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ADR Provision in Engagement Letters – a new approach

You may recall the blog posting about the Mediation Clause recommended by Ralph Picardi (go here for a link to the post).

Recently certain firms have enjoyed success by augmenting this provision with a section step which essentially provides rules for the resolution of a claim or fee dispute by Arbitration.  While Arbitration as a process has limitations, firms have found that the use of such a clause in engagement may go a long way towards avoiding costly litigation, reducing the possibility of a counter-suit from from a fee collection or be used as a tool to resolve client dissatisfaction.

New ADR wording in engagement letters.

The revised clause starts with by restating the Mediation Provision:

You agree that any dispute that may arise regarding the meaning, performance or enforcement of this engagement will, prior to resorting to litigation, be submitted to mediation, and that the parties will engage in the mediation process in good faith once a written request to mediate has been given by any party to the engagement. Any mediation initiated as a result of this engagement shall be administered within the county of City of ****, County of ****, State of ****,, by [Name of Mediation Organization], according to its mediation rules, and any ensuing litigation shall be conducted within said county, according to [State] law. The results of any such mediation shall be binding only upon agreement of each party to be bound. The costs of any mediation proceeding shall be shared equally by the participating parties.

This is a cooperative clause which provides an initial basis for discussion and may quickly resolve a dispute.  However, if not resolved in Mediation, then:

If mediation fails to resolve a dispute you further agree that any controversy, claim, or disagreement relating to our unpaid fees for professional services and costs rendered under this Agreement shall be submitted for binding arbitration to the American Arbitration Association, or like organization in accordance with the prevailing dispute resolution rules of the organization, with the place of hearing being the City of ****, County of ****, State of ****, unless the amount of the controversy, claim, or dispute is within the jurisdictional limits of the Small Claims Court and either party elects to have the matter heard in Small Claims Court in the City of ****, County of ****. The prevailing party may be entitled to reimbursement for all arbitration costs. Should you contend that any services were performed improperly or below the standard of care, you must raise that defense in the arbitration proceeding as an offset to, or reduction, or complete elimination of the fees that we contend you owe or forever waive the right to bring such claims. In the event that the arbitrator eliminates all of our fees and you still believe you have a cause of action not yet satisfied you may bring such action in a Court of Law for affirmative relief. However, if you fail to bring such claim in arbitration, or if the arbitrator determines that your claim does not exceed our contended fees you will then be prevented from bringing the same contention in any civil action.

The provision goes on to state that a claimant may use a small claims court, or binding arbitration and the loser pays all costs. Dissatisfaction about services rendered may be raised as a defense and fees can be cut or eliminated by the arbitrator.  The provision limits future actions of the claims for affirmative relief or concerning the amount of the fees. The clause continues:

Furthermore, in order to protect your rights and our rights to a trial on any such action in Court for affirmative relief we agree that neither the findings of the arbitrator(s) or any Judgment confirming said arbitration award shall be determinative of any issue in your action in Court for affirmative relief, nor shall they be admissible for the purpose of said trial. You may not assert such a claim as an affirmative defense in the arbitration proceeding and then again as a separate civil action for affirmative relief, if the arbitrator(s) determined that your recovery was limited to your fee balance. Should you bring an action in Court asserting a claim for improper services having not first brought a claim in arbitration in which the arbitrator found that the claim exceeded our contended fees, we shall in that instance only, be permitted to show the Court that this claim was made in the arbitration proceeding and therefore is a bar to prevent you from proceeding with the civil action.

The clause does not restrict any rights to a trial but the claimants cannot use the results of the arbitrartion to support a claim. And, essentially you can’t bring the same complaint twice. The final section of the clause states:

Judgments upon the award rendered by the arbitrator may be entered in any court having jurisdiction. We agree that any petition to confirm an arbitration award may be served by mail at the last known address and that no personal service will be required. In this regard, it is further agreed that the place for performance of this agreement is in the City of ****, County of ****, State of ****. In the event civil proceedings to confirm the arbitration award as judgment are required, the prevailing party may be entitled to receive all reasonable attorneys’ fees and costs related to the confirmation and enforcement of the judgment.

Details the service of the award rendered and performance of the agreement, and that the prevailing party may be entitled to costs of confirmation and enforcement.

 

No Alternative Disputes Resolution provision is perfect and requires modification based upon your jurisdiction and the agreement of your client but the foregoing should offer some suggestions as to a recent deployment of the provision.

These are my italics throughout this blog.

Go here for a specimen of the wording.

Jorgensen & Company are not attorneys and do not offer any form of legal advice. Consult with appropriately qualified local counsel for more assistance. Rickard Jorgensen is President & Chief Underwriting Officer for the CPAGold™ program and may be contacted at (201) 345 2440 or rjorgensen@jorgensenandcompany.com

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