Can a Michigan lawyer put a clause in the retainer agreement requiring that any fee dispute with the client go to arbitration?

Plain-English summary

A lawyer asked whether a retainer agreement could include a clause requiring that any claim or dispute arising out of the representation be submitted to arbitration through the American Arbitration Association, in compliance with Michigan's arbitration statutes. The Committee framed the issue around MRPC 1.8(h)(1), which bars a lawyer from prospectively limiting malpractice liability to a client unless the agreement is permitted by law and the client is independently represented.

The Committee acknowledged the question turned on whether an arbitration clause is an attempt to limit the lawyer's liability. It noted arguments on both sides: in theory arbitration does not limit liability but only changes the forum, and Michigan's policy favors arbitration; on the other hand, arbitration awards are generally not appealable, so a client loses the appellate relief otherwise available, and the agreement is negotiated between parties of unequal bargaining power.

Because no Michigan case prohibited such a clause and it was unclear whether the clause would be read as an attempt to limit malpractice liability, the Committee concluded the best course was to apply MRPC 1.8(h)(1): the clause is permissible provided the client obtains independent counsel concerning the advisability of entering into a fee agreement that includes an arbitration clause.

Currency note

This opinion was issued in 1989 and interprets the Michigan Rules of Professional Conduct as they then stood. The opinion itself notes it was drafted before the enactment of MRPC 2.4 and MRPC 1.19, and MRPC 1.8 has since been amended. Later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.

Common questions

Q: Did Michigan ethics rules forbid an arbitration clause for fee disputes in a retainer?

A: No. The opinion concluded there is no ethical prohibition on including such a clause, provided the lawyer satisfies the condition it drew from MRPC 1.8(h)(1).

Q: What condition did the opinion attach to the clause?

A: The opinion concluded the client must obtain independent counsel concerning the advisability of entering into a fee agreement that includes the arbitration clause, applying MRPC 1.8(h)(1) by analogy to a malpractice-liability limitation.

Q: Why did the Committee treat a fee-arbitration clause under the malpractice-limitation rule?

A: The opinion reasoned it was unclear whether the clause would be interpreted as an attempt to limit the lawyer's liability, and noted that arbitration awards are generally not appealable and that the lawyer and client have unequal bargaining power, so it applied MRPC 1.8(h)(1)'s independent-representation safeguard.

Background and rules framework

The opinion interpreted MRPC 1.8(h)(1) / Model Rule 1.8(h), which prohibits a lawyer from making an agreement that prospectively limits the lawyer's malpractice liability to a client unless permitted by law and the client is independently represented in making the agreement. The Committee did not resolve whether an arbitration clause actually limits liability; it applied the rule's independent-representation requirement as the cautious course given that doubt.

Citations and references

Rules of Professional Conduct:

• MR 1.8 / MRPC 1.8(h)(1) (prospective limitation of malpractice liability requires independent representation)

Statutes:

• MCL 600.5001 / MSA 27A.5001 (Michigan arbitration statute)

Cases:

• Detroit v. A.W. Kutsche & Co., 309 Mich 700 (1944), policy favoring arbitration
• Omega Construction Co. v. Altman, 147 Mich App 149 (1985), enforcement of arbitration

See also

• ABA Formal Op. 02-425: Arbitration in Retainer Agreements
• Mich Ethics Op. R-23: Arbitration in Fee Agreements
• AL Ethics Op. 2002-04: Arbitration in Fee Contracts

Source

• Landing page: https://www.michbar.org/opinions/ethics/numbered_opinions?OpinionID=872&Type=6

Original opinion text

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

NOTE: This opinion was drafted prior to the enactment of MRPC 2.4 and MRPC 1.19. Please see the rules for further guidance.

RI-2

January 28, 1989

SYLLABUS

There is no ethical prohibition preventing an attorney from including in a fee contract with a client a provision requiring arbitration of any fee dispute, provided that the client obtains independent counsel concerning the advisability of entering into such an agreement.

References: MRPC 1.8(h)(1).

TEXT

A lawyer has requested an opinion regarding the propriety of including in a retainer agreement with clients a clause requiring that any and all claims or disputes arising out of the lawyer's representation of the client be submitted to arbitration. The lawyer contemplates that the arbitration agreement would comply with the statutory requirements of MSA 27A.5001 and MCL 600.5001, and that any such disputes would be submitted to the American Arbitration Association for disposition.

MRPC 1.8(h)(1) states:

"A lawyer shall not make an agreement prospectively limiting the lawyer's liability to a client for malpractice unless permitted by law and the client is independently represented in making the agreement."

The question then becomes, is the inclusion of an arbitration clause in a fee contract with a client an attempt to limit the attorney's liability to this client? There are no opinions of either the State Bar of Michigan or the American Bar Association regarding this issue.

In theory, arbitration would not limit the liability of the attorney in any manner, but would simply provide for an alternative method of resolving the dispute. In this regard, the policy of the law clearly favors the settlement of disputes through arbitration. See e.g., Detroit v. AW Kutsche and Co, 309 Mich 700 (1944); McCandliss v. Award W. Roth, 45 Mich App 342 (1973); J.R. Snider Co. v. Soble, 57 Mich App 475 (1974); Campbell v. Community Service Insurance Co, 73 Mich App 416 (1977); DAIIE v. Curak, 81 Mich App 217 (1978); Omega Construction Co Inc v. Altman, 147 Mich App 149 (1985).

On the other hand, arbitrator's awards are generally not appealable. A client who believes that a decision of the arbitrator is erroneous is foreclosed from seeking appellate relief, which would have been available in the absence of an arbitration clause had the claim been tried in a court. Further, the agreement contemplated would be negotiated by parties having unequal bargaining power, i.e., a nonlawyer in trouble seeking services about which he may know little, and a lawyer active in the particular area of expertise.

While there is no case to be found in Michigan which prohibits an arbitration provision in a fee contract, and while it is unclear whether inclusion of an arbitration clause would be interpreted to be an attempt to limit one's liability for malpractice, this Committee feels the best course of conduct is to apply MRPC 1.8(h)(1) in this situation, provided that the client obtains independent counsel concerning the advisability of entering into a fee agreement which includes an arbitration clause.