Market Center East Retail Property, Inc.

1 The Court has also considered Debtors’ Brief in Support of
Motion to Stay Award of Fees (“Debtor Brief”) (doc 201), Debtors’
Request for Judicial Notice Pursuant to Federal Rule of Evidence
201 (doc 200), and the Affidavit of Danny Lahave in Support of
Debtor’s Motion to Stay Award of Fees (“Lahave Affidavit”) (doc
202), together with all the attachments thereto, and Barak
Lurie/Lurie & Park’s Response to Debtor’s Brief in Support of
Motion to Stay Award of Fees (doc 203).
2 	The Court has subject matter and personal jurisdiction
pursuant to 28 U.S.C. §§1334 and 157(a). 	This is a core matter
pursuant to 28 U.S.C. §157(b)(2)(A) and (B); In re Fricker, 131
B.R. 932, 938 (Bankr. E.D.Pa. 1991). 	This memorandum opinion
(continued...)
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
MARKET CENTER EAST RETAIL PROPERTY, INC.,
Debtor. 	No. 11-09-11696 SA
MEMORANDUM OPINION ON DEBTOR’S REQUEST TO HAVE LURIE &
PARK COMPENSATION QUESTIONS DETERMINED BY ARBITRATION
Debtor in possession Market Center East Retail Property,
Inc. (“Debtor”) has filed its Debtor’s Motion for Stay [to
Arbitrate Fee Issue] (doc 176) and Debtor’s Motion to Dismiss
(doc 179), requesting the Court to permit the Lurie & Park
compensation issues to be determined in a nonjudicial procedure
by the Beverly Hills (California) Bar Association. 	Barak Lurie
and Lurie & Park (“Applicant”) have objected (doc 183), as has
the Office of the United States Trustee (doc 185), asking that
this Court continue and complete its adjudication of the
compensation issues. 1 	For the reasons set forth below, the Court
denies the relief requested by Debtor, and specifically denies
the Motion for Stay and the Motion to Dismiss. 2
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2(...continued)
comprises additional findings of fact, as may be necessary, and
conclusions of law as may be required by Rule 7062, F.R.B.P.
Page -2-
Background
Much of the background is set out in oral findings of fact
already issued by the Court (Amended minutes, doc 161), and the
Court assumes the reader’s familiarity with same. 	Additional
fact-finding occurs as needed below.
Briefly recapitulated, Barak Lurie and Danny Lahave,
president and sole shareholder of Debtor, met in February 2009 to
arrange for Applicant to represent (the soon to be) Debtor in an
action against Lowe’s Home Centers, Inc. concerning Lowe’s action
to abandon its purchase of the Debtor’s commercial site. 	Messrs
Lahave and Lurie signed a Legal Services Agreement (“Retainer
Agreement”) (doc 16-1), which provided in part as follows:
7. 	Attorney Lien and Resolution of Disputes by
Arbitration:
...
Any dispute relating to this Agreement or arising
from the lawyer-client relationship of the parties in
any manner whatsoever shall be submitted for binding
arbitration to the Beverly Hills Bar Association,
pursuant to Business and Professions Code Sections 6200
through 6202....
Applicant began working on the case, and then Debtor filed its
chapter 11 petition on April 22, 2009. 	On June 10, 2009, Debtor
filed its Application to Employ Barak Lurie (doc 16) to continue
the litigation against Lowe’s. 	The Application attached a copy
of the Retainer Agreement. 	Doc 16-1. 	Applicant did continue the
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3 The Stipulated Employment Order recites at 2-3:
IT IS THEREFORE ORDERED AS FOLLOWS:
A. Barak Lurie/Lurie & Park is entitled to an administrative
claim for professional services rendered as special counsel for
the Debtor-in-Possession, effective June 10, 2009, pursuant to 11
USC §327(e). The approval of terms of compensation is
(continued...)
Page -3-
litigation, which ultimately resulted in a settlement whereby
Lowe’s went through with the purchase of the property for
$9,750,000. 	See Order on Debtor's Motion to Approve Sale of Real
Estate Free and Clear of Liens to Lowe's Home Centers, Inc.,
docketed November 6, 2009 (doc 99). 	Debtor never submitted an
order approving the employment application, and instead on
November 9, 2009 filed a Withdrawal of Application to Employ
Barak Lurie (doc 100). 	Applicant responded with its Motion for
Order Disallowing Debtor’s Purported Withdrawal of Application to
Employ Barak Lurie/Lurie & Park (doc 107). 	On June 25, 2010, the
parties filed the Stipulated Order Regarding Professional
Services Rendered by Barak Lurie as Attorney for Debtor-in-
Possession (“Stipulated Employment Order”) (doc 128), by which
the Court effectively ruled that Applicant was to be treated as
employed by the estate as special counsel from no later than June
10, 2009, that Applicant was entitled to an administrative claim
for reasonable compensation for the professional services
rendered, that Applicant was entitled to submit a claim for those
services and that both sides were free to argue about what the
compensation should be. 3
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3(...continued)
specifically reserved for determination upon the submission of
Barak Lurie/Lurie & Park’s administrative claim.
B. Barak Lurie and Lurie & Park shall be entitled to submit an
administrative claim for reasonable compensation for professional
services rendered to Debtor-in-Possession for purposes of
prosecution and settlement of Debtors’ lawsuit against Lowes
Home Centers, Inc. Any such administrative claim shall disclose
services rendered between April 22, 2009, the date of the
petition, and June 10, 2009. The entitlement to fees incurred
between the date of the petition and June 10, 2009 shall
specifically be reserved for determination on submission of the
administrative claim.
