Stacked Arbitration Agreements Held Unenforceable as Unconscionable

Stacked Arbitration Agreements Held Unenforceable as Unconscionable

      In a recent decision of the Eastern District of Kentucky, it was held that the an estate would not be required to arbitrate its legal malpractice claims against a pair of law firms.  Bruszewski v. Motley Rice, LLC, 2012 WL 6691643 (E.D. Ky. Dec. 21, 2012).

      Thomas Bruszewski retained Provost Umphrey Law Firm, LLP, out of Texas, to represent him in connection with a suit seeking damages for his asbestosis and mesothelioma.  The engagement agreement contained an agreement to arbitrate any disputes arising out of that representation, that arbitration to take place in Houston, Texas pursuant to the rules of JAMS.  Provost subsequently brought in the South Carolina firm of Motley Rice, LLC as co-counsel.  Thomas Bruszewski having passed away in the interim, his former spouse and executrix, Donna, partially completed and returned, but did not sign, the engagement agreement with Motley Rice.  It as well contained an agreement to arbitrate.  Ultimately, suit was never filed within the statute of limitations on behalf of the Bruszewskis, and Donna initiated a legal action against the two firms.  They, in turn, sought to compel arbitration of the dispute.

      One curious aspect of the agreement with Motley Rice was that it provided for arbitration in accordance with South Carolina law.  Apparently the drafter of this provision elected to ignore a South Carolina statute that express excludes attorney-client representation agreements from the scope of the South Carolina arbitration act.  S.C. Code Ann. § 15-48-10(b)(3).  Still, the court found that the agreement could be enforceable under the Federal Arbitration Act, the transaction at issue involving interstate commerce.

      Ultimately, the court found that the agreements to arbitrate would not be enforced.  Applying the rules of procedural and substantive unconscionability as set forth by the Kentucky Supreme Court in Schnuerle v. Insight Comm. Co., L.P., 376 S.W.3d 561, 576 (Ky. 2012), the court first set aside the arbitration agreement with Motley Rice on the basis that the plaintiff had no meaningful choice when it came to that agreement.  Rather, Motley Rice had been associated into the case by Provost Umphrey without her prior knowledge or specific consent.  2012 WL 6691643, *4.  Further, it found that the arbitration clause, located under a heading “Termination of Representation,” was “misleading” at best.  The court did not address the argument that the agreement to arbitrate with Motley Rice was invalid for the agreement having never been signed by Donna Bruszewski.

      As to both agreements, the court found substantive unconscionability.  With respect to her dispute with Provost, the plaintiff was required to arbitrate in Houston, Texas under the rules of JAMS.  Conversely, any arbitration with Motley would be under only the Federal Arbitration Act.  Ultimately, there was the risk of incompatible procedures in different forum:

Requiring Plaintiff to arbitrate her claims relating to the Defendants’ joint representation in two separate arbitrations in distant locations would be most oppressive in this instance.  Moreover, to do so would place Plaintiff at a substantial disadvantage to prove her claims.  There is a substantial likelihood that the Plaintiff would be subjected to inconsistent resolutions of her claim by the two arbitrators.  Particularly that each is governed by different rules.  Rather than promoting the goals of arbitration, the effect of these provisions is to create an oppressive and overly burdensome process stacked against the Plaintiff.  Accordingly, the court finds these arbitration provisions unconscionable and Defendants’ motions to compel arbitration is denied. 

      Clearly the burden is upon joint-providers who desire arbitration of disputes to reconcile their agreements to arbitrate in order to avoid a repeat of this situation.