Cox v. Wan

Decision Date23 June 2016
Docket NumberB262017
CourtCalifornia Court of Appeals Court of Appeals
PartiesCOX, CASTLE & NICHOLSON, LLP, Plaintiff and Respondent, v. DAVID WAN et al., Defendants and Appellants

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. BC553213)

APPEAL from judgments of the Superior Court of Los Angeles County, Joseph R. Kalin, Judge. Reversed and remanded with instructions.

Lipeles Law Group, Kevin A. Lipeles, Thomas H. Schelly and Julian Bellenghi for Defendants and Appellants.

Cox, Castle & Nicholson, Kenneth B. Bley and Charles E. Noneman for Plaintiff and Respondent.

INTRODUCTION

Plaintiff and respondent, the law firm of Cox, Castle & Nicholson, LLP (plaintiff), represented defendants and appellants David Wan and Si Lau (defendants) in a civil action filed against them. When plaintiff did not receive full payment of its attorney fees for legal services rendered in defense of that action, it filed a complaint against defendants for breach of contract, payment for services performed, open book account, and account stated. In a separate cause of action, plaintiff sought to compel arbitration pursuant to the arbitration clause in an engagement agreement between the parties. In addition, plaintiff designated an arbitrator to preside over the requested arbitration. Plaintiff sought both money damages and an order compelling arbitration.

When defendants did not timely respond to plaintiff's complaint, their defaults were entered. Defendants then moved for relief from default under Code of Civil Procedure section 473, subdivision (b) (motion to vacate),1 claiming excusable neglect. The trial court denied defendants' motion and entered money judgments against them.

On appeal from the judgments, defendants contend the trial court lacked subject matter jurisdiction over the fee dispute because plaintiff's cause of action seeking to compel arbitration deprived the trial court of jurisdiction over the merits of the fee dispute. Defendants also assert the trial court abused its discretion by not granting relief from default. They argue that when plaintiff rejected their request to set aside their defaults voluntarily, they promptly moved to set them aside. Defendants additionally contend plaintiff's request for arbitration was confusing and misleading, and one of them had a limited understanding of English.

We hold that because plaintiff's cause of action to compel arbitration admitted the existence of a binding agreement to arbitrate the fee dispute, the trial court's jurisdiction over the merits of plaintiff's claims was initially limited to a determination of the gateway issue of arbitrability. But even assuming, arguendo, the trial court did have jurisdiction over the merits of the fee dispute, plaintiff was nevertheless estopped from seeking default money judgments against them because plaintiff judicially admitted in its complaint that the fee dispute was subject to binding arbitration and defendants relied to their detriment on that admission.2 We therefore reverse the judgments.

BACKGROUND
A. Engagement Agreement and Arbitration Clause

On July 30, 2014, plaintiff filed its complaint against defendants. Plaintiff alleged it was a limited liability partnership engaged in the practice of law in California and that in September 2010, defendants jointly retained plaintiff as their legal counsel in a dispute arising out of the activities of Magnus Sunhill Group, LLC (Magnus action). Members and investors of that group had sued defendants.

Plaintiff and defendants entered into a written engagement agreement (the agreement) which contained an arbitration clause. The arbitration clause provided: "By signing this Agreement, we both agree that, in the event of any dispute or claim arising out of or relating to this Agreement, our relationship, our charges, or our services, including but not limited to disputes or claims regarding professional malpractice, errors or omissions, breach of contract, breach of fiduciary duty, fraud, or violation of any statute . . . , SUCH DISPUTE OR CLAIM SHALL BE RESOLVED BY SUBMISSION TO FINAL AND BINDING ARBITRATION IN LOS ANGELES COUNTY, CALIFORNIA, BEFORE A RETIRED JUDGE OR JUSTICE. BY AGREEING TO ARBITRATE, YOU WAIVE ANY RIGHT YOU HAVE TO A COURT OR JURY TRIAL." The agreement also provided notice of defendants' statutory arbitration rights relating to attorney fees disputes. (Bus. & Prof. Code, § 6200 et seq.)

