While I was busy writing deep thoughts about arbitration at the end of 2017 (see here and here), courts around the country rudely kept churning out new arbitration opinions. Hmph. So, I have some catching up to do. I start with one that has most captured my attention, Snow v. Bernstein, Shur, Sawyer & Nelson, ___ A.3d ___, 2017 WL 6520900 (Me. Dec. 21, 2017). It finds an arbitration agreement between a law firm and its client unenforceable, because the law firm did not specifically explain to the client that arbitration entails a loss of a jury trial, narrower appeal rights, and different evaluation of evidence.
Susan Snow hired the Bernstein firm to handle a civil action. The opinion does not tell us anything about Snow or her level of sophistication. But, it does tell us that she signed Bernstein’s standard terms of engagement, which included an arbitration clause. The arbitration clause dealt specifically with arbitrability of “fee disputes,” and then said “any other dispute that arises out of or relates to this agreement or the services provided by the law firm shall also, at the election of either party, be subject to binding arbitration.”
Snow later sued the law firm for malpractice, and the firm moved to compel arbitration. The district court denied that motion, and the high court of Maine affirmed that ruling. Both courts found that the arbitration agreement was unenforceable because the law firm had not verbally discussed the arbitration clause with Snow and informed her of its “scope and effect”.
The Snow opinion used “public policy” to invalidate the arbitration agreement. It largely relied on two bases for its public policy. First, a 2002 formal opinion from the ABA Standing Committee on Ethics and Professional Responsibility, which found that because attorneys are fiduciaries, and arbitration “results in a client waiving significant rights,” an attorney must explain the implication of the proposed arbitration agreement so that the client can make an informed decision. The ABA opinion requires an attorney to explain that the client is waiving a jury trial, waiving discovery, and losing a right to appeal. Second, the Snow opinion relied on a 2011 opinion from Maine’s Professional Ethics Commission, requiring attorneys to obtain informed consent “as to the scope and effect of an arbitration requirement or a jury waiver clause.”
Because the law firm in this case did not dispute that it made no attempt to discuss the arbitration agreement with Ms. Snow before she signed it, and the court found the written arbitration agreement “was not sufficiently clear to inform her”, the court declared the arbitration agreement unenforceable.
So, what is required in Maine for an attorney to have a binding arbitration agreement with a client? “The attorney must effectively communicate to the client that malpractice claims are covered under the agreement to arbitrate. The attorney must also explain, or ensure that the client understands, the differences between the arbitral forum and the judicial forum, including the absence of a jury and such ‘procedural aspects of forum choice such as timing, costs, appealability, and the evaluation of evidence and credibility.'” All of that should be done with regard to the particular client’s capacity to understand the information.
When’s the last time you heard a state supreme court espouse the importance of the right to a jury trial? And pound on the importance of specifically and knowingly waiving that right? Well, the Kindred case comes to mind for me. And SCOTUS reversed Kentucky’s public policy rule in that case, finding it was preempted by the Federal Arbitration Act. Kindred stated noted that the Kentucky “court did exactly what Concepcion barred: adopt a legal rule hinging on the primary characteristic of an arbitration agreement–namely, a waiver of the right to go to court and receive a jury trial.” The Snow decision does not cite to the Kindred case, even though Kindred came out in May and Snow wasn’t argued until October of 2017. Instead, the Snow decision gives a preemption analysis that defies logic. It says its rule “that attorneys fully inform a client of the scope and effect” of an arbitration clause “does not ‘single out’ arbitration agreements.” Say what? The court goes on to say that it would apply to any client “decision to waive significant rights,” but does not offer any cites to Maine law requiring attorneys to give oral primers to clients on anything other than arbitration Indeed, the Snow opinion’s emphasis on jury trial, appealability, and evidence show it’s rule hinges on primary characteristics of arbitration, just like Kentucky’s ill-fated rule.
Despite the similarities with Kindred, would SCOTUS treat this case differently because attorneys are held to a higher standard? The Ninth Circuit has affirmed a decision finding the arbitration clause in an lawyer’s engagement letter unconscionable. And the ABA favors the higher standard (but I am not aware it has reconsidered its opinion in light of recent preemption decisions). But, I have a hard time distinguishing the rule in Snow from the one that was reversed in Kindred.