On September 8, 2020, the Georgia Supreme Court issued an opinion in Innovative Images, LLC v. James Darren Summerville et al, Case No. S19G1026, affirming the reversal of a trial court’s denial of a motion to compel arbitration based on an arbitration clause in an attorney-client agreement. The Court held arbitration clauses in engagement agreements generally are not void as against public policy or unconscionable, even for resolution of prospective legal malpractice claims.
The arbitration provision required arbitration of fee disputes with the State Bar’s fee dispute arbitration program and arbitration of other disputes before a single arbitrator. The client filed a legal malpractice action in Fulton County State Court, and the firm filed a motion to compel arbitration. The trial court denied the motion and held the arbitration clause was unconscionable based on its reasoning Rule 1.4(b) of the Georgia Rules of Professional Conduct requires attorneys to explain possible disadvantages of arbitration clauses in engagement agreements, such as waiver of a jury trial, broad discovery, and the right to appeal, and there was no evidence to this effect.
Rule 1.4(b) states “[a] lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.” ABA Formal Opinion 02-425 concludes lawyers must apprise clients of advantages and disadvantages of arbitration before including an arbitration provision in a retainer agreement. The Court noted several states had followed the reasoning of ABA Formal Opinion 02-525 but declined to answer whether Rule 1.4(b) prohibits attorneys in Georgia from entering engagement agreements requiring arbitration without clients’ informed consent. It left this question for the State Bar of Georgia.
The Court held, even assuming the firm violated Rule 1.4(b), the arbitration clause was neither void as against public policy or unconscionable, and the trial court should have compelled arbitration. The Court noted contracts are not deemed void as against public policy because “the process of entering the contract was improper and objectionable by one party or the other, but rather because the resulting agreement itself is illegal and normally unenforceable by either party.” The Court found nothing about legal engagement agreements with arbitration clauses that took them outside Georgia’s policy favoring arbitration and nothing substantively or procedurally unconscionable about the arbitration clause at issue. There was no evidence the firm took fraudulent advantage of its client, and “lack of sophistication or economic disadvantage” of a party will not amount to unconscionability without more.
Stayed tuned as to whether the Georgia State Bar issues any advisory opinion or amendment in response to the issue highlighted in this decision.
Georgia State Bar Handbook: https://www.gabar.org/Handbook/index.cfm#handbook/rule54
Supreme Court Opinion: https://www.gasupreme.us/wp-content/uploads/2020/09/s19g1026.pdf
ABA Formal Opinion 02-425: https://www.americanbar.org/products/ecd/chapter/219988/
