The Business of Fee Disputes and Mandatory Fee Arbitration
Most attorneys that I know are vigilant about their billing practices, and upfront with their clients about them. But, as with any other contractual relationship, disputes inevitably arise. And, in an effort to cut costs due to the economic climate, both individuals and businesses are paying much closer attention to their bills lately. So, it shouldn’t come as much of a surprise that law firms are looking for a way to cash-in on clients’ new spendthrift habits.
Although attorneys who specialize in managing costs and fees of litigation as well auditing other attorneys’ billing practices have been around for ages, I wouldn’t be surprised if other mid-sized firms started looking for partners with specific experience in related areas.
At Legal Blog Watch, Carolyn Elefant writes:
Manchester, England-based law firm Boote Edgar Esterkin has figured out a novel way to generate more revenue. Instead of charging clients more for the firm's services, Boote Edgar has created a new practice specialty going after other law firms for overcharging, reports Crain's Manchester Business. The service, which is called ab8, will help clients either by opening formal negotiations on behalf of customers who believe they’ve been overcharged by their law firms or, in some cases, issuing proceedings against firms.
According to Mark Yaffe, the associate who will run the new service,
[t]here are strict rules governing how solicitors provide information to their clients, especially in relation to costs. Solicitors have a duty to provide their clients with the ‘best information possible’ at the outset of any matter, and this ought to include a clear and concise explanation of the total costs involved.
- Lawyers in California Are Not Usually Bound by Their Initial Estimates.
Lawyers in California do not have the same duty as their British counterparts regarding initial fee quotes. Although it’s a good practice to provide clients with the best information possible at the outset of a matter, most lawyers who do are also careful to explain that litigation can be very unpredictable (which is certainly true), and the costs and fees they quote at the outset of a matter are just an estimate.
- The Mandatory Fee Arbitration Act
The problem, especially for individuals and small businesses with limited resources, with hiring another lawyer to “go after” a previous lawyer for overcharging is the expense of hiring another lawyer. Consequently, the California Legislature enacted the Mandatory Fee Arbitration Act (“MFAA”). Cal. Bus. and Prof. Code. §§ 6200-6206.
The policy behind the mandatory fee arbitration statutes...is 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. Manatt, Phelps, Rothenberg & Tunney v. Lawrence, 151 Cal. App. 3d 1165, 1174-1175 (1984).
The MFAA provides that if a dispute over costs and fees for legal services arises between a lawyer and a client, the client may choose to have the case heard before an arbitration panel under procedures established by the State Bar. The arbitration is optional for the client and mandatory for the lawyer, regardless of which party initiates a fee suit. The arbitration is only binding, however, if the attorney and client so agree in writing after the dispute has arisen. Otherwise, either party may request a trial de novo (something similar to an appeal) within 30 days after the arbitration has concluded.
Also, a lawyer who intends to a initiate a fee dispute against a client is required to notify the client of his or her right to arbitration under the MFAA. Otherwise, there may be grounds for dismissal.
- A few important things to keep in mind regarding mandatory fee arbitration:
- The courts are not fond of dismissing suits because the lawyer neglected to serve the MFAA notice, especially if the client doesn’t actually want to arbitrate.
- If the client is already aware of his or her right to arbitration under the MFAA, the lawyer’s failure to give MFAA notice may not result in a dismissal.
- A dismissal with prejudice based on the lawyer’s failure to give MFAA notice is an abuse of discretion.
- If the client brings any action for affirmative relief against the lawyer that isn’t specifically limited to the dispute over costs and fees, the right to MFAA arbitration is waived.
- If the attorney files a complaint against the client, and the client answers the complaint, the right to MFAA arbitration is waived.
- Most importantly, the judgment of the arbitration panel is not binding for either party, unless the (a) parties otherwise agreed to in writing, or (b) neither party requests a trial de novo within 30 days after the arbitration.
Also of note, a binding arbitration agreement in an agreement for legal services is still binding even if the client requests MFAA arbitration. In other words, if there is a relevant binding arbitration clause in the in the contract between the lawyer and the client, the lawyer may compel the contractually based arbitration proceedings after the MFAA arbitration. See Schatz v. Allen Matkins Leck Gamble & Mallory LLP.
