CONSENT  

Bill No: AB 692

Author: Maienschein (D)

Introduced: 2/19/19

Vote: 21

SENATE JUDICIARY COMMITTEE: 9-0, 6/4/19

AYES: Jackson, Borgeas, Allen, Caballero, Jones, Monning, Stern, Umberg, Wieckowski

ASSEMBLY FLOOR: 74-0, 4/1/19 (Consent) - See last page for vote

SUBJECT: Attorneys: arbitration of attorney’s fees

SOURCE: Conference of California Bar Associations

DIGEST:

This bill amends exceptions to the Mandatory Fee Arbitration Act (MFAA) and provides for the tolling of the limitations period applicable to specified attorney misconduct claims pending the resolution of arbitration carried out pursuant to the MFAA.

ANALYSIS:

Existing law:

1. Establishes the MFAA, requiring the board of trustees of the State Bar to, by rule, establish, maintain, and administer a system and procedure for the arbitration of disputes concerning fees, costs, or both, charged for professional services by licensees of the State Bar or by members of the bar of other jurisdictions. (Bus. & Prof. Code § 6200 et seq.) Unless otherwise agreed to in writing, such arbitration is voluntary for clients, but where the client commences the proceedings, it is mandatory for the attorney. (Bus. & Prof. Code § 6200(c).)
2. Provides that the MFAA does not apply to certain claims or disputes, including claims for affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct, except as otherwise provided. (Bus. & Prof. Code § 6200(b).) In addition, a client’s right to request or maintain arbitration pursuant to the MFAA is waived by the client commencing an action or filing any pleading seeking either of the following:
   1. Judicial resolution of a fee dispute to which this article applies; or
   2. Affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct. (Bus. & Prof. Code § 6201(d).)
3. Provides that evidence relating to claims of malpractice and professional misconduct is admissible in MFAA arbitration proceedings only to the extent that those claims bear upon the fees, costs, or both, to which the attorney is entitled. The arbitrators shall not award affirmative relief, in the form of damages or offset or otherwise, for injuries underlying the claim. (Bus. & Prof. Code § 6203(a).)
4. Provides that a client can stay an action in any court or any other proceeding initiated by an attorney by requesting arbitration, where so entitled, pursuant to the MFAA. (Bus. & Prof. Code § 6201(b).)
5. Provides that even if the parties to the arbitration have not agreed in writing to be bound, the arbitration award shall become binding upon the passage of 30 days after service of notice of the award, unless a party has, within the 30 days, sought a trial after arbitration, as specified. (Bus. & Prof. Code §§ 6203, 6204.)
6. Provides that the time for filing a civil action seeking judicial resolution of a dispute subject to MFAA arbitration shall be tolled from the time an arbitration is initiated until 30 days after arbitration is concluded. Arbitration may not be commenced if a civil action requesting the same relief would be barred by the applicable statute of limitations; provided that this limitation shall not apply to a request for arbitration by a client, pursuant to the provisions of subdivision (b) of Section 6201 (paragraph 4 above), following the filing of a civil action by the attorney. (Bus. & Prof. Code § 6206.)
7. Requires an action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services to be commenced within one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission, or four years from the date of the wrongful act or omission, whichever occurs first, except where the plaintiff is required to establish their factual innocence for an underlying criminal charge. Initiations of such an action must not exceed four years except that the period is tolled during the time that any of the following exist:
   1. The plaintiff has not sustained actual injury;
   2. The attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred;
   3. The attorney willfully conceals the facts constituting the wrongful act or omission when such facts are known to the attorney, except that this subdivision shall toll only the four-year limitation; or
   4. The plaintiff is under a legal or physical disability which restricts the plaintiff’s ability to commence legal action. (Code Civ. Proc. § 340.6(a).)

This bill:

1. Provides that the limitation on commencing arbitration where a civil action requesting the same relief would be barred by the applicable statute of limitations does not apply to a client’s request for arbitration following the commencement of any proceeding by the attorney, rather than the exception only applying following the filing of a civil action by the attorney.
2. Tolls the statute of limitations in which to bring an action against an attorney for specified misconduct in the performance of professional services during the period a dispute between the lawyer and client concerning fees, costs, or both is pending resolution pursuant to the MFAA.

Background

The MFAA provides a system and procedure for the arbitration of disputes concerning fees charged for professional services by attorneys in California. Such arbitration is voluntary for clients and mandatory for attorneys if commenced by a client. The MFAA does not apply to claims for malpractice or professional misconduct, except as provided. In fact, a client waives their right to such arbitration by commencing an action or filing any pleading seeking affirmative relief against an attorney based upon alleged malpractice or professional misconduct.

