LAW OFFICES OF DIXON R. HOWELL, Plaintiff and Appellant,
v.
Michael W. VALLEY, Defendant and Appellant.
Court of Appeal, Sixth District.
*502 Gоrdon J. Finwall, San Jose, Finwall Law Offices, for Plaintiff and Appellant.
John Michael O'Connor, Los Angeles, Law Offices of John Michael O'Connor, for Defendant and Appellant.
RUSHING, P.J.
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.[1] In this case, we consider whether a client may assert his MFAA *503 arbitration rightswithout actually availing himself of arbitrationto delay and ultimately prevent the resolution of a fee dispute with his former attorney. Under section 6201, subdivision (a) (§ 6201(a)), the attorney must provide written notice of the client's right to arbitration under the MFAA at or before the time the attorney serves a lawsuit on the client. As our Supreme Court has recently observed, "in the typical MFAA case, the client receives [the section 6201(a) notice] and thereafter expressly chooses either to proceed under the MFAA or not." (Aguilar v. Lerner (2004)
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 trial court dismissed the action based upon the erroneous view that dismissal was mandatory because of Law Firm's failure to give notice under section 6201(a), we reverse. After determining that reversal is required, we examine de novo the propriety of the court's denial of Firm's motion for summary judgment. We hold that there was no triable issue of material fact and that Client waived his defense of lack of notice under section 6201(a). Summary judgment therefore should have been granted.
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 defensesmany of which appear to have had no application to the caseincluding 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.[2]*504 There was an award in Law Firm's favor that was rejected by Client.
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 meritagain because Firm was required to give notice to Client of the right to arbitration and Client's appearance where he had received no section 6201(a) notice was not a waiver of arbitrаtion.
Thereafter, on February 11, 2004six days before the assigned trial date and after the case did not settle at a mandatory settlement conferencethe 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.[3] He asserted that he was entitled to attorney fees because the action was on a contract (promissory note) which included an attorney fees provision.[4] On May 4, 2004, the court awarded Client attorney fees of $12,000 (or slightly more than one-quarter of the amount sought). It concluded that "it was not reasonable to incur the full amount of fees sought, because a motion to dismiss or stay could have been brought and is reasonably likely to have succeeded."[5]
Law Firm filed a notice of appeal on May 3, 2004. Client filed аn appeal from the attorney fees order on May 20, 2004.
*505 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)
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 оf 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
The 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,
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 *506 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,
The arbitrator оr arbitrators of a fee dispute may: "(1) Take and hear evidence pertaining to the proceeding. [¶] (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 MFAAunlike the final result where arbitration of other disputes is required by the parties' agreement (see Moncharsh v. Heily & Blase (1992)
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,
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 disputeprovides: "[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 be a ground for the dismissal of the action or other proceeding." If an attorney commences an action or proceeding that is subject to arbitration under the MFAA, "the client [before responding] may stay the action or other proceeding by serving and filing a request for arbitration." (§ 6201, subd. (b).)
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 uрon the court's misconception that it was required to dismiss the case because of Firm's noncompliance with section 6201(a).[8] Citing *507 Richards, Watson & Gershon v. King (1995)
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,
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.
In Richards, a law firm sued the client's widow for recovery of attorney fees without sending a notice of right to arbitration under section 6201(a). (Richards, supra, 39 Cal.App.4th at pp. 1177-1178,
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: "[D]ismissal is discretionary is instead the correct interpretation." (Richards, supra,
*508 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 emphasis.) 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 decisionwhere 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[10]strongly suggests that there was no discretionary review of the dismissal motion.
