Attorney/Client Disputes in Oklahoma: A Role for Arbitration?
By Stanley A. Leasure and Wayne L. Anderson

For purposes of this article, a “pre-dispute arbitration clause in an attorney/client agreement” is an agreement entered into at the formation of the attorney/client relationship requiring that all disputes between the attorney and client, including malpractice claims, be resolved through binding arbitration. This article will explore these issues in the context of Oklahoma law and ethics and will conclude with thoughts regarding the appropriateness of the use of pre-dispute arbitration agreements by Oklahoma lawyers and their clients.

ETHICAL CONSIDERATIONS

In 2000 the Oklahoma Bar Association Legal Ethics Committee was asked to address the issue of pre-dispute arbitration clauses premised on the following hypothetical: “Lawyer ‘A’ provides a retainer agreement to his client containing a clause that all disputes ‘arising under the retainer agreement’ shall be subject to binding arbitration.” In an ethics opinion issued Aug. 18, 2000, the committee concluded, subject to the ultimate decision by the Oklahoma Supreme Court, that arbitration clauses in attorney fee agreements are valid under Oklahoma substantive law, that the Oklahoma Rules of Professional Conduct do not prohibit pre- dispute clauses in attorney/client agreements provided: 1) the attorney, after full disclosure, ensures that the client has given informed consent to the arbitration provision and 2) it does not encompass disciplinary complaints or proceedings against the attorney.1

The analysis of the committee centered on several factors: 1) the enforceability of arbitration clauses and the applicability of the Oklahoma Uniform Arbitration Act (OUAA); 2) the duty of loyalty to the client and informed consent to arbitration and 3) the scope of the arbitration clause.2 With respect to enforceability issues, the committee pointed out that under the OUAA,3 parties to contracts (other than collective bargaining agreements and insurance contracts) are allowed to enter into written arbitration agreements which are “valid, enforceable and irrevocable, except upon such grounds as exist at law or in equity for the revocation of any contract.”4 The committee also emphasized the strong public policy in Oklahoma favoring arbitration as declared by the Oklahoma Supreme Court.5 Acknowledging that arbitration is an effective dispute resolution method between attorneys and their clients and pointing out that one of the comments to Rule 1.5 of the Oklahoma Rules of Professional Conduct recommends consideration of arbitration or mediation of fee disputes,6 the committee noted that care must be taken to ensure compliance with ethical requirements in the consideration of mandatory arbitration clauses in attorney/client agreements; particularly the duty of loyalty and the requirement that the client give informed consent to arbitration. 7 The committee noted that the attorney’s duty of loyalty to the client requires that the self-interest of the lawyer not be allowed to have an adverse impact on the representation of the client.8 Further, the attorney’s fiduciary obligation requires the avoidance of overreaching or exploitation of superior knowledge of the legal system to the detriment of the client.9 The committee also invoked the language of Rule 1.8(a) to implicate the conflict of interest rules in circumstances where a binding arbitration clause is being considered in the context of an attorney/client agreement.10 The committee found that the lawyer’s duty in regard to arbitration clauses extends to assuring the informed consent of the client to the inclusion of an arbitration clause as well as the concomitant responsibility on the part of the attorney to “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”11 Finally, the committee pointed out that the arbitration agreement itself must be fair and reasonable to the client in light of Rule 1.8 and the appurtenant comments.12

After discussing the duty of loyalty and the requirement of informed consent, the committee addressed three particular areas of concern: waiver of the right to a jury trial, level of the sophistication of the client and consultation with independent counsel. The committee expressed concern that any client being asked to enter into an arbitration agreement with an attorney must be made to understand the significant differences between arbitration and litigation including: lack of a jury trial; differences in cost and timing; extent of discovery; and availability of relief, appellate review and a public forum. The level of client sophistication was another consideration the committee felt important in connection with the nature and extent of the attorney’s required disclosure. The committee saw similarities between dealing with an unsophisticated client and one under a disability, with both circumstances calling for a more careful and detailed explanation of the arbitration process and placing the burden on the attorney to provide whatever information is needed so that the client understands the consequences of the arbitration provision.13 The need for independent counsel was also addressed in this advisory opinion. Rejecting contrary opinions from other jurisdictions, the committee saw no need to require independent counsel prior to the execution of an attorney/client agreement containing a binding arbitration clause.14 However, it did recommend giving the client the opportunity to consult with independent counsel, noting that advising of the potential desirability of this separate consultation would provide an additional safeguard to the process of obtaining informed consent.15

