Hodges v. Reasonover

• Decision Date: 21 September 2012
• Docket Number: No. 2012–CC–0043.,2012–CC–0043.
• Citation: 103 So.3d 1069
• Parties: Jacqueline T. HODGES and HRC Solutions, Inc. (formerly known as Med–Data Management, Inc.) v. Kirk REASONOVER, Esq., Alfred A. Olinde, Jr., Esq. and Reasonover & Olinde, LLC.
• Court: Louisiana Supreme Court

103 So.3d 1069

Jacqueline T. HODGES and HRC Solutions, Inc. (formerly known as Med–Data Management, Inc.)

v.Kirk REASONOVER, Esq., Alfred A. Olinde, Jr., Esq. and Reasonover & Olinde, LLC.

No. 2012–CC–0043.

Supreme Court of Louisiana.

July 2, 2012.

Rehearing Denied Sept. 21, 2012.

Schonekas, Evans, McGoey & McEachin, LLC, Kyle Schonekas, Ian Atkinson, William P. Gibbens, New Orleans, LA, for Applicant.

Matthews & Warriner, LLC, Robert Hugh Matthews, Pauline Marie Warriner, New Orleans, LA, for Respondent.

KNOLL, J.

[2012-0043 (La. 1]We are called on to decide whether a binding arbitration clause in an attorney-client retainer agreement is enforceable where the client has filed suit for legal malpractice. This case presents two important countervailing public policies: Louisiana and federal law explicitly favor the enforcement of arbitration clauses in written contracts; by the same token, Louisiana law also imposes a fiduciary duty of the highest order requiring attorneys to act with the utmost fidelity and forthrightness in their dealings with clients, and any contractual clause which may limit the client's rights against the attorney is subject to close scrutiny.

After our careful study, we hold there is no per se rule against arbitration clauses in attorney-client retainer agreements, provided the clause is fair and reasonable to the client. However, the attorneys' fiduciary obligation to the client encompasses ethical duties of loyalty and candor, which in turn require attorneys to fully disclose the scope and the terms of the arbitration clause. An attorney must clearly explain the precise types of disputes the arbitration clause is meant to cover and must set forth, in plain language, those legal rights the parties will give up by agreeing to arbitration. In this case, the defendants did not make the necessary [2012-0043 (La. 2]disclosures, thus, the arbitration clause is unenforceable. Accordingly, the judgment of the lower courts is affirmed.

FACTS AND PROCEDURAL HISTORY

For completeness, we will briefly describe the underlying representation by defendants. Jacqueline Hodges is the founder, sole shareholder, and Chief Executive Officer of Med–Data Management, Inc. (“Med–Data”) and its successor entity, HRC Solutions, Inc. This dispute ultimately arises out of a 2005 asset sale between Med–Data and a company known as MedAssets, Inc. Med–Data developed software used by hospitals to manage their billing and medical insurance claims. Med–Data sold the rights to the software to MedAssets, Inc., in exchange for an upfront cash payment and a portion of any future sales of the former Med–Data software, provided a certain minimum threshold was met. On September 25, 2007, MedAssets informed Hodges it had not met the threshold of sales necessary to trigger additional payments.

Plaintiffs retained Kirk Reasonover, of the law firm of Reasonover & Olinde, to sue MedAssets in federal court in Atlanta, Georgia. Reasonover and the Hodges had an ongoing business relationship since 1998. The parties agreed to a “blended” fee schedule, meaning the firm charged a reduced hourly rate in exchange for taking a contingency interest in the case. The retainer agreement contained the following arbitration clause:

Any dispute, disagreement or controversy of any kind concerning this agreement, the services provided hereunder, or any other dispute of any nature or kind that may arise among us, shall be submitted to arbitration, in New Orleans, Louisiana. Such arbitration shall be submitted to the American Arbitration Association.

The retainer agreement was dated August 27, 2007, and signed by both Jacqueline and Stephen Hodges. On December 3, 2007, the Hodges filed a complaint against MedAssets in the Northern District of Georgia federal court, [2012-0043 (La. 3]alleging breach of contract and breach of the duty of good faith and fair dealing. MedAssets filed a motion to dismiss, citing the binding alternative dispute resolution clause in the asset purchase agreement. The court found the clause only applied to disputes over the amount of the payout, and not to allegations of breach of the duty of good faith and fair dealing, and denied the motion. Hodges v. MedAssets Net Revenue Systems, LLC, 2008 U.S. Dist. LEXIS 12254, 2008 WL 476140 (N.D.Ga.2008).

