By Colleen H. Burke and Kara D. Moore
Many retainer agreements contain an arbitration clause for the resolution of disputes that arise from the attorney-client relationship. The Michigan State Bar Ethics Committee takes the position that arbitration clauses, in general, are unethical. Michigan courts, on the other hand, find arbitration clauses to be valid, enforceable, and compatible with the public-policy preference for dispute resolution. So can an attorney include an arbitration clause in a retainer agreement without violating the rules of professional conduct? The answer is yes.
In 2013, Michigan enacted the Uniform Arbitration Act, which exemplifies Michigan’s strong public policy of favoring arbitration. Courts consider arbitration a matter of contract. Based on contract law, courts will look at the intent of the parties and the scope of the arbitration agreement. Courts presume that parties who sign an agreement know and understand the contents of the agreement. Courts view an arbitration agreement between an attorney and client in the same manner as any other arbitration agreement.
In Michigan Ethics Opinion RI-2, the Ethics Committee expressed the opinion that arbitration agreements are ethical and enforceable if the client obtains independent counsel concerning the advisability of entering into such an agreement. Nearly three decades later, in Michigan Ethics Opinion R-23, the Ethics Committee opined that arbitration agreements are generally unethical because they benefit the attorney’s interests and take advantage of the client’s lack of legal knowledge. Per the Ethics Committee, arbitration clauses are, however, permissible in two circumstances: (1) the client consults with independent counsel, and (2) the attorney advises the client, in writing, of the information reasonably necessary to make an informed decision. As to the latter, the Ethics Committee provided a non-exhaustive list of disclosures that the attorney should make to the client:
(1) the client has the right to consult with independent counsel, and such consultation is recommended;
(2) by agreeing to the arbitration clause, the client is waiving the right to a jury, potentially waiving the right to take discovery, and waiving the right to appeal the result of the arbitration proceeding;
(3) the arbitrator(s) may well be attorneys;
(4) the body that will administer the arbitration, if any;
(5) the client’s financial responsibilities for arbitrator compensation and administrative fees, if any;
(6) if the client refuses to agree to arbitration at the onset of the attorney-client relationship, there is no prohibition against the lawyer and the client agreeing to arbitrate the matter at a later date; and
(7) the client maintains the right to file a Request for Investigation with the AGC.
Ethics opinions are advisory and non-binding—they don’t carry the force and effect of law. To be sure, Michigan courts have rejected the Ethics Committee’s prior positions on arbitration clauses. In Watts v. Polaczyk, for example, the client executed a contingent-fee agreement that contained an arbitration clause. The law firm ultimately declined representation, after which the client filed a legal-malpractice suit. The law firm filed a motion to dismiss the suit and compel arbitration, which the trial court granted. The Court of Appeals affirmed the dismissal, finding that the client voluntarily agreed to the arbitration clause in the contingent-fee agreement. In so doing, the Court rejected the client’s argument that the arbitration clause couldn’t be enforced based on the Ethics Committee’s opinions. The Court reasoned that ethics opinions, “though instructive, are not binding” on the Court.
Watts addressed Michigan Ethics Opinion RI-2. Courts haven’t yet had occasion to consider the more recent position in Michigan Ethics Opinion R-23, which is seemingly built on the foundation of the prior position that Watts rejected.
What this means for attorneys
Michigan courts will likely continue to enforce attorney-client arbitration agreements in furtherance of public policy. What’s less certain is whether the Michigan Attorney Grievance Commission would be willing to challenge arbitration clauses in the context of disciplinary matters. While arbitration clauses aren’t unethical per se, attorneys should consider including disclosures that reasonably inform clients of the rights they’re waiving by agreeing to arbitrate disputes.
If you intend to use a retainer agreement that contains an arbitration clause, we recommend that you seek advice on the best practices to protect you and your practice.