1 CHAPTER 1 INTRODUCTION Table of Sections Sections A

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					                                      CHAPTER 1

                                  INTRODUCTION


                                    Table of Sections
                                                                            Sections
A. INTRODUCTION                                                             1.1-1.9
B. DECIDING WHETHER TO USE ALTERNATIVE
      DISPUTE RESOLUTION                                                   1.10-1.19
C. COMMERCIAL DISPUTES                                                     1.20-1.29
D. MANDATED ALTERNATIVE DISPUTE RESOLUTION                                 1.30-1.39
E. CODES OF ETHICS                                                         1.40-1.49

                                          -----

                                 A. INTRODUCTION
§ 1.1 In General
§ 1.2 Benefits of Alternative Dispute Resolution

  B. DECIDING WHETHER TO USE ALTERNATIVE DISPUTE RESOLUTION
§ 1.10 Generally
§ 1.11 When Not to Use Alternative Dispute Resolution
§ 1.12 When to Use Alternative Dispute Resolution

                           C. COMMERCIAL DISPUTES
§ 1.20 Use of Alternative Dispute Resolution in Commercial Disputes
§ 1.21 Arbitration
§ 1.22 Mediation

            D. MANDATED ALTERNATIVE DISPUTE RESOLUTION
§ 1.30 Statutes Mandating or Encouraging Alternative Dispute Resolution
§ 1.31 Use of Alternative Dispute Resolution in Judicial Proceedings
§ 1.32 Use of Alternative Resolution in Disputes with Lawyers—Generally
§ 1.33 Use of Alternative Dispute Resolution in Disputes with Lawyers—Fee Disputes
§ 1.34 Use of Alternative Dispute Resolution in Disputes with Lawyers--Malpractice

                               E. CODES OF ETHICS
§ 1.40 Generally
§ 1.41 Model Rules of Professional Conduct




                                           1
                                   A. INTRODUCTION

§ 1.1 In General

    Alternative dispute resolution describes the techniques or procedures for resolving dis-
putes short of trial in the public courts. Alternatives to civil litigation are not a new phe-
nomenon.1 However, in recent years there has been an increased interest in alternative dis-
pute resolution.2
    Society does not and should not rely exclusively on the courts for the resolution of dis-
putes. Other nonjudicial procedures may be superior in a variety of disputes. These nonju-
dicial mechanisms may be less expensive, faster, less intimidating, more sensitive to the dis-
putants’ concerns, and more responsive to the underlying problems.

    Alternative dispute resolution complements the judicial system by making methods
available to resolve some disputes more economically or efficiently than can be done in the
courts. As the cost of litigation has risen and court congestion worsened, private litigants in-
creasingly are turning to alternative dispute resolution to manage unavoidable disputes.

        Interest in alternative dispute resolution is fueled by a number of motives:

   •   Saving time and money.
   •   Rescuing the judicial system from overload.
   •   Creating better processes that are more open, flexible and responsive to the unique
       needs of the participants.
   •   Achieving better results by providing outcomes that serve the real needs of the par-
       ticipants or society.
   •   Enhancing community involvement in the dispute resolution processes.
   •   Broadening access to justice.3

    Alternative dispute resolution procedures may be adjudicatory or nonadjudicatory. Ad-
judicatory in nature, arbitration most resembles traditional litigation. Presentations are made
to one or more neutral decision makers who make a binding award. In some situations, the
award is nonbinding and a party may seek a trial de novo.

     In contrast to the adjudicatory process of arbitration, the nonadjudicatory processes, such
as mediation, minitrials or summary jury trials, give third parties no decision-making author-
ity and resolve disputes only by mutual agreement of the parties. By fostering mutual agree-

   1
      See, e.g., Burger, Isn’t There a Better Way?, ANNUAL REPORT ON THE STATE OF THE JU-
DICIARY (1982); Sander, Varieties of Dispute Processing, 70 F.R.D. 79 (1976).
    2
      See J. Auerbach, JUSTICE WITHOUT LAW? (1983), for a discussion of the historical de-
velopment of alternatives to formal adjudication.
    3
      Riskin & Westbrook, DISPUTE RESOLUTION AND LAWYERS 2 (1987).



                                               2
agreement, nonadjudicatory alternative dispute resolution methods may preserve or enhance
relations between parties. Nonadjudicatory alternative dispute resolution increases party
autonomy by giving the parties more input into the process.

    A number of states, through court rules or standards of professional responsibility, re-
quire lawyers to discuss the availability of alternative dispute resolution with their clients
and consider its use.4 The advice should be given at the earliest appropriate stage. This may
include the time of drafting an agreement or when a client is contemplating litigation.

§ 1.2 Benefits of Alternative Dispute Resolution

   Voluntary dispute resolution procedures have some advantages over court-annexed pro-
cedures. For example:

   •   Privacy. The alternative dispute resolution proceedings are normally initiated by the
       parties, paid for by the parties, and, for the most part, controlled by the parties. Be-
       cause most alternative dispute resolution proceedings are conducted in private, the
       parties can maintain the results of the proceedings in confidence.
   •   Voluntary. The parties consent to participate in the alternative dispute resolution
       proceedings, either before or after the dispute arises.
   •   Timing. Voluntary alternative dispute resolution proceedings can be initiated when-
       ever a dispute arises; the parties do not have to wait until a lawsuit is filed.
   •   Flexibility. A private alternative dispute resolution process can be adapted to fit the
       parties’ specific needs and the demands of the case.
   •   Efficiency. Alternative dispute resolution procedures can be tailored to the specific
       problem and the needs of the parties, saving money and time.
   •   Control. Because alternative dispute resolution frequently is a consensual process,
       the parties make the key decisions. They control the timing and pace of the proce-
       dure.
   •   Better Outcomes. Nonadjudicatory alternative dispute resolution procedures, in-
       cluding mediation and minitrials, can be particularly effective in resolving disputes
       because the parties participate directly. Parties having a continuing relationship with
       each other are more likely to adhere to agreements reached through direct participa-
       tion.
   •   Lack of Precedent. The use of alternative dispute resolution avoids the risk of ad-
       verse judicial precedent.
   •   Preservation of Relationships. Because alternative dispute resolution is generally
       more congenial and may conclude in a mutually beneficial resolution, it may be less
       likely to damage a continuing relationship than litigation.


   4
    Murray, Rau & Sherman, PROCESSES OF DISPUTE RESOLUTION: THE ROLE OF LAWYERS
367 (2d ed. 1996).



                                              3
   •     Creative Remedies. Alternative dispute resolution may offer more creative reme-
         dies that would be allowed through litigation.
   •     Specialized Knowledge. If a dispute requires knowledge in a particular specialty or
         industry, an arbitrator or mediator who specializes in that particular industry can be
         used to hear or mediate the case.

                   §§ 1.3-1.9 are reserved for supplementary material.

 B. DECIDING WHETHER TO USE ALTERNATIVE DISPUTE RESOLUTION

§ 1.10 Generally

   Where alternative dispute resolution is ordered and administered by a court,5 the parties
must attend the alternative dispute resolution proceeding when ordered and must follow the
governing rules. Their only choice is to decide whether to abide by the outcome.

    On the other hand, in private alternative dispute resolution the parties consent to the pro-
cedure and make the key decisions. Not all alternative dispute resolution methods are
equally suitable in all cases or at each stage of the dispute; careful consideration must be
given to whether alternative dispute resolution is appropriate. If alternative dispute resolu-
tion is appropriate, the parties must design or select an alternative dispute resolution process
that suits the needs of the client and the nature of the problem.

§ 1.11 When Not to Use Alternative Dispute Resolution

Alternative dispute resolution is not necessarily appropriate for every case. Examples of
situations where alternative dispute resolution may not be appropriate include the follow-
                                            ing:

   •     When Jury Trial Desired. When one or both of the parties desire a jury trial, alter-
         native dispute resolution procedures are usually inappropriate.
   •     When Imbalance of Power Exists. Where there is a significant imbalance in the
         parties’ bargaining power, the stronger party may see an advantage in marshaling its
         greater resources and wearing the opposing party out through drawn out judicial pro-
         ceedings.
   •     When One Party Is Stakeholder. A party who has the use of the money at issue
         may benefit from a delay in litigation.
   •     When Linkage Exists. When the lawsuit is part of a larger dispute involving other
         lawsuits and parties, one party may be willing to spend more money litigating the
         case than the case is worth in order not to avoid setting a precedent that may be ap-
         plicable in other cases.

   5
       See Chapter 18. See also § 1.30.



                                               4
   •   Where There Are Substantial Legal Issues. Some suggest that alternative dispute
       resolution is ill-equipped to deal with significant legal issues.
   •   Where There Are Substantial Credibility Questions. Some critics believe that al-
       ternative dispute resolution is not effective when there are substantial questions of
       credibility.
   •   Where There Are Multiple Parties. It may be more difficult to implement alterna-
       tive dispute resolution when there are multiple parties involved in the dispute.
   •   Where Legal Precedent Sought. Alternative dispute resolution may not be appro-
       priate if one of the parties desires to establish judicial precedent.
   •   When Adversary Is Unreasonable. If the adversary is wholly unreasonable, alter-
       native dispute resolution may not be successful.
   •   When Extensive Discovery Is Desired. Alternative dispute resolution may not be
       appropriate where extensive discovery is needed or desired.
   •   When Need to Bind Non-Parties. If there is a need to bind persons who are not
       parties to the result of the action (for example, in a mortgage foreclosure or an action
       to establish title to property, a judicial proceeding is preferable to alternative dispute
       resolution.6

    Concern has also been expressed over the broad remedial powers of arbitrators, particu-
larly given the limited judicial review of arbitral decisions.7

§ 1.12 When to Use Alternative Dispute Resolution

Alternative dispute resolution can be used at any stage of a dispute. However, alternative
dispute resolution is generally most effective when introduced at an early stage, whether
within or outside a judicial proceeding. Accordingly, parties should be encouraged to at-
tempt to resolve their disputes through alternative dispute resolution before filing a law-
                                           suit.

                §§ 1.13-1.19 are reserved for supplementary material.

                             C. COMMERCIAL DISPUTES

§ 1.20 Use of Alternative Dispute Resolution in Commercial Disputes



   6
      In California, under Cal. Const. § 6, Art. 21, a temporary judge may be appointed and a
jury trial conducted, but the logistics of such an arrangement are so cumbersome that it is
rarely worth pursuing.
    7
      See, e.g., Advanced Micro Devices, Inc. v. Intel Corp., 9 Cal.4th 362, 36 Cal.Rptr.2d
581, 885 P.2d 994 (1994) (party ordered to forfeit its defense in separate copyright suit in
federal court).



