Can a California lawyer put a binding fee-arbitration clause in a retainer agreement that the client signs before any fee dispute exists?

Currency note

This opinion was issued in 1981, before the State Bar of California's adoption of the November 1, 2018 revisions to the Rules of Professional Conduct. It interprets former Rules 2-101, 5-101, and 6-102 and the mandatory fee-arbitration statute (Business and Professions Code sections 6200-6206), areas now addressed by Model Rules 1.5 and 1.8 and California Rules 1.5 and 1.8. This opinion expressly disapproved the committee's earlier Opinion No. 1977-47 to the extent it was inconsistent, noting that 1977-47 predated former Rule 6-102. Subsequent rule amendments or later opinions may have further changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, statute, or requirement mentioned here.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the State Bar of California's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. The opinion text is reproduced at the bottom; the official source (linked) controls.

View original opinion

Plain-English summary

The committee was asked whether an attorney and client may sign a retainer provision under which both agree, before any dispute arises, to submit fee and cost disagreements to binding arbitration by the State Bar-approved agency, waiving their right to have the dispute settled by a court except for confirmation and enforcement. It reviewed the two 1978 arbitration statutes: the mandatory attorney-client fee arbitration scheme (Business and Professions Code sections 6200-6206, effective January 1, 1979) and the judicial-arbitration scheme for civil disputes of $15,000 or less (Code of Civil Procedure sections 1141.10-1141.32). Because the proposed clause invoked the State Bar's fee-arbitration rules, the committee analyzed the question primarily under sections 6200 et seq.

The committee concluded that a clause binding the client in advance both to arbitrate and to accept the result as binding is inconsistent with the language and policy of section 6200, subdivision (b), which makes arbitration voluntary for the client and mandatory for the attorney when the client commences it, and with section 6204, subdivision (a), which preserves the client's right to a trial de novo even after arbitration. It reasoned that a mandatory clause executed in advance could be used as a precondition of employment and so vitiate the voluntary acquiescence the statute requires. Citing Civil Code section 3513, it found the arbitration scheme was established for a public reason, not solely for an individual client's benefit, and so could not be contravened by private agreement.

The committee acknowledged a contrary view, that section 6204(a) lets attorney and client agree in writing to be bound at any time, but concluded that the structure of Article 13 means such a binding agreement may be entered only after a fee dispute arises and the client has been made fully aware of the dual right to arbitrate and to judicial review including a trial de novo. It noted several supporting ethical rules: former Rule 6-102 (no attempt to limit malpractice liability), former Rule 5-101 (avoiding adverse relationships with clients), former Rule 2-101(C) (no employment contrary to law), and former Rule 2-101(A)(2) (no arrangement that tends to confuse or mislead). The committee expressly disapproved its earlier Opinion No. 1977-47 to the extent inconsistent, noting 1977-47 predated former Rule 6-102.

Common questions

Q: Can a retainer agreement require the client to accept binding fee arbitration up front?

A: No. The committee concluded that a lawyer may not condition employment on a client's advance agreement to binding arbitration of fees, because the statute makes arbitration voluntary for the client.

Q: When can a client agree to be bound by the arbitrator's decision?

A: Only after a fee dispute arises and the client is made fully aware of the right to arbitrate and to judicial review, including a trial de novo. The committee read Article 13 to permit a binding waiver only at that point.

Q: Why can't the parties just contract around the statute?

A: The committee concluded, citing Civil Code section 3513, that the fee-arbitration scheme was established for a public reason and not solely for an individual client's benefit, so it cannot be contravened by private agreement.

Q: Does this opinion change any earlier guidance?

A: Yes. The committee expressly disapproved its earlier Opinion No. 1977-47 to the extent it was inconsistent, noting that 1977-47 was adopted before former Rule 6-102.

Background and rules framework

The opinion interprets the mandatory attorney-client fee-arbitration statute (Business and Professions Code sections 6200-6206) and the judicial-arbitration statute (Code of Civil Procedure sections 1141.10-1141.32), along with former Rules 2-101(A)(2), 2-101(C), 5-101, and 6-102 of the California Rules of Professional Conduct and Civil Code section 3513. The fee and limitation-of-liability concerns are now addressed by Model Rules 1.5 and 1.8 and their California counterparts; California's statutory fee-arbitration framework remains in the Business and Professions Code.