In August 2009, Stephen Hodges approached Kirk Reasonover and asked whether Reasonover & Olinde would be open to renegotiating the original retainer agreement. Defendants agreed, and the parties entered into a “revised fee agreement” based purely on a contingency fee. The revised fee agreement contained an arbitration clause identical to the one in the original agreement and stated “[b]ecause this agreement involves the acquisition of an additional interest in your case, and your interests in this transaction are adverse to ours, you should review this agreement with independent counsel.” The Hodges chose not to retain independent counsel and signed the revised fee agreement on August 31, 2009.

Plaintiffs' claims against MedAssets ultimately failed to survive a motion for summary judgment. This suit for legal malpractice followed. Defendants filed declinatory exceptions alleging improper venue and lack of subject matter jurisdiction based on the binding arbitration clause.

The District Court denied defendants' exceptions, citing Louisiana Rule of Professional Conduct 1.8(h)(1), which states: “A lawyer shall not make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless the client is independently represented in making the agreement.” The court found the mandatory arbitration clause was a prospective limitation of liability and, because the Hodges were not represented by independent counsel, the arbitration clause was invalid. The court of appeal denied defendants' request for supervisory [2012-0043 (La. 4]writs, Judge Bonin dissenting. We granted writs to address the enforceability of mandatory arbitration clauses in attorney-client agreements. Hodges v. Reasonover, 12–0043 (La.2/17/12), 82 So.3d 272.

Applicable Legal Principles

The positive law of Louisiana favors arbitration as a preferred method of alternative dispute resolution. Aguillard v. Auction Management Corp., 04–2804 (La.6/29/05), 908 So.2d 1, 7. This policy is set forth in the Louisiana Binding Arbitration Law, which states:

A provision in any written contract to settle by arbitration a controversy thereafter arising out of the contract, or out of the refusal to perform the whole or any part thereof, or an agreement in writing between two or more persons to submit to arbitration any controversy existing between them at the time of the agreement to submit, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

La.Rev.Stat. § 9:4201

Similarly, the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq., reflects a “liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.” Moses H. Cone Memorial Hospital v. Mercury Constr. Co., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). To the extent that federal and state law differ, the FAA preempts state law as to any written arbitration agreement in a contract involving interstate commerce. FIA Card Services, N.A. v. Weaver, 10–1372 (La.3/15/11), 62 So.3d 709, 712;Collins v. Prudential Ins. Co. of America, 99–1423 (La.1/19/00), 752 So.2d 825, 827.

At the same time, agreements between law firms and clients are held to higher scrutiny than normal commercial contracts because of the fiduciary duties involved. “The relation of attorney and client is more than a contract. It superinduces a trust status of the highest order and devolves upon the attorney the [2012-0043 (La. 5]imperative duty of dealing with the client on the basis of the strictest fidelity and honor.” Teague v. St. Paul Fire and Marine Ins. Co., 07–1384 (La.2/1/08), 974 So.2d 1266, 1271 (citations omitted). “In no other agency relationship is a greater duty of trust imposed than in that involving an attorney's duty to his client.” Id. An attorney is also bound by the ethical requirements set forth in the Louisiana Rules of Professional Conduct, which have the force of substantive law. See Succession of Cloud, 530 So.2d 1146, 1150 (La.1988) and citations therein. An attorney-client contract which directly violates a disciplinary rule is unenforceable. Id.

Courts must closely scrutinize attorney-client agreements for signs of unfairness or overreaching by the attorney:

[A]lthough the basic relationship between client and lawyer may be contractual, that association is nonetheless subject to the inherent authority of this Court to positively affect that fiduciary relationship through its power to regulate the practice of law.

As we stated in Succession of Wallace, 574 So.2d 348 (La.1991):

This court has exclusive and plenary power to define and regulate all facets of the practice of law, including the admission of attorneys to the bar, the professional responsibility and conduct of lawyers, the discipline, suspension and disbarment of lawyers, and the client-attorney relationship. The sources of this power are this court's inherent judicial power emanating from the constitutional separation of powers, the traditional inherent and essential function of attorneys as officers of the courts, and this court's exclusive original jurisdiction of attorney disciplinary proceedings. The standards governing the conduct of attorneys by rules of this court unquestionably have the force and effect of substantive law.

Therefore, any dispute relative to an attorney-client relationship is subject to the close scrutiny of this Court and is resolved under the codal provisions as illuminated by the [Rules of Professional Conduct].

Chittenden v. State Farm Mut. Auto. Ins. Co., 00–414 (La.5/15/01), 788 So.2d 1140, 1147–8 (citations...