Recent Illinois Case: Terra Foundation for American Art v. DLA Piper LLP

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The First District affirmed the dismissal of a legal malpractice case on statute of repose grounds.  The court held that, in both transactional and litigation malpractice cases, the statute of repose begins to run when the event giving rise to the malpractice claim occurs, regardless of whether an injury has occurred or been recognized.  The court rejected the argument that the statute does not begin to run in transactional malpractice cases until the last act of representation.

Terra Foundation for American Art v. DLA Piper LLP, 2016 IL App (1st) 153285.

(This is for informational purposes and is not legal advice.)

Recent Illinois Case: Ferris, Thompson and Zweig, Ltd. v. Esposito

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The Second District addressed whether a written fee splitting agreement must affirmatively state that both lawyers agree to assume joint financial responsibility.   Rule of Professional Responsibility 1.5(e)(1) requires lawyers to so agree and rule 1.5(e)(2) requires the client to “agree to the arrangement” in writing.

The circuit court dismissed a complaint attempting to enforce a fee splitting agreement based upon the failure of the written agreement to contain financial responsibility language. The opinion is somewhat confusing because the defendant did not file an appellate brief.

The Second District held that the appellant’s brief demonstrated prima facie reversible error, and it appears to conclude that it is not necessary for the written agreement to contain financial responsibility language.

Ferris, Thompson and Zweig, Ltd. v. Esposito, 2016 IL App (2d) 151148.

(This is for informational purposes and is not legal advice.)

Recent Illinois Case: In re Estate of Zeid v. Hays and Aronberg Goldgehn Davis & Garmisa

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In this unpublished opinion, the First District analyzes several malpractice claims to determine whether they were properly dismissed as time barred. For the most part, the analysis turned on whether the various claims related back to a timely filed complaint. In turn, that analysis turned on whether the various claims did or did not arise out of the same transaction as the timely complaint.

In re Estate of Zeid v. Hays and Aronberg Goldgehn Davis & Garmisa, 2016 IL App (1st) 153275-U.

(This is for informational purposes and is not legal advice.)

Arbitration of Attorney Malpractice Claims

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by Joshua E. Liebman and Alexander L. Berg

Originally published by the ABA Section of Litigation Professional Services Liability Website, June 8, 2016 – ©2016 by the American Bar Association.

Numerous legal malpractice cases were filed against lawyers and law firms in 2015. Several were highly publicized and had large verdicts. See, e.g., Adrianne Appel, “4 Big Malpractice Cases in 2015: From Weird to Wildly Costly,” Bloomberg Law, Dec. 20, 2015. What can a lawyer do (besides providing appropriate legal advice) to keep himself or herself out of the courtroom in a malpractice case? The answer may be to include a provision in the lawyer’s retainer agreement that requires the binding arbitration of malpractice claims. This article explores this course of action and some of the positive and negative aspects of doing so.

The Basics
Most states permit a lawyer to include in his retainer agreement with a client a provision that requires the binding arbitration of malpractice claims (and fee disputes) provided that certain conditions are met. First, the lawyer must fully apprise the client of the advantages and disadvantages of binding arbitration and give the client enough information so that the client can make an informed decision about this issue. Second, the arbitration provision cannot limit the liability to which the lawyer would otherwise be exposed under common or statutory law unless the client is independently represented in making the agreement. While these guidelines generally apply, a lawyer should check state-specific rules and decisions before deciding to include such a provision in a retainer agreement.

In Illinois, for example, where we principally practice, the Rules of Professional Conduct and recent case law have touched on this issue. Illinois Rule of Professional Conduct 1.8(h)(1) states that a lawyer shall not “make an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement.” Comment 14 to the Rule provides the reasoning for this — noting that such an agreement is “likely to undermine competent and diligent representation.” Further, this comment notes that “many clients are unable to evaluate the desirability of making such an agreement before a dispute has arisen.” The comment also notes that it does not “prohibit a lawyer from entering into an agreement with the client to arbitrate legal malpractice claims, provided such agreements are enforceable and the client is fully informed of the scope and effect of the agreement.” Recent Illinois cases are in accord: Woods v. Patterson Law Firm, P.C., 381 Ill. App. 3d 989, 997 (1st Dist. 2008) (holding that while an arbitration provision related to a malpractice claim was valid, the law firm waived it by actively participating in the discovery process in furtherance of a filed lawsuit), and Davis v. Fenton, 26 F. Supp. 3d 727, 739-40 (N.D. Ill. 2014) (holding that an arbitration clause in the retainer agreement was valid and not substantively unconscionable). In both cases, the courts held that arbitration clauses related to attorney malpractice claims are enforceable in Illinois.