C. The terms of the retainer agreement which are contrary to the
provisions of 11 USC §330 are void, including the terms requiring
that billings either be paid or objected to within 15 days.
D. Any creditor or party in interest, including Debtor, may
object to the amount of the administrative claim for compensation
for professional services of Barak Lurie and Lurie & Park.
E. The Court reserves ruling on the amount of any fees sought by
Barak Lurie/Lurie & Park.
Page -4-
Promptly thereafter Applicant filed the Application and
noticed it out (doc 131). 	Debtor responded and objected (doc
136). 	On June 16, 2010, the Court conducted an evidentiary
hearing on the Application, ordered briefing of certain issues
(doc 157), and rendered preliminary findings of fact orally on
the record on July 2, 2010 (doc 161).
In the course of briefing the compensation issues, the
parties appeared to have agreed that the arbitration provisions
in the contract and California law were not relevant in this
proceeding. 	“Because the contract was never approved by the
Court and is not binding upon the Debtor, these [arbitration]
provisions are irrelevant....” [Debtor’s] Memorandum in
Opposition to Administrative Claim of Barak Lurie at 20-21 (doc
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4 Debtor is compelled to take that position (were it not
already the case) in light of the fact that the Retainer
Agreement, which had the provision for fee arbitration before the
Beverly Hills Bar Association quoted above, has been superseded
by the Stipulated Employment Order. 	Debtor’s current position is
contrary to the one Debtor asserted in the Motion for Stay at 2,
which explicitly relied on the fee arbitration language in the
Retainer Agreement, which in any event cites the statute.
Page -5-
158). 	Debtor then changed its mind on that issue, Debtor’s
Motion for Stay (doc 176) at 2-3 (request for stay of
determination of compensation dispute in this Court so Debtor can
invoke arbitration California, “in the interests of comity, and
in conformance with the written agreement of the parties”) and
Debtor’s Motion to Dismiss (doc 179) at 1 (“The claim of Barak
Lurie is subject to mandatory fee arbitration under California
Law and should be arbitrated in California.”). 	Thus the issue of
where the compensation issue will be finally resolved has been
squarely presented to the Court.
Analysis
Debtor asserts that the compensation dispute between Debtor
and Applicant must be resolved by resort to California law; that
is, West’s Ann. Cal. Bus. & Prof. Code §§ 6200-6204 (“MFAA”).
Motion for Stay at 2, Motion to Dismiss at 1. 	And Debtor asserts
that MFAA requires an arbitration proceeding. 	Id. 	In its brief,
Debtor elaborates that the basis for the arbitration demand is
rooted in the requirements of the California statutes rather than
in the language of the Retainer Agreement, id. at 1 4, asserting
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5 The Court addresses the compensation issue in an
accompanying memorandum decision to be filed immediately after
the entry of this memorandum decision.
Page -6-
that the Retainer Agreement is no longer in effect. 	Id. at 10-
14. 	Debtor then asserts that MFAA required Applicant to notify
Debtor of the right to arbitrate but failed to do so, and that
Debtor could not waive a right (to arbitrate) which it did not
know about because Applicant never informed it of that right.
Id. at 2-9. 	Debtor also argues that the fee arbitration program
administered by the Beverly Hills (California) Bar Association
should be the forum for the arbitration, id. at 9, reargues the
reasonableness of the requested compensation, id. at 14-22 5, and
concludes by arguing that the determination of the compensation
issue is not a core proceeding. 	Id. at 22-24. 	Regardless of the
source of the asserted requirement to arbitrate, the Court finds
that sending the parties to California to arbitrate the fee
dispute is neither required nor advisable.
A. 	This is the sort of compensation decision that should be
decided by this Court.
A determination of compensation in a bankruptcy case as an
administrative claim is clearly a core proceeding that needs to
be decided by the bankruptcy court. 	28 U.S.C. §157(b)(2)(A)
(“matters concerning the administration of the estate”). 	See,
e.g., Gandy v. Gandy (In re Gandy), 299 F.3d 489, 496-97 (5 th
Cir. 2002) (when dealing with core proceedings arising under
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6 9 U.S.C. 1 et seq.
Page -7-
Title 11 such as avoidance actions under §§ 544, 548 and 550,
“the importance of the federal bankruptcy forum provided by the
Code is at its zenith,” thereby justifying the court’s denial of
a motion to order arbitration as required by the partnership
agreement and the Federal Arbitration Act 6). (Citation omitted.)
This is not to say that the Court cannot permit another
entity to make the decision, particularly if one or more parties
so request. 	And in fact there is a dispute about Gandy‘s neat
distinction between core and non-core as determining whether
arbitration will be denied or allowed. 	Compare, e.g., Jalbert v.
Zurich American Ins. Co. (In re Payton Const. Corp.), 399 B.R.
352, 361-64 ((Bankr. D. Mass. 2009) (listing and analyzing cases,
and ruling that bankruptcy court would adjudicate administrative,
turnover and fraudulent transfer claims) with Highway Solutions
LLC, Plaintiff v. McKnight Const. Co. Inc. (In re Highway
Solutions LLC), 2009 WL 2611949 (Bankr. M.D. Ala.) (garden-
variety contract dispute should be arbitrated). 	What is clear is
that it is the bankruptcy court which makes the decision
concerning in which forum the fee determination is made.