The Oklahoma Bar Association Legal Ethics Committee advised simplicity and clarity in the drafting of arbitration clauses.16 The committee addressed certain specifics regarding the scope of arbitration clauses, declaring that disciplinary proceedings against attorneys cannot be the subject of an arbitration clause. Further, pursuant to Rule 1.8(h), an attorney may not include an arbitration clause that limits the attorney’s liability for malpractice.17 An arbitration clause which shifts determination of the claim to a different forum does not prospectively limit lawyer liability.18 Comment [14] to Rule 1.8 of the Oklahoma Rules of Professional Conduct provides:

Agreements prospectively limiting a lawyer’s liability for malpractice are prohibited. This paragraph does not, however, prohibit a lawyer from entering into an agreement with the client to arbitrate legal malpractice claims, provided that such agreements are enforceable and the client is fully informed of the scope and effect of the agreement.19

The American Bar Association Committee on Ethics and Professional Responsibility reached similar conclusions, declaring that a provision in an attorney/client agreement that requiring binding arbitration of both fee and malpractice disputes is permissible, provided the client is fully apprised of the advantages and disadvantages of arbitration and has given informed consent to inclusion of the arbitration provision.20 The ABA committee’s analysis centered on two primary issues: 1) whether the requirement of binding arbitration prospectively limits the lawyer’s liability in violation of Rule 1.8(h) and, 2) the duty under Rule 1.4(b) to give clients an adequate explanation of matters, such as the risks and benefits of mandatory binding arbitration. Some ethics tribunals have concluded that the differences between arbitration and the judicially supervised process of litigation are so significant that they constitute an attempt to prospectively limit liability.21 However, the ABA committee opined that mandatory arbitration does not limit a lawyer’s liability, but instead establishes an alternative procedure for resolving such claims.22 It determined that the fiduciary duty of a lawyer to a client includes the requirement that both the positive and negative aspects of binding arbitration (cost, waiver of right to jury trial, broad discovery and right to appeal) be discussed with the client so that the client can make an informed decision. With that, the ABA committee concluded that as long as: 1) no attempt is made to prospectively limit the liability of the attorney to the client; 2) the client is fully apprised of advantages and disadvantages of arbitration and 3) sufficient information is provided to enable the client to make an informed decision, then it is ethically permissible to include — in a retainer agreement — a binding arbitration provision with respect to both fee disputes and malpractice claims.

OKLAHOMA COMMON LAW

In Rollings v. Thermodyne Industries Inc., a case of first impression, the Oklahoma Supreme Court concluded that an agreement to submit future disputes to arbitration is binding.23 This ruling was based, in part, on the court’s conclusion that arbitration is to be favored as a matter of public policy.24 That same year, in Shaffer v. Jeffrey, the Oklahoma Supreme Court addressed several issues regarding arbitration clauses that are included in attorney/client agreements. In Shaffer, a lawyer and his firm were sued by several former clients. They defended on the grounds that the dispute was subject to an arbitration clause.25 The district court dismissed the lawsuit. The Oklahoma Court of Appeals reversed, directing the entry of an order compelling arbitration.26 Relying on the holding in Rollings v. Thermodyne Industries Inc.27 that voluntary agreements to submit future disputes to arbitration (pursuant to the Oklahoma Arbitration Act) are enforceable, the Oklahoma Supreme Court rejected the plaintiff’s arguments that the arbitral provisions in the attorney/client agreements were unconstitutional and unenforceable.28 Interestingly, the court seemingly reserved judgment on the critical issue, noting: “The parties do not raise, and we do not address, the propriety of an arbitration clause in an attorney fee agreement, or whether circumstances could exist that would void an arbitration clause in an attorney fee agreement.”29

In 1991, the U. S. District Court for the District of Colorado addressed these issues under Oklahoma law in the context of a fee dispute and malpractice claim by Guy Grider, a “sophisticated” Oklahoma businessman against his Colorado law firm.30 The retainer agreement between Grider and the law firm required binding arbitration.31 The pertinent portion of the parties’ agreement with respect to arbitration stated: “You and [the law firm] agree to submit any fee disputes between us and claims by you regarding [the law firm’s] handling of your matter for binding resolution by the Legal Fees Arbitration Committee of the Colorado Bar Association; except that this does not bar [the law firm] from collecting amounts due it in other ways, including litigation.”32 In response to a suit filed in the U. S. District Court for the District of Colorado, the defendant law firm sought an order compelling arbitration under the terms of the parties’ agreement and the Federal Arbitration Act (FAA). The district court first concluded that the malpractice claim and fee dispute were within the scope of the arbitration agreement.33 The court next turned to Grider’s claim that the arbitration clause was unenforceable because: 1) the arbitration clause was fraudulently induced; 2) law firm breached its fiduciary duty to the client; 3) arbitration provisions violated Rule 1.8 of the Oklahoma Rules of Professional Conduct and 4) the arbitration provision was void pursuant to the provisions of Article 23, Section 8 of the Oklahoma Constitution.

