Opinion #170. Attorneys' and Clients' Agreement to Arbitrate Future Malpractice Claims
Issued by the Professional Ethics Commission
Date Issued: December 23, 1999
May an attorney at the outset of representation enter into an agreement with a client by which the attorney and the client mutually agree to submit to binding arbitration any and all malpractice claims that may arise out of the representation?
There is no language in the Maine Bar Rules that directly addresses the subject of arbitration agreements with clients on matters other than fees. See Rule 3.2(f)(3). We have previously opined that a lawyer and a client may at the time of engagement enter into an agreement mandating the arbitration of any fee dispute as long as the agreement does not purport to abrogate the client's ability to have the arbitration conducted pursuant to Rule 9. See Opinion No. 151 (May 12, 1995). The rationales identified in Opinion No. 151 were several: the Commission should not add ethical prohibitions not suggested by the drafters of the rules, citing Opinion No. 146; there is a "strong public policy favoring arbitration," citing Anderson v. Elliott, 555 A. 2d 1042, 1044 (Me. 1989); a prohibition on arbitration as applied to agreements in interstate commerce might be unconstitutional, citing Allied-Bruce Terminex Companies Inc. v. Dobson, 513 U.S. 265 (1995); and, finally, a retention or engagement agreement does not constitute a covered "business transaction" between a lawyer and client within the meaning of Rule 3.4(f)(2)(i). Each of these rationales applies fully to the question posed here.
The dissent nevertheless argues that this question, unlike the question posed in Opinion No. 151, also implicates Rule 3.4(f)(2)(v), which precludes a lawyer from entering into an agreement with a client that prospectively "limits the lawyer's liability to a client for malpractice."
We respectfully disagree. There is nothing in the language of the rule, or its history, to support the proposition that a mutual agreement on a neutral forum within which to adjudicate a lawyer's future liability is an agreement "limiting the lawyer’s liability." An agreement to limit liability is, in substance, an agreement that says that even though the lawyer errs in fulfilling certain duties to the client, the lawyer will not be liable to the extent that common and statutory law would otherwise make the lawyer liable. Perhaps if a particular forum had rules that themselves limited liability, then selection of such a forum could fairly be said to limit liability indirectly. Or if the arbitration agreement were a sham, such as an agreement to arbitrate before the lawyer's partner, then one could argue that its practical effect was to limit liability. Mutually agreed upon arbitration pursuant to the state and federal acts entail no such liability limiting rules. Nor is an agreement to arbitrate before a fair arbitrator selected at the time of the dispute, or appointed by the court, a sham. The arbitrator to whom resort would be made pursuant to the proposed agreement thus remains as unlimited as any judge or jury, and perhaps more so, 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. If at the outset of the proceeding one were to ask such an arbitrator—or the parties—whether there was any agreement limiting the lawyer's liability in the proceeding, the answer would of necessity be "no." The same answer prevails here.
Therefore, unless we are to stretch the words of the Rules beyond fair meaning, it cannot be said that an agreement to arbitrate is an agreement to limit liability. Rather, it must be argued that an agreement to arbitrate is an agreement to select a forum within which the unlimited liability of the lawyer will be determined by a person who, although fair and unlimited, may nevertheless on average be less predisposed than a juror to rule against a lawyer qua lawyer, and therefore the odds that the trial will result in a finding of liability are affected. Or, as the dissent also suggests, it is an agreement to select a form of dispute resolution in which the outcome will hinge more on the facts and the law than on the tangential threat of publicity, thus affecting the "leverage" that the threat of publicity offers to the person suing the lawyer (i.e., the lawyer might pay even though not liable).
Whatever one thinks of such contentions, the simple fact remains that the Rules themselves do not prohibit agreements that have those effects. Because those effects are predicated upon a jaundiced view of arbitration that is contrary to public policy, see Roosa v. Tillotson, 695 A. 2d 1196, 1197 (Me. 1997) ("Maine has a broad presumption favoring substantive arbitration"), before adopting the dissent's view one should insist on at least some suggestion by the Rules' drafters that they so imprecisely sought to enact the prohibition inferred by the dissent. If clergy, doctors, fiduciaries of all sort, and so on, can all enter into prospective ADR agreements with their clients under the state and federal arbitration laws, there is no reason, a priori, to think the drafters of the rules silently decided that lawyers cannot. Rather, we presume as we must that they decided what they plainly stated: a lawyer cannot enter into agreements that prospectively limit the lawyer's liability.
If we were to accept the proposition that agreements that do not limit liability, but that might affect the odds of a liability finding or the leverage of the parties in negotiating a settlement, were implicitly prohibited by the Bar Rules, we would then call into question many well-accepted, even laudable practices. For example, the Bar Rules do not require that client consents to multiple representations be in writing. A careful lawyer, however, will often insist that a client sign a written agreement setting forth the terms of consented-to multiple representation. A reason for requiring the client to enter into such an agreement is that it will reduce the likelihood of future claims. Indeed, if you were to require a careful lawyer to choose between arbitration agreements and written multiple representation agreements, and if the lawyer's sole objective were to reduce exposure to malpractice judgments, the lawyer might well choose the latter over the former. In short, if an effect on the future odds of liability were to be our benchmark, many agreements would qualify for prohibition.
