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April 24, 2008

Loeb v. Record (2008) 162 Cal.App.4th 431

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The Fifth District holds that a client cannot contest an award under the Mandatory Fee Arbitration Act (MFAA) by filing an objection to the attorney’s lien in the underlying litigation.  Under the MFAA an attorney cannot secure an award under the act without filing a proper petition to confirm an award.

David Edwards and his firm handled a personal injury lawsuit for Edwin Loeb pursuant to a written contingency fee agreement that granted Edwards a lien on proceeds from the case.  During the course of the litigation, Edwards and Loeb had a dispute and Edwards filed a motion to be relieved as counsel.  Shortly after the court granted the motion, the underlying defendant accepted an outstanding statutory offer to compromise for policy limits.  Edwards then filed a notice of his lien.  After the underlying defendant filed a motion demanding an order of satisfaction of judgment, the court ordered deposit of the settlement funds into superior court.

Edwards initiated arbitration in accordance with California’s Mandatory Fee Arbitration Act (MFAA).  The Notice of Arbitration described the way to object to an arbitration award, including the necessity of filing a lawsuit about the fees in the absence of a pending lawsuit.  The notice also described how a party could enforce the award including requesting that the court issue orders allowing a party to take property or money from the other party after obtaining a judgment confirming the arbitration award.

After the arbitrator awarded Edwards his one-third contingency fee, Loeb attempted to contest it by filing a motion in the personal injury action, mistakenly believing that prevented the arbitration award from becoming final.  Edwards filed a motion for disbursement based on the finality of the award, which was granted.

The MFAA is limited to attorney-client fee disputes and is distinct from the California Aribtration Act (CAA), which is a comprehensive statutory scheme regulating private arbitration.  However certain provisions of the CAA are incorporated into the MFAA.

The MFAA is voluntary for the client but mandatory for the attorney if commenced by the client.  The MFAA provisions concerning the finality of the arbitration award unique.  Typical arbitration awards are binding, but a MFAA arbitration award only becomes binding if it is not challenged by the proper procedure.  Challenge is by initiating a trial within 30 days after mailing of the notice of the award.

Loeb attempted to challenge the award by filing a motion in the personal injury case opposing Edwards’ lien.  The term “action pending” used in the MFAA refers to a lawsuit in which the parties include both the attorney and the client.  Although this requirement is not specifically stated in the statute, it must be implied because the court must have personal jurisdiction over both parties before it can hold a trial.  The personal injury action was not an action between Loeb and his attorneys and the notice of lien did not make Edwards a party.

Furthermore, an “action” is defined by the Code of Civil Procedure to mean “an ordinary proceeding … by which one party prosecutes another….” A “pending” action is measured from the time of its commencement until its final determination upon appeal or satisfaction of judgment.  Although the personal injury case qualified as an action, it was no longer pending when Loeb filed his objection to the lien because the time to appeal the judgment had expired.  Thus there was no “action pending” between Loeb and Edwards when Loeb filed his objection.

The trial court erred, however, in granting Edwards an order disbursing the funds from the personal injury action.  There was no case law or statutory support for the proposition that a binding arbitration award may be enforced before a petition for confirmation is filed and a judgment of confirmation entered.

Under the MFAA, if no action between the attorney and client is pending the parties must confirm the award pursuant to the procedures set forth in the CAA.  An arbitration award is equivalent to a written contract until it has been confirmed or vacated.  Thus, Edwards was required to file a petition to confirm the award setting forth the agreement to arbitrate, the names of the arbitrators, the arbitration award, and any written opinion of the arbitrators.  A response requesting modification of the award must set forth the grounds.  Only after a court confirms an arbitration award may it enter a civil judgment.

Edwards’ motion for partial disbursement of judgment or settlement proceeds filed in the personal injury action was not a petition to confirm the arbitration award because it did not confirm to the requirement of such a petition, nor did the order of the court following the motion conform to the requirements of an order confirming an arbitration award.  Thus the court’s order for partial disbursement had no more effect that the fee agreement itself.

A proper petition to confirm the arbitration award would have enabled Loeb to raise whatever valid grounds there were to justify invalidating the arbitration award.

The Court of Appeal remanded the case and advised that trial court should direct Edwards to return the parties to the positions they occupied prior to entry of the improper enforcement of the partial disbursement order.  The funds had to be disbursed to Loeb or Edwards had to make restitution to Loeb within 30 days of remittitur, absent Edwards’s filing of a proper petition to confirm the award.

Comment: In this case, the client’s unfamiliarity with the MFAA procedures worked to the attorney’s benefit in securing an award to his fees.  However, the court cannot relieve the attorney of following the proper procedures as well.

 

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