With respect to the contention that the arbitration clause was fraudulently induced, the court found that the law firm never misled Grider as to the effect of the arbitration clause; that he understood the arbitration clause and had the opportunity to discuss it with his Oklahoma lawyer.34 The claim that the arbitration clause favored the law firm and should be voided as a breach of fiduciary duty was likewise rejected. The court concluded that the fiduciary duty between the parties arose only after the fee agreement was signed and, subsequently, Grider had failed to establish the creation of an attorney-client relationship prior to that.35 The court also rejected the claim that the arbitration clause violated Oklahoma Rule of Professional Conduct 1.8 (“[a] lawyer shall not make an agreement prospectively limiting the lawyer’s liability to a client for the lawyer’s personal malpractice”) because the arbitration provision did not limit liability but only shifted the forum in which that liability would be determined.36 Finally, the court denied the claim that Article 23, Section 8 of the Oklahoma Constitution (“[a]ny provision of the contract, express or implied, made by any person, by which any of the benefits of this Constitution is sought to be waived, shall be null and void”) precluded enforcement of the arbitration provision in question.37 The court reasoned that the transaction indisputably involved interstate commerce and, as such, the FAA — not Oklahoma law — governed the validity of the agreement to arbitrate; Oklahoma law was only relevant to the extent it should be looked at for general contract law principles.38

CONCLUSION

In Oklahoma, neither legal nor ethical prohibition precludes the use of pre-dispute arbitration clauses in legal services contracts as long as the client is given sufficient information to make an informed decision and no attempt is made to limit the lawyer’s liability. Accordingly, the ultimate decision as to whether arbitration is beneficial and under what circumstances it should be utilized is one which should be left to the good judgment of the parties involved. There are, in fact, substantial ethical, practical and societal considerations to be dealt with given the sensitive nature of the relationship between the attorney and client. Nevertheless, these considerations and concerns over possible abuse should be dealt with on a case by case basis and should not be allowed to deny all parties the freedom to contract regarding the issue of how disputes between them will be resolved.

