Fuchs & Assocs. v. Lesso
Filed 1/8/13
Fuchs & Assocs. v. Lesso CA2/2
OFFICIAL REPORTS
California Rules of Court, rule
8.1115(a), prohibits courts and parties from citing or relying on opinions not
certified for publication or ordered published, except as specified by rule
8.1115(b). This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
FUCHS &
ASSOCIATES, INC.,
Plaintiff and Appellant,
v.
ELKE LESSO,
Defendant and Respondent.
B239246
(Los Angeles County
Super. Ct. No.
BC441602)
APPEAL
from a judgment of the Superior Court of
County. John Segal,
Judge. Affirmed.
Fuchs
& Associates, Inc., John R. Fuchs and Gail S. Gilfillan for Plaintiff and
Appellant.
Law
Office of Thomas H. Edwards and Thomas H. Edwards for Defendant and Respondent.
* *
* * * *
Appellant Fuchs & Associates, Inc. (Fuchs) sued its former
client, respondent Elke Lesso, for unpaid attorney fees of $647,688.13. The matter was submitted to binding
arbitration. The arbitrator found that
Fuchs was not entitled to recover any additional fees beyond those already paid
and that its attorney fee lien was invalid.
On appeal from the judgment confirming the
contentions, including that the arbitrator exceeded his authority, the
arbitration hearing should have been continued, and there was manifest
disregard of the law. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Lesso,
who is 62 years old, moved to the
States from Germany in 1976 and established a successful business designing,
manufacturing and selling women’s clothing.
In 1991 she married Piotrek Andrzejewski, a Polish national living in
the United States. In 2006 she sold her
business and invested the proceeds in two warehouses in Glendale.
In September
2007, she commenced a marital dissolution action against Andrzejewski in Los
Angeles Superior Court after discovering that he had embezzled money from her
business, which he invested in the stock market and used to purchase properties
in Poland. At the commencement of the
proceedings, the community property in the United States consisted of the two warehouses in Glendale, worth
approximately $1.7 million, and a residence in La Canada
with equity of approximately $320,000.
The community also consisted of two properties in Mexico
with a combined equity of approximately $200,000.
On
September 15,
2008 Lesso retained Fuchs to represent her
in a separate lawsuit filed against her by Andrzejewski. At that time the dissolution action had been
proceeding for nearly a year. On October 15, 2008 Lesso retained Fuchs to represent her in the dissolution action,
and Fuchs later represented her in two other smaller actions related to the
dissolution action.
Lesso
and Fuchs executed two identical “Hourly Attorney Fee Agreements†(fee
agreements) on September 15 and October 15, 2008. In paragraph 11, the fee agreements provided
for binding arbitration of “[a]ny controversy between the parties regarding the
construction, application or performance of any services under this Agreement,
and any claim arising out of or relating to this Agreement or its breach.†In paragraph 9, the fee agreements contain
the following lien provision: “Client
hereby grants Attorney a lien on any and all claims or causes of action that
are the subject of the representation under this Agreement. The lien will be for any sums owing to
Attorney at the conclusion of services performed. The
lien will attach to any recovery Client may obtain, whether by arbitration
award, judgment, settlement or otherwise.
The effect of such a lien is that Attorney may be able to compel payment
of fees and costs from any such funds recovered on behalf of Client even if
Attorney has been discharged before the end of the case. Because a lien may affect Client’s property
rights, Client may seek the advice of an independent lawyer of Client’s choice
before agreeing to such a lien. By
initialing this paragraph, Client represents and agrees that Client has had a
reasonable opportunity to consult such an independent lawyer and, whether or
not Client has chosen to consult an independent lawyer, Client agrees that
Attorney will have a lien as specified above,†italics added.
When
Lesso retained Fuchs to represent her in the
that she wanted the issues pertaining to the division of community property in California and Mexico
tried as quickly as possible and that she would separately pursue her share of
the Polish properties in Poland. Fuchs insisted that Andrzejewski be required
to make a full disclosure of the Polish assets in the dissolution action, and
engaged in numerous discovery disputes with Andrzejewski’s attorney on this
issue.
