January 11, 2017 Practice Points

Client Loses Claim that Arbitration Agreement with Attorney Violates IL Public Policy

By Mitchell L. Marinello

In Charles Short III v. Grayson, et al., No. 16 C 2150 (N.D. Ill. December 9, 2016), the district court rejected a client's argument that his agreement to arbitrate any malpractice claims against his attorneys was void as against Illinois public policy. Although other courts have enforced arbitration agreements in attorney-client engagements, this decision appears to be the first time a court applying Illinois law directly addressed the public policy issues at stake.

Short hired the attorneys to represent him in a lawsuit. Later, he claimed that they had done so negligently and brought malpractice claims against them in federal court. The parties' retention agreement contained an arbitration clause, and the attorneys moved to stay the lawsuit and compel Short to arbitrate his claims against them.

Short argued that the arbitration agreement violated Illinois public policy. In support, he cited the Illinois Rules of Professional Conduct (Rule or Rules), which govern Illinois attorneys, and, in particular, Rule 1.4 which states that a "lawyer shall explain a matter to the extent reasonably necessary to permit the client to make an informed decision regarding the representation." Short claimed that the attorneys never explained the arbitration clause to him and never obtained his "informed consent" to include it in the retention agreement. Because the attorneys did not fully inform him about the arbitration clause, Short argued that the clause was against public policy and void.

The court noted that, under Illinois law, there is a heavy burden that must be met before a private contract will be deemed to be void on public policy grounds. The court cited comment 14 to Rule 1.8 which states that attorneys are not prohibited "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." The court noted that the attorneys did not appear to dispute Short's assertion that they had not fully informed him about the arbitration clause.

Nonetheless, the court rejected Short's position. It stated that the Rules do not create public policy as to what "kinds of actions are legally permissible." It also stated that the comment 14 "contemplates that 'enforceability' of a retainer agreement with an arbitration clause is a separate consideration from whether an attorney fulfilled his or her duty in entering into such an agreement."

In other words, the Rules on which Short relies provide that whether a client gives informed consent to an arbitration clause is not relevant to whether that arbitration clause is enforceable. It may be that the Rules can be said to create 'public policy' with respect to attorney conduct, but the Rules themselves disavow any authority over the enforceability of agreements. Alleged violation of the responsibility to fully inform a client about an arbitration clause may create an attorney discipline issue, but it does not satisfy Short's "heavy burden" to demonstrate the existence of a public policy bar to such a clause.

The court also noted that many other district courts had enforced arbitration clauses in attorney/client retention agreements.

The district court went on to analyze whether Short had a valid claim that the arbitration clause was unenforceable for procedural unconscionability. It noted that the Illinois Supreme Court has held that "procedural unconscionability refers to a situation where a term is so difficult to find, read, or understand that the plaintiff cannot fairly be said to have been aware he was agreeing to it." Here, too, however, Short's claim was found wanting, because he did not contend that he would have failed to understand the arbitration clause if he had read it himself. The court stated that such an allegation would not be plausible anyway, because Short had alleged that "he is a 'visionary businessman' . . . who has shepherded his businesses through multiple legal proceedings." The court said that it also would not help for Short to assert that he had not read the arbitration clause, because such ignorance is no defense.

Practice Points
Illinois attorneys who use arbitration clauses in their retention agreements may find some solace in this decision. But the opinion also is suggestive. First, even if the arbitration clause in an attorney's retention agreement is likely to be enforced, an attorney practicing in Illinois still should inform the client about the meaning and consequences of the arbitration clause to avoid a possible violation of the Rules and a potential future misunderstanding. Second, the Short decision is from a federal court, and it is not necessarily binding on Illinois state courts. Illinois state courts also may and sometimes do take a different approach than the federal courts to issues involving attorney conduct and, indeed, arbitration. To avoid unnecessary problems, it therefore may be prudent to explain in your retention agreement what, in practical terms, your arbitration clause means. A simple statement like the following is may be all that is needed:

Arbitration is a private dispute resolution mechanism that substitutes for resolution by a court or jury, may entail more limited discovery than is available in court proceedings and has limited rights of appeal.

Keywords: alternative dispute resolution, adr, litigation, retention agreement, arbitration clause, attorney, public policy, procedural unconscionability, failure to read

Mitchell L. Marinello is a partner at Novack and Macey LLP, Chicago, Illinois.

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