Key Decisions

October 2013 – An Arbitration Provision Was Enforceable

(filed under: Key Decisions | October 20, 2013)

An Arbitration Provision Was Enforceable

Mt. Holyoke Homes, L.C. v. Jeffer Mangels Butler & Mitchell, LLP
(Cal. Ct. of App., 2d Dist.), filed September 24, 2013, published September 24, 2013

Mt. Holyoke Homes sued the law firm of Jeffer Mangels Butler & Mitchell for legal malpractice. The firm moved to compel arbitration. It relied on a provision in its retainer agreement that stated in bold capital letters:

ARBITRATION AND WAIVER OF JURY TRIAL. ANY DISPUTE BASED UPON OR ARISING OUT OF OUR ENGAGEMENT, THIS LETTER AGREEMENT AND/OR THE PERFORMANCE OR FAILURE TO PERFORM SERVICES (INCLUDING, WITHOUT LIMIT, CLAIMS OF BREACH OF DUTY OR PROFESSIONAL NEGLIGENCE) SHALL BE SUBJECT TO BINDING ARBITRATION TO BE HELD IN LOS ANGELES OR SAN FRANCISCO COUNTY, CALIFORNIA (WHICHEVER COUNTY IS THE ONE IN WHICH THE FIRM’S OFFICE IS LOCATED WHICH PERFORMED MORE OF THE SERVICES IN QUESTION) BEFORE A RETIRED CALIFORNIA SUPERIOR COURT JUDGE. JUDGMENT ON THE ARBITRATOR’S AWARD SHALL BE FINAL AND BINDING, AND MAY BE ENTERED IN ANY COMPETENT COURT. AS A PRACTICAL MATTER, BY AGREEING TO ARBITRATE ALL PARTIES ARE WAIVING JURY TRIAL.

The retainer agreement also stated, in part, “We are not advising you with respect to this letter because we would have a conflict of interest in doing so. If you wish advice, you should consult independent counsel of your choice.” The agreement also provided that the prevailing party in any arbitration or litigation was entitled to recover its attorney’s fees, expert fees and costs. The agreement stated above the signature line for the client:

The undersigned has read and understood this agreement. The undersigned acknowledges that this letter agreement is subject to binding arbitration as provided in Paragraph 11 above. The foregoing accurately sets forth all the terms of your engagement, and is approved and accepted on OCT 20, 1997.

The trial court granted the motion to compel arbitration.

After the arbitrator rendered an award in favor of Jeffer Mangels, Mt. Holyoke moved to vacate it. The trial court denied that motion.

In the ensuing appeal, the Court of Appeal ruled the arbitration provision was enforceable and the trial court had properly ordered the matter into arbitration. However, due to other irregularities, the award had to be vacated.

The court rejected Mt. Holyoke’s argument that Jeffer Mangels had a duty to disclose and explain the significance of the arbitration provision and that its failure to satisfy such a duty invalidated the arbitration agreement.