Lesso
paid Fuchs $408,000 during the first 10 months that it represented her, but was
only able to pay a small portion of the bills after June 2009, which averaged
more than $50,000 a month. Lesso
repeatedly told Fuchs that she could not afford to pay the bills, but he told
her not to be concerned because Andrzejewski would be required to pay her
attorney fees at the end of the case.
Fuchs ultimately billed Lesso more than a million dollars during the 22
months that it represented her, which was roughly half the value of the
community property located in
and Mexico.
In
April 2009 Fuchs filed a motion in the dissolution action seeking an order that
Andrzejewski pay Lesso $200,000 in pendente lite attorney fees. Instead of ordering Andrzejewski to pay the
sum directly, the court issued an order requiring him to obtain a loan to be
secured by the two Glendale warehouses and authorizing each of the parties to receive $200,000
from the loan proceeds. Lesso told Fuchs
that she did not want to proceed with the loan transaction and asked Fuchs to
file a motion for reconsideration. Fuchs
refused to do, and advised Lesso to sign the loan agreement procured by
Andrzejewski in the amount of $450,000, which was due in one year. Fuchs did not advise Lesso to seek
independent legal counsel before she signed the loan.
The
loan came due on April 30, 2010, and the lender
agreed to extend the loan for an additional year with an increased interest
rate of 24 percent. Lesso could only
make the interest payments for a few months and began trying to sell the two
warehouses. In June 2010 she recorded
six deeds of trust on the properties totaling $356,000, which represented loans
made to her by family and friends during the dissolution action. When Fuchs learned about the deeds of trust,
it insisted that Lesso pay $625,000.
Lesso refused and fired Fuchs on June 23, 2010. On July 8, 2010,
Fuchs recorded a “notice of attorney fee and cost lien in the amount of
$625,000.†Lesso eventually filed for
bankruptcy protection in May 2011.
On
July 14, 2010 Fuchs sued Lesso alleging six causes of action for
account, account stated, promissory fraud and enforcement of the lien. Fuchs sought compensatory damages of
$647,688.16, plus punitive damages. The
matter was submitted to binding arbitration and took place over two days in
September 2011. Because John R. Fuchs
had been suspended by the State Bar in August 2011 for sixty days, his law firm
was represented at the arbitration by his associate.
The
arbitrator issued his 13-page arbitration award on October 12, 2011. He concluded that (1)
“Fuchs shall recover no additional attorney fees, costs or damages,†(2) “The
lien recorded by Fuchs is invalid and should be expunged,†and (3) “Fuchs need
not refund any of the $480,998.68 previously paid [by Lesso].â€
Fuchs
then filed a petition in the trial court to correct or vacate the award and
Lesso filed a petition to confirm the award.
In a detailed ruling, the trial court denied Fuchs’ petition to vacate
or correct the arbitration award, and confirmed the award. Judgment was entered and this appeal
followed.
DISCUSSION
Contentions.
Fuchs contends
the judgment must be reversed and the arbitration award vacated because the
arbitrator exceeded his powers by rewriting the fee agreements, failing to
decide all issues submitted to him and deciding issues that were not
submitted. Fuchs also contends that it
was prejudiced by the arbitrator’s refusal to continue the arbitration hearing,
and that the doctrine of manifest disregard of the law applies.
Applicable Law and Standard of Review.
It is well
established that judicial review of an arbitration award is “‘extremely
narrow.’†(Ajida Technologies, Inc. v. Roos Instruments, Inc. (2001)
for errors of fact or law, or the validity of an arbitrator’s reasoning, or the
sufficiency of the evidence supporting an arbitrator’s award. (Moncharsh
v. Heily & Blase (1992) 3 Cal.4th 1, 11 (Moncharsh).) As our Supreme
Court recognized as early as 1852, “‘The arbitrators are not bound to award on
principles of dry law, but may decide on principles of equity and good
conscience, and make their award ex aequo
et bono [according to what is just and good].’†(Ibid.,
quoting Muldrow v. Norris (1852) 2
Cal. 74, 77.)
