A REFRESHER ON THE FEE ARBITRATION PROCESS

BY ERIC BERG, 2025 California Coast Chapter President, ABOTA

Most of us don’t appreciate how fortunate we are that the Santa Barbara County Bar Association continues to run a local Fee Arbitration Program.  About half of the counties in California do not.  It takes a lot of time and resources to do it properly, let alone well.  Counties that do not sponsor their own program utilize the State Bar’s Fee Arbitration Program.  Here is Santa Barbara, we have been fortunate to be able to avoid that. 

The State Bar’s program will only assume jurisdiction if either party asserts that the County’s program cannot offer a fair hearing. But the State Bar will also assume jurisdiction if the local bar does not have an arbitrator available to hear the dispute.

As Chairperson of the local Fee Arbitration Program, I want to provide a refresher on the fee arbitration process.

Some Background

The Mandatory Fee Arbitration Act is found at Bus & Prof. Code §§ 6200- 6206.  The Act was enacted in 1978 to provide a faster, less expensive, and more confidential way to resolve fee disputes.  Prior to the Act, attorneys & clients had to sue each other in court or—assuming the fee agreement so provided-- pursue an arbitration action.  This created the perception that the process favored the attorney over the client, who was forced to retain counsel to “even the playing field”.  The Act was partially designed to address that inequity. 

The Act is client-friendly in that one of its mandates is that neither party can recover fees incurred in participating in fee arbitration.  The Act is also client-friendly in that it requires the attorney to participate if the client so elects.  Attorneys were not left without some benefit of their own, however.  Pursuant to Cal Bar Rule 3.512, a request for arbitration, any record of proceeding, and the award are all confidential.

The Basics

The Program is mandatory for attorneys.  It is not mandatory for clients.  That means that a client may compel an attorney to mandatory fee arbitration, but not the other way around.  How does the attorney avoid this outcome?  By including a mandatory fee arbitration provision in their fee agreement.  Unless there is a mandatory fee arbitration clause in the engagement letter, the Santa Barbara County Bar Association has no authority to proceed with an attorney-requested arbitration if the client refuses. Bus & Prof. Code §6200(c).  And for any attorney thinking they can insert language in the fee agreement getting the client to waive the protections afforded the client under the Act, think twice: such an attempt is void on its face. Alternative Systems, Inc. v. Carey, 67 Cal. App. 4th 1034, 1043 (1998).

The statute of limitations for a client to file a claim for arbitration is one year from discovery of the wrongful act or omission. Code Civ. Pro.  § 340.6(a).  However, once an attorney serves the client with Notice of Client’s Right to Fee Arbitration, the client’s time period is shortened to thirty days from issuance of the Notice.

The award is binding only if both parties consent. The parties may not consent to binding arbitration until after the dispute arises. Bus & Prof. Code § 6204(a); a clause in the engagement letter requiring the parties to submit to binding fee arbitration will typically be reformed to read as non-binding fee arbitration.

The Arbitration will typically be heard by a single arbitrator selected by the County Bar. More significant matters will result in the appointment of three arbitrators, at least one of whom is required to be a layperson.  Fees associated with the arbitration are paid by the initiating party, are based upon the amount at issue, and are subject to reallocation as part of the final award.   

Discovery is limited. While subpoenas are technically available, they are rarely issued, and only upon a showing of good cause.  Bus & Prof. Code § 6200(g) (3).  Additionally, attorneys often do not appreciate that in advance of the fee arbitration, the client has the right to obtain and inspect a complete copy of their file.  Cal Bar Rule 3.540(B).

The Hearing

The hearing can proceed even if a party does not appear.  That is not wise, however; if the non-appearing party challenges the award in court and the court determines that the failure to appear was willful, then that party loses the right to a trial after arbitration. Bus & Prof. Code § 6204(a).  The hearing is not transcribed or recorded. Cal Bar Rule 3.541(F)

In terms of evidence presented, think of the basics—the engagement letter and any modifications thereto, bills and invoices, proof of payment, communication between the parties regarding whatever issues may be in dispute. During the hearing, the attorney may disclose client confidences and work product without violating confidentiality restrictions. Bus & Prof. Code §6202.

