By Samson Habte
April 16 --The arbitration provision in a Texas law firm's retainer agreement with debt adjustment services clients is procedurally unconscionable and cannot be enforced, the Washington Court of Appeals, Division Three, held April 8.
Judge Stephen M. Brown said the arbitration agreement was invalid because the plaintiff “was not informed of the advantages or disadvantages of arbitration, including the requirement that she must bring arbitration claims in Texas.”
The defendants in Gorden are battling a similar consumer protection lawsuit in Ohio, where a state appeals court April 10 issued an order that also rejected their motion to compel arbitration (Helbling v. Lloyd Ward, P.C., Ohio Ct. App. 8th Dist., No. 99991, 4/10/14).
The ruling in that case was based, in part, on Ohio Rule of Professional Conduct 1.8(h), which provides that a lawyer must ensure that a client receives independent counsel before entering into an agreement that requires the client to prospectively acquiesce to binding arbitration of disputes arising out of the representation. See Guay v. Lloyd Ward, P.C., No. 13 CA 42, 30 Law. Man. Prof. Conduct 98 (Ohio Ct. App. Jan. 17, 2014).
Here, Ward argued that Rule 1.8(h) is preempted by the Federal Arbitration Act. He pointed to AT&T Mobility LLC v. Concepcion, 2011 BL 110648 (U.S. April 27, 2011), which recognized that “when state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: the conflicting rule is displaced by the FAA.”
Judge Kathleen Ann Keough rejected that argument.
“Rule 1.8(h) does not 'prohibit outright' the arbitration of claims relating to a legal services agreement,” she wrote. “In fact, it allows arbitration of such claims on the condition that a client be represented by independent counsel before prospectively agreeing to arbitrate his or her claims.”
After seeing an Internet advertisement, Washington residents Sherrie K. Gorden and Debbie K. Miller separately enrolled in a debt settlement program administered as a joint venture by Texas attorney Lloyd Ward, his law firm and other parties (collectively, LWG). The clients signed a service contract that included a retainer agreement. The contracts stated that the agreements were governed by Texas law, and that any disputes relating to them would be resolved through binding arbitration in Texas. Those provisions were not discussed with the clients, the court said.
Gorden and Miller alleged that monthly payments they made as required by LWG's settlement program had not been turned over to creditors and were instead applied to LWG's own fees. Accordingly, they filed a lawsuit alleging that LWG violated state consumer protection laws by charging “predatory fees.” That action was brought on behalf of Gorden and Miller, as well as a proposed class of Washington residents who retained LWG's services.
Gorden agreed to settle her individual claim for $11,147. Miller rejected a settlement, however, and LWG moved to compel arbitration of her claim.
A trial court denied LWG's motion to compel arbitration, concluding that the parties' arbitration provision was unconscionable. The appellate panel agreed, ruling that the provision was procedurally unconscionable.
Citing Smith v. Jem Grp., Inc., 737 F.3d 636, 30 Law. Man. Prof. Conduct 7 (9th Cir. 2013), Brown noted that arbitration agreements between attorneys and clients are permissible under Washington law, but only “if the client has been given 'sufficient information to permit her to make an informed decision about whether to agree to the inclusion of the arbitration provision in the retainer agreement.'”
“Here, no attorney or attorney's representative discussed the arbitration provisions with Ms. Miller, or advised her of the rights at stake,” Brown said. “She was not counseled or advised regarding the consequences of relinquishing the legal protections provided by Washington law or of the protections provided by Texas law. Ms. Miller was not informed of the advantages or disadvantages of arbitration, including the requirement she must bring arbitration claims in Texas.”
Brown also rejected the argument that Washington courts lack personal jurisdiction over LWG. There are no jurisdictional problems, he said, because “LWG purposely advertised on the Internet to Washington residents, made service promises to Washington residents, entered into contracts with Washington residents, and received payments from Washington residents.”
Judges Kevin M. Korsmo and Evan E. Sperline joined Brown's opinion.
The Ward defendants were represented by Freimund, Jackson & Tardif LLP, Olympia, Wash. Miller was represented by The Scott Law Group P.S., Spokane, Wash.
Full text of Helbling at http://www.bloomberglaw.com/public/document/Helbling_v_Ward_2014Ohio1513_App_8th_Dist_2014_Court_Opinion.
Copyright 2014, the American Bar Association and The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)