Bezio v. Draeger , 737 F.3d 819 ( 2013 )

United States Court of Appeals
For the First Circuit
No. 13-1910
DOUGLAS G. BEZIO,
Plaintiff, Appellant,
v.
SCOT E. DRAEGER, JOHN M.R. PATTERSON, CALEB C.B. DUBOIS &
BERNSTEIN, SHUR, SAWYER AND NELSON, P.A. d/b/a BERNSTEIN SHUR,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Nancy Torresen, U.S. District Judge]
Before
Lynch, Chief Judge,
Torruella and Stahl, Circuit Judges.
Valeriano Diviacchi for appellant.
George T. Dilworth, with whom Michael L. Buescher and Drummond
Woodsum were on brief, for appellees.
December 16, 2013
LYNCH, Chief Judge. The question on appeal is whether
the district court erred in enforcing an arbitration clause in an
attorney-client engagement letter as to malpractice and unfair
practice claims brought by a former client under Maine law.
The client is Douglas Bezio, who sued his former law firm
of Bernstein, Shur, Sawyer & Nelson (BSSN) and individual
defendants, alleging malpractice and violations of Maine's Unfair
Trade Practices Act, Me. Rev. Stat. tit. 5, § 213, as well as a fee
dispute. Defendants filed a motion to compel arbitration and
dismiss the action, which the district court allowed under the
Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-16. Bezio v. Draeger,
No. 2:12-CV-00396-NT, 2013 WL 3776538, *2-4 (D. Me. July 16, 2013).
We affirm.
It is clear that Maine professional responsibility law
for attorneys permits arbitration of legal malpractice claims so
long as there is no prospective limitation of the firm's liability.
It is also clear that Maine law, like the FAA, evidences no
hostility to the use of the arbitral forum, and Maine would enforce
this arbitration of malpractice claims clause.
I.
The basic facts are not disputed. Bezio was employed as
a licensed agent and investment advisor representative of Investors
Capital Corporation. On March 9, 2011 the Maine Office of
Securities issued Bezio a Notice of Intent to revoke his license
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and seek other penalties, alleging he had violated Maine law, as
well as Financial Industry Regulatory Authority (FINRA) and
National Association of Securities Dealers (NASD) rules as to his
investment clients in Maine. Bezio then sought to retain BSSN to
represent him in the enforcement action.
Before undertaking that representation, on March 18,
2011, Attorney Draeger of BSSN1 sent Bezio an engagement letter
(the "Agreement") setting forth the terms of BSSN's legal
representation. The Agreement stated, as to the scope of BSSN's
representation, that the firm would "represent you with respect to
securities regulatory matters before the Maine Office of Securities
and related matters."
The Agreement also included an arbitration provision as
to disputes that provided:
Arbitration
If you disagree with the amount of our fee,
please take up the question with your
principal attorney contact or with the firm's
managing partner. Typically, such
disagreements are resolved to the satisfaction
of both sides with little inconvenience or
formality. In the event of a fee dispute that
is not readily resolved, you shall have the
right to submit the fee dispute to arbitration
under the Maine Code of Professional
Responsibility. Any fee dispute that you do
not submit to arbitration under the Maine Code
of Professional Responsibility, and any other
dispute that arises out of or relates to this
agreement or the services provided by the law
1
Bezio also named John M.R. Patterson and Caleb C.B. DuBois,
both attorneys at BSSN, in his complaint.
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firm shall also, at the election of either
party, be subject to binding arbitration.
Either party may request such arbitration by
sending a written demand for arbitration to
the other.2
(emphasis added). This clause appeared on pages six and seven of
the Agreement and was not highlighted in the document.
Bezio received the draft Agreement, revised the advanced
fee payments portion by hand, initialed that revision, and
initialed each page. He signed and dated the Agreement on March
22, 2011, and returned it to Draeger.
The events which led to the end of the representation are
not material, but other facts are material. First, no one at the
firm communicated with Bezio to discuss further with him the
consequences of submitting malpractice and other claims to
arbitration, including that this involved giving up jury trial
claims. At no point was there a discussion between Bezio and BSSN
of arbitration of malpractice claims, and the firm did not suggest
to Bezio that he have the arbitration agreement reviewed
independently.
Second, Bezio's previous experience with arbitration is
also material for our purposes. Bezio was no stranger to
arbitration proceedings when he signed the Agreement. In August
2009, for example, Bezio's former clients initiated a FINRA
2
The remainder of the clause concerns the procedures for
arbitration and a choice of law provision, none of which are at
issue.
