First Circuit Enforces Arbitration Clause in LPL Suit

Professional Liability Matters has previously advocated the benefits of a well-drafted mediation or arbitration agreement in the professional engagement letter. The judicious application of alternative dispute resolution can help to mitigate costs, expedite conflict, and preserve business relationships. Although an ADR provision can lead to efficient resolution of the substance of a professional liability suit, invoking the provision itself can sometimes lead to contentious litigation in its own right.

The question of the enforceability of an arbitration agreement in a professional engagement letter was recently considered by the First Circuit Court of Appeals in Bezio v. Draeger. There, in response to a claim of malpractice arising under the Maine Unfair Trade Practices Act, the attorney defendants moved to enforce an arbitration provision in their engagement letter. According to their agreement, any dispute relating to the representation may be subject to binding arbitration at the election of either party. The plaintiff/client, however, asserted that the arbitration provision was unenforceable on the grounds that it violated the rules of professional conduct because the attorneys had failed to properly advise them of the risks and consequences of such a clause.

On appeal, the First Circuit noted that the rules of professional responsibility prohibit agreements that prospectively limit attorney liability. However, based upon an advisory opinion from the Maine Professional Ethics Commission, the court held that arbitration agreements that require a neutral forum in which to adjudicate a lawyer’s liability, do not violate this rule.

The court further addressed the advice a lawyer must give a client regarding the effects of an arbitration clause, and held that an attorney need not advise the client to consult with independent counsel about the existence of an arbitration or mediation clause. Accordingly the Circuit Court upheld the agreement to arbitrate.

This case serves as a reminder that professionals should always be sure to initiate the client relationship with a full and frank discussion of the goals and terms of the engagement and the responsibilities of the professional and client. By clearly setting forth the conditions, scope and limitations of the engagement at the outset, professionals can often avoid future conflict, and help to ensure the enforceability of the agreed upon conditions of the relationship.