Lawyers often are less than clear about the client’s right to assert a malpractice claim as part of the Fee Arbitration. The client can assert such a claim.  However, the malpractice claim is only admissible to the extent that the attorney’s alleged negligence adversely affected the value of the legal services rendered.   That is not the same thing as saying that any fee award can be offset against a claim for malpractice.  Think of the following example:  The lawyer claims that the client owes $50,000.00 in fees.  The client defends that claim by stating that the lawyer’s work comprising the fee fell below the applicable standard of care. If the Arbitrator finds the client’s defense valid, that can operate to reduce the attorney’s fee claim in whole or in part as a result of the malpractice.  However, the arbitrator cannot (1) award the attorney some or all of the fees sought; and then (2) separately award the client a monetary recovery based upon the attorney’s negligence.  More likely will be the procedural scenario where the client files a separate Complaint for Malpractice against the attorney in Superior Court.

The Award

The Final Award will be in writing and signed by the Arbitrator. Once prepared, the Bar Association’s Fee Arbitration Committee will review the award for any procedural errors.  The Committee does not review nor does it offer suggestions or changes to the substance of the award or of the particular outcome. 

Sometimes attorneys believe that the Fee Arbitration process by definition gives them some advantage over the client.  Sometimes clients believe that the Fee Arbitration process by definition is stacked against them.  Both assumptions would be gravely in error.  The Santa Barbara lawyers who generously give of their time to serve as Arbitrators have undergone formal training with the State Bar.  They have access to the most up to date California administrative and legal opinions on the topic of fee disputes.  They work incredibly hard to reach the right result.  Sometimes lawyers get all of the fees they are seeking.  Sometimes they get some of the fees they are seeking. Sometimes they get none of the fees they are seeking. Sometimes they have to return fees to the client. Each arbitration, like each client relationship, is unique.

Once finalized, the Bar will issue the award to the parties along with a form entitled Notice of Your Rights after Fee Arbitration.  A request for trial de novo must be filed within 30 days after the date the Bar serves the award.  Even if it is non-binding, the award becomes binding if no one files a de novo request within 30 days. Bus & Prof. Code § 6203(b). 

Both attorney and client need to be careful, however, about utilizing the de novo process.  Often one or both will “make light” of a non-binding Fee Arbitration, reasoning that any adverse result can simply be unwound by the Superior Court.  What the litigants often fail to consider is the Superior Court’s discretion to award fees to the losing side of any such trial de novo.  As set forth at §6204(d),

“The party seeking a trial after arbitration shall be the prevailing party if that party obtains a judgment more favorable than that provided by the arbitration award, and in all other cases the other party shall be the prevailing party.  The prevailing party may, in the discretion of the court, be entitled to an allowance for reasonable attorney's fees and costs incurred in the trial after arbitration, which allowance shall be fixed by the court.  In fixing the attorney's fees, the court shall consider the award and determinations of the arbitrators, in addition to any other relevant evidence.”

So while the Superior Court will utilize a de novo standard of review and give the parties a fresh look at their case, the Court will also have the discretion to award fees to the prevailing party in such proceeding.  And it is important to remember that the “prevailing party” in such an instance could be the client who, while ordered by the Court to pay the attorney some amount of fees, achieves a better result than that achieved at the Fee Arbitration.

There is another reason for the attorney to be mindful of utilizing the trial de novo process. The confidentiality afforded the attorney as part of the Fee Arbitration process goes away once the trial de novo is sought—that case becomes a public proceeding like any other court action.

Collecting the Award

If the Fee Arbitration results in an award to the client, and if that award becomes binding, the client may file a Client’s Request for Enforcement of an Arbitration Award with the State Bar if the attorney has not satisfied the Award within one hundred days.  The attorney must appreciate that a binding fee award in favor of the client is not to be trifled with.  The State Bar can and will place the attorney on involuntary inactive status until the refund is paid, and can fine the attorney up to twenty percent (20%) of the amount owed—up to $1,000.00—to ensure collection.  Bus & Prof. Code §6203(c) (3).

Final Thoughts

You do not have to be a member of the Bar Association to enjoy the benefits of its Fee Arbitration Program.  But for those of us who take a hard look every year at our various professional memberships and ask “what am I getting out of this?” the Bar’s Fee Arbitration Program is reason alone for our continued membership. 

For those of you who find the subject particularly interesting and have some time to give, please consider volunteering to get formally trained and serve as an Arbitrator.  We don’t want to find ourselves having to send important cases to the State Bar for resolution.  Anything we can do to build out a more robust local program benefits us all.  Contact me or Marietta Jablonka for more information.

Eric Berg is the 2026 President of the California Coast Chapter of the American Board of Trial Advocates.  Eric is also Past President of the Santa Barbara County Bar Association and Chairperson of its Fee Arbitration Committee.  His litigation practice includes the defense of law firms and other professional service firms in litigation throughout California.    He can be reached at eric@berglawgroup.com.