Plaintiff cites Wood v. Wood (In re Wood), 825 F.2d 90 (5 th
Cir. 1987), in arguing that deciding a quantum meruit claim such
as Applicant’s is not a core proceeding but instead a related
proceeding, and thus should be decided elsewhere. 	Debtor Brief
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Page -8-
at 22-24. 	Wood arose when a third party sued the debtors in
possession and another third party in the bankruptcy court
alleging an improper issuance of stock to debtors in a
postpetition transaction. 	The district court had dismissed the
action for lack of jurisdiction, concerned that a broad
definition of bankruptcy court jurisdiction “would bring into
federal court matters that should be left to state courts to
decide.” 	Id. at 93. 	On appeal, the Fifth Circuit dwelt on the
effect of the Bankruptcy Amendments and Federal Judgeship Act of
1984 at some length and determined that the bankruptcy court
could entertain the action as a related matter under 28 U.S.C.
§1334. 	Id. 	What was at issue in Wood was not core vs. non-core
issues but rather the jurisdiction of the bankruptcy court to
hear the related proceeding.
The Fifth Circuit’s statement in Wood that the “plaintiff’s
suit ... is simply a state contract action that, had there been
no bankruptcy, could have proceeded in state court,” id. at 97,
and thus not a core proceeding, is clearly correct. 	See also
Arrellano v. Montoya (In re Arrellano), 2007 WL 1746246 (Bankr.
D.N.M.), in which the court granted a motion to permit
arbitration of contract dispute:
The Plaintiffs here are not seeking to use any
provision of the Bankruptcy Code to determine the
validity, extent or priority of Citifinancial’s lien.
Rather, the result of the state court causes of action
will dictate that result.
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7 Because the Court found that the cause of action to be
arbitrated was non-core, it did not need to decide the whether
the policy favoring arbitration conflicted with the Bankruptcy
Code. 	Id. at *7.
Page -9-
Id. at *6. 	In granting the motion, however, the court considered
the issue of a request for arbitration of a core matter:
A bankruptcy court does possess discretion however, to
refuse to enforce an otherwise applicable arbitration
agreement when the underlying nature of a proceeding
derives exclusively from the provisions of the
Bankruptcy Code and the arbitration of the proceeding
conflicts with the purpose of the Code.
Id. at *3, quoting Whiting-Turner Contracting Co. v. Electric
Machinery Enter. Inc. (In re Electric Machinery Enter., Inc.),
479 F.3d 791, 796 (5 th Cir. 2002). 7 	And see Insurance Co. Of
North America v. NGC Settlement Trust & Asbestos Claims Managment
Corporation (In re National Gypsum Company), 118 F.3d 1056, 1069
(5th Cir. 1997):
We think that, at least where the cause of action at
issue is not derivative of the pre-petition legal or
equitable rights possessed by a debtor but rather is
derived entirely from the federal rights conferred by
the Bankruptcy Code, a bankruptcy court retains
significant discretion to assess whether arbitration
would be consistent with the purpose of the Code,
including the goal of centralized resolution of purely
bankruptcy issues, the need to protect creditors and
reorganizing debtors from piecemeal litigation, and the
undisputed power of a bankruptcy court to enforce its
own orders.
In National Gypsum, the Fifth Circuit agreed that the bankruptcy
court had core jurisdiction of an adversary proceeding to
determine whether the plan and the confirmation order precluded
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8 At the end of December 2010, approximately $1,059,000
remained in the Court registry (doc 204), reduced by U.S. Trustee
fees of about $14,000 (doc 210). 	Debtor’s chapter 11 counsel is
due about $99,000 (doc 211). 	An award of $1,400,000 to Applicant
would therefore require, as Applicant concedes and Debtor
undoubtedly fears, a proration of payment of the chapter 11
administrative expenses.
Page -10-
the insurance company’s claim against the estate, and the
bankruptcy court had the discretion to override the arbitration
clause in the contract assumed in the plan on the basis that the
bankruptcy court provided the most efficient forum for resolving
the claims. 	Id. at 1060-61.
In contrast to Wood and Arrellano, the facts of this case
acutely illustrate the need to maintain control over
administration of the estate, including controlling the forum.
Debtor hopes for an award of no more than about $30,000, and
thinks it has a better shot at that from an arbitration panel.
But the panel could in theory also award the approximately
$1,400,000 that Applicant asks for. 	An award in that amount
would plunge the estate into administrative insolvency. 8 	Of
course reasonable compensation should be awarded, regardless of
the administrative insolvency or not of the estate, but the
threat of administrative insolvency highlights the importance of
ensuring that the award of compensation complies with §330(a).
Debtor does not dispute the applicability of §330(a), and
indeed argues vigorously that the standards of that section
support the much smaller award. 	In effect, therefore, by moving
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29

9 To be clear, Debtor also argues that the requested fees
are also not reasonable under California law, citing Community
Redevelopment Agency of the City of Santa Ana v. Matkin, 272
Cal.Rptr. 1, 6, 220 Cal.App.3d 1087, 1099 (1990). 	Debtor’s Brief
at 16. 	This is presumably the standard Debtor would argue in
arbitration.
Page -11-
for the stay, Debtor asks this Court to permit an arbitration
proceeding whereby the Beverly Hills Bar Association will apply
the standards of §330(a). 9 	That makes little sense. 	This is an
issue that goes to the heart of this Court’s control over the
proceedings it presides over, to ensure a timely and fair
administration of the case and compliance with its orders.
Gandy, 299 F.3d at 495, In re Fricker, 131 B.R. at 938. 	In
consequence, there is no question that this Court should and will
decide the issue of Applicant’s compensation and provide for
payment of such in this case.
