In 2011, the U.S. Supreme Court schooled the 9th Circuit Court of Appeals on the primacy of arbitration clauses in AT&T Mobility v. Concepcion. The high court’s landmark ruling reversed a 9th Circuit holding that AT&T’s prohibition of classwide arbitration was unconscionable under California law, finding instead that the Federal Arbitration Act preempts state laws restricting the use of arbitration. In combination with the Supreme Court’s ruling last term in American Express v. Italian Colors, Concepcion pretty much wiped out any hope that consumers and employees can avoid mandatory arbitration if they’ve signed contracts with arbitration provisions.
But on Thursday a three-judge 9th Circuit panel found an exception. In an opinion by Judge William Fletcher (writing for a panel that also included 9th Circuit Judge Johnnie Rawlinson and 10th Circuit Senior Judge David Ebel, sitting by designation) the appeals court held that Concepcion does not preclude law firm clients who have signed retainer agreements with arbitration provisions from suing in court if the agreements violate state-law rules. The Supreme Court’s decision, according to the 9th Circuit, doesn’t mandate enforcement of an arbitration provision that is “procedurally unconscionable” under state contract law. (Gracias to the San Francisco legal newspaper The Recorder, which first reported on the decision.)
The 9th Circuit is notably judicious about the apparently now-defunct Illinois law firm at the heart of the dispute, Macey, Aleman, Hyslip & Searns. Through the name Legal Helpers, the firm was engaged in the debt-adjustment business, which seems to mean, based on the 9th Circuit opinion, that it teamed up with companies pitching debt relief services to struggling consumers in order to permit the companies to evade state restrictions on the fees they’re permitted to charge. (Law firms are sometimes allowed to charge more for their debt relief advice than non-legal outfits.) The 9th Circuit quoted a 2011 Illinois cease and desist order against Legal Helpers: “Despite the name ‘Legal Helpers,’ the company does not provide legal representation to consumers or otherwise act in an attorney capacity.”
But Legal Helpers and its alter ego law firm did require clients to sign a four-page, single-spaced attorney retention agreement as part of a 20-page contract for debt relief services. The retention agreement included a provision mandating arbitration of attorney-client disputes at the request of either side. The arbitration clause was not highlighted in any way, according to the 9th Circuit. Nor were any other of the contract provisions: The cover page just instructed customers “to sign at every X.”
In 2011, Rosita Smith filed a class action against Legal Helpers and the debt relief companies it worked with in federal court in Tacoma, Washington, on behalf of all Washington residents who were allegedly overcharged for the services. Smith, a widow who fell into financial troubles after her husband’s death and her own illness, was represented by Terrell Marshall Daudt & Willie and The Scott Law Group. Defense counsel at Foster Pepper and Ryan Swanson & Cleveland moved to compel arbitration, citing the provision in Smith’s attorney retention agreement. (The debt relief companies claimed that they were third-party beneficiaries of the agreement.)