Brown & Charbonneau, LLP v. Mahaffey

MOORE

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Super. Ct. No. 30-2009-00300127)

OPINION

Appeal from an order of the Superior Court of Orange County, Linda Shelton, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Reversed.

Law Offices of David J. Harter, David J. Harter and Gregory G. Brown for Plaintiffs and Appellants.

Douglas L. Mahaffey, in pro. per.; Mahaffey & Associates and Douglas L. Mahaffey for Defendants and Respondents.

An arbitration award for unpaid attorney fees and costs was rendered in favor of Brown & Charbonneau, LLP (Brown) and On Trial, LLC (On Trial) and against Douglas L. Mahaffey and Mahaffey & Associates. Douglas L. Mahaffey and Mahaffey & Associates had failed to file a counterclaim seeking affirmative relief in the arbitration proceedings, but nonetheless sought to raise an affirmative claim of malpractice against Brown and Attorney Gregory Brown during the arbitration hearing. The arbitrator declined to consider the affirmative claim. As a separate matter, he also concluded that Douglas L. Mahaffey and Mahaffey & Associates had waived any challenge to the reasonableness of the unpaid fees and costs.

The trial court vacated the arbitration award and Brown and On Trial appeal. The trial court erred in its conclusion that the arbitrator should have considered the affirmative claim of malpractice and in its application of Code of Civil Procedure section 1286.2, subdivision (a)(5). We reverse.

I
FACTS

Under separate contracts pertaining to different litigation matters, Douglas L. Mahaffey and/or Mahaffey & Associates (collectively Mahaffey) hired Brown and/or On Trial to perform certain litigation related services. The contracts contained arbitration clauses.

On July 29, 2008, Brown and On Trial made a demand for arbitration to Mahaffey (Arbitration Proceedings) with respect to unpaid fees and costs incurred in connection with several lawsuits. One of those lawsuits was Petrik v. Mahaffey & Associates (Petrik Action), in which Brown represented Mahaffey and obtained a favorable result at trial, as Mahaffey himself concedes. Under Judicial Arbitration and Mediation Services (JAMS) rule 9, Mahaffey had the opportunity to file any counterclaims in the Arbitration Proceedings. However, he filed none. The arbitration of the claims of Brown and On Trial was scheduled to take place in May 2009.

Despite the fact that he had filed no counterclaim in the Arbitration Proceedings, Mahaffey, on March 13, 2009, filed a complaint for legal malpractice and breach of contract against Brown (Mahaffey v. Brown & Charbonneau, Super. Ct. Orange County, No. 30-2009-00120015) (Malpractice Action). The complaint arose out of the provision of legal services by Brown to Mahaffey with respect to the Petrik Action.

A month later, arbitrator Alexander S. Polsky ruled, in the Arbitration Proceedings: "[Mahaffey] has asserted it/he is unable to post fees. Pursuant to the applicable JAMS rules, [Brown] may post the fees. [Mahaffey] may appear and defend the action but will be precluded from presenting any affirmative claims." About three weeks after that, Mahaffey filed, in the Malpractice Action, an ex parte application for an order staying the Arbitration Proceedings and consolidating the Arbitration Proceedings with the Malpractice Action.

In his May 21, 2009 closing brief filed in the Arbitration Proceedings, Mahaffey argued at length that he was entitled to over $1 million in deductions with respect to the billings on the Petrik Action. His argument took up at least five pages of the body of his brief and was supported by numerous exhibits, calculations and billing summaries.

In a June 4, 2009 minute order entered in the Malpractice Action, the court, by Judge James J. Di Cesare, denied Mahaffey's application for a stay of the Arbitration Proceedings. The order stated: "It appears that the claims raised in this action are compulsory cross claims that should have [been] raised in the arbitration. CCP [§] 426.30. Also the malpractice claim asserted in this action appears covered by the arbitration agreement, as it specifically identified malpractice as an arbitratable claim. . . . Brown . . . seeks to recover their fees and costs in the arbitration and Mahaffey is claiming here that he should not have to pay the fees claimed by Brown . . . or should get an offset because of the malpractice of Brown . . . . Mahaffey claims in the complaint here that $250,000 of the attorney's fees were unnecessarily incurred. Lastly it appears that the arbitration has been completed except for the issuance of the ruling by the arbitrator, and to have waited to bring [this] action could be interpreted as a means to delay or circumvent the arbitration clause of the agreement."

The next day, the arbitrator issued an interim award. Fees were awarded in connection with most of the matters addressed, including the Petrik Action.

