Some parties to a Mandatory Fee Arbitration fail to treat the proceedings with the proper amount of seriousness. A stern reminder to treat these proceedings with respect comes from California’s Second Appellate District in the form of the case Hooman Automotive Group, et al. v. Glaser Weil Fink Howard Avchen & Shapiro, LLP (“Hooman”). The outcome of Hooman demonstrates that a failure to respect the arbitrators’ time and authority can have devastating consequences for the parties to an arbitration. While this case is not published and is therefore not precedential, it is of note because it underscores the importance of adhering to all the policies and procedures of arbitration. This is particularly important when considering the policies of the arbitrators themselves.

The Arbitrator Sets the Rules

The case stems from the appeal by Hooman Nissani and his corporate entities — HK Automotive Group, Inc., RHC Automotive, Inc., and RHH Automotive — from a judgment that favored their former legal firm, Glaser Weil Fink Howard Avchen & Shapiro, under the Mandatory Fee Arbitration Act (“MFAA”). Their primary argument against the judgment was the perceived unfairness of arbitration being conducted in their absence. The clients also asserted it was improper to enter judgments against corporate entities and Nissani individually, given they were (according to the plaintiffs) either not notified of the proceedings or absent from the proceedings due to illness.

In advance of the hearing, Susan Keenberg, the chair of the three-person arbitration panel, issued a notice stating the date, time, and venue for the fee arbitration. The notice also warned:

If either the client or the responding attorney does NOT appear at the hearing, the arbitrator may hear and determine the controversy upon the evidence produced, notwithstanding such failure to appear.

The notice continued, in bold-face font, that

[a]ny party who willfully fails to appear at the hearing, as provided for under the rules of procedure governing this proceeding, may not be entitled to a trial in the civil court after a non-binding arbitration. The arbitrator may include findings in the arbitration award as to the willfulness of any party’s non-appearance at the hearing.

Despite these unsubtle warnings and indications of the arbitrators’ thoughts about attendance of hearings, the plaintiff contacted Keenberg less than 24 hours before the hearing to explain he would not be attending. Via his assistant, Nissani told Keenberg he was ill and that “we need to cancel due to health reasons.”

The arbitrator replied that the “arbitration will go forward as scheduled tomorrow unless Mr. Nissani provides us with a doctor’s note TODAY.” Keenberg also stated the doctor must state in the note that “Mr. Nissani is unable to attend a video meeting.” Although Nissani transmitted a doctor’s note, it was vague about the limitations of Mr. Nissani’s ability to participate in arbitration and only stated that “complete bed rest advised until stabilized.”

Keenberg responded, noting the doctor’s note was insufficient and that the arbitration would go forward. Nissani objected, claiming that Nissani was not able to be on video if he was on bed rest. However, Keenberg was adamant that her instructions for the doctor’s note were explicit in their demands. The last part of the exchange between the arbitrator and Nissani took place via Nissani’s personal email account, which Keenberg took to suggest that even if Nissani were in bed, he would still be able to participate in the arbitration hearing (via a cell phone or tablet). Nevertheless, Nissani failed to appear at the arbitration hearing.

The arbitrators rejected the plaintiffs’ excuses for being absent. Instead, the absence was determined to be a willful non-attendance—a ruling later upheld by the trial and appellate court. Keenberg reiterated that the doctor’s note submitted had been inadequate, and Nissani’s multiple attempts to prevent the scheduling of the arbitration suggested this was part of a larger effort to delay the proceedings. Under the spotlight of Business and Professions Code Section 6204, a client’s deliberate decision to skip a mandatory fee arbitration hearing can lead to the forfeiture of the right to challenge the arbitration award in a trial de novo, a right the arbitrators ruled was waived by Nissani and his businesses by their failure to appear.

In this case, the presiding arbitrator was convinced the initiating party was using absence as a delay tactic and that their absence was willful. Though the trial court has the ultimate authority on determining willfulness, this is the one area in which the trial court may take the arbitrators’ opinions into account. Though arbitrators might vary on what they consider to be willful non-attendance, is that the arbitrator’s decision can influence the trial court’s ultimate decision. The plaintiffs in Hooman failed to adhere to Keenberg’s rules, and the trial and appellate courts agreed with her assessment that the plaintiffs had waived their right to a trial de novo.

