WEISSMANN WOLFF BERGMAN COLEMAN GRODIN EVALL LLP v. JASBIR SINGH

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Court of Appeal, Second District, California.

WEISSMANN WOLFF BERGMAN COLEMAN GRODIN & EVALL LLP, Plaintiff and Respondent, v. JASBIR SINGH, Defendant and Appellant.

B225813

Decided: August 23, 2011

Roger A.S. Manlin for Defendant and Appellant. Weissmann Wolff Bergman Coleman Grodin & Evall and Steven Glaser for Plaintiff and Respondent.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

Jasbir Singh appeals from the judgment entered after the superior court granted the petition of Weissmann Wolff Bergman Coleman Grodin & Evall LLP (Weissmann firm) to confirm an arbitration award of $130,145.20 in unpaid attorney fees and costs and denied Singh's petition to vacate the award.   Although Singh challenges the award and underlying arbitration agreement on several grounds, his principal argument on appeal is that the arbitration proceedings were nonbinding and subject to his right to a trial de novo under the Mandatory Fee Arbitration Act (MFAA) (Bus. & Prof.Code, § 6200 et seq.).   Although we reject much of Singh's analysis, we reverse the judgment because the binding arbitration provision in the Weissmann firm's retainer agreement is unenforceable as written;  and we remand the matter for further proceedings, which may include an order for binding arbitration pursuant to the California Arbitration Act (CAA) (Code Civ. Proc., § 1280 et seq.).

FACTUAL AND PROCEDUAL BACKGROUND

1. Singh's Retention of the Weissmann Firm

Singh first contacted the Weissmann firm in early July 2005 seeking help in connection with a real property dispute between Singh and other members of a limited liability company, Canyon Meadows Estates, LLC. In the week that followed, Singh delivered documents to the firm, discussed litigation strategy and had a conversation with Weissmann firm partner Marc L. Benezra concerning the terms of representation.   Benezra told Singh the firm would take his case, and Singh orally agreed to the billing rates and estimated overall fees and costs as described by Benezra (approximately $60,000 to $70,000).

On July 15, 2005 Singh met with Benezra concerning the litigation.   Benezra gave Singh a “fee arrangement” letter, which confirmed the terms of the engagement, including a general definition of its scope and a description of the firm's billing policies and procedures.   Paragraph 5 of the July 15, 2005 retainer agreement provided for binding arbitration of any fee disputes:

“5. Binding Arbitration.   Any controversy or claim between us concerning our billing for professional fees and costs shall be arbitrated before the Arbitration Committee of the Los Angeles County Bar Association pursuant to the Rules of Conduct of Arbitration of Fee Disputes and Other Related Matters.   Judgment upon the award may be entered in any court having jurisdiction thereof.   Such arbitration award will be final and binding upon the parties hereto.   In the event of any arbitration or any litigation arising from any disputes under this agreement, Client agrees to pay Weissmann Wolff Bergman Coleman Grodin & Evall LLP's collection costs, including, without limitation, all reasonable attorneys' fees and costs, whether or not actually expended in connection with such arbitration or litigation.”

According to Singh, Benezra told him the letter reflected their oral agreement and explained a written fee agreement was required by law.   There was no other discussion of the engagement letter at the July 15, 2005 meeting.   Singh took the unsigned letter with him at the conclusion of the meeting.   He returned the signed agreement with a $15,000 retainer check on July 26, 2005 after being asked to do so by Benezra at a meeting the following week.

2. The Fee Dispute

The Weissmann firm filed a superior court action on behalf of Singh on July 26, 2005 and represented him in the litigation for approximately 11 months.   On June 14, 2006, as the trial date drew near, Singh and the other parties to the lawsuit drafted their own, handwritten settlement agreement.   A notice of settlement was filed with the court on June 30, 2006.   At approximately the same time, following disagreements between Singh and the firm, a substitution of attorney form was filed, providing that Singh would thereafter be proceeding in propria persona.

Singh had paid substantially all of the firm's legal fees as billed for the first 10 months of its representation (approximately $142,000).   Singh did not pay the invoice dated May 12, 2006 for $29,152.20 or pay for legal services and costs purportedly incurred thereafter (that is, through July 6, 2006).   The Weissmann firm ultimately claimed a total due of $138,558.95.   For his part, Singh challenged the quality of, and necessity for, much of the work done by the Weissmann firm and alleged the firm had committed legal malpractice and breached fiduciary duties owed to him.

3. The Petition for Arbitration and Events Preceding the Hearing

On May 19, 2008 the Weissmann firm sent Singh a one-page form advising him of his right to request nonbinding arbitration of the fee dispute pursuant to the MFAA.1 The form included the warning that Singh would lose his rights under the MFAA if he did not file a written application for arbitration with a local bar association within 30 days of his receipt of the notice.   Singh did not initiate arbitration or otherwise respond to the MFAA notice.