                                               5
    Commercial disputes involve a wide range of subjects, including insurance, intellectual
property, construction, and international commerce. These and other types of commercial
disputes are discussed in the following chapters.

    In recent years, businesses have looked to a wide variety of alternative dispute resolution
methods to resolve commercial disputes. These methods include arbitration,8 mediation,9
minitrials,10 early neutral evaluation,11 and summary jury trials.12 The two most widely used
alternative dispute resolution methods in commercial cases are arbitration and mediation.13

§ 1.21 Arbitration

    In the last ten years, the use of commercial arbitration has accelerated.14 Increasing num-
bers of more complex commercial disputes, involving larger amounts in controversy are
routinely submitted to arbitration.15 Chapters 3 through 6 provide a comprehensive descrip-
tion of the arbitral process.

     Normally, commercial arbitration is governed by the rules of a neutral appointing author-
ity such as the American Arbitration Association. These rules usually provide that neither
the federal nor state rules of civil procedure or evidence apply. However, the parties are free
to draft the arbitration clause to accommodate their specific needs and concerns.16

    Unlike the field of labor arbitration, there is no core group of career neutrals constituting
the commercial arbitration profession.17 Most commercial arbitrations are arbitrated by at-
torneys, academics, or similarly situated professions engaged in other full-time occupations
or by retired judges, attorneys or other professionals.18


    8
    See Chapters 3-6 and 19.
    9
    See Chapter 7.
   10
      See Chapter 8.
   11
      See § 2.59.
   12
      See Chapter 9.
   13
      Gilman, Resolving Commercial Cases Through Alternative Dispute Resolution, 26
U.MEM.L.REV. 1121, 1124 (1996).
   14
      Hayford & Peeples, Commercial Arbitration in Evolution: An Assessment and Call for
Dialogue, 10 OHIO ST.J. ON DISP. RESOL. 343, 346-47 (1995).
   15
      Hayford & Peeples, Commercial Arbitration in Evolution: An Assessment and Call for
Dialogue, 10 OHIO ST.J. ON DISP. RESOL. 343, 348 (1995).
   16
      See § 4.2.
   17
      Hayford & Peeples, Commercial Arbitration in Evolution: An Assessment and Call for
Dialogue, 10 OHIO ST.J. ON DISP. RESOL. 343, 365 (1995).
   18
      Hayford & Peeples, Commercial Arbitration in Evolution: An Assessment and Call for
Dialogue, 10 OHIO ST.J. ON DISP. RESOL. 343, 366 (1995).



                                               6
§ 1.22 Mediation

    Mediation is an appropriate method for resolving many commercial disputes.19 Media-
tion is appropriate in commercial disputes for several reasons:

   •    Mediation enables the parties to determine promptly whether there is a reasonable
        possibility of settlement.
   •    Mediation affords the parties the opportunity to utilize a mediator with knowledge
        and experience in the subject matter of the dispute.20
   •    Because mediation is consensual, the ultimate solution of the dispute remains under
        control of the parties.
   •    The privacy of mediation is a benefit in many commercial disputes.21
   •    Mediation is generally less expensive than litigation.
   •    Because mediation is informal, the parties can freely discuss what is on their mind
        without regard to relevance or other objections. The informality may also be condu-
        cive to creative problem solving.
   •    Mediation can be quicker than litigation or other alternative dispute resolution meth-
        ods.

                 §§ 1.23-1.29 are reserved for supplementary material.

             D. MANDATED ALTERNATIVE DISPUTE RESOLUTION

§ 1.30 Statutes Mandating or Encouraging Alternative Dispute Resolution

    Nearly any type of dispute may be submitted for resolution using alternative dispute
resolution. However, the source of a court’s authority to require alternative dispute resolu-
tion is not always clear.22 Some courts have found such power in the trial court’s inherent
authority to manage its docket and Rule 16 of the Federal Rules of Civil Procedure.23 Other


   19
       See Denlow, Mediating Commercial Disputes, DISP.RES.J. 79 (Oct.-Dec. 1995). See
generally Chapter 7.
    20
       See §§ 7.2 and 7.42.
    21
       See §§ 7.10-7.16.
    22
       See Note, Mandatory Mediation and Summary Jury Trial: Guidelines for Ensuring
Fair and Effective Processes, 103 HARV.L.REV. 1086, 1089 (1990). See §§ 9.10-9.19.
    23
       See, e.g., Arabian American Oil Co. v. Scarfone, 119 F.R.D. 448 (M.D.Fla.1988) (Rule
16 authorizes courts to order parties to engage in pretrial summary jury trial); McKay v.
Ashland Oil, 120 F.R.D. 43 (E.D.Ky.1988) (both Rule 16 and district court’s inherent power
authorize a local, mandatory summary jury trial rule); Federal Reserve Bank v. Carey-
Canada, Inc., 123 F.R.D. 603 (D.Minn.1988) (court’s inherent power and Rules 1 and 16, as
well as the court’s local rule, authorized court to order summary jury trial).



                                              7
courts have suggested that courts need explicit statutory authorization to mandate alternative
dispute resolution.24

    State legislation has provided a basis for state courts to mandate alternative dispute reso-
lution. Some state statutes authorize mandatory alternative dispute resolution for certain
categories of disputes.25 Other state statutes permit courts to mandate various forms of alter-
native dispute resolution.26

    Various state and federal statutes also require alternative dispute resolution in specific
types of cases. Some of these compulsory programs may be administered and funded by the
courts. Decisions reached under these proceedings are not always binding on the parties.

