Opinion #202. Inclusion in Engagement Letter of Client’s Agreement to Waive a Jury Regarding Disputes between Attorney and Client

Issued by the Professional Ethics Commission

Date Issued: January 9, 2011

Issue

The Professional Ethics Commission has been asked whether the phrase “without a jury” can ethically be added to a sentence in an engagement agreement which otherwise states: “In the event that a dispute between us ends up in court, both parties agree that it shall be tried exclusively in a court in Maine.”

Discussion

It is not the role of the Professional Ethics Commission to express an opinion regarding the legal enforceability of a waiver of jury trial regarding disputes between an attorney and the client. The Commission’s review extends solely to whether or not such additional language comports with the Maine Rules of Professional Conduct.

When entering into an engagement agreement, lawyers and clients have both common and divergent interests. The essence of an engagement agreement is that the client is hiring the lawyer to perform certain work and the lawyer is agreeing to do so. However, the parties may initially have had very different expectations regarding such issues as the scope of the work, the fee, the anticipated results of the representation, etc. Should a dispute arise in the future about fees or about a malpractice claim, their interests would clearly be in conflict, just as they are at the commencement of representation when the parties are negotiating about the resolution of such future disputes.

M. R. Prof. Conduct 1.8 covers specific issues relating to conflicts of interest between lawyers and clients. Some activities are forbidden and some are allowed. Some conflicts require informed consent, while others may require referral to independent counsel. Engagement agreements are not directly addressed, although in subsection (h) (1), the rule prohibits agreements between lawyer and client “prospectively limiting the lawyer’s liability to a client for malpractice.”

In Opinion 151 (1995), the Commission concluded that an engagement agreement that compelled a client to submit any future fee dispute to binding arbitration, provided that the fee resolution process in Maine Bar Rule 9 was not compromised, was not prohibited by then-existing Maine Bar Rule 3 and that “lawyers can ethically obtain a binding agreement from a client to arbitrate fee disputes.”

In Opinion 170 (1999), this Commission interpreted then-existing Maine Bar Rule 3.4 (f) as allowing engagement agreements that compel both lawyer and client to arbitrate any future malpractice claims that might arise out of the representation. In that opinion, the Commission reasoned that there was a strong public policy in favor of arbitration and that the drafters of the Rule recognized that an attorney and client may agree as to the means of resolving disputes between them so long as there is no limit on the “lawyer’s liability for malpractice.”

Language in an engagement agreement waiving the right to a jury trial, like a limitation on venue or a requirement to arbitrate disputes between lawyer and client, involves the means of resolving disputes and does not per se limit the extent of liability.1

Neither Opinion 151 nor Opinion 170 defined the attorney’s obligation to the client regarding disclosure in the circumstance where limitations of this nature were proposed. We find Comment [14] to M. R. Prof. Conduct 1.8, which was not available to the Commission in 1995 or 1999, to be helpful in this regard. It states that:

“This paragraph does not, however, prohibit a lawyer from entering into an agreement with a client to arbitrate legal malpractice claims, provided such agreements are enforceable and the client is fully informed of the scope and effect of the agreement.”

By necessity, this must be read in the context of M.R. Prof. Conduct 1.4(b), which requires the lawyer to “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation,” and M. R. Prof. Conduct 2.1, which requires the lawyer to “exercise independent professional judgment and render candid advice.”2

Opinion 170 included a dissent by three Commission members. The dispute within the Commission was whether a proposal requiring the client to arbitrate future malpractice claims was or was not a limitation of liability that would have been prohibited by then-existing Maine Bar Rule 3.4(f)(2)(v).3 The majority determined that because an arbitrator “remains as unlimited as any judge or jury . . . in his or her freedom to find the lawyer liable, and to award any and all compensation or other damages that a court could award,” an arbitration requirement was not a per se limitation of liability. The dissent argued instead that “an attorney has in practical fact limited his liability” by specifying the forum for dispute resolution, noting that if this were not the case, “why would a lawyer seek to include such restrictive language in his fee agreements?”

In obtaining “informed consent” as to the scope and effect of an arbitration requirement or a jury waiver clause in an engagement agreement, and in providing independent and candid advice on those questions, a lawyer must discuss with the client the potential effects from both the theoretical and practical points of view.4 While this would of necessity include the procedural aspects of forum choice such as timing, costs, appealability, and the evaluation of evidence and credibility,5 it must also include knowledge that the lawyer has regarding the differences between forums including, as the Commission mentioned in Opinion 170, the “odds of a liability finding or the leverage of the parties in negotiating a settlement.”