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arbitration against him and his former employer, LPL Financial
Corporation (LPL), asserting thirteen claims, including breach of
fiduciary duty. In addition, in September 2010 he commenced a
FINRA arbitration proceeding against LPL after it terminated him
based on the conduct at issue in the August 2009 FINRA arbitration.
II.
Bezio does not dispute that the clause is enforceable as
to fee disputes. He argues, though, that the clause is not
enforceable as to malpractice claims for a variety of reasons. On
appeal, Bezio has made different claims in his briefs and at oral
argument.
He asserts that the Maine Rules of Professional Conduct
do not permit arbitration of malpractice disputes unless the
attorneys have specifically pointed out and discussed fully the
risks and possible consequences of such a clause and the client has
given informed consent. We refer to these as "informed consent
preconditions." For this reading of Maine law, he relies on the
Supreme Court of Louisiana's opinion in Hodges v. Reasonover, 103
So. 3d 1069, 1077 (La. 2012). More specifically, the Louisiana
Supreme Court held in Hodges:
At a minimum, the attorney must disclose the
following legal effects of binding
arbitration, assuming they are applicable:
• Waiver of the right to a jury trial;
• Waiver of the right to an appeal;
• Waiver of the right to broad
discovery under . . . Federal Rules
of Civil Procedure;
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• Arbitration may involve substantial
upfront costs compared to
litigation;
• Explicit disclosure of the nature of
claims covered by the arbitration
clause, such as fee disputes or
malpractice claims;
• The arbitration clause does not
impinge upon the client's right to
make a disciplinary complaint to the
appropriate authorities;
• The client has the opportunity to
speak with independent counsel
before signing the contract.
Id. at 1077.
Bezio then argues that under Maine law attorneys are
fiduciaries in their relationships with their clients. These
preconditions to ensure informed consent as to arbitration are no
different than the rules in Maine governing fiduciaries generally,
he says, but cites no authority from Maine. He argues that
adoption of the Hodges preconditions approach would mean there is
no special rule being carved out for arbitrations by fiduciaries
who are attorneys, and so no issue of preemption can arise under
the FAA.
We clear away two of his arguments. He argues that
arbitration clauses must spell out that they apply to malpractice
claims by referring explicitly to "malpractice." The argument that
malpractice claims do not fall within the broad coverage language
of the contract is self-evidently frivolous. He also argues that
referring malpractice disputes to arbitration is, in his view,
slanted toward law firms. We immediately reject this as the type
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of hostility to arbitration that is forbidden by both Maine law and
the Supreme Court under the FAA. See AT&T Mobility LLC v.
Concepcion, 131 S. Ct. 1740, 1749 (2011) ("[O]ur cases place it
beyond dispute that the FAA was designed to promote arbitration.");
Roosa v. Tillotson, 695 A.2d 1196, 1197 (Me. 1997) ("Maine has a
broad presumption favoring substantive arbitrability . . . .").
Bezio finally argues that the arbitration clause is
inherently unconscionable and against public policy under Maine law
because of the lack of the informed consent preconditions. As a
result, a court should decline to enforce an arbitration clause
where neither the clause nor any other communication "adequately
disclose[d] the full scope of the arbitration clause and the
potential consequences of agreeing to binding arbitration."
Hodges, 103 So. 3d at 1076.
III.
Our review of a decision to send a case to arbitration
based on the language of the arbitration agreement is de novo.
Kristian v. Comcast Corp., 446 F.3d 25, 31 (1st Cir. 2006). In
deciding whether an agreement to arbitrate is to be enforced, we
normally apply ordinary state-law principles that govern the
formation of contracts, including validity, revocability, and
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enforceability of contracts.3 Awuah v. Coverall N. Am., Inc., 703
F.3d 36, 42 (1st Cir. 2012).
Still, state laws may not, under section 2 of the FAA,
impose limitations which are special to arbitral clauses. See
Doctor's Assoc., Inc. v. Casarotto, 517 U.S. 681, 686-87 (1996)
("By enacting § 2 [of the FAA], . . . Congress precluded States
from singling out arbitration provisions for suspect status,
requiring instead that such provisions be placed 'upon the same
footing as other contracts.'" (quoting Scherk v. Alberto-Culver
Co., 417 U.S. 506, 511 (1974))). The district court relied on this
principle in holding that if it were true that Maine law had
adopted the Hodges view of informed consent preconditions, then
Maine law would be displaced by the FAA. Bezio, 2013 WL 3776538,
at *2-3. We choose a different route. We think it is clear that
Maine law permits attorneys to enforce arbitration clauses like the
one at issue here.