On March 9, 2009 the Weissmann firm filed a petition for arbitration, seeking $138,558.95 in legal fees and costs, with Dispute Resolution Services, Inc. (DRS) 2 of the Los Angeles County Bar Association (LACBA).   According to the Weissmann firm, before filing the petition the firm had confirmed that the parties' agreement to submit the fee dispute to binding arbitration was enforceable and that DRS would conduct a binding arbitration in accordance with the parties' agreement.3

Paragraph 14 of the preprinted petition form filed by the Weissmann firm provides, “Unless both you and the client agree in writing to binding arbitration, this arbitration will proceed as a non-binding arbitration.”   Consistent with its understanding that the provision in the retainer agreement for binding arbitration was enforceable, in paragraph 14 of the petition the Weissmann firm checked the box before the line stating, “I agree to binding arbitration of this dispute.”   On the same line it interlineated, “Client agreed to binding arbitration.   See Attached fee agreement.”

The DRS form used by the Weissmann firm was entitled “Attorney–Client Petition for Arbitration.”   In an “Attachment ‘A’ ” to what it renamed, “Attorney–Client Petition for Binding Arbitration,” the Weissmann firm stated it was seeking to compel Singh to participate before LACBA in binding arbitration of the parties' fee dispute under the CAA. The attachment explained the basis for the Weissmann firm's position the parties had agreed to binding arbitration and described the fee dispute at issue.

On March 18, 2009 DRS sent Singh a letter enclosing a copy of the Weissmann firm's petition for arbitration and advising him that it had received the request to arbitrate the parties' fee dispute.   The second line of the letter stated, “Our files indicate that the Client has agreed to binding arbitration;  your participation is voluntary.”   The balance of the letter described voluntary arbitration under the MFAA, including the right to a trial de novo, and directed Singh to the DRS Rules of Conduct of Arbitration of Fee Disputes and Other Related Matters (DRS Arbitration Rules).

On April 17, 2009, through new counsel, Singh submitted a reply to the petition, asserting he had been defrauded by the Weissmann firm, which had also committed legal malpractice in its handling of the Canyon Meadows Estates litigation.   The reply stated Singh intended to file a countersuit for damages (recovery of all fees paid to the firm).   Singh's counsel checked the box indicating Singh agreed to fee mediation;  the boxes agreeing to binding arbitration were not checked.

On August 26, 2009 DRS notified the Weissmann firm and Singh's counsel that an arbitration panel had been selected and that Michael Matthias would serve as panel chair.   The August 26, 2009 notice stated in all-capital, bold lettering, “This arbitration is non-binding.   However, if, at the time of the hearing or prior to the hearing, all parties to this dispute agree in writing to be bound, this arbitration will become binding.”   Enclosures accompanying the notice stated the arbitration would be conducted pursuant to the MFAA and included a form for the parties to stipulate to binding arbitration “that can be completed at the hearing if the parties agree to binding arbitration.”

On September 14, 2009 Rebecca Smith Henning of the Weissmann firm wrote Douglas Tobias, DRS case coordinator, concerning the statement in the August 26, 2009 notice that the arbitration would be nonbinding unless the parties otherwise agree at or prior to the arbitration hearing.   Henning summarized the history of the proceedings and expressed her understanding that Singh had waived his right to participate in nonbinding arbitration under the MFAA and that the arbitration was to proceed as a binding arbitration under the CAA, as contemplated by the parties in their retainer agreement and by the Weissmann firm when it filed the petition to arbitrate.   A copy of Henning's letter was also sent to Singh's counsel and the members of the arbitration panel.   Singh did not respond to the letter.

On October 1, 2009 arbitrator Matthias sent a letter to Henning and Singh's counsel setting the arbitration hearing for October 28, 2009.4  The letter also stated, “Please take notice that I have been advised by the Los Angeles County Bar Association Dispute Resolution Services that the matter will proceed as a binding arbitration.”   Singh did not object to this notice prior to the hearing date.   Indeed, through counsel he participated in prehearing arrangements and indicated in an October 19, 2009 email to the arbitrator, “Mr. Singh will abide by the arbitrator's ruling․  Please let me know how Mr. Singh can facilitate the arbitration proceeding.”

4. The Arbitration Hearing and Award

At the commencement of the arbitration hearing on October 28, 2009, Matthias reiterated that DRS had instructed the arbitration was to be binding.   Singh, through counsel, objected to the matter proceeding as a binding arbitration, insisting it must be nonbinding, as originally classified by DRS, unless the parties agreed to binding arbitration after the dispute had arisen.   Singh also submitted what was designated a response and counterclaim.   The arbitrator allowed its filing over the objection of the Weissmann firm that it was untimely, but limited consideration of Singh's claims to the extent they affected the additional fees or costs to which the firm was entitled.

The arbitrator took evidence and heard argument on October 28, 2009, December 3, 2009 and December 14, 2009.   He issued a statement of decision and award in favor of the Weissmann firm on February 11, 2010, finding the services provided by the firm “were for the most part consistent with the fee agreement and were reasonably necessary” and the fees charged “were for the most part reasonable and necessary for the work and labor required and performed.”   The arbitrator also found the amount of fees and costs to which the firm was entitled was not affected by any of the claims asserted by Singh.   He awarded the firm a total sum of $130,145.20.