Similarly, the American Bar Association Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 02-425, finding that retainer agreements that require binding arbitration are permissible under the Model Rules of Professional Conduct provided certain conditions are met.

Other courts have found a binding arbitration provision in a retainer agreement unenforceable. Very recently in Batoff v. Widen, No. 02350, the Philadelphia Court of Common Pleas found a retainer agreement’s arbitration clause unenforceable because it was in an addendum attached to the agreement that was not signed or initialed by the client and it did not contain language providing notice of the rights that the client was waiving. The court reached this finding in spite of the client being a sophisticated businessman and former attorney. The Batoff court analyzed two other cases, Sanford v. Bracewell & Guilliani,LLP, 6 F. Supp. 3d 568 (E.D. Pa. 2014) reversed and remanded, 618 F. App’x. 114, 116 (3d Cir. 2015), and Hodges v. Reasonover, 103 So. 3d 1069 (La. 2012), that discussed disclosure requirements for an enforceable arbitration provision. The Hodges court, for example, found that for a binding arbitration provision related to legal malpractice claims to be valid, “[a]t a minimum, the attorney must disclose the following legal effects of binding arbitration, assuming they are applicable:

Waiver of the right to a jury trial;
Waiver of the right to an appeal;
Waiver of the right to broad discovery under the Louisiana Code of Civil Procedure and/or Federal Rules of Civil Procedure;
Arbitration may involve substantial upfront costs compared to litigation;
Explicit disclosure of the nature of claims covered by the arbitration clause, such as fee disputes or malpractice claims;
The arbitration clause does not impinge upon the client’s right to make a disciplinary complaint to the appropriate authorities;
The client has the opportunity to speak with independent counsel before signing the contract.”

Hodges, 103 So. 3d at 1077.

Attorneys who wish to include a binding arbitration provision related to malpractice claims in their retainer agreements should make sure they are fully informing the client of the advantages and disadvantages of binding arbitration and giving the client enough information for the client to make an informed decision.

Insurance Issues
Another important consideration before an attorney decides to include a binding arbitration provision in a retainer agreement is how it may affect his or her malpractice insurance. It is extremely important that an attorney review his or her insurance policy and discusses this issue with the insurer to avoid mistakenly invalidating malpractice coverage. It is also worthwhile to see if the insurer has a position on binding arbitration provisions. Some insurers have issued advisory opinions about this issue that may offer valuable insight to the attorney. It is best practice to get written consent from an insurer before  deciding to include an arbitration clause that covers malpractice claims in a retainer agreement.

Pros and Cons
As with most decisions, there are pros and cons to electing arbitration over traditional litigation. Further complicating the issue, whether a factor is a pro or a con may differ for each attorney or firm. Below we explore the factors that attorneys should consider when weighing whether to include a binding arbitration provision in a retainer agreement.

Private and confidential. Arbitration is private by nature. Thus, it enables lawyers to limit public disclosure of otherwise confidential information when attempting to recover fees or defending malpractice claims. In addition, it protects the law firm’s reputation, which may be damaged immediately upon the public filing of a malpractice suit regardless of the strength of the claim.

Costs. Arbitration, generally, should be less expensive than traditional litigation. Although the parties are required to pay up-front administrative fees and the arbitrator’s (or arbitrators’) hourly rate, the overall cost of arbitration from filing through resolution should be less because discovery and motion practice typically are limited. That being said, if the law firm has a strong dispositive motion to dismiss, it may be less expensive to litigate in court. That is because the arbitrators may prohibit motion practice, preferring to allow all the facts and legal issues to be addressed at trial.

No jury. Binding arbitration avoids the risks associated with a jury trial. Those risks include having the case decided by a jury of unsophisticated individuals who may not understand some of the complex issues that arise in a legal malpractice case. There also is a perception that jurors are predisposed to dislike or distrust attorneys. Thus, as a general rule, a legal malpractice defendant is better off with an arbitrator — typically another lawyer or a former judge — making the final determination as opposed to a jury primarily comprising non-lawyers. On the other hand, because arbitrators are allowed to exercise discretion and do not face substantive appellate review, they may be subject to outside influences or apply principles of equity to reach what they perceive to be a fair resolution.

