When it comes to fee disputes, the best line of defense is always prevention. So it’s key to reach a clear understanding about fees with each prospective client before entering a representation agreement. But what should you do if a client refuses to pay what’s rightfully owed, even after efforts to resolve the matter amicably?
Before taking action against a client, familiarize yourself with the client’s rights, as well as your responsibilities, under the Mandatory Fee Arbitration Act (MFAA) (Bus & P C §§6200-6206).
Here are some basic facts about mandatory fee arbitration:
Fee arbitration is optional for the client, but mandatory for you. Under the MFAA, clients are entitled to fee arbitrations conducted by the State Bar of California. Although either party may request arbitration, the attorney must arbitrate if requested by the client. Bus & P C §6200(c).
If the client requests State Bar arbitration, the attorney must file a reply within 30 days after service of the request. Otherwise, arbitration will proceed as scheduled and a decision will be rendered based on the evidence presented. State Bar Rule 3.531, 3.543.
If requested by the attorney, however, the MFAA arbitration may proceed only if the client files a written consent within 30 days of service. State Bar Rule 3.530(B).
A private arbitration agreement doesn’t affect the client’s right to arbitrate under the MFAA. The right to arbitrate under the MFAA is unaffected by an agreement to submit to private arbitration. However, if the State Bar arbitration doesn’t resolve the matter, an arbitration agreement may be enforced over a party’s request for a new trial. Schatz v Allen, Matkins, Leck, Gamble & Mallory, LLP (2009) 45 C4th 557. Similarly, an unsuccessful request for nonbinding arbitration under the MFAA doesn’t waive a party’s right to enforce a private arbitration agreement. Benjamin, Weill & Mazer v Kors (2011) 195 CA4th 40.
The client is entitled to notice of the right to fee arbitration. Whenever the attorney seeks to initiate a fee collection proceeding other than mediation or arbitration under the MFAA, the attorney must notify the client in writing of the right to arbitrate under the Act. Bus & P C §6201(a). The notice must be sent at or before the time the attorney initiates any other proceeding (e.g., at or before the filing of summons). To avoid initiating a proceeding when the client may ultimately request arbitration, it’s advisable to notify the client before bringing suit.
Keep in mind that the notice requirement applies to all court actions, including those in small claims court, as well as to any other proceeding, such as private arbitration or collection through a collections agency. Bus & P C §6201(a). Failure to provide this notice is grounds for dismissal of the action or other proceeding. Bus & P C §6201(a).
If the client doesn’t request arbitration within 30 days of receiving the notice, the right to arbitrate will be waived. Bus & P C §6201(a).
The client can’t simultaneously request judicial resolution of the fee dispute or seek affirmative relief based on malpractice if he or she wishes to arbitrate under the MFAA. The client waives the right to arbitrate by filing any action seeking judicial resolution of a fee dispute that would otherwise be subject to the MFAA. Bus & P C §6201(d)(1). Similarly, the client may not seek affirmative relief for alleged malpractice or misconduct if requesting arbitration under the MFAA. Doing so would waive the right to arbitration. Bus & P C §6201(d)(2).
All other proceedings will be stayed when a client requests arbitration under the MFAA. When the client files and serves a timely request for arbitration, any pending court action or other proceeding is automatically stayed. Bus & P C §6201(c). If the client has already appeared in the proceeding, however, the client must notify the court of the State Bar arbitration. Cal Rules of Ct 3.650(a); State Bar Rule 3.511(A).
The time for filing a civil action will be tolled from the time an arbitration is initiated until the earlier of 30 days after receipt of the arbitration award or after receipt of notice that the arbitration has otherwise terminated. Bus & P C §6206.
Arbitration under the MFAA is non-binding. The arbitrator’s award is not binding, and either party is entitled to bring a civil action after the arbitration. The parties may agree in writing to be bound by the award, but only if the agreement was made after the fee dispute has arisen and before evidence is taken at the hearing. Bus & P C §6204(a); State Bar Rule 3.508.
If the retainer includes an agreement to arbitrate fee disputes under the CAA, however, then either party may enforce the right to private arbitration over a request for court action in challenging the MFAA award. Schatz v Allen, Matkins, Leck, Gamble & Mallory, LLP (2009) 45 C4th 557.
For more information on mandatory fee arbitration, including unique procedural issues before, during, and after the proceedings, check out CEB’s Civil Procedure Before Trial, chap 5. For related forms and sample letters, turn to CEB’s California Client Communications Manual: Sample Letters and Forms, chap 9.
Other CEBblogTM posts you may find useful:
- How to Get and Handle Retainer Fees
- Getting Your Fees Along the Way
- Splitting Fees? Get Client Approval ASAP
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