The plaintiffs original hired a California firm, Loeb & Loeb, to assist them with various business transactions. That retainer agreement included an arbitration provision. Loeb then asked an associate, named Kelly, to assist with the representation. Kelly, at that time, was not admitted to the California bar. Years later, the business relationship went south, and the plaintiffs sued Loeb for legal malpractice in California State Court. The defendants then compelled arbitration.
At some point in the proceedings, plaintiffs discovered that Kelly had not been licensed to practice in California at the time he was working on the transactions at issue, and attempted to invalidate the retainer agreement – and therefore the arbitration agreement – as void, as against public policy. The arbitrator did not agree, but did apparently order disgorgement of the fees that plaintiffs paid for Kelly’s services while he was unlicensed.
The plaintiffs then sought to vacate the arbitrator’s award, arguing that the retainer agreement, including its arbitration provision, was illegal and unenforceable because Kelly was unlicensed to practice law when he performed services pursuant to that agreement. The Trial Court denied the motion and confirmed the arbitration award. And the Court of Appeal affirmed:
“According to Brawerman and TMI, Sheppard reflects the rule ‘that when an attorney violates the Rules of Professional Conduct in the performance of the legal services contracted for under a retainer agreement, that retainer agreement is entirely unenforceable as against public policy and any arbitration provisions contained in such an agreement cannot be enforced.’ This reading of Sheppard completely misrepresents its holding. In Sheppard, entry into the engagement agreement itself was an ethical violation because Sheppard represented J-M’s litigation adversary in another matter. Put another way, it was impossible for Sheppard to enter into the engagement agreement with J-M without committing an ethical breach. As a result, the entire object of the engagement agreement was an engagement that Sheppard was prohibited to take on. Here, in contrast, there was nothing inherently illegal about the Retainer Agreement, and Loeb was capable of performing it legally. The object of the agreement, as found by the trial court, was not Kelly’s representation, but rather Loeb’s representation of Brawerman and TMI in the Wasserstein transaction.”
Brawerman v. Loeb & Loeb, 81 Cal.App.5th 1106 (Cal. App. 2nd Dist. 2022).