Existing law provides that an action against an attorney for a wrongful act or omission in connection with the attorney’s provision of legal services, other than for actual fraud, must be commenced within one year of the date the client discovers, or should have discovered, the facts underlying the claim, or within four years of the wrongful act, whichever occurs first. This period is tolled under certain, specified conditions.

This bill includes pending arbitration between the client and attorney under the MFAA as a basis to toll the above limitations period for the commencement of an action against the attorney for misconduct. This encourages the initiation and completion of arbitration pursuant to the MFAA without jeopardizing any possible, additional legal claims of the client against the attorney.

The MFAA provides that arbitration may not be commenced if a civil action requesting the same relief would be time-barred; however, such limitation shall not apply to a client’s request for arbitration following the filing of a civil action by the attorney. This bill adds the commencement of other proceedings as triggering this exception for clients, mirroring other provisions of the MFAA.

This bill is sponsored by the California Conference of Bar Associations. There is no known opposition.

Comments

According to the author:

AB 692 addresses two issues relating to the Mandatory Fee Arbitration Act (MFAA, B&P Code §§6200-6206), which establishes an informal, confidential forum for resolving fee disputes between lawyers and clients at usually far lower cost than litigation. First, it tolls the provision of the Code of Civil Procedure setting deadlines for filing malpractice actions, to allow the parties to resolve fee dispute issues related to the representation without having to litigate the same issue as part of a full-fledged malpractice action. The bill also conforms the language in two provisions of the Act to avoid confusion and eliminate a potential gap in statutory coverage.

Mandatory Arbitration of Attorney’s Fees and Related Civil Actions

The MFAA was created in recognition of the disparity in bargaining power in attorney fee matters in favor of attorneys and to the detriment of often infrequent consumers of legal services; the fact that many clients could not afford hiring separate attorneys to represent them in these disputes; and that previous schemes that made arbitration voluntary for both parties were ineffective. (Maynard v. Brandon (2005) 36 Cal.4th 364, 376-377; Aguilar v. Lerner (2004) 32 Cal.4th 974, 983-984; Hargarten & Ardisson, Fine Tuning California’s Mandatory Attorney Fee Arbitration Statute (1982) 16 U.S.F. L.Rev. 411, 415.) The MFAA sets out its own procedures and guidelines separate and apart from arbitration pursuant to the California Arbitration Act, Code of Civil Procedure Section 1280 et seq. MFAA arbitration is generally conducted through local bar associations with tiered filing fees of set amounts and/or based on a percentage of the disputed amount.^[1] “The MFAA thus makes available an arbitration mechanism designed 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.’” (Maynard, 36 Cal.4th at 376-377, quoting Manatt, Phelps, Rothenberg & Tunney v. Lawrence (1984) 151 Cal. App. 3d 1165, 1174.)

The MFAA provides a closed system of arbitration that is limited to disputes between attorneys and their clients concerning legal fees, costs, or both. In line with the underlying principles highlighted above, clients can force the arbitration of such disputes, while attorneys can request such arbitration, but cannot force clients to participate.

This bill makes two substantive changes to the law regarding attorney-client disputes.

Exceptions to Limitation on MFAA Arbitration

Arbitration pursuant to the MFAA can be initiated before any related civil action or other proceeding is commenced. Once a client commences an action or files any pleading seeking judicial resolution of a fee dispute eligible under the MFAA, the client waives their right to request or maintain such arbitration. (Bus. & Prof. Code § 6201(d).) However, if an attorney commences an action in any court or any other proceeding regarding a dispute over fees and/or costs subject to the MFAA, the client may request arbitration before filing an answer in the action or the equivalent in the other proceeding. (Bus. & Prof. Code § 6201(b), (c).) The client’s request for arbitration automatically stays the attorney’s pending action or other proceeding.

MFAA arbitration generally cannot be commenced if a civil action seeking the same relief would be barred by the applicable statute of limitations. (Bus. & Prof. Code § 6206.) However, this limitation does not apply “to a request for arbitration by a client, pursuant to the provisions of subdivision (b) of Section 6201, following the filing of a civil action by the attorney.” (Ibid.) Therefore, even if a client would be barred from bringing an action to recover fees or costs, the client can initiate arbitration pursuant to the MFAA if the attorney has filed an action against the client. This bill makes one amendment to this section.