The grounds for
vacating or correcting an arbitration award are strictly limited by
statute. Under Code of Civil Procedure
section 1286.2, the only grounds for vacating an award are the following: (1) The award was procured by corruption,
fraud or other undue means; (2) There was corruption in any of the arbitrators;
(3) The rights of the party were substantially prejudiced by the misconduct of
a neutral arbitrator; (4) The arbitrators exceeded their powers and the award
cannot be corrected without affecting the merits of the decision upon the
controversy submitted; (5) The rights of the party were substantially
prejudiced by the refusal of the arbitrators to postpone the hearing upon
sufficient cause or by the refusal of the arbitrators to hear evidence material
to the controversy; or (6) An arbitrator making the award either: (A) failed to disclose within the time
required for disclosure a ground for disqualification of which the arbitrator
was then aware; or (B) was subject to disqualification upon grounds specified
in section 1281.91 but failed upon receipt of timely demand to disqualify
himself or herself as required by that provision. (Code Civ. Proc., § 1286.2, subd. (a)(1)-(6).) An arbitration award shall also be vacated
when it does not “include a determination of all the questions submitted to the
arbitrators the decision of which is necessary in order to determine the
controversy.†(Code Civ. Proc., §
1283.4.)
Under Code of
Civil Procedure section 1286.6 the only grounds for correcting an award are the
following: (1) There was an evident
miscalculation of figures or an evident mistake in the description of any
person, thing or property referred to in the award; (2) The arbitrators
exceeded their powers but the award may be corrected without affecting the
merits of the decision upon the controversy submitted; or (3) The award is
imperfect in a matter of form, not affecting the merits of the controversy. (Code Civ. Proc., § 1286.6, subds. (a)-(c).)
As summarized in
O’Flaherty v. Belgum (2004) 115
Cal.App.4th 1044, 1055–1056, an arbitrator exceeds his powers when he acts
without subject matter jurisdiction, decides an issue that was not submitted to
arbitration, arbitrarily remakes the contract, upholds an illegal contract,
issues an award that violates a well-defined public policy or statutory right,
fashions a remedy that is not rationally related to the contract or selects a
remedy not authorized by law. “In other
words, an arbitrator exceeds his powers when he acts in a manner not authorized
by the contract or by law.†(
(2002) 100 Cal.App.4th 431, 443.)
We review the
trial court’s order de novo, while the arbitrator’s award is entitled to
deferential review. (
Instruments, Inc., supra, 87
Cal.App.4th at p. 541; Advanced Micro
Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 376, fn. 9.)
The Arbitrator Did Not Exceed His Powers.
Fuchs argues
that the arbitrator exceeded his powers by rewriting the fee agreements in two
respects.
First, Fuchs
argues that the arbitrator rewrote the fee agreements to allow a prohibited
oral modification providing that Lesso would not have to pay any additional
fees.
there was no such finding by the arbitrator.
The arbitrator found that Lesso was “credible in her testimony that she
told Fuchs that she was not able to pay for the services and relied on his
representation that the fees would be ordered to be paid by her husband, who
clearly had the greater ability to pay.â€
The arbitrator did not use this finding to conclude that the fee
agreements had been modified. Rather, he
used this finding to support his conclusion that Lesso had not committed fraud
by allegedly promising to pay Fuchs’s bills when she did not intend to do so.
Second, Fuchs
argues that the arbitrator rewrote the lien provisions in the fee agreements by
ruling that Fuchs’s attorney fee lien in the amount of $625,000 was invalid. Again, the arbitrator did not rewrite the fee
agreements. The lien provisions clearly
and unambiguously provide that “The lien
will attach to any recovery Client may obtain, whether by arbitration
award, judgment, settlement or otherwise,†italics added. The arbitrator correctly found that Fuchs’s
position that it had a lien on all of her assets,
including real property, is simply not supported by the contract language.