Key Takeaways

The Hooman case serves as a reminder of the peril of disrespecting the role and directives of arbitrators in mandatory fee arbitration. Initiating arbitration and then failing to appear — without valid, substantiated reasoning and a doctor’s note — casts a shadow on the initiating party’s commitment to the process. This case clearly demonstrates that the arbitrator’s criteria of what constitutes “willful” absence can be determinative, and the burden to prove otherwise is a steep uphill climb for the absent party.

Additionally, this case is a poignant admonition for all participants within the landscape of fee arbitration: disrespecting the process or underestimating the dedication required for participation can lead to being barred from future legal recourse. Trying to delay proceedings, waiting until the day before the hearing to report illness, the artifice of communicating through an assistant, a vague doctor’s note, and the admonishment of the chief arbitrator for adhering to the rules of ex parte communication betrayed an arrogance and unseriousness which likely undermined the plaintiff’s case. While the arbitrator is obligated to remain neutral in determining proceedings, this disrespect could not possibly have gone unnoticed by the panel. As evidenced by Hooman, trivializing the arbitration process is a misstep with potentially grave ramifications.

California landlords are increasingly finding themselves the subject of opportunistic legal pitfalls. In addition to the well-established practice of targeting owners of older apartment buildings for potential ADA lawsuits, landlords are now the subject of solicitations by individuals looking for Section 8 compliance violations. Recently, landlords have been targeted over housing discrimination concerning their acceptance of Section 8 housing vouchers, often by individuals with no intention of ever renting a property. In fact, court records show that one law firm has already filed 36 cases on behalf of one client and 28 cases on behalf of another.

The Section 8 Solicitation Trap

Participation in the Section 8 housing voucher program is mandatory in California. We have encountered several instances where landlords have received texts, ostensibly from potential tenants, who inquire specifically about Section 8 vouchers. These individuals likely have no genuine interest in renting; however, when a landlord unknowingly responds with a negative or non-compliant reply, these individuals seize the opportunity to initiate a lawsuit.

The consequences of such lawsuits can be significant. Even if a landlord manages to prevail in court, the cost of legal defense can be considerable. What can landlords do to avoid these situations?

1. Educate Yourself and Your Team: Know the laws in California about Section 8 and ADA Compliance.

2. Standardize Responses: Prepare a standard, compliant response to use for inquiries about Section 8 or any other services that might be discriminatory if handled improperly.

3. Consult Legal Advice: It’s always worthwhile to check with an attorney about compliance with rental agreements, policies, advertisements, and even text response templates for prospective tenants.

4. Stay Informed: California laws and regulations governing housing are constantly evolving. Staying up to date about legislative changes can help landlords adapt their policies to make sure they remain in compliance.

In a pivotal decision dated September 5, 2024, the United States Court of Appeals for the 9th Circuit upheld the lower court’s summary judgment, marking a significant victorious milestone for the Maloney Firm’s client. This case revolved around allegations of malfeasance by property developers accused of misusing the California Environmental Quality Act (CEQA) to engage in behaviors allegedly equivalent to violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). The appellate court decisively reaffirmed the legitimacy of the developers’ utilization of CEQA procedures. Notably, this decision may influence future interpretations of RICO allegations within environmental litigation contexts.

The plaintiffs contended that the developers had abused CEQA to hinder competitors by bringing bogus lawsuits. In the district court, Patrick Maloney successfully argued that the clients’ actions under CEQA were safeguarded by the Noerr-Pennington doctrine, which protects the rights of individuals and entities to petition the government without fear of litigation, except in cases of “sham” litigation. The firm reiterated the same arguments in response to the plaintiffs’ efforts to persuade a higher court to reverse the trial court’s ruling. Several environmental interest groups filed briefs in the appellate court, expressing concerns that overturning the lower court’s decision might set a perilous precedent and dissuade the filing of legitimate CEQA complaints.

Ruling

The 9th Circuit’s affirmation of the summary judgment recognized that the defendants’ petitioning actions fell under the protection of the Noerr-Pennington doctrine. The court determined that the defendants’ actions under CEQA were not objectively baseless, thus not fitting into the “sham litigation” exception detailed in the doctrine.