Additionally, while a belief that arbitrators might be less predisposed than jurors to award large damages against a lawyer will undoubtedly provide the motive for some lawyers to propose arbitration agreements, both lawyer and client may well have reasons for wanting to enter into an arbitration agreement that have nothing whatever to do with the odds of winning some future quarrel. Reducing transaction costs or, even more probably, achieving a degree of confidentiality might motivate lawyer, client, or both. Clients forced to sue in court run a serious risk of putting their confidences and secrets into the public record, M.R. Evid. 502(d)(3), and thus may be deterred from making a claim. Generally speaking, arbitration is faster, and less expensive. Because the lawyer would therefore know that he or she couldn't drag the client through years of expensive litigation, the lawyer is more likely to settle at a higher rate. For small claims in particular, the arbitration agreement may increase the likelihood of a liability finding, because it will increase the likelihood that a claim will be made.
We do recognize that other jurisdictions are split on the issue at hand. Ohio flatly prohibits such a clause. Ohio Ethics Opinion 96-9. California permits it. California State Bar Formal Opinion 1989-116. Others permit the clause with conditions. Arizona Ethics Opinion 94-05; District of Columbia Ethics Opinion 211, Virginia Legal Ethics Opinion 1707. Coloring some of the various opinions from other states, we think, is a distaste for arbitration. Both Congress and Maine's Legislature, however, have concluded that arbitration clauses are among the few contractual clauses meriting statutory approval and mandatory enforcement. We are not comfortable being in the position of suggesting in any way that such a form of dispute resolution is less favored in cases involving lawyers.
For the reasons stated above, particularly those set forth in our own Opinion No. 151, we conclude that a lawyer and a client may indeed, under the Maine Bar Rules, include in their initial engagement agreement a clause compelling arbitration of any and all malpractice claims as long as the clause does not preclude the client from requiring resolution of any fee disputes pursuant to Rule 9.
Finally, there is the related issue of whether the lawyer must advise the client to obtain independent advice before entering into an agreement to arbitrate prospective disputes. The theory supporting such a requirement would be that the lawyer and client have a conflict of interest on the matter. See Maine Bar Rule 3.4(f)(2). Yet this is true in theory of everything that is the engagement agreement, most especially, for example, the percentage fee provision in a contingent fee agreement. We do think that the arbitration clause should be clear and should expressly reserve both the client's right to compel Rule 9 arbitration over any fee dispute and the ability to file grievance complaints under Bar Rule 7.1(a), but we do not conclude that the presence of such an arbitration clause in an engagement agreement, without more, requires that the client be advised to consult other counsel.
 “A lawyer shall not make an agreement prospectively limiting the lawyer's liability to a client for malpractice; nor shall a lawyer settle a claim for such liability with an unrepresented client or former client without first advising that person in writing that independent representation is appropriate in connection therewith. This rule shall not prevent a lawyer from settling or defending a malpractice claim."
 Compare 14 M.R.S.A. § 5938 (limited grounds for overturning arbitration award) with M.R. Civ. P. 50, 59 and 60.
Three members dissent from the majority opinion. The majority opinion adopts an overly technical reading of the phrase "limiting the lawyer's liability." By specifying the forum in which he can be sued for malpractice, an attorney has in practical fact limited his liability in violation of Rule 3.4(f)(2)(v). It is akin to pretending that the emperor is fully clothed to suggest that an attorney would not prefer to have his malpractice case heard by an arbitrator rather than by a jury. Indeed, if it were otherwise, why would a lawyer seek to include such restrictive language in his fee agreements?
A study of 337 arbitration cases involving National Association of Securities Dealers revealed that employers succeeded in defeating discrimination claims 90.47% of the time. The authors of the article in which the survey is reported state the obvious:
Certainly, this unofficial survey suggests that employers stand a greater chance of success in arbitration than in court before a jury.
Bompey, Delikat & McClelland, 13 The Labor Lawyer 21,66 (Summer 1997).
There are other disadvantages to the arbitral forum which potentially limit the attorney's liability for malpractice by limiting his client's ability to prove his case. In Alexander v. Gardner-Denver, 415 U.S. 36, the Supreme Court noted that, in arbitration, the record of the proceedings is not as complete, the rules of evidence do not apply, and discovery and process to compel the attendance of witnesses are limited or nonexistent. Id. at 57-58. In addition, under normal circumstances, punitive damages are unavailable.
Attorneys would naturally prefer to litigate malpractice claims in the arbitral forum because the proceedings are private. The effect, however, is to deny clients an important source of leverage in settling their malpractice claims. Under these circumstances, it is not surprising that attorneys would prefer to avoid defending such claims in the courtroom. It is equally obvious that they violate Rule 3.4(f)(2)(v) by requesting their clients to do so.
No helpful legislative history has been found regarding Rule 3.4(f)(2)(v) which was adapted from DR6-102(A) of the Model Code of Professional Responsibility. However, it seems apparent that the rule was intended to protect unsophisticated clients from being induced to give up, at the inception of the attorney-client relationship, valuable remedies to redress future wrongdoing on the attorney's part. Moreover, unlike the hypothetical agreements discussed in the majority opinion, the client's acceptance of the arbitral forum is given essentially without consideration. Rule 3.4(f)(2)(v) was surely intended to protect clients in such vulnerable circumstances from being persuaded to enter such one-sided agreements limiting their right to recover damages from their attorneys.
 The majority opinion suggests that a sophisticated client actually might prefer arbitration to protect the privacy of his affairs. In such a case, an attorney could agree to submit a malpractice claim to arbitration at the client's request as long as the right to arbitrate were not reciprocal.