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BEUS GILBERT PLLC v. PETTIT, 1 CA-CV 10-0650. (2011)

Court: Court of Appeals of Arizona Number: inazco20110512009 Visitors: 7
Filed: May 12, 2011
Latest Update: May 12, 2011
Summary: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24. MEMORANDUM DECISION JOHNSEN, Judge. 1 George and Jean Pettit ("Pettit") appeal the confirmation of an arbitration award in favor of Beus Gilbert PLLC ("Beus Gilbert"). For the following reasons, we affirm. FACTS AND PROCEDURAL BACKGROUND 2 On May 27 or 28, 2004, Pettit retained Beus Gilbert to represent him
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THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24.

MEMORANDUM DECISION

JOHNSEN, Judge.

¶1 George and Jean Pettit ("Pettit") appeal the confirmation of an arbitration award in favor of Beus Gilbert PLLC ("Beus Gilbert"). For the following reasons, we affirm.

FACTS AND PROCEDURAL BACKGROUND

¶2 On May 27 or 28, 2004, Pettit retained Beus Gilbert to represent him in a legal matter. On June 11, 2004, Beus Gilbert sent to Pettit a form agreement titled "Legal Representation Agreement" and asked him to sign it. Among other things, the agreement explained how the law firm's fees would be determined, provided that Beus Gilbert would bill Pettit monthly for its fees and required Pettit to pay each monthly bill within 30 days. The agreement included a section labeled "Dispute Arbitration" that stated that at the request of either side, "any disputes as to the amount of legal fees" would be determined by arbitration conducted "in accordance with the Rules for Commercial Arbitration then prevailing of the American Arbitration Association." Pettit signed the agreement on June 23 at Beus Gilbert's office.

¶3 Notwithstanding the provision in the representation agreement, Beus Gilbert did not bill Pettit during the course of the representation. The law firm withdrew from representing Pettit in November 2005 and then sent him a bill for $201,566.87. After Pettit refused to pay, Beus Gilbert initiated arbitration proceedings pursuant to the representation agreement. Pettit informed Beus Gilbert and the arbitrator that he would not participate in the arbitration because he believed the arbitration provision in the representation agreement was unenforceable. At the conclusion of the proceedings, which were conducted in Pettit's absence, the arbitrator ruled the arbitration agreement was valid and awarded $95,000 to Beus Gilbert.

¶4 Beus Gilbert filed an application in superior court to confirm the award. Over Pettit's objection, the court granted the law firm's motion for summary judgment and entered judgment in the amount of $103,400.60. It also denied Pettit's subsequent motion for leave to amend his answer and objection and motion for relief from judgment pursuant to Arizona Rule of Civil Procedure 60(c).

¶5 Pettit timely appealed. We have jurisdiction under Article 6, Section 9, of the Arizona Constitution and pursuant to Arizona Revised Statutes ("A.R.S.") section 12-2101(B) (2003).

DISCUSSION

A. Standard of Review.

¶6 Summary judgment is proper when "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Ariz. R. Civ. P. 56(c)(1). We review a grant of summary judgment de novo, viewing "all facts and reasonable inferences therefrom in the light most favorable to the party against whom judgment was entered." Bothell v. Two Point Acres, Inc., 192 Ariz. 313, 315, 316, ¶¶ 2, 8, 965 P.2d 47, 49, 50 (App. 1998).

¶7 Judicial review of an arbitration award is exceedingly limited. Fisher v. Nat'l Gen. Ins. Co., 192 Ariz. 366, 369, ¶ 11, 965 P.2d 100, 103 (App. 1998). Pursuant to A.R.S. § 12-1511 (2003), upon filing of an application for confirmation of an arbitration award, the superior court "shall enter judgment upon" the award unless the other party objects. Under A.R.S. § 12-1512 (2003), "the court shall decline to confirm" an award when the objecting party makes an "adequate showing" that

1. The award was procured by corruption, fraud or other undue means; [or] * * * 3. The arbitrators exceeded their powers; [or] * * * 5. There was no arbitration agreement and the issue was not adversely determined in proceedings under § 12-1502 and the adverse party did not participate in the arbitration hearing without raising the objection; but the fact that the relief was such that it could not or would not be granted by a court of law or equity is not ground for vacating or refusing to confirm the award.

A.R.S. § 12-1512(A)(1), (3), (5).

B. Jurisdiction to Decide Pettit's Contention that the Arbitration Agreement Is Invalid.

¶8 Pettit objected to the arbitration award on the ground that the arbitration provision in the representation agreement is unenforceable because it is unconscionable. See A.R.S. § 12-1501 (agreement to arbitrate "is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract"). Pettit and Beus Gilbert dispute whether the validity of the arbitration provision is a matter to be decided by the arbitrator or by the court.