This ruling fortifies the legal protections associated with petitioning activities under Noerr-Pennington and celebrates a decisive victory for the Maloney Firm and its clients, reinforcing an essential principle of the legal system. This ruling is hoped to guide future legal strategies and the interpretation of fundamental legal doctrines. We are thrilled to achieve such a complete victory for our clients at the appellate level.

The case is Relevant Group et al. v. Stephen Nourmand et al., No. 23-35438, 2024 WL 3909574 (9th Cir. Sept. 5, 2024).

In Dickson v. Mann, No. D081851 (Cal. Ct. App. July 16, 2024), the California Court of Appeal addressed the ownership of funds in a client trust account and whether they were subject to a creditor’s lien. The law firm Higgs Fletcher & Mack LLP (HFM) agreed to represent a client, Jack Mann, on a flat fee basis, placing a substantial sum, $585,000, in the firm’s client trust account. Thereafter, one of Mann’s creditors sought to levy the funds he had paid into the law firm’s trust account. After hearing arguments, the trial court concluded that the money in question was Mann’s and therefore subject to the creditor’s lien, despite HFM’s contention that it was their property based on the flat fee agreement. The Court of Appeal affirmed the lower court’s decision.

True Retainers and Flat Fee Agreements

In Dickson, the Court of Appeal ruled that 1) a flat fee for legal services paid in advance is not earned until the services are rendered; and 2) funds in a client trust account are de facto presumed to belong to the client unless the lawyer or law firm can prove otherwise.

The decision notes a difference between a “true retainer”—a fee paid to ensure the lawyer’s availability during a certain period—and funds advanced for legal services yet to be rendered. HFM argued the $585,000 in the client trust account had been earned because it was paid in conjunction with a flat fee agreement for legal services, which provided that the funds were to be “deemed earned by [HFM]when received.” Thus, HFM claimed the $585,000 flat fee was paid for services and costs for representation in four matters.

However, because the $585,000 was not a true retainer, under the Rules of Professional Conduct, HFM did not actually earn the funds until the contemplated legal services had been provided. Thus, in response to Dickinson’s levy, HFM bore the burden of establishing that it had provided the contemplated legal services to have a viable claim to the money. Because HFM could not show it had provided any legal services, HFM fell short in establishing its superior claim to the money held in trust.  Accordingly, the funds in the client trust account remained the legal property of Mann.

The Rules of Professional Conduct allow flat fees for specified legal services. However, Rule 1.5(d) states that flat fees cannot be designated as “earned on receipt” or labeled non-refundable unless they fit the criteria of a “true retainer,” and the client has agreed to this in writing after full disclosure.

The Rules of Professional Conduct also say flat fees may be paid “in whole or in part in advance of the lawyer providing those services.” But any unearned portion of the fees must be returned to the client in the event “the representation is terminated or the services for which the fee has been paid are not completed.”  

Best Practices for Flat Fees and Client Trust Accounts

The case brings to the forefront several critical lessons for fee agreements between law firms and clients:

Be Wary of Clients with Outstanding Judgments

Law firms face serious risks when representing clients with outstanding judgments, financial issues, and even criminal exposure. As Dickinson reflects, simply denoting a large deposit as a flat fee is not enough to protect the law firm from third party creditors. To this end, while the Court of Appeal found it unnecessary to analyze the issue, trial court in Dickinson, on its own, expressed its concern that the fee flat fee arrangement violated the Uniform Voidable Transactions Act by impairing Mann’s efforts to enforce his judgment. When the prospective client has a judgment or is accused of engaging in conduct rendering their funds “dirty”, the law firm should carefully consider the risk of levy or claw back. Solutions may include having a third party pay with “clean” money or passing on the representation.

True Retainer Clarification

The distinction between a true retainer and a flat fee agreement must be clear and understood by the client, ensuring non-refundable fees are properly categorized and disclosed. A true retainer, as defined by the Rules of Professional Conduct 1.5(d), is a fee “a client pays to a lawyer to ensure the lawyer’s availability to the client during a specified period or on a specified matter, but not to any extent as compensation for legal services performed or to be performed.”