Moreover, the
arbitrator found that Fuchs failed to comply with rule 3-300 of the Rules of
Professional Conduct of the State Bar of California (rule 3-300), which
prohibits an attorney from entering into a business transaction with a client
or knowingly acquiring an interest adverse to a client unless the “transaction
or acquisition and its terms are fair and reasonable to the client and are
fully disclosed and transmitted in writing to the client in a manner which
should reasonably have been understood by the client,†rule 3-300(A). (Fletcher
v. Davis (2004) 33 Cal.4th 61, 64 [concluding that “[w]hen an attorney
wishes to secure payment of hourly legal fees and costs of litigation by
obtaining a charging lien against a client’s future recovery†rule 3-300 of the
Rules of Professional Conduct of the State Bar of California applies].) Fuchs conceded that it did not inform Lesso
that it would be taking the position that the lien would attach to all of her
assets.
Furthermore,
Family Code section 2033 requires an attorney representing a client in a
dissolution proceeding to give notice to the opposing party’s attorney before
obtaining a lien on his client’s interest in any community real property to
secure payment of his fees. (Fam. Code,
§ 2033, subd. (b).) The statute refers
to such a lien as a “‘family law attorney’s real property lien.’†(Fam. Code, § 2033, subd. (a).) The arbitrator noted that no such notice was
given. Fuchs argues that it could not
have obtained such a lien after it was fired by Lesso, but later asserts in its
opening brief that such a lien would
be valid.
Submitted
Fuchs argues
that the arbitrator failed to decide three of the six causes of action alleged
in the complaint—quantum meruit, open book account and account stated.
As noted above,
Code of Civil Procedure section 1283.4 requires an arbitrator’s award to
“include a determination of all the questions submitted to the arbitrators the
decision of which is necessary in order to determine the controversy.†Here, the arbitrator did in fact determine
the entire controversy between the parties.
At the beginning of the “Findings†section in the arbitration award, the
arbitrator listed all six causes of action alleged in the complaint. The arbitrator then found that “none of the
alleged causes of action for additional payment of fees is supported by the
evidence,†and concluded that Fuchs was not entitled to recover any additional
fees, costs or damages.
While
the arbitrator did not provide a detailed explanation of his reasons for
rejecting all of Fuchs’s causes of action, it is settled that an arbitrator’s
failure to render express findings on a disputed issue does not invalidate the
award so long as the award resolves the entire controversy. (Luster
v. Collins (1993) 15 Cal.App.4th 1338, 1345; Rodrigues v. Keller (1980) 113 Cal.App.3d 838, 843;
Cal.4th 1179, 1187 [“As the arbitration agreement did not require the
arbitrator to support his award with written factual findings, however, he
clearly did not exceed his powers by making the award without particular
supportive findingsâ€].)
Submitted
Fuchs argues
that the arbitrator decided two issues not submitted to him.
First, Fuchs
asserts that the arbitrator accepted Lesso’s defense that Fuchs agreed to an
oral modification of the fee agreements.
But we have already concluded that the arbitrator made no such finding.
Second, Fuchs
asserts incongruously that “Lesso presented a cross-complaint in arbitration
that had also never been submitted to the arbitrator, asserting that Fuchs had
breached his fiduciary duty to Lesso.â€
The arbitration award does not mention a cross-complaint, only that
Lesso argued that Fuchs had unclean hands and breached its fiduciary duty with
respect to the loan transaction. While
the arbitrator found that the unclean hands defense did not apply, he did find
that Fuchs breached its fiduciary duty to Lesso in connection with the loan
agreement, stating: “Fuchs’ interest was
in conflict with his client because she might not have been able to support the
payments after a year when the interest rate jumped, she would go into default,
and when the building was sold Fuchs would have been paid and the client may
well have lost the equity,†and there was no “writing explaining the potential
consequences of this transaction.â€
The arbitration
provisions in the fee agreements provided for arbitration of “[a]ny controversy
between the parties regarding the construction, application or performance of
any services under this Agreement, and any claim arising out of or relating to
this Agreement or its breach.†The
arbitrator’s award identified the two issues to be determined as “Fuchs’ claim
for money based on several legal and equitable theories, and Lesso’s claim for
a refund and a determination that the liens placed by Fuchs are invalid.†All of the issues decided in the award were
subject to arbitration under the fee agreements. We are satisfied that the arbitrator did not
exceed his powers.
