Supreme Court to the bar: You have a heightened duty to inform clients in order to defend an enforceable arbitration provision
Attorneys are “held to an even higher degree of responsibility” than vendors in a typical commercial transaction, which requires the attorney to generally explain to a client the benefits and disadvantages of arbitrating a prospective dispute between the attorney and client, said a unanimous Supreme Court in Delaney v. Dickey, Docket No. A-30-19. The decision, handed down on Dec. 21, 2020, prospectively imposes this obligation on attorneys who include an arbitration clause in their retainer agreements.
The New Jersey State Bar Association (NJSBA) participated as amicus in the matter to urge the Supreme Court to reverse an Appellate Division decision expanding the requirements of the Rules of Professional Conduct to require such explanation. The NJSBA noted any such expansion should be done through the rulemaking process and should be applied only after attorneys are put on notice.
“An attorney’s professional and fiduciary obligations require scrupulous fairness and transparency in dealing with clients—requirements different from the typical norms that regulate arm’s-length commercial transactions between vendors and customers,” said Justice Barry T. Albin, who authored the opinion. Justice Albin relied upon the Rules of Professional Conduct 1.4 for this holding.
In affirming and modifying the Appellate Division, the Supreme Court remanded the matter to the Law Division to allow the underlying malpractice action to proceed in the Law Division. The Court further pointed out that, while it permitted the instant case to proceed, the decision is prospective. The Court referred the matter to the Advisory Committee on Professional Ethics, “which may propose further guidance on the scope of an attorney’s disclosure requirements.” The decision aligns with the NJSBA’s amicus filing that such requirements are not specifically required under the Rules of Professional Conduct, and requires “committee consideration and public commentary.”
“In deciding the matter at bar, the Appellate Division engaged in improper rulemaking, a function that is exclusively reserved for this court following committee consideration and public commentary,” said the NJSBA in its brief. Andrea J. Sullivan, a former NJSBA trustee and current superior court judge, and Kersten Kortbawi authored the brief. Solo and Small Firm Section Chair William Denver argued the matter for the NJSBA.
Brian Delaney was a businessman who frequently retained lawyers to assist him in his multi-million-dollar business deals. He retained Sills Cummis to represent him in two lawsuits, and was asked to sign a three-page retainer agreement that included an arbitration clause just above the signature line. The clause referenced a 32-page document—the rules of the JAMS arbitration procedures—but the agreement did not attach the document, nor was it reviewed by the plaintiff in advance of him signing the agreement. Delaney later terminated Sills Cummis, which filed an arbitration action to recover its fees. On the eve of settlement, Delaney filed a legal malpractice action in superior court, which ruled the fee agreement’s arbitration clause was enforceable. The Appellate Division vacated the trial court’s order and remanded the matter back to the lower court.
The Court referenced a formal opinion issued by the American Bar Association, which construes the model rule on which RPC 1.4(c) is patterned to hold that binding arbitration of disputes did not violate the RPCs “provided that the client has been fully apprised of the advantages and disadvantages of arbitration and has given her informed consent to the inclusion of the arbitration provision in the retainer agreement.”
The Court held that the attorney must explain to the client the differences between the two forums so the client can make an informed decision. Examples include the fact that there is no right to broad discovery; the JAMS rules limit each party to one deposition of an opposing party or of one individual under the control of the opposing party and the necessity of additional depositions is determined by the arbitrator; the initiating party and the party filing a counter claim must pay a $1,500 filing fee and the parties are jointly and severally liable for the costs of arbitration and the arbitrator’s compensation; and the availability or unavailability of punitive damages.
The entire opinion is available at njcourts.gov, and the NJSBA amicus brief is available at njsba.com.
This is a status report provided by the New Jersey State Bar Association on recently passed and pending legislation, regulations, gubernatorial nominations and/or appointments of interest to lawyers, as well as the involvement of the NJSBA as amicus in appellate court matters. To learn more, visit njsba.com.