Bezio argues his position is supported by the fact that
under Maine law attorneys are fiduciaries. He points to Anderson
v. Neal, 428 A.2d 1189, 1191 (Me. 1981), which states "the
fundamental proposition that attorney and client necessarily share
a fiduciary relationship of the highest confidence," and from that
fact alone, he argues that fiduciaries must obtain informed consent
3
We bypass the question of whether Maine law would apply
fiduciary standards to a retention agreement before there was an
attorney-client relationship.
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to any arbitration of malpractice claims. From this proposition,
Bezio reasons, Maine professional liability law requires that
preconditions be followed to obtain informed consent as to lawyer-
client arbitration provisions, as Louisiana law does. We note that
Rule 1.4(b) of the Maine Rules of Professional Conduct says that a
"lawyer shall explain a matter to the extent reasonably necessary
to permit the client to make informed decisions regarding the
representation." This will vary by client.
Independently of his fiduciary obligation arguments,
Bezio correctly notes that the Maine Rules of Professional Conduct
prohibit agreements which prospectively limit attorney liability.
Me. R. Prof'l Conduct 1.8(h)(1). He argues that the arbitration
clause is an improper attempt to do so.
The Maine Law Court has not addressed the precise claim
Bezio makes. Nonetheless, we think the answer is clear based on
Opinion 170 of the Law Court's Professional Ethics Commission, the
Law Court's not having expressed disagreement with Opinion 170 over
the almost fifteen years since it issued; the views of the ABA, on
which the Law Court gives weight on ethics matters; and Maine's
strong policy of supporting arbitration agreements, embodied in the
Maine Uniform Arbitration Act, Me. Rev. Stat. tit. 14, §§ 5927-
5949.
The Law Court adopted Bar Rule 11, which created a
Professional Ethics Commission. The Maine Professional Ethics
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Commission, as it is authorized to do by the Law Court Rule 11(c),
has issued a pertinent advisory opinion, Opinion 170. In 1999, the
Commission was asked to address whether attorneys may enter into
arbitration agreements with clients on matters other than fees. The
Commission's Advisory Opinion 170 holds (over a dissent) that: "a
lawyer and a client may indeed, under the Maine Bar Rules, include
in their initial engagement agreement a clause compelling
arbitration of any and all malpractice claims as long as the clause
does not preclude the client from requiring resolution of any fee
disputes pursuant to Rule 9." Me. Prof'l. Ethics Comm'n, Opinion
170: Attorneys' and Clients' Agreement to Arbitrate Future
Malpractice Claims (Dec. 23, 1999) ("Opinion 170").
Further, on the question of whether an agreement to
arbitrate malpractice claims constitutes a prohibited agreement to
prospectively limit the lawyer's liability, the Commission in
Opinion 170 answered clearly in the negative.4 The advisory
opinion held that a "mutual agreement on a neutral forum within
4
Bezio asserted that this arbitral clause was a prohibited
limitation on a lawyer's liability because arbitrations of
malpractice claims inherently favor the lawyer. The Commission
squarely rejected this line of argument, reasoning:
Perhaps if a particular forum had rules that themselves
limited liability, then selection of such a forum could
fairly be said to limit liability indirectly. Or if the
arbitration agreement were a sham, such as an agreement
to arbitrate before the lawyer's partner, then one could
argue that its practical effect was to limit liability.
Mutually agreed upon arbitration pursuant to the state
and federal acts entail no such liability limiting rules.
Opinion 170.
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which to adjudicate a lawyer's future liability" is simply not an
agreement "limiting the lawyer's liability." Id. Interestingly,
the Hodges opinion, on which Bezio otherwise relies, agrees with
Maine in its rejection of this portion of Bezio's argument.
Hodges, 103 So. 3d at 1073-74.
The Commission majority reasoned that the Rules
themselves did not prohibit such arbitration agreements, and that
a contrary interpretation would be in conflict with Maine's broad
and strong presumption favoring substantive arbitration, set out
both in the Maine Uniform Arbitration Act, Me. Rev. Stat. tit. 15,
§§ 5927-5949, and case law, Roosa, 695 A.2d at 1197.5
Significantly, the Commission also addressed the question
of advice the lawyer must give to a client before entering into a
dispute arbitration agreement:
Finally, there is the related issue of whether
the lawyer must advise the client to obtain
independent advice before entering into an
agreement to arbitrate prospective disputes.
