Evaluating Arbitration in Legal Malpractice Claims

Reexamining Arbitration Provisions


 

Christopher Montville | Partner
Biography

Once upon a time, defense counsel almost reflexively favored arbitration in all but the most extraordinary of cases, while plaintiff-side lawyers would stop at nothing to force a claim to a jury. But due to, among other things, the increased sophistication of plaintiffs’ counsel and the unique facets of claims against lawyers, this practice deserves careful reexamination. While arbitration agreements are generally enforceable, certain claims can benefit from a more traditional forum—which comes with more predictable procedural and evidentiary rules, as well as the often-beneficial commonsense wisdom that comes with a jury of one’s peers.

"Yes, But . . ."

Lawyers frequently ask us whether arbitration agreements between lawyers and clients are enforceable—or even ethical. The answer, in most instances, is “yes, but . . . .”

Under Rule 1.8(h)(1) of the ABA Model Rules of Professional Conduct, a lawyer shall not make an agreement that limits the lawyer’s future liability to a client, except when the client has independent representation. Comment 14 to Rule 1.8 expressly states that the Rule “does not . . . prohibit a lawyer from entering into an agreement with the client to arbitrate legal malpractice claims, provided that such agreements are enforceable and the client is fully informed of the scope and effect of the agreement.”

Instead, agreements to arbitrate, whether contained in an engagement letter or otherwise, generally are considered business transactions between the lawyer and the client. Rule 1.8(a) requires that transactions be, among other things, (1) fair and reasonable and (2) signed by the client (3) after providing informed consent and (4) being advised of the desirability of retaining independent counsel.

Under this standard, lawyers should keep three things in mind.

  • Simplicity. The simpler and more understandable the arbitration provision, the more likely a court will be to enforce it. And, although not strictly required, it is a good idea to emphasize the provision in bolded or capitalized text.
  • Explicitness. Courts construe arbitration clauses between lawyers and clients narrowly; thus, if the lawyer intends to subject all lawyer-client disputes to arbitration—and not, for example, only disputes involving fees—the provision should unambiguously say so.
  • Fairness. Courts often will not enforce provisions that require the client to unilaterally shoulder the burden of paying arbitration fees. Lawyers will do well to consider this tendency when drafting arbitration clauses—and planning for potential arbitration.
Pros & Cons of Arbitrating Legal Malpractice Claims

Assuming that an engagement letter or fee agreement contains an enforceable arbitration clause, deciding whether to invoke the clause is highly case-specific. Consider the following advantages and disadvantages when weighing arbitration of a legal malpractice claim.

Potential Advantages:

  • Reduced play to sympathy. In some circumstances, arbitrators might be more resistant to litigation tactics that depend on the fact finders’ emotions. In claims involving highly sympathetic plaintiffs (for example, a personal injury case-within-a-case), lawyers might find themselves better off with an arbitrator. On the other hand, we have found that juries often view highly litigious plaintiffs, as many legal malpractice plaintiffs often are, harshly.
  • Stronger consideration of legal defenses. In cases where the lawyer has an extraordinarily strong defense on the elements of breach or causation, an arbitrator can be depended on to apply the black-letter law (more often than not). But beware that such reasoning can be a trap, as defense lawyers can find it challenging to evaluate claims against a client objectively.
  • Potentially reduced discovery disputes. For plaintiffs with limited resources, the hourly rate charged by arbitrators can discourage frivolous litigation tactics—or discourage low-value nuisance claims altogether.
  • Focused decision-makers. Arbitrators will almost invariably pay more attention to the dispute than a trial-court judge with hundreds of active cases. Especially in jurisdictions without expedited discovery procedures, arbitration can favor the quick resolution of such disputes.
  • Confidentiality. Arbitration is confidential, which benefits a lawyer wary of the publicity associated with a malpractice claim. Remember, however, that the outcome will rarely be confidential once a party seeks to enforce the award—and it is a publicized finding of liability that lawyers fear most.
  • Expense (sometimes). Arbitration can be less expensive, but we have not always found this to be the case.
  • Escaping a bad judicial draw. In many courts, a judge already will have been assigned to the case when the time comes to invoke an arbitration clause. Arbitration provides a surefire way to escape a catastrophic judicial draw.

Potential Disadvantages:

  • Heightened standard of care. Arbitrators are almost always highly experienced senior litigators or former judges. In a malpractice suit, a lawyer ought to be judged against what a reasonable lawyer would have done under the same or similar circumstances. Arbitrators naturally find it more difficult, however, to apply this standard. Rather, they tend to view a defendant lawyer’s conduct through the lens of what the arbitrators believe they would have done—and with the benefit of 20/20 hindsight. Arbitrators can even view themselves as guardians of the integrity of the legal profession. In close cases, this rarely benefits the lawyer.
  • Heightened expenses. Just as an arbitrator’s fees can discourage a plaintiff, they also deplete a lawyer’s policy. Especially in complex cases, where the American Arbitration Association’s rules require a three-arbitrator panel, arbitration can become shockingly expensive.
  • Increased discovery disputes. In cases where the plaintiff has significant resources, arbitration can incentivize costly discovery gamesmanship. As with a special master, easy access to a tribunal with infinite patience—as is often the case with arbitrators compensated at an hourly rate—can encourage needless motions practice, causing attorneys’ fees to balloon.
  • Marginalized expert testimony. Arbitrators may have little regard for experts, particularly those opining on the standard of care. When a defendant lawyer has more credible and credentialed experts in his corner, the experts' opinions usually carry more weight with a jury.
  • Sacrificing a good judicial draw. When the case has already been assigned to a judge with whom you and your client are satisfied, arbitration will add additional uncertainty, as the potential arbitrators will be unknown at the time an arbitration decision is made.
  • Limited evidentiary rules. The rules of evidence generally do not apply in arbitration. In legal malpractice cases, the anything-goes approach to admissibility can favor the plaintiff.
  • Limited dispositive motions. Arbitrators infrequently grant dispositive motions, which can be significant when a plaintiff depends on a novel or questionable legal theory to support a claim. This is especially true for nonclient claims, disfavored in many jurisdictions.
  • Loss of appellate rights. Arbitration decisions are, for the most part, unappealable. Defendant lawyers often rely on purely legal defenses, which can sometimes form the basis for a reversal even after an adverse verdict. Conversely, a plaintiff’s basis for appeal following a verdict is frequently limited to evidentiary errors or jury instructions, both uphill battles on appeal.
  • Potential limits on depositions. Under the American Arbitration Association’s Civil Rules, depositions are not a sure thing. Arbitration may not be a good fit when depositions are central to a lawyer’s litigation strategy.
  • No confidentiality. Remember that, by suing a lawyer, the plaintiff waives the attorney-client privilege. Sometimes, a plaintiff has more to lose from publicity than the defendant lawyer.
  • Reduced impact of effective advocacy. It has been our experience that the informal, conference-room settings in which many arbitrations occur attract less emphasis on skilled advocacy. An unskilled plaintiffs’ lawyer might find it easier to navigate such proceedings than a formal jury trial, with more complex procedures and evidentiary rules.
  • Compromise verdicts. Conventional wisdom suggests that arbitrators are more likely than juries to “split the baby”—that is, to award a plaintiff something, even on a weak claim. The truth of this supposition is up for debate. It is true, however, that when a fee-shifting provision governs a dispute, even a de minimis judgment can have a significant financial impact on the defendant lawyer.
Reserving the Right (aka, Keeping Options Open)

Given the potential drawbacks of arbitration, the decision to include an arbitration provision is not an easy one. Indeed, only slightly more than half of lawyers opt to use them. When facing this decision, it is wise to consider the nature of one’s practice—for example, whether clients are individuals versus large corporations. At the end of the day, an arbitration clause may allow a lawyer to defer the decision to arbitrate until the details of a claim are known. Because it is far less common for a plaintiff-side lawyer to invoke arbitration, this flexibility can inure to the lawyer’s benefit.

Defending Lawyers & Law Firms When it Matters Most

Wheeler Trigg O'Donnell defends lawyers and law firms against high-stakes professional liability claims. Our team has successfully represented lawyers and law firms in at least 12 states.

In the past three years alone, WTO has won for lawyers and law firms in the Colorado Supreme Court, the Tenth Circuit Court of Appeals, and numerous state district and appellate courts.

Recent victories include:

  • Won a complete defense verdict for a lawyer and law firm accused of malpractice in the handling of a sale of interests in the plaintiff's company.
  • Won an arbitration for a law firm client that sued its former client for unpaid fees and was countersued for malpractice. The arbitrator rejected the malpractice claims and awarded WTO's client its unpaid fees plus interest, as well as its legal fees and costs incurred in the arbitration.
  • Obtained Rule 12 dismissal for an AmLaw 200 firm facing claims exceeding $500 million in state court in Kentucky.
  • Won a complete defense verdict in a professional liability claim against a law firm and lawyer. The plaintiff alleged that WTO's client was negligent, yet the jury found that not only was our client not negligent, but that the alleged negligence didn't cause the claimed damages.
  • Won a unanimous opinion from the Colorado Supreme Court refusing to follow a more permissive rule adopted by most states and strongly upholding Colorado’s strict privity rule in determining whether non-clients may sue lawyers for malpractice or professional liability.
  • Won Tenth Circuit victory for a law firm client in protracted litigation arising out of a divorce and bankruptcy characterized as "the most complex [the divorce court] has seen in 25 years."
  • Won a complete defense jury verdict in a $12 million legal malpractice case. The jury found in favor of WTO's client on all claims and also awarded unpaid legal fees owed by plaintiffs.

We understand how personal these claims can be. We also appreciate that staying out of court may be a client’s ultimate goal. Whether you wish to resolve claims creatively and discreetly or defend them vigorously before judge and jury, WTO will help.

About Wheeler Trigg O'Donnell

Since 2004, Wheeler Trigg O’Donnell lawyers have won 140 trial verdicts and complex arbitrations and 76 significant appeals nationwide for our clients.

Established in 1998, WTO currently numbers 100 lawyers. The firm represents sophisticated clients in high-stakes civil trials, arbitrations, appeals, and related litigation, including class actions, mass torts, and multidistrict litigation.

Awards