B. 	The Stipulated Employment Order governs this decision and
does not require or permit mandatory fee arbitration in
California.
The Stipulated Employment Order (doc 128) is now by its
terms the governing document for this fee determination. 	That
document is a bankruptcy court order (in any event, not a
California court order), and it says nothing about MFAA (or any
other arbitration). 	Indeed, the Stipulated Employment Order
clearly presumes that this Court will decide the issue. 	Thus, in
effect, Debtor has agreed that arbitration is not required and
will not be employed.
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29

Page -12-
C. 	The doctrine of judicial estoppel precludes Debtor from
seeking mandatory fee arbitration in California.
The Motion to Stay was filed October 15, 2010 (doc 176),
over three months after findings of fact were orally announced,
four months after the trial, about eleven months after Debtor
filed its notice of withdrawal of the employment application, and
sixteen months after filing the employment application (doc 16 –
June 10, 2009). 	This minimal chronology demonstrates Debtor’s
delay and the resulting unwarranted prejudice to Applicant,
thereby justifying the application of the judicial estoppel
doctrine.
In New Hampshire v. Maine, 532 U.S. 742, 749-50 (2001), the
Supreme Court described the doctrine of judicial estoppel and how
it works.
Where a party assumes a certain position in a legal
proceeding, and succeeds in maintaining that position,
he may not thereafter, simply because his interests
have changed, assume a contrary position, especially if
it be to the prejudice of the party who has acquiesced
in the position formerly taken by him. 	This rule,
known as judicial estoppel, generally prevents a party
from prevailing in one phase of a case on an argument
and then relying on a contradictory argument to prevail
in another phase.
Id. at 749 (citations and internal punctuation omitted). 	Thus,
the three elements of judicial estoppel are a position advocated
by the party and adopted by the court, then the party’s later
inconsistent position, which prejudices the other party.
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29

Page -13-
The Tenth Circuit applies New Hampshire v. Maine. 	Johnson
v. Lindon City Corp., 405 F.3d 1065, 1069 (10 th Cir. 2005). 	For
that matter, so does California. 	Levin v. Ligon, 140 Cal.App.4th
1456, 1469, 45 Cal.Rptr.3d 560 (Ct. App. 2006).
The doctrine is applicable in the instant case to preclude
Debtor from now changing the forum for deciding the compensation
issue. 	Debtor has adopted a later inconsistent position as
compared with the position taken when it tried the matter and
subsequently briefed it in this Court. 	In effect Debtor asked
this Court to rule on the compensation issue, and then when it
started to become clear what the disposition in this Court would
be (when the oral findings of fact were issued), Debtor asked the
Court not to rule on the issue. 	The Court adopted Debtor’s
earlier position when it conducted the trial and then issued
preliminary findings of fact and drafted the first versions of an
order on fees. 	And by taking this new position, Debtor seeks to
impose on Applicant the unfair detriment of having made Applicant
litigate in the bankruptcy court in the District of New Mexico
which Applicant would not have had to do if Debtor had
(successfully) raised this issue sooner.
D. 	California law does not require that this dispute be
arbitrated.
The forum for resolving attorney fee disputes in California
is governed by MFAA. 	The background of the statute is useful for
understanding its applicability in these circumstances.
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29

10 Ironically, it is the attorney seeking payment that has
had to hire a “second” lawyer.
Page -14-
The policy behind the mandatory fee arbitration
statutes was to alleviate the disparity in bargaining
power in attorney fee matters which favor the attorney
by providing an effective, inexpensive remedy to a
client which does not necessitate the hiring of a
second attorney.
Law Offices of Dixon R. Howell v. Valley, 129 Cal.App.4th 1076,
1086-87, 29 Cal.Rptr.3d 499, 505 (Ct. App. 2005) (internal
punctuation and citations omitted).
In the instant case, of course, there is no disparity in
bargaining power, and no need for Debtor to hire a “second”
attorney; it already has a congery of attorneys representing
it. 10 	Thus the question arises about the applicability of MFAA
in this case. 	The Court finds that even applying MFAA to these
facts, Debtor has not established a right to arbitrate this fee
dispute under California law.
As already noted, the Motion to Stay was filed October 15,
2010, over three months after the issuance of the oral findings
of fact, four months after the evidentiary hearing, about eleven
months after Debtor filed its notice of withdrawal of the
employment application, and sixteen months after filing the
employment application.
Debtor relies heavily on its assertion that it never
received the notice mandated by §6201(d). 	Debtor asserts that it
“did initiate the present Motion to Stay within 24 hours of
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29

Page -15-
receiving notification that it had the statutory right to MFAA
fee arbitration.” 	Debtor Brief at 2, citing the Lahave
Affidavit. 	Doc 202. 	The Lahave Affidavit asserts that Mr.
Lahave’s California counsel asked him if he had received any
notice of a statutory right to arbitrate the fee dispute, that he
has never received any such notice, and that he promptly notified
bankruptcy counsel. 	Id., ¶5. 	Debtor also asserts that the
notice of the right to arbitration in the Retainer Agreement was
insufficient to have put Debtor on notice of its statutory right
because the Retainer Agreement is void. 	Debtor Brief at 1.
To begin with, there is no notice prerequisite for waiver
under § 6201(d) (client commencing an action or filing a pleading
seeking a judicial resolution). 	Compare § 6201(b) (if notice
given, a client’s failure to request arbitration before filing a
pleading is deemed to be a waiver). 	“Debtor admits that it
contested the contingent fee claim of Lurie when debtor first
began to suspect that Lurie was asserting a claim to a contingent
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29

11 To be fair, the term “contested” does not necessarily
mean that Debtor went on the offensive. 	But it is accurate to
say that Debtor has carefully (albeit not so successfully)
orchestrated this compensation litigation.
