Lawyers Required to Explain Arbitration Provisions in Retainer Agreements, New Jersey Supreme Court Rules
December 21, 2020
Michael J. Epstein of the Epstein Law Firm, P.A. recently argued on behalf of the New Jersey Association for Justice in a case before the New Jersey Supreme Court concerning the use of arbitration clauses in retainer agreements between attorneys and law firms and their prospective clients.
Client Engages Law Firm, Later Gets into Fee Dispute
Brian Delaney, an experienced businessperson, retained the law firm of Sills Cummins & Gross, P.C. to represent Delaney in a lawsuit. Although Trent Dickey would be the attorney primarily responsible for Delaney’s case, Delaney instead met with another Sills attorney who presented Delaney with a four-page retainer agreement; the attorney instructed Delaney to take his time reviewing the agreement and to ask any questions he had.
The retainer agreement included an arbitration provision stating that any dispute over the firm’s legal services or fees would be subject to mandatory arbitration, with the client waiving their right to trial by jury and the result of such arbitration being final and non-appealable. The agreement further stated that the arbitration would be conducted according to JAMS rules, with the agreement containing a hyperlink to a copy of the JAMS rules, which measured 33 pages. The attorney who met with Delaney did not provide a hard copy of the JAMS rules, did not explain the arbitration clause, and did not discuss the benefits and disadvantages of arbitration with Delaney. Delaney reviewed and signed the agreement without asking any questions.
After the representation was terminated, the parties got into a fee dispute and Sills invoked the arbitration clause in the retainer agreement.
Client Files Malpractice Suit Against Attorneys
While the arbitration proceeded, Delaney filed a legal malpractice action against the firm, alleging that Dickey and the firm negligently represented him. Delaney further argued that the mandatory arbitration provision was unethical and violated his right to a jury trial.
The trial court in the malpractice case upheld the validity and enforceability of the arbitration provision of the parties’ retainer agreement. The trial court ruled that the language of the arbitration clause was sufficiently broad enough to encompass Delaney’s legal malpractice claim. The trial court held that an attorney had no obligation to explain the terms of a clearly and plainly written retainer agreement that could be understood by a layperson. The trial court also noted that Delaney was given the opportunity to consider the retainer agreement.
The appellate division reversed the trial court’s judgment, ruling that Sills should have provided Delaney with a copy of the JAMS rules and failed to explain the costs associated with arbitration. The appellate division also held that the retainer agreement included an unlawful fee-shifting provision.
N.J. Supreme Court Holds Attorneys Have Ethical Obligation to Explain Arbitration Clauses in Retainer Agreements
Sills appealed to the New Jersey Supreme Court, which affirmed and modified the appellate division’s ruling. The Supreme Court held that an arbitration provision in a retainer agreement could only be enforceable if the attorney explains to the client the advantages and disadvantages of arbitrating a possible dispute between the attorney and the client. The Supreme Court held that such explanation could be either oral or in writing.
The Supreme Court explained that attorneys had a fiduciary duty to provide clients with undivided loyalty and advice that protects the client’s interests. The Supreme Court noted that ABA Model Rules permitted arbitration clauses in fee agreements so long as “the client has been fully apprised of the advantages and disadvantages of arbitration and has given informed consent to the inclusion of the arbitration provision in the retainer agreement”.
The Supreme Court held that its ruling would only apply prospectively except as to Delaney, with the Supreme Court remanding to permit him to pursue his legal malpractice claim.
Read more: What Is Professional Malpractice?
Contact A Legal Malpractice Attorney for a Consultation About Your Case in New Jersey
Do you believe you or a loved one experienced legal malpractice in New Jersey? Then you need to talk to an experienced legal malpractice lawyer as soon as possible for guidance on how to proceed. The Paramus NJ Accident Attorney at the Epstein Law Firm, P.A. are prepared to assist you with your legal malpractice claim. We represent victims of negligent attorneys and law firms throughout New Jersey, including Paramus, Ridgewood, Mahwah, and Englewood. Call us today at 201-231-7847 or fill out our online contact form to schedule a consultation. Our main office is located at 340 West Passaic Street, Rochelle Park, NJ 07662.
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