Delaney v. Dickey, 122120 NJSC, A-30-19

Docket NºA-30-19
Opinion JudgeALBIN, JUSTICE
Party NameBrian Delaney, Plaintiff-Respondent, v. Trent S. Dickey and Sills Cummis & Gross, P.C., Defendants-Appellants.
AttorneyPeter G. Verniero argued the cause for appellants (Sills Cummis & Gross, attorneys; Peter G. Verniero, Richard H. Epstein, and Joshua N. Howley, of counsel and on the briefs). Glenn A. Bergenfield argued the cause for respondent (Glenn A. Bergenfield, on the briefs). William E. Denver argued the ...
Judge PanelALBIN, J., writing for the Court. CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, PATTERSON, FERNANDEZ-VINA, SOLOMON, and PIERRE-LOUIS join in JUSTICE ALBIN's opinion. CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, PATTERSON, FERNANDEZ-VINA, SOLOMON, and PIERRE-LOUIS join in JUSTICE ALBIN's opinion.
Case DateDecember 21, 2020
CourtSupreme Court of New Jersey

Brian Delaney, Plaintiff-Respondent,

v.

Trent S. Dickey and Sills Cummis & Gross, P.C., Defendants-Appellants.

No. A-30-19

Supreme Court of New Jersey

December 21, 2020

Argued September 15, 2020

On certification to the Superior Court, Appellate Division.

Peter G. Verniero argued the cause for appellants (Sills Cummis & Gross, attorneys; Peter G. Verniero, Richard H. Epstein, and Joshua N. Howley, of counsel and on the briefs).

Glenn A. Bergenfield argued the cause for respondent (Glenn A. Bergenfield, on the briefs).

William E. Denver argued the cause for amicus curiae New Jersey State Bar Association (New Jersey State Bar Association, attorneys; Kimberly A. Yonta, President, of counsel, and Andrea J. Sullivan and Kersten Kortbawi, on the brief).

Michael S. Stein argued the cause for amicus curiae Bergen County Bar Association (Pashman Stein Walder Hayden, attorneys; Michael S. Stein and Janie Byalik, on the brief).

Michael J. Epstein argued the cause for amicus curiae New Jersey Association for Justice (The Epstein Law Firm, attorneys; Michael J. Epstein, of counsel and on the brief, and Michael A. Rabasca, on the brief).

ALBIN, J., writing for the Court.

In this appeal, the Court considers whether the arbitration provision in the retainer agreement plaintiff Brian Delaney signed when he engaged the representation of Sills Cummis & Gross P.C. is enforceable in light of the fiduciary responsibility that lawyers owe their clients and the professional obligations imposed on attorneys by the Rules of Professional Conduct (RPCs).

On September 16, 2015, Delaney, a sophisticated businessman, retained Sills to represent him in a lawsuit. He met with a Sills attorney who presented him with a four-page retainer agreement. It was understood that Trent Dickey, who was not in the office that day, was slated to be the attorney primarily responsible for representing Delaney. During the meeting, the Sills attorney told Delaney that he should take his time reviewing the retainer agreement and ask any questions he had about its contents.

The third page of the retainer agreement contained an arbitration provision stating that any dispute about the firm's legal services or fees would be determined by arbitration and that, by agreeing to arbitration, Delaney waived his right to trial by jury; the agreement also advised Delaney that the arbitral result would be final and non-appealable. The fourth page of the retainer agreement indicated that the arbitration proceeding would be conducted through a private arbitration and mediation organization called JAMS and contained a hyperlink to thirty-three pages of JAMS rules governing the arbitral forum. The Sills attorney did not provide Delaney with a hard copy of the thirty-three pages of JAMS rules, offer an explanation of the arbitration provisions in the agreement or the hyperlink, or advise Delaney of the advantages and disadvantages of an arbitral forum in the event of a future fee dispute with or legal malpractice action against the Sills firm. Delaney reviewed and signed the retainer agreement in the presence of the Sills attorney without asking any questions.

After the representation was terminated, a fee dispute arose and, in August 2016, Sills invoked the JAMS arbitration provision in the retainer agreement. While the arbitration was ongoing, Delaney filed a legal malpractice action against Dickey and the Sills firm. The complaint alleged that Dickey and Sills negligently represented him. The complaint also alleged that the mandatory arbitration provision in the retainer agreement violated the Rules of Professional Conduct and wrongly deprived him of his constitutional right to have a jury decide his legal malpractice action.