Neither Huang v. Cheng, supra,
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,[11] since the *509 court's refusal to acknowledge and exercise the discretion vested in it "was itself an abuse of disсretion. [Citations.]" (Richards, supra,
IV. Denial Of Summary Judgment
Having determined that the order of dismissal must be reversedlike peeling the outer skin from an onionwe 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)
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)
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,
Our review оf the granting or denial of summary judgment is de novo. (Buss v. Superior Court (1997)
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 (discussеd below), Firm was entitled to summary judgment. (See Coyne v. Krempels (1950)
*511 Notwithstanding Law Firm's prima facie showing, Client argued that the motion should be denied on the basis of three defensesone of which was pleaded.[13] Client arguedas alleged in the fifth affirmative defense in his answerthat Firm's noncompliance with the notice requirements of section 6201 was "fatal" to his claim. In addition, Client claimed that, by soliciting and obtaining Client's execution of the subject promissory note, Firm breached its ethical obligation to avoid interests adverse to Client under the California Rules of Professional Conduct. Client apparently asserted that this alleged ethical violation was a defense (albeit unpleaded) to the action. Third, Client opposed the motion on the basis 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.
We address below these three defеnses 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[14] of its right to assert as a defense to an action for attorney fees or costs either that (1) the fee dispute must be submitted initially to nonbinding arbitration, or (2) the attorney's failure to give the client notice of the right to arbitrate under section 6201(a) bars the action. Usually (under circumstance (1)), the waiver issue will arise in the context of a client's belated request for arbitration under the MFAA. Less typically (under circumstance (2)), the waiver issue occurs where a client does not seek MFAA arbitration (belatedly or otherwise), but nonetheless urges dismissal of the action due to the attorney's noncompliance with section *512 6201(a). Here (circumstance (2)), Client never asserted a desire to arbitrate. Instead, both in opposition to the summary judgment motion and in his ex parte motion to dismiss, Client urged that the action be dismissed because Law Firm did not give the required notice of arbitration rights.[15]
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. III, 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. [¶] (2) Affirmative relief against the attorney for damages or оtherwise based upon alleged malpractice or professional misconduct." (§ 6201, subd. (d).)
At the heart of the matter, however, is whether the MFAA sets forth the only circumstances under which a client who does not receive written notice complying with section 6201(a) may waive MFAA arbitration rights. We conclude that it does not. There is nothing in the statute suggesting that the only way a client may waive arbitration (if the attorney does not give notice) is by filing an action or pleading seeking either resolution of a fee dispute or affirmative relief against the attorney for malpractice or professional misconduct. (See § 6201, subd. (d).) A holding that there are no nonstatutory grounds for waiving MFAA arbitration rights would permit a client even one aware of its right to arbitration under the MFAA despite not receiving a section 6201(a) noticeto use the attorney's failure to give notice as a means of manipulating the judicial process. Courts will not allow such misuse of the system. As the Supreme Court held in a case where plaintiffs filed suit for the express purpose of determining their adversaries' legal theories before attempting to arbitrate the dispute: "Such procedural gamesmanship provides ample support for the trial judge's conclusion that plaintiffs filed their action in bad faith, and by doing *513 so waived their right to arbitrate. `The courtroom may not be used as a convenient vestibule to the arbitration hall so as to allow a party to create his own unique structure combining litigation and arbitration.' [Citation.]" (Christensen, supra,
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,
2. Factors concerning MFAA waiver
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,[17] we turn to case law considering waiver of arbitration rights where parties have agreed by contract to resolve their disputes through arbitration.[18]
*514 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,
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 Knight et al., Cal. Practice Guide: Alternative Dispute Resolution (The Rutter Group 2004) ¶ 5:180, p. 5-105.) A party's mere participation in a lawsuit is insufficient to preclude it from later enforcing its right to contractual arbitration. (Saint Agnes, supra,
The Supreme Court in Saint Agnes agreed that the six factors identified by the appellate court in Sobremonte v. Superior Court (1998)
*515 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,
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,
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,
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,
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,
*516 As far as Client's assertiоn of Law Firm's noncompliance with section 6201(a) is concerned, he raised the matter at the outset of the litigation as one of a host of affirmative defenses in his answer. Client, however, did not move to stay or dismiss the action until 13 months later (and 15 months after the action was filed). The assertion in a lawsuit of the defense that the matter is subject to arbitration is not self-executing; the party asserting arbitration rights must generally take some affirmative steps (e.g., move to dismiss or stay or move to compel arbitration) to enforce the arbitration right. Thus, we find unpersuasive Client's claim that the allegation in the answer that the Firm did not comply with section 6201(a) immunized him from a finding that he subsequently waived MFAA arbitration rights. (See Davis v. Continental Airlines, Inc., supra,
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,
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,
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 *517 Christensen, supra,
Here, Client never asserted an intention to arbitrate, and waited nearly 15 monthsand 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,
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,
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. (Huang v. Cheng, supra,
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,
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,
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.