With respect to the Petrik Action, Brown had sought $322,452 in fees over and above those paid by an insurance company under a burning limits policy. Mahaffey had argued that he was entitled to a discount on the fees, that the fees charged were excessive, and that the insurance proceeds were exhausted prematurely. The arbitrator stated that Mahaffey had waived any challenge to the reasonableness of the billings by failing to timely dispute the billings as required under the terms of the retainer agreement and by being closely involved in the underlying litigation matters. The arbitrator also found that, given the close working relationship between Mahaffey and Brown, Mahaffey had failed to show that Brown's strategy, staff utilization or billing practices constituted a breach of fiduciary duty. In addition, he stated that Mahaffey was present at trial, observed the intensity and complexity of the proceedings, and did not offer legal support or assistance or instruct Brown to make any changes in personnel or staffing. Finally, the arbitrator stated that, because affirmative claims had been barred, Mahaffey's claim that Brown had "committed malpractice through mismanagement of the file resulting in unnecessary depletion of the policy through over-litigation" had not been considered.

In the final arbitration award, dated August 21, 2009, the arbitrator awarded Brown a total of $451,796.38 with respect to the Petrik Action and $56,851.88 with respect to a different matter, and awarded On Trial $28,045 with respect to various matters.

Brown and On Trial filed a petition to confirm the arbitration award. Mahaffey filed a response requesting the vacation of the arbitration award. On January 29, 2010, the court granted the request to vacate. Brown and On Trial filed a notice of appeal.

II
DISCUSSION
A. Requests for Judicial Notice:

On September 28, 2010, Brown and On Trial filed a request that this court take judicial notice of an order filed May 25, 2010 in the Malpractice Action and a notice of ruling filed August 2, 2010 in the case underlying this appeal (Arbitration Case). By order of September 29, 2010, this court denied the request without prejudice. By order of August 9, 2011, this court notified the parties that it was, on its own motion, considering taking judicial notice of the documents attached to the September 28, 2010 request and gave the parties an opportunity to object. (Evid. Code, §§ 452, subd. (d), 459.) No party having objected, we hereby take notice of the documents.

On April 13, 2011, Brown and On Trial filed another request for judicial notice. They requested that we take notice of Mahaffey's motion for attorney fees filed in the Arbitration Case after the notice of appeal was filed. We grant the request. (Evid. Code, § 452, subd. (d).)

B. Appealability:

Code of Civil Procedure section 1294 provides in pertinent part: "An aggrieved party may appeal from: [¶] . . . [¶] (b) An order dismissing a petition to confirm, correct or vacate an award. [¶] (c) An order vacating an award unless a rehearing in arbitration is ordered." When the trial court vacates an arbitration award and does not order a rehearing, an appeal may be taken. (Jordan v. Department of Motor Vehicles (2002) 100 Cal.App.4th 431, 442, fn. 1.)

Here, the court denied the petition to confirm the arbitration award and granted the request to vacate the arbitration award. The order said nothing about a rehearing in arbitration. Consequently, the order as entered on January 29, 2010, was appealable and the appeal taken on April 6, 2010 was proper. (Code Civ. Proc., § 1294, subd. (c).)

On May 25, 2010, the court in the Malpractice Action took notice of the Arbitration Case as a related case. The court ordered the Arbitration Case removed from unassigned inventory and reassigned to Judge Di Cesare for all purposes, including trial.

A month or two later, the court heard Mahaffey's motion for attorneys fees in the Arbitration Case. The court denied the motion without prejudice. It stated: "On 01/29/10, the court vacated the arbitration award in favor of Brown . . . and no new award has yet been issued by an arbitrator to establish Mahaffey as prevailing party. [¶] . . . [¶] Lastly, there appears to be a dispute as to what was remanded back to be arbitrated as a result of the 01/29/10 and 5/12/10 court orders. To clarify the matter, the court here orders the matter remanded to the arbitrator for further proceedings addressing the grounds for vacating the award cited by the court in the 01/29/10 minute order; and after the appropriate time for new proceedings, the arbitrator is to issue a new award, determine who is [the] prevailing party, if any, and if appropriate under the facts and law, award fees to the prevailing party."

Brown and On Trial cite Code of Civil Procedure section 916, subdivision (a), which provides that, with certain exceptions, "the perfecting of an appeal stays proceedings in the trial court upon the judgment or order appealed from or upon the matters embraced therein or affected thereby, including enforcement of the judgment or order, but the trial court may proceed upon any other matter embraced in the action and not affected by the judgment or order." "'The purpose of the automatic stay rule is "to protect the appellate court's jurisdiction by preserving the status quo until the appeal is decided. The rule prevents the trial court from rendering an appeal futile by altering the appealed judgment or order by conducting other proceedings that may affect it."' [Citation.]" (Chapala Management Corp. v. Stanton (2010) 186 Cal.App.4th 1532, 1542.)

