Proposed Michigan Rule Could Impair Christian Arbitration Clause

In my post of February 11, 2022, I wrote about legislative initiatives that could prevent arbitration clauses in contracts between Christians from being legally enforceable. Today I examine a judicial effort that would have a similar effect.

Most world religions exhort their adherents not to sue one another, but rather to resolve their disputes within the religious body itself. Jewish, Christian, Muslim and Sikh faiths are notable examples. Because Christians are directly admonished in Scripture not to take their disputes to court (I Corinthians 6:1-7), many contracts between Christians specify in their dispute resolution clause that the dispute will be resolved through mediation and, if that is not successful, then through arbitration (“med/arb”). That ensures that the dispute will not end up in court, consistent with both parties’ beliefs.

Christian lawyers include such clauses in their client engagement contracts, and I include one in my agreement with Christian mediation parties, as follows:

We further agree that any dispute with the mediator related to this Agreement shall be settled by media­tion and, if necessary, legally binding arbitration in accordance with the ICC Rules; judgment upon an arb­itra­tion award may be entered in any court otherwise having jurisdiction.

(As is explained elsewhere in the agreement, the ICC Rules of Procedure for Christian Conciliation are a well-established set of national rules for Christian mediation and arbitration.)

The Michigan Supreme Court would like to make this more complicated. They are proposing a change to the Michigan Rules of Professional Conduct, which all lawyers must follow, that would require a client to obtain independent counsel to review any lawyer-client contract containing an arbitration clause. (Order of the Michigan Supreme Court, ADM File No. 2021-07, dated December 15, 2021.)

Although the Court has not offered why it is proposing this change, we can assume that it is attempting to address the inherent conflict of interest, and likely power imbalance, when a lawyer proposes a dispute resolution process for the client to use if the client is later unhappy with the lawyer’s services. Arbitration benefits clients too, so it is not unethical for a lawyer to recommend it; but unsophisticated clients may not appreciate all the implications of an arbitration clause. By definition, the prospective client is focused on another legal matter; they’re not really thinking about a process to resolve a possible dispute with the lawyer they’re about to hire. When they learn later that they cannot sue their lawyer, they may feel that the lawyer took advantage of them. That is less likely to occur if the client has an independent lawyer review the lawyer-client agreement, and hopefully spot and explain the arbitration clause in it, before the client signs it. (I say “hopefully” because in the case that prompted the Supreme Court to propose this Rule amendment, Tinsley v Yatooma, 333 Mich App 257 (2020), the sophisticated business client had an independent lawyer review the agreement, but that lawyer apparently did not notice or inform Mr. Tinsley about the arbitration clause. The case shows that the proposed amendment will not fully fix the problem.)

The proposed Rule would require Christian lawyers who have arbitration clauses in their lawyer-client contracts to make prospective clients obtain outside counsel before signing the contract. Presumably it would cover med/arb clauses as well. Even the requirement is for the client’s benefit, it imposes an extra burden on the would-be client, in terms of both time and cost. An alternative is for the lawyer to remove the arbitration clause from the contract — thus also removing the assurance that, should the lawyer and client get into a dispute down the road, it will not go to court. Otherwise, the parties could wait until a dispute erupts then choose the process, but it’s harder to forego litigation when tempers flare, even if religious traditions demand it.

As I do not represent clients, this proposed Rule would not directly affect me. But, if it extends to “med/arb clauses,” as well as arbitration-only provisions, and if mediation parties could be considered my clients, it would impair my mediator retention agreements with Christian parties.

I applaud the effort to ensure that clients are informed about arbitration before signing agreements with arbitration clauses. I object to requiring a prospective client to obtain independent counsel to review the contract. I would prefer that it be a recommendation — that the lawyer advise the prospective client to seek independent review of a lawyer-client contract containing an arbitration clause. Then the prospective client can decide for themselves whether the unknowns of arbitration merit seeking outside counsel before signing the contract.

My understanding is that no other state is as demanding as Michigan’s proposal. Other states permit arbitration clauses in attorney-client agreements as long as the attorney explains to the client the pros and cons of arbitration. See Delaney v Dickey, 244 NJ 466, 494; 242 A2d 257 (2020). The ABA in its formal opinion on this topic (ABA Formal Opinion 02-425 Retainer Agreement Requiring the Arbitration of Fee Disputes and Malpractice Claims) agreed that an arbitration clause in a retainer agreement is ethical as long as “the client has been fully apprised of the advantages and disadvantages of arbitration.” The ABA does not require that a different attorney apprise the client.

The lack of informed consent plagues arbitration. It is especially likely in a contract between a lawyer and client. The legal profession should take extra steps to ensure that clients know what they’re giving up when they sign a contract with an arbitration clause in it. But the extra steps should not burden the client, and they should not hinder the client’s desire to honor their religious beliefs by including the arbitration clause in the contract.

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