With respect to whether the arbitration was binding, Matthias made it clear he had not attempted to resolve the parties' dispute.   Instead, he explained the matter had originally been assigned by DRS as nonbinding, but, after the Weissmann firm contacted DRS and explained its position on the matter, DRS had instructed it should proceed as a binding arbitration.  “The parties were advised thereof at the commencement of the initial hearing session.   Client noted his objection thereto and stated his position that the arbitration should be non-binding.   Pursuant to instructions from DRS the matter proceeded as a binding arbitration.   No evidence was taken on this issue and no decision was rendered by the Arbitrator on this issue.”

5. The Petitions To Confirm and To Vacate the Award

On March 18, 2010 the Weissmann firm filed a petition to confirm the arbitration award.   On March 23, 2010, using an optional form created by the Judicial Council for MFAA arbitrations, Singh filed a “rejection of award and request for trial after attorney-client fee arbitration.”   Thereafter, on April 7, 2010 Singh filed a petition to vacate the arbitration award and an opposition to the Weissmann firm's petition to confirm the award.

The court heard argument on April 26, 2010, ordered supplemental briefing and then heard further argument on June 4, 2010.   Following the second hearing the court granted the petition to confirm the arbitration award and denied the petition to vacate, finding, in part, Singh had waived his right to nonbinding arbitration under the MFAA and rejecting Singh's argument that binding arbitration under the circumstances here could only be initiated by a court order pursuant to Code of Civil Procedure section 1281.2.

DISCUSSION

1. Standard of Review

Absent conflicting extrinsic evidence, the validity and enforceability of an arbitration clause is a question of law subject to de novo review.  (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1468;  Mercuro v. Superior Court (2002) 96 Cal.App.4th 167, 174.)   Similarly, whether the arbitrator exceeded his or her powers in granting relief, and thus whether the award should have been vacated on that basis, is reviewed on appeal de novo.   (Reed v. Mutual Service Corp. (2003) 106 Cal.App.4th 1359, 1365 [“whether the award was made in excess of the arbitrators' contractual powers” is a question of law];  Kahn v. Chetcuti (2002) 101 Cal.App.4th 61, 65.)   However, to the extent the superior court's decision to grant the petition to confirm and deny the petition to vacate the award rests on its determination of disputed factual issues, we review the court's orders under the substantial evidence standard.  (Toal v. Tardif (2009) 178 Cal.App.4th 1208, 1217;  Lindenstadt v. Staff Builders, Inc. (1997) 55 Cal.App.4th 882, 892, fn. 7.)

2. Attorney–Client Fee Arbitrations Under the MFAA and the CAA

The Supreme Court discussed attorney-client fee arbitrations under the MFAA and the CAA in Aguilar v. Lerner (2004) 32 Cal.4th 974 (Aguilar ) and Schatz v. Allen Matkins Leck Gamble & Mallory LLP (2009) 45 Cal.4th 557 (Schatz ), observing that “the relationship between the two arbitration schemes is not immediately apparent.”  (Schatz, at p. 566.)   As the Court explained, “[V]irtually any civil dispute, including claims of legal malpractice, can be the subject of arbitration under the CAA.” (Aguilar, at p. 984;  accord, Schatz, at p. 565.)  “The CAA ‘represents a comprehensive statutory scheme regulating private arbitration in this state.  [Citation.]  Through this detailed statutory scheme, the Legislature has expressed a “strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.” ’  [Citation.]․  [¶] By contrast, the MFAA constitutes a separate and distinct arbitration scheme․  [¶] In contrast to the CAA, which is governed by the Code of Civil Procedure, the MFAA has its own rules and limitations, as set forth in the Business and Professions Code. As one appellate court has described it, the MFAA ‘is a closed system and the binding arbitration agreed to ․ is the arbitration conducted by [a] local bar association under the MFAA, not some other private alternative dispute resolution provided by another forum.’  [Citation.]  The primary limitation of the MFAA is that it applies only to disputes concerning ‘[legal] fees, costs, or both’ [citation] 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, at pp. 983–984;  see Schatz, at pp. 564–565.) 5

In general, arbitration under the MFAA is based on a statutory directive, not the parties' written agreement to arbitrate as required by the CAA. (Compare Bus. & Prof.Code, § 6200, subd. (c), with Code Civ. Proc., § 1281.2.) That is, even if both parties have not agreed to arbitrate their fee dispute, the client may (but need not) initiate arbitration under the MFAA. (Bus. & Prof.Code, § 6200, subd. (c);  see Aguilar, supra, 32 Cal.4th at p. 984 [“a client may invoke the MFAA and proceed to arbitration despite the absence of any prior agreement to do so”].)   If the client initiates arbitration, participation by the attorney is mandatory.  (Bus. & Prof.Code, § 6200, subd. (c);  see Aguilar, at p. 984 [“whereas a client cannot be forced under the MFAA to arbitrate a dispute concerning legal fees, at the client's election an unwilling attorney can be forced to do so”];  Schatz, supra, 45 Cal.4th at p. 565.)

