Second District, Division 8 Found Client Waived MFAA Nonbinding Arbitration Through Malpractice Allegations in AAA Cross-Demand.
Many times in the past, we have examined the interplay between contractual arbitration and the mandatory fee arbitration act (MFAA, Bus. & Prof. Code, § 6200). Basically, under the recent California Supreme Court’s opinion in Schatz v. Allen Matkins Leck Gamble & Mallory, LLP, 45 Cal.4th 557 (2009), contractual arbitration is still viable as long as the lawyer does not curtail client’s right to seek MFAA arbitration (which will usually be nonbinding in nature). The next case illustrates how MFAA arbitration can be waived, especially where there are affirmative allegations of malpractice apart from more boilerplate defensive allegations which might not have given rise to a waiver situation.
In Fagelbaum & Heller LLP v. Smylie, Case No. B205181 (2d Dist., Div. 8 June 2, 2009) (unpublished), client/landlord—who apparently agreed that nonpayment of fees would be a rent offset—did not pay some substantial bills, requested MFAA arbitration, pled on five occasions either defensively or in a contractual AAA cross-demand for malpractice offset/damages, lost a motion to prevent contractual binding arbitration, and then lost a contractual arbitration to the tune of $1,078,897 ($277,124 of which was arbitration attorney’s fees and $33,925 of which was arbitration costs) against his former attorneys/tenants. Client appealed. Client lost.
Attorneys initially argued that client failed to preserve appellate review by appealing rather than seeking a writ from the order compelling arbitration. This did not win—”[attorneys] cite no authority requiring immediate writ review of an order compelling arbitration.” Such an order is subject to review on appeal from the final judgment, namely, the judgment confirming the arbitration award, which was appealed in timely fashion. (Abramson v. Juniper Networks, Inc., 115 Cal.App.4th 638, 648 (2004).)
However, the critical issue that did client in was the waiver argument. Although the appellate court agreed that the four occasions of pleading malpractice as a defensive matter may not have a constituted a waiver, the fatal flaw was pleading it implicitly as an AAA contractual arbitration cross-demand. (Bus. & Prof. Code, § 6201(d)(2).) Because a demand for arbitration is a pleading, Blatt v. Farley, 226 Cal.App.3d 621, 627 (1990), client was cooked from a waiver standpoint.