¶9 As Pettit argues, the general rule is that "the existence of a challenged arbitration provision" is for the court to decide. U.S. Insulation, Inc. v. Hilro Constr. Co., 146 Ariz. 250, 254, 705 P.2d 490, 494 (App. 1985). Beus Gilbert argues, however, that by agreeing to arbitration conducted pursuant to the Rules for Commercial Arbitration of the American Arbitration Association, Pettit agreed that issues relating to the existence or validity of the arbitration agreement would be decided by the arbitrator. The law firm cites Rule 7 (a) of the Rules for Commercial Arbitration, which provides, "The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement." In support of this argument, Beus Gilbert cites Brake Masters Sys., Inc. v. Gabbay, 206 Ariz. 360, 367, ¶ 20, 78 P.3d 1081, 1088 (App. 2003), which held that when the parties clearly and unmistakably have agreed to cede "arbitrability" questions to the arbitrator, that agreement will be enforced.

¶10 Under Brake Masters, when the parties clearly have agreed that the arbitrator will decide which issues are subject to arbitration, the arbitrator may decide those questions. See id. In a case brought under the Federal Arbitration Act, 9 U.S.C. § 2 (2006), however, the United States Supreme Court recently discussed the distinction between whether an issue is arbitrable and whether the agreement to arbitrate is valid in the first instance. Rent-A-Center, West, Inc., v. Jackson, 130 S.Ct. 2772, 2778 n.1 (2010). The Court observed that under First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995), the arbitrator may decide arbitrability if there is "clear and unmistakable" evidence that the parties intended to grant that power to the arbitrator. Rent-A-Center, 130 S. Ct. at 2778 n.1. As the Court explained, such an "agreement to arbitrate a gateway issue is simply an additional, antecedent agreement" that is valid "save upon such grounds as exist at law or in equity for the revocation of any contract." Id. at 2777-78. But the Court distinguished another "gateway" question, namely, whether the arbitration agreement is valid in the first instance:

The validity of a written agreement to arbitrate (whether it is legally binding, as opposed to whether it was in fact agreed to — including, of course, whether it was void for unconscionability) is governed by § 2's provision that it shall be valid "save upon such grounds as exist at law or equity for the revocation of any contract."

Id. at 2778 n.1; see A.R.S. § 12-1501 (stating same grounds to object to agreement to arbitrate). The Court observed that if a party disputes the validity of an agreement to arbitrate on the ground that it is unconscionable, the court must resolve that challenge. Rent-A-Center, 130 S. Ct. at 2778.

¶11 Under the reasoning of Rent-A-Center, Pettit's argument that the arbitration provision is unconscionable and of no effect may have been a question for the court to decide, not for the arbitrator. We need not resolve that threshold question, however, because Pettit presented evidence and argument to the superior court in support of his contention that the arbitration agreement was unconscionable, and the court considered that evidence before it entered judgment confirming the arbitration award. In the next section, we review de novo the superior court's conclusions.

C. Pettit Failed to Offer Evidence to Create a Genuine Issue of Material Fact Regarding Unconscionability, Public Policy or Undue Means.

¶12 Citing Broemmer v. Abortion Services of Phoenix, Ltd., 173 Ariz. 148, 840 P.2d 1013 (1992), Pettit argues the superior court erred in confirming the award because the arbitration provision was unconscionable and not within his reasonable expectations. Broemmer, however, is inapplicable. At issue in that case was an arbitration agreement a clinic required a patient to sign just before she underwent an abortion. Id. at 149, 840 P.2d at 1014. In denying the clinic's motion to compel arbitration of the patient's subsequent malpractice claim, the court noted the agreement was offered to the patient at a stressful moment on a "take it or leave it" basis. Id. at 151, 840 P.2d at 1016. The court held the contract fell outside the plaintiff's reasonable expectations, based on her limited education, inexperience and the emotional stress associated with terminating a pregnancy. Id. at 152, 840 P.2d at 1017.

¶13 By contrast, the undisputed evidence in the record is that Pettit is a highly educated individual with a doctorate degree who had 12 days to review the representation agreement before he signed it. By his own account, Pettit did not read the arbitration provision before he signed the representation agreement. Accordingly, unlike the plaintiff in Broemmer, Pettit had ample opportunity and intellectual capacity to read and understand the arbitration provision. His failure to do so does not make the arbitration agreement unconscionable. See Rocz v. Drexel Burnham Lambert, Inc., 154 Ariz. 462, 466, 743 P.2d 971, 975 (App. 1987) (courts will not invalidate a clearly written contract to arbitrate on the mere assertion that party neglected to read the contract or did not really mean to be bound by it). Although Pettit suggests he had no choice but to sign the agreement, he offers no evidence to support the proposition that he could not have rejected the arbitration provision and/or retained another law firm to represent him.

¶14 Pettit argues that a lawyer at Beus Gilbert promised him that he would not have to pay the firm for its legal work until at a point later in the case (or not at all). That purported promise, however, does not bear on the validity of the arbitration provision within the representation agreement. The same is true with respect to Pettit's contention that the law firm failed to communicate with him and keep him abreast of the legal fees that were accumulating during the representation.

