Opinion #151. Fee Arbitration Clause in Lawyer-Client Contract

Issued by the Professional Ethics Commission

Date Issued: May 12, 1995

Questions

Pursuant to Maine Bar Rule 11 (c)(2), we address the following ethical questions involving the Code of Professional Responsibility (Rule 3):

Question No. 1

Does Maine Bar Rule 3 prohibit a lawyer from entering into an agreement with the lawyer’s client that compels both the lawyer and the client, upon request of either one, to submit any future fee dispute arising out of the representation to binding arbitration conducted other than in accordance with Maine Bar Rule 9, thereby precluding the client from unilaterally requiring that arbitration of a fee dispute be conducted in accordance with Rule 9?

Question No. 2

Does Maine Bar Rule 3 prohibit a lawyer from entering into an agreement with the lawyer’s client that compels the client to submit to binding arbitration any future fee dispute arising out of the representation, but gives the client the option of having the arbitration proceed either in accordance with Rule 9 or with another standard arbitration procedure specified in the agreement?

Opinion

No. 1

The plain language of Maine Bar Rule 3.3(c) mandates that a lawyer “shall submit upon the request of the client the resolution of any fee dispute in accordance with Rule 9.” (emphasis added ). If a client signed an agreement such as that posed by Question No.1, and thereafter requested submission of a fee dispute in accordance with Rule 9, the lawyer would have to proceed under Rule 9, the agreement notwithstanding.[1]

In reaching this conclusion, we recognize that, prior to submitting a fee dispute to Rule 9 arbitration, the lawyer and client might agree to settle a dispute on the merits. Rule 9 by its terms encourages such a result. See Maine Bar Rule 9(e)(1 )(C) (requiring the client to certify that he or she has made a good faith effort to settle the dispute prior to filing the petition)[2] One might therefore argue that if a lawyer and a client can agree to a complete, substantive resolution of a fee dispute, the rules should be construed to allow them to make the arguably lesser agreement concerning the procedures for resolving their dispute.

While this argument is of some force, we reject it for two reasons:

First, there is a fundamental difference between an agreement made prior to a dispute and an agreement made after the client is aware of the nature of the dispute and what is at issue.

Second, even when a lawyer and a client have settled a fee dispute, if the client thereafter contests the fee and files a petition, Rule 3(c) on its face would still require the lawyer to submit to Rule 9 procedures. This is not to say that the settlement would not be enforceable or potentially dispositive in the Rule 9 proceeding, or that the matter would even survive preliminary review under Maine Bar Rule 9(e)(3). The point, instead, is that if a lawyer and a client initially agree to resolve a fee dispute, and thereafter nevertheless continue to dispute the fee, then Bar Rule 3.3(c) would require the submission of that dispute in accordance with Rule 9 upon demand of the client. Thus, there is in fact no inconsistency between finding the proposed agreement to be precluded by the rules and recognizing that the rules at the same time encourage the settlement of fee disputes by agreement prior to Rule 9 proceedings. In either case, the lawyer cannot ethically refuse to accede to a client’s request to submit a dispute on fees paid or charged to Rule 9 procedures.

In sum, we conclude that the agreement proposed by this question would be inconsistent with the requirements of Maine Bar Rule 3.2(f)(3) because it purports to give the lawyer the right to act at variance with the mandate of Maine Bar Rule 3.3(c).

No. 2

The agreement posed by this second question presents no conflict with the plain language of Rule 3.3(c). Arbitration outside Rule 9 would proceed only in the absence of a request by the client that the matter be submitted pursuant to Rule 9, to which request the lawyer would accede.

More generally, one might ask whether this agreement is solely for the benefit of the lawyer and, if so, does the one-sidedness of the benefit render the agreement unethical? Without the agreement the client has the unilateral ability to choose between litigation in the courts and arbitration, albeit under Rule 9. Under the agreement the client arguably gains nothing, yet, by granting to the lawyer the ability to compel arbitration, loses the right to insist upon litigation.[3] Assuming this to be the case, but see footnote 3, supra, the question posed is whether Rule 3 imposes substantive fairness limitations on representation agreements between a lawyer and the lawyer’s client that go beyond the limitations generally applicable under statutory and common law, such as those, for example, relating to adequacy of consideration and unconscionability.

Maine Bar Rule 3 certainly contains several express, specific such limitations. Thus, for example, Rule 3.3(a) requires that fees not be excessive.

Similarly, Rule 3.4(f)(2)(v) prevents a lawyer from entering into an agreement with the client limiting the lawyer’s liability to the client notwithstanding the fact that such prospective limitation of liability provisions are enforceable on other situations.

The closest candidate for imposing a general “fairness” requirement in the terms of a lawyer’s representation or retention agreement is Rule 3.4(f)(2)(i).

That rule prevents a lawyer from knowingly entering into a business transaction with a client unless the transaction and terms in which the lawyer acquires the interest represented by the transaction “are fair and reasonable to the client and are fully disclosed and transmitted to the client in manner and terms which should have reasonably been understood by the client.”

