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Proposal Would Clarify Validity Of Arbitration Clauses In Attorney Retainer Agreements

Posted on Tuesday, December 28, 2021

The Michigan Supreme Court is considering an amendment to Michigan Rule of Professional Conduct (MRPC) 1.8, seeking to clarify that arbitration provisions in retainer agreements are prohibited unless the client has independent counsel review the provision before signing the agreement.

The proposed amendment stems from the Michigan Court of Appeals 2020 published decision in Tinsley v. Yatooma (Docket No. 349354), a legal malpractice case where the retainer agreement included a binding arbitration clause. The plaintiff in the case argued the arbitration clause was unethical and unenforceable. The Court of Appeals disagreed, finding the binding arbitration provision barred the plaintiff’s legal malpractice claim.

The Court of Appeals said in a footnote to the Tinsley opinion: “We suggest contemplation by the State Bar of Michigan and our Supreme Court of an addition to or amendment of MRPC 1.8 to specifically address arbitration clauses in attorney-client agreements. The issue raises sufficient concerns justifying clarification on the subject.”

MRPC 1.8 Proposal

The proposed amendment to MRPC 1.8 was published by the Michigan Supreme Court on December 15, 2021 (ADM File No. 2021-07). The proposal says (proposed language underlined):

Rule 1.8 Conflict of Interest: Prohibited Transactions.

(a)-(g) [Unchanged.]

(h) A lawyer shall not:

(1) make an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement; or

(2) settle a claim for such liability with an unrepresented client or former client without first advising that person in writing that independent representation is appropriate in connection therewith.; or

(3) make an agreement that includes a lawyer-client arbitration provision unless the client is independently represented in reviewing the provision.

(i)-(j) [Unchanged.]

[Comment Section Unchanged.]

According to the high court’s order, Justice David F. Viviano “would decline to publish the proposed amendment for comment.”

Comments on the proposal must be submitted to the Michigan Supreme Court by April 1, 2022. Comments can be submitted by clicking “Comment on this Proposal” (underneath the proposal) on the MSC’s Proposed & Adopted Orders on Administrative Matters webpage. Written comments can also be sent to P.O. Box 30052, Lansing, MI 48909 or emailed to ADMcomment(at)courts.mi.gov. When filing a comment, please refer to ADM File No. 2021-07. Comments will be posted publicly.

Tinsley Decision

The impetus for the proposed amendment is the published opinion in Tinsley v. Yatooma. In that case, Ronald Tinsley had retained attorney Norman Yatooma and his law firm to represent him in a malpractice action. The retainer agreement contained a binding arbitration provision that included “any claims of legal malpractice.” Before signing the agreement, Tinsley had it reviewed by independent counsel.

Tinsley was not pleased with the outcome of his case, claiming he was “forced” to settle for less than what it was worth. He filed a legal malpractice claim against Yatooma in Wayne County Circuit Court, arguing the arbitration provision was “unconscionable and unenforceable” because it violated MRPC 1.8 and State Bar of Michigan Ethics Opinion R-23. Specifically, Tinsley alleged the arbitration provision violated MRPC 1.8(h)(1), which prevents a lawyer from “mak[ing] an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement[.]” Tinsley also cited Ethics Opinion R-23, which he asserted says an arbitration clause in a retainer agreement violates MRPC 1.8(h) unless “before signing the agreement, the client is fully informed of the provision’s consequences in writing or consults with independent counsel regarding the arbitration provision.”

Yatooma, however, argued the arbitration provision was enforceable because Tinsley had the agreement reviewed by independent counsel and understood its contents before voluntarily signing it. As a result, Yatooma filed a motion to dismiss the legal malpractice claim, which the trial court granted. The trial court held the arbitration provision was enforceable under the plain language of MRPC 1.8(h)(1) and Ethics Opinion R-23, emphasizing that Tinsley consulted with independent counsel and voluntarily signed the agreement.

The Court of Appeals panel affirmed the trial court’s ruling. Judges Jane E. Markey, Kirsten Frank Kelly and Jonathan Tukel were on the panel that issued the binding decision.

In its analysis, the Court of Appeals noted that the “entire” agreement between Tinsley and Yatooma was “only four pages long” and the arbitration provision “warned” Tinsley “in capital letters” that signing the agreement would waive his right to submit any dispute to a court.

Moreover, Tinsley consulted with independent counsel before signing the agreement, the Court of Appeals pointed out. “[N]othing more was required. It would seem a bit ludicrous to have mandated defendants to particularly inform plaintiffs that [independent counsel] must examine the arbitration provision as part of his review of the engagement agreement.”

The Court of Appeals further explained that Watts v. Polaczyk, 242 Mich App 600 (2000), “directly addressed” an arbitration provision’s validity in an attorney-client agreement. According to the panel, Watts said that failing to read an agreement is not a defense. “[I]t is undisputed that Tinsley voluntarily signed the engagement agreement that contained the arbitration provision. And, unlike the plaintiff in Watts, Tinsley was a sophisticated businessman who had the opportunity to review the engagement agreement with experienced independent counsel before he signed it. For those reasons, the present action is even more compelling than Watts with respect to the need to enforce the arbitration clause.”

In addition, the Uniform Arbitration Act (UAA) – specifically MCL 691.1686(1) – says that an arbitration agreement “is valid, enforceable, and irrevocable except on a ground that exists at law or in equity for the revocation of a contract,” the Court of Appeals said. “This language essentially incorporates common-law contract principles. We do believe that a violation of the MRPC could potentially serve as a basis to revoke an arbitration provision under the UAA.”

The Court of Appeals further observed that ethics opinions, while instructive, are not binding. Ethics Opinion R-23 “merely requires, as one alternative, that a client consult with independent counsel before signing the fee agreement; that is what occurred here. To the extent that EO R-23 could be construed to demand more, we disavow it.”

The Court of Appeals concluded, “Nothing in the plain language of MRPC 1.8(h)(1) suggests that a contracting attorney commits an ethical violation by demanding arbitration when a former client, who actually consulted with independent counsel regarding the underlying attorney-client agreement that contained the arbitration clause, fails to bring up the clause or issue during the consultation.”

Stay with the Speaker Law Blog for updates on the proposed amendment.

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