¶15 Pettit also argues that Beus Gilbert breached Ethical Rule 1.4(b) by failing to explain the arbitration provision to him so he could make an informed decision about whether to agree to it. He cites State Bar of Arizona Ethics Opinion 94-05 for the proposition that Beus Gilbert was required to "fully disclose in writing," and in terms he could understand, "the advantages and disadvantages" of arbitration. Under the circumstances, he contends, enforcing the arbitration provision would violate public policy. The opinion on which Pettit relies, however, addressed whether a law firm ethically could require clients to agree prospectively to arbitrate any malpractice claims against the firm. State Bar of Ariz. Ethics Op. No. 94-05 (Mar. 1994), available at https://www.myazbar.org/ethics/pdf/94-05.pdf. That opinion specifically distinguished a provision to arbitrate fee disputes and noted that arbitration of such disputes is favored. Id. More to the point, Pettit does not argue the arbitration provision was unclear or that he did not understand it once he took the time to read it.

¶16 Finally, Pettit claims that Beus Gilbert employed undue means under A.R.S. § 12-1512 to secure his agreement to the arbitration provision. Undue means pursuant to § 12-1512, however, applies to procurement of the arbitration award, not to the procurement of the agreement. Nolan v. Kenner, 1 CA-CV 10-0355, 2011 WL 1206185, at *3, ¶ 10 (Ariz. App. Mar. 31, 2011) ("To have an award vacated for undue means, the undue means must have had an impact on or influenced the arbitrator's decision itself."). Even assuming for purposes of argument that the "undue means" standard might apply, Pettit may not prevail absent evidence of intentional misconduct by Beus Gilbert with respect to the arbitration provision, and the record contains no such evidence. See FIA Card Servs., N.A. v. Levy, 219 Ariz. 523, 525, ¶ 7, 200 P.3d 1020, 1022 (App. 2008).1

D. Denial of Pettit's Motion to Amend Answer and Objection and for Relief from Judgment.

¶17 A defendant may amend his answer "at any time within twenty days after it is served." Ariz. R. Civ. P. 15(a)(1). After that time, amendment is allowed only by leave of court or consent of the other party. Id. "We review the denial of a motion to amend a pleading for clear abuse of discretion." MacCollum v. Perkinson, 185 Ariz. 179, 185, 913 P.2d 1097, 1103 (App. 1996).

¶18 Pettit moved for leave to amend his objection and answer more than six months after he filed his answer and after the superior court already had entered summary judgment against him. On appeal, Pettit concedes that "almost all of the facts and arguments set forth in the proposed amendment" were already before the court in his objection and answer. Under these circumstances, the court did not abuse its discretion in denying Pettit's motion to amend. See, e.g., Citizens Utils. Co. v. New W. Homes, Inc., 174 Ariz. 223, 228, 848 P.2d 308, 313 (App. 1992) (no abuse of discretion in denial of post-summary judgment motion to amend).

¶19 With his motion for leave to amend, Pettit also filed a motion for relief from judgment pursuant to Arizona Rule of Civil Procedure 60(c). That rule permits a court to grant relief from a final judgment for "mistake, inadvertence, surprise or excusable neglect . . . [or] any other reason justifying relief from the operation of the judgment." To obtain relief under Rule 60(c), a party must demonstrate a meritorious defense. See Maher v. Urman, 211 Ariz. 543, 550, ¶ 21, 124 P.3d 770, 777 (App. 2005). We review the denial of Rule 60(c) motion for an abuse of discretion. Fry v. Garcia, 213 Ariz. 70, 72, ¶ 7, 138 P.3d 1197, 1199 (App. 2006).

¶20 Pettit asserts that his proposed amendment outlined a breach of contract claim against Beus Gilbert that would have constituted a meritorious defense to the law firm's claim for fees, and argues that as a result, the superior court erred by denying his Rule 60(c) motion. Even though Pettit refused to participate in the arbitration, however, the arbitrator considered Pettit's argument that Beus Gilbert breached by failing to communicate and failing to keep him apprised of the fees that were accumulating. The arbitrator also considered Pettit's assertion that Beus Gilbert agreed to take his case on a pro bono basis. The arbitrator rejected Pettit's contention that he would not have to pay anything for the law firm's work on his case, but credited his assertion that the firm failed to communicate with him and keep him apprised of its fees, and discounted the award on that basis. Under the circumstances, we cannot conclude the superior court abused its discretion by denying Pettit's Rule 60(c) motion.

CONCLUSION

¶21 For the reasons set forth above, we affirm the superior court's judgment in favor of Beus Gilbert. We decline Beus Gilbert's request for fees as a sanction pursuant to ARCAP 25, but award the law firm its costs on appeal in accordance with ARCAP 21.

MARGARET H. DOWNIE, Judge, JON W. THOMPSON, Judge, concurring.

FootNotes


1. See also Am. Postal Workers Union, AFL-CIO v. U.S. Postal Serv., 52 F.3d 359, 362 (D.C. Cir. 1995) (undue means in labor arbitration requires action by arbitrating party "equivalent in gravity to corruption or fraud"); A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1403 (9th Cir. 1992) (undue means "clearly connotes behavior that is immoral if not illegal" and requires more than "sloppy or overzealous lawyering"); Shearson Hayden Stone, Inc. v. Liang, 493 F.Supp. 104, 108 (N.D. Ill. 1980) (undue means "requires some type of bad faith in the procurement of the award"), aff'd, 653 F.2d 310 (7th Cir. 1981).
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