Citations and references

Rules of Professional Conduct:

• Former California Rules 2-101(A)(2) and (C) (communications and employment contrary to law), 5-101 (adverse interests), and 6-102 (limiting malpractice liability)

Statutes:

• California Business and Professions Code sections 6200-6206
• California Civil Code section 3513
• California Code of Civil Procedure sections 1141.10-1141.32

Other opinions cited:

• State Bar Committee on Professional Responsibility and Conduct Opinion No. 1977-47 (disapproved to the extent inconsistent)

See also

• CA Ethics Op. 1977-47: Conditioning Employment on Arbitrating Future Malpractice Claims
• CA Ethics Op. 1980-53: Charging Interest on Past-Due Client Receivables

Source

• Landing page: https://www.calbar.ca.gov/legal-professionals/ethics-compliance-practice-resources/ethics/ethics-opinions
• Original opinion: https://www.calbar.org/ethics/Opinions/1981-56.htm

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

THE STATE BAR OF CALIFORNIA
STANDING COMMITTEE ON PROFESSIONAL RESPONSIBILITY AND CONDUCT
FORMAL OPINION NO. 1981-56

ISSUE:

May an attorney ethically include binding arbitration provisions in attorney/client retainer agreements?

DIGEST:

An attorney may not condition employment on a client's acceptance of binding arbitration in advance of a dispute arising over fees. A client and an attorney may voluntarily agree in writing to arbitrate a fee dispute and waive their right to appeal the arbitrator's decision only after a fee dispute arises.

AUTHORITIES INTERPRETED:

Rules 2-101(A)(2), 2-101(C), 5-101 and 6-102 of the Rules of Professional Conduct of the State Bar.

Business and Professions Code sections 6200-6206; Civil Code section 3513; Code of Civil Procedure sections 1141.10-1141.32.

DISCUSSION

The Committee has been asked whether an attorney and client may enter into a written agreement which contains the following provisions:

"Should any disagreement arise with regard to fees and/or costs, both parties agree to submit to arbitration by the agency approved for same by the State Bar of California and to be bound by its findings. CLIENT understands that by so doing, CLIENT and ATTORNEYS waive their right to have such dispute settled by a court of competent jurisdiction, but that such a court would be limited to confirmation and enforcement of the decision of the arbitrators."

Two major arbitration bills were enacted by the California legislature in 1978. Article 13, Arbitration of Attorney's Fees, was added by statutes, 1978, chapter 719. Business and Professions Code sections 6200 to 6206 relate to mandatory arbitration of attorney/client fee disputes. Chapter 2.5, Judicial Arbitration, was added by statutes, 1978, chapter 743. Code of Civil Procedure sections 1141.10 to 1141.32 relate to arbitration of certain civil disputes involving $15,000 or less. Because most attorney/client fee disputes involve less than $15,000, these disputes may therefore be subject to the provisions of both article 13 of the Business and Professions Code and chapter 2.5 of the Code of Civil Procedure, both of which the Committee has considered in arriving at its conclusion.

Business and Professions Code sections 6200-6206 became effective January 1, 1979 and require mandatory arbitration of attorney/client fee disputes upon request of the client. Section 6200, subdivision (a), provides, in pertinent part:

"The Board of Governors shall, by rule, establish, maintain and administer a system an(] procedure for the arbitration of disputes concerning fees charge(] for professional services by members of the State Bar or by members of the bar of other jurisdictions."

The Board of Governors, pursuant to said statutory mandate, adopted the "Rules of Procedure for the Hearing of Fee Arbitrations by the State of California" (hereinafter "the Rules").

The Rules provide a comprehensive procedure for arbitrating attorney/client fee disputes concerning fees charged for professional services rendered after January 1, 1979. (Bus. & Prof. Code, 6200, subd. (a).) Generally the Rules require local bar associations to arbitrate fee disputes in accordance with local rules of procedure. However, the rules of procedure established by local bar associations "are subject to review by the Board of Governors to insure that they provide for a fair, impartial and speedy hearing and award." (Bus. & Prof. Code, 6200, subd. (c).)

The Legislature, however, specifically excluded certain attorney/client disputes from the mandatory provisions of article 13 and the Rules:

(1) When the attorney has no place of business within the state and "no material portion of the services were rendered in the State of California" (Bus. & Prof. Code, 6200 subd. (a)(1));

(2) When a client "seeks affirmative relief against the attorney or damages" or sues for "malpractice or professional misconduct" (Bus. & Prof. Code, 6200 subd. (a)(2));

(3) "Where the fee to be paid by the client ... has been determined pursuant to statute or court order" (Bus. & Prof. Code, 6200 subd. (a)(3));

(4) A client may not compel arbitration when an action is brought by an attorney in small claims court (Bus. & Prof. Code, 6200 subd. (b), 6201 subd. (b)).

