On December 21, 2020, the Supreme Court of New Jersey issued its ruling and opinion in the case of Delaney v. Trent S. Dickey and Sills Cummins & Gross, P.C., (“Sills”), a law firm located in New Jersey.
Initially, when Brian Delaney, a client of Sills, refused to pay outstanding fees allegedly owed by Delaney to Sills for professional services Sills invoked the arbitration provision contained in its Engagement Agreement with Delaney. However, thereafter Delaney brought a separate action against Sills for malpractice and moved to stay their fee dispute, and have the malpractice claim proceed in the Chancery Division. That request was granted, and the Court ruled that both of these disputes were subject to the arbitration provisions of the parties’ Engagement Agreement. However, in December, 2020, the Appellate Division ruled, to the surprise of many attorneys and other commentators, that the malpractice action was not subject to the arbitration provisions of their Engagement Agreement and, that, therefore, Delaney could proceed with such action in the Law Division.
Those who have commented on the Opinion have pointed to numerous inconsistencies, impracticalities and, perhaps, the ultimate unfairness of the ruling in a situation and in a manner so inconsistent with the applicable law and holdings of the New Jersey court, as well as those of other jurisdictions and a number of professional committees, codes of conduct and associations. However, the purpose of this article is not to critique the Court’s holdings and the outcry that followed, but rather to address the several critical areas identified by the Court in an effort to encourage attorneys to begin a “healing” process that will accommodate the substance and equities of the holding, realizing that over time there will be a host of decisions and professional opinions that come to bear on this situation.
The Arbitration Agreement – First and foremost, any “arbitration provisions” contained in an Engagement Agreement should comply with the law and with applicable equitable considerations. Thus, law firms presently or prospectively subject to the potential effect of this decision may need to update both their and their clients’ arbitration agreements to the extent that they are inconsistent with the Court’s holding.
Lawyers and law firms should take steps as necessary to overhaul their agreements while simultaneously working with their own professional associations and committees in developing a uniform provision that suitably addresses concerns like those raised in Delaney.
Cautionary Language re the Effect of Agreeing to Arbitration. As is the case with the arbitration clause itself, most lawyers in this situation have already had to confront the issue of proper disclosure of the concept of arbitration in their Engagement Agreements and that they have presented to their clients in third party actions. Thus, it is not burdensome to prepare a set of uniform “rules of the road” for use while the various bar and professional associations and committees come up with anticipated new “standard” or uniform disclosures.
Should the Retainer Arbitration Language be limited to different specific types of disputes? – Perhaps the best reason why that might not be practical is evidenced in Delaney. Without going into the details of the evolution of the parties’ dispute and the ultimate litigation, the proceedings started out as a fee dispute and morphed into a malpractice case. Do any of us believe that newly retained counsel for a disgruntled client will not take the opportunity to segue a monetary dispute into a malpractice action if given the chance to avoid arbitration? If so, for the time being, until there is more clarity, such a distinction may not be useful or helpful.
What should be said or done, and what are the applicable standards, to inform clients of their right to seek outside counsel to advise them regarding the application and provisions of the arbitration provision in the Engagement Agreement? –Again, although based upon the response that has been generated by the publication of Delaney, and the customary role that professional committees, associations and commentators on a regional and nationwide basis will have in proposing recommendations, or even mandates, the ultimate answer for your jurisdiction will eventually be forthcoming – without a warranty as to its fairness, ease of application, etc. However, as is the case with the other areas referenced above, in the shadow of the Delaney opinion it is important for counsel – and their clients – to move forward and interact in order to currently provide effective and timely counsel to our clients.
Thus, pending any local, regional or national answers to the questions and issues raised by the Court in Delaney, interim decisions must be made sooner than later, because we all know that time cannot stand still while the various forces attempt to arrive at an ultimate solution. But, what are the standards for that disclosure? Will the client be willing to seek out and/or compensate a second law firm to gain sufficient knowledge of the underlying dispute to effectively provide counsel to the client? Most importantly, for sophisticated clients and/or clients with ready access to inside counsel, this safeguard is in all likelihood in effect at present. For other clients, upon proper disclosure, the decision to seek other counsel remains with the client.
“These are the times that try [our] souls”. This is not the end of arbitration provisions in Engagement Agreements, but rather an opportunity to revisit a very complicated relationship and terms and conditions that are challenging because of the unique fiduciary relationship that exists from inception between an attorney and their client – particularly regarding the very instrument which governs that relationship. The positions taken by the Delaney Court are out there pending appeal to serve as measures by which to currently “judge” arbitration provisions in legal services agreements. Certainly, no matter what the ultimate outcome in Delaney, the issues have been joined for counsel and clients to consider and address.
Last modified: April 22, 2021