In a divorce case, the wife’s lawyer negotiated a marital settlement agreement requiring the former husband to make lump payments that were sent to the law firm. Someone hacked into either the wife’s or the lawyer’s email account, resulting in the lawyer receiving fraudulent wiring instructions. Money was lost and the wife sued for “generalized tort claims.” The lawyer invoked an arbitration clause in the engagement letter.
In Lemos v. Sessa, the Third DCA pointedly declined to express an opinion on the merits of such claims but certainly addressed arbitration as well as fee-shifting and cost-shifting provisions in the attorney-client engagement letter.
Let’s what worked and what did not.
To begin, “arbitration clauses in attorney-client representation agreements are not, per se, violative of public policy.” The court approved this arbitration language as clear and unambiguous:
“any disputes relating to any . . . issues pertaining to our representation of you shall be
arbitrated. . . . any controversy or claim arising out of [sic] relating to this retainer agreement or breach of performance by [Lemos] in their representation of you shall be settled through binding arbitration. . . .”
However, the engagement letter also included some cost- and fee-shifting provisions:
Any and all costs of the Arbitration shall be advanced by you subject to final adjudication by the Arbitrator.
In addition to all damages for unpaid fees, costs and expenses set forth in this agreement, in the event it becomes
necessary to enforce this agreement, through arbitration or otherwise, you agree to pay the firm’s reasonable attorney’s fees and all costs (whether taxable or not) in consideration therewith, including fees and costs on appeal.
While the court approved the arbitration language, it found that the shifting terms “serve only to chill the client’s willingness to dispute any issue of [the client’s] representation.” The court found that the provision requiring the client to pay in advance all costs and fees was “a significant barrier to a client seeking recourse against her lawyer.” Likewise, the second clause requires the client to pay the lawyer’s fees regardless of who wins.
Can a law firm shift costs and fees under any circumstance? This opinion does not address that point. Likely a provision that was reciprocal and/or based upon a prevailing-party standard would have a better chance.
Do you have questions about whether you should sign a lawyer’s engagement letter? Are you a lawyer who wants to include alternative dispute resolution and fee/cost provisions in your engagement letters? Make sure you contact a qualified lawyer in your jurisdiction who has experience both writing AND litigating contracts as well as who has experience litigating legal malpractice claims.
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