Arbitration under the CAA is binding, and “parties choosing to resolve their dispute in standard arbitration pursuant to the CAA ‘typically expect’ that the arbitrator's decision will be final.”  (Aguilar, supra, 32 Cal.4th at p. 984.)   In contrast, an award rendered pursuant to an arbitration under the MFAA is generally nonbinding, and either party may seek a trial de novo unless the parties have agreed the arbitration will be binding.  (Bus. & Prof.Code, § 6204, subd. (a);  see Aguilar, at p. 985;  Schatz, supra, 45 Cal.4th at p. 565.)   Notably, until it was amended in 1996, the MFAA provided simply “[t]he parties may agree in writing to be bound by the award of the arbitrators․”  (Former Bus. & Prof.Code, § 6204, subd. (a), Stats.1992, ch. 1265, § 6, pp. 6021–6022.)   The 1996 amendment added the language “at any time after the dispute over fees, costs, or both, has arisen” (Stats.1996, ch. 1104, § 16, p. 7914)—a prerequisite to binding arbitration under the MFAA that remains part of Business and Professions Code section 6204, subdivision (a).  (See Aguilar, at p. 988.)

In Aguilar, supra, 32 Cal.4th 974 the Supreme Court held the parties' preexisting contractual agreement to arbitrate was enforceable against a client under the CAA once the client had waived his or her right to proceed under the MFAA by suing the lawyer for malpractice:  “If the client chooses to arbitrate ‘under this article’ (i.e., pursuant to the MFAA), the client has the right to do so whether or not the parties had also executed an arbitration agreement.   If the client fails to invoke his or her rights under the MFAA, such rights are waived entirely and, as here, the preexisting arbitration agreement is enforceable against the client, with no residual MFAA protections standing as an obstacle.”  (Id. at p. 989.)   In Schatz, supra, 45 Cal.4th 557, the Court held the MFAA does not limit the ability of attorneys and clients to enter into binding contractual arbitration and the MFAA's right to a trial de novo was not intended to override a contractual obligation to arbitrate disputes pursuant to the CAA. (Id. at p. 562.)   That is, “unless the parties agree to be bound by the MFAA arbitration, and thus to end the dispute then and there, the case may, following MFAA arbitration, proceed by normal means․  [T]hose normal means may include not only court litigation, but ‘other proceedings' such as binding arbitration pursuant to a predispute agreement between the parties.”  (Id. at p. 572.)

3. The DRS Arbitration Rules

The DRS Arbitration Rules implement the MFAA. Rule 4(a) defines “mandatory arbitration” as an arbitration initiated by the client to resolve a dispute about legal fees or reimbursable costs or both, and rule 4(b) expands that definition to include situations in which the client has signed a fee agreement that provides for arbitration “though the Business & Professions Code Section 6200 program to arbitrate.”   Rule 5 states “[v]oluntary arbitration requires written consent of both parties,” and includes within this category “[w]hen an attorney commences arbitration of charges by the attorney for professional services rendered or reimbursed costs, or both.”   The DRS Arbitration Rules contemplate no other type of arbitration—that is, no arbitration that does not fall within the definition of mandatory set forth in rule 4 or voluntary in rule 5. (See, e.g., DRS Rules of Arbitration, rule 36(b) [arbitration award should consist of a preliminary statement indicating whether the hearing was held pursuant to rule 4 for mandatory arbitration or rule 5 for voluntary arbitration].)

Rule 14 of the DRS Arbitration Rules describes the procedure for initiation of voluntary arbitration proceedings, including, as here, an arbitration commenced “by reason of a written demand pursuant to a prior written agreement to arbitrate under these Rules.”   Rule 6 of the DRS Arbitration Rules limits disputes subject to either voluntary or mandatory arbitration in accordance with the provisions of the MFAA. Thus, as specified in Business and Professions Code, sections 6200, subdivision (b)(2), a client may not seek affirmative relief against the attorney “based upon alleged malpractice or professional misconduct.”  (DRS Arbitration Rules, rule 6(a)(ii).)

Rule 7 of the DRS Arbitration Rules provides the rules govern both mandatory and voluntary arbitration “except as specifically provided otherwise.”   Rule 39, applicable to both mandatory and voluntary arbitrations, permits the parties to agree that the arbitration shall be binding, but expressly states, “The parties may agree to be bound only after the dispute has arisen.”  (DRS Arbitration Rules, rule 39(c);  see also id., rule 39(b) [“[a]t any time prior to the actual taking of evidence at the hearing, the parties may agree in writing to be bound by the award”].)   This aspect of the DRS Arbitration Rules is reinforced by the information cover sheet to the DRS attorney-client petition for arbitration, which advises, “In an arbitration filed by an attorney, the program cannot enforce a ‘binding clause’ in a retainer agreement.   Under Business & Professions Code 6204(a), the parties may agree in writing to binding arbitration after the dispute arises.   We will close the file if we do not receive written consent from both parties in a voluntary arbitration.”  (Italics and underscoring in original.)

4. The Arbitration Agreement Was Not Subject to Revocation Based on Unilateral Mistake

At the threshold Singh argues, as he did in the superior court, he was entitled to revoke or rescind the arbitration agreement pursuant to Code of Civil Procedure section 1281.2, subdivision (b), and thus to have the arbitration award vacated, based on unilateral mistake.   Although he signed the July 15, 2005 retainer agreement, Singh insists he was unaware it contained an arbitration provision and contends neither Benezra nor any other lawyer from the Weissmann firm discussed or explained the provision to him.

