In re Arter & Hadden, Llp, Bankruptcy No. 03-23293.

339 B.R. 445

In re ARTER & HADDEN, LLP, Debtor Marc P. Gertz, Chapter 7 Trustee, Plaintiff, v. Echo Rock Ventures, LLC, Defendant.

Bankruptcy No. 03-23293.

Adversary No. 05-1620.

United States Bankruptcy Court, N.D. Ohio, Eastern Division.

January 31, 2006.

COPYRIGHT MATERIAL OMITTED

Robert S. Bernstein, The Bernstein Law Firm, P.C., Pittsburgh, PA, Amy L. Good, Cleveland, OH, for trustee.

Susan de Resendiz, Mark S. Melickian, Gardner, Carton & Douglas LLP, Chicago, IL, Robert Scott Lawrence, Collette, Erickson, Farmer & O'Neill LLP, San Francisco, CA, for Defendant.

MEMORANDUM OF OPINION AND ORDER

RANDOLPH BAXTER, Chief Judge.

Before the Court is the defendant Echo Rock Ventures, LLC's ("Echo Rock") motion to dismiss or, alternatively, to stay action pending arbitration and grant related relief. Upon an examination of the parties' respective briefs and supporting documentation and conducting a hearing on the matter, the following findings of fact and conclusions of law are hereby rendered:

On September 10, 2002, attorneys from the Los Angeles, California office of Arter & Hadden, LLP (the "Debtor") agreed to perform legal services for Echo Rock, a California based company, regarding a worker's compensation claim. The Debtor later billed Echo Rock an amount that was allegedly greatly in excess of the amount originally quoted. Echo Rock disputed the billing amount with the Debtor, and later the Debtor's collection agency, and has not paid the disputed fees at this time.

An involuntary Chapter 7 petition was filed against the Debtor on October 6, 2003. On November 16, 2005, the Trustee commenced the above styled adversary proceeding, seeking to recover for the unpaid amounts billed to Echo Rock, which constitute property of the Debtor's estate.

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Although there is no express arbitration agreement between the parties, Echo Rock argues that California's Mandatory Fee Arbitration Act (the "MFAA") applies to this case. The MFAA was proposed by the Board of Governors of the State Bar of California to create a mechanism for arbitrating disputes over legal fees and costs. Aguilar v. Lerner, 32 Cal.4th 974, 983, 12 Cal.Rptr.3d 287, 88 P.3d 24 (Cal.2004). "[T]he obligation to arbitrate under the MFAA is based on a statutory directive and not the parties' agreement. Thus, a client may invoke the MFAA and proceed to arbitration despite the absence of any prior agreement to do so .... [W]hereas a client cannot be forced under the MFAA to arbitrate a dispute concerning legal fees, at the client's election an unwilling attorney can be forced to do so." Id. at 984, 12 Cal.Rptr.3d 287, 88 P.3d 24. An award rendered pursuant to an arbitration under the MFAA is nonbinding, unless otherwise agreed by the parties in writing. Id. The Board of Governors of the State Bar of California has been granted the authority to rule, establish, maintain, and administer a system and procedure for the Mandatory Fee Arbitration system, with the assistance of local bar associations. WEST'S ANN. CAL. Bus. & PROF.CODE §§ 6200(a), (d).

The Trustee argues that the Debtor is excluded by § 6200(b)(1) of the MFAA, which states that:

(b) This article shall not apply to any of the following:

(1) Disputes where a member of the State Bar of California is also admitted to practice in another jurisdiction or where an attorney is only admitted to practice in another jurisdiction, and he or she maintains no office in the State of California, and no material portion of the services were rendered in the State of California.

WEST'S ANN. CAL. Bus. & PROF.CODE § 6200(b). The Trustee interprets this section to exclude two groups of attorneys: 1) attorneys admitted to practice in California who are also admitted to practice in another jurisdiction, and 2) attorneys who are only admitted to practice in jurisdictions other than California, who maintain no office in California, and who performed no material portion of the services in question in California. The Trustee argues that since the Debtor employed individual attorneys licensed in various states, including California, they are not attorneys solely licensed in California, and are therefore excluded by the MFAA.

Echo Rock, however, offers a different interpretation of § 6200(b)(1), arguing that the two groups of attorneys addressed in the statute are: 1) attorneys admitted to practice in California who are also admitted to practice in another jurisdiction, and 2) attorneys who are only admitted to practice in jurisdictions other than California. Echo Rock argues that attorneys in both of these groups are excluded from the MFAA if they maintain no office in California, and render no material portion of the disputed services. Because the Debtor maintained offices in California, and the services were allegedly rendered in California, § 6200(b)(1) would not apply to the present dispute.

