Delaney v. Dickey

Decision Date21 December 2020
Docket Number083440,A-30 Sept. Term 2019
Parties Brian DELANEY, Plaintiff-Respondent, v. Trent S. DICKEY and Sills Cummis & Gross, P.C., Defendants-Appellants.
CourtNew Jersey Supreme Court

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

Glenn A. Bergenfield, Springfield, 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, Iselin, on the brief).

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

Michael J. Epstein, Rochelle Park, 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, Rochelle Park, on the brief).

JUSTICE ALBIN delivered the opinion of the Court.

An attorney serves in a fiduciary role with a client at the very inception of the attorney-client relationship. In that fiduciary role, an attorney has a professional obligation to explain the content of a retainer agreement "to the extent reasonably necessary to permit the client to make informed decisions regarding the representation." RPC 1.4(c). Thus, a retainer agreement is not an ordinary contract governed by the rules of the marketplace but is a contract that must meet the high standards of the Rules of Professional Conduct (or RPCs). An attorney's professional and fiduciary obligations require scrupulous fairness and transparency in dealing with clients -- requirements different from the typical norms that regulate arm's-length commercial transactions between vendors and customers.

Through the lens of those basic principles, we view the issue before us: whether a lawyer has a duty to explain the benefits and disadvantages of a provision in a retainer agreement that binds the client to arbitrate a future fee dispute or legal malpractice action in a non-judicial forum.

In this case, plaintiff Brian Delaney, a sophisticated businessman, sought the representation of Sills Cummis & Gross P.C. (Sills), a prominent law firm, in an ongoing commercial lawsuit with his estranged business partners.

At the Sills office, an attorney handed Delaney a four-page retainer agreement, including a one-page attachment (fourth page). The retainer agreement stated 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 one-page attachment indicated that the arbitration proceeding would remain confidential and would be conducted through a private arbitration and mediation organization called JAMS pursuant to its rules and procedures. The attachment, moreover, contained a hyperlink to thirty-three pages of JAMS rules governing the arbitral forum.1 On the day Delaney reviewed and signed the retainer agreement, the Sills attorney did not provide a hard copy of the JAMS rules, although he offered to answer any questions Delaney might have about the agreement.

Delaney later terminated his relationship with Sills. When Delaney refused to pay the outstanding fees allegedly owed to Sills, the firm invoked the arbitration provision. Delaney later sued Sills for professional malpractice and moved before the Chancery Division to stay the fee dispute that was already in arbitration, pending the outcome of the malpractice action. The Chancery Division ruled that the fee dispute and the malpractice claim were subject to the retainer agreement's arbitration provision.

The Appellate Division reversed. It found that Sills's failure to provide Delaney with the thirty-three pages of JAMS rules referenced in the retainer agreement before Delaney signed the agreement or to explain to him the JAMS rules, "some of which were material to the arbitration clause and the client's decision to retain Sills," rendered the arbitration provision unenforceable under the Rules of Professional Conduct.

We now hold that, 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).

An arbitration provision in a retainer agreement is an acknowledgement that the lawyer and client may be future adversaries. That the retainer agreement envisions a potential future adverse relationship between the attorney and client -- and seeks to control the dispute-resolution forum and its procedures -- raises the specter of conflicting interests. An arbitral forum and judicial forum, and their accompanying procedures, are significantly different.

We do not make any value judgment about whether an arbitral or a judicial forum would be more beneficial to a client if the client and attorney part as adversaries. We conclude, however, that an attorney's fiduciary obligation mandates the disclosure of the essential pros and cons of the arbitration provision so that the client can make an informed decision whether arbitration is to the client's advantage. See RPC 1.4(c). That obligation is in keeping with an attorney's basic responsibility to explain provisions of a retainer agreement that may not be clear on their face. Accordingly, the disclosures required of an attorney in explaining an arbitration provision in a retainer agreement stand on an equal footing with the disclosures required in explaining other material provisions in the agreement. Such comparable treatment does not offend the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 to 16, or the New Jersey Arbitration Act (NJAA), N.J.S.A. 2A:23B-1 to -36.

The arbitration provision in this case satisfies the requirements for a typical consumer or commercial agreement. The heightened professional and fiduciary responsibilities of an attorney, however, demand more -- an explanation of the differences between an arbitral and judicial forum. That explanation may include, for example, that in arbitration the client will not have a trial before a jury in a courtroom open to the public; the outcome of the arbitration will not be appealable and will remain confidential; the client may be responsible, in part, for the costs of the arbitration proceedings, including payments to the arbitrator; and the discovery available in arbitration may be more limited than in a judicial forum.2

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. We refer the issues raised in this opinion to the Advisory Committee on Professional Ethics for its review. The Committee may make recommendations to this Court and propose further guidance on the scope of an attorney's disclosure requirements.

Because the professional obligation we now impose may not have been reasonably anticipated and would unsettle expectations among lawyers, we apply this new mandate prospectively, with one exception. Applying the holding of our opinion here is "consistent with the usual rule that the prevailing party who brings a claim that advances the common law should receive the benefit of his efforts." See Estate of Narleski v. Gomes, 244 N.J. 199, 204, 237 A.3d 933 (2020). To be clear, however, we do not find that Sills or its attorneys violated the Rules of Professional Conduct, and we accept their representations that they acted in good faith.

Therefore, Delaney must be allowed to proceed with his malpractice action in the Law Division. We affirm and modify the judgment of the Appellate Division and remand to the Law Division for proceedings consistent with this opinion.

I.
A.

This appeal comes before us on facts essentially undisputed in the parties’ pleadings.

In November 2014, Delaney filed a lawsuit in Morris County against his business partners in two limited liability companies involved in real estate development. In January 2015, one of those business partners filed a lawsuit against Delaney in Sussex County. The law firm of Trenk DiPasquale represented Delaney in both actions.

On September 16, 2015, Delaney retained Sills to represent him in the Morris County lawsuit, replacing Trenk DiPasquale. That day, Delaney 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. The Sills attorney signed Dickey's name to the agreement and affixed his own initials below the signature. 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 the following arbitration provision:

[I]n the event that we and you are unable to come to amicable resolution with respect to any dispute (including, without limitation, any dispute with respect to the Firm's legal services and/or payment by you of amounts to the Firm), we and you agree that such dispute will be submitted to and finally determined by Arbitration in accordance with the provisions set forth on attachment 1 to this retainer letter. In such case, you would need
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