Freivogel on Conflicts



 
 
 
 
Arbitration of Malpractice Claims

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May lawyers ask their clients to sign pre-dispute arbitration agreements that include malpractice claims?  For historical reasons, this page is not comprehensive.  It captures opinions and other authorities commencing with 2002.  Earlier authorities do exist, so do your research.

        Warning about Insurance.  As the reader can see from what follows on this page, much of the authority on this issue recognizes the validity of malpractice arbitration clauses in retainer agreements.  Nothing at either place addresses the impact of such a provision on a law firm's malpractice insurance coverage.  Many in the malpractice insurance industry do not like to be bound by such provisions.  They may want a jury trial, or the right to discovery, or the right to appeal.  Some may claim that an arbitration provision provides a policy defense or otherwise obviates coverage.  Therefore, any law firm desiring to use such a provision should be crystal clear about its insurance carrier's position on coverage.

       Ethics Opinions.  ABA Op. 02-425 (2002).  The Committee has opined that lawyers may include binding arbitration clauses for malpractice claims in their client agreements, provided the lawyer makes certain disclosures.  These include advising the client about waiving a jury trial, broad discovery, and the right to appeal.  The footnotes to the opinion contain many citations to cases and ethics opinions; an excellent research tool.  Ala. Op. 2002-04 (November 2002) holds that arbitration clause is enforceable provided client is independently represented when signing it.  Me. Op. 170 (1999) (with three dissents) approved an arbitration clause for malpractice claims and did not require the client to seek independent counsel.  Tex. Op. 586 (Oct. 2008) (consistent with ABA Op. 02-425 (2002).

         Treatise.  Rotunda & Dzienkowski § 1.8-9(a)(4).     

        Gemmel Pharmacies, Inc. v. Vienna, 2003 Cal. App. Unpub. LEXIS 11352 (Cal. App. Dec. 4, 2003).  The court discussed the circumstances under which a pre-dispute agreement to arbitrate a legal malpractice case would be appropriate.  The court resolved the issue in this case, saying:

    The arbitration clause itself is fairly broad, stating: "In case any controversy shall arise between Client and Attorney under this contract, which the parties shall be unable to settle by agreement, such controversy shall be determined by arbitration." However, the limiting clause "under this contract," when viewed in the context of an agreement concerning fees, costs, and billing rates, supports our view that the arbitration clause was meant to be applied only to fee disputes, and not to legal malpractice or breach of fiduciary duty actions.                                                   

      Ober v. Mozingo, 2002 Cal. App. Unpub. LEXIS 2902 (Cal. App. 2002).  The court upheld an engagement letter clause requiring that malpractice claims be subject to arbitration.  The court further held that the lawyer need not explain what rights the client was waiving and that the clause calling for arbitration need not be in a special typeface.

        Where Arbitration Agreement Signed by just a Director of a Corporation, it Is not Binding on the CorporationPlatypus Wear, Inc. v. Cahill, 2006 Cal. App. Unpub. LEXIS 1152 (Cal. App. Feb. 7, 2006).  Plaintiff corporation (“Corp.”) sued Law Firm for malpractice.  Law Firm moved to compel arbitration, because it had an arbitration clause in its engagement letter with Corp.  The problem was that the signatory for Corp. was only a director and not, as he called himself, President.  The trial court found that the engagement letter was not binding, and the appellate court, in this opinion, affirmed.

        Powers v. Dickson, Carlson & Campillo, 63 Cal. Rptr. 2d 261 (Cal. App. 1997). Clauses requiring arbitration of malpractice claims are ethical and enforceable.

        Mayhew v. Benninghoff, 62 Cal. Rptr. 2d 27 (Cal. App. 1997). The court held that an arbitration clause did not apply in the case of a business dispute between the lawyer and the client.

        Thornton v. Higgins, 2003 Ohio 7078 (Ohio App. 2003).  The court ruled that advance agreements to arbitrate malpractice claims are not enforceable.  However, the opinion does seem to suggest that the agreement might be enforceable if the client actually sought and received advice from another lawyer regarding the agreement.  The holding seems to follow Ohio Op. 96-9 (1996). Guay v. Lloyd Ward, P.C., 2014 Ohio App. LEXIS 179 (Ohio App. Jan. 17, 2014) followed Thornton and Op. 96-9.

