In the lawyer-client relationship, there is a built-in tension between the lawyer-professional role and the lawyer-businessperson role. That tension is often most taut at the outset. The client wants access to the lawyer’s knowledge. The lawyer wants a fee. The lawyer-businessperson wants to maximize profits and minimize loss, but the lawyer-professional is constrained by rules of professional propriety.

The parties are not free to negotiate whatever terms of engagement suits them. A handshake will not do. In most cases, the terms of engagement must be in writing. There was such a writing in the form of a retainer agreement recently examined by our Supreme Court in Delaney v. Dickey, (A-30-19). In Delaney, the retainer agreement contained a not uncommon clause requiring arbitration of “any dispute with respect to the Firm’s legal services and/or payment by you of amounts to the Firm”. The retainer agreement designated JAMS as the private arbitration organization to handle any conflict.

The facts surrounding execution of the retainer agreement were not in dispute. The defendant law firm did not give the client the thirty-three pages of JAMS rules to which he was to be bound in arbitration. Rather, those rules were incorporated in a hyperlink. Nor did it explain the costs associated with arbitration, or that the retainer included a fee-shifting provision available in arbitration though not permissible in a New Jersey court.

The firm and the client had a falling out; at the time, the client had accumulated about $400,000 in unpaid legal fees. The firm commenced an arbitration seeking payment. While the arbitration was pending, the client filed a Law Division legal malpractice action in which he alleged that the firm and the attorney handling his case negligently represented him. The complaint also alleged that the mandatory arbitration provision in the retainer agreement violated the Rules of Professional Conduct and wrongly deprived him of his constitutional right to have a jury decide his legal malpractice action. He moved to stay arbitration pending resolution of the legal malpractice suit.

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The lower court found the arbitration clause binding. The Appellate Division reversed because it found the firm deficient in its duty to fairly inform the client of the import of what he was signing. The Supreme Court granted the firm’s petition for certification.

The court expressed the issue it was to decide rather simply: “We view the issue before us: whether a lawyer has a duty to explain the benefits and disadvantages of a provision in a retainer agreement that binds the client to arbitrate a future fee dispute or legal malpractice action in a non-judicial forum.”

The defendant law firm’s position was that it had no duty to inform beyond conveying the information that was contained in its arbitration clause. Its position was echoed by the New Jersey State Bar Association and the Bergen County Bar Association, which submitted briefs supporting the firm. The plaintiff argued that the tension between the firm’s interest and the client’s interest made the firm incapable of giving its client disinterested guidance. He argued that requiring mandatory arbitration of legal malpractice claims in a retainer agreement is against public policy and should be banned.

Beyond affirming the appellate court’s opinion that the firm did not make sufficient disclosure, the Supreme Court sidestepped the opportunity to give important guidance to the bar about how much of the pros and cons of a mandatory arbitration a firm had to discuss with a client before the client could give informed consent. It referred the matter to the Advisory Committee on Professional Ethics. We believe that the court’s failure to be more resolute in its decision creates unnecessary uncertainty. No committee is necessary to divine the basic unfairness of the clause to the client or to assure that a firm will fairly convey to the client the firm’s, advantage of having the client bound by its terms.

We are fiduciaries, declared the court and, as such, we “must provide the client with not only “complete and undivided loyalty,” but also with advice that will “protect the client’s interests.” “A lawyer is never “privileged to exercise an advantage which will in any respect prove detrimental to his client’s interests.”

We believe that requiring a prospective client, not independently represented, to give up the right to choose the forum of dispute resolution at the outset of a relationship is detrimental to the client’s interest and should be banned. If, and when, a dispute arises between lawyer and client, the respective parties may agree that it is in their individual interest that the dispute be arbitrated rather than fought in court. Presumably, at that time, the client will have secured new counsel who can, independently, advise the client of the wisdom of resolving the dispute in one forum or another.

We cannot conceive of a lawyer independently consulted by a client about the wisdom of signing a mandatory arbitration clause advising that client to forfeit the choice of forum for dispute resolution at the outset of a representation. Some courts require a client to get independent advice before agreeing to mandatory arbitration in a retainer agreement. Others ban it outright. The ABA allows such a provision provided “the advantages and disadvantages are discussed.”

There may be a case where it is in the client’s interest to give up the right to decide on the dispute resolution forum at the outset of a presentation, but we doubt it. In arbitration, one gets a single arbitrator rather than a jury representing a cross-section of the county’s citizens [who] sit in judgment. The arbitrator’s decision is final with no right of appeal unlike in a judicial forum which allows a challenge for error. Arbitration is private while a lawsuit may expose the law firm to adverse publicity—a variable which may provide economic leverage to the client. In arbitration, discovery may be limited. Fees and costs in the respective forums are dramatically different. In Delaney, the defendant firm’s arbitration clause did not allow punitive damages which may have been available in a law court.

The court concluded that the firm did nothing unethical because the parameters of what disclosure to the client must be made had not yet been clearly defined. Although the court’s ruling is to be applied prospectively, it did allow the plaintiff to proceed with his legal malpractice claim in the law court because it found he was entitled to the benefit of his initiative in bringing the case.

Delaney reaffirms a principle which we all should have taken from law school that, although there is businessperson component of what we do, we are, first and foremost, fiduciaries.

Editorial Board members Joseph Buckley, Ronald Chen, George Conk, Barry Evenchick. Joseph Hayden. James Hirschhorn, Richard Hluchan, Virginia Long, Michael Stein and Justin Walder recused from this editorial.