    Matters that some state statutes encourage or require to be resolved through alternative
dispute resolution include:

   •    Uninsured or Underinsured Motorist Coverage. In some states, automobile in-
        surance policies must provide for binding arbitration of disputes between the insurer
        and its insured under uninsured or underinsured motorist coverage.27

   •    Federal Agencies. Federal agencies are authorized to use alternative dispute resolu-
        tion for contract disputes.28


   24
       See, e.g., In re NLO, Inc., 5 F.3d 154 (6th Cir.1993), superseded by rule as stated in
State of Ohio v. Montgomery v. Louis Trauth Diary, Inc., 164 F.R.D. 469 (S.D.Ohio 1996);
Strandell v. Jackson County, 838 F.2d 884 (7th Cir.1987) (court may not compel summary
jury trial). See discussion in §§ 9.10-9.16.
    25
       See, e.g., Cal.Fam.Code § 3170 (child custody); Delaware Fam. Court Rule 16 (di-
vorce); Iowa Code Ann. § 654A.6 (agricultural property); Maine Rev.Stat.Ann. tit. 19-A, §
251, § 752 (divorce mediation); Maine Rev.Stat.Ann. tit. 24, §§ 2851-2859 (medical mal-
practice); Minn.Stat.Ann. § 583.26 (agricultural property); Wis.Stat.Ann. § 655.43 (medical
malpractice).
    26
       See, e.g., Fla.Stat.Ann. § 44.102 (court-ordered mediation and arbitration);
Minn.Stat.Ann. § 484.74 (nonbinding private trials, neutral expert fact-finding, mediation,
minitrials, and other forms of alternative dispute resolution when the amount in controversy
exceeds $50,000); 12 Okla.Stat.Ann. § 1801, R7 (local courts may establish procedures for
referring cases to mediation); Tex.Civ.Prac & Remedies Code Ann. § 154.021 (courts may
order arbitration, mediation, summary jury trial, minitrial or moderated settlement confer-
ence); Wis.Stats.Ann. § 802.12 (court may order various types of alternative dispute resolu-
tion).
    27
       See, e.g., Cal.Ins.Code § 11580.2(f). See §§ 13.30-13.35.
    28
       See Executive Order No. 12778 encouraging federal agencies to apply alternative dis-
pute resolution in resolving disputes in which they have become involved. See also Dept. of



                                               8
   •   Contract Claims Against State. Lawsuits may not be filed on contract claims
       against the state arising out of public works contracts. Arbitration is the sole remedy
       for resolving these claims.29

   •   Court Cases. Specified civil cases must be referred to nonbinding arbitration.30

   •   Public Works Cases Against Public Agency. Lawsuits by a public works contrac-
       tor against a local agency must be referred to alternative dispute resolution.31

   •   Child Custody. Child custody and visitation disputes must be mediated prior to a
       contested hearing.32

   •   Marital Dissolution. In some marital dissolutions, certain issues may be submitted
       to nonbinding arbitration or mediation.33

   •   Attorney Fee Disputes. Disputes over attorney fees may be submitted to arbitration
       or mediation.34

   •   Lemon Law Claims. Warranty claims against motor vehicle manufacturers may be
       submitted to alternative dispute resolution.35

   •   Complaints Against Contractors. Complaints against a contractor arising from a
       home improvement contract must be referred to arbitration under some circum-
       stances.36

Justice Guidelines in 58 Fed. Reg. 6015 (Jan. 25, 1993). See Administrative Dispute Resolu-
tion Act of 1996 (5 U.S.C.A. § 571 et seq.).
    29
       See, e.g., Cal. Public Contract Code § 10240.
    30
       See, e.g. Cal. Code of Civil Proc. § 1141.10 et seq. (civil cases in superior courts with
10 or more judges, where amount in controversy is $50,000 or less must be referred to non-
binding arbitration). See Chapter 18.
    31
       See, e.g., Cal. Public Contract Code § 20104.4.
    32
       See, e.g., Cal.Fam.Code § 3160 et seq.; Wis.Stats.Ann. § 767.11. See Chapter 17.
    33
       See, e.g., Cal.Fam.Code § 2554; Wis.Stats.Ann. § 767.11. See Chapter 17.
    34
       See, e.g., Cal. Business & Prof. Code § 6200 et seq. (at client’s request suit for attor-
neys fees must be arbitrated or, if both parties agree, may be mediated).
    35
       See, e.g., West’s Cal. Business & Prof. Code §§ 472-472.5. See Harrison v. Nissan
Motor Corp., 111 F.3d 343 (3d Cir.1997) (informal dispute resolution procedure under
Lemon Law and Magnuson-Moss warranty Act was not “arbitration” as contemplated by
Federal Arbitration Act).
    36
       See, e.g., Cal. Business & Professions Code § 7085.5 et seq. (complaint must be re-
ferred to arbitration if contract price or damages demanded is $5,000 or less). See Chapter
11.