        Theis Research, Inc. v. Brown & Bain, 386 F.3d 1180 (9th Cir. 2004).  Brown & Bain (B&B) represented Theis in patent litigation.  It did not go well for Theis.  Theis had an agreement with B&B that required all disputes between them to be arbitrated.  An arbitration commenced, in which Theis claimed B&B was guilty of malpractice, and the arbitrator found no liability on the part of B&B.  In the arbitration Theis also sought a finding that the arbitration clause was void because B&B had a conflict of interest when it asked Theis to sign it.  (Nowhere in this opinion does the court indicate the nature of the alleged conflict of interest.)  The arbitrator denied that request, upholding the validity of the arbitration clause.  At the conclusion of the arbitration Theis filed an action in the Northern District of California, claiming, among other things, that the arbitration clause was void because of B&B’s conflict of interest.  The district judge held that Theis could not raise the conflict of interest point in court because he had already raised it in the arbitration and lost.  The trial court confirmed the arbitration decision as to B&B’s liability.  On appeal, in this decision, the Ninth Circuit affirmed, including upholding the ruling that the conflict of interest claim was barred because the arbitrator had decided it.

       Taylor v. Wilson, 180 S.W.3d 627 (Tex. App. 2005).  The lawyer/defendant in this malpractice action asked the court to compel arbitration pursuant to the arbitration clause in the fee agreement.  The trial court found that the case fit the “personal injury“ clause in the Texas Arbitration Act, and denied arbitration.  The appellate court reversed, holding that this was not a “personal injury” case.  The court did not discuss the other issues that usually come up in arbitration clause cases, such as whether the agreement disclosed the denial of jury trial, the client’s opportunity to seek other counsel, etc.

        New York courts approved malpractice arbitration clauses in Broadcast News Networks, Inc. v. Loeb & Loeb, LLP, 834 N.Y.S.2d 656 (N.Y. App. 2007); Matter of Derfner&Mahler, 683 N.Y.S.2d 509 (App. Div. 1999); and Theis v. Bryan Cave LLP, 826 N.Y.S.2d 54 (App. Div. 2006). 

        Harris v. Albany Lime & Cement Co., 2008 Ga. App. LEXIS 470 (Ga. App. April 24, 2008).  Court held that arbitration clause inserted by lawyer in business agreement with client was not enforceable.  Not a lawyer malpractice context.

        Ginter v. Belcher, Prendergast & Laporte, 2008 U.S. App. LEXIS 15382 (5th Cir. July 18, 2008).  In its retainer agreement Lawyer inserted a clause providing that the client could bring a malpractice case in Louisiana state courts only.  In this opinion the court held that the provision was enforceable.  The court analogized to those decisions that held that arbitration clauses for malpractice were enforceable.  One judge dissented.  He believed that Lawyer was acting as both a lawyer and adoption broker, thereby subjecting Lawyer to Rule 1.8(a).

        General Nutrition Corp. v. Gardere Wynne Sewell, LLP, 2008 U.S. Dist. LEXIS 66703 (W.D. Pa. Aug. 12, 2008).  General Nutrition Corp. ("General") brought this legal malpractice action against Law Firm.  Law Firm moved to compel arbitration pursuant to an arbitration clause in a retention agreement Law Firm had entered into with GNC Corp. ("GNC").  The retention agreement contained language that provided that Law Firm's only client was GNC and not members of GNC's corporate family.  General produced evidence that General and GNC were separate legal entities.  In this opinion the court denied the motion to compel arbitration, finding that General was not a party to the agreement.  [Note: the opinion does not reveal the connection, if any, between General and GNC.  Nor, does our quick research get to the bottom of it.  Surely, they were related somehow, or Law Firm never would have attempted the use the GNC agreement in the suit by General.  Law Firm's corporate family language, no doubt designed to avoid disqualification in other contexts, certainly proved troublesome in this proceeding.]

        1199 SEIU United Healthcare Workers East v. Lily Pond Nursing Home, 2008 U.S. Dist. LEXIS 74481(S.D.N.Y. Sept. 29, 2008).  This is a suit by a union for nursing home employees against a nursing home company to confirm an arbitration award of benefits under collective bargaining agreements.  Plaintiffs moved for summary judgment.  One of the grounds for opposing the motion was that the nursing home company had discovered that two of its lawyers were board members of labor organizations affiliated with the plaintiff organization in this case.  The court rejected the conflict of interest argument.  First, the court said that a conflict of interest is not automatically grounds for vacating an arbitration award.  Second, the court held that the arbitrator's award was so clearly in conformance with the collective bargaining agreement, that the conflict of interest could not have had anything to do with the result.

