The New
Jersey legal community has been roiled by an unpublished – but binding – Appellate
Division decision that barred enforcement of the mandatory arbitration
provision of a prominent firm’s standard retainer agreement.
In Delaney
v. Dickey and Sills Cummis & Gross, P.C., 2019 WL 3982756, a legal malpractice action, plaintiff
Brian Delaney claims the retainer agreement used by defendants violated several RPCs and therefore its
provision to arbitrate all disputes arising from the representation should not
be enforced. The Chancery Division judge rejected the argument but a three
judge panel reversed. Sills has now appealed to the state’s Supreme Court, and Delaney’s
lawyer agrees the Court should grant certification.
A Sills partner handed a complex
engagement agreement to Delaney a prospective client – who they describe as a
sophisticated businessman.. The partner offered to answer questions, but gave
no advice, while waiting for the client to sign it. In the circumstance, the appellate court
concluded this did not satisfy the duty to “reasonably consult” with the
client. RPC 1.4 (c).
The retainer informs prospective
clients of the rights they are giving up but does not inform them of the costs
and charges they could incur by waiving their right to access to the courts and
agreeing to arbitration of all disputes with the firm. That includes in the drafters contemplation –
any malpractice claim by the client, a possibility not discussed or described beyond
the language of the attachment to the engagement letter.
The rub arose from the retainer
agreement’s incorporation by reference of the JAMS arbitration
rules – a long and complex document.
The Sills retainer was faulted because as the same court had held in
Alpert v. Quinn, 410, NJ Super 510, 531 (App. Div. 2009) “Merely directing the client to ask for another document that is
not directly presented and explained to the client but will bind him or her
does not fulfill the lawyer’s obligation pursuant to R.P.C. 1.4(c).”
The engagement letter’s appendix said
that “any dispute arising out of the engagement” would be arbitrated. But it did not state expressly that even a
malpractice lawsuit would be barred. The
arbitration clause was found unenforceable because the JAMS rules were neither
explained nor attached, merely referenced with a hypertext link. Review of the JAMS rules would have shown the
prospect of the client being compelled to pay substantial undeterminable costs
for arbitration, the counsel fees of the law firm in a malpractice action, and
the severe limitations on discovery in an arbitration under JAMS rules.
To the common distress of the Bar the New Jersey Supreme Court
has long provided that a successful legal malpractice plaintiff is entitled to
counsel fees. Of special concern to the court here was this somewhat
ambiguous clause:
The
firm and you will pay an equal share of all costs and expenses related to
compensation of the arbitrator and any administrative fees except that the
award rendered by the arbitrator may include the costs and expenses of
arbitration reasonable attorneys' fees and reasonable costs for expert and
other witnesses..
As the panel notes the JAMS rules referenced but not explained required the parties not only to share the arbitrator's fees and expenses, but
also "that the award rendered by the arbitrator may include the costs and
expenses of arbitration, reasonable attorneys' fees and reasonable costs for expert and other witnesses."
These provisions plainly benefit the
drafter and burden prospective clients who, contrary to New Jersey’s established
case law in Saffer v. Willoughby, 143 N.J. 256 (1996), may find themselves indebted to their
former lawyers (and insurers) for the costs of a successful defense even of a
non-frivolous malpractice claim. The
panel cited RPC 1.8(h)(1) for its proscription of “an agreement prospectively
limiting the lawyer’s liability for malpractice unless the client is
independently represented in making the agreement…”
The Appellate Division alarmed lawyers
whose retainer agreements provide for arbitration. They face the prospect of explaining such pros
and cons at the point of sale.
In my opinion the Appellate Division
correctly held that the retainer agreement’s arbitration clause was not
enforceable because it did not assure informed consent to provisions which
substantially limited the client’s rights vis a vis the law firm. There was no explanation of the “the material risks of and reasonably
available alternatives to the proposed course of conduct” embodied in the retainer agreement
as called for by RPC 1.0 [e] Informed consent.
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George
Conk
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