Singh properly raised this argument, as the Weissmann firm now concedes.   (See National Marble Co. v. Bricklayers & Allied Craftsmen (1986) 184 Cal.App.3d 1057, 1064[“[w]here an arbitration proceeds under a self-executing agreement without a preliminary court order, the objecting party is required to participate in the proceeding and then raise his objections by petition to vacate the award [citation] or by opposition to a petition to confirm”];  Mitchum, Jones & Templeton, Inc. v. Chronis (1977) 72 Cal.App.3d 596, 600–601.)   Nonetheless, it lacks merit.  “A cardinal rule of contract law is that a party's failure to read a contract, or to carefully read a contract, before signing it is no defense to the contract's enforcement.”  (Desert Outdoor Advertising v. Superior Court (2011) 196 Cal.App.4th 866, 872;  accord, Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 710 [“one who assents to a contract is bound by its provisions and cannot complain of unfamiliarity with the language of the instrument”].)

This elementary principle of contract law is not vitiated because the retainer agreement was not given to Singh until at least one week after he first contacted the Weissmann firm for legal advice and not signed by him for yet another week.   It is true, as Singh contends, that he had already established an attorney-client relationship with the Weissmann firm by July 26, 2005 when he signed the agreement.  (See, e.g., People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems (1999) 20 Cal.4th 1135, 1148 [“ ‘ “[w]hen a party seeking legal advice consults an attorney at law and secures that advice, the relation of attorney and client is established prima facie ” ’ ”].)   Although that relationship created fiduciary obligations and ethical responsibilities for the Weissmann firm toward Singh in other contexts (ibid.), absent exceptional circumstances not present here, a lawyer has no duty to call attention to or explain the terms of the agreement by which the member is retained.  (See Desert Outdoor Advertising v. Superior Court, supra, 196 Cal.App.4th at pp. 873–874;  Ramirez v. Sturdevant (1994) 21 Cal.App.4th 904, 913[“[I]n general, the negotiation of a fee agreement is an arm's-length transaction.  [Citations.]  [The lawyer] accordingly was entitled to negotiate the terms on which he would accept employment as he wished, and absent issues of duress, unconscionability, or the like, [the client] had no cause to complain that the terms [the lawyer] negotiated were favorable to him.”];   see generally Fletcher v. Davis (2004) 33 Cal.4th 61, 70;  Discussion, 23 pt.   5 West's Ann.Codes, Court Rules (2008 ed.)  Rules Prof. Conduct, foll. rule 3–300, p. 804.)   Thus, in the absence of duress or fraud, “[a]n attorney may ethically, and without conflict of interest, include in an initial retainer agreement with a client a provision requiring the arbitration of both fee disputes and legal malpractice claims.”  (Powers v. Dickson, Carlson & Campillo (1997) 54 Cal.App.4th 1102, 1109.)

Here, the arbitration provision was not buried in a lengthy or technical contract (the retainer agreement was only two and one-half pages long, plus a signature page).   It was set forth in a separate, succinct (three-sentence) paragraph, in large, easily readable type, underneath the heading, “Binding Arbitration,” which was presented in boldface and underlined.   Singh was not required to sign the retainer agreement when it was first presented to him;  he took it home and returned it together with an initial retainer check nearly two weeks after his initial meeting with the Weissmann firm.   There simply are no indicia of duress, unconscionability or any other similar grounds upon which the arbitration agreement in the parties' retainer agreement can successfully be changed.  (Cf. Roman v. Superior Court, supra, 172 Cal.App.4th at pp. 1470–1471.) 6

5. The Binding Arbitration Provision in the Weissmann Firm's Retainer Agreement Is Unenforceable as Written

As drafted, the arbitration provision in the Weissmann firm's retainer agreement mandates “binding” arbitration “pursuant to” the DRS Arbitration Rules.   However, those rules, expressly incorporated into the parties' agreement, do not permit a law firm to require a client to submit to binding arbitration to resolve a fee dispute before the dispute arises.   Rule 39(a) of the DRS Arbitration Rules states, “If both parties agree in writing the arbitration shall be binding, no appeal from the award is allowed except that provided for by [Code of Civil Procedure section 1285 et seq.].” But Rule 39(c) limits the parties' ability to require binding arbitration to post-dispute agreements:  “The parties may agree to be bound only after the dispute has arisen.”  (See also Bus. & Prof.Code, § 6204, subd. (a).)  Thus, binding arbitration pursuant to the DRS Arbitration Rules, like the MFAA itself, would have required a post-dispute agreement by Singh that never occurred.