                                               9
   •    Costs of Maintaining Easements. In suits by an easement owner against co-owners
        for contribution to the costs of maintenance, arbitration may be used to apportion the
        costs according to use.37

   •    Labor Disputes. Some labor or employment disputes may be submitted to alterna-
        tive dispute resolution.38

   •    Disputes Between Schools and Parents of Disabled Children. In a dispute be-
        tween a parent and a public school regarding the special education of a disabled
        child, mediation may be used to resolve the matter.39

   •    Apportionment of Liability for Hazardous Substance Clean-Up. Disputes re-
        garding apportionment of liability for costs of removal and clean up of hazardous
        substances at a release site may be submitted to arbitration.40

    At least one state requires mediation of substantial commercial disputes before the par-
ties resort to litigation.41

§ 1.31 Use of Alternative Dispute Resolution in Judicial Proceedings

    Alternative dispute resolution may be effectively used at the early stages of the litigation
process.42 The Civil Justice Reform Act of 1990 requires federal courts to “experiment with
various methods of reducing cost and delay in civil litigation, including alternative dispute
resolution.”43 Some state laws encourage the use of alternative dispute resolution techniques
in the operation of the courts.44

§ 1.32 Use of Alternative Resolution in Disputes with Lawyers—Generally


   37
       See, e.g., Cal. Civil Code § 845.
   38
       See, e.g., Cal. Labor Code §§ 65-66 (California State Mediation and Conciliation Ser-
vice must mediate any labor dispute at the request of a party). See Chapter 15.
    39
       See, e.g., Cal.Ed.Code §§ 56500.3 and 56501(b) (2).
    40
       See, e.g., Cal. Health & Safety Code §§ 25356.2 and 25356.3.
    41
        Delaware Voluntary Alternative Dispute Resolution Act (Del.Code Ann., tit.6, §
7701(a)).
    42
       See Chapter 18.
    43
       28 U.S.C.A. § 471 (certain federal districts required to establish pilot programs using
alternative dispute resolution procedures). But see 28 U.S.C.A. § 652(b) (arbitration may
not be ordered in any action based on alleged violations of constitutional rights or federal
civil rights statutes).
    44
       See, e.g., Cal. Business & Prof. Code §§ 465(d) & (e); Wis.Stats.Ann. § 802.12.



                                              10
    Lawyers are increasingly including alternative dispute resolution clauses in their agree-
ments with clients.45 Alternative dispute resolution may also be appropriate in disputes be-
tween attorneys and their present or former law firms.46 Mediation provides attorneys and
clients with an opportunity to resolve disputes in a confidential creative manner.47 Arbitra-
tion permits some flexibility and, in most cases, costs less, and is speedier than litigation.

    The alternative dispute resolution clause should be negotiated at the outset of the attor-
ney-client relationship. 48 Once the attorney-client relationship is established, changes to the
attorney-client agreement can be more difficult.49 The following procedures should be fol-
lowed in modifying an existing agreement to add an ADR clause:50

   •    The client should be given adequate notice of proposed change.51

   •    The terms of the ADR provision should be fair and reasonable.

   •    The terms of the ADR provision should be stated in language that can be understood
        by client.

   45
       Conklin, Should You Put an Arbitration Clause in Your Engagement Agreement?,
LAWYERS WEEKLY USA, Oct. 20, 1997 at B3. See generally Chernick & Peck, ADR Clauses
in Fee and Retainer Agreements: Elements of Enforceability, 2 ADR CURRENTS 18 (Winter
1996-97); Draper, Validity and Construction of Agreement Between Attorney and Client to
Arbitrate Disputes Arising Between Them, 26 ALR5th 107.
    46
       See, e.g., Moncharsh v. Heily & Blase, 3 Cal.4th 1, 10 Cal.Rptr.2d 183, 832 P.2d 899
(1992) (employment agreement between attorney and former law firm required arbitration).
    47
       Peck, Client v. Attorney, CAL.BAR J., June 1997, at 20.
    48
       Ohio Supreme Court’s Bd. of Commissioners on Grievances and Discipline, Informal
Op. 96-9, reported in 1-3-97 WLN 1395, 1997 WL 1313. The nonbinding opinion indicate
that clients should be allowed to decide whether to submit a dispute to arbitration after the
dispute arises. But see Chernick & Peck, ADR Clauses in Fee and Retainer Agreements:
Elements of Enforceability, 2 ADR Currents 18 (Winter 1996-97) (once lawyer-client dis-
pute has arisen, parties are not likely to reach agreement on mutually beneficial ADR proc-
esses).
    49
       Conklin, Should You Put an Arbitration Clause in Your Engagement Agreement?,
LAWYERS WEEKLY USA, Oct. 20, 1997, at B3; Chernick & Peck, ADR Clauses in Fee and
Retainer Agreements: Elements of Enforceability, 2 ADR CURRENTS 18, 23 (Winter 1996-
97) (greater care must be taken in negotiation of ADR clause once attorney-client relation-
ship is formed).
    50
       Chernick & Peck, ADR Clauses in Fee and Retainer Agreements: Elements of Enforce-
ability, 2 ADR Currents 18, 23 (Winter 1996-97).
    51
       Chernick & Peck, ADR Clauses in Fee and Retainer Agreements: Elements of Enforce-
ability, 2 ADR CURRENTS 18, 23 (Winter 1996-97); Peck, Client v. Attorney, CAL.BAR J.,
June 1997, at 20, 23.



                                              11
   •    The ADR provision should comply with requirements applicable to fee agreements
        generally.

   •    The ADR agreement should be accompanied by written explanation indicating that
        client has the opportunity to and should seek the advice of independent counsel
        within a reasonable period.

   •    The client must consent in writing to a revised agreement.

