I am a big supporter of using alternative dispute resolution (ADR) to resolve fee bill disputes when direct negotiation fails. Having been a registered mediator, I have seen firsthand how ADR can work to resolve not just fee bill disputes, but all kinds of disputes.

In my book, The Art Of Hiring The Right Attorney, I discuss the importance of a clause in the retainer agreement that calls for arbitration or mediation if a dispute arises over the legal services or the fee bills. Also in my book, The Definitive Guide To Resolving A Legal Fee Bill Dispute, I recommend arbitration or mediation over filing a suit or filing a disciplinary complaint if direct negotiations fail to resolve a fee bill dispute with the lawyer. I even provide a list of free or low-cost mediation or arbitration services available through state or local bar associations.

Most attorneys include ADR language in their retainer agreements because it makes good business sense, although many states and some malpractice insurers require it. Unfortunately, in some of the retainer agreements I have come across, some attorneys seem to be using an ADR clause not as a way to peacefully and economically resolve a dispute with a client, but more as a way to intimidate and discourage the client from actually using ADR. They do this by bypassing any state or local bar free or low-cost mediation or arbitration services for fee bill disputes and mandating that the ADR be binding arbitration through the American Arbitration Association (AAA).

Now, don’t get me wrong. I am not against the AAA. They provide good arbitration services. However, AAA arbitrations are expensive and sometimes are to be held in cities that are inconvenient for the client. Moreover, retainer agreement ADR clauses may provide that the loser has to pay all the winner’s costs including all of the AAA costs plus the law firm’s costs to prepare for and participate in the AAA arbitration.

In my view, lawyers who mandate binding AAA arbitration in their retainer agreements as the exclusive way to resolve disputes are really weaponizing their arbitration clauses against their clients. However, this weaponization of an ADR clause may not always work out as intended, at least according to the recent case of Dick-Ipsen v. Humphrey, Farrington & McClain, P.C., 2024 IL App (1st) 241043 (App. Ct. of Ill., First Dist., Second Div., Aug. 30, 2024).

The case involves a client who had filed suit against the law firm for malpractice in a matter the firm had handled for the client. But the firm sought to have the malpractice suit dismissed citing the arbitration clause in their retainer agreement. The clause provided for binding AAA arbitration (to be held in Kansas City, MO), as the exclusive remedy for any claims against the firm. The client, though, stated he did not understand the effect of binding arbitration and that the firm never explained it to him. The client also objected to the AAA arbitration being in Kansas City which was over 500 miles from the client’s home in Illinois (plus the client was disabled and unable to drive).

The trial court found for the client holding that the arbitration provision was “procedurally unconscionable.” The appellate court agreed that the firm had failed “to fully inform plaintiff about the meaning and consequences of the arbitration clause.” The court went on to state that “[a]ttorneys who have drafted a retainer agreement have the burden to show that the contracts are fair, reasonable, and fully known and understood by their clients” and that “[d]efendants’ failure to inform plaintiff [the client] about any of the potential effects of the arbitration provision constitutes an infirmity during the process of contract formation, such that plaintiff lacked the requisite knowledge to make a meaningful choice.” As authority, the court cited supporting case law, applicable Model Rules of Prof. Conduct (RPC), and ABA Formal Op. 02-425, Retainer Agreement Requiring the Arbitration of Fee Disputes and Malpractice Claims.

It is clear from the appellate court’s opinion as well as all other authorities on point that a lawyer needs to provide such information as is needed in order for a client to make a “meaningful choice” to agree to a mandatory and binding arbitration clause in a retainer agreement. But, and here’s the kicker for lawyers, the appellate court held that a client’s agreement must be based upon “informed consent” citing Castillo v. Arrieta, 2016-NMCA-040, 368 P.3d 1249 (N.M. Ct. of App., Feb. 2, 2016)(“we hold that the plain text of this unusually broad arbitration provision reasonably applies to Plaintiff’s malpractice claim, but that it is unenforceable if it was signed without Plaintiff’s informed consent.” emphasis supplied).

“Informed consent” is a discrete term that is set out in RPC 1.0(e) that inter alia requires a lawyer to provide “adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of action.” Requiring “informed consent” from a client is a big deal. So much so that if you ever mention to a lawyer that he needs to get informed consent from a client, he will usually sigh and roll his eyes. As it relates to binding arbitration, it would require an explanation of “reasonably available alternatives” such as free or low-cost bar or other types of arbitration or mediation services. To be on the safe side as I used to tell lawyers in my CLE ethics seminars, never leave anything out. Always give complete information on the pros and cons of anything that requires informed consent. If you leave anything out, you do so at your own peril.

Although it can be done orally, I believe it important that all the information conveyed about something that requires informed consent be in writing. I say this because guess who wins a swearing match between a lawyer who swears that he told the client everything there was to say about the effects of binding arbitration and a client who swears that the lawyer never told him about all the effects of binding arbitration (which is exactly what the client swore in the Illinois case).

Also, instead of trying to cram all there is to say about the pros and cons and the effects of binding arbitration into the retainer agreement, the information being conveyed to obtain the client’s informed consent should be in a separately signed writing (as is required by some RPC). It should also be reviewed by another attorney of the client’s choice.

Of course, one easy way to completely avoid the problems involved in obtaining a client’s informed consent for a clause mandating binding AAA arbitration as the exclusive remedy for claims against the attorney would be to not include it in the retainer agreement. Instead, include a more reasonable and fair ADR clause (to the client) that just calls for mediation or non-binding arbitration to be utilized before filing suit to try to resolve any dispute with the firm as to its services or its fees or with the client for non-payment of fees.

Unfortunately, for attorneys who seek to press for every advantage they can wring out of an individual client, other weaponized terms in the retainer agreement may also require “informed consent” such as requiring a client to pay for electronic research services such as Westlaw or LEXIS. See ABA Annotated Model RPC (9th ed. 2019) Comments to RPC 1.5 at p. 86, Expenses Chargeable To Client (“Access charges for electronic legal research are normally treated as overhead, but may be passed along to the client if the client has given informed consent.”). But that is all grist for another post.