Legal Ethics Opinion #1586

Conflict of Interest--Business Transaction With Client: Law Firm
Retainer Agreement Requiring Mandatory Arbitration of Fee
Disputes in Neighboring Jurisdiction Where Firm Office Is Located

You have presented a hypothetical situation in which a firm has
lawyers licensed in Virginia, Maryland, and in the District of
Columbia and has its only offices in the District of Columbia. 
The firm wishes to include in its engagement agreement a
requirement that any fee disputes between the client and the firm
be resolved in binding arbitration.  You indicate that the
requirement for arbitration would apply only to fee disputes and
would not apply to disputes involving malpractice.

You further indicate that the engagement agreement would also
require that the arbitration take place before the District of
Columbia Attorney-Client Arbitration Board (ACAB) which imposes a
filing fee for a fee arbitration of $25.00 with no other fees or
costs imposed on either party.  Further, either the lawyer or the
client can file a request for arbitration and, unless the parties
agree to a single arbitrator, the arbitration panel will consist
of three members, one of whom must be a nonlawyer.
  
You have asked the committee to opine under the facts of the
inquiry, (1) whether an engagement agreement providing for
mandatory arbitration of fee disputes violates any provision of
the Virginia Code of Professional Responsibility; and (2) whether
the requirement that the arbitration take place before the
District of Columbia Attorney-Client Arbitration Board violates
any provision of the Virginia Code of Professional
Responsibility.

The appropriate and controlling Disciplinary Rule related to your
inquiry is DR 5-104(A) which provides that a lawyer shall not
enter into a business transaction with a client if they have
differing interests therein and if the client expects the lawyer
to exercise his professional judgment therein for the protection
of the client, unless the client has consented after full and
adequate disclosure under the circumstances and provided that the
transaction was not unconscionable, unfair or inequitable when
made.  

The committee is of the opinion that a provision requiring
mandatory arbitration of fee disputes and designating the situs
of the arbitration is not per se violative of the Code of
Professional Responsibility, provided that there is compliance
with the mandates of DR 5-104(A) before entering into the
engagement agreement.  Specifically, the committee believes that
there must be full and adequate disclosure as to all possible
consequences of such a transaction and the transaction must not
be unconscionable, unfair, or inequitable when made.

As to what constitutes "full and adequate disclosure", the
committee has previously opined that disclosure is adequate if it
is such that the client is able to make an informed decision as
to whether or not to give consent.  Furthermore, the committee
has also opined that all doubts as to the sufficiency of
disclosure must be resolved in favor of the client and against
the attorney's proceeding.  See Legal Ethics Opinions l507, l489,
l459, ll98.  

Committee Opinion
April 11, 1994