Hepler Broom, LLC

Are Arbitration Clauses in Attorney Engagement Letters Enforceable?

September 23, 2021

by Justin L. Assouad

Arbitration clauses have become ubiquitous in modern commerce.  The legal services industry is not immune from this trend.  Today, many law firms include arbitration provisions in their client engagement letters.   This trend raises the important question: are such arbitration provisions enforceable in the face of a legal malpractice claim? If so, under what circumstances are such arbitration provisions enforceable?

Judicial and Advisory Ethics Opinions

Recent court decisions on the subject have made clear that arbitration provisions may indeed be enforceable in the context of legal malpractice claims brought by clients.  See e.g., Delaney v. Dickey, 244 N.J. 466 (2020).  However, unlike the purchase of washing machines or automobiles, judicial opinions and advisory ethics opinions in recent years have made clear that lawyers are generally required to inform the client of the scope and effect of arbitration clauses.  As explained recently by the New Jersey Supreme Court, the reason courts impose heightened disclosure obligations on lawyers is that lawyers have certain professional and fiduciary obligations that car dealerships and retail stores do not.  Id. at 485.  A client seeking help from a lawyer for a child custody dispute is simply not in a similar relationship as the customer seeking to purchase a used car from an automobile dealer.  Id. at 496.  While a car dealer may generally enforce the “fine print” of arbitration clauses, lawyers must first explain the advantages and disadvantages of arbitration in the event of any future dispute before the arbitration clause may be enforced.

The level of required disclosure or “informed consent” varies from state to state.  In Missouri, for instance, the Rules of Professional Conduct make clear that arbitration clauses in retainer agreements are permissible, provided that the agreement is enforceable and provided the client is fully informed of the scope and effect of the agreement.  M.R.P.C. 4-1.8(h) cmt. 14.  Other jurisdictions require lawyers to advise their clients to seek the advice of independent counsel before signing a retainer agreement containing an arbitration provision.  See e.g., Pa Ethics Op. 97-140 (1997).  In Maine, lawyers must explain all of the key differences between the arbitral forum and the judicial forum, while taking into account the client’s capacity to understand that information.  Snow v. Bernstein, Shur, Sawyer & Nelson, P.A., 176 A.3d 729, 736 (Me. 2017).

The Takeaway

The common thread running through each state’s approach is that lawyer-client agreements are not ordinary contracts.  As fiduciaries, lawyers owe clients duties of good faith, loyalty, and due care in a way that ordinary business merchants do not.  Clients must be in a position to make informed decisions regarding their representation.  When a potential client engages a lawyer, he or she may not expect that any future dispute or malpractice claim will arise.  When such a dispute does arise, however, clients should be informed in advance of the advantages and disadvantages of arbitrating such a dispute.  Only by providing such “informed consent” will most states enforce arbitration clauses in attorney engagement letters.

COVID-19 Updates

HeplerBroom is pleased to announce that its physical offices have reopened. While the health and safety of our clients, employees, and families, remain our top priority, HeplerBroom attorneys and staff are returning to our offices on full-time or modified schedules. Our offices are open to visitors and clients with scheduled appointments, with appropriate screening of visitors and social-distancing protocols. HeplerBroom will continue to follow CDC recommendations for cleaning and sanitizing.

We are very proud of the dedicated efforts of our attorneys and staff to provide great service and work product to our clients during the pandemic. This would not have been possible without the incredible support provided by the HeplerBroom IT Department and other essential personnel who supported our personnel and clients from the office locations while the rest of our teams worked remotely.

If you have questions about visiting our offices, please do not hesitate to contact us. We look forward to seeing you in person again in the near future.