    It is advisable to set forth the arbitration agreement in a separate agreement in order to
assure knowing agreement to the terms of the provision.52 The clause should state that it
covers all potential actions against the attorney, but not limited to those alleging negligence,
breach of contract, breach of fiduciary duty, fraud, and any claim based on a statute.53

    The clause should state that the client is entitled to a jury trial and broad discovery and
that the client is waiving those rights by signing the arbitration agreement.54 The client
should be given an adequate time to review and consider the arbitration agreement before
signing it.55 Clients should be advised to have independent counsel review the clause before
the client agrees to it.56 The alternative dispute resolution agreement should not conflict
with any attorney fee arbitration requirements imposed by state law or court rule.57 At least


   52
       See Severson, Werson, Berke & Melchior v. Bolinger, 235 Cal.App.3d 1569, 1
Cal.Rptr.2d 531 (1991).
    53
       McMonigle & Weathers, A New Way to Go: Arbitration of Legal Malpractice Claims,
64 DEFENSE COUNSEL J. 409, 412-13 (1997).
    54
       10. McMonigle & Weathers, A New Way to Go: Arbitration of Legal Malpractice
Claims, 64 DEFENSE COUNSEL J. 409, 413 (1997).
    55
       McMonigle & Weathers, A New Way to Go: Arbitration of Legal Malpractice Claims,
64 DEFENSE COUNSEL J. 409, 413 (1997). But see Powers v. Dickson, Carlson & Campillo,
54 Cal.App.4th 1102, 63 Cal.Rptr.2d 261 (1997) (express waiver of jury trial not necessary
component of valid arbitration provision).
    56
       McMonigle & Weathers, A New Way to Go: Arbitration of Legal Malpractice Claims,
64 DEFENSE COUNSEL J. 409, 413 (1997). See Powers v. Dickson, Carlson & Campillo, 54
Cal.App.4th 1102, 63 Cal.Rptr.2d 261 (1997) (ethical consideration require an attorney who
enters into arbitration agreement to fully disclose to the client terms and consequences of
provision and to make sure client knowingly consents).
    57
       Conklin, Should You Put an Arbitration Clause in Your Engagement Agreement?,
LAWYERS WEEKLY USA, Oct. 20, 1997, at B3, B11; McMonigle & Weathers, A New Way to
Go: Arbitration of Legal Malpractice Claims, 64 DEFENSE COUNSEL J. 409, 413 (1997).
See D.C. Bar Ethics Op. 211 (1990); Md. Ethics Op. 94-40 (1994); Mich. Informal Ethics
Op. RI-196 (1994); Va. Ethics Op. 1586 (1994). See Chernick & Peck, ADR Clauses in Fee



                                              12
one state has concluded that a lawyer’s retainer agreement with a client should not require
the arbitration of any dispute involving fees, accusations of legal malpractice or complaints
about the lawyer’s ethical misconduct.58

§ 1.33 Use of Alternative Dispute Resolution in Disputes with Lawyers—Fee Disputes

    In response to an increasing number of disputes involving attorney fees, a number of
states and state bar associations have initiated fee arbitration programs. Perhaps the earliest
fee arbitration program was established in 1928 by the Los Angeles County Bar Association
when it established a “Committee on Arbitration” to resolve fee disputes between attorneys
and clients.59 State bar fee arbitration programs are available in 46 states.60

    In 1970 the American Bar Association’s Committee on Evaluation of Disciplinary En-
forcement recommended arbitration of fee disputes. The ABA committee also recommended
that only nonlawyers be utilized as arbitrators in order to avoid the public perception that a
lawyer-arbitrator would not be biased against a client.61 In 1974 the ABA suggested that fee
disputes should be handled through binding arbitration and be arbitrated by attorneys.62

    There are currently two types of state attorney fee arbitration programs: (1) mandatory
where participation is mandated; and (2) voluntary where participation is optional. The ma-
jority of attorney fee arbitration programs are voluntary and call for binding arbitration.63
Binding attorney fee arbitration is mandatory for attorneys in Alaska, Maine, New Jersey,
South Carolina, and Wyoming.64 Under a mandatory fee arbitration program, before an at-




and Retainer Agreements: Elements of Enforceability, 2 ADR CURRENTS 18, 22-23 (Winter
1996-97) for a summary of ethical requirements in various states.
   58
       Conklin, Should You Put an Arbitration Clause in Your Engagement Agreement?,
LAWYERS WEEKLY USA, Oct. 20, 1997, at B3, B11.
   59
      Bodle, The Arbitration of Fee Disputes Between Attorneys and Clients, 38 L.A.B.BULL.
265, 265-71 (1963).
   60
      Peterson, Fee Arbitration: An Effective Alternative to Litigation, WIS.LAW. 17, 18
(Aug.1994).
   61
      Rau, Resolving Disputes Over Attorneys’ Fees: The Role of ADR, 46 SMU L.REV. 2005,
2021 (1993).
   62
      Special Committee on Resolution of Fee Disputes, The Resolution of Fee Disputes: A
Report and Model By-Laws, 1974 ABA Sec. B. Activities Report.
   63
      Devine, Mandatory Arbitration of Attorney-Client Fee Disputes: A Concept Whose
Time Has Come, 14 TOLEDO L.REV. 1205, 1213-15 (1983).
   64
      Peterson, Fee Arbitration: An Effective Alternative to Litigation, WIS.LAW. 17, 18
(Aug.1994).



