RAUL V. AGUILAR, Plaintiff and Appellant, v. ESTHER R. LERNER, Defendant and Respondent.
No. S099667
Supreme Court of California
Apr. 22, 2004.
32 Cal. 4th 974
Aguilar & Sebastinelli and Allen J. Kent for Plaintiff and Appellant.
Howard R. Melamed for Defendant and Respondent.
Conkle & Olesten, William C. Conkle and Eric S. Engel as Amici Curiae on behalf of Defendant and Respondent.
OPINION
WERDEGAR, J.—When plaintiff Raul V. Aguilar hired defendant Esther R. Lerner to represent him in a marital dissolution matter, he signed a written retainer agreement that included an agreement to arbitrate any dispute “concerning fees . . . or any other claim relating to [plaintiff‘s] legal matter which arises out of [plaintiff‘s] legal representation.” Such an agreement normally would be enforceable under the California Arbitration Act (CAA). (
We conclude plaintiff is not judicially estopped from attempting to rely on the MFAA to invalidate his arbitration agreement, but that in filing a malpractice suit against defendant he waived all rights he might have asserted under the statutory scheme. In light of plaintiff‘s waiver, we have no occasion to address how we might reconcile a client‘s rights under the MFAA with a client‘s preexisting agreement with counsel to arbitrate under the CAA. Accordingly, we affirm the decision of the Court of Appeal.
Plaintiff Aguilar, himself an attorney, hired defendant Lerner, a family law specialist, to represent him in his marital dissolution. According to plaintiff‘s declaration, he explained to Lerner that he desired the matter to be resolved quickly, as he had endured what he believed was unnecessary expense and frustration with his previous attorney. Lerner agreed to represent him and produced a written retainer agreement for his signature. Aguilar declares he signed the agreement and initialed certain paragraphs, including the arbitration provision, without reading them. He declares that he “had no idea the retainer agreement contemplated the arbitration of legal malpractice claims and waiver of [his] right to a jury trial. No one explained to me that it did.” He claims he did not negotiate any of the terms in the retainer agreement. The agreement is dated November 30, 1994.
Lerner declares that after she agreed to represent Aguilar, she gave him her retainer agreement “and asked him to carefully review it before signing [it].” She states it was her “custom and practice to encourage a potential client to carefully review the retainer agreement and ask any questions that they might have before signing. Further, I encourage them to take the retainer agreement with them before signing in order that they can take the time on their own to carefully review the terms of the agreement.” She declares Aguilar did not sign the agreement in her presence but took it with him. He thereafter returned a signed and initialed copy to Lerner by both facsimile and first class mail.
The arbitration agreement is set forth as paragraph 7 in the retainer agreement. It provides:
“In the event that there is any disagreement between the CLIENT and ATTORNEY concerning fees, this Agreement or any other claim relating to CLIENT‘S legal matter which arises out of CLIENT‘S legal representation, CLIENT hereby agrees to submit such dispute to binding arbitration under the rules of the San Francisco Bar Association and the Code of Civil Procedure of the State of California. The prevailing party shall be entitled to reasonable attorney‘s fees and costs incurred in enforcing any arbitration award or engaging in any court proceedings.”
A dispute later arose, and Aguilar discharged Lerner. On March 17, 1997, he filed a complaint for damages in San Francisco Superior Court, alleging Lerner had committed professional negligence and a breach of her fiduciary duty to him. In response, Lerner petitioned to compel arbitration of these claims pursuant to
Lerner prevailed in arbitration, the arbitrator granting her judgment against Aguilar on his complaint for damages. On Lerner‘s claim for unpaid legal fees and costs, the arbitrator awarded her $32,709.64. On Lerner‘s motion for reasonable attorney fees and costs associated with the arbitration hearing, the arbitrator ruled she was entitled to $7,138 in attorney fees pursuant to
The superior court denied Aguilar‘s motion to vacate the arbitration award and granted Lerner‘s motion to confirm the award. Aguilar appealed; the Court of Appeal affirmed; we granted review.
DISCUSSION
Aguilar contends the parties’ agreement to arbitrate was invalid and unenforceable because it was contrary to the MFAA (
A. Judicial Review
When parties choose to forgo the traditional court system and arbitrate their claims, it is assumed they wish to have a final and conclusive resolution of their dispute. The Legislature has recognized this underlying assumption of finality and has, by statute, limited the grounds for judicial review of an arbitrator‘s award. (
In addition, however, to the statutory grounds for vacating an arbitrator‘s award, we explained in Moncharsh “that there may be some limited and exceptional circumstances justifying judicial review of an arbitrator‘s decision . . . . Such cases would include those in which granting finality to an arbitrator‘s decision would be inconsistent with the protection of a party‘s statutory rights.” (Id. at p. 32, italics added.) It is this exception on which plaintiff relies in seeking judicial relief from the arbitrator‘s award.