M. R. Prof. Conduct 1.8 covers certain specific circumstances where there is a potential or actual conflict of interest between lawyer and client. In some circumstances, the rule requires that the lawyer obtain informed consent and confirm it in writing or refer the client to independent counsel. Since M. R. Prof. Conduct 1.8 does not directly address arbitration agreements or jury waivers, it does not expressly so mandate. However, the Commission’s role, as described in Maine Bar Rule 11(c)(1), is both to apply and to interpret the Maine Rules of Professional Conduct.

Opinion 151 concluded that an engagement agreement was not a business transaction between lawyer and client under then applicable Maine Bar Rule 3.4(f)(2)(i).6 Opinion 170 concluded that an agreement to arbitrate malpractice claims was not a limitation of liability pursuant to Maine Bar Rule 3.4 3.4(f)(2)(v).7 However, a jury waiver agreement implicates some of the same interests and concerns that underlie both of those rules. Comment [14] to M. R. Prof. Conduct 1.8 states that one of the reasons for the prohibition against limiting liability is that:

“[M]any clients are unable to evaluate the desirability of making such an agreement before a dispute has arisen, particularly if they are then represented by the lawyers seeking the agreement.”

Comment [1] to M. R. Prof. Conduct 1.8 explains that:

“A lawyer’s legal skill and training, together with the relationship of trust and confidence between lawyer and client, create the possibility of overreaching when the lawyer participates in a business, property or financial transaction with a client . . .”

The Commission concludes that a client’s informed consent to a jury trial waiver in an engagement agreement must be confirmed in writing and that prior to agreeing to such a limitation, the client must be advised in writing of the desirability of seeking, and given a reasonable opportunity to seek, the advice of independent legal counsel. In contrast to arbitration agreements, there is no public policy favoring the waiver of jury trials, and a limitation that excludes the right to a jury trial has potentially serious constitutional dimensions. Hence, a jury trial waiver is of a commensurate level of importance with business transactions between lawyers and clients or the settlement of potential or actual claims for liability.

Clients range from extremely sophisticated business clients to those with limited mental capacity. What constitutes “informed consent” for different clients within that spectrum will, as a result, vary as will the resulting written confirmation. The sophisticated client will in all likelihood already understand that they can retain independent legal counsel when entering into an engagement agreement as they can with any other contractual arrangement. It costs nothing to inform that client of the desirability of doing so in the context of a jury waiver agreement, while for those clients who would have difficulty evaluating the desirability of such an agreement before a dispute has arisen, it emphasizes to them the importance of the issue.

The answer to the question posed is therefore that while the Maine Rules of Professional Conduct do not prohibit engagement agreements from stating that “[i]n the event that a dispute between us ends up in court, both parties agree that it shall be tried exclusively in a court in Maine without a jury,” they do require that the client be fully informed as to the scope and effect of a jury waiver, that the client’s informed consent be confirmed in writing, and that the client be advised in writing of the desirability of seeking, and given a reasonable opportunity to seek, the advice of independent legal counsel prior to entering into such an agreement.


Footnotes

1The Commission was not asked to opine on the venue limitation in the currently worded retention agreement, but the Commission would note, as it did in Opinion 170, that the selection of a particular forum could implicate M. R. Prof. Conduct 1.8 (h) (1) if that forum had rules that themselves limited liability.

2Although the M.R. Prof. Conduct do not precisely delineate the point at which a prospective client becomes a client, any discussion regarding the particulars of a fee agreement would generally only take place after the lawyer and client had agreed that the client wanted the lawyer to represent him or her in a particular matter and that the lawyer was willing to do so. M.R. Prof. Conduct 1.5 (b) expressly recognizes that representation may commence before the scope of representation and the fee are fully negotiated.

3Now M. R. Prof. Conduct 1.8 (h) (1).

4“Informed consent,” as defined in M. R. Prof. Conduct 1.0(e), “means a person’s agreement to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”

5The Commission was likewise not asked to decide how agreements to arbitrate must be framed in order to comply with the prohibition against agreements “limiting the lawyer’s liability to a client for malpractice”. There are certain procedural and substantive aspects of arbitration which may raise ethical issues, for example, whether an attorney’s liability for punitive damages is limited by arbitration, which are not addressed here.

6Now M. R. Prof. Conduct 1.8(a).

7Now M. R. Prof. Conduct 1.8(h)(1).


Enduring Ethics Opinion

Enduring Ethics Opinion #202 [April 2011 and February 2015]