After the president of a substantial business hired an attorney and law firm to represent it in a dispute with the City of Oakland, the attorney left his original law firm with which the client had signed an engagement letter for legal services, and joined a much larger firm with a longer and more involved engagement letter, newly including a mandatory arbitration clause for dispute resolution.  The client’s litigation as a plaintiff resulted in a series of consistently adverse results including an injunction against the client’s business and a determination of unfair business practices, all upheld on appeal; a federal constitutional challenge which also failed in the trial court and on appeal; and adverse awards of statutory penalties, disgorgement of profits, and attorneys fees.

Ultimately the client brought suit against the attorney and law firm, alleging professional negligence and breach of fiduciary duties.  The successor law firm petitioned to compel arbitration consistent with the engagement letter signed by the client, and the client resisted arbitration on the basis that their attorney and his new law firm had not advised or explained to them what were perceived as unfavorable features of mandatory arbitration.  In a remarkably unsympathetic ruling, the state Court of Appeal finds that the clients were “sophisticated businesspersons” who could not avoid mandatory arbitration under an agreement they had signed, even if they had not carefully read it and their lawyer had not personally and specifically explained it to them.  (Desert Outdoor Advertising et al. v. Murphy et al., California Court of Appeal No. A129051, June 17, 2011)  Read your contracts with lawyers before signing!

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