to choose its best option."
Defendant filed a timely notice of appeal.
DISCUSSION
The parties agree that, in substance, the trial court denied the motion to compel based on a finding that the arbitration clause was unconscionable, a finding that (as we explain) must be supported by a showing of both procedural and substantive unconscionability. Because we conclude that the arbitration clause was not procedurally unconscionable, we reverse the denial of the motion to compel, and need not consider the arguments made by the parties regarding substantive unconscionability.
A. Standard of Review and Applicable Law
An order denying a motion to compel arbitration is appealable. (Code Civ. Proc., § 1294, subd. (a).) "Standards of review of orders on a motion to compel arbitration are not uniform. [Citation.] Generally, if the trial court's order rests on a factual determination, the appellate court adopts a substantial evidence standard. If the court's decision rests solely on an interpretation of law, then we employ the de novo standard of review. [Citation.]" (Contreras v. Superior Court (2021) 61 Cal.App.5th 461, 468.)
A written agreement to submit a controversy to arbitration is valid and enforceable, absent a reason under state law, such as unconscionability, that would render any contract revocable. (Code Civ. Proc., § 1281; Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 (Armendariz); Sandoval-Ryan v. Oleander Holdings LLC (2020) 58 Cal.App.5th 217, 222.) "The party seeking to compel arbitration bears the burden of proving the existence of an arbitration agreement, while the party opposing the petition bears the burden of establishing a defense to the agreement's enforcement. [Citation.]" (Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 890; Civ. Code, § 1670.5, subd. (a) ["If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract"].)
The doctrine of unconscionability has both a procedural and a substantive element. (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237, 1243-1244.) "'[T]he former focus[es] on "'oppression'" or "'surprise'" due to unequal bargaining power, the latter on "'overly harsh'" or "'one-sided'" results.' [Citation.]" (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071.) But the two elements need not exist to the same degree. The more one is present, the less the other is required. (Armendariz, supra, 24 Cal.4th at p. 114 [unconscionability is measured on a sliding scale in which greater procedural unconscionability requires less substantive unconscionability, and vice versa].)
If a court finds a clause within a contract to have been unconscionable at the time it was made, the court may refuse to enforce the contract, or instead sever the unconscionable clause and enforce the remainder of the contract. (Civ. Code, § 1670.5, subd. (a); Armendariz, supra, 24 Cal.4th at p. 122; Davis v. Kozak (2020) 53 Cal.App.5th 897, 905.) "We review a trial court's order declining to sever the unconscionable provisions from an arbitration agreement for abuse of discretion." (Lange v. Monster Energy Co. (2020) 46 Cal.App.5th 436, 453, citing Armendariz, supra, 24 Cal.4th at p. 124.)
B. The Arbitration Clause is Not Unconscionable
i. Trial Court's Ruling
As previously noted, the trial court found the arbitration clause unconscionable based on defendant's failure to adequately explain the procedure for attorney-client fee disputes under the MFAA as well as the costs associated with private arbitration compared to court litigation. (We note that in its respondent's brief on appeal in support of the trial court's ruling, plaintiff does not rely on the court's reasoning.) The trial court couched its findings as both a "procedural defect" and "substantive defect." However, the court's findings, if upheld, pertain solely to procedural unconscionability, which "'concerns the manner in which the contract was negotiated and the circumstances of the parties at that time.'" (Abramson v. Juniper Networks, Inc. (2004) 115 Cal.App.4th 638, 656 (Abramson).) The relevant factors for such a determination are oppression and surprise. (Ibid.)
"'The oppression component arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party. [Citations.]' [Citation.]" (Abramson, supra, 115 Cal.App.4th at p. 656.) It generally takes the form of a contract of adhesion (Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at p. 1071), a "standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it" (Neal v. State Farm Ins. Cos. (1961) 188 Cal.App.2d 690, 694). "'Where an adhesive contract is oppressive, surprise need not be shown.'" (Abramson, supra, at p. 656.) "'The component of surprise arises when the challenged terms are "hidden in a prolix printed form drafted by the party seeking to enforce them. [Citation.]"'" (Nyulassy v. Lockheed Martin Corp. (2004) 120 Cal.App.4th 1267, 1281.)
