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By: Dana Maine
Joining with most other jurisdictions, the Georgia Supreme Court affirmed a Court of Appeals decision finding that arbitration clauses in attorney engagement agreements are not against public policy and clarified the burden of persuasion for demonstrating procedural unconscionability in Innovative Images, LLC v. James Darren Summerville, et al., (Sept. 8, 2020). In reaching this decision, the Supreme Court disregarded the question of whether the attorney violated Georgia Rules of Professional Conduct 1.4(b), which is identical to ABA Model Rule of Professional conduct 1.4(b). This rule states, “A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.” ABA’s Standing Committee on Ethics and Professional Responsibility has issued a formal opinion (02-425) which requires the attorney to fully apprise his/her client of the advantages and disadvantages of arbitration before asking the client to enter into an agreement requiring arbitration.
The issue of violation of Rule 1.4(b) is a separate issue from whether the clause is enforceable, according to the Georgia Supreme Court. Simply put, arbitration is favored in the State of Georgia and is not void as against public policy. For the same reason, mandatory arbitration is not substantively unconscionable, leaving only the question of whether it is procedurally unconscionable.
In order for the clause to be procedurally unconscionable, it must be one “‘no sane [person] not acting under a delusion would make and that no honest [person] would take advantage of’ and ‘one where one of the parties takes a fraudulent advantage of the other.’” (Quoting NEC Technologies, Inc. v. Nelson, 267 Ga. 390 (1996)). Under the facts in the case, the only “evidence” to support unconscionability was the fact that defendants had not demonstrated that plaintiff was a sophisticated client. The Georgia Supreme Court found error with the trial court’s shifting of the burden in this regard from plaintiff to defendant. Thus, according to the Georgia Supreme Court, plaintiff had not met its burden and the arbitration clause was enforceable.
While the Georgia Supreme Court invited the State Bar to issue an advisory opinion on the topic, it made it unequivocally clear that any opinion would have no impact on the enforceability of an arbitration clause, and the clause would be enforced as long as the procedure for entering into the agreement was appropriate. A practitioner should keep in mind the general rules that the client must be fully informed about the scope and effect of the arbitration clause, and the lawyer’s liability cannot be limited by referral of the dispute to arbitration. In the end, arbitration can benefit both parties by bringing any dispute to a speedy and cost-effective conclusion.
If you have any questions or would like more information, please contact Dana Maine at [email protected], or any other member of our Lawyers Professional Liability Practice Group, a list of which can be found at www.fmglaw.com.