A retainer agreement/courtesy photo

The New Jersey Supreme Court has agreed to hear a case that calls into question what lawyers are obligated to do when presenting a retainer agreement that provides for arbitration of attorney-client disputes.

The court granted a petition for certification in Delaney v. Dickey, which concerns a 2015 retainer executed by Sills Cummis & Gross and a firm client. The agreement, calling for arbitration of any subsequent malpractice or fee claims, was challenged in court. The provision was upheld at the trial court level, but the Appellate Division earlier this year held the provision unenforceable and reversed.

Sills Cummis' Sept. 23 petition for certification to the Supreme Court, granted in a Dec. 5 order, called the issue "a topic affecting this state's entire legal profession," and said the Appellate Division's Aug. 23 ruling "has spurred confusion requiring this Court's attention to cure."

"Without this court's guidance, the professional bar would be left having to guess at how much information to clients (and in what form—oral or written) is enough to properly establish an attorney-client relationship. If there were ever a case warranting this Court's intervention, this is it," the petition, signed by Peter Verniero of Sills Cummis, said.

The plaintiff supported the court's review of the case, according to the response.

"We agree that this issue is of 'general public importance,'" plaintiffs counsel Glenn Bergenfield, a Lambertville solo, wrote in an Oct. 8 letter response. "We urge the Supreme Court to accept this petition and bring clarity to this—that lawyers who seek mandatory arbitration of legal malpractice cases in advance of the legal malpractice are advancing their own interests and unethically harming their clients."

According to court documents, the September 2015 retainer agreement at issue was signed by Sparta real estate developer Brian Delaney, who sought representation from Sills Cummis, specifically from partner Trent Dickey, in connection with a business dispute with his partners in a limited liability company. An arbitration clause toward the end of the three-page retainer provided that any disputes would be submitted to an arbitrator whose ruling would be final. The agreement said any disputes arising from the retainer "will be conducted pursuant to the JAMS/Endispute Arbitration Rules and Procedures (the 'JAMS Rules') then in effect," and listed a website where those rules could be found. Delaney signed the retainer and arbitration clause.

Delaney later terminated Sills Cummis and refused to pay an outstanding bill of more than $400,000. Sills Cummis then initiated arbitration with JAMS in accordance with the retainer agreement. The parties sought to mediate their fee dispute before engaging in discovery in anticipation of a fee arbitration with JAMS. Before the JAMS arbitration started, Delaney filed a malpractice suit against Sills Cummis and Dickey.

An order compelling arbitration was issued below, but on appeal, Appellate Division Judges Carmen Alvarez, William Nugent and Susan Reisner ruled in an unpublished decision that the agreement violated the Rules of Professional Conduct and was unenforceable because it referenced 33 pages of JAMS arbitration rules, yet the client was never given a copy of those rules. "We conclude that because Sills gave plaintiff no explanation about the retainer agreement's or arbitration provision's terms, did not provide plaintiff with the JAMS rules, provided no explanation about the JAMS rules, and watched plaintiff sign the agreement knowing he had not assented to the JAMS rules, this otherwise enforceable agreement runs afoul of two of the ethical rules governing the attorney-client relationship. Accordingly, we find the agreement invalid," the panel said.

Sills Cummis' certification petition said the Appellate Division ruling caused confusion.

"The upshot of this confusion is the suggestion by the Appellate Division that attorneys who have 'watched' a client execute a retainer agreement (the court's word) must now provide an 'explanation' of its terms (again, the court's word), but the court's opinion offers no guidance on the extent of the necessary explanation," Verniero wrote. "Such a result is both unnecessary under the RPCs and inconsistent with the everyday practice of law."

Delaney, while joining in the call for high court review, continues to hold a different position from Sills Cummis on the heart of the issue. Bergenfield's letter response urges the court to "make clear that lawyers in New Jersey cannot sneak into a retainer agreement a mandatory arbitration clause that clearly favors the lawyer—and also marginalizes the judiciary in its oversight of lawyers."

If "'all disputes' between lawyer and client are shunted to private, confidential (non-precedential) arbitration, how will this Court illuminate what it expects of lawyers?" Bergenfield wrote, referring the court to his previous briefs to the Appellate Division.

The court granted the petition in a Dec. 5 order.

Richard Epstein of Sills Cummis, the firm's deputy managing partner and general counsel and one of the firm attorneys involved in the appeal, said the case presents "an important issue … both for the bar of the state of New Jersey and the judges."

Epstein anticipates that Verniero, a retired Supreme Court justice, will serve as lead counsel on the case and will argue it, he said by phone.

"What I think everybody is looking for here is clarity," Epstein added.

Bergenfield, also reached by phone, said the Appellate Division's ruling was narrow and contained "a logical flaw": that the court failed to recognize that the retainer agreement's arbitration provision, while not per se voidable, implicates RPC 1.7, which prohibits conflicts of interest.

Law firms using such provisions should at least be required to advise the signing client that he or she can obtain independent counsel to advise on the retainer and its terms, he said.