It must be near the end of the clerk year, because courts are going gangbusters issuing opinions. Today, a roundup of three arbitration decisions from Southern states. Notably, Louisiana makes it tough for lawyers to enforce arbitration agreements with their clients.
After prominently noting that the lower court rulings were “eminently reasonable, logical and just,” the West Virginia Supreme Court of Appeals said they were “directly contrary to the” federal interpretation of the FAA, because they denied a motion to compel arbitration on grounds that it would result in inefficient and piecemeal litigation. Johnson Controls v. Tucker, __ S.E.2d __, 2012 WL 2226342 (W. Va. June 13, 2012). In that construction dispute, seven defendants were answering claims that an HVAC system was improperly designed, constructed, and/or maintained. But only three defendants had an arbitration clause with the plaintiff, and those three moved to compel arbitration. The plaintiff opposed the motion, arguing that to force it into piecemeal litigation made the arbitration clauses unconscionable. After finding that federal law precluded that argument, the court also found none of the agreements were unconscionable under the plaintiff’s other arguments.
The high court in Alabama also reversed a lower court’s denial of a motion to compel arbitration in Auto Owners Insurance, Inc. v. Blackmon Insurance Agency, Inc., __ So. 3d. __, 2012 WL 2477927 (Ala. June 29, 2012). In that case between an insurance agent and the insurance company, the issue was whether the parties’ claims fell within the scope of their arbitration agreement. That issue was made more complicated by the fact that the parties had executed three agreements between 1995 and 2010, only two of which had arbitration agreements. While the lower court had denied the motion to compel arbitration, the Supreme Court of Alabama reversed that decision. Its analysis rested on the fact that the parties’ first agreement, in 1995, had an arbitration agreement that incorporated the AAA rules, and those rules give the arbitrator the authority to determine whether the parties’ dispute is within the scope of the original arbitration agreement.
The Supreme Court of Louisiana had to decide whether arbitration agreements between lawyers and clients are enforceable in Hodges v. Reasonover, __ So. 3d __, 2012 WL 2529403 (La. July 2, 2012). (Yes, Reasonover is the lawyer’s name. Does Reasonover over-reason? Read on…) The retainer agreement called for arbitration by the AAA, and when the clients sued the lawyer for malpractice, the lawyer moved to compel arbitration. The Louisiana court agreed with the ABA’s Formal Ethics Opinion 02-045 that a binding arbitration clause between an attorney and client is not per se unenforceable. However, it went on to find this particular clause unenforceable based on the lawyer’s failure to adequately disclose to the client at least the following seven aspects of the arbitration agreement: it waived their right to a jury trial, waived their right to appeal, waived their broad discovery rights, subjected them to higher upfront costs, it covered particular types of claims, it did not prevent the client from making a “disciplinary complaint”, and the client had the right to seek independent counsel before signing the agreement.
This high bar for disclosure was based on the attorney’s duty of candor and duty of loyalty, which the court found obligate a Louisiana lawyer to explain all consequences of agreeing to arbitrate. Hodges cites no authority for that aspect of its opinion outside Louisiana state law, meaning it may be vulnerable to a Concepcion challenge.
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