Mcle Self-study Article California’s Mandatory Fee Arbitration Act Benefits Attorneys by Providing an Efficient Mechanism to Resolve Legal Fee Disputes

• Jurisdiction: California,United States
• Author: By Patrick M. Maloney
• Publication year: 2014
• Citation: Vol. 35 No. 3

MCLE Self-Study Article California’s Mandatory Fee Arbitration Act Benefits Attorneys by Providing an Efficient Mechanism to Resolve Legal Fee Disputes

By Patrick M. Maloney

This article is posted in our self-study catalog HERE.

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Faced with a client request to submit a legal fee dispute to arbitration under the Mandatory Fee Arbitration Act (“MFAA”), California Business Professions Code §§ 6200-6206, many attorneys simply assume the non-binding arbitration process will be a pointless exercise, only delaying the recovery of their hard earned fees. Dismissing the mandatory fee arbitration process as a waste of time overlooks the many benefits of arbitrating fee disputes under the MFAA. The MFAA benefits lawyers and clients alike by providing an expedited and cost-effective means to resolve legal fee disputes.

Benefits of MFAA Arbitration

Attorneys enjoy several benefits in arbitrations conducted under the MFAA, which are often administered through local bar associations. To start, the process moves quickly. The Los Angeles County Bar, for example, sets relatively short deadlines for the arbitrators to schedule and hold the hearing and issue an award, with each step taking a matter of weeks. Thus, the fee dispute can be resolved in months, rather than years, as is now common in California’s Superior Courts.

The MFAA does not allow clients to obtain redress for legal malpractice in an MFAA arbitration, though attorney negligence may be asserted by the client to reduce the fees owed to counsel.¹ Thus, when a client requests fee arbitration, a lawyer may avoid facing a legal malpractice claim filed by the client for purely defensive purposes. And, in the event the MFAA arbitration panel finds the attorney’s services were substandard, those findings are not res judicata or collateral estoppel in future proceedings.²

Similarly, in a MFAA fee arbitration, the fact finders are lawyers, who bring to the hearing a greater understanding of the issues faced by their colleagues. A single attorney arbitrator decides disputes under $25,000.³ Where the dispute exceeds $25,000, the panels generally include two attorneys and one lay member.⁴

Finally, though awards issued in MFAA arbitrations are initially non-binding, that does not mean the awards lack teeth. The attorney and client each have thirty calendar days to reject the award.⁵ If neither does, the award becomes final and binding, and it may then be confirmed as a judgment. On the other hand, if either party rejects the award and requests a trial de novo, he or she is exposed to paying the other side’s legal fees in the subsequent proceedings, if he or she does not achieve a better result than obtained in the MFAA arbitration.⁶

An Attorney Must Provide the Client with Notice of Client’s Right to Fee Arbitration When Initiating Any Legal Fee Dispute

The first step in initiating any fee dispute with a client is to provide the client with Notice of the Client’s Right to Fee Arbitration.⁷ This notice explains to the client of the right to proceed in fee arbitration under the MFAA. When providing such notice to the client, the lawyer must use the form approved by the California State Bar, available on both the state and local bar association websites. Using the correct, up to date form ensures all of the required language is included and prevents later disputes concerning whether proper notice was provided.

The required notice may be issued only after an actual dispute over fees has arisen.⁸ Under the MFAA, the attorney is required to provide the notice of the right to arbitration either prior to or at the time of serving the Summons and Complaint (or if the retainer agreement allows, before or at the time of demanding a traditional binding arbitration).⁹

Fee arbitration under the MFAA is voluntary for the client, but mandatory for the lawyer. In other words, if a client desires to proceed with an MFAA arbitration, the lawyer must participate. If a client elects arbitration under the MFAA, any formal proceeding initiated by the attorney for the recovery of fees is stayed pending the resolution of the MFAA fee arbitration.¹⁰ The client, however, waives non-binding arbitration under the MFAA if he or she fails to request MFAA arbitration before filing responsive pleadings or by filing suit against the attorney, including a legal malpractice action.¹¹

Clients have an incentive to participate in MFAA arbitration when the action in which their former attorney represented the client is ongoing. Under the MFAA, the waiver of the attorney-client privilege and work product rule that usually accompanies a dispute between an attorney and a client shall not “be deemed a waiver of the confidential character of such...