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California Business & Professions Code � 6200 et seq. provides a statutory framework for the arbitration of attorney-client fee disputes. Within that framework, the Legislature has established a system for the determination of disputes concerning fees, costs, or both, charged for professional services by members of the State Bar. Arbitration under this scheme is voluntary for clients but mandatory for attorneys if demanded by the client. In National Union Fire Insurance Co. v. Stites Professional Law Corporation, 235 Cal.App.3d 1718 (1991), the court of appeal concluded that pursuant to � 6200 et seq., fee dispute arbitrators lacked subject matter jurisdiction regarding the threshold question of whether or not an attorney-client relationship existed. Therefore, any finding by the arbitrators on the existence of an attorney-client relationship was not binding upon the court. The Stites court also concluded that subject matter jurisdiction on the threshold question of the existence of an attorney-client relationship could not be conferred to the arbitrators by consent, waiver or estoppel. On Nov. 4, California’s 2nd District Court of Appeal issued its decision in Paul R. Glassman v. Cecil McNab, 03 C.D.O.S. 9601. In a case of first impression, the court, in an opinion authored by Justice Daniel Curry, held that arbitrators in an attorney-client fee dispute arbitration could determine the threshold question of whether an attorney-client relationship existed, if the parties consented. Justice Norman Epstein and Presiding Justice Charles Vogel concurred. The facts relied upon by the court of appeal in Glassman were generally set forth in the arbitrators’ award. In May 1994, TPM Holdings Inc. bought a delinquent real property note from its prior holder. The prior holder of the note had been represented by attorney Paul Glassman. TPM asked Glassman to represent it in TPM’s efforts to collect on the note. TPM then sold the note to Scirocco Partners. TPM notified Glassman of the sale of the note, but stated that TPM retained responsibility for servicing and collecting on the note. Glassman appeared in the bankruptcy proceedings representing himself as Scirocco’s attorney and engaged in negotiations intended to achieve a settlement that would permit Scirocco to foreclose, sell or collect on the note. Unknown to Glassman, Scirocco sued TPM in 1995. According to the allegations of the complaint, TPM and Scirocco Partners were joint venturers engaged in purchasing notes. The complaint alleged that TPM had been taking hidden profits on the notes. TPM and Scirocco settled in the fall of 1995. R. Wicks Stephens II, Scirocco’s attorney in that action, informed Glassman of the settlement. Glassman then sent a letter to TPM stating that Scirocco Partners had asked him to continue representing it. A copy of that letter went to Scirocco’s attorney Stephens. Neither Cecil McNab, the general partner of Scirocco, nor Stephens, objected to Glassman’s statement in his letter. Glassman subsequently wrote Scirocco Partners asking it to confirm his representation and to pay his accumulated fees. Scirocco declined to retain Glassman, rejected his claim for fees and independently reached a settlement in the bankruptcy proceeding. TPM was no longer in existence and could not be found. When Glassman sought payment of his $41,483.23 claim, McNab and Scirocco Partners sought arbitration pursuant to � 6200 et seq. Before the arbitration hearing took place, Glassman and McNab (on behalf of himself and Scirocco) signed a stipulation. The stipulation provided that: “We agree to binding arbitration in the above-referenced case. We understand that the award will become final and binding immediately, and that a new trial may not be requested. … Notwithstanding the above it is understood jurisdiction and attorney-client relationships are still issues in the proceeding, and rules thereon binding as provided by law.” (Emphasis in original.) The arbitrators ruled that an attorney-client relationship existed between Glassman and Scirocco Partners and awarded Glassman $41,483.23. Glassman filed a petition to confirm the award. The trial court confirmed the award and McNab (liable as Scirocco’s general partner) and Scirocco appealed. On appeal, McNab and Scirocco asserted that: (1) � 6200 et seq. does not confer jurisdiction over the threshold issue of the existence of an attorney-client relationship; and (2) the parties’ stipulation did not confer jurisdiction over the issue. The court of appeal agreed with McNab that the Stites decision concluded that the arbitrator does not have authority under � 6200 et seq. to determine the threshold question of the existence of an attorney-client relationship. However, the court rejected McNab’s argument that the parties’ written stipulation did not confer jurisdiction. In its analysis of whether or not parties could stipulate to the arbitrators’ jurisdiction pursuant to � 6200 et seq., the court concluded that nothing within � 6200 bars the parties from entering into an agreement granting the arbitrators authority to determine the existence of an attorney-client relationship. In fact, � 6203(a) provides that “The award shall … include a determination of all the questions submitted to the arbitrators, the decision of which is necessary in order to determine the controversy.” The court of appeal also summarily dispensed with McNab’s contention that Stites precluded the parties from conveying subject matter jurisdiction to the arbitrator by consent, waiver or estoppel, stating, “We begin by observing that Stites did not confront this question. The attorney in that case did not participate in the arbitration and thus the court … examined the limits of the arbitrators’ jurisdiction, solely as conferred by � 6200 et seq. By contrast, the parties before us entered into a stipulation that ostensibly augmented the arbitrators’ statutory jurisdiction under � 6200 et seq.” (Glassman) It is interesting that the court’s opinion does not contain any discussion of the fact that it was McNab and Scirocco who sought arbitration of the dispute within the framework of � 6200, and subsequently challenged the award of the arbitrators on the ground that they did not have an attorney-client relationship with Glassman. Section 6200 et seq. was intended to resolve by arbitration, attorney-client fee disputes. It is voluntary for the client, so McNab’s voluntary election to pursue arbitration pursuant to � 6200 at least raises the argument that McNab either waived the jurisdiction issue or by election, admitted the existence of an attorney-client relationship. It seems illogical that McNab could demand a particular forum and then assert that the forum lacked subject matter jurisdiction over him. The Stites and Glassman opinions highlight an important point for attorneys involved in fee disputes. If the putative client disputes that an attorney-client relationship exists, unless the parties stipulate to confer jurisdiction on the � 6200 arbitrator, the arbitrator lacks subject matter jurisdiction to determine that issue. So long as the client disputes the existence of an attorney-client relationship, the attorney may have grounds for refusing arbitration under � 6200 based upon the lack of subject matter jurisdiction, leaving the matter for resolution in the courts. In light of the increased likelihood that litigation of an attorney-client fee dispute may result in a counter-claim for professional negligence against the attorney, many attorneys would probably prefer to resolve the dispute by way of arbitration. If so, then the attorney may want to seek a stipulation from the client to convey subject matter jurisdiction to the arbitrator. Otherwise, the award of the arbitrator is subject to a petition to vacate the award for lack of subject matter jurisdiction. Paul W. Taylor is a Silicon Valley mediator and arbitrator and is of counsel to Hefner, Stark & Marois in Sacramento. He can be reached at [email protected]

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