                                              13
torney can file suit against a client to recover attorney fees, the attorney must notify the cli-
ent of the availability of fee arbitration.65

    The jurisdiction of attorney fee arbitrators is limited to issues relating to the attorney
fees. A fee arbitration arbitrator normally lacks jurisdiction to decide legal malpractice
claims.66

    Courts have upheld agreements to arbitrate fee disputes.67 Although a fee-arbitration
clause called only for arbitration under the Texas Arbitration Act,68 a Texas court held that
the clause called for binding arbitration since the Act contemplates a binding award.69

§ 1.34 Use of Alternative Dispute Resolution in Disputes with Lawyers--Malpractice

    Although arbitration has become an accepted method for resolving disputes between
many types of professionals and their clients, arbitration of legal malpractice claims is less
common.70 An arbitration clause providing for binding arbitration of legal malpractice
claims must be drafted clearly so that the client is put on notice that the clause covers mal-
practice.71 Bar ethics committees in California,72 the District of Columbia,73 and Michigan74
have issued opinions approving the use of arbitration provisions under specified circum-
stances.75 A number of courts have upheld arbitration agreements concerning legal malprac-
tice disputes.76

    65
       See, e.g., N.J. Rule 1:20A-6. See Cal.Civ.Code § 6200 (unless client has agreed in
writing to allow arbitration, arbitration is voluntary for client and mandatory for an attorney
if commenced by a client).
    66
       Saffer v. Willoughby, 143 N.J. 256, 266-67, 670 A.2d 527, 531 (N.J.1996).
    67
       McGuire, Cornwell & Blakey v. Grider, 765 F.Supp. 1048 (D.Colo.1991) (fee agree-
ment upheld in face of allegations of fraudulent inducement, breach of fiduciary duty and
violation of state bar rules of professional conduct).
    68
       Tex.Civ.Prac. & Rem.Code Ann. §§ 171.001-171.023.
    69
       Porter & Clements, L.L.P. v. Stone, 935 S.W.2d 217, 222 (Tex.App.1996).
    70
       McMonigle & Weathers, A New Way to Go: Arbitration of Legal Malpractice Claims,
64 DEFENSE COUNSEL J. 409 (1997).
    71
       Lawrence v. Walzer & Gabrielson, 207 Cal.App.3d 1501, 1504, 256 Cal.Rptr. 6 (1989)
(ADR clause providing for arbitration of “dispute between us regarding fees, costs, or any
other aspect of our attorney-client relationship” held not to cover legal malpractice dispute).
    72
       State Bar of Cal. Ethics Committee, Formal Op. No. 1989-116.
    73
       D.C. Bar Legal Ethics Committee, Op. No. 211 (1990).
    74
       Mich. Standing Committee on Prof. & Judicial Ethics, Op. No. RI-196 (1994).
    75
       McMonigle & Weathers, A New Way to Go: Arbitration of Legal Malpractice Claims,
64 DEFENSE COUNSEL J. 409, 410 (1997).
    76
       McGuire, Cornwell & Blakey v. Grider, 765 F.Supp. 1048 (D.Colo.1991); Monahan v.
Paine Webber Group, Inc., 724 F.Supp. 224, 227 (S.D.N.Y.1989); Haynes v. Kuder, 591



                                               14
    An attorney cannot rely on an arbitration clause in a retainer agreement that does not ex-
plain what disputes are covered, to require arbitration arising out of a side business transac-
tion.77 If an attorney wishes an arbitration clause to extend to both legal services and unre-
lated business dealings, the attorney must draft a clear and explicit agreement to that ef-
fect.789

                 §§ 1.35-1.39 are reserved for supplementary material.

                                 E. CODES OF ETHICS

§ 1.40 Generally

 Providers of alternative dispute resolution services, including arbitrators and mediators,
  must conform to high ethical standards. A number of ethical codes have been promul-
 gated for various types of alternative dispute resolution.79 The National Academy of Ar-
bitrators, the American Arbitration Association, and the Federal Mediation and Concilia-
tion Service have adopted a Code of Professional Responsibility for Arbitrators of Labor-
  Management Disputes.80 The American Bar Association and the American Arbitration
   Association have adopted a Code of Ethics for Arbitrators in Commercial Disputes.81

§ 1.41 Model Rules of Professional Conduct

    In February 1994, the Board of Governors of the American Bar Association adopted an
amendment to Rule 5.7 of the Model Rules of Professional Conduct covering “Responsibili-
ties Regarding Law-Related Services.” Rule 5.7 provides as follows:

   (a) A lawyer shall be subject to the Rules of Professional Conduct with respect to the
       provision of law-related services, as defined in paragraph (b), if the law-related ser-
       vices are provided:



A.2d 1286 (D.C.1991); Powers v. Dickson, Carlson & Campillo, 54 Cal.App.4th 1102, 63
Cal.Rptr.2d 261 (1997). See Lawrence v. Walzer & Gabrielson, 207 Cal.App.3d 1501, 256
Cal.Rptr. 6 (1989) (court refused to order arbitration because of ambiguity in arbitration
clause, but implicitly approved arbitration agreements governing attorney-client disputes).
    77
       Mayhew v. Benninghoff, 53 Cal.App.4th 1365, 62 Cal.Rptr.2d 27, 30 (1997).
    78
       Mayhew v. Benninghoff, 53 Cal.App.4th 1365, 62 Cal.Rptr.2d 27, 30 (1997).
    79
       See § 7.44 for a discussion of ethical standards applicable to mediators.
    80
       Reprinted in Grenig, 26 WEST’S LEGAL FORMS: ALTERNATIVE DISPUTE RESOLUTION
Appendix 11C.
    81
       Reprinted in Grenig, 26 WEST’S LEGAL FORMS: ALTERNATIVE DISPUTE RESOLUTION
Appendix 3C.



