NEWARK, N.J. (Legal Newsline) – New Jersey lawyers who include arbitration clauses in their contracts should take note of a recent state Supreme Court decision.
That’s because the court noted its Dec. 21 decision might be a surprise to firms that thought their clauses complied with existing case law, given that it requires firms to explain the advantages and disadvantages of arbitration to their clients.
But it won’t be applied retroactively, except for in the case that was the subject of the opinion.
“The opinion we issue today is not a break with established precedent, and the professional principles we apply to the unique facts of this case are not foreign to our jurisprudence,” Justice Barry Albin wrote.
“Our ruling is foreshadowed by ABA Formal Opinion 02-425 and opinions issued by courts and professional ethics committees in many other jurisdictions that have addressed the issue.
“Nevertheless, the retroactive application of our ruling today may not have been reasonably anticipated and would disturb the settled expectations of many lawyers throughout our state, who genuinely believed that an arbitration provision that met the standards of such cases as Flanzman, Kernahan, and Atalese would satisfy the requirements of our (Rules of Professional Conduct).”
The case concerned Newark’s Sills Cummis & Gross, which was retained by businessman Brian Delaney in 2015. The agreement said any dispute about legal services or fees would be determined by arbitration.
It contained a hyperlink to 33 pages of JAMS rules governing the arbitral forum. No one provided a hard copy or advised Delaney on the advantages and disadvantages of arbitration.
Ultimately, the two sides argued over fees. While arbitration was ongoing, Delaney filed a legal malpractice lawsuit against the firm that alleged the arbitration clause violated the Rules of Professional Conduct.
Though a trial court sided with the firm, the state’s appellate levels both ruled for Delaney.
“For an arbitration provision in a retainer agreement to be enforceable, an attorney must generally explain to a client the benefits and disadvantages of arbitrating a prospective dispute between the attorney and client,” the opinion held.
“Such an explanation is necessary because, to make an informed decision, the client must have a basic understanding of the fundamental differences between an arbitral forum and a judicial forum in resolving a future fee dispute or malpractice action.”
The court ruled that law firms differ from other companies when it comes to arbitration clauses because they serve in a fiduciary role.
“All fiduciaries are held to a duty of fairness, good faith and fidelity, but an attorney is held to an even higher degree of responsibility in these matters than is required of all others,” the decision says.
“Above all else, a lawyer’s fiduciary role requires that the lawyer act fairly in all dealings with the client and provide the client with not only complete and undivided loyalty, but also with advice that will protect the client’s interests.”