Currently, the exception in Section 6206 applies only where the attorney has filed a civil action. However, the language in the cross-referenced statute, Section 6201(b), allows arbitration to be initiated by a client after an attorney “commences an action in any court or any other proceeding.” This bill simply adds commencement of “any other proceeding” to the exception in Section 6206 to track that language and make the various provisions of the MFAA consistent. This change allows clients to initiate MFAA arbitration, if otherwise entitled, after an attorney has commenced any proceeding against the client even if the time period for the client to bring a civil action requesting that relief has expired.

Tolling the Limitations Period for Attorney Misconduct Claims

If arbitration under the MFAA is initiated before the filing of a civil action seeking judicial resolution of a dispute that is itself subject to the MFAA, namely one involving legal fees and/or costs, then the time in which to file such an action is tolled from the commencement of the arbitration until 30 days after its conclusion. This preserves the ability of both parties to file a subsequent claim regarding fees and/or costs. However, there is no similar tolling of the period during MFAA arbitration for claims of attorney misconduct or malpractice. Section 340.6 of the Code of Civil Procedure provides the applicable limitations period for such claims^[2]:

An action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services shall be commenced within one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission, or four years from the date of the wrongful act or omission, whichever occurs first.

Section 340.6 tolls this period where any of the following exist:

• The plaintiff has not sustained actual injury;
• The attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred;
• The attorney willfully conceals the facts constituting the wrongful act or omission when such facts are known to the attorney, except this condition only tolls the four-year limitation; or
• The plaintiff is under a legal or physical disability which restricts the plaintiff’s ability to commence legal action.

Therefore, if a client initiates or agrees to arbitration pursuant to the MFAA of a dispute concerning attorney’s fees or costs, the limitations period for claims of legal malpractice continues to run.

In attorney-client disputes, claims of attorney misconduct or malpractice are often tied into disputes over related fees and costs. However, a client’s right to initiate or maintain arbitration pursuant to the MFAA is waived once the client commences an action or files a pleading seeking either judicial resolution of a fee dispute or affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct. (Bus. & Prof. Code § 6201(d).)

The current statutory scheme can present a legal dilemma for clients. They can take advantage of the arbitration process available through the MFAA but risk having their broader claims against their attorney expire. Or they can completely forego the benefits of MFAA arbitration and force both the attorney and client into litigation for all claims.

This bill addresses this issue by tolling the limitations period in Section 340.6 during the pendency of arbitration pursuant to the MFAA.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/4/19)

Conference of California Bar Associations (source)

OPPOSITION: (Verified 6/4/19)

None received

ARGUMENTS IN SUPPORT: The Conference of California Bar Associations writes: “AB 692 will address two issues relating to the Mandatory Fee Arbitration Act (MFAA, Business & Professions Code §§6200-6206) relating to tolling of deadlines so that fee arbitrations can be used to maximum effect. It does this by tolling the provision of the Code of Civil Procedure setting deadlines for filing malpractice actions, to allow the parties to resolve fee dispute issues related to the representation without having to litigate the same issue as part of a full-fledged malpractice action, and also by conforming the language in two provisions of the Act to avoid confusion and a potential gap in statutory coverage.”

ASSEMBLY FLOOR: 74-0, 4/1/19

AYES: Aguiar-Curry, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Arambula, Bauer-Kahan, Frazier, Eduardo Garcia, Quirk-Silva, Santiago

Prepared by: Christian Kurpiewski / JUD. / (916) 651-4113

6/5/19 10:42:29

**** END ****

1. State Bar of California, Approved Programs, http://www.calbar.ca.gov/Attorneys/Attorney-Regulation/Mandatory-Fee-Arbitration/Approved-Programs [as of May 23, 2019]. ↑

2. The limitations period provided for in Section 340.6 differs where the plaintiff is required to establish their factual innocence for an underlying criminal charge as an element of their claim. ↑

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2019-2020 Regular Session

Bill No: AB 692 (Author:Maienschein)

Version: February 19, 2019

Hearing Date: June 4, 2019

Fiscal: No

Urgency: No

Consultant: CK

SUBJECT

Attorneys: arbitration of attorney’s fees

DIGEST

This bill amends exceptions to the Mandatory Fee Arbitration Act (MFAA) and provides for the tolling of the limitations period applicable to specified attorney misconduct claims pending the resolution of arbitration carried out pursuant to the MFAA.

EXECUTIVE SUMMARY

The MFAA provides a system and procedure for the arbitration of disputes concerning fees charged for professional services by attorneys in California. Such arbitration is voluntary for clients and mandatory for attorneys if commenced by a client. The MFAA does not apply to claims for malpractice or professional misconduct, except as provided. In fact, a client waives their right to such arbitration by commencing an action or filing any pleading seeking affirmative relief against an attorney based upon alleged malpractice or professional misconduct.

