United States: Whoops - Legal Malpractice Prevention

Enforcing ADR Provisions In Fee Agreements

Attorneys and law practices have been experimenting with strategies to collect unpaid client fees while limiting the risk of malpractice claims. One approach involves the use of alternative dispute resolution (ADR) provisions, including mandatory arbitration clauses, in retainer agreements and engagement letters.

ADR has several advantages over litigation. First, arbitration or mediation of a fee dispute is typically less expensive than litigation. Additionally, the proceedings in arbitration and mediation are confidential and, therefore, do not become matters of public record.1 Thus, a client's assertion of a malpractice counterclaim in an ADR proceeding as justification for his or her failure to pay the fees at issue will remain out of the public realm. However, attorneys should be aware that their professional malpractice insurance will likely require them to report such a potential claim as a condition of coverage.

In a 2002 Formal Opinion, the American Bar Association ABA) provided ethical guidance for law firm use of mandatory arbitration clauses in retainer agreements.2 The ABA advised: It is ethically permissible to include in a retainer agreement with a client a provision that requires the binding arbitration of fee disputes and malpractice claims provided that (1) the client has been fully apprised of the advantages and disadvantages of arbitration and has been given sufficient information to permit her to make an informed decision about whether to agree to the inclusion of the arbitration provision in the retainer agreement, and (2) the arbitration provision does not insulate the lawyer from liability or limit the liability to which she would otherwise be exposed under common and/or statutory law.

Local Guidelines

Under Colorado's Uniform Arbitration Act, arbitration clauses are valid and enforceable:

An agreement contained in a record to submit to arbitration any existing or subsequent controversy arising between the parties to the agreement is valid, enforceable, and irrevocable except on a ground that exists at law or in equity for revocation of a contract.

Colorado courts have confirmed that a mandatory arbitration clause in an attorney engagement letter is generally enforceable, as well. In Tolliver v. True, the US District Court for the District of Colorado held that an arbitration clause requiring the law firm and the client to submit "any dispute" to arbitration was enforceable and applied to malpractice claims.4 Additionally, the Tolliver court found that a mandatory arbitration clause did not violate the rules barring agreements that prospectively limit the lawyer's liability to a client for malpractice.5 Indeed, "an agreement to arbitrate does not prospectively limit the lawyer's liability to a client for malpractice, but rather 'merely shift[s] determination of the malpractice claim to a different forum.'"6

The Colorado Rules of Professional Conduct encourage attorneys to resolve fee disputes by arbitration or mediation. Specifically, Comment 9 to Colo. RPC 1.5 states, in pertinent part:

If a procedure has been established for resolution of fee disputes, such as an arbitration or mediation procedure established by the bar, the lawyer must comply with the procedure when it is mandatory, and, even when it is voluntary, the lawyer should conscientiously consider submitting to it.

The CBA offers a fee arbitration program through its Legal Fee Arbitration Committee. Fee arbitration through this program is voluntary, and both the attorney and client must agree to bring their dispute before an arbitrator. Mandatory arbitration clauses, whether referring to the CBA Legal Fee Arbitration Committee or another source, should be clear and unambiguous.

Tips for Drafting an Enforceable Mandatory Arbitration Provision

Enforcement of mandatory arbitration provisions in fee contracts or engagement letters can be complicated. However, attorneys and law practices can take steps to increase the likelihood that a mandatory arbitration clause will be enforced.

1. Include a severability clause.

A good first step is to include a severability clause in retainer agreements and fee contracts that include a mandatory arbitration clause. Then, if the binding arbitration agreement is held to be unenforceable, other protections in the agreement may still remain in effect.7

2. Use a proven arbitration clause.

The likelihood that a mandatory arbitration provision will be enforced can be maximized through use of boilerplate or a judicially tested binding arbitration clause. This way, any challenges to the arbitration provision should turn on whether the arbitration implicates an ethical issue (such as the restriction on attorneys limiting their liability), rather than on whether the provision itself is properly drafted.

3. Provide the ABA's recommended disclosure.

Although generally not controlling, ABA Formal Opinion 02- 425 is persuasive precedent. It is helpful to ensure that the client has been fully apprised in writing of the advantages and disadvantages of arbitration, and has been given sufficient information to permit an informed decision about whether to agree to the inclusion of the arbitration provision in the agreement. Indeed, such documentation can serve as evidence that the law firm acted in good faith and that the client was fully informed when he or she signed an engagement letter mandating arbitration of fee disputes.

4. Address independent counsel.

Colo. RPC 1.8(h)(2) provides that a lawyer shall not settle a claim or potential claim for such liability with an unrepresented client or former client unless that person is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel in connection therewith.

Because a fee dispute with a client can result in a malpractice claim, an attorney should carefully consider whether withdrawing from representation is the best course of action during a fee dispute. If the attorney chooses to continue to represent the client, the attorney should notify the client of the right to seek independent counsel and provide a reasonable opportunity to do so.

Conclusion

Mandatory arbitration provisions in engagement letters and retainer agreements have several distinct advantages for the attorney. Law firms should consider employing the above tips to increase the likelihood that a mandatory arbitration provision for fee disputes will be enforceable.

Footnotes

1. See Pulkrabek, "Collecting Fees," 1 Lawyers' Professional Liability in Colorado 7-1, 7-20 (Michael Mihm ed., 2015).

2. ABA Formal Op. 02-425: Retainer Agreement Requiring the Arbitration of Fee Disputes and Malpractice Claims (Feb. 20, 2002).

3. CRS § 13-22-206(1).

4. Tolliver v. True, 2007 WL 2909393 at *4 (D.Colo. Sept. 28, 2007).

5. Colo. RPC 1.8(h)(1) ("A lawyer shall not: (1) make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless the client is independently represented in making the agreement . . .").

6. Tolliver, 2007 WL 2909393 at *4 (citing McGuire, Cornwell & Blakey v. Grider, 765 F.Supp. 1048, 1051 (D.Colo. 1991)).

7. See Nesbitt v. FCNH, Inc., __ F.Supp. 3d __, 2014 WL 6477636 (D.Colo. Nov. 19, 2014), appeal docketed, No. 14-1502 (10th Cir. Dec. 17,2014)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
24 Oct 2017, Seminar, Washington, DC, United States

The Dentons Forum for Women Executives invites you to join us for a luncheon featuring guest speaker Liza Mundy, journalist and author. Ms. Mundy recently released her latest book, Code Girls, the riveting untold story of more than 10,000 spirited young American women who cracked German and Japanese codes to help win World War II.

27 Oct 2017, Seminar, New York, United States

Please join us for a milestone event, our 10th annual CLE Seminar for In-House Counsel.

1 Nov 2017, Seminar, Washington, DC, United States

Celebrate the 58th anniversary of Dentons' Government Contracts practice

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.