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Louisiana Supreme Court Finds Binding Arbitration Clause Fair and Reasonable to the Client

The Louisiana Supreme Court has recently undertaken a case deciding whether arbitration clauses in attorney-client retainer agreements are appropriate. In the past, Louisiana has favored the enforcement of arbitration clauses in written contracts. Arbitration avoids taking a case to trial and is a thrifty and efficient way to conduct the resolution of disputes outside of the courts. During arbitration, each party refers its dispute to an arbitrator, who then imposes a decision that is legally binding for both sides. However, Louisiana law also imposes a fiduciary duty 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 the upmost scrutiny.

According to the Louisiana Supreme Court in Hodges v. Reasonover, there is no per se rule against such binding arbitration clauses, provided that they are fair and reasonable to the client. In Hodges v. Reasonover, Jacqueline Hodges, the founder, sole shareholder, and CEO of Med-Data Management, Inc., hired Kirk Reasonover of the law firm of Reasonover & Olinde to sue a company known as MedAssets, Inc. in federal court in Atlanta, Georgia. In the retainer agreement between Hodges and Reasonover there was an arbitration clause, which essentially provided that any dispute shall be submitted to arbitration in New Orleans, Louisiana and that such arbitration shall be submitted to the American Arbitration Association (AAA).

Hodges was ultimately unsuccessful on her suit against MedAssets, Inc., which led her to file suit for legal malpractice against Reasonover. According to the Louisiana Supreme Court, Courts must closely scrutinize attorney-client agreements for signs of unfairness or overreaching by the attorney. Further, Louisiana Rule of Professional Conduct 1.8(h)(1) prohibits a lawyer from “prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement.”

According to the state of Louisiana as well as the American Bar Association (ABA), an arbitration clause does not violate Rule 1.8(h)(1) unless some aspect of the arbitration clause limits the lawyer’s substantive liability. According to ABA Formal Ethics Opinion 02-425:

[M]andatory arbitration provisions are proper unless the retainer agreement insulates the lawyer from liability or limits the liability to which she otherwise would be exposed under common or statutory law. For example, if the law of the jurisdiction precludes an award of punitive damages in arbitration but permits punitive damages in malpractice lawsuits, the provision would violate Rule 1.8(h) unless that client is independently representing in making the agreement.

The Louisiana Supreme Court agrees with the aforementioned opinion by the ABA and states that an arbitration clause which does not inherently limit or alter either party’s substantive rights, but rather it simply provides for an alternative venue for the resolution of disputes is enforceable. In the case of Jacqueline Hodges, the Court found that there is no evidence that arbitration conducted in accordance with AAA rules and before AAA-approved arbitrators would in any way be presumptively unfair or biased. Thus, the Court said that arbitration provides a neutral decision maker and is otherwise fair and reasonable to the client.

For clients, the word “binding” can have an intimidating effect. At the Berniard Law Firm, our lawyers do not take arbitration matters lightly and understand the gravity of such situations, particularly in personal injury and insurance disputes. Our attorneys are here to provide experience and quality representation from the beginning of our time with clients until the very end. We will explain and discuss contracts, such as retainer agreements, in great detail so that you as the client can feel comfortable with your signature on the dotted line. The Berniard Law Firm always has your best interests in mind and we are happy to counsel you if you have legal questions regarding arbitration.