Hello everyone and welcome to this edition of the JACPA Ethics Alert. This Ethics Alert will discuss the interesting recent case of Johnson, Pope, Bokor, Ruppel & Burns, LLP v. Forier, 67 So.3d 315 (Fla. 2d DCA 2011) (rehearing denied August 17, 2011) wherein the 2nd DCA found that an arbitration clause in a legal representation letter which required arbitration of legal malpractice disputes was valid and enforceable and did not violate public policy.
According the opinion, a long-time client of the Johnson Pope law firm approached a firm lawyer in 2007 for representation as the seller in a real estate transaction. The client wanted to close by June 2007, but the lawyer told him that, since there were multiple parcels of land and liquor licenses involved in the sale, it would take four months and at least two lawyers to complete the work. The client then asked the lawyer to prepare a form so that he and the buyer (Forier) could negotiate the deal themselves.
During the negotiations, the client requested that the lawyer create legal entities for Forier because he (Forier) wanted to transfer the property to those entities at the closing and the lawyer agreed. There was a discrepancy in the record as to the extent of the lawyer’s representation from that point forward; however, the record showed that on the closing date, the seller (client) and buyer (Forier) were pressuring the lawyer to represent Forier. The client agreed to waive the conflict of interest and encouraged the lawyer to represent Forier so that the parties could close. The lawyer then “quickly” created a representation letter that included the following arbitration clause:
“You agree that any controversy, dispute, or claim between us, whether based on this agreement, on the timely payment of fees, on a claim of inadequate representation, or on any other grounds, shall be resolved exclusively through binding arbitration before a board of arbiters consisting of three attorneys, all of whom shall be members of the Clearwater Bar Association or Hillsborough Bar Association. One of the three attorneys shall be appointed by our firm, another attorney shall be appointed by you, and the two appointed attorneys shall appoint a third attorney. The arbitration shall be governed by Florida law as provided in Chapter 682 of the Florida Statutes.”
Forier signed the representation letter; however, before signing it, he insisted that there be an addendum stating that he had paid the lawyer in full for the documentation for creating the entities. The lawyer signed the addendum acknowledging payment and the closing was completed.
After the closing, Forier filed a malpractice complaint against the lawyer and the law firm alleging, inter alia, that all of the parcels of land were not included in the closing document and the law firm filed a motion to compel arbitration pursuant to the fee agreement. After a non-evidentiary hearing on the motion, the trial court denied the motion to compel arbitration and directed the law firm to respond to Forier’s complaint.
The 2nd DCA issued an initial per curiam opinion in October 2009 reversing the trial court’s order denying the law firm’s motion to compel arbitration and stated that “(t)he circuit court’s order denying the motion to compel arbitration expressly acknowledged the existence of disputed issues of fact concerning the making of the agreement to arbitrate. Accordingly, the circuit court is required to conduct an expedited hearing in order to resolve the matter.”
The trial court held an evidentiary hearing and issued an order which made two conclusions of law: (1) the arbitration clause is neither substantively nor procedurally unconscionable and (2) enforcement of the arbitration clause on the facts of this case violates public policy of the State of Florida.
The 2nd DCA opinion framed the issue as follows: “whether an arbitration clause that is part of a legal services contract between an attorney and a client and which requires arbitration of legal malpractice claims violates Florida’s public policy.” The opinion noted that a trial court order denying a motion to compel arbitration is reviewed de novo and, “(i)n determining whether a dispute is subject to arbitration, courts consider at least three issues: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived.
The court stated that it was “not aware of any Florida cases holding that it is against public policy for an attorney to include a clause in a legal services contract requiring arbitration of legal malpractice disputes…(or) any constitutional or statutory provisions prohibiting these agreements on public policy grounds.” “While there are arguably ethical issues that arise in this type of contract, there is currently no Florida Bar Rule which prohibits this sort of agreement (citation omitted).
The opinion concluded: “(t)he trial court found that the representation agreement and the arbitration clause were neither substantively nor procedurally unconscionable. The court also found that Mr. Forier was a sophisticated businessman who read the agreement and that Mr. Forier’s signature was at the bottom of the agreement. The court’s sole reason for invalidating the arbitration agreement on public policy grounds was Mr. Larson’s failure to point out the arbitration clause to Mr. Forier; however, we find no legal support for this position.” The case was reversed and remanded for further proceedings consistent with the opinion.
Bottom line: If a lawyer is considering a clause in a fee agreement requiring mandatory arbitration of legal malpractice disputes, this opinion found that such clauses are not against public policy and are enforceable in court proceedings (if they are not substantively nor procedurally unconscionable).
As I have previously discussed, the 2007 revision to Florida Bar Rule 4-1.5 subsection (i) permits mandatory arbitration clauses in fee agreements with specific disclosure language in bold type; however, the rule does not specifically address or authorize mandatory arbitration of legal malpractice claims and, as was stated in the opinion, there are no current Florida Bar Rules that address this issue. Rule 4-1.5(i) is attached to this Ethics Alert.
Be careful out there!
As always, if you have any questions about this Ethics Alert or need assistance, analysis, and guidance regarding these or any other ethics, risk management, or other issues, do not hesitate to contact me.