Arbitration

ARBITRATION OF MALPRACTICE CLAIMS

[Home] [Table of Contents]

        May lawyers ask their clients to sign pre-dispute arbitration agreements that include malpractice claims? David Hricik has written a very deep and comprehensive discussion of lawyer-client arbitration agreements, including the malpractice issue. Because it is available online, we will not attempt to duplicate that material at this site. To go to the article, click here. Subsequent opinions on this subject will be cited here.

Cases and Opinions Post-Dating Hricik Article

        Warning about Insurance. As the reader can see from the Hricik article and 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) (not in the Hricik materials) approved an arbitration clause for malpractice claims and did not require the client to seek independent counsel.

         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 Corporation. Platypus 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.

        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).

        Theis Research, Inc. v. Brown & Bain, 386 F.3d 1180 (9^th 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).

End

Freivogel on Conflicts