Although it is arguably possible to read this language broadly to include as a covered “business transaction” a retention or engagement agreement between lawyer and client requiring arbitration of future disputes, we decline to do so. Had the drafters of the rules intended to cover the most obvious and most common of all agreements between lawyers and clients, they would have done so expressly. It is unlikely that failure to do so was the result of a belief that the matter was covered in the language of Rule 3.4(f)(2)(i). Moreover, where the drafters felt it necessary to place limitations on the terms of representation or retention agreements between lawyer and client going beyond those substantive limitations provided for under the common or statutory law, the drafters did so expressly as noted above. Furthermore, if we were to reach any other conclusion, then no engagement or retention agreement between lawyer and client would be ethical or enforceable unless it was in writing and unless the client was “advised and given a reasonable opportunity to seek independent professional advice of counsel of the client’s choice on the transaction.” Rule 3.4(F)(2)(i).

Having thus concluded that there is no provision of Rule 3 which on its face would prohibit the proposed agreement, we hesitate to graft onto the rules any such prohibition. See Opinion No.146 (“[W]e strongly believe that this Commission is not free to add ethical limitations not expressed by the Bar Rules.”) We note, too, that to the extent that there is a strong public interest in holding attorneys to higher standards than those minimum standards generally applicable to all commercial relations (and we believe there is, as evidenced by the Bar Rules themselves) there is also a “strong public policy favoring arbitration.” Anderson v. Elliott, 555 A.2d 1042,1044 (Me. 1989). Furthermore, we need take same guidance from the notion that to interpret Rule 3 so as to prohibit or render unenforceable what is in effect a mutual arbitration clause between lawyer and client would raise a serious question as to the constitutionality of Rule 3 to the extent interstate commerce is in any way affected. Allied-Bruce Terminix Companies. Inc v. Dobson, 513 U.S. ___, 130 L.Ed 2d 753 (1995) (state statute making predispute arbitration agreement unenforceable is preempted by Federal Arbitration Act. 9 U.S.C. §1 et seq.).

In forming our opinion, we have also reviewed the Law Court’s decision in Nisbet v. Faunce, 432 A.2d 779 (Me. 1981), wherein the Court stated: “Even were we to conclude that the client’s petition for fee arbitration is the equivalent of the completion of a written agreement to submit to arbitration, we would nevertheless be obliged to address the provision of [former] Bar Rule 9(g)(3) that renders the Uniform Arbitration Act inapplicable to the extent that it conflicts with the operation of the Maine Bar Rules.” Id. at 782. As an alternative grounds for its decision in Nisbet, the Court held that the version of Bar Rule 9 as it existed in 1981 precluded a court from relying on section 5928 of the Uniform Arbitration Act, 14 M.R.S.A. §5927 et seq., to compel a client to proceed forward with fee arbitration under the Rule should the client wish to revoke the request for arbitration under the rule. The decision in Nisbet is difficult to interpret because it is not clear from the opinion whether there remained any actual controversy between the lawyer and client regarding the fee charged. The fact that the lawyer sought to compel arbitration under the rule suggests that there was a dispute. However, in rejecting the lawyer’s position, the Court reasoned that compelling arbitration “when the client decides he no longer wants to go forward with it” would impose on the client “unjustifiable expense, delay, and inconvenience.” Such would hardly be the case if indeed there remained a dispute and the only alternative was litigation. See generally, Anderson v. Elliott, supra, 555 A.2d at 1049. (Rule 9 arbitration provides the client “a faster and procedurally less forbidding form for fee disputes.”) In any event, it seems that Nisbet holds no more and no less than that under the provisions of Rule 9 as it then existed (and probably as it still exists, compare former Bar Rule 9(g)(3) with the current Bar Rule 9(i)) the client can withdraw his or her request for Rule 9 arbitration. Nothing in Nisbet holds that lawyer and client may not make an agreement to proceed by arbitration under the Uniform Arbitration Act in the absence of a desire by the client to proceed under Rule 9.[4]

For all of these reasons, we therefore conclude that the agreement between a lawyer and the lawyer’s client posed by this second question is not prohibited by Rule 3, and that, at least in this manner, lawyers can ethically obtain a binding agreement from a client to arbitrate fee disputes.


Footnotes

[1] Literally, one might suggest that the lawyer might both submit the matter to Rule 9 arbitration and simultaneously require the client to proceed forward with the agreement, arbitrate in another tribunal, and hope for a decision in the latter before the former. Such, however, would be to “submit” the matter in form only. The rule, fairly read, requires more; i.e., it requires the lawyer, upon request of the client, to accede to the proposition that the dispute will be resolved finally by the fee arbitration procedures under Rule 9.

[2] Our jurisdiction does not include interpreting Maine Bar Rule 9. See Maine Bar Rule 11(c)(1). Our references to Rule 9 are therefore to be understood in the same vein as, for example, our descriptions of statutes or case law, each of which from time to time require description in order to set the context within which we need to interpret Rule 3.

[3] To be precise, the client would gain the ability to select an alternative arbitration forum. More generally, as is the case with all undertakings by a client in retaining counsel, the client receives as consideration the services of the lawyer.

[4] In view of the conclusion we reach concerning Question 2 and the issues raised by Nisbet regarding the interplay between the enforcement procedures of the Uniform Arbitration Act and Rule 9, pursuant to Bar Rule 11(c)(2) we exercise our discretion to decline addressing the alternative agreement posed whereby the client agrees to request Rule 9 arbitration upon demand of the lawyer.


Enduring Ethics Opinion

Enduring Ethics Opinion #151 [February 2015]