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Are Pre-Engagement Lawyer-Client Arbitration Agreements Enforceable?


Editor’s note: This article describes a hypothetical situation.

Charles Forer

The boom finally dropped. A former client brought a legal malpractice claim against Bob. This did not surprise his friends and colleagues—and readers of his miscues—who all knew Bob has been giving lousy advice for years.

After he read the state-court complaint, Bob was pleased and even felt a little vindicated because he was certain the court would send the malpractice case to arbitration. Why? Because Bob’s carefully crafted engagement letter attached a document titled “Engagement Terms and Policies.” That document included the following:

"Any dispute, claim or controversy arising out of any fees, billing practices or this engagement shall be settled by binding arbitration before a single arbitrator in Philadelphia, in an arbitration that ABC Co. administers. The arbitrator’s decision shall be final and binding on the parties. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof."

Arbitration has the advantage of generally being faster, less expensive and more informal than traditional litigation, and any decision is final and binding. Your signature on the accompanying engagement letter acknowledges your informed consent to the use of arbitration to resolve disputes with me.

Bob demanded that his malpractice defense lawyer file a preliminary objection in order to compel the inevitable arbitration. As Bob lectured, “Rule 1028(a)(6) of the Pennsylvania Rules of Civil Procedure says parties can seek to dismiss cases that belong in another forum.”

Because Rule 1028(a)(6) was “on point” (Bob’s words), Bob insisted that the preliminary objection quote the relevant language: “Preliminary objections may be filed by any party to any pleading and are limited to the following grounds: ... pendency of a prior action or agreement for alternative dispute resolution.” Bob was adamant that his lawyer attach a copy of the engagement letter and its attachment to the preliminary objection.

Bob was confident the law was on his side. The arbitration clause here did not limit or alter his former client’s substantive rights. Bob could look for support to Comment 14 to Rule 1.8 of the Pennsylvania Rules of Professional Conduct: “This paragraph does not ... 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.”

American Bar Association Formal Ethics Opinion 02–425 likewise states that “mandatory arbitration provisions are proper unless the retainer agreement insulates the lawyer from liability or limits the liability to which she otherwise would be exposed under common or statutory law. For example, if the law of the jurisdiction precludes an award of punitive damages in arbitration but permits punitive damages in malpractice lawsuits, the provision would violate Rule 1.8(h) unless that client is independently represented in making the agreement.”

In Sanford v. Bracewell & Guiliani, 6 F. Supp. 3d 568 (E.D. Pa. 2014), the court, relying on Rule 1.8, sent to arbitration a legal malpractice claim filed by the counter-signer of a retainer letter; the claim fell within the scope of an arbitration provision in the letter and was not unconscionable: “Plaintiff-signatory is bound by its terms and his claims against the firm are subject to arbitration.”

The court that ruled on Bob’s preliminary objection saw things a bit differently. A lot differently.  “Overruled,” said the one-sentence order. Did the court fail to read Bob’s retainer agreement, including the embedded arbitration provision? Did the court misread the cases and disregard Rule 1.8 of the Pennsylvania Rules of Professional Conduct? Could Bob have drafted the retainer agreement differently and avoided this taste-of-your-own-medicine result? Easy answers: "no, no, yes."

Courts that have considered whether to enforce a pre-attorney client relationship arbitration agreement, including Mackin Medical v. Lindquist & Vennum, 2018 Phila. Ct. Com. Pl. LEXIS 146 (C.P. Phila. Dec. 26, 2018), have put teeth into Explanatory Comment 14 of Rule 1.8. Not by vaguely pontificating that “the client be fully informed of the scope and effect of the arbitration agreement.” But by identifying the requirements for an agreement that satisfies their concerns.

The result: a detailed road map for an enforceable pre-engagement lawyer-client arbitration agreement, which will allow the prospective client to make an informed decision regarding the proposed representation. See Pennsylvania Rules of Professional Conduct Rule 1.0(e): “‘Informed consent’ denotes the consent by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”

The specific directions in the road map:

Charles Forer
  • Make sure the arbitration provision broadly covers any dispute, claim or controversy arising out of or relating to the engagement.
  • Don’t bury the arbitration provision inside a lengthy engagement letter.
  • Conspicuously label the arbitration provision.
  • Make sure the arbitration provision is clear and easy to understand. Plain language. Short sentences. Few sentences per paragraph. Active tense. Simple words. Twelve-point or larger font.
  • Make sure the arbitration provision identifies the important rights the prospective client is giving up by agreeing to arbitration: the right to a jury trial; the right to an appeal from the arbitrator’s final award; and the right to broad discovery under the Pennsylvania Rules of Civil Procedure and the Federal Rules of Civil Procedure.
  • Make sure the arbitration provision informs the prospective client he may incur substantial upfront and continuing costs  compared to litigation, in order to pay the fees of the arbitrator(s) and the arbitration provider, if any.
  • Make sure the arbitration provision identifies the claims it covers, including legal malpractice, legal negligence, breach of contract and fee-dispute claims.
  • Make sure the arbitration provision notifies the prospective client that he is not giving up any right to make a disciplinary complaint to the appropriate authorities.
  • Make sure the arbitration provision tells the prospective client he has the right to have an independent lawyer of the client’s choice review the arbitration provision. Spell out that the prospective client has the right to speak to, and to get advice from, an independent lawyer before the prospective client signs the provision. See Pennsylvania Rules of Professional Conduct Rule 1.8, Comment 14, “Many clients are unable to evaluate the desirability of making such an agreement before a dispute has arisen, particularly if they are then represented by the lawyer seeking the agreement,” at Rule 1.0, Comment 6 “generally a client or other person who is independently represented by other counsel in giving the consent should be assumed to have given informed consent.”
  • Make sure the prospective client has time to review the arbitration provision. Document that he had lots of time to review and think about the provision.
  • To avoid a later claim that the prospective client did not see or get the arbitration provision, make sure he returns a countersigned and dated copy of the provision.

Did Bob’s arbitration provision satisfy everything on this 11-point checklist? Nope. So is it surprising that Bob is now going to defend the malpractice claims in court?

Charles F. Forer independently provides arbitration, mediation and all other neutral services. He is the current co-chair of the Philadelphia Bar Association’s alternative dispute resolution committee. He is a former chair of the association’s fee disputes committee. He is a frequent lecturer and writer on the use of ADR in a variety of settings. Contact him at 610-999-5764 and cforer@foreradr.com.