Our colleagues in Division Two of the First Appellate District recently considered a nearly identical situation (albeit in a different procedural posture) involving a fee agreement requiring binding arbitration pursuant to the rules of The Bar Association of San Francisco (BASF).   The arbitration clause provided “ ‘[a]ny dispute pertaining to the fees owed under this agreement ․ shall, to the extent permitted by law, be submitted to binding arbitration pursuant to the rules of the Bar Association of San Francisco, and shall take place in San Francisco.’ ”  (Benjamin, Weill & Mazer v. Kors (2011) 195 Cal.App.4th 40, 46.)   Yet under the BASF Rules of Procedure, Attorney/Client Fee Disputes, Arbitration and Mediation, as well as the MFAA, “a law firm cannot require a client to submit to binding arbitration to resolve a fee dispute before the dispute arises, as was done in this case.”   (Benjamin, Weill & Mazer, at pp. 46–47.)   The Court of Appeal explained, “While the duty to arbitrate imposed by this provision is enforceable under the CAA [citation], and was enforced by the trial court under that act, the arbitration process it mandates is not that contemplated by the CAA, but the different process prescribed by bar association rules promulgated under the [MFAA].” (Benjamin, Weill & Mazer, at p. 46.)   Accordingly, the court held, “The provision of the fee agreement requiring binding arbitration under BASF Rules is ‘void and unenforceable’ under those rules.”  (Id. at p. 56.)   We concur with that analysis.

Under Aguilar, supra, 32 Cal.4th 974 and Schatz, supra, 45 Cal.4th 557 Singh and the Weissmann firm could have agreed to binding arbitration of fee disputes under the CAA. That agreement would have been enforceable whether or not Singh requested and received nonbinding arbitration under the MFAA. But that is not what happened.   Rather, Singh and the Weissmann firm purported to agree to arbitrate their dispute under the specific rules of the DRS—rules that do not allow a predispute agreement to binding arbitration.   Although, for the most part, parties are entitled to specify the rules that will govern their arbitration (see Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1352 [“ ‘[P]arties are generally free to structure their arbitration agreements as they see fit.   Just as they may limit by contract the issues which they will arbitrate [citation], so too may they specify by contract the rules under which that arbitration will be conducted.’ ”] ), in this case Singh and the Weissmann firm created an unenforceable contractual provision for binding arbitration.  (See Benjamin, Weill & Mazer v. Kors, supra, 195 Cal.App.4th at p. 56.)

The Weissmann firm's contrary contention that the DRS Arbitration Rules do authorize binding arbitration under a predispute agreement, as here, rests on a fundamental misreading of those rules.   To be sure, as the Weissmann firm observes, Rule 14(a), governing the initiation of voluntary arbitration proceedings, provides parties to an existing dispute may commence a voluntary arbitration under the DRS Arbitration Rules “by demanding arbitration in writing after having agreed by written contract, in advance of any dispute, to submit disputes under the contract to arbitration pursuant to these Rules.”   Prior to 1997 MFAA arbitration was always voluntary for the client.   In 1996 the Legislature amended Business and Professions Code section 6200, subdivision (c), to specify that the client could be compelled to participate in nonbinding MFAA arbitration if the client had “agreed in writing” to do so in a retainer or other predispute agreement.  (Stats.1996, ch. 1104, § 16, p. 7914.) 7  Rule 14(a) implements the Legislature's directive allowing the parties to agree in a retainer agreement to mandatory, nonbinding fee arbitration under the MFAA;  it does not supersede or render meaningless Rule 39(c)'s requirement of a post-dispute agreement for the arbitration to be binding.

Nor is the issue one of the adequacy of notice of the binding nature of the arbitration proceedings the Weissmann firm had initiated or Singh's purported forfeiture of any right to a trial de novo following nonbinding arbitration under the MFAA, as the Weissmann firm asserts.   We agree Singh's delayed response to the October 1, 2009 notice from arbitrator Matthias that the matter would proceed as a binding arbitration contributed to the procedural muddle we now confront.8  Nonetheless, arbitration “ ‘is a matter of consent, not coercion.’ ”  (Cable Connection, Inc. v. DIRECTV, Inc., supra, 44 Cal.4th at p. 1352;  accord, Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 323 [arbitration is a matter of agreement between the parties and is limited to the scope of their agreement];  see Mossman v. City of Oakdale (2009) 170 Cal.App.4th 83, 89[“[c]ontractual arbitration is a voluntary process by which parties agree to submit their dispute to an impartial third party”].)   Absent an enforceable agreement for binding arbitration, the arbitrator necessarily exceeded his powers (Code Civ. Proc., § 1288.2, subd. (a)(4);  see Mossman, at p. 89 [arbitrator cannot exceed authority granted him or her] );  and the arbitration award should have been vacated.

6. On Remand the Unlawful Provision of the Arbitration Clause May Be Severed, and the Remainder of the Clause Enforced

“Where a contract has several distinct objects, of which one at least is lawful, and one at least is unlawful, in whole or in part, the contract is void as to the latter and valid as to the rest.”  (Civ.Code, § 1599.)  “As a general rule, if the central purpose of the contract is ‘permeated’ or ‘tainted’ with unconscionability or illegality then the contract as a whole cannot be enforced.   If, on the other hand, the unconscionability or illegality is collateral to the main purpose of the contract, and the offending provisions can be excised from the contract by means of severance or limitation, then the remainder of the contract can be enforced.”  (Mercuro v. Superior Court, supra, 96 Cal.App.4th at pp. 184–185.)   In determining whether to sever or restrict illegal terms rather than voiding the entire contract, “[t]he overarching inquiry is whether ‘ “the interests of justice ․ would be furthered” ’ by severance.”  (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 124;  accord, Marathon Entertainment, Inc. v. Blasi (2008) 42 Cal.4th 974, 996.)

