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Because enforcement of an arbitration agreement between a client and his attorney in a case involving a third party might lead to conflicting rulings, the California Court of Appeals affirmed a lower court order refusing to compel arbitration.
In Sherman v. Barrett, B190056, 2007 WL 520325 (Cal. Ct. App. Feb. 21, 2007), Sherman and his partner Mendoza hired attorney Barrett to serve as counsel in establishing and running a building industry corporation. Sherman and Mendoza signed a broad arbitration agreement with Barrett, but had no arbitration agreement with each other.
When Mendoza, with Barrett's help, tried to force Sherman out, Sherman sued both Mendoza and Barrett. Barrett filed a motion to compel arbitration. The trial court denied the motion to compel because the lack of an arbitration agreement between Sherman and Mendoza gave rise the possibility of conflicting rulings.
In affirming this decision, the Court held that the trial court properly applied section 1281.2(c) of the California Civil Procedure, which allows a court not to enforce an arbitration agreement in a case involving a third party if the respective disputes "aris[e] out of the same transaction" and there is "a possibility of conflicting rulings."
Additionally, the Court noted that although there were a number of reasonable remedies available to the trial court – including a temporary stay of arbitration – this fact did not make unreasonable the court's decision to deny arbitration completely.
Still, the actual remedy chosen by the trial court may well have been influenced by Barrett's delay in raising the arbitration issue because the court expressed some frustration over the delay.
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