The theory supporting such a requirement would
be that the lawyer and client have a conflict
of interest on the matter. See Maine Bar Rule
3.4(f)(2). Yet this is true in theory of
everything that is the engagement agreement,
most especially, for example, the percentage
fee provision in a contingent fee agreement.
We do think that the arbitration clause should
be clear and should expressly reserve both the
5
The Commission noted that arbitration clauses provided
benefits to clients as well as lawyers. It acknowledged that other
jurisdictions were split on the issue, but felt that some contrary
jurisdictions were motivated by a distaste for arbitration. See
Opinion 170.
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client's right to compel Rule 9 arbitration
over any fee dispute and the ability to file
grievance complaints under Bar Rule 7.1(a),
but we do not conclude that the presence of
such an arbitration clause in an engagement
agreement, without more, requires that the
client be advised to consult other counsel.
Opinion 170. Plainly, the Commission has expressly rejected
Bezio's "informed consent" argument.
It has been almost fifteen years since the Commission
issued this Opinion, and the Law Court has taken no action to
displace that Opinion or indicate to the Maine bar that attorneys
may not rely on it.
Additionally, the Law Court has looked to ABA Ethics
Opinions for guidance on professional ethics issues. See, e.g.,
Corey v. Norman, Hansen & DeTroy, 742 A.2d 933, 941 (Me. 1999).
The American Bar Association reached the same conclusion as Opinion
170 in 2002, when it issued a formal ethics opinion stating:
"mandatory arbitration provisions are proper unless the retainer
agreement insulates the lawyer from liability or limits the
liability to which she otherwise would be exposed under common or
statutory law." ABA Comm. on Ethics & Prof'l Responsibility,
Formal Op. 02-425 (2002).
Finally, as the Ethics Commission noted, Maine has
adopted its own Uniform Arbitration Act and favors arbitration.
See, e.g., Barrett v. McDonald Invs., Inc., 870 A.2d 146, 149 (Me.
2005) ("Maine has a broad presumption in favor of arbitration.").
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We do not think the Law Court would depart from a generally
accepted practice such as this, particularly when this approach is
also consistent with the purpose of the FAA. We have previously
upheld arbitration of attorney malpractice claims under New York
law. See Summit Packaging Sys., Inc. v. Kenyon & Kenyon, 273 F.3d
9, 14 (1st Cir. 2001) ("The Supreme Court described the FAA's
purpose as 'ensuring that private arbitration agreements are
enforced according to their terms.'" (quoting Volt Info. Scis.,
Inc. v. Bd. of Trs. of Leland Stanford Jr. Univ., 489 U.S. 468, 478
(1989))).
That other jurisdictions may follow different
interpretations of their professional liability rules is of no
moment. At present we see no basis to conclude that Maine has
adopted either Bezio's arguments or the Louisiana court's view in
Hodges of lawyer-client arbitration of malpractice disputes, or
that it ever will.
We also reject Bezio's argument, whether or not
preserved, that as a matter of generally applicable contract
defenses, Rent-A-Center, W., Inc. v. Jackson, 130 S. Ct. 2772, 2776
(2010), Maine law would find this arbitration clause to be
unconscionable and would not enforce it. Bezio is nowhere close to
meeting the requirements of Maine law for unconscionability. See
Bither v. Packard, 98 A. 929, 933 (Me. 1916) ("[S]uch
unconscionableness or such inadequacy [of a contract] should be
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made out as would (to use an expressive phrase) shock the
conscience, and amount in itself to conclusive and decisive
evidence of fraud."). There is nothing inherently unconscionable
about enforcing an arbitration clause encompassing malpractice
claims between an attorney and a client. The clause is neither
procedurally nor substantively unconscionable. See Bose Corp. v.
Ejaz, 732 F.3d 17, 23 (1st Cir. 2013) (describing two-part
unconscionability inquiry under Massachusetts law).
There is absolutely no allegation or evidence that BSSN
somehow fraudulently induced Bezio to enter into this contract.
He made changes to the draft agreement and signed and initialed the
pages, and had ample time to review the contract independently.
Indeed, were more needed, the record is clear that Bezio knew very
well from his past experience with FINRA arbitrations what
arbitration was and the consequences of signing such a clause.6
IV.
The judgment of the district court granting the motion to
compel arbitration and dismissing the action is affirmed. Costs
are awarded to BSSN.
6
Bezio's argument that the law firm waived any right to seek
arbitration by trying to expedite resolution of this case is
utterly without merit.
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