Alternative Systems, Inc. v. Carey

In Alternative Systems, Inc. v. Carey (1998) 67 Cal. App. 4th 1034, an attorney and client entered into a fee agreement, in which they agreed to submit any disputes arising from the representation to binding arbitration before a designated arbitrator. A fee dispute arose and the client demanded advisory arbitration under the Mandatory Fee Arbitration statutes, rather than the binding arbitration provided for in the fee agreement. Over the protests of the client, the binding arbitration went forward. The arbitration clause provided that all disputes would be resolved by binding arbitration conducted by the American Arbitration Association (AAA). ( Id. at p. 1038.) When a fee dispute arose, the attorney demanded binding arbitration before the AAA, and the client demanded arbitration under the MFA, requesting it be "advisory" rather than "binding." (Ibid.) A local bar association issued an award following an MFA hearing. Both parties rejected its award, and the client filed an action for a trial de novo. (Ibid.) Before the trial occurred, the AAA conducted an arbitration and issued an award in favor of the attorney. The attorney's motion to confirm the award was granted. ( Id. at p. 1039.) The Court reversed. It concluded that giving finality to the AAA arbitrator's decision would violate the client's statutory rights under the MFA; that the client had not waived its right to trial de novo "under the MFA" scheme by signing the fee agreement containing the binding AAA arbitration clause; and that the MFA in effect when the client invoked its protection preempted the fee agreement arbitration clause. (Alternative Systems, supra, 67 Cal. App. 4th at p. 1044, italics in original.) Therefore, the arbitrator exceeded his powers by purporting to make a binding award under the preempted clause, and the client was entitled to a trial de novo. ( Id. at p. 1044.) On appeal, the court vacated the binding arbitration award, stating that the parties have a right to trial after the advisory arbitration and that the right to trial can only be waived after an award has been rendered in the advisory arbitration. (See id. at 1042; Bus. & Prof. Code section 6204, subd. (a) "The parties may agree in writing to be bound by the award of the 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.".) In other words, under Alternative Systems an award must be rendered in advisory fee dispute arbitration before the parties can agree to be bound by such an award. An attorney-client retainer agreement may not include a waiver of the right to advisory arbitration in fee disputes.