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

Thursday, February 18, 2010

Lindley v. FIA Card Services NA [BofA] - Confirmation of Arb Award Set Aside on Appeal

Cardholder "wins" risky appeal from trial court's default judgment confirming arbitration award entered on FIA Card Services NA [Bank of America] credit card debt in an amount substantially lower than the amount awarded by the arbitrator. Houston Court of Appeals reverses and remands based on the discrepancy, which was not supported by any evidence in the record. Consumer will now face prospect of judgment for the entire amount, unless consumer can demonstrate that there are other reasons why the trial court should not confirm it -- a tall order. Lindley v. FIA Card Services, N.A. f/k/a MBNA America Bank, N.A. (Tex.App.- Houston [1st Dist.] Feb. 18, 2010) (restricted appeal, amount of judgment confirming arbitration award varied from arbitration award, no evidence supporting modification of amount) MEMORANDUM OPINION BY JUSTICE LAURA CARTER HIGLEY This is a restricted appeal in a suit to confirm an arbitration award. Appellant, John R. Lindley, appeals from a default judgment granted in favor of appellee, FIA Card Services N.A., f/k/a MBNA Bank America, N.A. (“FIA”) on a credit card debt. In three issues, Lindley contends that (1) FIA’s suit was improperly reinstated; (2) FIA failed to serve him with notice of trial settings; and (3) the default judgment is “defective.” Lindley requests a new trial, and FIA “agrees to a new trial.” We reverse and remand. Background On January 23, 2007, after arbitration proceedings on a credit-card debt, creditor FIA was awarded $16,010.84 against debtor Lindley. On April 19, 2007, FIA sued in the trial court to confirm the award. To its petition, FIA appended a copy of the arbitrator’s findings, conclusions, and award to FIA of $16,010.84. Lindley does not dispute that notice was properly served and that he did not answer the suit to confirm the award. In August 2007, FIA sought a default judgment, which the trial court denied. Trial was set for March 4, 2008. On the eve of trial, March 3, 2008, FIA moved to non-suit its claim without prejudice, which the trial court granted. A month later, on April 3, 2008, FIA filed a verified motion to reinstate its suit, which the trial court granted. On September 22, 2008, FIA again moved for a default judgment, asserting that it had filed its petition on April 19, 2007, that it had served Lindley with citation on June 22, 2007, and that Lindley had failed to answer. On October 17, 2008, the trial court granted the default judgment. The court ordered that FIA recover $7,279.17 from Lindley, as the balance due on the account. On April 14, 2009, Lindley filed a notice of restricted appeal. Restricted Appeal A party can prevail in a restricted appeal only if (1) it filed notice of the restricted appeal within six months after the judgment was signed; (2) it was a party to the underlying lawsuit; (3) it did not participate in the hearing that resulted in the judgment complained of and did not timely file any post-judgment motions or requests for findings of fact and conclusions of law; and (4) error is apparent on the face of the record. Ins. Co. of State of Penn. v. Lejeune, 297 S.W.3d 254, 255 (Tex. 2009); see Tex. R. App. P. 26.1(c), 30. Here, it is undisputed that Lindley filed notice of his restricted appeal within six months after the judgment was signed, that he was a party to the underlying lawsuit, that he did not participate in the hearing that resulted in the default judgment, which is the judgment complained of, and that he did not timely file any post-judgment motions or requests for findings of fact and conclusions of law. The only issue remaining is whether error appears on the face of the record. The face of the record consists of all the papers on file in the appeal. See Norman Comm. v. Tex. Eastman Kodak, 955 S.W.2d 269, 270 (Tex. 1997) (stating that review by restricted appeal affords appellant same scope of review as ordinary appeal, which is review of entire case). “It necessarily follows that review of the entire case includes review of legal and factual insufficiency claims.” Id. (remanding for review of appellant’s legal sufficiency point); see Herbert v. Greater Gulf Coast Enter., 915 S.W.2d 866, 870 (Tex. App.