Darcy Smith v. Cynthia Lindemann ( 2017 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 16-3357
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DARCY SMITH, PH.D.,
Appellant
v.
CYNTHIA BORSELLA LINDEMANN, ESQ.,
an attorney at law of the State of New Jersey;
WEINSTEIN, SNYDER, LINDEMANN & SARNO;
STEVEN URBINATO, ESQ., an attorney at law
of the State of New Jersey; STARR, GERN,
DAVISON & RUBIN, P.C.; MARC A. CALELLO, ESQ.;
ALFONSE A. DEMEO
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Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 2-10-cv-03319)
District Judge: Honorable Kevin McNulty
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Submitted Under Third Circuit LAR 34.1(a)
September 19, 2017
Before: AMBRO, KRAUSE, and SCIRICA, Circuit Judges
(Opinion filed: September 21, 2017)
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OPINION *
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AMBRO, Circuit Judge
Darcy Smith, Ph.D., hired and fired a string of four lawyers in connection with her
divorce. She later sued in the District of New Jersey all four attorneys and their
respective law firms for malpractice. Three settled, but one attorney, Marc A. Calello,
asked the District Court to enforce an arbitration provision in his representation
agreement with Smith. The District Court obliged, staying Smith’s action and
compelling arbitration.
Smith contends that the provision is unenforceable because New Jersey law does
not permit the arbitration of malpractice claims against attorneys brought by their former
clients, and, even if New Jersey law did permit arbitration of her claims, this provision
fails because it does not specifically use the word “malpractice.” Accordingly, she asks
us to reverse the District Court or, in the alternative, to certify to the Supreme Court of
New Jersey the question whether arbitration provisions like the one in her agreement are
enforceable. The decision whether to certify a question of law to the Supreme Court of
New Jersey is left to our discretion. See Lehman Bros. v. Schein, 416 U.S. 386, 390–91
(1974).
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
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Smith’s agreement with Calello contains the following provision, which
unambiguously requires arbitration of any quarrels between them:
Arbitration of Differences Between the Client and the Law Firm.
Should any difference[], disagreement, or dispute between you and the Law
Firm arise as to its representation of you, or on account of any other matter,
you agree to submit such disagreements in binding arbitration.
It goes on to specify the applicable arbitration procedures and concludes by advising that
[s]igning of this Agreement will be deemed your consent to the methods of
alternative dispute resolution set forth in this Section, and constitutes a
waiver on your part and on the part of the Law Firm to have such disputes
resolved by a court which might include having the matter determined by a
jury.
“The [Federal Arbitration Act (“FAA”)] federalizes arbitration law and ‘creates a
body of federal substantive law establishing and regulating the duty to honor an
agreement to arbitrate[.]’” John Hancock Mut. Life Ins. Co. v. Olick, 151 F.3d 132, 136
(3d Cir. 1998) (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S.
1, 25 n. 32 (1983)). Thus, as the Supreme Court has repeatedly reaffirmed, “‘[w]hen
state law prohibits outright the arbitration of a particular type of claim, the analysis is
straightforward: The conflicting rule is displaced by the FAA.’” Marmet Health Care
Ctr., Inc. v. Brown, 565 U.S. 530, 533 (2012) (quoting AT & T Mobility LLC v.
Concepcion, 563 U.S. 333, 341 (2011)) (alteration in original).
Yet an arbitration provision may be set aside “upon such grounds as exist at law or
in equity for the revocation of any contract.” 9 U.S.C. § 2. “This saving clause permits
agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such
as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration
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or that derive their meaning from the fact that an agreement to arbitrate is at issue.”
Concepcion, 563 U.S. at 339 (quoting Doctor's Associates, Inc. v. Casarotto, 517 U.S.
681, 687 (1996)). To determine whether grounds for revoking the contract containing the
arbitration provision exist, “[a] federal court must generally look to the relevant state law
on the formation of contracts[.]” Blair v. Scott Specialty Gases, 283 F.3d 595, 603 (3d
Cir. 2002).
Smith makes two arguments why the arbitration provision cannot be enforced.
Neither is convincing.
First, she contends that New Jersey law prohibits the enforcement of arbitration
provisions by attorneys facing malpractice claims brought by former clients. Even were
there support for her view of New Jersey law (Smith concedes no case in New Jersey
specifically bars the arbitration of attorney-malpractice claims), the FAA would preempt
it. See Marmet Health Care Ctr., 565 U.S. at 533. 1 Thus Smith’s first argument fails.
