Can a South Carolina lawyer put a mandatory arbitration clause in a fee agreement with a client?

Plain-English summary

A lawyer asked whether it was permissible in South Carolina to include an arbitration clause in a fee agreement with a client. The committee answered that South Carolina had no hard and fast rule on the question and that other jurisdictions were split. Its preferred course was to make reference in the fee agreement to the Bar's Resolution of Fee Disputes Board rather than to impose a mandatory arbitration clause.

The committee explained that the South Carolina Supreme Court created the Resolution of Fee Disputes Board under Appellate Court Rule 416, with jurisdiction over fee disputes under $50,000, and that the Board's procedural rules require the client's written consent to jurisdiction and to be bound. Because that framework leaves the client free to give or withhold consent, the committee read it as showing the Court's intention to leave the choice of third-party fee resolution to the client, which a mandatory arbitration clause would not. It surveyed the split among other states: New York and Pennsylvania permit such clauses if explained to the client (and, for Pennsylvania, with Rule 1.8(a) disclosure), Michigan and the District of Columbia permit them if the client obtains independent counsel, Connecticut permits them if clearly written and explained, while California and Ohio allow agreement to arbitrate only after the dispute arises.

Weighing arguments on both sides (arbitration is encouraged and the lawyer bears the burden of proving reasonableness, versus letting the client choose only after a dispute arises and concerns about prospectively limiting liability), the committee concluded it was hard to predict how the South Carolina Supreme Court would rule. Given the existing Fee Disputes Board, it advised that a lawyer should encourage use of the Board rather than include a mandatory arbitration clause, and that a lawyer who does include such a clause should require the client to seek other counsel.

Currency note

This opinion was issued in 2001, before the South Carolina Bar's adoption of the 2005 revisions to the Rules of Professional Conduct. Subsequent rule amendments or 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 Treat this page as historical context, not current guidance.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, deadline, or requirement mentioned here.

Common questions

Q: Does South Carolina prohibit arbitration clauses in fee agreements?

A: The committee found no hard and fast South Carolina rule either way, and noted that other jurisdictions are split on the question.

Q: What did the committee recommend instead of a mandatory arbitration clause?

A: The committee concluded the preferable course was to reference the Bar's Resolution of Fee Disputes Board, which the Supreme Court created with a consent-based framework that leaves the choice to arbitrate to the client.

Q: If a lawyer does use a mandatory arbitration clause, what should the lawyer do?

A: The committee concluded that a lawyer who includes a mandatory arbitration clause should require the client to seek other counsel about the agreement.

Background and rules framework

The opinion considered whether a fee-agreement arbitration clause is permissible, referencing South Carolina RPC 1.8(a) (business transactions with a client and full disclosure of terms, as applied by Pennsylvania), corresponding to Model Rule 1.8(a), and the Supreme Court's Appellate Court Rule 416 establishing the Resolution of Fee Disputes Board. The committee relied on the Wilcox and Crystal treatise and on ethics opinions from New York, California, Ohio, Pennsylvania, Michigan, and Connecticut.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 1.8(a) / Model Rule 1.8(a): business transactions with a client; full disclosure of terms.

Other rules:

• South Carolina Appellate Court Rule 416: Resolution of Fee Disputes Board (jurisdiction over disputes under $50,000; client consent required).

Other opinions cited:

• NYCLA Op. 723; California Op. 1981-56; Ohio Adv. Op. 96-9; Pennsylvania Op. 97-140; Michigan Op. RI-257; Connecticut Op. 99-20.

See also

• ABA Formal Op. 02-425: Arbitration of Fee Disputes and Malpractice Claims
• Alabama Op. 2002-04: Binding Arbitration in a Fee Contract
• SC Bar Ethics Op. 03-05: Disputed Fee Split After Discharge

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-01-06/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 01-06

FACTS
An attorney inquires as to the propriety of including an arbitration clause in a fee agreement with a client.

QUESTION
Is it permissible in South Carolina for a lawyer to include an arbitration clause in a fee agreement?

OPINION
South Carolina has no hard and fast rule regarding arbitration clauses in attorney-client fee agreements. Other jurisdictions are split on the matter. The preferable course of action is to make reference in the fee agreement to the Resolution of Fee Disputes Board of the South Carolina Bar.

DISCUSSION
According to Annotated South Carolina Rules of Professional Conduct (2000), Robert M. Wilcox and Nathan M. Crystal, at pages 39-40, South Carolina does not expressly indicate whether a lawyer can include an arbitration clause in a fee agreement. The South Carolina Supreme Court has created a Resolution of Fee Disputes Board under Appellate Court Rule 416, with jurisdiction to hear fee disputes of less than $50,000. The procedural elements (Rule 9) of Rule 416 specify that no application will be accepted from an attorney unless accompanied by the client’s written consent to jurisdiction and consent to be bound by the final decision of the Board. This provision leaves to the client the decision to proceed with third-party fee dispute resolution, as the client can either give or withhold consent. A conservative approach suggests that a mandatory arbitration clause would not be prudent since it is the South Carolina Supreme Court’s clear intention to leave the choice to the client.

Other jurisdictions are split on the issue. New York allows arbitration clauses that not only require fee disputes to be arbitrated, but any dispute arising under the agreement. NYCLA Eth. Op. 723, 1997 WL 419331. The New York committee stated that arbitration clauses are fine as long as they are explained to the client and the client has the opportunity to see other counsel if he desires. Id. (Emphasis added.) On the other side of the continent and at the other end of the spectrum is California’s view, which is that a lawyer and client can only agree to submit to arbitration after the fee dispute arises. CA Eth. Op. 1981-56, 1981 WL 27933. Ohio follows this view as well, declining to follow the Maryland and District of Columbia view that the clauses are permissible if independent counsel is sought. OH Adv. Op. 96-9, 1996 WL 734408.

Pennsylvania seems to follow New York, stating that the clauses are fine because the burden of proof will always be on the lawyer to prove the reasonableness of the clause. PA Eth. Op. 97-140, 1997 WL 671580. The Pennsylvania committee opined that if the lawyer complies with Rule 1.8 (a) which requires full disclosure of the terms of the agreement, then the lawyer may include the clause. Id. Michigan follows the District of Columbia view that the clauses are fine as long as the client obtains independent counsel to obtain advice on the agreement. MI Eth. Op. RI-257, 1996 WL 381513. Connecticut allows them as long as the arbitration clause is written clearly so that the client understands it, and the lawyer must explain the clause to the client and answer any questions the client may have about it. CT Eth. Op. 99-20, 1999 WL 958027.

The basic arguments for allowing an arbitration clause in the fee agreement are that alternative dispute resolution via arbitration is encouraged, the lawyer can explain the clause to the client, the client can obtain independent counsel if he or she chooses, and the burden of proving the reasonableness of the clause is on the lawyer.

The argument against allowing such clauses is mainly that the client should be able to choose the option only after the fee dispute arises. Also, some other ethics committees believe that there may be problems with a lawyer trying to limit liability to the client prospectively.

Both sides of the argument are persuasive and it is hard to tell on which side of the line the South Carolina Supreme Court would fall. The fact that South Carolina has a form of relief already established in the Resolution of Fee Disputes Board tends to show that South Carolina favors letting the client (not the lawyer) choose whether or not to arbitrate (and by what form) and would therefore disfavor mandatory arbitration clauses.

In the opinion of this committee, a lawyer should encourage the use of the Resolution of Fee Disputes Board rather than including a mandatory arbitration clause in the fee agreement. If a lawyer includes a mandatory arbitration clause in a fee agreement, he or she should require that the client seek other counsel.