Existing law provides that an action against an attorney for a wrongful act or omission in connection with the attorney’s provision of legal services, other than for actual fraud, must be commenced within one year of the date the client discovers, or should have discovered, the facts underlying the claim, or within four years of the wrongful act, whichever occurs first. This period is tolled under certain, specified conditions.

This bill includes pending arbitration between the client and attorney under the MFAA as a basis to toll the above limitations period for the commencement of an action against the attorney for misconduct. This encourages the initiation and completion of arbitration pursuant to the MFAA without jeopardizing any possible, additional legal claims of the client against the attorney.

The MFAA provides that arbitration may not be commenced if a civil action requesting the same relief would be time-barred; however, such limitation shall not apply to a client’s request for arbitration following the filing of a civil action by the attorney. This bill adds the commencement of other proceedings as triggering this exception for clients, mirroring other provisions of the MFAA.

This bill is sponsored by the California Conference of Bar Associations. There is no known opposition.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Establishes the Mandatory Fee Arbitration Act (MFAA), requiring the board of trustees of the State Bar to, by rule, establish, maintain, and administer a system and procedure for the arbitration of disputes concerning fees, costs, or both, charged for professional services by licensees of the State Bar or by members of the bar of other jurisdictions. (Bus. & Prof. Code § 6200 et seq.) Unless otherwise agreed to in writing, such arbitration is voluntary for clients, but where the client commences the proceedings, it is mandatory for the attorney. (Bus. & Prof. Code § 6200(c).)
2. Provides that the MFAA does not apply to certain claims or disputes, including claims for affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct, except as otherwise provided. (Bus. & Prof. Code § 6200(b).) In addition, a client’s right to request or maintain arbitration pursuant to the MFAA is waived by the client commencing an action or filing any pleading seeking either of the following:
   1. judicial resolution of a fee dispute to which this article applies; or
   2. affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct. (Bus. & Prof. Code § 6201(d).)
3. Provides that evidence relating to claims of malpractice and professional misconduct is admissible in MFAA arbitration proceedings only to the extent that those claims bear upon the fees, costs, or both, to which the attorney is entitled. The arbitrators shall not award affirmative relief, in the form of damages or offset or otherwise, for injuries underlying the claim. (Bus. & Prof. Code § 6203(a).)
4. Provides that a client can stay an action in any court or any other proceeding initiated by an attorney by requesting arbitration, where so entitled, pursuant to the MFAA. (Bus. & Prof. Code § 6201(b).)
5. Provides that even if the parties to the arbitration have not agreed in writing to be bound, the arbitration award shall become binding upon the passage of 30 days after service of notice of the award, unless a party has, within the 30 days, sought a trial after arbitration, as specified. (Bus. & Prof. Code §§ 6203, 6204.)
6. Provides that the time for filing a civil action seeking judicial resolution of a dispute subject to MFAA arbitration shall be tolled from the time an arbitration is initiated until 30 days after arbitration is concluded. Arbitration may not be commenced if a civil action requesting the same relief would be barred by the applicable statute of limitations; provided that this limitation shall not apply to a request for arbitration by a client, pursuant to the provisions of subdivision (b) of Section 6201 (paragraph 4 above), following the filing of a civil action by the attorney. (Bus. & Prof. Code § 6206.)
7. Requires an action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services to be commenced within one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission, or four years from the date of the wrongful act or omission, whichever occurs first, except where the plaintiff is required to establish their factual innocence for an underlying criminal charge. Initiations of such an action must not exceed four years except that the period is tolled during the time that any of the following exist:
   1. the plaintiff has not sustained actual injury;
   2. the attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred;
   3. the attorney willfully conceals the facts constituting the wrongful act or omission when such facts are known to the attorney, except that this subdivision shall toll only the four-year limitation; or
   4. the plaintiff is under a legal or physical disability which restricts the plaintiff’s ability to commence legal action. (Code Civ. Proc. § 340.6(a).)

This bill:

1. Provides that the limitation on commencing arbitration where a civil action requesting the same relief would be barred by the applicable statute of limitations does not apply to a client’s request for arbitration following the commencement of any proceeding by the attorney, rather than the exception only applying following the filing of a civil action by the attorney.
2. Tolls the statute of limitations in which to bring an action against an attorney for specified misconduct in the performance of professional services during the period a dispute between the lawyer and client concerning fees, costs, or both is pending resolution pursuant to the MFAA.