Second, Smith argues that the arbitration provision cannot be enforced because its
inclusion in the representation agreement violated the New Jersey Rules of Professional
Conduct and thereby invalidated the entire agreement. See Jacob v. Norris, McLaughlin
& Marcus, 607 A.2d 142, 146 (N.J. 1992) (“Contracts that violate the [Rules of
Professional Conduct] violate public policy, and courts must deem them
1
Smith places particular emphasis on a concurrence in Kamaratos v. Palias asserting that
“a retainer agreement that contains a commercial arbitration clause which waives the
client’s right to access the courts to resolve disputes arising out of the attorney/client
relationship must be viewed as inherently unenforceable and against public policy.” 821
A.2d 531, 540 (N.J. Super. Ct. App. Div. 2003) (Fuentes, J. concurring). This position is
clearly inconsistent with the U.S. Supreme Court’s later holding in Concepcion, 563 U.S.
at 341, that state law may not prohibit the arbitration of any particular type of claim.
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unenforceable.”). The Rules of Professional Conduct require an attorney to advise his
client of the implications of any retainer agreement. See Cohen v. Radio-Elecs. Officers
Union, Dist. 3, NMEBA, 679 A.2d 1188, 1196 (N.J. 1996); see also N.J. Rules Prof’l
Conduct R. 1.4(c) (“A lawyer shall explain a matter to the extent reasonably necessary to
permit the client to make informed decisions regarding the representation.”). And while
“[i]t is permissible under the [American Bar Association’s] Model Rules [of Professional
Conduct] to include in a retainer agreement with a client a provision that requires the
binding arbitration of . . . malpractice claims,” the client must be “fully apprised of the
advantages and disadvantages of arbitration” and “give[] her informed consent” to the
arbitration provision. ABA Comm’n on Ethics & Prof’l Responsibility, Formal Op. 02-
425 (2002). Because the arbitration provision at issue here did not specifically include
the word “malpractice,” Smith contends she could not have given her informed consent to
the agreement unless Calello orally warned her that she would have to arbitrate any
malpractice claims against him. And there is no evidence that he gave such a warning.
The Supreme Court has held that the FAA requires courts to put arbitration
agreements “on equal footing with all other contracts” and that they may not interpret
state law differently in the context of arbitration. See DIRECTV, Inc. v. Imburgia, 136 S.
Ct. 463, 470 (2015) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440,
443 (2006)). So, to the extent Smith seeks a more searching review of the advice
attorneys provide new clients when an agreement to arbitrate is at issue, her argument is
foreclosed by the FAA. See id. We need not decide that question, however, because she
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fails to explain why a written or oral warning that explicitly uses the word “malpractice”
is necessary as a matter of New Jersey law.
The arbitration provision before us is straightforward: “[A]ny difference[],
disagreement, or dispute between [Smith and Calello] as to [his] representation of [her]”
shall be submitted to “binding arbitration.” J.A. 25. True, the New Jersey Supreme
Court has held in a different context that “[t]he absence of any language in [an]
arbitration provision that [a] plaintiff [i]s waiving her statutory right to seek relief in a
court of law renders the provision unenforceable.” Atalese v. U.S. Legal Servs. Grp.,
L.P., 99 A.3d 306, 309 (N.J. 2014) (emphasis in original). But the provision here makes
plain that arbitration means giving up the right to have a dispute resolved by a judge and
jury. J.A. 25 (agreement to arbitration constitutes a “waiver . . . to have such disputes
resolved by a court which might include having the matter determined by a jury”).
Despite her contention that she did not give informed consent to the arbitration
provision, Smith does not argue that it is too narrow to cover malpractice claims.
Although she contends Calello should have used the word “malpractice” orally or in the
agreement itself, she never claims not to have known malpractice claims would fall
within the provision’s definition of “any difference[], disagreement, or dispute between
[her] and [Calello] . . . as to [his] representation of [her.]” J.A. 46. Nor does she claim to
have been surprised that her agreement to arbitrate meant giving up the right to go to
court.
Indeed, Smith used the same clause to her advantage in a related matter.
Following his termination, Calello filed a civil action against Smith to collect unpaid
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fees. When she didn’t appear, Calello obtained a default judgment against her. Smith,
appearing pro se, then asked the court to vacate the judgment on the ground that Calello
was bound to arbitrate, rather than litigate, any claims against her, and the court granted
her request.
Smith notes that “[a]n arbitration provision—like any comparable contractual
provision that provides for the surrendering of a constitutional or statutory right—must be
sufficiently clear to a reasonable consumer.” Atalese, 99 A.3d at 309. Although she
claims her attorney failed to advise her of the arbitration provision’s meaning, its
language is unambiguous. And Smith never says what wasn’t clear to her. Indeed, if the
record suggests anything, it’s that she was aware of the arbitration provision’s meaning
and consequences.
* * * * *
A New Jersey rule prohibiting the inclusion of an arbitration provision in an
attorney-client representation agreement (whether inferred by this Court or the New
Jersey Supreme Court) would be preempted by the FAA, and Smith fails to state what, if
anything, made the arbitration provision so unclear as to preclude its enforcement. For
these reasons, we affirm the District Court’s order compelling arbitration and decline
Smith’s request to certify a question of law to the Supreme Court of New Jersey.
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