Charles F. Forer, Charles F. Forer Alternative Resolution Services

ADR

Editor's note: This article describes a hypothetical situation.

Is it surprising that a disgruntled client sued Bob for legal malpractice? After all, Bob has been consistent—he always makes mistakes and his clients always bear the brunt of these mistakes.

At least Bob thought ahead and considered the possibility of a legal malpractice suit. Always a fervent supporter of arbitration, Bob took special pains to ensure that his clients-turned- malpractice-plaintiffs would see him, not in court, but in arbitration. Magic? Nope. Just contract drafting.

Bob's engagement letters routinely included the following: If there is a dispute, controversy, or claim arising out of or relating to this engagement, we mutually agree that any such dispute, controversy or claim will be submitted to mandatory binding arbitration before a single arbitrator in Philadelphia, in an arbitration administered by the American Arbitration Association.

In drafting his engagement letter, Bob took special note of Rule 1.8(a)(1) of the Pennsylvania Rules of Professional Responsibility, which states as follows:

Conflict of Interest: Current Clients: Specific Rules

• A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security or other pecuniary interest adverse to a client unless:
• The transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing in a manner that can be reasonably understood by the client;
• The client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction …

To ensure he fully informs his clients of the terms of their engagement, Bob included lots of warnings in his engagement letters.  All part of his push for "informed consent."

For instance, Bob's form engagement letter pointed out the pluses of arbitration: "Arbitration has the advantage of generally being faster, less expensive and more informal than traditional litigation and any decision is final and binding." Also, the letter highlighted minuses of arbitration: "Arbitration does not provide for the assurance of as much pre-hearing discovery, public trial by jury, or appeal. Arbitration filing fees are typically more expensive, and the parties are responsible for paying the arbitrator."

Always the stickler for details, Bob insisted that his clients countersign the engagement letter. Why? So that his clients always acknowledged their "informed consent to use arbitration to resolve disputes with me."

Naturally, Bob resisted litigating in court a recent legal malpractice claim. Why not? His countersigned engagement letter specifically stated that claims "arising out of" the engagement would be arbitrated. In response to the former client's complaint, Bob whipped out a copy of the countersigned engagement letter, attached it to a preliminary objection seeking to compel arbitration, Pa. R. Civ. P. 1028(a)(6), and concluded, "if this countersigned engagement letter is not an agreement for alternative dispute resolution, then nothing is."

Nice flourish. But the court concluded that Bob's engagement letter—yes, his countersigned engagement letter—was not an "agreement for alternative dispute resolution" that satisfied Rule 1028(a)(6).

You may chuckle and say this is an example of cosmic justice. After all, Bob allegedly committed malpractice in representing a client in an arbitration proceeding; and Bob also messed up in drafting the engagement letter, which was supposed to ensure that Bob would defend malpractice claims only in arbitration. (Can Bob sue Bob for legal malpractice?)

In Mackin Medical v. Lindquist & Vennum, 2018 Phila. Ct. Com. Pl. LEXIS 146 (C.P. Dec. 26, 2018), the court similarly considered whether a legal malpractice client could turn its back on an engagement letter that said that all claims "arising out of or relating to our fees, costs, billing practices or this engagement …  will be submitted to mandatory binding arbitration." The engagement letter referenced the pluses and minuses of arbitration. And yes—the client countersigned the letter to confirm the client's acknowledgement of its "informed consent to use of arbitration to resolve disputes with us."

The court nevertheless refused to obey the arbitration directive, concluding that the client could litigate its malpractice claim in court.

Did the court reject arbitration because a lawyer cannot enter into a pre-dispute arbitration agreement with a client? Nope. The court held that the engagement letter was lacking in one important respect—it did not tell the client "it had a right to consult independent counsel first."

Why is it important to have another lawyer in the mix? Because, according to the court, "potential clients need to know whether it makes sense to waive court jurisdiction on the issue of attorney malpractice. A third party lawyer adviser, for example might explain the discovery ramifications of an arbitration which, in the vague words of the retainer agreement 'does not provide … for the assurance of as much pre-hearing discovery.'"

The court stated that the law firm's failure to tell the client it had a right to consult with independent counsel prevented the client from giving its informed consent. Consequently, the engagement letter was "unconscionable in substance and the retainer agreement cannot be enforced as an express agreement to limit law firm liability for malpractice in any way."

Did the court properly hold that the law firm's failure to tell the client to consult with another lawyer undermined the pre-dispute arbitration agreement? The Pennsylvania Superior Court will tell us soon; the case is on appeal at Superior Court docket No. 1817 EDA 2018.

But no matter how the Superior Court decides the issue, Bob probably would have been able to force his former client to arbitrate the legal malpractice claim—and avoid lots of litigation—if he had added a few words to the already-lengthy arbitration provision in his engagement letter:

You have a right to consult with an independent lawyer before you sign this engagement letter.  You have a right to discuss with an independent lawyer of your choice any questions you have regarding this engagement letter. I strongly encourage you to seek independent legal advice from a lawyer of your choice regarding this engagement letter, including the terms of the arbitration provision.

One last point warrants special mention where Bob is involved. Bob may be tempted to insert this go-see-another-lawyer clause in his engagement letter, but then ignore the point of the insertion. In the spirit of efficiency and speed, for instance, he may try to get his new client to countersign the engagement letter while the client is in Bob's office or shortly afterward. But what would Bob then say when the rushed former client (and now legal malpractice plaintiff) tells the court that he had to countersign the engagement letter quickly and so did not have a meaningful opportunity to talk to another lawyer? Wouldn't this get Bob in another pickle?

Charles F. Forer independently provides arbitration, mediation and all other neutral services. He is the current co-chair of the Philadelphia Bar Association's alternative dispute resolution committee. He is a former chair of the association's fee disputes committee. He is a frequent lecturer and writer on the use of ADR in a variety of settings. Contact him at 610-999-5764 and [email protected].