Judge: Christopher K. Lui, Case: 22STCV24567, Date: 2023-03-28 Tentative Ruling

Case Number: 22STCV24567    Hearing Date: March 28, 2023    Dept: 76

            Plaintiff client alleges that, as a result of the underlying litigation, Defendant attorneys took 50 percent of the damages award collected and all of the statutory fee award, thereby depriving Plaintiff of $1,750.355.48.

            Defendants move to compel arbitration and stay this action pending arbitration.

 TENTATIVE RULING

            The hearing on Defendants Ebby S. Bakhtiar, P.C. and Ebby S. Bakhtiar motion to compel arbitration is CONTINUED to May 5, 2023 at 8:30 a.m. Defendants are to submit evidence of a written liability insurance policy by April 14, 2023. Plaintiff may submit a supplemental opposition by April 26, 2023.

Motion To Compel Arbitration

Discussion

Existence of Agreement To Arbitrate

            Under California law, arbitration agreements are valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. (Blake v. Ecker (2001) 93 Cal.App.4th 728, 741 overruled on other grounds by Le Francois v. Goel (2005) 35 Cal.4^th 1094.) A party petitioning to compel arbitration has the burden of establishing the existence of a valid agreement to arbitrate and the party opposing the petition has the burden of proving, by a preponderance of the evidence, any fact necessary to its defense. (Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 356-57.)

On September 24, 2013, Plaintiff signed a fee agreement, attached as Exh. A to Saba Declaration.  As part of the  Fee Agreement, Plaintiff agreed to the following terms at ¶ 18 (the "arbitration provision"):

Should a dispute, controversy, or claim arise between CLIENT and

ATTORNEYS from, or in connection with, any terms, provision, condition, or other aspect of this Agreement or the breach thereof or any dispute between CLIENT and ATTORNEYS of any sort, including, but not limited to, any claim of attorney's fees, attorney malpractice, or payment of ATTORNEYS' costs, CLIENT and ATTORNEYS hereby agree to submit said dispute, controversy or claim to a single neutral arbitrator to decide such issues on demand by either CLIENT or ATTORNEYS following a mediation hearing, as described below. The arbitration demand shall be in writing and shall be personally served on the opposing party. Both sides will be entitled to discovery as if the matter were proceeding by a civil complaint filed. The arbitration hearing shall take place no later than 150 days from the date of demand by either CLIENT and ATTORNEYS. The arbitrator shall be jointly

chosen by CLIENT and ATTORNEYS. If CLIENT and ATTORNEYS

cannot agree upon an arbitrator, an arbitrator will be chosen pursuant to the Arbitration Act in the California Code of Civil Procedure. Unless otherwise agreed to by the parties, the arbitration hearing and pre-arbitration proceedings will be directed by the statutes in the Arbitration Act of the California Code of Civil Procedure. CLIENT further agrees, prior to initiating any arbitration, to demand mediation and to mediate any dispute with ATTORNEYS. CLIENT agrees that CLIENT and ATTORNEYS shall split the fees of the mediator, that the mediation hearing shall last no longer than four ( 4) hours, and that the mediator shall be a judge retired from either the Superior Courts of the State of California or the United States District Court. By executing this agreement and initialing this page herein below, CLIENT confirms that she has read and understands this provision and voluntarily agrees to both mediation and binding arbitration should any dispute arise with ATTORNEYS. This constitutes a waiver of the right to a jury trial of any such action. In doing so, CLIENT voluntarily gives up important Constitutional rights to trial by judge or jury, as well as rights to appeal. CLIENT is advised that she has the right to have independent counsel review this arbitration provision and this entire agreement prior to signing this agreement.

(Fee Agreement, ¶ 18; Exh. A to Saba Deel.)

           The Court addresses Plaintiff’s argument in the Opposition that Defendant failed to disclose the absence of any professional liability insurance under former Rule of Professional Conduct 3-410 (in force at the time Plaintiff retained Defendants) and thus the retainer agreement is unenforceable. Rule 3-410 provides as follows:

(A) A member who knows or should know that he or she does not

have professional liability insurance shall inform a client in writing,

at the time of the client’s engagement of the member, that the member

does not have professional liability insurance whenever it is

reasonably foreseeable that the total amount of the member’s legal

representation of the client in the matter will exceed four hours.

(B) If a member does not provide the notice required under paragraph

(A) at the time of a client’s engagement of the member, and the

member subsequently knows or should know that he or she no longer

has professional liability insurance during the representation of the

client, the member shall inform the client in writing within thirty days

of the date that the member knows or should know that he or she no

longer has professional liability insurance.