Business and Professions Code section 6201, subdivision (a) requires an attorney to provide written notice to a client of the client's right to arbitration under the MFAA. (See Schatz v. Allen Matkins Leck Gamble & Mallory LLP (2009) 45 Cal.4th 557, 568 (Schatz).) Defendant complied with this requirement when it mailed the Notice of Client's Right to Fee Arbitration to plaintiff on December 2, 2019. It was not required to mention or describe in detail the right to MFAA arbitration in the arbitration clause. In any event, contrary to the trial court's finding, the arbitration clause did not misstate the MFAA (Bus. & Prof. Code, § 6200 et seq.). The MFAA applies to attorney-client fee disputes and requires an attorney to participate in nonbinding arbitration by a local bar association program (or by the State Bar if there is no approved local program) at the client's election. (Bus. & Prof. Code, § 6200, subd. (c).) Either party may petition the court for a trial de novo within 30 days after notice of the arbitrator's award. (Bus. & Prof. Code, § 6204, subd. (a).) Following nonbinding arbitration, however, the attorney can require that the dispute be submitted to private arbitration in accordance with a predispute agreement (thus trumping the client's MFAA right to elect a trial de novo in a court of law). (Schatz, supra, 45 Cal.4th at pp. 562-563; see Rosenson v. Greenberg Glusker Fields Claman & Machtinger LLP (2012) 203 Cal.App.4th 688, 691.) A predispute agreement for binding arbitration (such as a retainer agreement) conducted in accordance with the California Arbitration Act (Code Civ. Proc., § 1280 et seq.) is enforceable. (Aguilar v. Lerner (2004) 32 Cal.4th 974, 988-989.) The MFAA in no way limits the ability of attorneys and clients to enter into binding contractual arbitration. (Schatz, supra, 45 Cal.4th at p. 562.) Here, the arbitration clause does not contradict, but rather conforms to, this statement of the law. Moreover, there is no evidence in the record that supports the trial court's assumption that litigation of the dispute in an arbitration before JAMS would be more expensive than litigating the matter in court. Regardless, there is no requirement that an arbitration agreement discuss the possible disparity in costs between arbitration and court litigation.
The trial court's belief that "the client could agree in writing to binding arbitration" under the MFAA is not correct. Generally, "an award rendered pursuant to an arbitration under the MFAA is nonbinding, and either party may then seek a trial de novo." (Aguilar v. Lerner, supra, 32 Cal.4th at p. 985; Bus. & Prof. Code, § 6204, subds. (b), (c).) However, the MFAA also provides that the parties may agree in writing after a dispute has arisen that the arbitration will be binding. (Aguilar v. Lerner, supra, at p. 985; Bus. & Prof. Code, § 6204, subd. (a).) Therefore, the client cannot unilaterally select binding arbitration; it must be an agreement between both parties. Moreover, absent such agreement between the parties, the arbitration cost is not limited to a filing fee (as the court believed), as either party may then seek a court trial which carries independent costs. (See Schatz, supra, 45 Cal.4th at pp. 571-572.)
The trial court relied on Armendariz, supra, 24 Cal.4th 83 to make this point. But Armendariz, which involved an arbitration provision in an employer-employee contract imposed as a condition of employment, did not purport to compare the costs of arbitration to those of litigating in court. And its holding that the employer must pay the cost of arbitration does not apply here. (Boghos v. Certain Underwriters at Lloyd's of London (2005) 36 Cal.4th 495, 507-508 [Armendariz has not been extended beyond the context of employment litigation].)
ii. Plaintiff's Contentions
As noted, plaintiff does not rely on the trial court's reasoning in support of the denial of arbitration. Rather, plaintiff raises several other arguments.
Plaintiff first contends the arbitration clause was procedurally unconscionable because it was a contract of adhesion. However, contrary to its contention, plaintiff did not enter into the retainer agreement with defendant on a take it or leave it basis. (See e.g., Powers v. Dickson, Carlson & Campillo (1997) 54 Cal.App.4th 1102, 1110 (Powers) [clients are generally free to "employ the attorney of their choice and bargain for the terms of their choice"].) Plaintiff possessed the freedom to employ an independent attorney to specifically review the arbitration clause. Paragraph 11 of the retainer agreement "encouraged [plaintiff] to seek the advice of independent legal counsel of [its] choice regarding the arbitration terms." Plaintiff was free to reject the terms of the retainer agreement it found unreasonable and either attempt to negotiate more favorable terms or hire another law firm to represent it. In its brief, plaintiff asserts that there were "[n]o negotiations and no modifications . . . permitted." However, plaintiff cites to no evidence in the appellate record to support this contention. Absent evidence that plaintiff attempted to negotiate the terms of the retainer agreement but was rebuffed, plaintiff's argument fails.