The court held that the retainer agreement's arbitration provision was valid and enforceable. The court specifically found that the provision's language -- "any dispute with respect to the Firm's legal services and/or payment by you of amounts to the Firm" will be submitted to arbitration -- was sufficiently broad to encompass a claim of legal malpractice. Additionally, the court determined that Delaney waived his right to trial by jury by agreeing to the unambiguously stated arbitration provision, citing Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (2014), and further observed that a law firm has no obligation to explain to a client the terms of a clearly written retainer agreement that "can be understood by a layperson." Finally, the court noted that Delaney had sufficient time to consider the import of the retainer agreement.

The Appellate Division disagreed, stressing that Sills should have provided the thirty-three pages of JAMS arbitration rules incorporated into the agreement, that Sills did not explain the costs associated with arbitration, and that the retainer included a fee-shifting provision not permissible under New Jersey law.

The Court granted defendants' petition for certification. 240 N.J. 194 (2019).

HELD: For an arbitration provision in a retainer agreement to be enforceable, an attorney must generally explain to a client the benefits and disadvantages of arbitrating a prospective dispute between the attorney and client. Such an explanation is necessary because, to make an informed decision, the client must have a basic understanding of the fundamental differences between an arbitral forum and a judicial forum in resolving a future fee dispute or malpractice action. See RPC 1.4(c). That information can be conveyed in an oral dialogue or in writing, or by both, depending on how the attorney chooses best to communicate it. The Court refers the issues raised in this opinion to the Advisory Committee on Professional Ethics, which may propose further guidance on the scope of an attorney's disclosure requirements. The new mandate will apply prospectively, except as to Delaney, who must be allowed to proceed with his malpractice action in the Law Division.

1. Unlike the vendor in a typical commercial transaction, a lawyer serves in a fiduciary role to a client or prospective client. All fiduciaries are held to a duty of fairness, good faith and fidelity, but an attorney is held to an even higher degree of responsibility in these matters than is required of all others. Above all else, a lawyer's fiduciary role requires that the lawyer act fairly in all dealings with the client and provide the client with not only complete and undivided loyalty, but also with advice that will protect the client's interests. Lawyers typically prepare retainer agreements, and clients rely on the integrity of their lawyers who fashion the agreements. The attorney bears the burden of establishing the fairness and reasonableness of the transaction given the special considerations inherent in the attorney-client relationship. One of the paramount duties of a lawyer is to make necessary disclosures to the client so that the client can make informed decisions. That duty is expressed in RPC 1.4(c), which states that "[a] lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation." (pp. 23-24)

2. The American Bar Association (ABA) has issued a formal opinion construing the model rule on which RPC 1.4(c) is patterned. The ABA found that a provision in a retainer agreement requiring "the binding arbitration of disputes concerning fees and malpractice claims" did not violate the ABA Model Rules of Professional Conduct, "provided that the client has been fully apprised of the advantages and disadvantages of arbitration and has given her informed consent to the inclusion of the arbitration provision in the retainer agreement." Additionally, the ABA opinion recognized that a mandatory arbitration provision in a retainer agreement that insulates the lawyer from liability which she otherwise would be exposed under common or statutory law would contravene ABA Model Rule of Professional Conduct 1.8(h), which is substantially similar to New Jersey's RPC 1.8(h). Professional ethics committees and courts in other jurisdictions have reached conclusions similar to those in the ABA opinion. (pp. 25-32)

3. Noting that the advisory ethics opinions and judicial opinions from other jurisdictions require attorneys, at the very least, to explain the advantages and disadvantages of arbitrating a future fee dispute or malpractice action in light of the substantial differences between adjudicating a dispute in a judicial and arbitral forum, the Court reviews some of the differences between the arbitral JAMS forum in this case and a judicial forum. The Court makes no value judgment whether a judicial or arbitral forum is superior in resolving a legal malpractice action, which is a determination to be made by the lawyer and client, after the lawyer explains to the client the differences between the two forums so the client can make an informed decision. (pp. 32-36)

4. The arbitration provision at issue in this case -- on its face -- would be enforceable if the Sills retainer agreement were a typical contract between a commercial vendor and a customer. See Atalese, 219 N.J. at 444-45. But a retainer agreement is not an ordinary contract -- it must conform not only to the legal principles governing contracts, but also to the ethical obligations imposed on attorneys by the RPCs. Requiring attorneys to explain to a client the advantages and disadvantages of arbitration so that the client can make an informed decision whether to arbitrate a future fee dispute or legal malpractice claim against the firm does not single out a retainer agreement's arbitration provision for disparate treatment and therefore does not run afoul of the Federal Arbitration Act or the New Jersey...

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