Ownership of Trust Account Funds

Though the presence of funds in a client trust fund does not establish definitively, in all cases, that the funds belong to a client, the Dickson decision reinforces the idea that only funds earned by fulfilling the agreed-upon legal services can be considered the property of the law firm. Until then, funds held in attorney trust accounts remain the property of the client. This means they are subject to levy in the event of a judgment or other creditor action.

Flat Fee Agreements

The court’s ruling may have implications for flat fee agreements and their terms of payment. Because fees may only be transferred out of the client trust account once the fees are earned, a flat fee might be considered unearned—and thus not the property of the law firm—until after the full resolution of the matter for which the firm has been hired. To avoid problems with this issue, the engagement agreement should include payment terms for the flat fee that define when parts of the flat fee will be considered as having been earned (e.g., by periods of time or stages of the case, for example).

Diligent Fund Management

Attorneys are mandated to manage client funds in trust accounts diligently by only claiming funds that are earned and moving them out of trust accounts promptly, as per the ethical guidelines.

The Dickson v. Mann case highlights the pitfalls of flat fee agreements. It underscores the importance of proper handling of client trust accounts and employing precise, client-centric practices in law firm fee agreements and retainers. Law firms are well-advised to stay abreast of these regulations to ensure compliance and uphold the highest standards of professional conduct.

We are thrilled to announce that Alexandra (“Ally”) Borghi has joined the Maloney Firm APC, bringing with her a diverse background and a dynamic presence that is sure to drive our business litigation practice to new heights.

A skilled civil litigator, Ally’s understanding of legal concepts is well beyond her four years in practice. Her successful track record is highlighted by her recent role as second chair in a multimillion-dollar trial, where her courtroom dexterity truly shone through. With a background in torts, business law, contracts, construction, real estate, and insurance litigation, Ally brings a unique international perspective to our firm. Having spent significant time in Italy, Ally is fluent in Italian and conversant in Spanish and French; she’s able to serve an array of clients and navigate the complexities of cross-border legal issues.

Academically, Ally is a standout alumna of the University of San Diego School of Law, where she not only earned the prestigious CALI Award of Excellence but also led as the president of the Entertainment and Sports Law Society. Her undergraduate degree in Political Science from the University of Michigan laid the groundwork for her legal accomplishments.

Away from the courthouse, Ally is passionate about health and fitness, engaging in activities like Pilates, surfing, snowboarding, and long-distance running. She’s not just any hobbyist; she’s fiercely competitive, participating in races from 5ks to half marathons. Ally is also devoted to her community, volunteering at Wags & Walks dog rescue, and showing strong support for her alma mater’s football and basketball teams.

We are excited to have Ally on board at the Maloney Firm, and are confident her talents will bolster client service and provide value to our clients.

The Maloney Firm APC is pleased to announce that Greg Smith has been recognized in the 2025 edition of The Best Lawyers in America®.

 

Best Lawyers in America 2025 Edition

• Gregory M. Smith

Since it was first published in 1983, Best Lawyers has come to be regarded as the definitive guide to legal excellence. Best Lawyers lists are compiled based on an exhaustive peer-review evaluation. Almost 94,000 industry-leading lawyers are eligible to vote (from around the world), and Best Lawyers has received over 11 million evaluations on the legal abilities of other lawyers based on their specific practice areas worldwide. Lawyers are not required or allowed to pay a fee to be listed; therefore, inclusion in Best Lawyers is considered a singular honor. Corporate Counsel magazine has called Best Lawyers “the most respected referral list of attorneys in practice.”

 

Congratulations to Greg Smith on his inclusion in this year’s edition!

We’re thrilled to announce that Susan Freedman has joined The Maloney Firm APC as a senior associate attorney. With extensive courtroom experience, Susan’s practice focuses on business and real estate litigation.

 

Susan is skilled in representing entity and individual clients in the full range of general commercial matters in state court from inception through trial. Her practice includes representation of commercial and residential property owners in a wide variety of litigation, such as breach of lease/contract and wrongful foreclosure, as well as actions involving fraud, partnership and business tort disputes, breach of fiduciary duty, partition actions, and corporate governance and management issues. Susan has experience in obtaining and defending against writs of attachment, temporary restraining orders, and injunctive relief orders.

