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By: Al Vance, Vance Dispute Resolution
Your law firm gave you the task of updating its legacy client engagement agreement. In researching today’s best practices for drafting client engagement agreements, you discover an increasing trend for using arbitration provisions and you decide to include an arbitration provision in your firm’s client engagement agreement. This scenario raises the question as to whether a lawyer can include a valid arbitration provision in a client engagement agreement without violating the Rules of Professional Conduct.
Use of Arbitration Provisions in Client Engagement Agreements
Arbitration provisions are common in most contracts and are increasing in usage with client engagement agreements. While arbitration provisions are generally valid and enforceable, there are ethical concerns that must be considered when lawyers or law firms include these provisions in client engagement agreements.
These concerns include:
The client may not be fully aware of the implications of agreeing to arbitration.
The client may be giving up their right to a jury trial.
The client has fewer opportunities to appeal a decision.
So, how do you address these ethical concerns in a client engagement agreement?
Alabama
Yes, arbitration provisions are allowed in Alabama client engagement agreements. But there is a caveat.
Alabama State Bar Formal Opinion 2002-04 is directly on point as it concerns the use of arbitration provisions in client engagement agreements. The Alabama State Bar’s opinion addresses the ethical concerns associated with arbitration provisions in client engagement agreements. In pertinent part, Rule 1.8(h) of the Alabama Rules of Professional Conduct states that “a lawyer shall not make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless permitted by law and the client is independently represented in the making of the agreement...”
The above-referenced opinion explains that a lawyer cannot require a client to agree to binding arbitration as a condition of representation unless the client is independently represented by counsel in the negotiation and execution of the agreement.
The Alabama ethics opinion further states:
Since the client is surrendering these rights as a precondition of obtaining your services, you would have a conflict of interest in counseling and advising the client with regards thereto. Such counsel and advice must come from an attorney whose interest would not be affected by the client’s decision. The requirement of independent counsel is particularly compelling where, as in most instances, the client is relatively uneducated and unsophisticated with regard to legal matters and would be, for the most part, otherwise at the mercy of the attorney who has drafted the employment contract.
Ala. State Bar Ethics Op. RO-02-04.
When incorporating arbitration provisions in client engagement agreements, Alabama lawyers, at a minimum, must make certain of the following:
The client is independently represented by counsel before agreeing to a binding arbitration provision.
The arbitration provision must be clear and unambiguous.
The client must be given adequate notice of the arbitration provision.
Florida
In Florida, there are specific disclosure requirements for the use of arbitration provisions in client engagement agreements as set forth in Florida Bar Rule 4-1.5(i). Rule 4-1.5(i) requires that mandatory arbitration of “fee disputes” must be in writing and the potential client should consider obtaining independent legal advice. Furthermore, “…[a] lawyer shall not make an agreement containing such mandatory arbitration provisions unless the agreement contains the following language in bold print.”
NOTICE: This agreement contains provisions requiring arbitration of fee disputes. Before you sign this agreement you should consider consulting with another lawyer about the advisability of making an agreement with mandatory arbitration requirements.
Arbitration proceedings are ways to resolve disputes without the use of the court system. By entering into agreements that require arbitration as the way to resolve fee disputes, you give up (waive) your right to go to court to resolve those disputes by a judge or jury. These are important rights that should not be given up without careful consideration.
Clearly, Rule 4-1.5(i) allows the use of arbitration provisions in client engagement agreements for fee disputes. But what about claims related to the performance of legal services? In Owens v. Corrigan, 252 So. 3d 747 (Fla 4th DCA 2018), the Court held that the arbitration clause in dispute was written in a way that both the fee dispute and alleged malpractice were inextricably intertwined. The Court explained that “an attorney’s entitlement to recover fees depends in large part upon the competence of the attorney’s performance.” Id. at 751 (citing, Fla. Patient’s Compensation Fund v. Rowe, 472 So. 2d 1145, 1150 (Fla. 1985)). The Owens Court held that “[l]awyers owe ethical obligations and duties to their clients that exceed what the common law requires of arm’s length contracting parties.” Id. However, the dissent in Owens explained that fee disputes could be severed from the legal services claims and that Rule 4-1.5(i) only applies to fee disputes.
In Florida, one should consider complying with Rule 4-1.5(i) for all claims, not just fee disputes. Ultimately, whether a court chooses to sever other claims from fee disputes in deciding arbitrability depends on the court.
Tennessee
Like Alabama and Florida, arbitration provisions are allowed in Tennessee client engagement agreements. Tennessee’s guidance is also found in its conflict-of-interest rules of professional conduct. See Tenn. R. Sup. Ct. R. 1.8, RPC.
Paragraph fourteen (14) of the comment section in Tennessee’s Rule 1.8 states as follows:
[14] Agreements prospectively limiting a lawyer’s liability for malpractice are prohibited because they are likely to undermine competent and diligent representation. Also, many clients are unable to evaluate the desirability of making such an agreement before a dispute has arisen. This paragraph does not, however, prohibit a lawyer from entering into an agreement with the client to arbitrate legal malpractice claims, provided such agreements are enforceable and the client is fully informed of the scope and effect of the agreement...
While there are no Tennessee ethical opinions addressing this issue, the language of the rule provides clients with the right to independent counsel and to be fully informed of the scope and effect of the arbitration provision. Unlike Alabama’s interpretation of Rule 1.8, there may remain a question as to what “fully informed” means. Does that mean a client must be informed only and independent counsel is unnecessary? Tennessee practitioners should consider following the American Bar Association’s (ABA) guidance outlined below and contact their local and/or state bar for additional guidance.
General American Bar Association Guidance
For all practitioners considering using arbitration provisions in client engagement agreements, the ABA provides wise counsel and recommends lawyers to:
Check with your local or state bar first;
Consider all ethical implications.
Consider consumer protection laws.
Consider whether you want to give up the benefits of litigation.
Consult your malpractice carrier.
Overall, when considering using an arbitration provision in a client engagement agreement one must address potential jurisdictional ethical concerns. It is important for lawyers and clients to carefully consider the pros and cons of arbitration before agreeing to it. Lawyers should also consider consulting their liability carrier.
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Al Vance, Author
Al is the founder and managing partner of Vance Dispute Resolution, PC where he specializes in strategic problem-solving, mediation, and arbitration. He is a registered mediator and arbitrator for the American Arbitration Association, Alabama State Court Mediator Roster, ADR Panel of Neutrals for the Northern District of Alabama, and a member of the Alabama Academy of Attorney Mediators. He currently serves as a Hearing Officer for the Alabama State Bar’s Disciplinary Board. He holds an AV Preeminent Martindale Hubbell Rating.
Al has extensive expertise in the following areas: personal injury, product liability, professional liability, workers' compensation, and employment matters (Age Discrimination in Employment Act, Americans with Disabilities Act, Section 1981 of the Civil Rights Act, Title VII of the Civil Rights Act of 1964, Equal Pay Act, Fair Labor Standards Act, Family Medical Leave Act, Pregnancy Discrimination Act, and Private Attorneys General Act).
For over a decade, he served as General Counsel for the aerial device industry leader, Altec Industries, Inc., and as Associate General Counsel for Altec, Inc. Prior to Altec, Al launched his legal career in 2000 at the Starnes Davis Florie, LLP law firm, where he later became a partner. Al is a licensed member of both Alabama and Georgia State Bars.
Al earned his Juris Doctor from the University of Alabama School of Law and a Bachelor of Science degree in Civil Engineering from Auburn University.