Thursday, January 13, 2022

Forced Arbitration Of Fee Dispute In Retainers Unenforceable

The New Jersey Appellate Division affirmed a decision that  declined to enforce an arbitration provision in a law firm's retainer agreements.

In these ten one-sided appeals, which we consider back-to-back and have consolidated for the purpose of writing a single opinion, appellant Weinberger Divorce & Family Law Group LLC (the firm), challenges the denial of its motions to enforce the terms of its retainer agreement (RA) to obtain a judgment against its former clients for unpaid fees, or alternatively, to compel the former clients to submit to binding arbitration to resolve the parties' fee disputes. We affirm.

There were detailed retainer agreements in each matter

Once a fee dispute arose in each of the ten cases before us, the firm mailed the client a pre-action notice (PAN) via regular and certified mail pursuant to Rule 1:20A-6. The PAN stated that the client owed the firm legal fees and that the firm would "place [the] account into suit" unless the client complied with the RA and paid the "total outstanding balance."

The notice advised each former client of the Bar's fee arbitration services; none opted to pursue that option.

None of the ten clients requested fee arbitration with the District Fee Arbitration Committee. Consequently, in lieu of filing a complaint, the firm filed motions to enforce the RAs in the underlying matrimonial matters and sought entry of a judgment for the unpaid fees. Alternatively, the firm sought an order requiring it and the client "to attend binding arbitration governed by the New Jersey Uniform Arbitration Act, N.J.S.A. 2A:24-1 et. seq., with an Arbitrator to be selected by the [c]ourt from the listed options provided by [the firm] respecting the parties' fee dispute, in accordance with paragraph 17 of the" RAs. The firm also sought an award of counsel fees.

The facts of each case and the trial court actions are set out at length.

A recent decision does not impact the analysis

when determining the enforceability of the arbitration provisions contained in the firm's RA, the ordinary contract principles applicable to arbitration provisions in consumer and employment contracts apply, and the heightened Delaney standard does not.

But the fees must be reasonable

Here, we are satisfied the firm's certifications in support of its motions did not adequately address the factors under RPC 1.5(a). For example, the firm included one paragraph in each certification that generally explained the nature of the work performed and, in some cases, noted the results obtained, e.g., a final judgment of divorce. The certifications did not inform the court of the outcome of every motion filed. Moreover, the certifications did not address the fee customarily charged in the locality for similar legal services or offer any information regarding the experience, reputation and ability of the lawyer or lawyers who performed the services.

And as to compelled arbitration

Similarly, we cannot conclude the judges erred in denying the firm the alternate relief it requested in its motions, i.e., to enforce the binding arbitration provision in the firm's RA.

...the plain language of Rule 1:20A-6 makes clear that it is the client who has the right to initiate fee arbitration proceedings conducted under Rule 1:20A. Stated differently, "[w]hether or not a fee dispute will be arbitrated" pursuant to Rule 1:20A "is a matter within the exclusive control of the client" and "[t]he lawyer may not unilaterally invoke the binding arbitration technique of this rule." Pressler & Verniero, cmt. 1 on R. 1:20A-6. Therefore, the language in Paragraph Seventeen of the firm's RA, mandating that its clients initiate fee arbitration pursuant to Rule 1:20A-6, is contrary to the Rule itself, and is unenforceable.

The provision of the RA that the law firm sought to enforce was confusing and contradictory

Given the confusing, contradictory and improper language included in Paragraph Seventeen, we are convinced the judges did not err in declining to compel the firm's former clients to submit to binding arbitration. We hasten to add, however, that although Paragraph Seventeen of the RA is unenforceable, the balance of the RA is not rendered a nullity. Thus, striking Paragraph Seventeen's binding arbitration provision does not "defeat[] the primary purpose of the contract," Jacob v. Norris, McLaughlin & Marcus, 128 N.J. 10, 33 (1992), i.e., the firm's provision of legal representation to the client in exchange for payment of reasonable fees and costs.

(Mike Frisch)

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