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Attorney Fee Disputes: Should Clients Agree to Arbitrate?

Posted by Judie Bronsther | May 19, 2014 | 0 Comments

Over the past 23 years, I have testified as an expert on the issue of reasonableness of attorneys' fees at jury trials, bench trials and arbitrations.  The general consensus among the attorneys with whom I have worked is that a jury is the most advantageous for a client challenging the reasonableness of legal fees while arbitration is the preferred forum for law firms claiming that their fees are reasonable.

Among the reasons for disfavoring arbitrations are: juries are more sympatric to clients, especially when legal fees are in the six- or seven-figure range; the client is waiving its right to broad discovery; the arbitrator does not have to state the grounds for its award; there is no record of the hearing making it nearly impossible for a superior court to review the arbitration proceeding; and arbitration may involve substantial upfront costs when compared with litigation.

For those reasons it is no surprise that attorneys are using a provision in their retainer agreements that not only obligates a client to arbitrate a fee dispute, but also obtains the client's agreement to be bound by any fee arbitration award.  Whether such arbitration provisions are enforceable hinge on a number of issues including whether: the lawyer fully disclosed the scope and the terms of the arbitration clause (nt. 1); the provision is broadly defined, clear and reflects an unambiguous intention to arbitrate (nt. 2); the client has the ability to pay for the arbitration (nt. 3); and, the client's level of sophistication or experience in retaining and compensating lawyers. (nt. 4)

Clients should be mindful of the ramifications of signing a retainer agreement that contains a mandatory arbitration clause.  Given the declining consumption of legal services, clients are in a position to negotiate for the removal of such clauses.  While disputes over legal fees are never planned in advance, they do arise, and it pays to be prepared.

Notes:

1.  In  Hodges v. Reasonover, Supreme Court, No. 2012-CC- 0043, 2012 WL 2529403(7/2/12), the Supreme Court of Louisiana held … “we hold there is no per se rule against arbitration clauses in attorney-client retainer agreements, provided the clause is fair and reasonable to the client.  However, the attorneys' fiduciary obligation to the client encompasses ethical duties of loyalty and candor, which in turn require attorneys to fully disclose the scope and the terms of the arbitration clause.  An attorney must clearly explain the precise types of disputes the arbitration clause is meant to cover and must set forth, in plain language, those legal rights the parties will give up by agreeing to arbitration. In this case, the defendants did not make the necessary disclosures, thus, the arbitration clause is unenforceable.”

2.  Smith v. Lindemann, 10-CV-3319 (U.S.Dist.Ct., March 4, 2014).

3. In Roldan v. Callahan & Blaine (Cal. App. Fourth Dist., Div. 3; August 27, 2013) 219 Cal.App.4th 87, the appellate court reversed and remanded for the trial court to: 1) calculate the reasonable cost of the arbitration previously ordered; 2) determine whether the plaintiffs are financially able to pay their share of the anticipated costs; and 3) if any of the plaintiffs are unable to pay, issue an order specifying that the lawyers have the option of either paying or else waiving their right to arbitrate.

4. In Kamaratos v. Palias ,360 N.J. Super. 76 (Ap. Div. 2003), the court held that the client should not be held to the limited appealability of a commercial arbitration award and a waiver of the right to a jury trial, without a clearer statement that the client understood the implications of an agreement to arbitrate.

About the Author

Judie Bronsther

Ms. Bronsther began her career in 1979 as an associate with Finley, Kumble, Wagner, Heine, Manley & Underberg specializing in corporate finance. In 1984, she joined forces with a client, Empire Securities, a brokerage house specializing in oil and gas transactions, and became Executive Vice President and General Counsel. In 1989, she joined Kaye, Scholer, Fierman, Hayes and Handler. Ms. Bronsther graduated from University of Rochester, magna cum laude, and New York University School of Law. Ms. Bronsther has written extensively on the subject of legal cost control and lectures frequently on this subject.

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