We applied the statutory rights exception to the rule of arbitral finality in Board of Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th 269 (Round Valley). In that case, a school district notified a probationary teacher it would not renew his teaching contract for the next year. He sought arbitration as authorized pursuant to the applicable collective bargaining agreement, claiming the district had failed to provide him with notice of nonreelection as required in the agreement. The teacher prevailed in arbitration, and the district thereafter petitioned to vacate the arbitration award, claiming the notice required by the collective bargaining agreement was contrary to the requirements set forth in
On the question of judicial review of the arbitrator‘s decision, we explained: “Although we adhere to our holding in Moncharsh that arbitrator finality is the rule rather than the exception, we agree that—if District is correct concerning the scope of its statutory rights under the Education and Government Codes—this case presents the exceptional circumstance that allows for judicial review of the arbitrator‘s decision. Should District‘s interpretation of the law prevail, we would be faced with an ‘explicit legislative expression of public policy’ that issues involving the reelection of probationary teachers not be subject to arbitration. [Citation.] This expression of public policy would thus conflict with the expressed legislative intent to limit private arbitration awards to statutory grounds for judicial review. Thus, rigidly insisting on arbitral finality here would be ‘inconsistent with the protection of a party‘s [i.e., District‘s] statutory rights.‘” (Round Valley, supra, 13 Cal.4th at p. 277.)
Like the school district in Round Valley, plaintiff relies on statutory rights he claims will be infringed by limiting judicial review of the arbitrator‘s decision in this case. He contends the arbitrator exceeded his powers in resolving the parties’ dispute because the agreement to arbitrate contravened both plaintiff‘s statutory rights as set forth in the MFAA and the public policy
B. The MFAA
The parties in this case arbitrated their dispute pursuant to the CAA, set forth in part 3, title 9 of the
By contrast, the MFAA constitutes a separate and distinct arbitration scheme. The MFAA was first proposed by the Board of Governors of the State Bar of California in 1976 when, finding that disputes concerning legal fees were the most serious problem between members of the bar and the public, the board sought to create a mechanism for arbitrating disputes over legal fees and costs. Recognizing the “disparity in bargaining power in attorney fee matters which favors the attorney in dealings with infrequent consumers of legal services” (Hargarten & Ardisson, Fine Tuning California‘s Mandatory Attorney Fee Arbitration Statute (1982) 16 U.S.F. L.Rev. 411, 415), that many clients could not afford hiring additional counsel to litigate fee disputes in the civil courts (ibid.), and that previous schemes that called for voluntary arbitration were ineffective (id. at pp. 413–414), the Legislature enacted the MFAA. The original legislation provided in pertinent part: “The Board of Governors [of the State Bar of California] shall, by rule, establish, maintain, and administer a system and procedure for the arbitration of disputes concerning fees charged for professional services by members of the State Bar or by members of the Bar of other jurisdictions.” (Stats. 1978, ch. 719, § 1, p. 2249.) This mandate has been expanded to include mediation, but is otherwise unchanged today. (
The nature of the obligation to arbitrate under the MFAA differs from that under standard arbitration in two important ways. First, the obligation to arbitrate under the MFAA is based on a statutory directive and not the parties’ agreement. Thus, a client may invoke the MFAA and proceed to arbitration despite the absence of any prior agreement to do so. By contrast, standard arbitration requires that both parties to a dispute agree to arbitrate. (Benasra v. Marciano (2001) 92 Cal.App.4th 987, 990 [“a party cannot be compelled to arbitrate a dispute that he has not agreed to resolve by arbitration“].)
