Monday, February 5, 2018

Too Late To Assert Arbitration Provision Was Unethical

The defendant in a suit for payment of legal fees waived its right to object to arbitration, according to a decision of the Vermont Supreme Court.

The critical question in this case is whether a party who participates extensively and without objection in an arbitration proceeding for nearly seven months prior to the actual arbitration hearing waives an objection to the validity of the arbitration agreement. Lesley Adams, William Adams, and Adams Construction VT, LLC (collectively Adams Construction) appeal the trial court’s denial of their application to vacate an arbitration award in favor of Russell Barr and the Barr Law Group (collectively Barr Law Group) and against Adams Construction. Because we conclude that Adams Construction waived its challenge to the validity of the arbitration agreement, we affirm.

After participating fully in the arbitration

On October 4, 2016, one week before the beginning of the scheduled three-day hearing, Adams Construction filed an objection to arbitration and a motion to dismiss the arbitration proceeding. Adams Construction argued, for the first time, that the arbitration provision in Adams Construction’s fee agreement with Barr Law Group was unenforceable. Adams Construction cited legal authority from Vermont and across the country suggesting that an attorney’s fiduciary duty and ethical obligations require that the lawyer take certain steps to ensure that a client’s consent to a pre-dispute, binding arbitration agreement is fully informed. These steps may include fully disclosing the risks of binding, pre-dispute arbitration clauses, identifying the legal rights a client forgoes in signing such an agreement, and giving the client a chance to consult with independent counsel before signing the agreement. Adams Construction alleged that nobody from Barr Law Group explained the legal implications of the arbitration agreement to Mr.
or Ms. Adams before or after they signed it, or advised them to get independent legal advice before signing the fee agreement. Nor did Barr Law Group explain to Adams Construction that the Vermont Bar Association provides a free arbitration service for resolution of attorney-client fee disputes. For these reasons, Adams Construction contended that the arbitration agreement was invalid and sought dismissal of the arbitration proceeding.

After losing the arbitration on all counts, an appeal was taken

We are persuaded by our own reasoning in Joder Building Corporation, as well as by those courts that have concluded that at some point prior to the actual arbitration hearing a party who participates in an arbitration proceeding without objecting to the validity of the arbitration agreement may waive the ability to make that objection...

We need not locate the line in this case, or define with precision the range of the trial court’s discretion; in this case, Adams Construction’s participation in the selection of arbitrators, filing of an answer and counterclaims, and active participation in extensive discovery and motion practice over a period of nearly six months was more than sufficient to give rise to a waiver. Our requirement of timely objections to arbitration jurisdiction was designed to avoid unnecessary investments in time and resources of exactly these types.

(Mike Frisch)

http://lawprofessors.typepad.com/legal_profession/2018/02/the-defendant-in-a-suit-for-payment-of-legal-fees-waived-its-right-to-object-to-arbitration-according-to-a-decision-of-the-v.html

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