By Carl I.S. Mueller, Esq. and Gary A. Varnavides, Esq.

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One of the many benefits or drawbacks of arbitration awards is that they are “nearly immune” from challenge on appeal; but, the Court of Appeal recently determined that arbitrator bias due to a non-native English speaker party’s use of a translator provides a basis to overturn an award. On October 17, 2023, the California Court of Appeal published its decision in FCM Investments, LLC v. Grove Pham, LLC, which featured a rare reversal of an arbitration award for $10 million following the failed sale of a nursing home business. The Court of Appeal ruled that the arbitrator demonstrated impermissible bias towards a respondent, an immigrant, by making adverse credibility determinations solely because the respondent testified through an interpreter.

In the underlying claim, plaintiff FCM alleged that defendant Grove breached certain contractual obligations and terminated the deal to sell a nursing home before escrow closed. FCM filed suit and the parties participated in a two-day arbitration in June 2021.

The arbitrator ruled in FCM’s favor, awarding approximately $10 million in damages. The arbitrator found that although the transaction was “rather complicated,” her decision was “made easier” because she believed Grove’s owners suffered “rampant and obvious” credibility issues. With respect to Phuong Pham, the arbitrator wrote:

“Mrs. Pham’s use of an interpreter appeared to the Arbitrator to be a ploy to appear less sophisticated than she really is.”

As expected, the trial court entered judgment on the arbitration award. But the Court of Appeal reversed, vacating the award. Though “arbitration awards are ‘nearly immune’ from attack,” the Court of Appeal found the arbitrator’s adverse credibility determinations were the product of racial bias and rose to the level of “misconduct.”

The FCM Investments, LLC, decision discusses a range of legal issues pertaining to arbitration, bias, and appellate procedure, making the decision a must read for lawyers practicing in these areas. But the heart of the case is the Court of Appeal’s focus on racial bias. Rule 8.4.1 of the California Rules of Professional Conduct prohibits discrimination in the legal profession. Lawyers must familiarize themselves with this rule, and the potential for bar discipline for violating it. Attorneys should also appreciate that if they make impermissible arguments based on a party’s or witness’ membership in a protected category, their clients may pay a heavy price, including an appellate reversal of a favorable award and the burden of starting over at square one.

About the Authors:

 

Carl I.S. Mueller is a business litigation attorney that represents clients in all phases of civil litigation in California and Oregon. Mr. Mueller’s practice has a focus on attorney-client disputes of all kinds. If you have questions regarding this article contact Carl Mueller at cmueller@maloneyfirm.com.

 

Gary A. Varnavides has extensive experience representing and advising a diverse array of clients in a wide range of commercial litigation matters and governmental and regulatory investigations. He is licensed in New York and California and can be reached at gvarnavides@maloneyfirm.com.

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On October 10, 2023, a Los Angeles Superior Court jury returned a verdict in favor of a law firm represented by Carl Mueller. Mr. Mueller singlehandedly took on a defense team of three experienced attorneys from a prominent firm, funded by a billionaire client. Though outnumbered, Mr. Mueller was not overmatched. Mr. Mueller persuaded the jury to award his client every penny of the unpaid legal fees and costs, as well as an award of interest.

Patrick Maloney and Elizabeth Schaus of the Maloney Firm, APC, Obtain Ruling from California Appellate Court Upholding Dismissal of Legal Fee Dispute.

On Wednesday, September 20, 2023, Patrick Maloney argued to the California 2nd District Court of Appeal that it should uphold a trial court order dismissing a lawyer’s claim for fees from a former client because the suit was filed too late. A day later on Thursday, September 21, 2023, the Court of Appeal issued its opinion, finding that the lawyer had waited too long to file suit and the statute of limitations barred his claims.

The attorney, Robert Kent, had claimed to represent Richard Kay on a contingent fee arrangement. But Kent had not, as required by California Business & Professions Code § 6147, obtained a written fee agreement signed by Kay. Because Kent had not complied with the statute, he was only entitled to receive a reasonable fee for his services, rather than the fee he claimed Kay had agreed to pay. Moreover, because Kent had not obtained a signed fee agreement, he had to file his claim within two years, rather than the four-year period applicable to written fee agreements. Both the trial court and the California Court of Appeal saw through Kent’s excuses, finding that Kent had filed the lawsuit too late because he did so more than two years after last rendering services for Kay.

These rulings reflect that courts will scrutinize a lawyer’s compliance with the rules and requirements governing fee arrangements with clients. Lawyers who fail to follow those rules will likely suffer the consequences, either in the form of a reduced fee or losing their right to payment.