Input in selecting the arbitrator. In addition to having an attorney or judge make the final determination, arbitration also is beneficial because the defendant attorney will be involved in selecting the arbitrator. This stands in stark contrast to the random appointment of a judge or panel of potential jurors in court. Having input in the selection process enables the parties to attempt to identify an arbitrator with experience handling legal malpractice cases. Of course, the plaintiff also will be involved in selecting the arbitrator and, if the law strongly favors the plaintiff’s case, having an experienced arbitrator may benefit the plaintiff as much, if not more, than the defendant attorney.

Expeditious resolution.
Arbitration will likely be resolved more expeditiously than a court case. For example, according to the 2014 Annual Report of the Illinois Courts, lawsuits seeking jury verdicts in an amount over $50,000 filed in the Circuit Court of Cook County, Chicago, Illinois, on average spanned 37.5 months from complaint to verdict. By contrast, according to the American Arbitration Association (“AAA”) Arbitration Roadmap, a commercial case should take only 297 days from filing to award.

Limited discovery. In arbitrations, discovery usually is limited to document requests exchanged by the parties and a limited number of depositions. Indeed, under the AAA rules, the arbitrator has discretion to direct the parties to exchange documents and identify witnesses. However, the rules do not address any other formal discovery procedures such as interrogatories, requests for admission or depositions. (See AAA Commercial Arbitration Rules and Mediation Procedures R-21.)

No substantive appeal. Parties to an arbitration proceeding do not have any right to a substantive appeal. Indeed, under the Federal Arbitration Act, 9 U.S.C. § 1 et seq., a party may appeal an arbitrator’s decision only in the following circumstances:

where the award was procured by corruption, fraud or other undue means;
there was evident partiality or corruption in the arbitrator. . .;
where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C.A. § 10.

As a result, an arbitration award is rarely overturned.

Insurance concerns. Finally, before adding an arbitration clause to an engagement letter, attorneys should consider the insurance concerns discussed above.

Conclusion
The inclusion of a binding arbitration provision in a retainer agreement is an almost sure-fire way to keep legal malpractice allegations private and out of the public courtroom setting. Whether the benefit of privacy and the other pros of arbitration outweigh the cons is a conclusion that each law firm must reach on its own after analyzing the rules and case law in the applicable jurisdiction, the requirements of the firm’s malpractice insurance carrier and the factors discussed above.

Joshua E. Liebman and Alexander L. Berg are with Novack and Macey LLP in Chicago, Illinois.

(This is for information purposes and is not legal advice.)

Recent Illinois Case: White v. Richert

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The federal district court refused to dismiss a claim on the basis a release given by a client to her lawyer because the complaint alleged that the lawyer procured the release in breaching fiduciary duties.   The court also refused to dismiss on statute of limitations grounds because of factual issues regarding when the statute began to run.

White v. Richert, 2016 WL 3582083.

(This is for informational purposes and is not legal advice.)

Recent Illinois Case: Conney v. Quarles & Brady LLP

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In this unpublished opinion, the First District affirmed the confirmation of an arbitration award against a law firm.   The law firm had agreed to allow its client to select an arbitrator to resolve their fee dispute and specifically agreed that the client could select one of his other lawyers.   After the arbitrator ruled against the firm, the firm claimed that the arbitrator was biased.   The court held that the firm knew of the arbitrator’s relationship with the client when it consented to him being an arbitrator.    The court also rejected an argument that the arbitrator went beyond arbitrating the fee dispute and considered allegations of negligence.

Conney v. Quarles & Brady LLP, 2016 IL App (1st) 150505-U.

(This is for informational purposes and is not legal advice.)

Recent Illinois Case: Bay Industrial Safety Services, Inc. v. Robert Wilson

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The Southern District of Illinois held that the assignment of a malpractice claim that occurs when a plaintiff files for bankruptcy does not violate the rule against assigning malpractice claims.

Bay Industrial Safety Services, Inc. v. Robert Wilson, 2016 WL 3541389

(This is for informational purposes and is not legal advice.)