12 The opening lines of this filing more correctly
characterize the nature of the Response: “The Debtor ... hereby
responds to the Motion for Order Disallowing Debtor’s Purported
Withdrawal of Application to Employ Barak Lurie/Lurie & Park, ...
filed herein on November 30, 2009....” 	(Italics in original.)
Page -16-
fee.” 11 	Debtor’s Response to Motion for Relief from Stay [sic 12 ],
¶4. 	Doc 116, filed December 16, 2009.
Contrary to Debtor’s position, the failure of the attorney
to give [the allegedly] required notice is not fatal to a
collection action. 	§ 6201(a) states “[f]ailure to give this
notice shall be a ground for the dismissal of the action of other
proceeding.” 	Courts interpreting this sentence hold that it is
“a” ground to dismiss and that dismissal is not mandatory.
Valley, 129 Cal.App.4th at 1088, 29 Cal.Rptr.3d at 507; Richards,
Watson & Gershon v. King, 39 Cal.App.4th 1176, 1179, 46
Cal.Rptr.2d 169 (Ct.App. 1995) (Dismissal is discretionary under
§ 6201).
To be clear, the MFAA provides that the attorney shall
give the client notice of its right to arbitration at
or before the time the attorney brings suit, and this
notification requirement is an important feature of the
statute. We simply hold here-consistent with the
holding and reasoning of Richards, supra, 39
Cal.App.4th 1176, 46 Cal.Rptr.2d 169-that the client
may not assert universally the attorney's noncompliance
with section 6201(a) as a defense to the attorney's
action for fees, without regard to the circumstances of
the case or the client's conduct in defending the
action.
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Page -17-
Valley, 129 Cal.App.4th at 1095 n. 16, 29 Cal.Rptr.3d at 513 n.
16.
The Motion for Stay recites that “Debtor has recently been
apprised by its California counsel that fee disputes in
California are subject to mandatory arbitration pursuant to the
provisions of the California Business and Professional Code,
Sections 6200 through 6202.” 	¶7. 	The clear implication of the
statement is that Debtor had no idea that it was entitled to
arbitrate its fee dispute with Applicant until it “recently”
heard from its California counsel. 	But the Motion for Stay then
refers to the Retainer Agreement as one basis for enforcing the
statute. 	Id., at ¶8. 	That paragraph effectively constitutes an
admission by Debtor that it was on notice of the availability of
fee arbitration for over a year and a half before it filed the
Motion for Stay.
The Retainer Agreement language quoted at the beginning of
this opinion specifically cites the statute at issue. 	The
obvious purpose of the Retainer Agreement language is to tell the
client that if there is a dispute about fees, arbitration is
available – by statute – and will be employed. 	The language in
paragraph 7 of the Retainer Agreement is a contractual agreement
to arbitrate; at the same time it is notice to the client of the
statutory provisions that provide for arbitration. 	Thus Debtor’s
repeated distinction between contractual arbitration and
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29

13 At trial, Mr. Diener first testified that he was
corporate counsel for Debtor and then, when closely questioned on
cross examination, testified instead that he was counsel for Mr.
Lahave. 	He has now recited in his affidavit that he was both.
Affidavit of Robert Diener in Support of Debtor’s Motion to stay
Award of Fees, attached as Exhibit D to Debtor Brief, at 1 (doc
201-4 (page 2 of 6)).
Page -18-
statutory arbitration is off the mark; statutory arbitration has
from the outset been known to and available to Debtor and the
Retainer Agreement merely made explicit the parties’ agreement to
use it. (The Retainer Agreement has since been replaced by the
Stipulated Employment Order to not use arbitration.) 	And
regardless of whether the Retainer Agreement is void (assuming
that is the correct term), that agreement informed Debtor of the
statute. 	See Guess?, Inc. v. Superior Court of Los Angeles
County, 79 Cal.App.4th 553, 557, 94 Cal.Rptr.2d 201 (Ct.App.
2000) (late filed commercial arbitration request denied in part
because defendant/movant knew of the arbitration provisions in
the underlying contract since before the filing of the lawsuit).
In addition, when he signed the Retainer Agreement in
February 2009 for (soon to be) Debtor, Mr. Lahave had the
services of Robert Diener, counsel to either the Debtor or Mr.
Lahave (depending on what version of Mr. Diener’s trial testimony
one chooses to believe 13 ). 	Mr. Diener participated in the
decision to enter into the Retainer Agreement. 	Were there any
question at any time about the right to arbitrate, Mr. Lahave had
counsel available to address the issue.
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14 	[A]though often phrased in terms of “waiver”,
the critical issue in the context of the loss
of arbitration rights is whether a party’s
filing of a lawsuit in the face of an
agreement to arbitrate was conduct so
inconsistent with the exercise of the right
to arbitration as to constitute an
abandonment of that right.
Valley, 129 Cal.App.4th at 1094 n. 14, 29 Cal.Rptr.3d at 513 n.
14 (internal punctuation and citations omitted). 	Although Debtor
has not filed an action in lieu of requesting arbitration, the
standard for “waiver” used in Valley is useful for purposes of
this decision.
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Subsequently, Mr. Lahave also had the services of Lenske,
Lenske & Abramson, employed by Mr. Lahave when ORIX sued him
personally in California to collect on his guaranty of the
corporate debt. 	The collection action was served on Mr. Lahave
in August 2009. [Debtor’s] Motion for Injunction, ¶7. 	Doc 63.