Failure to Continue the Hearing Is Not a Basis for Vacating the
Award Here.
Even when an
arbitrator does not exceed his powers, an arbitration award may still be
vacated based on a showing that “[t]he rights of the party were substantially
prejudiced by the refusal of the arbitrators to postpone the hearing upon
sufficient cause being shown therefor or by the refusal of the arbitrators to
hear evidence material to the controversy or by other conduct of the
arbitrators contrary to the provisions of this title.†(Code Civ. Proc., § 1286.2, subd.
(a)(5).) A party must show both
sufficient cause for the continuance and that it was prejudiced by the denial
of the continuance. (
LLC (2007) 150 Cal.App.4th 1181, 1198.)
Fuchs argues
that a continuance of the arbitration hearing was necessary because (1) there
was a “significant amount of material evidence†that could not be presented
within the allotted time period for the arbitration, (2) Fuchs had a “material
witness†(Eugene Alkana) who could not appear on the allotted days and would
have testified that he had provided legal services to Lesso in another matter
for which he was not paid, and (3) Fuchs only had two more weeks left of his
suspension from legal practice imposed by the State Bar and he should have been
allowed to make the closing argument.
The parties
dispute whether Fuchs ever asked the arbitrator to schedule an additional day
of hearing for the presentation of either Alkana’s testimony or additional
evidence. But even accepting Fuchs’s version
of events, Fuchs has failed to make the required showing of both sufficient
cause for the continuance and prejudice.
Except for Alkana’s testimony, Fuchs has not identified what additional
evidence it wished to present that it was precluded from presenting, and how it
was prejudiced by the preclusion. The
testimony by Alkana that Lesso had failed to pay her legal bill in another case
was irrelevant and would probably have been excluded. And Fuchs does not explain why his associate,
who had an hourly rate of $350 during the dissolution proceeding and who
represented Fuchs during the arbitration hearing, could not give an adequate
closing argument.
“Manifest Disregard of the Law†Doctrine Inapplicable.
Fuchs contends
that a separate basis for reversing the judgment and vacating the arbitration
award is application of the doctrine of “manifest disregard of the law,†by
which judicial review may be made in excess of the limited review permitted by
Code of Civil Procedure section 1286.2.
In making this contention, Fuchs relies on federal cases limited to
proceedings under the Federal Arbitration Act, Title 9 United States Code
sections 9–11. But our Supreme Court has
stated: “[W]e need not and do not move
in lockstep with the federal courts in matters of judicial review of
arbitration awards . . . .
We have also gone our own way in Moncharsh,
articulating a strict review standard precluding vacatur for legal error that
does not include a ‘manifest disregard’ exception, while at the same time
leaving open the possibility of greater judicial review, as discussed above, in
the case of rulings inconsistent with the protection of statutory rights.†(Pearson
Dental Supplies, Inc. v. Superior Court (2010) 48 Cal.4th 665, 679,
fn. 3 (Pearson).)
Fuchs nevertheless
argues there was a manifest disregard of the law because the arbitrator failed
to apply the equitable doctrines of collateral and judicial estoppel and
res judicata. Fuchs claims these
theories were supported by findings made in the dissolution proceeding that its
fees were necessary and reasonable and Lesso’s declarations in that proceeding
that she owed the fees. Fuchs’s reliance
on Pearson to support its position is
misplaced. Pearson involved the “limited and exceptional circumstances
justifying judicial review of an arbitrator’s decision,†mentioned in
when “‘granting finality to an arbitrator’s decision would be inconsistent with
the protection of a party’s statutory rights.’â€
(Pearson, supra, 48 Cal.4th at p. 676.)
