Thursday, March 4, 2010

Mandatory Attorney-Client Arbitration: Enforceability of arbitration clauses in agreements for legal services

Should courts enforce arbitration clauses included in contracts for legal services? If so as a general proposition, under what circumstances should former clients be able to avoid an arbitration clause contained in retainer agreement, letter agreement, or other type of contract for legal services? In a case decided today, a panel of the First Court of Appeals in Houston rejected public policy and unconscionability arguments and granted mandamus relief to enforce arbitration against a client whom the defendant attorney had represented in a personal injury case. One justice on the three-member panel, however, dissented and wrote separately to express concern about the propriety of forcing clients to arbitrate malpractice claims against their former counsel when they were not aware of the consequences and appraised of the implications due to the attorney's failure to expressly disclose and explain the arbitration requirement. DISSENTING OPINION BY JUSTICE CHARLES SEYMORE In consideration of the unique relationship between attorney and client, I write this dissenting opinion to express my concern about mandatory arbitration provisions in attorney-client agreements. I have no disagreement with the majority’s analysis and disposition of all issues with the exception of Shelly Letney’s claim that the method or means of inducing her signature on the agreement renders enforcement procedurally unconscionable. I adopt former Fourth Court of Appeals Chief Justice Phil Hardberger’s concern that special public-policy considerations are implicated when an attorney imposes an arbitration provision on his or her client. See Henry v. Gonzalez, 18 S.W.3d 684, 692 (Tex. App.—San Antonio 2000, pet. dism’d) (Hardberger, C.J., dissenting). Accordingly, I disagree with the majority’s decision to “decline to impose a requirement that attorneys must, in all cases, fully inform prospective clients regarding implications of an arbitration clause in an attorney-client contract.” Whatever public policy may be served by enforcing arbitration agreements is more than offset by the public policy of insuring that consumers of legal services have protection from attorneys who might take advantage of their clients. Shelly Letney, a personal-injury claimant, is representative of the average consumer of legal services. She should be afforded the expectation that an attorney is obligated to fully reveal and explain potential conflicts of interests at the inception of the relationship. Moreover, the attorney should offer the prospective client an opportunity to seek advice from another source before signing an attorney-client agreement that contains language potentially detrimental to the client’s interests if the client later finds it appropriate or necessary to pursue the attorney for malpractice or other misconduct. Under the Texas Disciplinary Rules of Professional Conduct, “A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.” Tex. Disciplinary R. Prof’l Conduct 1.03(b), reprinted in Tex. Gov’t Code Ann., tit. 2, subtit. G app. A (Vernon 2005) (Tex. State Bar R. art. X, §9). The Supreme Court of Texas Professional Ethics Committee agrees that lawyers should be allowed to insert arbitration clauses in their client contracts as long as “(1) the client is aware of the significant advantages and disadvantages of arbitration and has sufficient information to permit the client to make an informed decision about whether to agree to the arbitration provision, and (2) the arbitration provision does not limit the lawyer’s liability for malpractice.” See Tex. Comm. On Prof’l Ethics, Op. 586 (2008). Notwithstanding the application of settled contract law and public policy favoring alternate dispute resolution, many respected jurists and lawyers oppose arbitration because it is not cost effective, disgorges unwary consumers of the right to a jury trial, and eliminates appellate review for errors of law. I remain a proponent of arbitration. However, when the legislature and rule-making authority in the legal profession fail to protect consumers of legal services, I believe the courts have an obligation to act because public perception of the legal profession’s ability to self-police is not favorable. Based on Shelly Letney’s averment that she was unaware of the arbitration agreement and her sworn statement that petitioner did not fully explain the terms, I would hold the trial court did not abuse its discretion by denying the petitioner’s motion to compel arbitration. Accordingly, I respectfully dissent. LINK TO MAJORITY OPINION: Pham v. Letney (Tex.App.- Houston [1st Dist.] March 4, 2010)(Hedges) (arbitration agreement in legal services contract between lawyer and client enforced by mandamus, interlocutory appeal of order denying motion to compel arbitration dismissed, FAA applied, TAA would be preempted) INTERLOCUTORY APPEAL DISMISSED: Opinion by Chief Justice Hedges Before Chief Justice Hedges, Justices Seymore and Justice Sullivan 14-08-01153-CV Steven Tuan Pham v. Shelly Letney Appeal from 215th District Court of Harris County Trial Court Judge: Levi James Benton DISSENTING OPINION by Justice Seymore in Pham v. Letney (In consideration of the unique relationship between attorney and client, Justice Seymore dissents and writes separately to express his concern about mandatory arbitration clauses in attorney-client retainer agreements / contracts for legal services) THE PETITION FOR MANDAMUS WAS DOCKETED SEPARATELY [links to pdf version of opinions] In re Tuam Pham (pdf) (Tex.App.- Houston [1st Dist.] March 4, 2010)(Hedges) MOTION OR WRIT GRANTED: Opinion by Chief Justice Adele Hedges Before Chief Justice Hedges, Justices Seymore and Sullivan 14-09-00387-CV In Re Steven Tuam Pham Appeal from 215th District Court of Harris County Dissenting Opinion by Justice Seymore In re Tuam Pham (pdf) RELATED HOUSTON COURT OF APPEALS CASE: Labidi v. Sydow, 287 S.W.3d 922 (Tex. App.—Houston [14th Dist.] 2009, orig. proceeding). Labidi, MD v. Sydow (pdf) (Tex.App.- Houston [14th Dist.] Jun. 25, 2009)(Guzman) (consolidation of an interlocutory appeal and a petition for writ of mandamus, challenge to district court's order compelling arbitration and staying proceedings in the trial court fails)(unconscionabiltiy argument rejected re arbitration of attorney-client disputes)(public policy arguments overruled) DISMISSED: Opinion by Justice Eva Guzman Panel members: Justices Guzman, Mirabal and Boyce 14-08-00527-CV Abdel Hakim Labidi, M.D. Ph.D. v. Michael D. Sydow, Et Al Appeal from 61st District Court of Harris County RELATED TERMS: attorney-client relationship, fiduciary duty, confidentiality, arbitration of attorney-client disputes, legal services contract with arbitration clause provision, professional legal malpractice


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