COMMENTS

1. Mandatory arbitration of attorney’s fees and related civil actions

The MFAA was created in recognition of the disparity in bargaining power in attorney fee matters in favor of attorneys and to the detriment of often infrequent consumers of legal services; the fact that many clients could not afford hiring separate attorneys to represent them in these disputes; and that previous schemes that made arbitration voluntary for both parties were ineffective. (Maynard v. Brandon (2005) 36 Cal.4th 364, 376-377; Aguilar v. Lerner (2004) 32 Cal.4th 974, 983-984; Hargarten & Ardisson, Fine Tuning California’s Mandatory Attorney Fee Arbitration Statute (1982) 16 U.S.F. L.Rev. 411, 415.) The MFAA sets out its own procedures and guidelines separate and apart from arbitration pursuant to the California Arbitration Act, Code of Civil Procedure Section 1280 et seq. MFAA arbitration is generally conducted through local bar associations with tiered filing fees of set amounts and/or based on a percentage of the disputed amount.^[1] “The MFAA thus makes available an arbitration mechanism designed 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.’” (Maynard, 36 Cal.4th at 376-377, quoting Manatt, Phelps, Rothenberg & Tunney v. Lawrence (1984) 151 Cal. App. 3d 1165, 1174.)

The MFAA provides a closed system of arbitration that is limited to disputes between attorneys and their clients concerning legal fees, costs, or both. In line with the underlying principles highlighted above, clients can force the arbitration of such disputes, while attorneys can request such arbitration, but cannot force clients to participate.

This bill makes two substantive changes to the law regarding attorney-client disputes.

• • 1. Exceptions to limitation on MFAA arbitration

Arbitration pursuant to the MFAA can be initiated before any related civil action or other proceeding is commenced. Once a client commences an action or files any pleading seeking judicial resolution of a fee dispute eligible under the MFAA, the client waives their right to request or maintain such arbitration. (Bus. & Prof. Code § 6201(d).) However, if an attorney commences an action in any court or any other proceeding regarding a dispute over fees and/or costs subject to the MFAA, the client may request arbitration before filing an answer in the action or the equivalent in the other proceeding. (Bus. & Prof. Code § 6201(b), (c).) The client’s request for arbitration automatically stays the attorney’s pending action or other proceeding.

MFAA arbitration generally cannot be commenced if a civil action seeking the same relief would be barred by the applicable statute of limitations. (Bus. & Prof. Code § 6206.) However, this limitation does not apply “to a request for arbitration by a client, pursuant to the provisions of subdivision (b) of Section 6201, following the filing of a civil action by the attorney.” (Ibid.) Therefore, even if a client would be barred from bringing an action to recover fees or costs, the client can initiate arbitration pursuant to the MFAA if the attorney has filed an action against the client. This bill makes one amendment to this section.

Currently, the exception in Section 6206 applies only where the attorney has filed a civil action. However, the language in the cross-referenced statute, Section 6201(b), allows arbitration to be initiated by a client after an attorney “commences an action in any court or any other proceeding.” This bill simply adds commencement of “any other proceeding” to the exception in Section 6206 to track that language and make the various provisions of the MFAA consistent. This change allows clients to initiate MFAA arbitration, if otherwise entitled, after an attorney has commenced any proceeding against the client even if the time period for the client to bring a civil action requesting that relief has expired.

• • 1. Tolling the limitations period for attorney misconduct claims

If arbitration under the MFAA is initiated before the filing of a civil action seeking judicial resolution of a dispute that is itself subject to the MFAA, namely one involving legal fees and/or costs, then the time in which to file such an action is tolled from the commencement of the arbitration until 30 days after its conclusion. This preserves the ability of both parties to file a subsequent claim regarding fees and/or costs. However, there is no similar tolling of the period during MFAA arbitration for claims of attorney misconduct or malpractice. Section 340.6 of the Code of Civil Procedure provides the applicable limitations period for such claims^[2]:

An action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services shall be commenced within one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission, or four years from the date of the wrongful act or omission, whichever occurs first.

Section 340.6 tolls this period where any of the following exist:

• the plaintiff has not sustained actual injury;
• the attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred;
• the attorney willfully conceals the facts constituting the wrongful act or omission when such facts are known to the attorney, except this condition only tolls the four-year limitation; or
• the plaintiff is under a legal or physical disability which restricts the plaintiff’s ability to commence legal action.

Therefore, if a client initiates or agrees to arbitration pursuant to the MFAA of a dispute concerning attorney’s fees or costs, the limitations period for claims of legal malpractice continues to run.