 

After graduating from Loyola Law School, Susan served as a law clerk to a United States Bankruptcy Judge, Hon. Samuel L. Bufford, Central District of California, and thereafter represented secured and unsecured creditors in bankruptcy, particularly governmental taxing authorities. Susan has represented the Counties of Los Angeles, Santa Barbara, Sonoma, Orange, Riverside, and San Bernardino in the enforcement of property taxes in U.S. Bankruptcy Court. She has participated in dozens of complex commercial cases to verdict and has vast and multifaceted experience.

 

When she’s not practicing law, you can find Susan cooking, strength training, or traveling with her family.

Professionalism and civility are increasingly being recognized as essential components of legal proceedings. Two recent California Court of Appeal cases, Medallion Film LLC et al. v. Loeb & Loeb (2024) 100 Cal.App.5^th 1272 (“Medallion”) and Masimo Corp v. Vanderpool Law Firm, Inc., G061829 (Cal. Ct. App. May 2, 2024) (“Masimo”) join a growing archive of higher court cases in which judges openly criticize the erosion of professionalism in legal proceedings. From pre-litigation communications to the discovery process, these cases demonstrate the detrimental effects of incivility on attorney discipline and financial outcomes. Whether incivility accompanies the loss of motions, sanctions, or even the reduction of an award, recent California Court of Appeal rulings suggest a growing intolerance of poor behavior in litigation. Increasingly, the higher courts are emphasizing that civility is not just a moral obligation, but a professional one that carries significant penalties for failure to comply.

Incivility and Prelitigation Communications

In 2014, the Medallion plaintiffs entered into an agreement with William Sadleir of Clarius Capital Group to assist in obtaining funding for film projects, receiving a fee from the funds raised through their contacts. Clarius agreed not to interact independently with these contacts. When Sadleir allegedly created another entity with the assistance of Loeb & Loeb to secure funding from BlackRock (a Clarius contact), the plaintiffs objected. The plaintiffs emailed BlackRock directly seeking payment of the consulting fee, and Loeb & Loeb responded, denying all legal ties between Clarius and the new entity. The assertions in the Loeb & Loeb letter later proved to be false, prompting the plaintiffs to sue Loeb & Loeb. Loeb & Loeb cited the litigation privilege, among other defenses, to the Anti-SLAPP motion. Initially, the trial court sided with Loeb & Loeb, but the Court of Appeal reversed this decision, finding the plaintiffs had shown a likelihood of success at trial as the claims were not protected under the litigation privilege.

Among other issues, Masimo underscores the ramifications of poor prelitigation communications. Litigation communications must be factual and made in good faith, and Loeb & Loeb’s defense was unsuccessful in part due to the lack of credible, upfront communications. The justices cited the Loeb & Loeb partner’s “bombastic and disproportionate response to an email not even directed to his client” in their decision, claiming the letter was not “made in good faith and serious contemplation but an attempt to dissuade the plaintiffs from making any further inquiries.” The inclusion of this in the published opinion indicates the court believes civility and honesty are not just about good manners, but also crucial to maintaining the integrity and efficiency of legal proceedings.

Challenges to Civility in the Discovery Process

Masimo v. Vanderpool concerns a discovery dispute and the failure to comply with document production requests. During litigation, the Masimo plaintiffs encountered significant and repeated resistance to the discovery process with defendants and their attorneys, the Vanderpool Law Firm (“Vanderpool”). Vanderpool objected on behalf of their clients to Masimo’s discovery requests based on various grounds (i.e., lack of standing, pending criminal matters, and violation of constitutional rights). Despite an agreement reached on behalf of a discovery referee to provide more comprehensive responses, Vanderpool continued to object without substantiation. Shortly after serving supplemental discovery requests, Vanderpool filed forms to withdraw as counsel for the defendants in the underlying case. Masimo then renewed its motion to compel and requested sanctions against all three initial defendants, as well as the Vanderpool Law Firm.

