Some arbitrary thoughts related to attorney-client arbitration agreements

It is undeniable that the American judicial system long ago embraced arbitration as a valid form of alternative dispute resolution.  As a result, it is also hornbook law at this point that agreements to arbitrate disputes are to be enforced just like any other contract.  As a practical matter, there isn’t anything empirically wrong with the concept of enforcing agreements to arbitrate like any other contract as they are just that, contracts.

Nevertheless, you have to turn a blind eye to reality to think that arbitration provisions cannot be used by parties with superior bargaining power to impose a non-judicial forum upon parties with no real choice beyond a take-it-or-leave-it option as to the contract.  This is not always the case, of course.  But it is not credible to say it does not happen in some circumstances and, unless you read the terms and conditions for that extremely popular smartphone in your hands and refused to “agree”, then I’m pretty sure it has happened to you.

Given the fiduciary duties owed by attorneys to clients (and the fact that in some jurisdictions those duties can be extended even to the time of the events surrounding formation of the attorney-client contractual relationship itself), it should come as no surprise that there are many lawyers who react to the concept of mandatory arbitration provisions in engagement agreements with clients as being unsettling.  For some lawyers, they draw a line of distinction between their view of requiring clients to agree to arbitrate all fee disputes rather than all disputes, but given the interrelated dynamic of fee disputes and legal malpractice claims drawing a line in that regard can just result in multiplication of proceedings.

From time-to-time, I’ve addressed variations of the ethical issues associated with including agreements to arbitrate disputes in their engagement agreements and also tried to talk about the practical issues – such as the fact that some larger insurance carriers will discourage firms from doing so on the basis that arbitration might not actually be a better forum than litigation.  But usually the tips I’ve offered are largely common sense approaches that would look to authority on enforcing arbitration provisions in other situations where there is a real imbalance of power between the contracting parties.  And, of course, one bastion that seems never likely to fall is that an arbitration provision in an agreement with a client cannot serve to allow the lawyer to contract out of any ethical obligation and will not serve to prevent the client from pursuing a disciplinary complaint against the lawyer.  Thus, as just an example, RPC 1.8(h) in Tennessee and some other jurisdictions prohibits lawyers from making “an agreement prospectively limiting the lawyer’s liability to a client or prospective client for malpractice.”  So, if the arbitration forum being mandated would be one that actually limits remedies in some significant fashion, then what might otherwise be an enforceable provision could well end up unenforceable.

I think those tips are still solid ones, but July has brought at least two news reports of court rulings sending client disputes to arbitration that, at least, reiterate the point that growing acceptance of agreements to arbitrate disputes in the lawyer-client arena is a real thing.

The first is a July 2, 2015 opinion from the Third Circuit that ruled that arbitration was required with respect to the dispute of a client who was not even a party to the engagement agreement containing the arbitration provision.  There are at least some obvious extenuating circumstances to help justify the first result.  The client who had not signed an engagement agreement was claiming to be a joint client of the firm along with her husband who did sign and, the court concluded, in suing the firm for malpractice she was essentially trying to enforce the engagement agreement that also included the arbitration provision.  That, for the Third Circuit, justified holding her to the arbitration requirement as a matter of equitable estoppel.

The second is an extremely sordid matter in which a Hollywood actress who is being allowed to pursue her case under a pseudonym will be required to arbitrate her claims that a Beverly Hills lawyer essentially forced her to engage in sexual activity and perform sexual favors over a number of years.  There is really no extenuating circumstance I can manage to decipher to justify this result; the only justification appears to be the court’s conclusion that the claims being made against the lawyer arose out of the attorney-client relationship and since the arbitration provision said that the parties were agreeing to arbitrate all such claims it would have to include even these claims of sexual abuse.  Let me try to opt for understatement and say that outcome surprises me.  Let me also try to find the silver lining in the gray cloud and say that an arbitration forum — and its inherently private rather than public nature — should at least make it easierharder for the actress’s identity to be publicly-outed.  (Edited thanks to a wonderful reader catching that error on my part.)