Arbitration of malpractice claims is alive and well

Last month, Brian R. Condon proposed that the State Bar of California substitute his judgment for that of California's Standing Committee on Professional Responsibility and Conduct (COPRAC), by "adopt[ing] a public policy that arbitration clauses between California licensed attorneys and their clients are disfavored and should not be enforced." Mr. Condon argued that it should be unethical for attorneys to include mandatory arbitration provisions in fee agreements because attorneys require clients to submit to arbitration as a mechanism to shield from the public their unscrupulous practices.

Mr. Condon argued that "[t]here appears to be a newfound appreciation that mandatory arbitration clauses are systematically bad." He cited as authority for this argument recent voluntary decisions by Facebook and Google to stop requiring their employees to arbitrate claims of sexual harassment. Although arbitration in the employer-employee context has been the source of many writings the last couple of years, Mr. Condon mixed apples and oranges and his analysis must be rejected.

Brief History of Arbitration Clauses

Mr. Condon's analysis is shortsighted and contrary to settled California law. California law "reflects a strong policy favoring arbitration agreements." Cox v. Bonni, 30 Cal. App. 5th 287, 303 (2018), citing Saint Agnes Med. Ctr. v. PacifiCare of Cal., 31 Cal. 4th 1187, 1204 (2003) (California maintains a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution). COPRAC has twice analyzed this public policy in connection with claims against attorneys for legal malpractice. In State Bar Formal Opinion No. 1977-47, more than 40 years ago, COPRAC found nothing ethically improper with a lawyer including a mandatory arbitration agreement in his or her attorney-fee agreement. COPRAC cautioned attorneys to advise their clients about the consequences of an arbitration provision and to seek independent counsel so as to avoid the appearance of impropriety.

In 1989, COPRAC revisited its earlier opinion in State Bar Formal Opinion No. 1989-116. COPRAC explained: "The public policy underlying arbitration as a means of resolving civil disputes is well established." COPRAC cited the California Supreme Court in Madden v. Kaiser Foundation Hospitals, 17 Cal. 3d 699, 706 (1976), explaining the benefits to all parties who choose to engage in arbitration as a means to adjudicate disputes. Those benefits include cost control, speed, efficiency and finality. "The speed and economy of arbitration, in contrast to the expense and delay of jury trial, could prove helpful tall parties; the simplified procedures and relaxed rules of evidence in arbitration may aid an injured plaintiff presenting his case. Id. at 711.)

COPRAC's 1989 decision explained how arbitration economically benefits both an attorney and his or her client: "Any assumption that arbitration favors the attorney's economic interests over those of the client's is directly contrary to the holdings of California cases. (See eg., Madden v. Kaiser Foundation Hospitals, supra, 17 Cal.3d at p. 712 [anticipated reduction of expenses by using arbitration is beneficial to both parties]. See also Baker v. Sadick, 162 Cal. App. 3d 618 (1984), and Tate v. Saratoga Savings and Loan Association, 216 Cal. App.3d 843 (1989) (allowing awards of tort and/or punitive damages in arbitration proceedings)." Ibid. see n.2. In the legal malpractice context, see Powers v. Dickson, Carlson & Campillo, 54 Cal. App. 4th 1102 (1997) (wherein the Court of Appeal affirmed such clauses).

The Faulty Assumptions Underlying the No-Arbitration Suggestion

Mr. Condon's article focused only on the privacy aspect of arbitrations. He believes privacy is bad public policy because it encourages wrongful conduct. The article assumed that just because a client cries foul, the lawyer must have done something wrong. Mr. Condon stated "[i]t does not behoove leaders in the legal profession to keep the public in the dark about lawyers who take advantage of clients."

Contrary to Mr. Condon's misplaced assumption, in defending lawyers we have seen hundreds of cases where attorneys are sued simply because a client does not want to pay an outstanding fee, or only because a client does not want to take personal responsibility for an unfavorable outcome. To be sure, the Supreme Court teaches that "When a business transaction goes awry ..., [i]t is far too easy to make the legal advisor a scapegoat for a variety of business misjudgments unless the courts pay close attention to the cause in fact element, and deny recovery where the unfavorable outcome was likely to occur anyway, the client already knew the problems with the deal, or where the client's own misconduct or misjudgment caused the problems." Viner v. Sweet, 30 Cal. 4th 1232, 1241 (2003). The same could be said when alleged malpractice arises from virtually any underlying type of transaction or litigation.

Arbitration clauses allow attorneys to protect their reputation and ensure that claims, which may or may not be meritorious, are not open to public scrutiny. Arbitration also encourages attorneys to represent litigious clients. Clients are also protected by arbitration's privacy protections. Many clients have taken Don Henley's "Dirty Laundry" to heart. Indeed, attorneys often represent public figures and/or parties in family law matters where there are no juries, who particularly may not want their dirty laundry aired in public.

Moreover, California Evidence Code Section 958 allows an attorney to use certain privileged information to defend against claims made by a client. Clients may be hesitant to sue an attorney for malpractice, where the attorney has learned embarrassing information from privileged communications with their clients. Arbitration allows clients to pursue these claims without fear that their private information will be made public.

At the minimum, clients should have the choice of going to binding arbitration. If they don't want to go arbitration in the future, they can ask their prospective lawyers to remove the clause, or go to another attorney. In some cases it maybe that a prospective client wants an arbitration clause, and the attorney does not. Of course, binding arbitration generally eliminates the right to appeal, and conventional wisdom suggests that arbitrators are less likely to grant a summary judgment motion than the average trial judge would be. The free market will rule.

Mr. Condon's apparent goal in establishing a public policy against arbitrations is to shame lawyers who are sued for malpractice, in an effort to deter ethical breaches. This offends the very nature of civil litigation, which is intended vindicate a right, and not to embarrass a defendant. Pfingston v. Ronan Engineering Co., 284 F.3d 999, 1006 (9th Cir. 2002) (the plaintiff pursues the litigation with an improper purpose, such as to annoy or embarrass the). Civil litigation is not even the appropriate forum to litigate an attorney's ethical breach, which does not result in damage to a client. Stanley v. Richmond, 35 Cal. App. 4th 1070 (1995); Blecher & Collins P.C. v. Northwest Airlines, Inc., 858 F.Supp. 1442 (C.D. Cal. 1994); California Rule of Professional Conduct 1.0.

California's State Bar and its attorney-discipline procedures already adequately serve that function. The Rules of Professional Conduct along with the State Bar Act already require an attorney to self-report sanctions, certain felony and misdemeanor convictions, and having been sued for malpractice three times in a single year. B&P Code Section 6068(o)(3). The rules also require reporting where there is a judgment against a lawyer for breach of fiduciary duty or fraud. B&P Code Section 6068(o)(4). Lawyers are also forbidden from seeking a client or former's client's consent to not report the attorney's misconduct to the State Bar (B&P Code Section 6090.5) or from making a settlement agreement contingent upon a client withdrawing a complaint to the State Bar. Id.

Conclusion

Forcing all claims arising from the attorney-client relationship to be litigated in court is the classic, "throwing the baby out with the bathwater" approach that will lead to only more litigation. There is no need for such a short-sighted rule, which violates public policy.

Mr. Condon's analysis should be flatly rejected.