Since the ruling on the petition to confirm the arbitration award and the request to vacate the arbitration award was on appeal, the matter was stayed and the trial court was without authority to modify the January 29, 2010 order vacating the arbitration award so as to include a remand order. The remand order is without effect and this appeal shall proceed.

C. Merits:

(1) Introduction and standard of review—

"Arbitration awards are final and conclusive because the parties have agreed they should be so. [Citation.] 'This expectation of finality strongly informs the parties' choice of an arbitral forum over a judicial one. The arbitrator's decision should be the end, not the beginning, of the dispute. [Citation.]' [Citation.] To ensure the arbitration decision is final and conclusive, only limited judicial review is available. Courts may not review the merits of the controversy, the validity of the arbitrator's reasoning, or the sufficiency of the evidence. [Citation.] Indeed, an arbitrator's decision is not generally reviewable for errors of fact or law, even if the error appears on the face of the award and causes substantial injustice. [Citation.] '[A]n award reached by an arbitrator pursuant to a contractual agreement to arbitrate is not subject to judicial review except on the grounds set forth in [Code of Civil Procedure] sections 1286.2 (to vacate) and 1286.6 (for correction).' [Citation.]" (Jordan v. Department of Motor Vehicles, supra, 100 Cal.App.4th at p. 443.)

In this case, the trial court relied on Code of Civil Procedure section 1286.2, subdivision (a)(5) to vacate the arbitration award. Section 1286.2, subdivision (a)(5) provides that the court shall vacate the arbitration award if it determines "[t]he rights of the party were substantially prejudiced by the refusal of the arbitrators to postpone the hearing upon sufficient cause being shown therefor or by the refusal of the arbitrators to hear evidence material to the controversy . . . ." "In determining whether an arbitrator exceeded his powers, we review the trial court's decision de novo, but we must give substantial deference to the arbitrator's own assessment of his contractual authority. [Citations.]" (Jordan v. Department of Motor Vehicles, supra, 100 Cal.App.4th at pp. 443-444.)

(2) Analysis—

As the interim arbitration award made clear, Mahaffey's affirmative claims were barred. JAMS rule 31 as in effect at the time of the arbitration provides in pertinent part: "(a) Each Party shall pay its pro-rata share of JAMS fees and expenses as set forth in the JAMS fee schedule in effect at the time of the commencement of the Arbitration . . . . The non-payment of fees may result in an administrative suspension of the case . . . . (b) JAMS requires that the Parties deposit the fees and expenses for the Arbitration prior to the Hearing and may preclude a Party that has failed to deposit its pro-rata or agreed-upon share of the fees and expenses from offering evidence of any affirmative claim at the Hearing."

In accordance with JAMS rule 31, the arbitrator properly ruled, in advance of the arbitration hearing, that Mahaffey would be precluded from presenting any affirmative claims. The arbitrator need not have relied on this particular rule, however, inasmuch as JAMS rule 9 supported the same result. JAMS rule 9 permitted Mahaffey to file a counterclaim within 14 calendar days of service of Brown's notice of claim, but Mahaffey failed to file any counterclaim. Either way, the arbitrator properly declined to consider Mahaffey's affirmative claim that Brown had "committed malpractice through mismanagement of the file resulting in unnecessary depletion of the policy through over-litigation."

JAMS rules notwithstanding, in vacating the arbitration award, the court stated that Mahaffey's rights had been substantially prejudiced by the arbitrator's refusal to postpone the arbitration hearing until the appellate process was complete with respect to the Petrik Action and by the arbitrator's refusal to consider evidence supporting Mahaffey's affirmative claim of malpractice with respect to the Petrik Action. The court acknowledged that JAMS rule 31 permits the arbitrator to preclude evidence of a party's affirmative claims where the party has failed to pay his or her share of the arbitration fees and expenses. However, the court emphasized that rule 31 was permissive.

The court also cited JAMS rule 22(d). That rule provides in pertinent part: "The Arbitrator shall consider evidence that he or she finds relevant and material to the dispute, giving the evidence such weight as is appropriate. . . . The Arbitrator may limit testimony to exclude evidence that would be immaterial or unduly repetitive, provided that all Parties are afforded the opportunity to present material and relevant evidence." The court noted that rule 22(d) is mandatory. Therefore, it concluded, the arbitrator was required to permit Mahaffey to present all evidence relevant and material to the dispute, including all evidence pertaining to the malpractice claim arising out of the Petrik Action.