In attorney-client disputes, claims of attorney misconduct or malpractice are often tied into disputes over related fees and costs. However, a client’s right to initiate or maintain arbitration pursuant to the MFAA is waived once the client commences an action or files a pleading seeking either judicial resolution of a fee dispute or affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct. (Bus. & Prof. Code § 6201(d).)

The current statutory scheme can present a legal dilemma for clients. They can take advantage of the arbitration process available through the MFAA but risk having their broader claims against their attorney expire. Or they can completely forego the benefits of MFAA arbitration and force both the attorney and client into litigation for all claims.

This bill addresses this issue by tolling the limitations period in Section 340.6 during the pendency of arbitration pursuant to the MFAA.

2. Stated intent of the bill

According to the author:

AB 692 addresses two issues relating to the Mandatory Fee Arbitration Act (MFAA, B&P Code §§6200-6206), which establishes an informal, confidential forum for resolving fee disputes between lawyers and clients at usually far lower cost than litigation. First, it tolls the provision of the Code of Civil Procedure setting deadlines for filing malpractice actions, to allow the parties to resolve fee dispute issues related to the representation without having to litigate the same issue as part of a full-fledged malpractice action. The bill also conforms the language in two provisions of the Act to avoid confusion and eliminate a potential gap in statutory coverage.

SUPPORT

Conference of California Bar Associations (sponsor)

OPPOSITION

None known

RELATED LEGISLATION

Pending: SB 707 (Wieckowski, 2019) provides that if an employment or consumer arbitration requires the drafting party to pay fees and costs regarding the arbitration and those fees or costs are not paid within 30 days after the due date, then the drafting party is in material breach of the arbitration agreement, is in default of the arbitration, and waives its right to compel arbitration, and authorizes the employee or consumer to the arbitration agreement to compel arbitration or proceed in court, as specified. The bill also clarifies that the statutes of limitations are to be tolled with regard to all claims brought or that relate back to any claim brought in arbitration. This bill is currently awaiting referral in the Assembly.

Prior: SB 954 (Wieckowski, Ch. 350, Stats. 2018) required an attorney representing a client participating in a mediation or a mediation consultation to provide the client with a written disclosure containing the mediation confidentiality restrictions provided in the Evidence Code. This disclosure includes acknowledgment that all communications between client and attorney made in preparation for a mediation, or during a mediation, are confidential and cannot be disclosed or used (except in extremely limited circumstances), even if the client later decides to sue the attorney for malpractice because of something that happens during the mediation.

PRIOR VOTES:

Assembly Floor (Ayes 74, Noes 0)

Assembly Judiciary Committee (Ayes 12, Noes 0)

**************

1. State Bar of California, Approved Programs, http://www.calbar.ca.gov/Attorneys/Attorney-Regulation/Mandatory-Fee-Arbitration/Approved-Programs [as of May 23, 2019]. ↑

2. The limitations period provided for in Section 340.6 differs where the plaintiff is required to establish their factual innocence for an underlying criminal charge as an element of their claim. ↑

Date of Hearing: March 26, 2019

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 692

Author:(Maienschein) – As Introduced Ver:February 19, 2019

PROPOSED CONSENT

SUBJECT: Attorneys: arbitration of attorney’s fees

KEY ISSUE: SHOULD THE STATUTE OF limitations for filing an action against an attorney for a wrongful act or omission arising from the performance of proFessional services be tolled DURING THE TIME PERIOD WHEN AN ATTORNEY AND that attorney’s former CLIENT ARE INVOLVED IN FEE OR COST ARBITRATION PURSUANT TO THE Mandatory Fee Arbitration Act?

SYNOPSIS

In order to incentivize attorneys and their former clients to utilize California’s Mandatory Fee Arbitration Act, this non-controversial bill seeks to clarify that the statute of limitations for filing a legal malpractice lawsuit is tolled when the matter is actively being arbitrated. The Mandatory Fee Arbitration Act provides parties a lower cost method of settling fee and cost disputes between attorneys and their clients, and prevents the parties from resorting to legal action that is more expensive and forces the court to spend time resolving relatively simple matters. Despite the benefits of the program, however, California’s short timeline for filing legal malpractice claims serves to deter clients from seeking arbitration. Accordingly, this bill would toll the statute of limitations, permitting parties the time to resolve the dispute out of court, while preserving all legal rights for the client. Additionally, this bill makes clarifying and conforming changes regarding the tolling statutes in the Mandatory Fee Arbitration Act. This measure is sponsored by the Conference of California Bar Associations and has no known opposition.