Vanderpool mounted a defense by arguing they had substituted out from the case and could therefore not be found liable for the lack of discovery response. The court rejected this argument, noting that “Vanderpool indisputably advised defendants to stonewall Masimo’s discovery efforts not once but twice, the second time after promising to provide substantive answers.” The court also rejected Vanderpool’s claim that Masimo did not meet and confer before filing their motion to compel discovery, adding that Vanderpool was the one to refuse to meet and confer: “After dodging letters and emails, Vanderpool finally made its refusal to meet and confer explicitly in an email: ‘Your remedy is elsewhere, and an attorney with your billing rate should know that. We are not here to educate you.”

Much of the court’s decision centers on the lack of courtesy in Vanderpool’s discovery communications. Immediately after citing Vanderpool’s snarky email, the court laments that it has “in the past had occasion to deplore the lack of civility that has flourished in the legal profession in recent decades,” and cited several other recent decisions that trace “the deterioration in the way attorneys now address and behave toward each other” (See Lasalle v. Vogel (2019) 36 Cal.App.5th 127; Kim v. Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 293).

The facts of this dispute were not in Vanderpool’s favor. However, it is impossible to ignore the lasting impression the tone of Vanderpool’s communications had upon the court. The decision cites the “condescending email [Vanderpool] sent to Masimo’s counsel,” the subject line of another email, which read “You are joking right,” and Vanderpool’s assertion that “In 30 years of practice this may be the stupidest thing I’ve ever seen. . . Quit sending us paper.” Of the 11-page decision, two and a half pages are devoted to the topic of civility. Incivility, the justices argue, is a form of bullying that gums up the work of the legal process and costs people money.

Promoting Civility in the Litigation Process

The Medallion and Masimo decisions underscore a broader call within the legal community for a return to more civil behavior. Measures such as the State Bar’s “Civility Toolbox,” and a requirement that new lawyers affirm to “dignified conduct” in their oaths have been implemented in recent years. Though incivility alone does not necessarily lead to attorney discipline (yet), higher court decisions continue to demonstrate the financial impact incivility can have, including a reduction of the prevailing party’s attorney’s fees award due to lack of civility (See Snoeck v. ExakTime Innovations, Inc. (2023) 96 Cal.App.5th 908).

Lawyers must bear in mind that their behavior not only reflects their own character but also serves as a reflection of the legal profession and the judicial system at large. The California Court of Appeal has consistently affirmed that professional courtesy is both an ethical and statutory obligation. Whether manifested through impolite prelitigation communications or discovery gamesmanship, the California courts emphasize the significance of civility in maintaining the effectiveness of the legal process. The key message for business litigation is evident: ethical and civil legal approaches represent the smoother path towards an efficient and fruitful litigation journey. Attorneys and litigants must resist the temptation of unnecessary confrontations, prioritizing professionalism for the benefit of their mental well-being and financial interests.

We are excited to announce that Patrick Maloney has been officially certified by the California State Bar as a Specialist in Legal Malpractice Law. This achievement reflects Patrick’s extensive experience in handling legal malpractice cases and his commitment to delivering top-notch legal services to our clients. This certification strengthens our firm’s dedication to upholding the highest standards in legal representation.

California State Bar Certified Specialists

The California State Bar’s Certified Specialist Program acknowledges attorneys who have exhibited exceptional dedication to a specific area of law and possess experience that surpasses standard licensing requirements. Established as the first program of its kind in the United States, the program seeks to improve public protection, promote attorney competence, and ensure clients receive high-quality legal representation in specialized fields.

Achieving certification as a legal malpractice specialist signifies a strong dedication to quality, competence, and extensive experience. To earn this esteemed recognition, Patrick Maloney successfully navigated a demanding evaluation process, which included examinations and peer reviews, to showcase his expertise in handling complex legal malpractice cases. This achievement places Mr. Maloney among an elite group of attorneys who have satisfied the State Bar’s stringent criteria, highlighting his expertise in this challenging area of law.

The Maloney Firm’s Commitment to Excellence

Patrick Maloney’s certification reflects our firm’s commitment to providing outstanding legal services that consistently meet and exceed our clients’ expectations. This recognition means enhanced expertise in legal malpractice claims, reassuring clients that their matters are handled by a State Bar-recognized professional. Mr. Maloney’s achievement also provides further evidence of The Maloney Firm’s efforts to deliver top-quality legal representation and maintain our clients’ trust in handling complex legal cases.