Arbitration in Attorney Fee Agreements After Royston v. Lopez

Originally published by Brandy Wingate Voss.

I had the pleasure of briefing and presenting argument to the Texas Supreme Court in Royston, Rayzor, Vickery & Williams, LLP v. Lopez (Nos. 13–1026 and 14–0109, opinion available here), a case dealing with the enforceability of arbitration clauses between attorneys and clients. Earlier this week, I participated in a webcast about the case titled “Engagement Letters/Arbitration & Beyond: Aftermath of Royston v. Lopez,” which was broadcast through TexasBarCLE.

The Texas Supreme Court’s decision reaffirmed the general principle that arbitration clauses between attorneys and clients are not per se unenforceable, but it also clarified the burden of proof and the standard for unconscionability in proceedings to compel a client to arbitration. The primary holdings were: (1) the attorney-client relationship does not alter the burden of a party opposing arbitration to present evidence of a valid defense to arbitration; (2) a limited scope arbitration clause is not substantively unconscionable merely because certain claims must be arbitrated, while others can be litigated in court; and (3) there is no substantive requirement for a lawyer to explain, orally or in writing, an arbitration clause to the client in order for the clause to be enforceable. Because there are no disciplinary rules that specifically address an obligation to explain an arbitration clause to the client, in her concurrence, Justice Guzman appeared to implore the bar to study the issue and develop rules to govern these types of agreements.

In Ethics Opinion 586, the Texas Professional Ethics Committee recommended that attorneys make certain disclosures to clients under certain circumstances. For example, where the client is sophisticated, disclosures may not be necessary. Where the client is unsophisticated, the Committee recommended discussing the benefits and disadvantages of arbitration with the client. Practically speaking, arbitration clauses are found in nearly every consumer contract, and it is hard to imagine a client that has no experience with them. And in fact, arbitration could benefit an unsophisticated client who decides to proceed pro se, given the relaxed procedural and evidentiary rules that apply in arbitration and the limited discovery to which the client would have to respond. Even so, the safest course of action for attorneys considering including an arbitration clause in an engagement letter is to consult this advisory opinion and determine whether to make disclosures, at least until the State Bar takes Justice Guzman’s suggestion and adopts rules governing the use of arbitration clauses.

Image courtesy of Flickr by 24oranges.nl.

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