The lawyers at the Maloney Firm represent both lawyers and their former clients in legal malpractice cases, disputes over fees, and claims of breach of fiduciary duty. The firm also provides advice and counsel to lawyers seeking to ensure they have complied with applicable rules and statutes. You may contact Patrick Maloney at pmaloney@maloneyfirm.com. Elizabeth Schaus may be reached at eschaus@maloneyfirm.com.

By Carl I.S. Mueller, Esq.

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On June 22, 2023, the California Supreme Court approved one of two alternative versions of the proposed Rule of Professional Conduct 8.3, which has been derisively referred to as the “Snitch Rule.” In summary, the new Rule 8.3(a) requires a lawyer to report colleagues to the State Bar or other authorities in certain situations, as follows:  

A lawyer shall, without undue delay, inform the State Bar, or a tribunal* with jurisdiction to investigate or act upon such misconduct, when the lawyer knows* of credible evidence that another lawyer has committed a criminal act or has engaged in conduct involving dishonesty, fraud,* deceit, or reckless or intentional misrepresentation or misappropriation of funds or property that raises a substantial* question as to that lawyer’s honesty, trustworthiness, or fitness as a lawyer in other respects.

Many lawyers fear Rule 8.3 will result in a flood of complaints to the State Bar by lawyers seeking to punish their opposing counsel or gain an advantage in litigation. However, the majority of other jurisdictions in the United States maintain some version of the mandatory reporting requirements of Rule 8.3 and have not seen such a tidal wave. Rather, Rule 8.3 contains several qualifications that will likely the qualifications of Rule 8.3 are likely to limit the situations wherein reporting opposing counsel is appropriate.

First, Rule 8.3(a) limits the reporting requirement to instances wherein a lawyer “knows of credible evidence” of a crime or “conduct involving fraud, deceit, [etc.],” that “raises a substantial question as to that lawyer’s honesty, trustworthiness, or fitness as a lawyer.” As such, there is no reporting requirement where the reporting lawyer lacks evidence that can accompany the report. Additionally, the intent and “substantial question” requirements of Rule 8.3 raise the level of act that falls within the rule’s scope, such that the evidence must show that the offending lawyer’s subjective belief was that the actions were criminal, wrong, or dishonest, rather than falling within an acceptable interpretation of the applicable law or rules by the offending attorney.

Second, Rule 8.3(d) creates a broad exception, excluding from the reporting requirement “information gained by a lawyer while participating in a substance use or mental health program, or require disclosure of information protected by Business and Professions Code section 6068, subdivision (e) and rules 1.6 and 1.8.2; mediation confidentiality; the lawyer-client privilege; other applicable privileges; or by other rules or laws, including information that is confidential under Business and Professions Code section 6234.” In other words, there are many plausible and foreseeable scenarios where a lawyer will be aware of evidence that should be reported pursuant to Rule 8.3(a), but the lawyer will be precluded from reporting the same information due to the broad nature of the duty of confidentiality (or the other areas of exclusion referenced above). Indeed, California’s high standards on the duty of confidentiality will likely greatly limit the situations wherein reporting opposing counsel under Rule 8.3 is even allowed.

Third, nothing in Rule 8.3 abrogates Rule 3.10(a)’s bar of threats “to present criminal, administrative, or disciplinary charges to obtain an advantage in a civil dispute.” To wit, comment 8 to Rule 8.3 reminds lawyers of the same. As many lawyers know, the threat of action is often more effective than the action itself. A complaint to the State Bar can often have the unintended consequence of prolonging a dispute, because a lawyer defending against the complaint will be forced to prove the merits of his position rather than agreeing to a favorable settlement to avoid being proven wrong.

Rather than causing a deluge of snitching against opposing counsel, Rule 8.3 will hopefully prod otherwise reticent attorneys to report their colleagues if they engage in wrongdoing (e.g., reporting trust account theft). Whether or not Rule 8.3 achieves that goal remains to be seen. In the interim, lawyers should think carefully about the potential consequences before deciding to snitch on their opposing counsel.

Congratulations to The Maloney Firm, APC litigation team of Patrick M. Maloney, Carl I. S. Mueller, and Brittany B. Genthert who obtained a $1,141,963.50 decision on behalf of their client, Son of the South Owner, LLC in JAMS Arbitration. The arbitration centered around The Maloney Firm’s client being defrauded into entering a film promotion agreement, and being cheated out of hundreds of thousands of dollars. The arbitration award includes a finding of $750,000 of punitive damages.

Following the death of Wen Zheng’s wife at age 88, Wen’s son, who had been holding multiple pieces of real property and hundreds of thousands of dollars in trust for his parents, told Wen, “Your house is mine and you will have to go to Court to get it back.” 

