Court Opinion

ID: 2646027
Source: CourtListenerOpinion
Date Created: 2013-12-17 01:00:10.797559+00
Date Added: 2024-06-11T12:51:39.330930
License: Public Domain

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

                                    -2-
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.

                                         -3-
                  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.

                                                  -4-
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;

                                 -5-
                 • 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

                                -6-
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

                                   -7-
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.

                                        -8-
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

                                -9-
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.

                                       -10-
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.

                                 -11-
            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.").

                                     -12-
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

                                         -13-
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.

                                                 -14-