Editor's Note:
State Bar Ethics Opinions cite the applicable California Rules of Professional Conduct in effect at the time of the writing of the opinion. Please refer to the California Rules of Professional Conduct Cross Reference Chart for a table indicating the corresponding current operative rule. There, you can also link to the text of the current rule.
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May an attorney ethically include binding arbitration provisions in attorney/client retainer agreements?
An attorney may not condition employment on a client's acceptance of binding arbitration in advance of a dispute arising over fees. A client and an attorney may voluntarily agree in writing to arbitrate a fee dispute and waive their right to appeal the arbitrator's decision only after a fee dispute arises.
Rules 2-101(A)(2), 2-101(C), 5-101 and 6-102 of the Rules of Professional Conduct of the State Bar.
Business and Professions Code sections 6200-6206; Civil Code section 3513; Code of Civil Procedure sections 1141.10-1141.32.
The Committee has been asked whether an attorney and client may enter into a written agreement which contains the following provisions:
"Should any disagreement arise with regard to fees and/or costs, both parties agree to submit to arbitration by the agency approved for same by the State Bar of California and to be bound by its findings. CLIENT understands that by so doing, CLIENT and ATTORNEYS waive their right to have such dispute settled by a court of competent jurisdiction, but that such a court would be limited to confirmation and enforcement of the decision of the arbitrators."
Two major arbitration bills were enacted by the California legislature in 1978. Article 13, Arbitration of Attorney's Fees, was added by statutes, 1978, chapter 719. Business and Professions Code sections 6200 to 6206 relate to mandatory arbitration of attorney/client fee disputes. Chapter 2.5, Judicial Arbitration, was added by statutes, 1978, chapter 743. Code of Civil Procedure sections 1141.10 to 1141.32 relate to arbitration of certain civil disputes involving $15,000 or less. Because most attorney/client fee disputes involve less than $15,000, these disputes may therefore be subject to the provisions of both article 13 of the Business and Professions Code and chapter 2.5 of the Code of Civil Procedure, both of which the Committee has considered in arriving at its conclusion.
Business and Professions Code sections 6200-6206 became effective January 1, 1979 and require mandatory arbitration of attorney/client fee disputes upon request of the client. Section 6200, subdivision (a), provides, in pertinent part:
"The Board of Governors shall, by rule, establish, maintain and administer a system an(] procedure for the arbitration of disputes concerning fees charge(] for professional services by members of the State Bar or by members of the bar of other jurisdictions."
The Board of Governors, pursuant to said statutory mandate, adopted the "Rules of Procedure for the Hearing of Fee Arbitrations by the State of California" (hereinafter "the Rules").
The Rules provide a comprehensive procedure for arbitrating attorney/client fee disputes concerning fees charged for professional services rendered after January 1, 1979. (Bus. & Prof. Code, 6200, subd. (a).) Generally the Rules require local bar associations to arbitrate fee disputes in accordance with local rules of procedure. However, the rules of procedure established by local bar associations "are subject to review by the Board of Governors to insure that they provide for a fair, impartial and speedy hearing and award." (Bus. & Prof. Code, 6200, subd. (c).)
The Legislature, however, specifically excluded certain attorney/client disputes from the mandatory provisions of article 13 and the Rules:
(1) When the attorney has no place of business within the state and "no material portion of the services were rendered in the State of California" (Bus. & Prof. Code, 6200 subd. (a)(1));
(2) When a client ''seeks affirmative relief against the attorney or damages" or sues for "malpractice or professional misconduct" (Bus. & Prof. Code, 6200 subd. (a)(2));
(3) "Where the fee to be paid by the client ... has been determined pursuant to statute or court order" (Bus. & Prof. Code, 6200 subd. (a)(3));
(4) A client may not compel arbitration when an action is brought by an attorney in small claims court (Bus. & Prof. Code, 6200 subd. (b), 6201 subd. (b)).
The judicial arbitration provisions set forth at Code of Civil Procedure section 1141.10 et seq. provide for the mandatory submission to arbitration of certain civil proceedings (pending or filed after July 1, 1979) in superior courts with ten or more judges if the amount in dispute is less than $15,000. In superior courts with less than ten judges, and in all municipal courts, those courts may likewise provide, by local court rules, in the "interests of justice," a framework for arbitrating civil disputes. (Code Civ. Proc., 1141.11, subd. (b) and (c).) Arbitration of disputes under this chapter is governed by rules established by the Judicial Council (Code Civ. Proc., 1141.14) and necessarily involves the participation of the courts since the matters must be "at-issue" prior to the court compelling arbitration (Code Civ. Proc., 1141.11, 1141.12).
