Dispute Resolution Agreements Helpful Now Should Attorney/Client Problems Develop Later

Disputes between lawyers and their former clients have become increasingly common. Fee disputes often result in malpractice claims, and malpractice claims often generate issues concerning fees. These disputes can involve expensive, aggressive litigation that causes undue emotional and financial strain on both parties. To avoid court, some attorneys have begun including arbitration clauses in engagement letters and retention agreements to govern fee and other disputes that may arise between the attorney and client during the course of the relationship. Already, court rules in New Jersey and a statute in California promote the use of arbitration to resolve attorney/client fee disputes.

Since the attorney/client relationship is not formed until the terms of the engagement are agreed upon, there seemingly is no conflict of interest prohibition against the lawyer negotiating with the prospective client about a method for resolving possible disputes. Arbitration agreements are clearly favored in the law, and so long as they do not constitute unconscionable contracts of adhesion or are subject to other contract defenses, they should be enforceable. However, the attorney must fully explain the effects of the dispute resolution provision on the client's right to sue, and advise the client of his or her right to independent representation in conjunction with the agreement. Moreover, the agreement may not provide for final determination by alternative dispute resolution of breach of the lawyer's ethical rules. [See Michigan Ethics Opinions RI-196 (1994) and RI-257 (1996).]

Even when the attorney does not suggest a dispute resolution provision, it may very well be beneficial to the client to have such a mechanism in place. Once the relationship has terminated and a dispute has arisen, it is often difficult to agree on a satisfactory dispute resolution process outside of litigation. If the dispute resolution provision is proposed by a sophisticated client, any ethical dilemmas facing the attorney in agreeing to such a proposal are arguably minimized or eliminated. Moreover, it seems unlikely that most lawyers would resist a proposal urged by a prospective new client.

In particular, an agreement at the outset of the attorney/client relationship which includes arbitration as the final means of adjudicating any dispute can be especially advantageous to clients. Arbitration is often a quicker and less costly means to final resolution and offers privacy, reduced discovery, finality, and, perhaps most importantly, the ability to select the "judge." Thus, if the client so desires, the arbitrator(s) need not be attorneys.

Accordingly, corporations and other businesses should consider whether it is in their interest to require, as a condition of retaining counsel, that their lawyer agree to resolve some or all disputes arising out of the attorney/client relationship through a mechanism other than traditional litigation. A carefully drafted dispute resolution clause could substantially reduce the amount of time, cost and aggravation required to settle conflicts with former counsel.