In his legal malpractice suit against Reed Smith, the owner of a Philadelphia mansion destroyed by fire claims the firm’s mandatory arbitration clause can’t be enforced.
Plaintiff Jerald S. Batoff responded last week to preliminary objections of Reed Smith that argued Batoff’s
legal malpractice case against the firm should be removed from the Philadelphia Court of Common Pleas to private arbitration.
Batoff said in his response in Batoff v. Widin that a mandatory arbitration agreement is unenforceable when it does not specifically state that the client is waiving a right to a jury trial, waiving broad discovery rights and will incur “substantial” upfront costs if arbitration is necessary. Batoff further argued an arbitration clause could not be enforced when the engagement letter obscures the clause and there was no mechanism to ensure the client read and understood the clause.
Batoff attempted to pre-empt the enforcement of the arbitration clause in his complaint, noting such mandatory arbitration provisions violate public policy. Batoff had said the arbitration clause was unenforceable because he was not represented by independent counsel when he signed the engagement letter with Reed Smith and partner Douglas Widin, also a defendant in the suit.
But in its preliminary objections filed last month, Reed Smith countered that Batoff is a lawyer and sophisticated businessman who no one could argue did not fully understand the fee agreement and arbitration clause. Batoff was admitted to the Pennsylvania bar in 1987 but is listed as being on administrative suspension, the firm said.
Reed Smith argued Pennsylvania does not preclude mandatory arbitration agreements, noting the Rules of Professional Conduct expressly allow for such agreements. The firm further took issue with Batoff’s claim that the agreement was void because he was not represented by independent counsel. Reed Smith said he was advised of his right to do so but chose not to.
“There is no Pennsylvania statutory or case law which imposes on an attorney a duty to require his client to retain separate counsel before an arbitration agreement can be deemed enforceable,” Reed Smith had said.
But in his response last week, Batoff argued that he and the lawyers signed the engagement letter, which preceded an attachment titled “Reed Smith LLP’s Standard Terms of Engagement.” He said he was never instructed to sign or initial the standard terms of engagement or to review the attachment prior to signing the engagement letter.
The last paragraph of the arbitration clause states the client has read the agreement and understands the right to have the arbitration agreement reviewed by other counsel to advise whether it is in the client’s best interest, according to Batoff’s filing.
Batoff said that, because arbitration agreements entail the waiver of certain fundamental rights and there is a perceived inequality between the firm and the client, many have argued they violate public policy. Batoff said various bar associations have imposed certain requirements on the use of such clauses.
In Pennsylvania, Batoff argued, mandatory arbitration agreements are allowed when the client is fully informed of their scope and effect. He argued Reed Smith’s clause fully describes its scope, but is “largely silent” on the effect. He said it doesn’t describe the rights being given up other than the fact that an arbitration ruling is not subject to judicial review.
Batoff further took issue with the clause’s placement. He said Reed Smith buried it “inside a prolix recitation of terms.” It was attached as a rider that was never signed, he argued. Batoff further disputed Reed Smith’s contention that the clause was valid because Batoff was informed of his right to have outside counsel review it.
“There is nothing in the text of the fee letter itself, the document that was actually signed by [Batoff], certifying that he had read the Standard Terms of Engagement document at all prior to signing, let alone the specific statement concerning his right to engage independent counsel which appears as the very last sentence of the document,” Batoff said.
Jack Meyerson of Meyerson & O’Neill represents Batoff and did not return a call seeking comment. Neither did Reed Smith’s attorney, Nicholas Centrella of Conrad O’Brien.
Batoff, the former owner of the Villanova mansion Bloomfield, which burned to the ground in 2012, sued Reed Smith for legal malpractice regarding the firm’s negotiation of a $20.5 million insurance settlement that was later disputed by the tenants of the home.
Batoff said that, on the advice of counsel, he agreed to settle with his insurance company for $20.5 million even though there were questions about whether the tenants, under an option-to-buy clause, may have had claims to some of the insurance proceeds. And as part of the settlement with the insurance company, Batoff agreed to indemnify the company if the tenants sued. The tenants did sue and Batoff claims he is out more than $500,000 in legal fees he paid on behalf of the insurer plus at risk of millions of dollars in damages in the underlying suit.
Originally posted by Gina Passarella on thelegalintelligencer.com.
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