Take a close look at binding arbitration

By Diane Karpman

Diane Karpman

In Aguilar v. Lerner (courtinfo.ca.gov/opinions/documents/S099667.PDF), the Supreme Court suggests a future without reported decisions involving legal malpractice. Aguilar reconciles the Mandatory Fee Arbitration Act (MFAA, Business & Professions Code 6200 et seq.) and the California Arbitration Act (CAA, Code of Civil Procedure 1280). The court explained that the two systems are complementary and co-exist, yet described both as “separate” and “distinct.” If every California lawyer included a binding arbitration clause for client claims, public decisional law regarding legal malpractice would disappear.

Although MFA is voluntary for the client, the fee agreement may also include binding arbitration of professional negligence claims. Once the MFA “experience” is over, the client is back in binding arbitration of the remaining claims. Nothing involving attorney malpractice need see the light of day.

Binding arbitration clauses are ethical and valid, if the provision is not ambiguous, adhesionary or attempts to limit malpractice liability. Arbitration is merely forum selection. Everyone has freedom to contract. If clients consent to binding arbitration in the fee agreement, then their feet, like anyone else’s, must be held to the fire.

This may appear to be a keen idea. Lawyers frequently believe they don’t get a fair shake in trial because juries are predisposed to dislike lawyers. (Wait a minute; how do you explain the defense verdicts?) However, binding arbitration removes the lawyer’s conduct from the court of public opinion and protects a lawyer’s reputation in perpetuity. And, with binding arbitration, a lawyer could avoid sympathy verdicts, runaway juries or juries that did not comprehend the subtleties of a dense and complex case.

Remember, all claims and cases, lawyers and clients are not created equal. Your area of practice will have an impact on whether binding arbitration is of value to you. You could have a “mad hatter” for a client, whose claim could be eliminated by a demurrer or summary judgment — which don’t exist in arbitration. Before wise practitioners include binding arbitration in fee agreements, they must obtain their carrier’s consent in writing. Some carriers are arbitration averse.

Arbitration has other detriments. There is no oversight or appellate rights, and at best limited discovery. Yes, you can draft an arbitration clause to suit your needs, but when lawyers enter the land of creative drafting, often they forget the one clause that they needed. Finally, a major downside of arbitration is that it can be expensive (ouch!).

Arbitration can only be forced upon signatories of your fee agreements. For some unknown reason, lawyers are reluctant to ask corporations to execute fee agreements, since they are not required for corporate clients. So those cases will still be litigated, as well as pesky claims of non-clients or third parties, such as will beneficiaries, joint venturers, spouses and others claiming some form of “clienthood.”

So, some smart practitioners, depending upon their carriers’ response, their aversion to the glare of media lights and their types of practice, may be saying “adios” to publicly litigated claims of negligence.