Teaching Consumer Credit Law in an Evolving Australian Economy

RECENT DEVELOPMENTS
LAWYER CANNOT ENFORCE ARBITRATION AGREE-
MENT IN RETAINER CONTRACT
Hodges v. Reasonover, ___So.3d ___(La. 2012).
FACTS: In 2007, Plaintiff Hodges sued a company in federal
court in Atlanta regarding a contractual dispute and retained
Defendant Reasonover, an attorney with whom Plaintiff had
an ongoing business relationship since 1998. Plaintiff signed
a retainer agreement in 2007, which contained an arbitration
clause. In 2009, Plaintiff and Defendant renegotiated the
retainer agreement. The revised 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.”Plaintiff chose not to retain
independent counsel and signed the revised agreement.
Plaintiff’s claims ultimately failed to survive a motion for
summary judgment. She then sued Defendant for malpractice,
and Defendant filed exceptions based on the arbitration clause.
The district court denied the exceptions based on the Louisiana
Rule of Professional Conduct 1.8(h)(1), which prohibits any
agreement made between an attorney and client that limits the
liability of the attorney. It found that the mandatory arbitration
clause was a prospective limitation of liability and, because
Plaintiff had not been represented by independent counsel, the
arbitration clause was invalid. Defendant appealed.
HOLDING: Affirmed on other grounds.
REASONING: The court disagreed that the arbitration clause
was a per se limitation on liability, citing the Federal Arbitration
Act, as well as public policy reasons for enforcing arbitration
clauses. The court then analogized for the decision in Ginter ex
rel. Ballard v. Belcher, Prendergast & Laporte, 536 F.3d 439 (5th
Cir. 2008), which held that including a forum-selection clause
into an attorney-client agreement is usually not a limitation on
malpractice liability. The court held that provided a binding arbitration
clause (1) provides
for a neutral decision maker,
(2) is otherwise fair and reasonable
to the client, and (3)
does not limit the attorney’s
substantive liability, it does
not violate the Louisiana
Rule.
The court found, however,
that in the instant case,
Defendant did not adequately
disclose the full scope of
the arbitration clause and
the potential consequences of agreeing to binding arbitration,
and affirmed the lower court. The court held that attorneys, by
virtue of their legal education and training, have an advantage
over clients, who may not understand the arbitration process and
the full effects of an arbitration clause. The court then laid out
the necessary disclosures that attorneys must give to their clients,
including waiver of the right to a jury trial, waiver of the right
to an appeal, waiver of the right to broad discovery, and the possibility
of substantial upfront costs compared to litigation.
Defendant did not
adequately disclose
the full scope of the
arbitration clause
and the potential
consequences of
agreeing to binding
arbitration.
ARBITRATION CLAUSE DOES NOT COVER JOB
APPLICANT
Gove v. Career Sys. Dev. Corp., 824 F. Supp. 2d 205 (2011).
FACTS: Plaintiff applied for a position as a medical clerk with
Defendant company. Plaintiff’s employment application included
a reference to Defendant’s dispute resolution and arbitration
policy, which stated that submission of the application constituted
an agreement to arbitrate any pre-employment disputes. While
the policy was not directly attached to Plaintiff’s application
for employment, the application stated that it was on display in
Defendant’s employment office and would be provided to Plaintiff.
Plaintiff, a visibly pregnant woman, interviewed for a position with
Defendant. Defendant commented on her pregnancy and asked
how much longer until she was due. Plaintiff was not selected for
employment, and Defendant continued to advertise the position
after informing her she had not been selected. Plaintiff filed suit
alleging Defendant’s failure to hire her was due to her gender
and pregnancy in violation of the Maine Human Rights Act and
Title VII of the Civil Rights Act. Defendant filed a motion to
compel arbitration along with a copy of Plaintiff’s employment
application and the arbitration policy.
HOLDING: Motion denied.
REASONING: In its consideration of Defendant’s motion to
compel arbitration, the court followed Section 3 of the Federal
Arbitration Act (FAA) which requires a determination of (1)
whether there is an agreement to arbitrate, (2) whether the
dispute in question falls within the scope of that arbitration
agreement, and (3) whether the party seeing arbitration has
waived the right to compel arbitration. “Whether a party agreed
to arbitrate a particular dispute is . . . a matter of contract.”
Johnson v. Circuit City Stores, Inc., 148 F.3d 373 (4th Cir. 1998).
Under ordinary Maine contract law the court must interpret the
effect of the parties’ intentions in the document; however, the
FAA requires a presumption in favor of arbitration.
The court determined that Plaintiff had little to no
bargaining power when she entered into the agreement and
construed any ambiguities against the Defendant drafter. Within
the arbitration policy, Defendant referred to “employment”,
“employment process,” and “its employees” which the court
found to suggest that the arbitration agreement applies if the
applicant is hired and becomes an employee. The court found
ambiguities as to whether the arbitration policy applied to job
applicants who did not receive an employment offer, because it
also referred to pre-employment disputes. The court determined
that the clause was drafted to apply only to job applicants who
later become employees, because to incorporate applicants who
were not eventually hired would require specific language.
Further, the fact that the Plaintiff was delivered a standard-form
employment application gave Defendant all of the drafting and
bargaining power. Due to such an imbalance, the court was
required under Maine law to construe the ambiguities in favor
of Plaintiff, holding that, as an applicant who was not hired,
the arbitration policy did not incorporate her and require her to
arbitrate her pre-employment dispute.
52 Journal of Consumer & Commercial Law