Legal Malpractice

The All Inclusive Arbitration Clause in Legal Malpractice

By (Andrew Lavoott Bluestone)

If thing go wrong, sue the attorney!  It's a familiar meme, yet there are more and more arbitration clauses found in retainer agreements, especially media representations and patent law.  On the one hand, in NYS there are the mandatory fee dispute arbitrations, but that is now what we are thinking about.  As an example: PROTOSTORM, LLC and PETER FAULISI, Plaintiffs, -against- ANTONELLI, TERRY, STOUT & KRAUS, LLP, DALE HOGUE, FREDERICK D. BAILEY, CARL I. BRUNDRIDGE, ALAN E. SCHIAVELLI; 08-CV-931 (NGG)(JO);  UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK; 2010 U.S. Dist. LEXIS 20894 is a multi-defendant patent action.  One of the defendants had an arbitration clause in its retainer agreement.
 

"The party seeking to resolve a dispute by arbitration has the burden of proving a valid [*12] arbitration agreement. See Symphony Fabrics, 2008 U.S. Dist. LEXIS 44588 at *31; Peterson v. Beale, No. 92-CV-5412 (RPP), 1995 U.S. Dist. LEXIS 11580 at *3 (S.D.N.Y. Aug. 11, 1995). A court evaluating this issue applies the same standard as it would when faced with a motion for summary judgment. See Mina v. Foot Locker, Inc., No. 09-CV-0472 (DB), 2009 U.S. Dist. LEXIS 93155 at *3 (S.D.N.Y. Sept. 30, 2009) (citing Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003). "If there is an issue of fact as to the making of the agreement for arbitration, then a trial is necessary." Bensadoun, 316 F.3d at 175. "[W]hether the parties agreed to arbitrate is determined by state law," Bell v. Cendant Corp., 293 F.3d 563, 566 (2d Cir. 2002), and a party contesting the existence of a an agreement to arbitrate may assert all "generally applicable contract defenses, such as fraud, duress, or unconscionability." Doctor's Assocs. v. Casarotto, 517 U.S. 681, 687, 116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996).

The court must first determine which state's contract law applies to the threshold issue of the existence of an agreement to arbitrate. A district court sitting in diversity applies the choice-of-law rules of the state in which it sits. [*13] See Lee v. Bankers Trust Co., 166 F.3d 540, 545 (2d Cir. 1999) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941)). New York courts generally honor an express choice-of-law clause if the selected state has sufficient contacts with the matter in dispute, so long as there is no fraud or violation of public policy. See Hartford Fire Ins. Co. v. Orient Overseas Containers Lines, 230 F.3d 549, 556 (2d Cir. 2000).
 

Unlike the existence of an agreement to arbitrate, the scope of such an agreement, once shown, is a question of law to be determined by a court. See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002). Plaintiffs assert that the Arbitration Clause solely governs fee disputes. (See Pl. Mem. 46.) Hogue, by contrast, argues that the Arbitration Clause is sufficiently broad to encompass all of Plaintiffs' claims. (See Reply 16-18.) Each side cites to California law to support their arguments regarding the scope of the Arbitration Clause. No party, however, explains why California law should apply to this question. While the existence [*16] of a binding agreement to arbitrate is a matter of state law, "[t]he issue of an arbitration agreement's scope is governed by the federal substantive law of arbitrability." Progressive Cas. Ins. Co. v. Reaseguradora Nacional De Venezuela, 991 F.2d 42, 48 (2d Cir. 1993).

"Federal policy strongly favors arbitration as an alternative dispute resolution process." Collins & Aikman Prods. Co. v. Building Sys., Inc., 58 F.3d 16, 19 (2d Cir. 1995); see also JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 171 (2d Cir. 2004). "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem. Hosp. v. Mercury Const. Com., 460 U.S. 1, 24-25, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983)."

Full post as published by New York Attorney Malpractice Blog on March 11, 2010 (boomark / email).