The Lenske firm apparently is the “California counsel” that
purportedly notified Mr. Lahave and Debtor of its statutory right
to arbitration. 	Thus since mid 2009 Mr. Lahave has had available
to him a number of lawyers, yet Debtor asserts it suddenly
learned of the statutory right to fee arbitration only in October
2010. 	That assertion is simply not credible.
The MFAA does not absolutely require the arbitration of any
attorney fee dispute; that is, the parties, and certainly the
client, can waive 14 the right to arbitrate an attorney fee
dispute. 	MFAA explicitly provides as follows:
A client's right to request or maintain arbitration
under the provisions of this article is waived by the
client commencing an action or filing any pleading
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15 “Market Center did not file the claim seeking judicial
determination of Lurie’s fee claim. 	Lurie and Park filed the
claim. 	Market Center East responded to the claim defensively.
None of Market Center East’s pleadings sought judicial resolution
(6201(d)(1)) nor sought affirmative relief against Lurie and
Park. 	(6201(d)(2)).” 	Debtor Brief at 7.
16 Indeed, a better time (assuming there were one) to have
invoked the right to arbitrate would have been when Mr. Lurie
sent his first bill to Mr. Lahave once the “monetary portion” of
the Lowe’s settlement had been resolved. 	September 30, 2009 e-
mail from Mr. Lurie to Mr. Lahave, attached as Exhibit C to the
Lahave Affidavit.
Page -20-
seeking ... [j]udicial resolution of a fee dispute to
which this article applies.
Id. at § 6201(d).
Debtor cites the wording of the statute limiting waiver to
instances in which the client is “seeking” judicial resolution of
the dispute or affirmative relief by means of a counterclaim for
malpractice to a collection action, and argues that because
Debtor has only defended against Applicant’s actions 15 , it cannot
be said to have waived its right to arbitrate.
This is a highly technical characterization of its
litigation tactics in this case. 	In substance, Debtor clearly
opted to have this issue resolved in this Court certainly no
later than when it withdrew the employment application in
November 2009 – in effect a declaration that it did not intend to
pay Applicant pursuant to the Retainer Agreement -- and did not
invoke its right to arbitrate at that time. 16
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At some point, failing to raise the right to arbitrate, even
if the client continues only to “defend” against a collection
action, becomes a waiver. 	See MFAA § 6200(b)(3) (2009) (“This
article [for fee arbitrations] shall not apply to ... [d]isputes
where the fee or cost to be paid by the client or on his or her
behalf has been determined pursuant to statute or court order.”).
A holding otherwise would permit a client to manipulate the
statute to require arbitration long after it had become unfair to
do so. 	And in fact, California law does not limit waiver to the
instances described in §6201(d).
MFAA § 6201(d) is not the only basis for finding waiver.
At the heart of the matter, however, is whether the
MFAA sets forth the only circumstances under which a
client who does not receive written notice complying
with section 6201(a) may waive MFAA arbitration rights.
We conclude that it does not. There is nothing in the
statute suggesting that the only way a client may waive
arbitration (if the attorney does not give notice) is
by filing an action or pleading seeking either
resolution of a fee dispute or affirmative relief
against the attorney for malpractice or professional
misconduct. (See § 6201, subd. (d).) A holding that
there are no nonstatutory grounds for waiving MFAA
arbitration rights would permit a client-even one aware
of its right to arbitration under the MFAA despite not
receiving a section 6201(a) notice-to use the
attorney's failure to give notice as a means of
manipulating the judicial process. Courts will not
allow such misuse of the system. As the Supreme Court
held in a case where plaintiffs filed suit for the
express purpose of determining their adversaries' legal
theories before attempting to arbitrate the dispute:
“Such procedural gamesmanship provides ample support
for the trial judge's conclusion that plaintiffs filed
their action in bad faith, and by doing so waived their
right to arbitrate. ‘The courtroom may not be used as a
convenient vestibule to the arbitration hall so as to
allow a party to create his own unique structure
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17 Of course Debtor does not seek a “dismissal” of the
compensation claim in this proceeding, but only that it be
allowed to arbitrate in California (and perhaps there to seek
dismissal). 	These state court “dismissal” cases are nevertheless
relevant because the same standard applies to determine whether
Debtor has lost the right to arbitrate.
Page -22-
combining litigation and arbitration.’ [Citation.]”
(Christensen [v. Dewor Developments (1983),] 33 Cal.3d
778, 784, 191 Cal.Rptr. 8, 661 P.2d 1088.)
Valley, 129 Cal.App.4th at 1095, 29 Cal.Rptr.3d at 512-13
(belated claim of lack of notice did not justify dismissing the
attorney’s collection action). 17
California case law is replete with examples of parties
having waived the right to invoke arbitration, including in
connection with attorney fee disputes. 	E.g., Valley, 129
Cal.App.4th at 1098-1104, 29 Cal.Rptr.3d at 515-19; Sobremonte v.
