Supreme Court Declines Case on Attorney-Client Arbitration Provisions

By Sara Higgins

A surprise term-ending addition by the U.S. Supreme Court on June 25 brought the number of arbitration cases for its fall 2018-2019 term to three.  See Lewis Tan, “Ready To Reverse? Supreme Court Will Revisit Class Arbitration,” 36 Alternatives 98 (July/August 2018)(available at https://bit.ly/2JnrFWf).

It could have been even more.

On that same day, the U.S. Supreme Court rejected an additional arbitration case that could have changed the relationship between lawyers and their clients when it comes to arbitration. But the denial of certiorari means a Maine case that requires a heightened level of description by lawyers as to the effects of an arbitration provision stands for practitioners in the state.

In Snow v. Bernstein, Shur, Sawyer & Nelson, P.A., 2017 ME 239 (2017)(available at  https://bit.ly/2zSfDEZ), cert. denied, No. 17-1279, 2018 WL 1306038 (U.S. June 25, 2018), a dispute arose between a law firm, Bernstein, Shur, Sawyer & Nelson, P.A., and Susan Snow, a client who retained the firm in May 2012 to represent her in a civil action.

In hiring the firm, Snow signed an engagement letter that required her to submit all disputes arising out of or relating to the agreement or the services provided by the law firm, including malpractice, to binding arbitration.

Snow filed a malpractice suit against the firm for allegedly mishandling her case. Bernstein moved to compel arbitration under the engagement agreement, but Snow contested that, when signing the agreement, she was not informed of the specific rights she was signing away.

The Maine Superior Court awarded Snow’s motion to stay arbitration, and the decision was upheld by Maine’s Supreme Judicial Court of Maine. But the U.S. Supreme Court denied Bernstein’s appeal for writ of certiorari.

In upholding the Maine Superior Court’s decision, the state’s Supreme Judicial Court found the arbitration provision to be unenforceable as a matter of public policy. Bernstein’s argument was twofold.

First, the Portland, Maine-based firm contended that the arbitration agreement was enforceable because the clear language—“any other dispute that arises out of or relates to this agreement or the services provided by the law firm”—“unambiguously informed Snow” of the arbitration agreement’s scope and effect.

Second, Bernstein argued that if Maine attorneys are obligated to obtain informed consent from clients before entering into arbitration agreements, such an obligation “singles out” arbitration agreements and is preempted by the Federal Arbitration Act.

The Supreme Judicial Court rejected both of Bernstein’s arguments. On the first point, the Court determined that under the Maine Rules of Professional Conduct, Bernstein was obligated to fully inform Snow as to the scope and effect of the arbitration agreement. Citing fiduciary-duty rules, and informed consent, as well as Maine Ethics Commission opinions, the Court concluded:

[T]o enforce a contractual provision that prospectively requires a client to submit malpractice claims against the law firm to arbitration, an attorney must have first obtained the client’s informed consent as to the scope and effect of that provision. This policy is based on the long-standing principal that attorneys owe a fiduciary duty of “undivided loyalty” to their clients[.]

Snow v. Bernstein, Shur, Sawyer & Nelson, P.A., 2017 ME 239, ¶ 18, cert. denied, No. 17-1279, 2018 WL 1306038 (U.S. June 25, 2018).

Given this consideration, the Court held that Maine attorneys must obtain a client’s informed consent regarding the scope and effect of any contractual provision that prospectively requires the client to submit malpractice claims against those attorneys to arbitration.

To obtain the client’s informed consent, the attorney “must effectively communicate, . . . [and] ensure that the client understands, the differences between the arbitral forum and the judicial forum . . . to ensure that the client is informed ‘to the extent reasonably necessary to permit the client to make [an] informed decision[].” Snow, 2017 ME 239, ¶ 19 (citation omitted).

This will differ depending on the individual client’s capacity to understand that information. In this instance, the Court examined the context of the arbitration provision and determined that the phrase “any other dispute that arises” was essentially buried in a larger clause describing fee dispute resolution.

The Court did not find Bernstein’s argument compelling because, when read in context, the arbitration provision was not sufficiently clear to inform Snow that she was agreeing to submit malpractice claims against her attorney to arbitration. Bernstein was obligated to explain to Snow what rights she was signing away in the arbitration provision, including the availability of bringing malpractice claims in court, and the difference between arbitral and judicial forums.

Ultimately, “the letter itself failed to specifically emphasize that disputes against Bernstein regarding its legal services would be subject to arbitration.” The undisputed evidence supported the conclusion that Bernstein did not fully inform Snow as to the scope and effect of the agreement to arbitration, as required by the Maine Rules of Professional Conduct and the Maine Professional Ethics Commission opinions interpreting those rules. Snow, 2017 ME 239, ¶ 22. The Superior Court therefore did not err in concluding that the arbitration provision was unenforceable for violating public policy, according to the Supreme Judicial Court.

On the second point, if there exists an obligation for Maine Lawyers to obtain informed consent from clients before entering arbitration agreements with their clients, Bernstein argued that this obligation violates the Federal Arbitration Act because it “singles out” arbitration.

Bernstein’s argument relied heavily on the Doctor’s Associates case, in which the U.S. Supreme Court held that “Congress precluded States from singling out arbitration provisions for suspect status, requiring instead that such provisions be placed upon the same footing as other contracts.” Snow, 2017 ME 239, ¶ 25, quoting Doctor’s Assocs. Inc. v. Casarotto, 517 U.S. 681 (1996). Therefore, Maine’s top Court noted, in instances where a state law single out arbitration contracts specifically, the FAA will preempt that state law. Id.

But the Maine Supreme Judicial Court did not accept Bernstein’s contention, holding that the requirement in question does not single out arbitration because the requirement does not apply strictly to arbitration agreements.

The obligation to obtain informed consent of one’s client before waiving significant rights is unrelated to arbitration in particular, “and is rooted” in fiduciary duty principles “unrelated to arbitration.”

Accordingly, the Superior Court did not err in concluding that Bernstein’s obligation to full inform Snow of the scope and effect of the arbitration agreement was not preempted by the Federal Arbitration Act.

Bernstein’s last shot at an appeal, by writ of certiorari to the Supreme Court, was denied last month. The result is that the requirement by the Supreme Judicial Court that Maine attorneys fully inform a client of the scope and effect of a contractual provision requiring the client to submit any malpractice claims against the firm to arbitration stands.

 

The author is a 2018 CPR Institute summer intern.

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