Professional Liability

Failure to Warn: Fourth DCA Invalidates Entire Arbitration Provision for Failure to Satisfy Fee Dispute Rule

Failure to Warn: Fourth DCA Invalidates Entire Arbitration Provision for Failure to Satisfy Fee Dispute Rule

In Owens v. Corrigan,[1] the Fourth District Court of Appeal held that an arbitration provision in the parties’ retainer agreement was unenforceable under the Fee Arbitration Rule of the Rules Regulating the Florida Bar. Even though the case did not involve a fee dispute, the Court refused to sever the defective portion of the arbitration clause mandating that fee disputes be arbitrated; instead, it struck the entire arbitration clause as unenforceable on its face.

The decision reminds lawyers that they must ensure that language required by The Florida Bar is included in client agreements, particularly language warning a client to obtain independent legal advice. As the majority cautioned, “[l]awyers owe ethical obligations and duties to their clients that exceed what the common law requires of arm’s length contracting parties.” Importantly, failure to strictly comply with these requirements can affect the enforceability of an entire arbitration agreement, even in cases where a Rule might not seem to be dispositive in a particular case.  Lawyers should therefore review their retainer agreements to ensure that they are in full compliance with those Rules.

Lindsey Owens sued Katherine L. Corrigan and KLC Law, P.A., a Fort Lauderdale law firm, alleging that the Defendants negligently represented her in a dependency case, causing her to lose custody of her children.[2] Defendants moved to dismiss, contending that Owens’s retainer agreement required her to submit “any controversy, dispute, or claim arising out of or relating to [Defendants’] fees, charges, performance of legal services, obligations reflected in this letter, or other aspects of [Defendants’] representation” to binding arbitration. The trial court upheld the arbitration provision and dismissed Owens’s malpractice suit.

Owens raised several issues on appeal, including the enforceability of the arbitration provision. Under Rule 4-1.5(i), to prospectively agree with a client to the mandatory arbitration of fee disputes, lawyers must advise the client in writing, using specific language,[3] that the client should consider obtaining independent legal advice. Owens argued that because the arbitration provision at issue omitted that language, it was unenforceable. In response, Defendants pointed out that the case did not involve a fee dispute and, therefore, that even if they violated the Rule regarding fee disputes, the Court should not invalidate the entire arbitration provision.

The Fourth DCA agreed with Owens, holding that the arbitration provision specifically provided for the mandatory arbitration of a fee agreement but that it lacked the required notice. In doing so, the Court rejected Defendants’ argument that the rest of the arbitration provision should survive because the case did not involve a fee dispute. Although the provision also mandated the arbitration of other disputes arising out of the representation, because the provision violated Rule 4-1.5(i), the entire provision was unenforceable on its face. The Court reasoned that without the required language, Owens lacked notice that she should seek independent counsel, which would have put her on notice that signing the agreement would foreclose the opportunity to litigate a fee dispute, and that it could even result in the “far more serious” consequence of giving up the right to litigate a malpractice claim. In addition, the Court refused to sever the language requiring mandatory arbitration of fee disputes, explaining that it “went to the essence of the arbitration agreement” because of the relationship between the attorney’s performance and the recovery of legal fees.

Judge Kuntz dissented. In his view, because the dispute did not involve attorney’s fees, Defendants’ failure to comply with the Rule should not be dispositive as to whether to arbitrate Owens’s malpractice claim. Judge Kuntz reminded the majority that “Florida public policy favors arbitration, and any doubts concerning the scope of an arbitration agreement should be resolved in favor of arbitration.” To that end, he would not have struck the entire provision; instead, he proposed severing those portions of the arbitration clause relating to fees and enforcing the remainder of the agreement.

[1] The Opinion, not yet released for publication, can be found at: 2018 WL 3198555 (Fla. 4th DCA June 27, 2018).

[2] Owens alleged, inter alia, that Defendants had failed to return telephone calls, attend hearings, timely communicate with the Court, and appropriately and timely advocate on her behalf. Further, she alleged that Defendants disclosed privilege communications to opposing counsel.

[3] Specifically, Rule 4-1.5(i) provides that a lawyer shall not make such agreements containing arbitration language regarding fee disputes without including, in bold print, language advising the client that she should consult with independent counsel about the “advisability of making an agreement with mandatory arbitration requirements.”