                                              15
         (1) by the lawyer in circumstances that are not distinct from the lawyer’s provision
             of legal services to clients; or

         (2) by a separate entity controlled by the lawyer individually or with others if the
             lawyer fails to take reasonable measures to assure that a person obtaining the
             law-related services knows that the services of the separate entity are not legal
             services and that the protections of the client-lawyer relationship do not exist.

   (b) The term “law-related services” denotes services that might reasonably be performed
       in conjunction with and in substance are related to the provision of legal services and
       that are not prohibited as unauthorized practice of law when provided by a
       nonlawyer.

   The Comment to Rule 5.7 states, in part, as follows:

         When a lawyer performs law-related services or controls an organization that does
         so, there exists the potential for ethical problems. Principal among these is the pos-
         sibility that the person for whom the law-related services are performed fails to un-
         derstand that the services may not carry with them the protections normally afforded
         as part of the client-lawyer relationship. The recipient of the law-related services
         may expect, for example, that the protection of client confidences, prohibitions
         against representation of persons with conflicting interests, and obligations of a law-
         yer to maintain professional independence apply to the provision of law-related ser-
         vices when that may not be the case. Rule 5.7 applies to the provision of law-related
         services by a lawyer even when the lawyer does not provide any legal services to the
         person for whom the law-related services are performed. The Rule identifies the cir-
         cumstances in which all of the Rules of Professional Conduct apply to the provision
         of law-related services. Even when those circumstances do not exist, however, the
         conduct of a lawyer involved in the provision of law-related services is subject to
         those Rules that apply generally to lawyer conduct, regardless of whether the con-
         duct involves the provision of legal services. See, e.g., Rule 8.4.

         When law-related services are provided by a lawyer under circumstances that are not
         distinct from the lawyer’s provision of legal services to clients, the lawyer in provid-
         ing the law-related services must adhere to the requirements of the Rules of Profes-
         sional Conduct as provided in Rule 5.7(a)(1).

    Under the circumstances described in Rule 5.7, a lawyer providing law-related services is
subject to all of the duties and obligations of the Model Rules even though providing the ser-
vices would not constitute practicing law.82


   82
        Model Rules of Professional Conduct Rule 5.7, Comment [1].



                                               16
If the Model Rules apply to lawyers serving as mediators, then the duties lawyers owe to
 clients would be owed to the parties to the mediation, even though these parties are not
 ordinarily considered to be the lawyer’s clients.83 However, because a lawyer-mediator
 owes ethical duties to each party in mediation, an irreconcilable conflict may arise, be-
 cause a lawyer cannot ethically represent two parties involved in the mediation of a dis-
                                          pute.84

     Rule 5.7 is applicable in two situations. First, it is applicable where the lawyer serves as
a mediator in circumstances “not distinct from the lawyer’s provision of legal services to cli-
ents.”85 This could occur in the unlikely situation where an attorney serves as a mediator in
a situation involving the attorney’s clients or, more likely where the attorney-mediator gives
legal advice to one or both parties during the mediation.86

    Rule 5.7 is also applicable when a party is referred to a mediation organization controlled
by the lawyer.87 If the lawyer individually or with others has control of the organization’s
operations, Rule 5.7 requires the lawyer to take reasonable measures to assure that each per-
son using the services of the entity knows that the services provided by the entity are not le-
gal services and that the Rules of Professional Conduct that relate to the client-lawyer rela-
tionship do not apply.88 When a lawyer-client relationship exists with a person who is re-
ferred by a lawyer to a separate law-related service entity controlled by the lawyer, individu-
ally or with others, the lawyer must comply with Rule 1.8(a) of the Model Rules of Profes-
sional Responsibility.89

    The burden is on the lawyer to show that the lawyer has taken reasonable measures under
the circumstances to assure that a person using law-related services understands the practical
effect or significance of the inapplicability of the Rules of Professional Conduct.90 The law-
yer should communicate to the person receiving the law-related services, in a manner suffi-
cient to assure that the person understands the significance of the fact that the relationship of
the person to the business entity will not constitute a client-lawyer relationship. Ethical stan-




    83
       Meyerson, New ABA Rule Affects Lawyer-Mediators, DISP.RESOL. 7 (Summer 1994).
    84
       See Meyerson, New ABA Rule Affects Lawyer-Mediators, DISP.RESOL. 7 (Summer
1994) (fiduciary duties that flow from the relationship between lawyer and client do not ap-
ply to relationship between a lawyer-mediator and disputant).
    85
       Model Rules of Professional Conduct Rule 5.7(a)(1) and Comment [3].
    86
       Meyerson, New ABA Rule Affects Lawyer-Mediators, DISP.RESOL. 7 (Summer 1994).
    87
       Model Rules of Professional Conduct Rule 5.7(a)(2) and Comments [1] and [4].
    88
       Model Rules of Professional Conduct Rule 5.7, Comment [4].
    89
       Model Rules of Professional Conduct Rule 5.7, Comment [5].
    90
       Model Rules of Professional Conduct Rule 5.7, Comment [7].



                                               17
standards may require or encourage a lawyer to advise a client regarding the availability of
alternative dispute resolution procedures.91




   91
     See, e.g., Rule 2.1, Colorado Rules of Professional Conduct; § II, Texas Lawyer’s
Creed—A Mandate for Professionalism, adopted by the Texas Supreme Court on November
7, 1989.



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