Superior Court, 61 Cal.App.4th 980, 72 Cal.Rptr.2d 43 (1998);
Adolph v. Coastal Auto Sales, 184 Cal.App.4th 1443, 110
Cal.Rptr.3d 104 (Ct.App. 2010); Guess?, Inc., 79 Cal.App.4th at
557, 94 Cal.Rptr.2d 201 (Ct.App. 2000); In re Watts 244 B.R. 823
(Bankr. N.D. Cal. 2000). 	Sobremonte, frequently cited in
California cases, employed as the standard for waiver a six-part
test set out in Peterson v. Shearson/American Exp., Inc., 849
F.2d 464, 467-68 (10 th Cir. 1988), as follows:
Despite our view of what good practice might have been,
we must examine whether Shearson waived arbitration due
to its inaction prior to the filing of its motion to
compel arbitration and to stay the proceedings. In
determining whether a party has waived its right to
arbitration, this court examines several factors: (1)
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whether the party's actions are inconsistent with the
right to arbitrate; (2) whether “the litigation
machinery has been substantially invoked” and the
parties “were well into preparation of a lawsuit”
before the party notified the opposing party of an
intent to arbitrate; (3) whether a party either
requested arbitration enforcement close to the trial
date or delayed for a long period before seeking a
stay; (4) whether a defendant seeking arbitration filed
a counterclaim without asking for a stay of the
proceedings; (5) “whether important intervening steps
[e.g., taking advantage of judicial discovery
procedures not available in arbitration] had taken
place”; and (6) whether the delay “affected, misled, or
prejudiced” the opposing party. Reid Burton Constr.,
Inc. v. Carpenters Dist. Council of S. Colorado, 614
F.2d 698, 702 (10th Cir.), cert. denied, 449 U.S. 824,
101 S.Ct. 85, 66 L.Ed.2d 27 (1980).
Sobremonte, 61 Cal.App.4th at 992, 72 Cal.Rptr.2d at 50.
Applying the Peterson factors, the Court finds as follows:
1. 	Actions inconsistent with the right to arbitrate: 	Up until
Debtor asserted, at the earliest, the right to arbitrate in the
Motion for Stay on October 15, 2009, no one could have guessed
from Debtor’s behavior that it sought anything but an
adjudication from this Court of the compensation issue with
Applicant. 	This period included the lead up to the final
evidentiary hearing, the hearing itself, and the post-trial
briefing.
2. 	Whether the litigation machinery has been substantially
invoked and the parties were well into preparation of a lawsuit
before the party notified the opposing party of an intent to
arbitrate: 	Not only had the litigation machinery been
substantially invoked, but the parties were far beyond mere
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18 In a fee arbitration before the Los Angeles County Bar
Association, clients compelled the law firm to produce documents
on two separate occasions. 	Manatt, Phelps, Rothenberg & Tunney
v. Lawrence, 151 Cal.App.3d 1165, 1169, 199 Cal.Rptr. 246, 248
(1984).
Page -24-
“preparation”; the trial and the post petition briefing were
over.
3. 	Whether a party either requested arbitration enforcement
close to the trial date or delayed for a long period before
seeking a stay: 	Debtor’s request for arbitration concededly was
not that close to the trial date; the trial had been over for
about four months.
4. 	Whether a defendant seeking arbitration filed a counterclaim
without asking for a stay of the [court] proceedings: 	Debtor
filed no counterclaim, and thus this factor weighs completely in
Debtor’s favor.
5. 	Whether important intervening steps (e.g., taking advantage
of judicial discovery procedures not available in arbitration)
had taken place: 	The Court is not familiar with what sort of
discovery is available in attorney fee arbitrations conducted by
the Beverly Hills Bar Association 18 , but those discovery
opportunities are likely to be somewhat limited if the purpose of
the arbitration process is “an effective, inexpensive” resolution
of the dispute. 	See Valley, quoted above, 129 Cal.App.4th at
1086-87, 29 Cal.Rptr.3d at 505. 	By virtue of F.R.B.P. 9014,
Debtor had available to it the discovery tools provided to all
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litigants by F.R.B.P. 7026 and 7030 through 7037, even if it did
not use all of them.
6. 	Whether the delay “affected, misled, or prejudiced” the
opposing party: 	Applicant has fully litigated, and briefed, all
the issues in this Court. 	It is true, as Debtor points out, that
“courts will not find prejudice where the party opposing
arbitration shows only that it incurred court costs and legal
expenses”, Saint Agnes Medical Center v. Pacificare of
California, 82 P.3d 727, 738, 31 Cal.4th 1187, 1203, 8
Cal.Rptr.3d 517, 530 (2003). 	This is part of the larger rubric
that a client’s “mere participation in litigation and discovery,
without prejudice to [the other party], would not necessarily
compel a finding of waiver”. 	Sobremonte, 61 Cal.App.4th at 995,
72 Cal.Rptr.2d at 52. 	But in this case Debtor’s role in this
Court has gone far beyond “mere participation” and has, as
illustrated above, substantially prejudiced Applicant.
Arbitration is an expedient, efficient and costs-
effective method to resolve disputes. 	If we consider
the amount of time and money [the parties] have already
spent in the judicial system, any benefits they may
have achieved from arbitration have been lost.
Id., 61 Cal.App.4th at 996, 72 Cal.Rptr.2d at 53.
Debtor correctly points out that no decision had been
rendered by the Court on the compensation application at the time
that Debtor invoked the right to arbitration. 	However, “it is
not essential that the litigation be reduced to judgment in order
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to find that a party has waived its right to contractual
arbitration.” 	Valley, 129 Cal.App.4th at 1097, 29 Cal.Rptr.3d at
514, citing, inter alia, Saint Agnes, 82 P.3d at 738, 31 Cal.4th
at 1203, 8 Cal.Rptr.3d at 530 (citation omitted).