1. OK Adv. Op. 312, 2000 WL 33389634 (Okl. Bar. Assn. Leg. Eth. Comm.).
2. Id. at 2-5.
3. 15 O.S. 1991 § 801 et seq.
4. OK Adv. Op. 312, 2000 WL 33389634 (Okl.Bar. Assn.Leg.Eth.Comm.) at 1-2.
5. Id. at 2, citing Rollings v. Thermodyne Industries, Inc., 1996 OK 6, 910 P.2d 1030 (1996); Shaffer v. Jeffrey, 1996 OK 47, 915 P.2d 910, 917 (1996).
6. Okla. Rules of Prof’l Conduct R. 1.5 comment provides: “Disputes Over Fees. If a procedure has been established for resolution of fee disputes, such as an arbitration or mediation procedure established by the bar, the lawyer should conscientiously consider submitting to it.”
7. OK Adv. Op. 312, 2000 WL 33389634 (Okl.Bar. Assn.Leg.Eth.Comm.) at 2.
8. Id. at 2 citing, Okla. Rules of Prof’l Conduct R. 1.7 cmt.
9. Id. 2 citing, N.Y. Cty. Law. Assn. Comm. Prof. Ethics Op. 723 (July 17, 1997).
10. Id. 2 citing, D.C. Bar Ethics Op. 218 (1991); Phila. Bar Ass’n Op. 80-2 (1988). As of the date of the opinion Rule 1.8(a) provided: “(a) A lawyer shall not enter into a business transaction with a client... unless: (1) the transaction... (is) fair and reasonable to the client and [the terms are] fully disclosed and transmitted in writing to the client in a manner which can be reasonably understood by the client; (2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and (3) the client consents in writing thereto.”
11. Id. at 3, citing Rule 1.4 (b).
12. Id.
13. Id. at 4, citing Rule 1.14 and comments thereto.
14. Id., citing N.Y. Cty. Law. Ass’n Comm. Prof. Ethics Op. 723 (July 17, 1997) and Ohio Adv. Ethics Op. 96-9 (1996).
15. Id. at 5.
16. Id.
17. Okla. Rules of Prof’l Conduct R. 1.8 (h) provided at the time of this opinion: “A lawyer shall not make an agreement prospectively limiting the lawyer’s liability to a client for the lawyer’s personal malpractice, or 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.”
18. Id.
19. Okla. Rules of Prof’l Conduct R. 1.8, comment [14].
20. ABA Comm. on Ethics and Prof’l Responsibility, Formal Opinion 02-425 (2002).
21. See, e.g., Md. Eth. Op. 90-12 (October 12, 1990).
22. ABA Comm. on Ethics and Prof’l Responsibility, Formal Opinion 02-425 (2002) citing 2 C.G. Hazard and W.W. Hodes, The Law of Lawyering, (3d ed. 2001) §12.18 at 12-50; Me. Eth. Op. 170 (December 23, 1999) and Model Rules of Prof’l Conduct R. 1.8(h) cmts. [14] and [5].
23. Rollings v. Thermodyne Industries, Inc., 1996 OK 6, 910 P.2d 1030, 1031 (1996). The arbitration clause in question provided: “[I]n the event of any dispute between the parties hereto relating to this Agreement, the parties hereby agree to arbitrate such dispute on the rules, regulations and guidelines of the American Arbitration Association.”
24. Id., see also Voss v. City of Oklahoma City, 1980 OK 148, 618 P.2d 925, 928 (1980) and Bilbrey v. Cingular Wireless, L.L.C., 2007 OK 54, 164 P.3d 131 (2007).
25. Shaffer v. Jeffrey, 1996 OK 47, 915 P.2d 910 (1996).
26. Id. at 911.
27. Rollings v. Thermodyne Industries, Inc., 1996 OK 6, 910 P.2d 1030, 1031 (1996).
28. Id. at 912-913.
29. Id. at 913 n. 2.
30. McGuire, Cornwell & Blakey v. Grider, 765 F.Supp. 1048 (D.Colo. 1991).
31. Id. at 1049.
32. Id.
33. Id. at 1050.
34. Id.
35. Id. at 1051. See, however ABA Comm. on Ethics and Prof’l Responsibility, Formal Opinion 02-425 (2002): “The Committee is of the opinion that Rule 1.4(b) [duty to explain risks and benefits of alternative courses of action] applies when lawyers ask prospective clients to execute retainer agreements that include provisions mandating the use of arbitration to resolve the disputes and malpractice claims.”; cf. Model Rules of Prof’l Conduct Preamble cmt. [17] (2002): “Most of the duties flowing from the client-lawyer relationship attach only after the client has requested the lawyer to render legal services and the lawyer has agreed to do so. But there are some duties... that attach when the lawyer agrees to consider whether a client-lawyer relationship shall be established.”
36. Id. at 1051, citing Monahan v. Paine Webber Group, Inc., 724 F.Supp. to 24, 227 (S.D.N.Y. 1989).
37. Id.
38. Id., citing Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); Southland Corporation v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984); Flink v. Carlson, 856 F2d 44, 46 n. 2 (8th Cir. 1988). Other courts have dealt with this issue in a variety of ways. See e.g. Derfner & Mahler, LLP v. Rhoades, 257 A.D.2d 431, 683 N.Y.S.2d 509 (Sup.Ct.App.Div. First Dept. 1999) (no public policy reasons preclude the arbitration of legal malpractice claims as long as the arbitral agreement comports with the applicable ethical rules); In re Hartigan, 107 S.W.3d 684 (Tex.App.San Antonio 2003) (court declared that arbitral clause was not an improper attempt to limit lawyer’s liability, but merely an alternative method for dispute resolution that did not insulate or limit the attorney’s liability in any manner); Thornton v. Haggins, No. 8305, 2003 WL 23010100 (Ohio Ct. of App., Eighth Cir., Dec. 24, 2003) (declined to enforce an arbitration clause in an attorney/client agreement in connection with a malpractice action, citing Ohio ethical opinion).

About The Authors

Wayne L. Anderson is a professor of business law at Missouri State University. He has taught at MSU for 23 years with emphasis in the areas of Internet law and contracts. His J.D. is from California Western School of Law in San Diego, Calif. (1980) and is a member of the California Bar Association.

Stanley A. Leasure is an assistant professor business law at Missouri State University. His 25 years of practice in Fort Smith, Arkansas with the law firm of Daily & Woods, PLLC included service as a mediator and arbitrator in litigated cases. His J.D. is from the University of Tulsa (1980) and he is a member of the Oklahoma and Arkansas Bar Associations. He is also a certified civil mediator in Arkansas.

Attorney/Client Disputes in Oklahoma: A Role for Arbitration?
Published 79 OBJ 847 (April 12, 2008)