SUMMARY: Clarifies several provisions related to the timing of various actions whenever a client and attorney are involved in a fee or cost dispute subject to the Mandatory Fee Arbitration Act. Specifically, this bill:

1. Provides that the statute of limitations for filing an action against an attorney for a wrongful act or omission arising from the performance of professional services shall be tolled during a dispute between a lawyer and client concerning fees, costs, or both, that is being adjudicated pursuant to the Mandatory Fee Arbitration Act.
2. Clarifies provisions in the Mandatory Fee Arbitration Act providing for tolling the statute of limitations when a client seeks arbitration of a fee or cost dispute, to provide that the provisions are triggered any time arbitration is requested following an attorney commencing an action in court or any other proceeding.

EXISTING LAW:

1. Requires the State Bar of California to establish and administer a system and procedure for the arbitration and mediation of disputes concerning fees, costs, or both, charged for professional services by licensees of the State Bar or by members of the bar of other jurisdictions. (Business and Professions Code Section 6200 (a).)
2. Exempts the following disputes from the arbitration provisions of 1), above:
   1. Disputes where a licensee of the State Bar of California is also admitted to practice in another jurisdiction or where an attorney is only admitted to practice in another jurisdiction, and he or she maintains no office in the State of California, and no material portion of the services were rendered in the State of California;
   2. Claims for affirmative relief against the attorney for damages or otherwise based upon alleged malpractice or professional misconduct, unless those claims bear upon the fees, costs, or both, to which the attorney is entitled; and
   3. Disputes where the fee or cost to be paid by the client or on his or her behalf has been determined pursuant to statute or court order. (Business and Professions Code Section 6200 (b).)
3. Provides that unless the client has agreed in writing to arbitration of all disputes concerning fees, costs, or both, arbitration pursuant to 1) shall be voluntary for a client and shall be mandatory for an attorney if commenced by a client. Further provides that mediation is voluntary for an attorney and a client. (Business and Professions Code Section 6200 (c).)
4. Requires an attorney to forward a written notice to the client prior to or at the time of service of summons or claim in an action against the client, or prior to or at the commencement of any other proceeding against the client under a contract between attorney and client which provides for an alternative to arbitration. Further provides that the client’s failure to request arbitration within 30 days after receipt of notice from the attorney shall be deemed a waiver of the client’s right to arbitration under existing law. (Business and Professions Code Section 6201 (a).)
5. Provides that upon filing and service of the request for arbitration for fees or costs, any action or other proceedings shall be automatically stayed until the award of the arbitrators is issued or the arbitration is otherwise terminated. The stay may be vacated in whole or in part, after a hearing duly noticed by any party or the court, if and to the extent the court finds that the matter is not appropriate for arbitration. (Business and Professions Code Section 6201 (b).)
6. Provides that the parties may agree in writing to be bound by the award of arbitrators at any time after the dispute over fees, costs, or both, has arisen. In the absence of such an agreement, either party shall be entitled to a trial after arbitration if sought within 30 days unless either party willfully fails to appear at the arbitration, as specified. (Business and Professions Code Section 6201 (a).)
7. Provides that in the event an attorney is seeking fees or costs subject to ongoing malpractice litigation, nothing in the arbitration provisions shall be interpreted to prevent the arbitrators from awarding the client a refund of unearned fees, costs, or both previously paid to the attorney. (Business and Professions Code Section 6203 (a).)
8. Provides the time for filing a civil action seeking judicial resolution of a fee or cost dispute subject to arbitration shall be tolled from the time an arbitration is initiated in accordance with the rules adopted by the board of trustees until either:
   1. 30 days after receipt of notice of the award of the arbitrators, or
   2. Receipt of notice that the arbitration is otherwise terminated, whichever comes first. (Code of Civil Procedure Section 3206.)
9. Provides that arbitration for fees or costs may not be commenced if a civil action requesting the same relief would be barred by any statute of limitation provided that this limitation shall not apply to a request for arbitration by a client, pursuant to 5) following the filing of a civil action by the attorney. (Code of Civil Procedure Section 3206.)
10. Provides that civil actions, without exception, can only be commenced within the periods prescribed in this title, after the cause of action shall have accrued, unless where, in special cases, a different limitation is prescribed by statute. (Code of Civil Procedure Section 312.)
11. Provides that an action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services shall be commenced within one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission, or four years from the date of the wrongful act or omission, whichever occurs first. Provides that the plaintiff is required to establish his or her factual innocence for an underlying criminal charge as an element of his or her claim, the action shall be commenced within two years after the plaintiff achieves post-conviction exoneration in the form of a final judicial disposition of the criminal case. (Code of Civil Procedure Section 340.6.)
12. Provides that the statute of limitations in 11), above, shall be tolled during any of the following:
    1. The plaintiff has not sustained actual injury;
    2. The attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred;
    3. The attorney willfully conceals the facts constituting the wrongful act or omission when such facts are known to the attorney; and
    4. The plaintiff is under a legal or physical disability which restricts the plaintiff’s ability to commence legal action.