—Houston [1st Dist.] 1995, no writ). A. Motion to Reinstate In his first issue, Lindley contends that the trial court erred by reinstating FIA’s suit because FIA failed to comply with Rule of Civil Procedure 165a. Rule 165a governs reinstatement after dismissal for want of prosecution. See Tex. R. Civ. P. 165a(3). The record before us, however, does not reflect that FIA’s suit was dismissed for want of prosecution. The record reflects that FIA took a non-suit, which is not governed by Rule 165a. Lindley’s issue cannot be sustained on the grounds he advances. Accordingly, we overrule Lindley’s first issue. B. Default Judgment In his third issue, Lindley contends that error is apparent on the face of the record because FIA failed to present any evidence to support the trial court’s modification of the arbitration award. Specifically, Lindley contends that the record shows that FIA sought to confirm the arbitration award it attached to the petition, which states that FIA was awarded $16,010.04. In its judgment, however, the trial court awarded $7,279.17 to FIA. Lindley contends that there is no record of any hearing on unliquidated damages and that “there is no evidence” in the record supporting the trial court’s award. Lindley contends that “[t]he default judgment in this matter should be reversed” and that he should be “provided his day in Court.” Lindley may challenge the legal sufficiency of the evidence to support the trial court’s judgment in a restricted appeal. See Norman Comm., 955 S.W.2d at 270. Lindley does not challenge the entry of a default Footnote ; rather, he solely challenges the amount of the trial court’s award. FIA states in its response that it “agrees to a new trial on this issue.” We sustain a legal sufficiency point (1) when there is a complete absence of a vital fact; (2) when rules of law or evidence preclude according weight to the only evidence offered to prove a vital fact; (3) when the evidence offered to prove a vital fact is no more than a scintilla; or (4) when the evidence conclusively establishes the opposite of the vital fact. City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex. 2005); El-Khoury v. Kheir, 241 S.W.3d 82, 86 (Tex. App.—Houston [1st Dist.] 2007, pet. denied). “The final test for legal sufficiency must always be whether the evidence at trial would enable reasonable and fair-minded people to reach the verdict under review.” City of Keller, 168 S.W.3d at 827. The face of the record in a restricted appeal consists of the documents and evidence before the trial court when it rendered its judgment. See Norman Comm., 955 S.W.2d at 270. Here, the arbitration award states that the matter in this case involves interstate commerce and is governed by the Federal Arbitration Act (“FAA”). The FAA requires a trial court to confirm an arbitration award unless grounds are offered to vacate, modify, or correct the award. 9 U.S.C §§ 10,11; see Ancor Holdings, L.L.C. v. Peterson, Goldman & Villani, Inc., 294 S.W.3d 818, 826–27 (Tex. App.—Dallas 2009, no pet.) (citing Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396, 1403 (2008) (holding that statutory grounds for modifying or correcting arbitration award are exclusive grounds for modification of award pursuant to FAA)); see also Tex. Civ. Prac. & Rem. Code Ann. 171.091 (Vernon 2005). Here, the record shows that the arbitrator awarded to FIA $16,010.04. The trial court issued a judgment awarding $7,279.17 to FIA. There is no testimony or evidence in the record before us regarding the trial court’s modification. We hold that the evidence is legally insufficient to support the trial court’s modification of the arbitration award. Accordingly, we sustain Lindley’s third issue. Conclusion We conclude that Lindley has met the requirements for review by restricted appeal of the trial court’s judgment awarding $7,279.17 to FIA. We reverse the trial court’s judgment and remand for further proceedings. Footnote All pending motions relating to this appeal are denied as moot. [footnotes omitted] REVERSE TRIAL COURT JUDGMENT AND REMAND CASE TO TRIAL COURT FOR FURTHER PROCEEDINGS: Opinion by Justice Higley Before Chief Justice Radack, Justices Alcala and Higley 01-09-00323-CV John R. Lindley v. FIA Card Service, N. A. fka MBNA America Bank, N. A. [FIA is the credit card arm of Bank of America, BoA, BofA] Appeal from County Civil Court at Law No 3 of Harris County Trial Court Judge: Hon. Linda Storey TAGS: Credit card debt arbitration, debt collection, suit / motion to confirm arbitration award, judicial confirmation and modification of award by arbitrator, MBNA Bank of America d/b/a FIA Card Services NA arbitration, debt collection lawsuits