        Simply Fit of N. Amer. v. Poyner, 2008 U.S. Dist. LEXIS 74457 (E.D.N.Y. Sept. 26, 2008).  Court held that in New York the court, not the arbitrator must rule on a motion to disqualify.  But, in Reuter Recycling of Fla., Inc. v. City of Hallandale, 2008 Fla. App. LEXIS 17335 (Fla. App. Nov. 12, 2008), the court held that if the arbitration agreement is broad enough, arbitrators have the jurisdiction to rule on a motion to disqualify.

        Mintz & Fraade, P.C. v. Beta Drywall, LLC, 2011 Fla. App. LEXIS 3911 (Fla. App. March 23, 2011).  The court ruled for arbitration of a malpractice case without discussing ethics.

        Johnson, Pope, Bokor, Ruppel & Burns, LLP v. Forier, 2011 Fla. App. LEXIS 8899 (Fla. App. June 15, 2011).  In this opinion the court held that pre-dispute agreements to arbitrate legal malpractice claims are enforceable.  The court said that while there are "ethical issues," citing Brian Spector, Predispute Agreements to Arbitrate Legal Malpractice Claims: Skating on Thin Ice in Florida's Ethical Twilight Zone?, 82 Fla. B.J. 50 (2008), there is no rule in Florida prohibiting such agreements.

        Pham v. Letney, 2010 Tex. App. LEXIS 1534 (Tex. App. March 4, 2010).  This is a legal malpractice suit.  Lawyer moved the trial court to compel arbitration because there was a provision in the retainer agreement for binding arbitration under the Federal Arbitration Act.  The trial court, believing the agreement was invalid, denied the motion.  In this 2-1 decision the appellate court granted mandamus (reversed the trial court).  First, the majority held that the agreement was not under the Texas statute that invalidated arbitration clauses in personal injury cases (split of authority in Texas regarding legal malpractice claims).  Second, the court held that the Federal Arbitration Act could be incorporated, notwithstanding arguments that "interstate commerce" was not implicated.  Third, the court held that the the agreement was not unconscionable.  Last, the court held that the agreement did not violate Texas' version of Model Rule 1.8(h) (limiting lawyer's liability).  All of this was in the face of Client's contention that Lawyer never explained the arbitration provision and did not recommend that Client seek the advice of other counsel, factors that drove the dissent.  The above was largely followed in Bates v. Laminack, 2013 U.S. Dist. LEXIS 125198 (S.D. Tex. Sept. 3, 2013). Pham also cited in Greenberg Traurig, LLP v. Nat’l Am. Ins. Co., 2014 Tex. App. LEXIS 10206 (Tex. App. Sept. 11, 2014).

        Desert Outdoor Advertising v. Superior Court, 2011 Cal. App. LEXIS 784 (Cal. App. June 17, 2011).  In this opinion the court held that an agreement to arbitrate malpractice claims was enforceable.  The agreement came in mid-representation.  The lawyer did not mention the arbitration clause, and an earlier agreement did not have an arbitration clause.  However, the lawyer told the client to read it carefully and see other counsel about it.

        In re W.R., E.H. & V.R., Minors, 2012 Ill. App. LEXIS 166 (Ill. App. March 12, 2012).  In this neglect proceeding Father was represented by a lawyer who had, three years earlier, acted as a mediator for Father and Mother in a support and custody proceeding.  During the trial of this case the court learned of the mediation and ordered a new trial based on the mediator/lawyer's violation of Illinois Rule 1.12.  In this opinion the appellate court affirmed.  The main issue was the meaning of "matter" as used in the rule.  The court held that the term should be used broadly and that this neglect case was the same matter as the earlier custody case.

        Hodges v. Reasonover, 2012 La. LEXIS 1962 (La. July 2, 2012), reh'g denied, 2012 La. LEXIS 2488 (La. Sept. 21, 2012).  In this opinion the court held that agreements to arbitrate legal malpractice cases are enforceable provided they contain disclosures as to the right to a jury, right to appeal, right to discovery, and related issues.
Castillo v. Arrieta, 2016 WL 439549 (N.M. App. Feb. 2, 2016), cited and agreed with Hodges.

