Mandatory arbitration costs are properly assessed to law firm

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In Roldan v. Callahan & Blaine, the California Court of Appeal for the Fourth Appellate District decided a unique case illustrating California’s public policy of ensuring a litigant’s access to the justice system. The case arose out of a “mandatory arbitration clause” contained in the law firm’s retainer agreement with its clients.

The plaintiffs hired a lawyer to represent them in litigation. The clients were elderly and had limited resources. Prior to trial, the lawyer needed assistance and hired the law firm of Callahan & Blaine (“Callahan”) to work as co-counsel. Callahan’s retainer agreement contained a mandatory arbitration provision. Subsequently, the clients agreed to settle the case. However, they alleged Callahan used undue influence to obtain their consent.

The clients subsequently sued Callahan based on their assertions of undue pressure. The complaint filed on their behalf alleged that the plaintiffs received sums “far less than the real value of the case.” Callahan successfully moved to compel arbitration at the trial court level. The plaintiffs then contended that they could not afford to arbitrate the case and requested an order requiring the law firm to pay the costs of arbitration. The trial court denied that request.

The court of appeal reversed the trial court’s decision.  The court referenced California’s public policy of ensuring that all litigants have access to the justice system without regard to economic means. The court of appeal concluded that Callahan’s arbitration provision did not contain any protections to ensure the clients would have equal access to the justice system. The court of appeal directed the trial court to calculate the cost of arbitration, and to provide two alternatives to the law firm. The trial court was directed to allow the firm to either pay the reasonable arbitration costs for the plaintiffs or to waive the right to arbitrate.