Attorney-Client Arbitration except for Fee Claims Against Client: What if the client counterclaims under the civil barratry statute?
In Royston, Rayzor, Vickery, & Williams LLP v Fancisco "Frank" Lopez, the Texas Supreme Court last Friday blessed a one-sided attorney-client retainer contract that would allow the lawfirm to force the client into arbitration on all manner of claims or complaints that the client may have against the law firm, but exempts the law firm from having to arbitrate a claim against the client for nonpayment of litigation expenses. In short, an attorney or lawfirm can avoid being sued by the client through an arbitration clause in the attorney-client agreement that covers all possible future disputes with one exception: it preserves the firm's right to sue the client to recover its costs (and by extension, its fees), which is the only plausible claim that the law firm could have against a client.
The firm might, of course, be sued, but it would be entitled to have the dispute diverted into a private arbitral forum by filing a motion to compel, relying on the legal services contract signed by the client. The Supreme Court did not find this objectionable, and reversed the Thirteenth Court of Appeals, which had found that the specific agreement before the Court was so one-sided that it was unconscionable under the circumstances existing when the parties made the contract. See Royston, Rayzor, Vickery & Williams, L.L.P. v. Lopez, 443 S.W.3d 196 (Tex. App.-Corpus Christi 2013, pet. filed) (orig. proceeding).
Justice Eva Guzman agreed on this disposition, but wrote a separate concurring opinion addressing the implications for the ethical responsibilities of attorneys in their dealings with prospective clients.
A LA CARTE
While the Supreme Court may have given a present to the legal profession by holding that such one-sided arbitration agreements are neither unconscionable nor against public policy -- which will no doubt be appreciated by Texas lawyers -- the ruling may also have opened up a can of worms, and may yet spur more appellate litigation over arbitration in the attorney-client context (and claim-splitting).
What if the client refuses to pay, the law firm sues for its fees, and the client responds that the fee claim is unenforceable because the contract was procured in violation of the barratry statute? This would not merely be an affirmative defense against the breach-of-contract claim as to the lawyer's or lawfirm's fees, but a counter-claim for damages, i.e. a claim by the client against the lawyer that is subject to arbitration. After all, the client may now recover statutory damages of $10,000.00, not just fee forfeiture.
|Texas Government Code Section 82.0651 Civil Liability for Prohibited Barratry|
Surely, a claim under Texas Government Code Section 82.0651 qualifies as a statutory cause of action for affirmative relief.
In a dispute implicating the civil barratry statute, then, the trial court would have to address the merits of the voidness claim as an affirmative defense to the legal service provider's fee claim that is exempted from arbitration under the attorney-client contract, but the arbitrator would have to decide the merits of the civil barratry claim that rests on the same facts because the client had agreed to to arbitrate all claims. What if court and arbitrator disagree in their respective determinations of whether barratry occurred? What if one holds that the contract was procured by barratry and is void, and the other one reaches the opposite conclusion?
Additionally, there is the matter of timing. Assuming the dispute between the lawfirm and the client is split into two parallel proceedings -- one in court, the other one the arbitral forum -- does it matter which one rules first on the voidness issue? Is that then res judicata with respect to the other? Or is it only res judicata (with immediate stalling effect on the parallel proceeding) if the arbitrator rules first, because there will be no appeal from an arbitratal award (except, when, in narrow circumstances, there are grounds to set aside the arbitration award)?
It would seem that the dominant jurisdiction doctrine cannot furnish an answer - and would not provide a basis for abatement - because the two fora do not have co-extensive authority under an arbitration agreement that makes some claims arbitrable but not others, - at least not in a scenario where both types of claims are present in the same dispute and are contemporaneously pursued, in the respective fora, but involve a common core of case-determinative facts.
Additionally, there may be disagreement on whether the statutory challenge to the attorney-client agreement under the civil barratry law is a challenge to the contract as a whole, including the arbitration provision that is part and parcel thereof, and what the arbitrator's role would be if the lawfirm argued that the barratry statute is unconstitutional (as a defense to the client's barratry claim pursued in the arbitral forum). Would the Attorney General have to be given an opportunity to defend the statute in the arbitral forum, and if so, would the arbitrator have the power to pass on constitutionality, even if the effect were to be limited to the case at hand? Would that be reviewable by a court, given that it involves a question of the validity to state law? Does an arbitrator exceed his or her power when passing on the merits of the constitutional argument?