Plaintiff next contends that the failure to mention the waiver of the right to a jury in the arbitration clause is unconscionable. The law is to the contrary; to be valid, an arbitration provision need not contain an express waiver of the right to a jury trial. (Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 713-714.) "[I]t has long been held that parties implicitly and enforceably give up the right to a jury trial when they agree to arbitration. [Citations.]" (County of Solano v. Lionsgate Corp. (2005) 126 Cal.App.4th 741, 750.) In any event, the arbitration clause did specifically state that plaintiff "agree[s] to waive [its] right to resolve . . . disputes by other means, including trial."
Lastly, plaintiff contends the arbitration clause is unconscionable based on Ms. Kreins's averments that as a non-attorney, she did not understand the mandatory fee arbitration program conducted by the local bar association. We note that plaintiff does not contend the arbitration clause was inaccurate in its description of that program. That said, Ms. Kreins's subjective lack of understanding, even if true, is not a ground for voiding the agreement. (Powers, supra, 54 Cal.App.4th at p. 1109 [as a general rule, failure to understand the significance of the arbitration provision may not be used to invalidate an agreement].) Moreover, it is undisputed that the by signing the retainer agreement, and as part of the signature line, Ms. Kreins warranted that "I understand, have fully considered, and agree to the terms of the Arbitration clause set forth in Paragraph 11 of this Agreement." Also, as previously noted, the retainer agreement encouraged plaintiff to seek the advice of independent legal counsel of its choice regarding the arbitration terms.
Therefore, we conclude the arbitration clause is not procedurally unconscionable. Absent a finding of procedural unconscionability, the trial court's order must be reversed. (Crippen v. Central Valley RV Outlet (2004) 124 Cal.App.4th 1159, 1167 [the record disclosed no procedural unconscionability and therefore "we need not address whether there was a showing of substantive unconscionability or whether the court should have severed the challenged provisions"]; see Gentry v. Superior Court (2007) 42 Cal.4th 443, 470 [noting the absence of procedural unconscionability would as a "logical conclusion" mean that "no matter how one-sided the contract terms, a court will not disturb the contract"].)
We now turn to the question of remedy. Defendant contends plaintiff's action should be dismissed pursuant to Code of Civil Procedure section 418.10, subdivision (a)(2) on the ground that Los Angeles County is an improper venue. Defendant notes the arbitration clause in the retainer agreement provides that a fee dispute will be resolved by JAMS in San Francisco. Plaintiff argues the proper procedure is to stay litigation.
Code of Civil Procedure section 418.10 states, in pertinent part: "(a) A defendant, on or before the last day of his or her time to plead or within any further time that the court may for good cause allow, may serve and file a notice of motion for one or more of the following purposes: [¶] . . . [¶] (2) To stay or dismiss the action on the ground of inconvenient forum."
Nothing in the forum selection clause provision cited by defendant authorizes this court to dismiss the present action under the circumstances of the case. In fact, Code of Civil Procedure section 1292.6 explicitly states: "After a petition has been filed under this title, the court in which such petition was filed retains jurisdiction to determine any subsequent petition involving the same agreement to arbitrate and the same controversy, and any such subsequent petition shall be filed in the same proceeding." Once arbitration has been ordered, the retention of jurisdiction would be inconsistent with dismissal. Furthermore, the arbitration clause says nothing about the venue; rather it addresses only the venue in which the arbitration will take place (JAMS in San Francisco).
DISPOSITION
The trial court's order denying defendant's motion to compel arbitration is reversed. The superior court is directed, on remand, to enter a new order granting the motion to compel arbitration and staying the action. Defendant is awarded its costs on appeal.
We concur: MANELLA, P. J. CURREY, J.