Over several weeks in November and December 2022, Patrick M. Maloney and Gregory M. Smith tried the matter on Wen’s behalf to Judge Schwarm of the Orange County Superior Court. 

On June 6, Judge Schwarm finalized a statement of decision that gave Wen a decisive victory. Wen was awarded everything he had asked for – complete ownership of his primary residence, 50% ownership of an investment property, and hundreds of thousands of dollars in back rent.  Further, Judge Schwarm found that Wen’s son had acted with malice and would be subject to punitive damages.  The punitive damages trial is set for July 7. 

Gregory M. Smith delivered the opening and closing statements, conducted the direct examination of Wen, Wen’s experts, and third party witnesses, and cross-examined third party witnesses.  Patrick M. Maloney cross-examined the defendant and third party witnesses and authored the closing brief.

The Maloney Firm is pleased to congratulate Gregory Smith, Elizabeth Schaus, and Carl Mueller on their selection to the 2023 Southern California Rising Stars list. Each year, no more than 2.5 percent of the lawyers across California are selected by the research team at Super Lawyers to receive this honor.

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Elizabeth has been recognized on the list for the past five years. Greg has been named to the Rising Stars list for eight years in a row, and has earned the further distinction of being selected to the Up-and-Coming 100 list for the past four years. Carl has now been named to the Southern California Rising Stars list for four years in a row and made his first appearance on the Up-and-Coming 100 list.

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Additionally, firm founder Patrick Maloney has also consistently been recognized by Southern California Super Lawyers from 2015 to the present.

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Super Lawyers, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a patented multiphase process that includes a statewide survey of lawyers, an independent research evaluation of candidates, and peer reviews by practice area. The result is a credible, comprehensive and diverse listing of exceptional attorneys.

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The Super Lawyers lists are published nationwide in Super Lawyers Magazines and in leading city and regional magazines and newspapers across the country. Super Lawyers Magazines also feature editorial profiles of attorneys who embody excellence in the practice of law. For more information about Super Lawyers, visit SuperLawyers.com.

On May 24, 2023, the U.S. District Court for the Central District of California granted summary judgment in favor of The Maloney Firm client, Nourmand & Associates, in Relevant Group, LLC v. Nourmand, Case No. 19-CV-05019. Relevant Group sought damages of more than $150 million, which it sought to have tripled, arising from alleged civil RICO violations.

Relevant’s lawsuit alleged that Nourmand & Associates participated, along with the other defendants, in a racketeering enterprise that challenged four of Relevant Group’s hotel projects in Hollywood by raising environmental concerns under the California Environmental Quality Act (“CEQA”). Though it was not a party to any of the CEQA lawsuits, which were brought by Sunset Landmark, LLC, Nourmand & Associates was accused of supporting the CEQA challenges by attending local government hearings and loaning its conference room for a meeting between Relevant and Sunset Landmark.

In finding that Relevant’s suit lacked merit, Judge Gutierrez ruled that the CEQA petitions were “the product of a duly enacted, environmentally focused California statute” and prohibited Relevant from “undermin[ing] California’s policy choices by bringing a civil RICO action to penalize legitimate…CEQA activity.”  Further, the Court found the CEQA challenges enjoyed the protections of the First Amendment right to petition because Relevant Group had not established that any of challenges were objectively baseless. 

Maloney Firm attorneys Patrick Maloney, Gregory Smith, and Elizabeth Schaus represented Nourmand & Associates.  James Turken, Christopher Pelham, and Neil Thakor of Norton Rose Fulbright represented Sunset Landmark and the other defendants.

Congratulations to the talented attorneys who achieved such a tremendous result! 

Lawyers Behaving Badly

Wednesday, June 21st

12-1pm

It’s that time of year again when we learn from other attorneys’ mistakes. 

Join Patrick Maloney and Gregory Smith for the fourth annual “Lawyers Behaving Badly” MCLE event, in which they will discuss the ethical violations attorneys made in 2022 that resulted in discipline from the California State Bar.

Register Here

This presentation has been approved by the State Bar of California for 1.0 hour of Participatory MCLE credit, including 1.0 hour of Ethics credit. Please contact mmaloney@maloneyfirm.com with any questions related to this event.

After Nearly a Decade and Two Appeals, Client Obtains $334,000 Fee Award From Lawyer Who Sought to Collect $3,720 of Unpaid Legal Fees

Soni v. Cartograph, Inc., 90 Cal.App.5th 1, 306 Cal.Rptr.3d 446 (2023).

