October 31, 2007
Arbitration Clause Not Enforced
A New York law firm was retained to defend a lawsuit filed in federal court. The retainer provided for arbitration of fee disputes "between $1,000 and $50,000." A meeting with the clients took place when the total bill was $49,424.80. The clients contend that they instructed the firm to cease work; the law firm contends otherwise. The firm withdrew shortly thereafter and new counsel entered an appearence in the litigation.
The firm sued for fees slightly in excess of $60,000. The clients moved for a stay and an order compelling enforcement of the arbitration clause in the retainer. The law firm appealed the trial court's order requiring arbitration of the dispute.
On appeal, the New York Appellate Division for the First Judicial Department reversed the order compelling arbitration because an amount in excess of $50,000 is at issue. A dissent would remand to the trial court to resolve the factual dispute whether the firm was instructed to cease work when the bill was in an amount that would permit the client to enforce the arbitration agreement: "there are unscrupulous lawyers and such a lawyer might make false statements or inflate a bill to avoid arbitration and place greater pressure on the client. All lawyers...can make mistakes...Moreover, the extent of the factual support the client may be able to muster in opposition to the lawyer's position appears to be irrelevant under the majority's approach."(Mike Frisch)
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