As discussed, a predispute agreement for binding arbitration of any future fee disagreement is enforceable under the CAA. That object is distinct from that of the provision in the Weissmann firm's retainer agreement submitting such a dispute to the arbitration process prescribed by the DRS Arbitration Rules, which is invalid.  (See Benjamin, Weill & Mazer v. Kors, supra, 195 Cal.App.4th at p. 59.)   Had the Weissmann firm sought a court order pursuant to Code of Civil Procedure section 1281.2 to compel binding arbitration after Singh failed to invoke his right to nonbinding arbitration under the MFAA, the court could have severed the requirement for arbitration under the DRS rules from the balance of the parties' arbitration agreement and ordered an arbitration under the CAA, which would have provided both Singh and the Weissmann firm with procedural ground rules different from those in MFAA/DRS arbitrations.9  As the Court

of Appeal held in Benjamin, Weill & Mazer, “[S]evering [the provision requiring arbitration under the local bar association's rules] from the agreement would not impose on either [law firm or client] any undeserved benefit or detriment.   Enforcement of the remainder of the clause, which requires binding arbitration of the parties' fee dispute, achieves the paramount purpose of their contractual relationship without condoning any ‘illegal scheme.’ ”  (Benjamin, Weill & Mazer, at p. 59.)

For the reasons explained, we reverse the judgment confirming the arbitration award and direct the superior court on remand to grant the petition to vacate the award pursuant to Code of Civil Procedure section 1286.2, subdivision (a)(4) [“[t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted”].)  Code of Civil Procedure section 1287 provides, if the arbitration award is vacated, the court may order a rehearing before a new hearing or, if vacated because the arbitrators exceeded their powers, a rehearing before the original arbitrators with the consent of the parties to the court proceeding.   Under the circumstances here, it appears appropriate on remand for the court to sever the unlawful provision requiring binding arbitration under the DRS Arbitration rules and to order a rehearing under the CAA.

DISPOSITION

The judgment confirming the arbitration award is reversed, and the matter remanded with directions to deny the petition to confirm the arbitration award, grant the petition to vacate the award and to conduct further proceedings not inconsistent with this opinion, including, if appropriate, an order requiring binding arbitration before either a new or the original arbitrator.   Each party is to bear his or its own costs on appeal.

We concur:

FOOTNOTES

FN1. The Weissmann firm used the California State Bar approved form entitled, “Notice of Client's Right To Arbitration,” as required by Rule 8(a) of the Rules for Conduct of Arbitration of Fee Disputes and Other Related Matters of the Los Angeles County Bar Association's Dispute Resolution Services..  FN1. The Weissmann firm used the California State Bar approved form entitled, “Notice of Client's Right To Arbitration,” as required by Rule 8(a) of the Rules for Conduct of Arbitration of Fee Disputes and Other Related Matters of the Los Angeles County Bar Association's Dispute Resolution Services.

FN2. DRS has been renamed the Center for Civic Mediation.   For clarity, we continue to refer to it as DRS, as do the parties..  FN2. DRS has been renamed the Center for Civic Mediation.   For clarity, we continue to refer to it as DRS, as do the parties.

FN3. This representation, set forth in an attachment to the petition for arbitration, as well as a September 14, 2009 letter to the DRS case coordinator, does not indicate whether the person who had assured the firm that binding arbitration was available through LACBA (apparently Sharron McLawyer, then director of attorney-client mediation and arbitration services of DRS) had been advised the parties' agreement to binding arbitration was predispute, rather than post-dispute..  FN3. This representation, set forth in an attachment to the petition for arbitration, as well as a September 14, 2009 letter to the DRS case coordinator, does not indicate whether the person who had assured the firm that binding arbitration was available through LACBA (apparently Sharron McLawyer, then director of attorney-client mediation and arbitration services of DRS) had been advised the parties' agreement to binding arbitration was predispute, rather than post-dispute.

FN4. The parties stipulated Matthias could serve as sole arbitrator, rather than use a three-arbitrator panel..  FN4. The parties stipulated Matthias could serve as sole arbitrator, rather than use a three-arbitrator panel.

FN5. The Supreme Court has explained that the MFAA was originally proposed by the Board of Governors of the State Bar of California in 1976 after it found that “disputes concerning legal fees were the most serious problem between members of the bar and the public.”  (Aguilar, supra, 32 Cal.4th at p. 983.).  FN5. The Supreme Court has explained that the MFAA was originally proposed by the Board of Governors of the State Bar of California in 1976 after it found that “disputes concerning legal fees were the most serious problem between members of the bar and the public.”  (Aguilar, supra, 32 Cal.4th at p. 983.)

