Courtney Curtis-Ives at Kaufman Dolowich & Voluck (Photo: Courtesy Photo)

Most attorneys include arbitration provisions in their engagement agreements with clients—as they should. Arbitration is confidential, generally more expeditious than proceeding in court with increasingly-congested dockets, and attorneys tend to fare much better in malpractice cases with a retired judge or attorney arbitrator acting as the trier of fact. As opposed to juries, arbitrators are also more equipped to handle the usually-complicated “case within a case” framework applicable in such actions.

And this is why clients will almost always fight to avoid arbitration of claims against their former lawyers. Until recently, there were limited grounds to do so. California law expresses a clear public policy in favor of the enforceability of arbitration provisions as a speedy and (relatively) inexpensive means of dispute resolution. Moncharsh v. Heily & Blase, 3 Cal. 4th 1, 9 (1992). There is nothing ethically wrong with lawyers including a provision requiring binding arbitration of both fee disputes and legal malpractice claims, and arbitration clauses will be enforced even if clients fail to read or understand them. Powers v. Dickson, Carlson & Campillo, 54 Cal. App. 4th 1102, 1108-09, 1115 (1997).

Clients will usually argue for “revocation” of the agreement under Cal. Civ. Proc. Code §1281.2(b). They will claim for one reason or another that the engagement agreement is unenforceable, and that as a result, the arbitration provisions contained therein are also invalid. Standing alone that usually doesn’t work. Both federal and California law hold that arbitration provisions are considered independently (severably) from the rest of the contract, even where the party challenging enforcement contends that the whole contract is unenforceable. See, e.g., Prima Paint v. Flood & Conklin, 388 U.S. 395, 402 (1967); Ericksen, Arbuthnot, McCarthy, Kearney & Walsh v. 100 Oak St., 25 Cal. 3d 312, 322 (1983).

One critical exception to this in the case of attorney-client fee agreements was carved out by the California Supreme Court one year ago, in Sheppard, Mullin, Richter & Hampton v. J-M Manufacturing Company, 6 Cal. 5th 59 (Aug. 30, 2018). In Sheppard Mullin, the attorneys could not enforce an arbitration provision against their former clients because they had joint representation conflicts of interest in violation of the California Rules of Professional Conduct (the CRPC). The firm had concurrently represented two parties whose interests were directly adverse to each other—albeit in wholly unrelated matters and at varying points in time—and the firm had obtained only a generic, “advance” conflict waiver written into their fee agreement with the challenging party. The Court concluded that those ethical violations rendered the fee agreement unenforceable, including the arbitration clause, on “illegality” grounds. Id. at 73-74, 87. The firm’s conflict waiver was also determined to be insufficient. Id. at 85-86.

The Sheppard Mullin Court pointed to a line of “illegality cases,” which generally hold that if the contract containing the arbitration provision at issue is illegal, the arbitration provision is unenforceable as well. The trouble is, none of those cases involved alleged violations of the CRPC. Adding to the confusion, the cited cases involving attorneys related to fee-splitting agreements, wherein the agreements were actually upheld, and only the offending provisions were stricken out.

All of this means that we are left with little guidance in malpractice cases as to what types of conflicts, or other alleged ethical violations, will render the fee agreement “illegal” including the arbitration clause. We know what the issue was in Sheppard Mullin, but that type of conflict is both easy to recognize, and does not fall within the typical fact pattern we see when a plaintiff challenges the enforceability of an attorney-client fee agreement. Usually the alleged conflicts and supposed CRPC violations are much more nuanced, and not at all readily apparent.

The Sheppard Mullin Court’s attempt to guide future analysis of these issues—particularly in connection with a motion to compel arbitration—raised more questions than it answered. Although the Court invalidated the agreement including the arbitration provision, it also explained that a fee agreement may not always be declared illegal simply because it contains a provision that conflicts with an attorney’s obligations under the CRPC. Rather, it is only when the illegality “taints the entire contract” that it may be rendered void. Id. at 79-80. But how are we to determine what other types of alleged conflicts or ethical violations will “taint” the fee agreement and render it illegal?

And here’s the other rub. It is the trial court, not the arbitrator, who decides whether the contract is “illegal.” Id. at 75. That is not normally what happens. Rather, in most cases, because the arbitration provision is severable, trial courts are to determine only whether the arbitration provision itself is valid, leaving the arbitrators to determine all other substantive matters including validity of the contract as a whole. Ericksen, 35 Cal. 3d at 314, 322-24; Tiri, 226 Cal. App. 4th at 240-41.

In the past year since Sheppard Mullin, the fallout from this has been palpable. A former client seeking to avoid arbitration will often stretch to allege a conflict or other violation of the CRPC, and claim that these issues must be first determined by the trial court before arbitration can be compelled—if at all. In many cases, this cannot be resolved by simple review of the agreement. Depending on the allegations, you might need an ethics expert to provide a declaration in support of a motion to compel arbitration, declarations from the handling attorneys defending against the claims asserted, and documentary support from the client files. Conceivably the trial court could want to hear testimony. All of this is of course complicated, time-consuming, and expensive. Moreover, it completely undermines the parties’ agreement to arbitrate in the first place. It can give the trial courts jurisdiction to engage in an extensive prejudgment of the case, on what might be a questionable assertion of “illegality,” in the face of a clear arbitration provision. Over thirty years ago the Ericksen court recognized this, and cautioned that “[i]f participants in the arbitral process begin to assert all possible legal or procedural defenses in court proceedings before the arbitration itself can go forward, the arbitral wheels would very soon grind to a halt.” Ericksen, 35 Cal. 3d at 323.

Eventually the case law should evolve in the wake of Sheppard Mullin, providing inevitable limitations on its application. Until then, distinguish Sheppard Mullin and build up a defense at the outset. Attorneys can also take preventive measures in crafting their arbitration provisions. For example, agree to apply the Federal Arbitration Act. Under this rubric, the validity of a contract is to be determined by the arbitrators even in the face of an “illegality” challenge. Buckeye Check Cashing v. Cardegna, 546 U.S. 440, 444, 449 (2006). The arbitration rules of most ADR providers also provide arbitrators with exclusive jurisdiction over this question as well.

Courtney Curtis-Ives is a Los-Angeles based partner and co-chair of the professional liability practice Group at Kaufman Dolowich & Voluck, where her practice focuses on defending lawyers in malpractice actions.