Client’s Informed Consent On Arbitration Clause Was Determinative.
In Smith v. Lindemann, No. 16-3357 (3d Cir. 2017) (non-precedential), an individual sued her former divorce attorney for malpractice even though the services agreements contained a standard arbitration clause saying that the parties “agree to submit such disagreements in binding arbitration.” The lower court enforced the clause, but the client appealed to the Third Circuit claiming that the agreement should be invalidated under New Jersey law and the New Jersey Rules of Professional Conduct.
The Third Circuit did not disturb the result. It concluded that the Federal Arbitration Act (FAA) “federalizes” arbitration law and generally controls unless there is a strong state law argument such as fraud, duress, or unconscionability. The problem is that ex-client could not identify any New Jersey law invalidating arbitration for malpractice claims and had informed consent on the arbitration provision so as to negate any issue that state rules of professional conduct were contravened.
BLOG OBSERVATION—One important warning point on this issue is that an attorney must check with their malpractice insurer to see if arbitration clauses are proper. Some insurers do not allow such clauses to retainer agreements—so check ahead of time! We thank ABA’s Litigation News, in a February 5, 2018 post by Benjamin E. Long, for providing a discussion of this case and its implications.