By Patrick M. Maloney and Brittany Genthert

Lawyers are well advised to think twice before suing a client for legal fees.  Suits for unpaid fees routinely attract legal malpractice claims from disgruntled clients.  In addition, they may expose lawyers to further liability under California’s Mandatory Fee Arbitration Act (“MFAA”), Cal. Bus. & Prof. Code § 6200 et seq.  The California legislature enacted the MFAA to level the playing field between attorneys and clients in fee disputes.   As one lawyer recently learned after nine years and two appeals, the MFAA does so in part by penalizing parties who take “unreasonable” positions in legal fee disputes.   

Timothy Tierney and Cartograph (formerly SimpleLayers, Inc.) retained attorney Surjit Soni.  Eventually, Tierney told Soni not to do any further work and moved the case from Soni’s firm.  Tierney agreed to pay Soni’s outstanding balance, which Soni claimed was $7,211.  Tierney paid $3,531 but declined to pay the remaining $3,720 because he had not authorized the work. 

Tierney then initiated a Mandatory Fee Arbitration with the Los Angeles County Bar Association.  The arbitrator awarded Soni a total of $2.50.  Soni filed for a new trial 33 days after service of the award.  Following a bench trial, the court entered judgment in favor of Soni in the amount of $2,890 and ordered Tierney to pay Soni’s attorneys’ fees in the amount of $79,898.

Tierney appealed.  In a published opinion, Soni v. SimpleLayers, Inc., 42 Cal.App.5th 1071 (2019), the Court of Appeal reversed the judgment.  The Court of Appeal held that the 30-day period within which to seek a trial de novo is not extended by five days when the fee award is served by mail.  Thus, Soni’s request for a new trial was three days too late.  The Court of Appeal sent the matter back to the trial court with directions to confirm the arbitration award, as Tierney had requested.

After remand, Soni filed a motion claiming $546,365 in attorneys’ fees for 1,400 hours of work in the fee case.  Having obtained a total recovery of $2.50, Soni claimed he was entitled to a fee award pursuant to a prevailing parties’ attorney fee provision in his fee agreement with Tierney. 

Tierney also filed a motion for attorney’s fees seeking $339,603 for 731.8 hours of work.  Tierney presented his request for legal fees under California Business & Professions Code § 6203(c), which provides for an award of attorney’s fees to a party who is successful in confirming an award issued in a Mandatory Fee Arbitration. 

The trial court awarded attorneys’ fees to Tierney under both Section 6203(c) and Section 6204(d).  Subdivision (d) of Section 6204 provides courts with discretion to award attorneys’ fees to the prevailing party where one of the parties seeks a trial de novo.  The party who sought a new trial is the prevailing party if they obtain “a judgment more favorable than that provided by the arbitration award.”  Otherwise, the other party is the prevailing party.  Because Tierney was successful in obtaining confirmation of the MFAA fee award and because Soni did not achieve a better result, the trial court found Tierney to be the prevailing party, awarding attorney’s fees and costs totaling $334,458.41.

Soni appealed.  The Court of Appeal affirmed, finding that under both Sections 6203 and 6204, Tierney was the prevailing party.  The Court of Appeal found that because the trial court had confirmed the arbitration award, Soni was not the prevailing party, notwithstanding that he won $2.50 in the arbitration.  Soni had not obtained a more favorable result in the trial de novo, and Tierney was successful in having the arbitration award confirmed.

The Court of Appeal also held that fee provisions contained in the MFAA, namely, Sections 6203(c) and 6204(d), preclude contractual attorneys’ fees provisions.  The Court of Appeal explained that the fee-shifting provisions in the MFAA encourage parties to avoid further frivolous litigation.  Only parties who file meritorious positions to confirm, correct, or vacate an MFAA arbitration award may recover legal fees.  This is intended to discourage unmeritorious petitions.

Similarly, a party unhappy with an MFAA fee award may insist upon a new trial.  However, the party who does so must consider the risk of paying their adversary’s legal fees if they do not achieve a more favorable outcome. 

Lawyers should be careful in the positions they take in legal fee disputes.  Just because an attorney can sue for unpaid fees, does not mean that they should.  In addition to the risk of a malpractice suit, there is also the risk of paying the former client’s legal fees.

About the authors

Patrick Maloney regularly represents lawyers and their clients in disputes with one another, including claims for legal malpractice, breach of fiduciary duty, and legal fee disputes.  Mr. Maloney previously sat on the California State Bar Committee on Mandatory Fee Arbitration and presently serves as a Vice Chair of the Los Angeles County Bar Association’s Attorney-Client Mediation and Arbitration Service.  Mr. Maloney also represents clients in business litigation matters.

Brittany Genthert is an Associate Attorney at The Maloney Firm.  Ms. Genthert represents clients in legal fee disputes and related matters in addition to business disputes.