The Pearson Court held that
when “an employee subject to a mandatory employment arbitration agreement is
unable to obtain a hearing on the merits of his FEHA claims, or claims based on
other unwaivable statutory rights, because of an arbitration award based on
legal error, the trial court does not err in vacating the award. Stated in other terms, construing the CAA
[California Arbitration Act] in light of the Legislature’s intent that
employees be able to enforce their right to be free of unlawful discrimination
under FEHA [Fair Employment and Housing Act, Gov. Code, § 12900 et seq.], an
arbitrator whose legal error has barred an employee subject to a mandatory
arbitration agreement from obtaining a hearing on the merits of a claim based
on such right has exceeded his or her powers within the meaning of Code of
Civil Procedure section 1286.2, subdivision (a)(4), and the arbitrator’s award
may properly be vacated.†(
In
(2011) 194 Cal.App.4th 987, which involved business disputes between a doctor
and a hospital unrelated to the doctor’s competence, the court stated at page
1005: “In this case, the arbitrator’s
award did not conflict with any statutory mandate or judicial prohibition. This was not a mandatory arbitration
agreement, with an award that prevented plaintiff from vindicating his
statutory rights in any forum, as in Pearson,
nor is it one of those ‘rare cases where “according finality to the
arbitrator’s decision would be incompatible with the protection of a statutory
right†or where the award contravenes “an explicit legislative expression of
public policy.†[Citations.]’ ([City
of] Palo Alto [
(1999)] 77 Cal.App.4th [327,] 334.) It
is instead the usual case where the arbitral award ‘stand[s] immune from
judicial scrutiny.’ (
Likewise here,
we agree with the trial court’s statement in its written ruling that “There is
nothing that suggests that ‘resolution by an arbitrator of what is essentially
an ordinary fee dispute would be inappropriate or would improperly protect the
public interest,’ making ‘judicial review of the arbitrator’s decision
. . . unavailable. (
Fuchs has not cited any authority showing that an arbitrator’s decision
on a law firm’s action for attorney fees has ever been reviewed on the merits
by a trial court under the exceptional circumstances involving a statutory or
public policy decision. As the trial
court noted, “Even if Fuchs were correct that the arbitrator made a mistake of
fact or law (which does not appear to be the case), Fuchs accepted that riskâ€
in agreeing to arbitrate. (
33.) Fuchs has provided no basis for
vacating or correcting the arbitration award.
DISPOSITION
The
judgment is affirmed. Lesso is entitled
to recover her costs on appeal.
NOT TO BE
PUBLISHED IN THE OFFICIAL REPORTS.
_______________________,
Acting P. J.
DOI TODD
We concur:
_______________________, J.
ASHMANN-GERST
_______________________, J.
CHAVEZ
arbitration, Fuchs had been disciplined by the State Bar three times: In 2001 he was suspended for one year after
stipulating that he maintained “an unjust action by pursuing a lawsuit against
former clients for fees and costs, despite entering into a settlement and
agreement releasing them from any further claimâ€; in 2006 he was suspended for
six months for “two acts of misconduct by failing to promptly notify a client
of his receipt of funds and representing clients with adverse interestsâ€; and
on August 13, 2011 he was suspended for 60 days after stipulating that he
“improperly communicated with a judge about the merits of a case pending before
the judge.â€
(http://members.calbar.ca.gov/fal/Member/Detail/82032.)
the fee agreements provides: “This
Agreement may be modified by subsequent agreement of the parties only by an
instrument in writing signed by both of them, or an oral agreement only to the
extent that the parties carry it out.â€
It is undisputed there was no written modification of the fee
agreements.