Therefore, the Court must determine whether the MFAA applies to attorneys who are admitted to practice in California and who are also licensed to practice in another jurisdiction, who maintain an office in California, and who render services in California that become the subject of dispute. No case law has been proffered or discovered which interprets § 6200(b)(1) in this regard.

A review of § 6200(b)(1), giving each word its ordinary and usual meaning, reveals that the statutory language can reasonably be interpreted to support both parties' positions. E.g., Coburn v. Sievert, 133 Cal.App.4th 1483, 1495, 35 Cal.Rptr.3d 596 (Cal.App.2005) ("The initial examination of the words and grammar of the statute may lead to the conclusion that the statutory language is ambiguous on its face. Ambiguous means `susceptible to more than one reasonable interpretation.'").

Where statutory language is ambiguous, California courts have looked to other sources, "such as context, the object in view, the evils to be remedied, the history of the times and of legislation upon the same subject, public policy and contemporaneous construction." E.g., MacIsaac v. Waste Management Collection and Recycling, Inc., 134 Cal.App.4th 1076, 1084, 36 Cal.Rptr.3d 650 (Cal.App.2005) (citations omitted); Bivens v. Gallery Corp., 134 Cal. App.4th 847, 859-60, 36 Cal.Rptr.3d 541 (Cal.App.2005) (citations omitted) ("However, the language is ambiguous, we may look to the history and background of the statute to ascertain legislative intent.' Such extrinsic evidence of the Legislature's intent, includes the ostensible `public policy, contemporaneous administrative construction, and the statutory scheme of which the statute is a part.'"). The legislative history reveals no discussion on the specific issue raised in this matter.

"The MFAA was enacted in 1974 following an earlier finding by the Board of Governors of the California State Bar that fee disputes constituted the most serious problem between attorneys and their clients. `The policy behind the mandatory fee arbitration statutes [was] ... to alleviate the disparity in bargaining power in attorney fee matters which favors the attorney by providing an effective, inexpensive remedy to a client which does not necessitate the hiring of a second attorney." Law Offices of Dixon R. Howell v. Valley, 129 Cal.App.4th 1076, 1086-87, 29 Cal.Rptr.3d 499 (Cal.App.2005) (citations omitted). Through the MFAA, the California legislature has expressed a "strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution." Aguilar, 32 Cal.4th at 983, 12 Cal.Rptr.3d 287, 88 P.3d 24.

After considering the purpose and operation of the MFAA, the Court finds that Echo Rock's interpretation of § 6200(b)(1) is the more reasoned view. The exception in § 6200(b)(1) prevents attorneys from being forced to adhere to the MFAA when the disputed fee arose out of services that were performed outside of California. For example, an attorney licensed in Ohio, who practices in Ohio, and who performed legal services in Ohio, would not be subject to the MFAA, merely because he or she has also been previously admitted to practice in California. Under the Trustee's interpretation, however, an attorney licensed in California, who maintains offices in California, and provides legal services in California, could permanently avoid the scope of the MFAA by gaining admission to practice in another state. It is obvious that such an attorney would otherwise be subject to the regulation of the State Bar of California. The MFAA provides a uniform process for the resolution of attorney-client fee disputes for legal services in California, and should not, interpreted in a manner that would make the availability of such a process contingent on the out-of-state licensing of the attorney.

Echo Rock's interpretation is also consistent with the statement of the Orange County Bar Association, which states on its website, "An attorney/client fee dispute can be arbitrated [through the Mandatory Fee Arbitration Program] if the attorney has an office in Orange County, or the majority of services were rendered in Orange County." OCBA-Fee Arbitration, http://www.ocbar.org/feearbitration .htm (last visited January 25, 2006); see also Naegele v. Albers, 355 F.Supp.2d 129, 141 (D.D.C.2005) (staying litigation in favor of arbitration under the California MFAA) ("Because the plaintiff is an attorney licensed to practice law in California and the events that gave rise to this fee dispute and the instant litigation also arose in California, the court stays the litigation of the attorney-client fee dispute pending the completion of arbitration in California.").

Lastly, the Trustee's arguments, as they related to him individually, are irrelevant. The Trustee is seeking to enforce the Debtor's rights, and therefore it is the applicability of the MFAA to the Debtor, and not to the Trustee, that is relevant. See Javitch v. First Union Securities, Inc., 315 F.3d 619, 624 (6th Cir.2003); Matter of Esco Mfg., Co., 33 F.3d 509,...