The latter scenario is not implausible. A client might respond to a lawsuit for unpaid fees and litigate it in court without raising an issue about arbitration, and promptly file an arbitration claim against the lawfirm invoking the barratry statute. Assuming that the arbitrator does not have jurisdiction to declare a statute void, the law firm would have to defend that civil barratry claim on the merits, and would be deprived of the unconstitutionality defense. Or arguably so.
If an attorney or law firm has procured clients through marketing efforts that run afoul of the barratry statute, it would be in its interest to have the issued resolved in a private forum, and not create a public record, but does that advance the state's public policy? Is it fair to attorneys who lose business because of such unfair competition?
Which is merely part and parcel of the larger public policy question. Is it desirable, as a matter of public policy governing the practice of law, to remove barratry claims, legal malpractice claims and other claims of wrongful conduct brought against attorneys from the court system and divert them into private arbitration? The Supreme Court's ruling in Royston v Lopez sends a message encouraging Texas lawyers and lawfirms to do just that.
There is a discernible trend afoot in the Texas Supreme Court of shrinking the role of the court system and reducing the availability of judicial remedies in the public adjudicatory forum provided for dispute resolution in the system of government.
In a similar vein, albeit based on different reasoning, the Supreme Court recently also approved the removal of claims against nursing homes (and, by extension, all medical malpractice claims) from the court system by blessing arbitration agreements in admission contracts even if they are not compliant with Texas law. See The Fredericksburg Care Company L.P. v Juanita Perez et al. No. 13-0573.(Tex. Mar. 6, 2015). The Supreme Court denied the plaintiffs' motion for rehearing in that case, and in the companion cases, on the same day it handed down its decision in the attorney-client arbitration case.
MOTIONS FOR REHEARING OF THE FOLLOWING CAUSES DENIED
[June 26, 2015 Texas Supreme Court Order List]
THE FREDERICKSBURG CARE COMPANY, L.P. v. JUANITA PEREZ, VIRGINIA GARCIA, PAUL ZAPATA, AND SYLVIA SANCHEZ, INDIVIDUALLY AND AS ALL HEIRS OF ELISA ZAPATA, DECEASED; from Bexar County; 4th Court of Appeals District (04-13-00111-CV,
406 SW3d 313, 06-26-13)
THE WILLIAMSBURG CARE COMPANY, L.P. v. JESUSA ACOSTA, ET AL.; from Bexar County; 4th Court of Appeals District (04-13-00110-CV, 406 SW3d 711, 06-26-13)
THE FREDERICKSBURG CARE COMPANY, L.P. v. BRENDA LIRA, AS REPRESENTATIVE OF THE ESTATE OF GUADALUPE QUESADA, DECEASED; from Bexar County; 4th Court of Appeals District (04-13-00112-CV, 407 SW3d 810, 06-26-13)
ATTORNEY-FEE ARBITRATION CASE INFO
(CONSOLIDATED INTERLOCUTORY APPEAL AND MANDAMUS PROCEEDGING)
ROYSTON, RAYZOR, VICKERY, & WILLIAMS, LLP v. FRANCISCO "FRANK" LOPEZ; from Nueces County; 13th Court of Appeals District (13-11-00757-CV, 443 SW3d 196, 06-27-13)
The Court reverses the court of appeals' judgment and remands the case to the trial court.
- consolidated with -
IN RE ROYSTON, RAYZOR, VICKERY, & WILLIAMS, LLP; from Nueces County; 13th Court of Appeals District (13-11-00757-CV; 13-12-00023-CV, 443 SW3d 196, 06-27-13)
The Court denies the petition for writ of mandamus.
Justice Johnson delivered the opinion of the Court.
Justice Guzman delivered a concurring opinion, in which Justice Lehrmann and Justice Devine joined.