As the court acknowledged, Mahaffey was afforded the opportunity to present his evidence pertaining to the Petrik Action. As noted above, in his closing brief filed in the Arbitration Proceedings, Mahaffey provided lengthy argument concerning his entitlement to over $1 million in deductions with respect to the Petrik Action billings. He supported his argument with numerous exhibits, calculations and billing summaries.

According to the declaration of Attorney David J. Harter, filed in opposition to Mahaffey's request to vacate the arbitration award: "Evidence and testimony regarding B&C's claims of amounts due on the billings took no more than a few hours out of the three day arbitration. The majority of the remainder of the time in the arbitration was spent on Mahaffey's claims of how B&C mishandled the Petrik Action. The assertions presented included: B & C used inexperienced associates resulting in unnecessary billing; B & C should have attempted to compel some of the issues in the underlying matter to Arbitration, which would have reduced the litigation costs; B & C improperly opposed a Motion for Summary Adjudication by enclosing a redacted spreadsheet, which lead to unnecessary costs and Mahaffey and B & C entered into an alleged referral agreement."

This evidence would have been relevant to an affirmative claim of malpractice if one had been filed in the Arbitration Proceedings, but none was filed. The evidence also would have been relevant to Mahaffey's defense concerning the amount of fees owing to Brown, but became irrelevant once the arbitrator held that the defense had been waived. In short, the record reflects that the arbitrator did comply with JAMS rule 22(d). He permitted Mahaffey to present his evidence on excessive billing, but ultimately declined to consider the evidence as irrelevant given the fact that no affirmative claim of malpractice was at issue and the defense of excessive fees had been waived.

Mahaffey skirts the waiver issue. He does not claim the arbitrator erred in concluding that he waived the defense of excessive billings when he failed to challenge the billings within the time permitted under the terms of the retainer agreement. He also makes no comment with respect to the arbitrator's findings about the close working relationship between Mahaffey and Brown throughout trial. Instead, Mahaffey simply argues that Brown's strategic decision to label Mahaffey's claims as "affirmative claims" rather than "affirmative defenses," did not constitute a waiver of claims on Mahaffey's part. However, the arbitrator's waiver determinations were based on the retainer agreement and/or the working relationship between Mahaffey and Brown, not on the labels offered by Brown. Mahaffey has not shown that the arbitrator's determinations on these matters were erroneous.

Shifting gears, Mahaffey claims that his affirmative claim of malpractice, and the evidence supporting it, should have been considered because JAMS rule 31is unenforceable, inasmuch as it cannot be reconciled with JAMS rule 22(d). To the contrary, the two rules are easily reconciled. As we have said, rule 22(d) requires the arbitrator to consider evidence relevant to the dispute. When the dispute pending before the arbitrator does not include affirmative claims, then the arbitrator need not consider evidence pertaining to affirmative claims. As an aside, if the same evidence is relevant to an affirmative defense, the arbitrator may decline to consider that evidence when that defense has been waived.

Mahaffey also says the order vacating the award must be affirmed pursuant to Burlage v. Superior Court (2009) 178 Cal.App.4th 524 and Parada v. Superior Court (2009) 176 Cal.App.4th 1554. However, both of those cases are distinguishable. Neither one turned on the preclusion of evidence pertaining to affirmative claims, due to the nonpayment of arbitration fees. Mahaffey is correct that this court's opinion in Parada, unlike the decision in Burlage, did mention the JAMS rule allowing an arbitrator to preclude evidence pertaining to affirmative claims. (Parada v. Superior Court, supra, 176 Cal.App.4th at p. 1561.) However, the case did not address the enforceability of that rule per se. The case addressed the unconscionability of the arbitration provisions contained in certain agreements pertaining to precious metals investments. (Id. at p. 1560.) In Parada, we provided an extensive discussion of the law of unconscionability. (Id. at pp. 1567-1587.) Mahaffey does not address the many factors we discussed in that case and does not show why that case should be extended to hold JAMS rule 31 unconscionable in and of itself.

III
DISPOSITION

The order denying the petition to confirm the arbitration award and granting the request to vacate the arbitration award is reversed. The trial court is directed to enter a new and different order confirming the arbitration award. Brown & Charbonneau, LLP and On Trial, LLC shall recover their costs on appeal.

MOORE, ACTING P. J. WE CONCUR: ARONSON, J. IKOLA, J.