Second,
The finality of an arbitration award under the MFAA also generally differs from an award rendered pursuant to standard arbitration under the CAA. Although parties choosing to resolve their dispute in standard arbitration pursuant to the CAA “typically expect” that the arbitrator‘s decision will be final (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 373; Moncharsh, supra, 3 Cal.4th at p. 10), an award rendered pursuant to an arbitration under the MFAA is nonbinding, and either party may seek a trial de novo (
Finally, the MFAA specifies the conditions under which the client can waive its protections. “A client‘s right to request or maintain arbitration under the provisions of this article is waived by the client commencing an action or filing any pleading seeking either of the following: [[] (1) Judicial resolution of a fee dispute to which this article applies. [][] (2) Affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct.” (
As indicated, the parties in this case arbitrated their dispute pursuant to the CAA, not the MFAA. When plaintiff filed his complaint in superior court against defendant for professional negligence and breach of fiduciary duty, defendant understandably petitioned to compel arbitration pursuant to the parties’ agreement. Had the parties simply arbitrated the malpractice-related claims, no question regarding application of the MFAA would have arisen. But because defendant in her petition to compel arbitration added a claim for unpaid legal fees and costs, plaintiff asserts the MFAA applies. Although plaintiff has never sought to arbitrate the fee dispute in an MFAA arbitration, he seeks to invoke the act‘s client protections in order to invalidate the parties’ agreement.
This case thus poses the question whether the parties’ agreement to arbitrate is enforceable or is superseded by the MFAA.3 The question is significant in light of the proliferation of arbitration clauses in attorney retainer agreements during the last two decades. This proliferation is understandable, for we have presided over a recent period of rapid expansion of arbitration as a dispute resolution mechanism. At the time the MFAA was enacted in 1978, arbitration under the CAA was still in its infancy. Though the CAA was enacted in 1961, it was not until the early 1980‘s that the use of arbitration as an alternative method to resolve legal disputes became prevalent and both this court and the United States Supreme Court began determining the outer limits of the procedure. For example, we held in 1983 that when a party to an arbitration agreement in a contract contended the contract was
Preliminary to deciding the merits of plaintiff‘s claim, however, we must decide two questions: (1) Is plaintiff judicially estopped from relying on the statute‘s protections, as the appellate court held? (2) If not, did he waive the statute‘s protections by filing his suit for malpractice, as defendant contends?
C. Estoppel
The Court of Appeal below found that, “[b]y never availing himself of his statutory right to arbitration under the [MFAA] scheme, and by filing a malpractice action, [plaintiff] expressly rejected the protections afforded by the [MFAA] scheme. In light of this conduct, he cannot now say the arbitrator‘s decision conflicted with the protection of statutory rights he never sought.” Further: “[Plaintiff‘s] position on appeal that the arbitrator‘s award denied him the protection of his [MFAA] rights is incompatible with his position below that arbitration under the [MFAA] system was both inappropriate and, for him, unwanted. Given these contrasting positions, he is now estopped from urging that the arbitration award exceeded the arbitrator‘s powers because it conflicted [with] the protection of the [MFAA].” (Italics added.)
The appellate court thus invoked the doctrine of judicial estoppel. “‘Judicial estoppel precludes a party from gaining an advantage by taking one position, and then seeking a second advantage by taking an incompatible position. [Citations.] The doctrine‘s dual goals are to maintain the integrity of the judicial system and to protect parties from opponents’ unfair strategies. [Citation.] Application of the doctrine is discretionary.‘” (Koo v. Rubio‘s Restaurants, Inc. (2003) 109 Cal.App.4th 719, 735, fn. omitted.) The doctrine applies when “(1) the same party has taken two positions; (2) the positions were taken in judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the first position was not taken as a
That the appellate court concluded plaintiff should be judicially estopped from relying on the protections of the MFAA is understandable given that he has consistently disclaimed his right under the statute to arbitrate defendant‘s claim for unpaid legal fees and costs. Admittedly, permitting plaintiff to escape application of the arbitration agreement he signed by claiming it violated his rights as a client under the MFAA seems incongruous, when he never sought to take advantage of the MFAA‘s other provisions by arbitrating the fee issue under its terms. Nevertheless, we cannot agree the doctrine of judicial estoppel applies in this case. For plaintiff to rely on the MFAA in resisting his contractual agreement to arbitrate was not inconsistent, because one of the statute‘s key provisions makes arbitration voluntary for the client. (
D. Waiver
Defendant Lerner contends plaintiff Aguilar waived his statutory rights under the MFAA because he sued her for legal malpractice. At the time the parties entered into their agreement to arbitrate,
Plaintiff misconceives the issue. Our conclusion he waived his rights under the MFAA rests not on the arbitration agreement he executed when he retained Lerner, but, rather, on the malpractice lawsuit he filed against her. Thus, whether he entered his arbitration agreement pre- or post-dispute is irrelevant, as is which version of the statute applies to the agreement.