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: This bill seeks to clarify several timelines related to the commencement and tolling of civil actions regarding cost and fee disputes between attorneys and a client. Generally, this bill seeks to ensure that parties using California’s procedures established by Mandatory Fee Arbitration Act are not subsequently disadvantaged should further legal action be necessary. In support of this modest measure, the author states:

AB 692 addressed inconsistencies in the existing law in two ways.

First, AB 692 amends the Code of Civil Procedure Section 340.6 to specifically provide for tolling of the statute of limitations for legal malpractice actions while a fee dispute is being arbitrated under the Mandatory Fee Arbitration Act. This will protect clients from having to abandon efficient and cost-effective fee arbitration in order to proceed with malpractice actions against their attorneys.

Secondly, AB 692 will conform the language of Business and Professions Code Sections 6201 and 6206 so that both bill refer to “civil actions or other proceedings,” eliminating confusion and reducing the possibility of error.

The Mandatory Fee Arbitration Act was designed to provide for an expedited, low-cost system for resolving monetary disputes between attorneys and clients. The Mandatory Fee Arbitration Act (Act) was established to provide for an informal, confidential, and lower-cost forum for resolving fee disputes between attorneys and their clients. Fee arbitration is required for an attorney if requested by a client but also is available if requested by the attorney and agreed to by the client. To permit fee arbitration to work, the Act provides that the client may stay any civil action or other proceeding filed by the attorney against the client until the fee arbitration is completed, either successfully or unsuccessfully. Given the likely financial imbalance between attorneys and their clients, the Act ensures aggrieved clients can resolve fee disputes efficiently without resorting to filing a civil action.

Existing statute of limitation for legal malpractice may deter arbitration. The existing statute of limitations for legal malpractice claims, generally, precludes legal action one year after the client discovers the harm or four years from the date the harm occurred. The one year timeline after the discovery of the harm poses particular issues regarding the fee arbitration. Under the law, if the arbitration is unsuccessful in resolving the matter, a client may seek to file a civil action. Due to the one year statute of limitations, however, a client may run out of time to file a malpractice claim while trying to resolve the issue in arbitration. Accordingly, the proponents of this measure contend that aggrieved clients are frequently forced to decide between costly litigation and risking the potential loss of some of their claims. By clearly providing that the time for filing a civil action regarding a wrongful act or omission arising from the performance of professional services shall be tolled during arbitration governed by the Mandatory Fee Arbitration Act, this bill seeks to ensure that clients are not forced into this predicament, and generally, promote the more efficient arbitration procedures.

Clarifying existing law to prevent confusion in enforcing the Act. The proponents of this measure, additionally, highlight a perceived inconsistency in existing law. Existing law relating to staying actions while as matter is being arbitrated include matters in a court action or other proceedings, whereas provisions related to tolling the statute of limitations only address tolling matters after a civil action has been filed. Proponents suggest this inconsistency prohibits tolling claims that would be subject to outside arbitration. This bill would standardize the two provisions to provide that both provisions are triggered upon the commencement of a court action or other proceeding, including arbitration unrelated to the fees and costs.

ARGUMENTS IN SUPPORT: In support of this measure, the Conference of California Bar Association states:

AB 692 will address two issues relating to the Mandatory Fee Arbitration Act (MFAA, Business & Professions Code §§6200-6206) relating to tolling of deadlines so that fee arbitrations can be used to maximum effect. It does this by tolling the provision of the Code of Civil Procedure setting deadlines for filing malpractice actions, to allow the parties to resolve fee dispute issues related to the representation without having to litigate the same issue as part of a full-fledged malpractice action.

AB 692 also will correct an inconsistency between two provisions of the MFAA. Currently, B&P Code §6201 provides that the filing of a request for Mandatory Fee Arbitration by a client stays a court action “or any other proceeding” (such as a regulation arbitration) filed by an attorney until the mandatory fee arbitration is done. However, B&P Code §6206, referencing that same provision B&P Code §6201 refers only to the tolling of civil actions, with no reference to “other proceedings.” AB 692 will remove this discrepancy and bring consistency to the two statutes.

REGISTERED SUPPORT / OPPOSITION:

Support

Conference of California Bar Associations

Opposition

None on file

Analysis Prepared by: Nicholas Liedtke / JUD. / (916) 319-2334