Effective September 1, 2022, Michigan Rules of Professional Conduct 1.19 clarifies the requirements to include an arbitration clause in an attorney-client agreement. The order may be found here.
RI-196
March 7, 1994
SYLLABUS
A lawyer may not offer or make an arbitration clause in a retainer agreement which circumvents ethics rules by: (a) preventing a client from obtaining independent advice regarding whether to agree to an arbitration clause; (b) purporting to restrict a client from reporting to the Attorney Grievance Commission information concerning a lawyer's ethical misconduct; (c) prospectively limiting the lawyer's legal malpractice liability unless permitted by law and unless the client has the advice of independent counsel; or (d) working a settlement of the lawyer's malpractice liability with an unrepresented or former client without advising the client that independent representation is appropriate.
References: MRPC 1.4(b), 1.8 (h)(1) and (2), 8.3(a), 8.4(c); RI-2, RI-88.
TEXT
A law firm has asked whether the following arbitration clause in a retainer agreement violates the ethics codes and rules:
"At the lawyer's request, any dispute or disagreement arising between client and lawyer arising under, out of, in connection with, or in relation to this agreement, or otherwise, will be determined and settled by arbitration in Detroit, Michigan in accordance with the rules of the American Arbitration Association and notwithstanding any other provision of this paragraph or said rules, all such disputes and disagreements shall be decided pursuant to the Michigan Arbitration Act (MCLA 600.5001 et seq., as it may hereafter be amended) and a judgment of any court or competent jurisdiction may be rendered upon the decision of the arbitrator(s)."
The law firm has not posed a question about the application of a specific rule to the arbitration clause. The law firm has not posed questions about any other clauses of the retainer agreement.
A previous opinion on lawyer ethics considered a similar issue. In RI-2, a lawyer requested an opinion regarding the propriety of a fee agreement's arbitration clause (requiring arbitration, in compliance with MCL 600.5001, of any and all claims or disputes arising out of the lawyer's representation). The Committee opined that MRPC 1.8(h)(1) applied and that a client must obtain independent counsel concerning the advisability of entering into a fee agreement including an arbitration clause.
An arbitration clause contained in a fee agreement is governed, in part, by MRPC 1.8(h)(1) which states:
"A lawyer shall not:
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"(1) make an agreement prospectively limiting the lawyers liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement; or
"(2) 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."
A client, therefore, must be given an opportunity to obtain independent counsel as to whether to enter into a fee agreement containing an arbitration clause. The lawyer who offers a fee agreement containing an arbitration clause must explain to the client that the client independent counsel is appropriate. MRPC 1.4(b). The explanation must include information reasonably necessary to permit the client to make an informed decision.
A lawyer may not make an agreement restricting a party from reporting to the Attorney Grievance Commission information concerning a lawyer's ethical misconduct. RI-88. An arbitration clause in a fee agreement, therefore, cannot be drafted so broadly as to preclude a party from bringing to the attention of the Attorney Grievance Commission information concerning a lawyer's ethical misconduct. See MRPC 8.3, 8.4(c).
MRPC 1.8(h)(2) states:
"A lawyer shall not:
An arbitration clause, therefore, cannot work a settlement of the lawyer's malpractice liability with an unrepresented or former client without first advising such client in writing that independent representation is appropriate.
In this situation, the arbitration clause is broadly worded so that it purports to govern "any dispute or disagreement arising between client and Attorney arising under, out of, in connection with, or in relation to this agreement, or otherwise." Emphasis added. In light of its broad language as well as its reference to disputes other than those relating to fees, the arbitration clause may be interpreted to impermissibly: (a) prevent a client from obtaining independent counsel's advice as to whether the client shall enter into the fee agreement; (b) prevent the client from reporting to the Attorney Grievance Commission information concerning a lawyer's ethical misconduct; (c) prospectively limit a lawyer's legal malpractice liability unless permitted by law and unless the client has the advice of independent counsel; and (d) work a settlement of the lawyer's malpractice liability with an unrepresented or former client; before doing so such client must first be advised in writing that independent representation is appropriate.