In the agreement, defendants agreed to pay plaintiff for legal services rendered and costs incurred in connection with its services rendered in the Magnus action and ten percent interest per year on any unpaid, overdue invoices. Plaintiff rendered legal services for defendants continuously from September 2010 through May 2012. Some ancillary services were performed during August 2012. Plaintiff billed defendants a total of $311,966.63 for attorney fees and related costs, of which only $37,441.25 was paid, leaving an unpaid balance of $274,525.23, excluding interest. Plaintiff repeatedly demanded defendants pay the outstanding balance, but defendants failed to do so. Prior to filing its complaint, plaintiff provided defendants in April 2014 with notice of their statutory arbitration rights under Business and Professions Code section 6201. Defendants did not timely respond to that notice, thereby waiving their statutory rights to arbitrate the fee dispute.

B. Plaintiff's Complaint

Plaintiff sued defendants asserting four collection causes of action: breach of written contract, common count for payment for services rendered, open book account, and account stated. In the fifth cause of action, plaintiff sought an order compelling arbitration, alleging, "The [agreement] between the Plaintiff and the Defendants provides, inter alia, that in the event of any dispute or claim arising out of the [agreement], any such dispute shall be resolved by submission to final and binding arbitration in Los Angeles County before a retired judge or justice to be mutually agreed upon by the parties, or if the parties cannot agree on a retired judge or justice, then each side will select a neutral judge or justice who will jointly select a neutral arbitrator, who will act as the sole arbitrator. [¶] Plaintiff hereby selects The Hon. John Zebrowski (Ret.) to serve as the arbitrator to hear this dispute, or if Mr. Zebrowski is unavailable, such other retired judge or justice as the Plaintiff may hereafter designate ('Plaintiff's Designee'). If Plaintiff's Designee is not acceptable to the Defendants, as required under the terms of the Engagement Agreement, then the Defendants need to select a retired judge or justice ('Defendants' Designee') to serve as the arbitrator who, if unacceptable to the Plaintiff, shall with the Plaintiff's Designee select a retired judge or justice to serve as the sole arbitrator to hear this dispute."

In its prayer for relief, plaintiff requested monetary damages on the first four causes of action. On the fifth cause of action, plaintiff requested "an order that this dispute be referred to arbitration before a retired judge or justice as required by the" parties' written agreement.

C. Entry of Default

On September 19, 2014, plaintiff filed proofs of service of the summons and complaint on defendants. The proof of service on defendant Lau stated that he was personally served on August 26, 2014. The proof of service on defendant Wan indicated that on August 26, 2014, he was served at his place of business when the process server left the summons and complaint with a front desk receptionist. Neither defendant filed a response to the summons and complaint within 30 days of service.

On October 22, 2014, plaintiff requested entry of defendants' defaults and their defaults were entered the next day. On November 20, 2014, Judge Terry A. Green issued an order to show cause why sanctions should not be imposed on plaintiff for failure to proceed with obtaining default judgments. On November 24, 2014, plaintiff served the entered defaults on defendants by mail. On November 26, 2014, plaintiff served the notice of the order to show cause hearing on defendants. The default judgments, however, were not entered until January 26, 2015, following the hearing on defendants' motion to vacate their defaults discussed below.

D. Motion to Vacate

On December 19, 2014, defendants filed their motion to vacate. They argued that their failure to timely respond to the complaint was the result of excusable neglect under section 473, subdivision (b), but did not claim that they were entitled to mandatory relief under that provision. Defendants and their counsel, Stephen Bucklin of the Lipeles Law Group, submitted declarations in support of the motion. Defendant Lau declared that he did not believe he was properly served with the summons and complaint, although he acknowledged receiving the entry of default. Lau further declared he was confused and misled by plaintiff's fifth cause of action.3 Defendant Wan, who had a limited understanding of English, also declared that he did not believe he was properly served and that he was confused and misled by plaintiff's fifth cause of action.4

Attorney Bucklin, who was defendants' appellate counsel in the Magnus action, declared that he contacted an attorney at the plaintiff law firm in early November 2014 regarding the firm's case file in the Magnus action. The attorney at the firm with whom attorney Bucklin spoke did not inform him at that time that a complaint had been filed against defendants. Attorney Bucklin learned of the entry of the defaults only after defendants informed him of them. Attorney Bucklin thereafter...

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