           A violation of former Rule 3-410 renders the retainer agreement unenforceable:

Former rule 3-410 required an uninsured attorney to disclose to the client at the time of engagement that the attorney lacks professional liability insurance; the obligation is placed squarely on the shoulders of the uninsured attorney. Thus, Waisbren was required to make that disclosure in writing at the outset of his representation of the class representatives. He admittedly did not inform the first two class representatives of that lack in their written retainer agreements. Miller was apparently unaware of Waisbren's lack of insurance at that time, since Waisbren asserts he only told Miller months later, sometime after the fee division agreement was reached. Consequently, Miller could not have made, or failed to make, [*689]  the required disclosure on behalf of Waisbren at the time Waisbren was engaged as counsel for Hance and Ribeiro. The disclosure to the clients also was not made in the consent to division of fees forms that Waisbren had each class representative sign. On these facts, we cannot say Waisbren was “less morally blameworthy” for the failure to comply with former rule 3-410 than Miller.

Further, there is an overriding public interest to be served by voiding the agreement. The purpose of the Rules of Professional Conduct is “‘to protect the public and to promote respect and confidence in the legal profession.’” (Scolinos, supra, 37 Cal.App.4th at p. 639.) Uninsured attorneys would have an incentive to fail to disclose the lack of insurance to their clients, if they were permitted to benefit from an uninformed consent to representation and fee division. Enforcing the agreement would appear to elevate the interests of the attorney above the interests of the client. It would also give the appearance of condoning a violation of the Rules of Professional Conduct, which would adversely affect the public's confidence in the commitment of the legal profession to ethical conduct by its members. Thus, the circumstances of this case do not warrant application of the in pari delicto exception.

We conclude the trial court abused its discretion by enforcing the fee division agreement, when the undisputed facts showed a clear violation of former rule 3-410, which rendered the agreement unenforceable.

(Hance v. Super Store Indus. (2020) 44 Cal.App.5th 676, 688-89.)

            Defendants’ argument that Plaintiff is barred by the statute of limitations set forth in Code Civ. Proc., § 340.6 from claiming the retainer agreement is unenforceable is without merit. The statute of limitations does not apply to an affirmative defense against a contract claim:

Stevens insists the Court of Appeal's holding contravenes the clear rule that statutes of limitations do not apply to defenses. We agree. Under well-established authority, a defense may be raised at any time, even if the matter alleged would be barred by a statute of limitations if asserted as the basis for affirmative relief. The rule applies in particular to contract actions. One sued on a contract may urge defenses that render the contract unenforceable, even if the same matters, alleged as grounds for restitution after  [*52]  rescission, would be untimely. (Citations omitted.)

(Styne v. Stevens (2001) 26 Cal.4th 42, 51-52.) 

            Here, Plaintiff is asserting the unenforceability of the retainer agreement due to the violation of former Rule 3-410 as a defense to enforcement of the arbitration clause[1] in the retainer agreement. As such, Plaintiff is not barred by the statute of limitations from asserting this defense.

            Thus, because the written retainer agreement did not disclose in writing to Plaintiff that Defendants lacked professional liability insurance, Defendants mut provide proof that they in fact had professional liability insurance at that time, such that a disclosure was not required under Rule 3-410.

The hearing will be continued to permit Defendants an opportunity to produce evidence of such professional liability insurance coverage at the time the written retainer agreement was entered into. To be clear, this means evidence of a written policy in effect at that time. Defendants’ failure to produce such evidence will lead to the inference that no such insurance coverage existed at the time. In that case, the Court will find the retainer agreement, including the arbitration clause contained therein, unenforceable.

“If weaker and less satisfactory evidence is offered when it was within the power of the party to produce stronger and more satisfactory evidence, the evidence offered should be viewed with distrust.” (Evid. Code § 412.)

In determining what inferences to draw from the evidence or facts in the case against a party, the trier of fact may consider, among other things, the party’s failure to explain or to deny by his testimony such evidence or facts in the case against him, or his willful suppression of evidence relating thereto, if such be the case.

     (Evid. Code § 413.)

Evidence Code section 412 provides as follows: “If weaker and less satisfactory evidence is offered when it was within the power of the party to produce stronger and more satisfactory evidence, the evidence offered should be viewed with distrust.” “Section 412 only applies when it can be shown that a party is in fact in possession of or has access to better and stronger evidence than was presented.” (Citations omitted.)

(Orange Cty. Water Dist. v. Alcoa Glob. Fasteners, Inc. (2017) 12 Cal.App.5th 252, 362.)

            MCP-Los Angeles’ “failure to offer any evidence upon this issue, although production of such evidence was clearly within [its] power,  raises the inference that the evidence, if produced, would have been adverse to [it].” (Shehtanian v. Kenny (1958) 156 Cal.App.2d 576, 580.)

            The hearing on the motion to compel arbitration is CONTINUED to May 5, 2023 at 8:30 a.m. Defendants are to submit evidence of a written liability insurance policy by April 14, 2023. Plaintiff may submit a supplemental opposition by April 26, 2023.