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November 4, 2003

Glassman v. McNab (2003) 112 Cal.App.4th 1593 (review denied 2/18/04)

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The Second District refuses to disturb an attorney fee arbitration award where the parties had conferred by stipulation jurisdiction on the arbitrators to determine an issue of subject matter jurisdiction: the existence of an attorney-client relationship.

Scirocco Partners buys secured real estate obligations at a discount and then attempts to collect their full value.  Scirocco purchased a note from TPM.  TPM, who was represented by Glassman, agreed to continue efforts to collect on the note.  Glassman thereafter made an appearance in bankruptcy proceedings on Scirocco’s behalf, and negotiated an agreement allowing Scirocco to foreclose, sell, or collect on the note.

Subsequently, TPM sued Scirocco without Glassman’s knowledge.  After settlement of that action, Scirocco’s attorney advised Glassman that Scirocco would assume handling of the note.  Glassman replied that Scirocco had asked Glassman to represent it on the note, and neither Scirocco’s attorney nor its officer, Cecil McNab, objected.  Subsequently Glassman wrote to Scirocco, requesting confirmation of his representation and payment of his accumulated fees.  Scirocco denied retaining Glassman, rejected his claim for fees, and independently reached a settlement in the bankruptcy proceeding.

Cecil McNab and Scirocco Partners submitted a petition for arbitration to the Los Angeles County Bar Association Dispute Resolution Services Inc.  (DRS) seeking mandatory binding arbitration of the attorney fee dispute.  Subsequently, the parties entered into a written stipulation for binding arbitration specifically including the issues of jurisdiction and attorney-client relationship.

The arbitrators interpreted the agreement to mean that the parties had not agreed that there was an attorney-client relationship, but that they had agreed to let the arbitrators reach a binding decision on this issue.  The panel decided that there was an attorney client relationship between Scirocco and Glassman and that Glassman was entitled to fees.  The trial court confirmed this award.

On appeal McNab and Scirocco argued that the arbitrators lacked subject matter jurisdiction over the issue of the existence of an attorney-client relationship.  Scirocco contended that under C.C.P.  § 1286.2 the award could be vacated because the arbitrators exceeded their powers.  This section allows the trial court to vacate a determination that an arbitrator has jurisdiction over an issue that is outside the scope of an arbitration agreement or governing statute.

Scirocco maintained that the statutory scheme for arbitration of attorney-client fee disputes, Business & Professions Code § 6200 et seq.  does not confer jurisdiction over the threshold issue of the existence of an attorney-client relationship nor was jurisdiction acquired by some other means.

The Court agreed that Business & Professions Code § 6200 does not confer jurisdiction to determine the existence of an attorney-client relationship.  Consent, waiver or estoppel cannot confer subject matter jurisdiction.

However, the parties had augmented the jurisdiction conferred by Business & Professions Code § 6200 et seq.  by stipulation.  The statutory scheme does not preclude agreements to authorize arbitrators to determine the existence of an attorney-client relationship.  The arbitrators properly understood the stipulation to confer jurisdiction on them to determine the existence of an attorney client relationship, while not assuming that Scirocco conceded that such a relationship existed.

The Court refused to consider Scirocco’s contentions that the arbitrators made legal and factual errors in determining that there was an attorney-client relationship.  A consideration of this would involve a direct attack on findings within the arbitrators’ authority, which is beyond the scope of the statutorily mandated limited review of arbitration awards.

Comment: Attorneys and clients should carefully consider the consequences of entering into binding agreements to arbitrate fee disputes since review of such awards, like all arbitration awards, is extremely limited.

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