The Delaware State Bar Association

Ethically Speaking

Avoiding A Fee For All

by Charles Slanina, Esquire

The ABA Standing Committee on Ethics and Professional Responsibility recently issued Formal Opinion 02-4-25 regarding Arbitration agreements. The Committee concluded that nothing in the Model Rules prohibits lawyers from including a clause in their retainer agreement requiring all fee disputes and malpractice claims to be submitted to binding Arbitration. However, the February 20, 2002 non-binding Advisory Opinion warns that the lawyer must ensure that the client has been warned of the potential advantages and disadvantages of arbitration.

Depending on the sophistication of the client, the lawyer may then need to explain that the client is waiving discovery, the right to a jury trial and an appeal. The lawyer may also have to provide unspecified but sufficient information to permit the client to make an informed decision whether or not to agree to the binding arbitration clause. Obviously, this conversation at the outset of the attorney-client relationship may have a chilling effect on the formation of that relationship.

The right to bind clients to Arbitration had been previously questioned because of Rule 1.8(h) which prohibits a lawyer from prospectively limiting malpractice liability. The Committee concluded that the mere fact that litigation differs from arbitration procedurally does not insulate the lawyer from liability as the Rule prohibits.

In addition, the Committee noted that Rule 1.4(b) requires the attorney to give the client enough information to make an informed decision about the representation which would include the consent to the arbitration provision in the fee agreement.

In reaching this conclusion, the Committee followed the opinions of several commentators and most State Bar Ethics Committees which had dealt with this topic. Such a provision in a fee agreement could reference the use of the Delaware Bar Association's Fee Dispute Committee. However, given the dollar ceiling on those Mediations and the requirement that both parties consent, there may be questions as to whether or not fee agreements could require use of such Mediation. More likely, the fee agreement would necessarily reference a specific arbitration service and should probably include some discussion of the sometimes substantial costs of those arbitration services.

I suspect that a mandatory fee or malpractice arbitration provision in a retainer agreement would be struck if the client was not fully advised of the costs and procedures. An attempt to shift the cost of the arbitration to the client (which could have a chilling effect on the client's pursuit of a fee dispute or malpractice claim) might also be voided.

Before you rush to revise your standard fee agreements, you might also want to consult your malpractice Carrier as to their preferences on the topic. Coupled with last month's column on file retention and the suggestion that the retainer agreement cover the ultimate disposition of the closed file, it would appear that we all need to revisit this document which is so important to both attorney and client.

Have a great Summer!

"Ethically Speaking" is intended to stimulate awareness of ethical issues. It is not intended as legal advice nor does it necessarily represent the opinion of the Delaware State Bar Association.

Return to May 2002 Table of Contents.