FN6. Singh's further argument the arbitration agreement is too vague or ambiguous to enforce borders on the frivolous.   Although the provision authorizes an award of attorney fees in the event of “arbitration or litigation” arising from any dispute under the retainer agreement, given the clear language requiring all fee disputes to be submitted to arbitration, that sentence could not reasonably be understood to permit a judicial action to resolve a billing issue.  (See Powers v. Dickson, Carlson & Campillo, supra, 54 Cal.App.4th at pp. 1112–1113 [client could not have reasonably understood arbitration agreement to be limited to fee disputes;  court looks to ordinary meaning of language used to interpret intent and scope of arbitration provision].).  FN6. Singh's further argument the arbitration agreement is too vague or ambiguous to enforce borders on the frivolous.   Although the provision authorizes an award of attorney fees in the event of “arbitration or litigation” arising from any dispute under the retainer agreement, given the clear language requiring all fee disputes to be submitted to arbitration, that sentence could not reasonably be understood to permit a judicial action to resolve a billing issue.  (See Powers v. Dickson, Carlson & Campillo, supra, 54 Cal.App.4th at pp. 1112–1113 [client could not have reasonably understood arbitration agreement to be limited to fee disputes;  court looks to ordinary meaning of language used to interpret intent and scope of arbitration provision].)

FN7. Business and Professions Code section 6200, subdivision (c), provides, “Unless the client has agreed in writing to arbitration under this article of all disputes 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․”.  FN7. Business and Professions Code section 6200, subdivision (c), provides, “Unless the client has agreed in writing to arbitration under this article of all disputes 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․”

FN8. As discussed in section 4, above, because the arbitration proceeded under a self-executing agreement without a preliminary court order, Singh may properly raise his argument that the arbitration agreement is unenforceable by petition to vacate the award or opposition to a petition to confirm.  (National Marble Co. v. Bricklayers & Allied Craftsmen, supra, 184 Cal.App.3d at p. 1064.)   Moreover, as the court observed in Benjamin, Weill & Mazer v. Kors,supra, 195 Cal.App.4th 40, because the law firm drafted the retainer agreement, the firm, not the client, created the problem.  (See id. at pp. 56–57.).  FN8. As discussed in section 4, above, because the arbitration proceeded under a self-executing agreement without a preliminary court order, Singh may properly raise his argument that the arbitration agreement is unenforceable by petition to vacate the award or opposition to a petition to confirm.  (National Marble Co. v. Bricklayers & Allied Craftsmen, supra, 184 Cal.App.3d at p. 1064.)   Moreover, as the court observed in Benjamin, Weill & Mazer v. Kors,supra, 195 Cal.App.4th 40, because the law firm drafted the retainer agreement, the firm, not the client, created the problem.  (See id. at pp. 56–57.)

FN9. In response to Singh's contention it was improper for the Weissmann firm to initiate arbitration proceedings without first obtaining a court order compelling the arbitration, the firm correctly observes a petition to compel arbitration is not a prerequisite to the validity of a contractual arbitration proceeding:  “The statutory remedy to compel arbitration embodied in Code of Civil Procedure section 1281.2 was designed to afford a remedy where the parties did not provide for the contingency of refusal to comply with a request to arbitrate.  [Citations.]  ‘A written agreement to submit a controversy to arbitration is valid and enforceable [citation] and, if the arbitration clause is self-executing, a prior order to arbitrate under section 1281.2 is not necessary.’ ”  (National Marble Co. v. Bricklayers & Alled Craftsmen, supra, 184 Cal.App.3d at p. 1063, fn. omitted;  accord, Kustom Kraft Homes v. Leivenstein (1971) 14 Cal.App.3d 805, 810–811[”[a]n arbitration agreement may be self-executing and its provisions may obviate the need to resort to statutory procedure [to compel arbitration”].)   Although the arbitration agreement here was self-executing, because it contained the invalid provision purporting to require binding arbitration pursuant to the DRS Arbitration Rules, a court order severing the unlawful portion of the agreement and directing arbitration under the CAA was a necessary precondition to an enforceable arbitration award..  FN9. In response to Singh's contention it was improper for the Weissmann firm to initiate arbitration proceedings without first obtaining a court order compelling the arbitration, the firm correctly observes a petition to compel arbitration is not a prerequisite to the validity of a contractual arbitration proceeding:  “The statutory remedy to compel arbitration embodied in Code of Civil Procedure section 1281.2 was designed to afford a remedy where the parties did not provide for the contingency of refusal to comply with a request to arbitrate.  [Citations.]  ‘A written agreement to submit a controversy to arbitration is valid and enforceable [citation] and, if the arbitration clause is self-executing, a prior order to arbitrate under section 1281.2 is not necessary.’ ”  (National Marble Co. v. Bricklayers & Alled Craftsmen, supra, 184 Cal.App.3d at p. 1063, fn. omitted;  accord, Kustom Kraft Homes v. Leivenstein (1971) 14 Cal.App.3d 805, 810–811[”[a]n arbitration agreement may be self-executing and its provisions may obviate the need to resort to statutory procedure [to compel arbitration”].)   Although the arbitration agreement here was self-executing, because it contained the invalid provision purporting to require binding arbitration pursuant to the DRS Arbitration Rules, a court order severing the unlawful portion of the agreement and directing arbitration under the CAA was a necessary precondition to an enforceable arbitration award.

WOODS, J. ZELON, J.