Plaintiff next contends that although he “may have” waived his right to an MFAA arbitration by filing a malpractice lawsuit against defendant, “he did not and could not waive his statutory right to not be forced into a binding arbitration of an attorney fee dispute under the terms of an arbitration clause calling for binding arbitration.” Plaintiff‘s unstated premise is that, although he waived his right to arbitration pursuant to the MFAA, he nevertheless retained some residual rights under the act in the form of the procedural protections the statutory scheme provides to clients. Specifically, plaintiff invokes the MFAA provisions that arbitration is voluntary for the client (
That a client may legally rely on the MFAA‘s protections once he has waived application of that statutory scheme is not obvious. Plaintiff cites to no provision in the MFAA itself so providing, nor to any other legal authority holding or even suggesting the protections set forth in the statute are self-executing irrespective of a client‘s waiver of his right to MFAA arbitration under
The clear implication of this notice provision is that the Legislature understood a lawyer and client may choose to resolve their fee dispute by proceeding under the CAA when the client chooses not to proceed under the MFAA;6 no other meaning can reasonably be gleaned from the reference to “any other proceeding against the client under a contract between attorney and client which provides for an alternative to arbitration under this article.” If a client who receives such notice declines to proceed pursuant to the MFAA and chooses instead to go forward with a CAA arbitration (which typically is binding), to conclude the client nonetheless retains his MFAA right unilaterally to reject the arbitrator‘s decision would be nonsensical.
We presume that in the typical MFAA case, the client receives the mandated statutory notice pursuant to
In sum, we conclude that once a client files a malpractice lawsuit against his or her former attorney, the client waives any rights under the
CONCLUSION
The judgment of the Court of Appeal is affirmed.
George, C. J., Kennard, J., Baxter, J., and Chin, J., concurred.
CHIN, J., Concurring.—I agree with the majority that plaintiff Raul V. Aguilar waived his rights under the mandatory fee arbitration act (MFAA). (
In some respects, the MFAA statutory language is not entirely clear.
Aguilar argues, and the court in Alternative Systems, Inc. v. Carey (1998) 67 Cal.App.4th 1034, 1042, footnote 5 (Alternative Systems), concluded, that the references in section 6204 to a “trial” and “an action in . . . court” mean that after nonbinding arbitration, the dispute can only be resolved in court, and may not be resolved by binding arbitration even if the parties had agreed to such binding arbitration. I disagree. Although this reading of section 6204 is plausible if the section is viewed in isolation, the section does not exist in isolation but is part of the MFAA, which includes section 6201. It is “a cardinal rule of statutory construction, that ‘every statute should be construed with reference to the whole system of law of which it is a part so that all may be harmonized and have effect.’ ” (Landrum v. Superior Court (1981) 30 Cal.3d 1, 14.) The references to a trial and court action in section 6204 do not negate section 6201. In context, and in order to give effect to section 6201, section 6204 must be construed as merely providing the procedure to follow if the nonbinding arbitration is followed by a judicial action, not as prohibiting the parties from agreeing to some other proceeding. The latter interpretation would make meaningless section 6201‘s acknowledgment that the parties may agree to some form of dispute resolution other than judicial action, and its repeated references to some proceeding other than a court action.
Alternative Systems, supra, 67 Cal.App.4th 1034, held that if the client requests and obtains nonbinding arbitration under the MFAA, an agreement to binding arbitration cannot be given effect, and the dispute must proceed to a trial de novo. It concluded that the MFAA “preempted” the binding arbitration agreement. (Id. at p. 1044.) The majority cites Alternative Systems but expresses no opinion on whether it was correct. (Maj. opn., ante, at pp. 984, 989, fn. 6.) For the reasons I have stated, I believe it was not correct. By its very terms, the MFAA complements the CAA rather than preempts it.
Alternative Systems, supra, 67 Cal.App.4th 1034, cannot survive today‘s ruling. We are holding today that a client who does not request nonbinding arbitration has waived the MFAA‘s protections, and the binding arbitration agreement is enforceable. If Alternative Systems were to remain valid, that
We cannot reasonably conclude that the Legislature created a system whereby clients who agree to binding arbitration may evade that agreement, but only if they go through the charade of demanding and obtaining a nonbinding arbitration that they may not want. Such a construction of the MFAA would not be “‘indulg[ing] every intendment to give effect‘” to a binding arbitration agreement. (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 9.) I believe the majority has effectively overruled Alternative Systems, supra, 67 Cal.App.4th 1034, and I would do so expressly.
Baxter, J., and Brown, J., concurred.
MORENO, J., Concurring.—I concur in the judgment. I agree with Justice Chin that the issue here is less one of waiver than of the relationship between the mandatory fee arbitration act,
Unlike Justice Chin, I express no opinion about whether Alternative Systems was correctly decided vis-à-vis post-1996 arbitration agreements,