Acknowledging that Debtor has filed no counterclaim against
Applicant, the overwhelming weight of the Peterson factors
requires the Court to overrule Debtor’s arbitration demand. 	This
result is consistent with, indeed compelled by, California case
law, including Valley (attorney fee arbitration demand 15 months
after lawsuit commenced), Sobremonte (ten month delay in
requesting attorney fee arbitration while parties and court
wasted valuable resources litigating), Adolph, 	184 Cal.App.4th
at 1447, 110 Cal.Rptr.3d at 107 (citing Sobremonte, 6 months and
discovery delaying tactics override defendant car dealer’s
assertion that “it moved for [commercial] arbitration at its very
first opportunity”); Watts, 244 B.R. at 833 (citing Sobremonte,
court found that a 21-month delay in asserting the right to
arbitrate, raising it in opening argument at the trial,
constituted a waiver); 	Guess?, Inc., 79 Cal.App.4th at 555, 94
Cal.Rptr.2d at 201 (arbitration of commercial dispute):
A defendant answered a complaint but did not allege a
right to arbitrate as an affirmative defense, then
participated in the discovery process without claiming
a right to arbitrate. Three months later, the defendant
moved to compel arbitration. The plaintiff cried foul,
pointing out that the defendant had known about the
arbitration provision at the time this case was filed
and served. The trial court said there was no waiver
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19 The facts in cases in which arbitration demands were
honored differ significantly from the facts in this bankruptcy
case. 	An example is Saint Agnes, 82 P.3d at 730-31, 31 Cal.4th
at 1192-93, 8 Cal.Rptr.3d at 521-22. 	Defendant PacifiCare filed
an action against Saint Agnes for a determination of the status
of certain health services agreements in March, Saint Agnes filed
its own action in April, in July PacifiCare informally requested
arbitration of the contract issues under the California
Arbitration Act, and later in July PacifiCare filed a petition to
compel arbitration. 	The California Supreme Court, relying on
Sobremonte, found no waiver of the right to arbitrate based on
PacifiCare’s attempt to change venue of one of the cases and the
“mere filing” of the initial action. 	82 P.3d at 736, 31 Cal.4th
at 1201, 8 Cal.Rptr.3d at 528.
Page -27-
and compelled arbitration. We conclude otherwise on the
theory that, in litigation as in life, you can't have
your cake and eat it too. 	(Footnote omitted.) 19
See also Manatt, Phelps, 151 Cal.App.3d at 1173-74, 199 Cal.Rptr.
at 251:
In considering appellants' claim of waiver, the case of
Christensen v. Dewor Developments (1983) 33 Cal.3d 778,
780, 191 Cal.Rptr. 8, 661 P.2d 1088, is instructive.
There a plaintiff elected the judicial forum, yet in
his complaint and amended complaint recited a
preservation of the right to arbitrate the dispute in
accordance with the contractual provision. After
unfavorable pretrial rulings against him, plaintiff
dismissed the complaint and filed a petition to compel
arbitration.
This result is also consistent with the parties’ relative
equality in bargaining power and sophistication.
Finally, the policy behind section 6201 does not
require mandatory dismissal. As was explained in
Manatt, Phelps, Rothenberg & Tunney v. Lawrence (1984)
151 Cal.App.3d 1165, at page 1174, 199 Cal.Rptr. 246,
“[t]he policy behind the mandatory fee arbitration
statutes ... is to alleviate the disparity in
bargaining power in attorney fee matters....” Mandatory
dismissal presupposes that in every fee dispute, no
matter who the parties are and no matter what the
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circumstances may be, the attorney will always have the
upper hand. We find this presumption unwarranted. On
occasion, the lawyer will not have superior bargaining
power and a sophisticated client will know of its right
to arbitration whether or not it received notice. Under
those circumstances, mandatory dismissal would not
further the policy behind section 6201 and could, in
fact, work an injustice. Making dismissal
discretionary, however, avoids such problems by giving
the trial court the opportunity to consider all the
relevant facts before deciding whether to dismiss.
Richards, 39 Cal.App.4th at 1180, 46 Cal.Rptr.2d at 172. 	See
also Manatt, Phelps, 151 Cal.App.3d at 1173, 199 Cal.Rptr. at
251:
[T]he record includes declarations which indicate that
defendants were sophisticated business people, one of
whom was a law student, the other a licensed attorney.
Defendants shared office space with plaintiff law firm
and were integrally involved in the work done on their
behalf by plaintiff. They had been offered access to
the very documents, computer billing sheets, which they
now contend revealed the affirmative claims. We view
their claim of newly discovered causes of action, as
perhaps did the trial court, with some skepticism.
Thus even if all the facts were as Debtor has portrayed
them, Debtor would still not have established the basis for
requiring arbitration under California law.
Conclusion
What is quite apparent from Debtor’s actions is that it
committed to employ Applicant, then backed out of that
commitment, then agreed to have this Court decide the issue of
compensating Applicant, and has now decided to back out of that
agreement as well. 	The Stipulated Employment Order constitutes
the agreement of the parties for this Court to determine the
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compensation issues, upon which Applicant and this Court have
relied, consistent with this Court’s obligation to administer
this case. 	In consequence, the Court will deny the Motion for
Stay and the Motion to Dismiss, since the basis of the latter is
the request that the compensation issues be referred to
arbitration. 	The Court will enter appropriate orders.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	March 22, 2011
Copies to:
Daniel J Behles
Moore, Berkson & Gandarilla, P.C.
P.O. Box 7459
Albuquerque, NM 87194
Ronald Andazola
Assistant US Trustee
PO Box 608
Albuquerque, NM 87103-0608
Deron B Knoner
PO Box AA
Albuquerque, NM 87103
James Rasmussen
PO Box AA
Albuquerque, NM 87103-1626
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