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Client v. Attorney

With disputes on the rise,
it might be a good idea to include
mediation or arbitration
clauses in fee agreements

by Ellen Peck

Attorney-client disputes of all varieties are on the rise. If you would prefer to resolve any dispute with your client in a forum other than the courts, you may wish to add a mediation or arbitration clause to your fee agreement or engagement letter. However, there are a number of changes in the law which affect enforceability of such agreements on ethical grounds.

Mediation

Mediation offers attorneys and clients an opportunity to resolve disputes in a confidential setting, in creative ways, and is the most flexible for the parties. In most cases, it is less expensive, faster and less stressful than arbitration or litigation. However, since mediation is generally a voluntary and non-binding process, your fee agreement or engagement letter may suggest that client and attorney agree to consensual mediation as a first means of dispute resolution, recognizing that you will probably not be able to compel client mediation involuntarily if it would affect the client's rights to arbitrate a fee dispute. (Business & Professions Code §§6200 et seq.)

Arbitration

For both attorney and client, arbitration permits confidentiality, some flexibility and, in most cases, cost-effectiveness, speed and less stress. Arbitration of client disputes has decided advantages for the attorney:

1. Arbitration of professional liability issues can cut down on the risk of a runaway jury award and offer the likelihood of a more reasonable damage award against the attorney if liability is conceded or found.

2. In fee arbitrations, state or local bar fee arbitrators are precluded from considering any counterclaims or offsets for malpractice or other performance issues in any fee dispute. Thus, an attorney can resolve a fee dispute with a client in the fee arbitration forum while the client must independently initiate a legal malpractice or related claim in another forum.

Enforcement of arbitration clauses

Moncarsh v. Heily & Blase (1992) 3 Cal.4th 1 has held that California has a strong policy favoring arbitration even where the decision causes substantial injustice and is contrary to public policy. Moncarsh and subsequent cases have consistently held that such public policies do not extend to arbitration of issues beyond the scope of the arbitration agreement.

Where the scope of arbitration is in doubt and the case involves an issue in which there is a constitutional right to a jury trial, doubt should be resolved in favor of a trial by jury and against arbitration. (Fireman's Fund Ins. Companies v. Younesi (1996) 48 Cal.App. 4th 451, 458-459.) Lawyers cannot be permitted to create a presumption of arbitrability through all-purpose arbitration clauses in engagement agreements with their clients. (Mayhew v. Benninghoff (1997) __Cal.App.4th __[62 Cal.Rptr.2d 27; 97 DAR 4308, 4310 (April 2, 1997)] rev. filed 4/14/97.)

Professional obligations

The remainder of this article discusses the interplay of lawyers' professional obligations upon the validity of arbitration clauses between lawyer and client regarding resolution of their disputes.

1. What professional obligations apply to attorney-client dispute resolution agreements at the outset of the relationship?

2. What professional obligations apply to attorney-client dispute resolution agreements after an attorney-client relationship has already been established?

3. May an attorney ask a client to agree in writing, in advance of a dispute arising, to mandatory fee arbitration for any dispute about fees and costs arising between them? Yes.

4. May an attorney ask a client to agree in writing, in advance of a dispute arising, to binding fee arbitration for any dispute about fees and costs arising between them? Prob-ably not.

5. Does an agreement to arbitrate malpractice claims or other performance issues constitute a prohibited limitation of malpractice liability? No.

6. May an attorney ask a client to agree in writing, in advance of a dispute arising, to mandatory binding arbitration for any dispute about legal malpractice, breach of professional duty or other performance issues arising between them? Yes.

7. How clear does the concept of the applicability of arbitration to a dispute have to be? Crystal.

8. Does the alleged failure of your client to read an entire agreement containing an arbitration clause require its revocation? Not necessarily.

9. Does an arbitration agreement need to contain an express waiver of the right to a jury trial to be enforceable? Not necessarily.

10. Other issues

Conclusion

Notwithstanding what seems to be a minefield of potential problems, with some care, enforceable arbitration can be drafted to ensure that disputes which may arise between you and your client can be resolved in a forum which is more convenient and cost-effective. Be careful out there!


Ellen Peck, former State Bar Court judge and former ethics counsel to the State Bar and the American Bar Association, is a solo practitioner in Malibu.

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