Inasmuch as the vast majority of attorneys' fees disputes involve less than $15,000, it is appropriate that any analysis of the question herein must be tested against both of the foregoing statutory schemes.
The principal issue is whether the proposed binding arbitration agreement contravenes either the letter and/or spirit of applicable provisions of Business and Professions Code sections 6200-6206. We do not feel the provisions of Code of Civil Procedure sections 1141.101141.32 are controlling for two reasons: first, sections 6200 et seq. of the Business and Professions Code provide a comprehensive framework for resolving disputes over attorneys' fees; second, the proposed binding arbitration agreement presented to the Committee contemplates arbitration under the "Rules of Procedure for the Hearing of Fee Arbitration by the State Bar of California" in that the client and attorney "agree to submit to [binding] arbitration by the agency approved for same by The State Bar of California." Arbitration under the Code of Civil Procedure is specifically regulated by the Judicial Council, not the State Bar (Code Civ. Proc., 1141.14).
The Committee's opinion is that a binding arbitration clause in which the client not only stipulates to arbitrate a potential fee dispute, but also stipulates that the results will be binding, is inconsistent with not only the "plain language" but also the underlying public policy reason behind section 6200, subdivision (b), and the related provisions of the Rules.
The principal public policy underlying the arbitration provisions is clearly stated at section 6200, subdivision (b), providing that arbitration "shall be voluntary for a client and shall be mandatory for an attorney if commenced by the client." Thus, if an attorney initiates arbitration of a fee dispute, the client's participation is wholly voluntary. Moreover, even if the client consents to arbitration, the client is still entitled to judicial review of the arbitrator's decision in a trial de novo (Bus. & Prof. Code, 6204, subd. (a)).
We feel that the suggested mandatory arbitration provision executed in advance of a fee dispute is contrary to the mandate and intent of Business and Professions Code section 6200 and the Rules. The Committee is of the opinion that the proposed agreement could be used as a precondition of employment and thus vitiate any probability of voluntary acquiescence.
Furthermore, it is the Committee's opinion that Business and Professions Code section 6200, subdivision (b), and the Rules were established to protect the consumer in general and, therefore, "for a public reason," and were not "intended solely for [a single client's] benefit." (Civ. Code, 3513.) Therefore, under Civil Code section 3513, this "cannot be contravened by a private agreement."
Another view, which is not the view of the Committee, is that an attorney and client may, with informed and written consent, agree at any time to arbitrate and, further, to be bound by the arbitrator's decision. This view is based on section 6204, subdivision (a), of the Rules of Professional Conduct which provides, in pertinent part, that an attorney and client "may agree in writing to be bound by the award of the arbitrators .... "It can be inferred that such an agreement can be entered at any time, even prior to a dispute between the parties arising. However, the structure of Article 13 of the Business and Professions Code suggests to the Committee that section 6204, subdivision (a), binding agreement may only be entered into if, and only after, a dispute over fees occurs and the client has been made fully cognizant of the dual right to arbitrate and judicial review, including a trial de novo, should the client be dissatisfied with the arbitrator's decision (Bus. & Prof. Code, 6204).
Additionally, there are several ethical rules the Committee considered in arriving at this opinion. First, rule 6-102 of the Rules of Professional Conduct prevents an attorney from even "attempt[ing] to exonerate himself from or limit his liability to his client for his personal malpractice."1 Second, rule 5-101 of the Rules of Professional Conduct provides that attorneys shall, in general, avoid entering into adverse relationships with their clients. Third, rule 2-101(C) of the Rules of Professional Conduct prevents an attorney from soliciting or accepting employment contrary to law (see discussion above). Fourth, rule 2-101(A)(2) of the Rules of Professional Conduct imposes a high ethical obligation on attorneys not to "present or arrange any matter in a manner or format which...tends to confuse, deceive or mislead the public." The Committee suggests that the proffered agreement may confuse and perhaps mislead the client.
This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of The State Bar of California. It is advisory only. It is not binding upon the courts, The State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.
1 To the extent opinion No. 1977-47 is inconsistent with this opinion, it is hereby disapproved. Additionally, opinion No. 1977-47 was adopted before the passage of rule 6-102 of the Rules of Professional Conduct.
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