Let’s tour the issues.
First, the case law or ethics rules in your jurisdiction may limit your ability to bind your client to arbitration.
Remember, we’re talking about arbitration agreements between a lawyer and client as part of their engagement agreement—not one to resolve an already-existing dispute. These provisions may address fee disputes alone or may include any disputes, including malpractice claims.
Check With the Bar
Even before you hit the books on ethics and enforceability, check with your local or state bar. Many have fee-dispute arbitration (or mediation) programs, and these might be just right for your needs.
Still, read on, as you will want to consider whether to use one of these programs.
The Majority View
Two decades ago, the ABA broadly blessed arbitration provisions in ABA Formal Opinion 02-425, Retainer Agreement Requiring the Arbitration of Fee Disputes and Malpractice Claims (Feb. 20, 2002). Substituting an arbitral tribunal for a court by agreement doesn’t necessarily violate ABA Model Rule of Professional Conduct 1.8(h) by prospectively limiting mal- practice liability.
But Rule 1.4(a) on communication does require a client’s informed consent, following a disclosure of risks and benefits. This informed-consent approach generally reflects the majority view.
Within this majority, some states—California, New Jersey and Louisiana are examples—require additional lawyer disclosure beyond the language of the arbitration provision itself.
Earlier this year, the New Jersey Supreme Court in Delaney v. Dickey overturned enforcement of a lawyer-client arbitration agreement, expressly applying a more rigorous standard than for an arbitration agreement not involving a lawyer. The client was sophisticated, and the agreement was clear and unambiguous and not hidden in a four-page agreement.
But the court’s high standard required—and found lacking in the agreement—a clear explanation of advantages and disadvantages of arbitration, waiver of a jury and appeal, client responsibility for costs and limited discovery. The bare arbitration provision was not enough. Lawyers are fiduciaries, “a retainer agreement is not an ordinary contract,” and the lawyer’s responsibilities “demand more,” the court held.
For most lawyers in most jurisdictions, this approach, combining clear and robust disclosure with clear and prominent language, is the most prudent one, even in jurisdictions with less stringent guidance.
By the way, if you’re drafting a risks-and-benefits disclosure paragraph to sit next to an arbitration clause, you could do much worse than using the New Jersey court’s recent discussion of those risks and benefits as a drafting guide.
More Than Informed Consent
A minority of jurisdictions go further than informed consent. Some (for example, Pennsylvania and Virginia) require lawyers to advise clients to seek advice from independent counsel before agreeing to arbitration. Others (Michigan and Ohio, for example) bar enforcement of such clauses unless the client actually gets such advice, while Texas courts are split.
Beyond merely researching whether your jurisdiction’s law permits binding arbitration in lawyer engagement agreements, check for ethics guidance on any special requirements. Also, consider whether other law—perhaps consumer protection law—imposes any additional requirements on arbitration clauses in its jurisdiction that might apply to lawyers.
Think as a businessperson: Do you want to give up the benefits of litigation?
For example, discovery, a jury and an appeal are valuable, time-honored rights. Not all legal malpractice defense lawyers agree that lawyers will consistently fare better giving up those rights than using them. (The lawyer considering arbitration would profit from consulting a malpractice defense lawyer, as they all have opinions on this.)
Confidentiality and More
While the confidentiality offered by arbitration appeals to some lawyers, that confidentiality can disappear when a party attempts to enforce or contest an arbitral ruling. Plus, there may be situations where the public nature of litigation is a disincentive for a client to sue.
The nature of the lawyer’s practice—and especially, the nature of their usual clients—may matter, too. A domestic relations practitioner might well reach a different conclusion about the value of arbitration than a commercial real estate lawyer.
Consult Your Carrier
A lawyer contemplating an arbitration clause would also do well to consult with their insurer first.
Some do not like arbitration for malpractice claims. Whether you agree or disagree, prudent lawyers respect the long experience of those who defend lawyers as their profession.
And some carriers have drafted their own model clauses for their insureds.
After all these considerations are weighed, you are not done. There are obvious drafting issues. The language and placement of the clause (and the disclosure language) need to be very clear and very prominent. Avoid the temptation to use language that only binds the client to arbitration, leaving a lawsuit open to the lawyer.
More importantly, your author’s personal experience has indelibly taught that not all arbitration clauses are created equal. Do not pull a form clause from the web or from another agreement unless you know it was thoughtfully drafted.
Think about avoiding an administrator or venue that charges lots of money to file. Seriously consider how to designate arbitrators (and maybe whom to designate). Contemplate clear deadlines for hearings and decisions, limited (or full) discovery, or confirmation of arbitrator authority to decide dispositive motions without a full hearing. There’s much to consider.
If you’re serious, enlist the aid of a fellow lawyer who actually tries arbitrations and knows how well-drafted clauses can keep things cheap, quick and fair. In my experience, that is not easy work, and many stock forms are inadequate.
Maybe, just maybe, after all this, a risk-averse lawyer can sleep a little more peacefully with a thoughtful arbitration clause in their retainers.