d. important intervening steps taken (factor 5)
It is without question that "`important intervening steps'" (Sobremonte, supra,
e. prejudice (factor 6)
The sixth Sobremonte factor, prejudice, is, of course, "critical." (Saint Agnes, supra,
Client herethrough discovery, participation in judicial arbitration proceedings, vigorous opposition to the summary judgment motion, and participation at a mandatory settlement conferenceobtained extensive information about Law Firm'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)
The impact of the delay in assertion of arbitration rights on the policy objectives of arbitration is an important consideration *519 in the prejudice analysis. As the Supreme Court has noted: "[C]ourts assess prejudice with the recognition that California's arbitration statutes reflect `"a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution"' and are intended `"to encourage persons who wish to avoid delays incident to a civil action to obtain an adjustment of their differences by a tribunal of their own choosing."' [Citation.] Prejudice typically is found only where the petitioning party's conduct has substantially undermined this important public policy or substantially impaired the other side's ability to take advantage of the bеnefits and efficiencies of arbitration." (Saint Agnes, supra,
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)
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.[20] Client's conduct here was plainly inconsistent with a desire to arbitrate the attorney fee dispute, and he delayed an unreasonable period of time before moving to dismiss. After viewing the litigation as a whole (McConnell v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra,
D. Claimed Ethical Violation
In his opposition to the summary judgment motion, Client contended that Law *520 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).[21] This unpleaded defense posed no impediment to summary judgment.
Our Supreme Court has held that an unsecured promissory note executed by the clientas contrasted with a promissory note given by the client secured by a deed of trust with a power of saledoes 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)
E. Contention Regarding Maker of Promissory Note
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 *521 to the summary judgment motion. (See Security-First Nat. Bk. v. Cooper (1944)
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)
DISPOSITION
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.
WE CONCUR: PREMO and ELIA, JJ.
NOTES
Notes
[1] All further statutory references are to the Business and Professions Code unless otherwise stated.
[2] 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)
[3] "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] [s]ection 1032:[¶] ... [¶] (10) Attorney fees, when authorized by any of the following: [¶] (A) Contract. [¶] (B) Statute. [¶] (C) Law."
[4] 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 thе 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."
[5] 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.
[6] 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).)
[7] 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 issuewhich we believe was waived on appeal in any eventof whether the court erred in denying Firm's stay application.
[8] 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)
[9] 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 discretionarynot mаndatory, as claimed by Clientwe 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.
[10] 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 is, in any event, a question immaterial to our resolution of the matter, we do not comment further beyond noting the existence of the issue.
[11] Although in limine motions are decided by the trial judge (People v. Morris (1991)
[12] 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)
[13] Client also argued belowbut not on appealthat 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 contingencyunstated in the notebased 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)
[14] 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)
[15] 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: "[P]laintiff's counsel notified defense cоunsel 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 [sic *] to do what he should have done initially ...have the matter decided by fee arbitration.... There is no provision in the statute allowing the attorney to put his client through expensive litigation, then go back to square one and start all over again. [¶] ... [¶] This Court should not tolerate this cynical and expensive abuse of the legal system and of defendant. This case should be ordered dismissed forthwith with prejudice." (* It is clear from the context of Client's motion that this is an error by Client, and that the intended word was "plaintiff.")
[16] 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 hereconsistent with the holding and reasoning of Richards, supra,
[17] For instance, in Richards, supra,
[18] In Juodakis v. Wolfrum (1986)
[19] 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,
[20] Before Saint Agnes, supra,
[21] "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: [¶] (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 [¶] (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 [¶] (C) The client thereafter consents in writing to the terms of the transaction or the terms of the acquisition." (Rule 3-300.)
[22] 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)
[23] 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.