The judicial arbitration provisions set forth at Code of Civil Procedure section 1141.10 et seq. provide for the mandatory submission to arbitration of certain civil proceedings (pending or filed after July 1, 1979) in superior courts with ten or more judges if the amount in dispute is less than $15,000. In superior courts with less than ten judges, and in all municipal courts, those courts may likewise provide, by local court rules, in the "interests of justice," a framework for arbitrating civil disputes. (Code Civ. Proc., 1141.11, subd. (b) and (c).) Arbitration of disputes under this chapter is governed by rules established by the Judicial Council (Code Civ. Proc., 1141.14) and necessarily involves the participation of the courts since the matters must be "at-issue" prior to the court compelling arbitration (Code Civ. Proc., 1141.11, 1141.12).

Inasmuch as the vast majority of attorneys' fees disputes involve less than $15,000, it is appropriate that any analysis of the question herein must be tested against both of the foregoing statutory schemes.

The principal issue is whether the proposed binding arbitration agreement contravenes either the letter and/or spirit of applicable provisions of Business and Professions Code sections 6200-6206. We do not feel the provisions of Code of Civil Procedure sections 1141.10-1141.32 are controlling for two reasons: first, sections 6200 et seq. of the Business and Professions Code provide a comprehensive framework for resolving disputes over attorneys' fees; second, the proposed binding arbitration agreement presented to the Committee contemplates arbitration under the "Rules of Procedure for the Hearing of Fee Arbitration by the State Bar of California" in that the client and attorney "agree to submit to [binding] arbitration by the agency approved for same by The State Bar of California." Arbitration under the Code of Civil Procedure is specifically regulated by the Judicial Council, not the State Bar (Code Civ. Proc., 1141.14).

The Committee's opinion is that a binding arbitration clause in which the client not only stipulates to arbitrate a potential fee dispute, but also stipulates that the results will be binding, is inconsistent with not only the "plain language" but also the underlying public policy reason behind section 6200, subdivision (b), and the related provisions of the Rules.

The principal public policy underlying the arbitration provisions is clearly stated at section 6200, subdivision (b), providing that arbitration "shall be voluntary for a client and shall be mandatory for an attorney if commenced by the client." Thus, if an attorney initiates arbitration of a fee dispute, the client's participation is wholly voluntary. Moreover, even if the client consents to arbitration, the client is still entitled to judicial review of the arbitrator's decision in a trial de novo (Bus. & Prof. Code, 6204, subd. (a)).

We feel that the suggested mandatory arbitration provision executed in advance of a fee dispute is contrary to the mandate and intent of Business and Professions Code section 6200 and the Rules. The Committee is of the opinion that the proposed agreement could be used as a precondition of employment and thus vitiate any probability of voluntary acquiescence.

Furthermore, it is the Committee's opinion that Business and Professions Code section 6200, subdivision (b), and the Rules were established to protect the consumer in general and, therefore, "for a public reason," and were not "intended solely for [a single client's] benefit." (Civ. Code, 3513.) Therefore, under Civil Code section 3513, this "cannot be contravened by a private agreement."

Another view, which is not the view of the Committee, is that an attorney and client may, with informed and written consent, agree at any time to arbitrate and, further, to be bound by the arbitrator's decision. This view is based on section 6204, subdivision (a), of the Rules of Professional Conduct which provides, in pertinent part, that an attorney and client "may agree in writing to be bound by the award of the arbitrators .... "It can be inferred that such an agreement can be entered at any time, even prior to a dispute between the parties arising. However, the structure of Article 13 of the Business and Professions Code suggests to the Committee that section 6204, subdivision (a), binding agreement may only be entered into if, and only after, a dispute over fees occurs and the client has been made fully cognizant of the dual right to arbitrate and judicial review, including a trial de novo, should the client be dissatisfied with the arbitrator's decision (Bus. & Prof. Code, 6204).

Additionally, there are several ethical rules the Committee considered in arriving at this opinion. First, rule 6-102 of the Rules of Professional Conduct prevents an attorney from even "attempt[ing] to exonerate himself from or limit his liability to his client for his personal malpractice."1 Second, rule 5-101 of the Rules of Professional Conduct provides that attorneys shall, in general, avoid entering into adverse relationships with their clients. Third, rule 2-101(C) of the Rules of Professional Conduct prevents an attorney from soliciting or accepting employment contrary to law (see discussion above). Fourth, rule 2-101(A)(2) of the Rules of Professional Conduct imposes a high ethical obligation on attorneys not to "present or arrange any matter in a manner or format which...tends to confuse, deceive or mislead the public." The Committee suggests that the proffered agreement may confuse and perhaps mislead the client.

This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of The State Bar of California. It is advisory only. It is not binding upon the courts, The State Bar of California, its Board of Governors, any persons or tribunals charged with regulatory responsibilities, or any member of the State Bar.

1 To the extent opinion No. 1977-47 is inconsistent with this opinion, it is hereby disapproved. Additionally, opinion No. 1977-47 was adopted before the passage of rule 6-102 of the Rules of Professional Conduct.