        Roger E. Freilich, D.M.D., P.A. v. Shochet, 2012 Fla. App. LEXIS 15322 (Fla. App. Sept. 12, 2012).  Seller sold his medical practice to Buyer.  Lawyer represented Buyer.  The asset purchase agreement recited that Lawyer represented only Buyer.  The contract also contained a broad arbitration clause.  Buyer invoked the arbitration clause.  Seller filed this action to enjoin Lawyer from representing Buyer in the arbitration on the basis that Lawyer had earlier represented Seller.  Buyer moved to compel arbitration of that issue, which the trial court granted.  In this opinion the appellate court affirmed.

        Vandekerckhove v. Scarfone, 2012 Mich. App. LEXIS 1961 (Mich. App. Oct. 11, 2012).  Plaintiff hired Lawyer to represent her on several estate-related matters.  Plaintiff signed two engagement agreements with broad binding arbitration clauses.  Plaintiff sued Lawyer for malpractice, but the trial court ordered the parties to arbitration.  In this opinion the appellate court affirmed.  The court held there was no fraud in the inducement to sign the agreement, notwithstanding Plaintiff's claim that Lawyer had a conflict of interest.  The court also held that Lawyer could enforce the arbitration clause even though the party to it was "Lawyer, P.C."

        Bruszewski v. [Law Firm], 2012 U.S. Dist. LEXIS 181187 (E.D. Ky. Dec. 21, 2012).  Under the unique circumstances of this case the court, in this opinion, refused to enforce an arbitration agreement between an alleged tort victim and a law firm.

        Losey v. Prieto, 2013 Ga. App. LEXIS 204 (Ga. App. March 14, 2013).  Client, believing that Law Firm had charged too much, sued Law Firm to recover the allegedly overpaid fees.  Law Firm moved to dismiss and to compel arbitration pursuant to the arbitration clause in the fee agreement.  The trial court granted the motion.  In this opinion the appellate court affirmed.  Among other things, the appellate court rejected Client's contention that the arbitration clause implicated a conflict of interest between Client and Law Firm.

        MaineBezio v. Draeger, 2013 U.S. App. LEXIS 24871 (1st Cir. Dec. 16, 2013).  In this opinion the court upheld arbitration of a legal malpractice claim.  The court relied primarily on Opinion 170 of the Maine Supreme Court’s Professional Ethics Commission.

        Atales v. U.S. Legal Servs. Grp., L.P., 2014 N.J. LEXIS 906 (N.J. Sept. 23, 2014). Plaintiff hired Law Firm to render “debt-adjustment services.” Dissatisfied with Law Firm’s work, Plaintiff sued Law Firm under two New Jersey consumer protection statutes. Because Law Firm’s service contract contained an arbitration agreement, Law Firm moved to compel arbitration. Both the trial and appellate courts upheld the contract. In this opinion the supreme court reversed. The court ruled that the contract lacked “any” language informing Plaintiff that she was giving up her “statutory right” to go to court. The court made no mention of how it would rule in the case of claims under common law legal malpractice.

        Smith v. Lindemann, 2014 U.S. Dist. LEXIS 27065 (D.N.J. March 3, 2014). Plaintiff sued Defendant for legal malpractice. Based upon an arbitration clause in the retainer agreement, Defendant moved for a stay and to compel arbitration. In this opinion the court granted the motion. The opinion contains a lengthy discussion of New Jersey cases, the Federal Arbitration Act, and the language of the arbitration clause, among other things. The most important point is that arbitration clauses are enforceable in legal malpractice cases.

        In Gordon v. Lloyd Ward & Assocs., P.C., No. 31399-9-111 (Wash. App. April 8, 2014), the court held that an arbitration clause, which no one explained to the clients, was "procedurally unconscionable" and unenforceable.

        LADT, LLC v. Greenberg Traurig, LLP, 2014 WL 6686776 (Cal. App. Nov. 25, 2014). Law Firm represented several parties in a transaction. At some point Law Firm wrote a letter to its clients mentioning possible conflicts of interest and eliciting a waiver from the clients. The letter also contained an agreement that any dispute regarding an alleged conflict of interest be subject to binding arbitration. Later the clients sued Law Firm for malpractice (this case). The complaint made no mention of a conflict of interest. However, during discovery the clients answered “yes” to a question whether Law Firm had had a conflict of interest. Upon receiving that response, Law Firm moved to compel arbitration. The trial court denied the motion. In this opinion the appellate court affirmed holding that because the clients chose not to sue for a conflict of interest, the arbitration agreement did not apply to this case.

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