State Bar of Wisconsin

Draft Report of the Committee on Resolution of Fee Disputes

Re: In the Matter of the Petition to Create a Mandatory Fee Arbitration System [00-15]

The Committee on Resolution of Fee Disputes met at the State Bar Center on December 27, 2000 to discuss "Re: In the Matter of the Petition to Create a Mandatory Fee Arbitration System [00-15]" filed with the Wisconsin Supreme Court by Attorney Gerald C. Sternberg. A hearing on the petition is scheduled for March 13, 2001. The Committee was asked to review and comment on the petition.

Mandatory Fee Arbitration

Of the 19 members of the full committee, 12 attended the meeting. By a vote of 11-1, the committee adopted the following resolution: The Committee on Resolution of Fee Disputes adopts the principle of mandatory fee arbitration. However, while the committee overwhelmingly approved mandatory fee arbitration in principle, it opposed the adoption of the petition filed by Attorney Sternberg.

Committee members engaged in an extended discussion of three points:

1) Should the State Bar of Wisconsin support the adoption of a Supreme Court rule mandating arbitration of fee disputes between its members and their clients?

2) Should the State Bar of Wisconsin support the adoption by the Supreme Court of the petition for mandatory fee arbitration filed by Attorney Sternberg?

3) If the Committee on Resolution of Fee Arbitration opposes the adoption of the petition, what alternative does it recommend to the Board of Governors?

Comments Favoring Mandatory Fee Arbitration

In general, it was the belief of the members that for a variety of reasons, mandatory fee arbitration is an idea whose time has come. Reasons cited in favor of mandatory arbitration included:

1. Lawyers control the language of fee agreements and the burden should be on them to make their fee structures and agreements clear to clients. Lawyers should be able to explain their fees and draft agreements in ways that will be understood and accepted by clients. A mandatory arbitration program will improve communications with clients and take the fee dispute out of the home ground of the attorney, i.e. the courtroom.

2. Offering clients a non-judicial means of resolving fee disputes is good public relations.

3. Lawyers risk losing control of the fee-setting process if they do not actively establish and participate in a program for settling fee disputes outside of court.

4. The oft-repeated claim of constitutional entitlement to a jury trial in what is essentially a civil dispute is overstated and not controlling of the outcome of the debate.

Comments Opposing Mandatory Fee Arbitration

One member of the committee sought the opinions of members of the Family Law listserv. He reported that a majority was opposed to mandatory fee arbitration. Among the reasons cited by his correspondents were:

1. Mandatory fee arbitration deprives lawyers of the constitutional right of any citizen in this state to a jury trial.

2. A mandatory system could produce a significant increase in frivolous challenges to fees billed under perfectly clear and understandable fee agreements, especially when the client is dissatisfied with the outcome of a legal dispute.

3. Support for this program comes from lawyers who do not make their living representing clients who pay for legal services.

4. Why should only lawyers, unlike other professionals, be forced to submit their charges to arbitration?

5. Imposing mandatory fee arbitration could lead to an increase in fees and a corresponding decrease in the availability of affordable legal services. Lawyers might charge higher retainers and hourly rates. Lawyers might withdraw from representation as soon as a bill goes unpaid rather than "carry" and possibly "swallow" an unpaid fee.

6. Lawyers tend to be opposed to mandates on the manner in which they conduct the business affairs of their offices, and mandates in general.

7. Instead of mandated fee arbitration, the court should require fee mediation as a pre-requisite to a trial. This could be similar to the mandate for child custody mediation in divorce actions. The mandate could either be imposed as a pre-condition to filing an action or as mandatory ADR after an action has been filed.

8. Mandates superimposed on the attorney-client relationship and which are over and above those already contained in SCR 20 should be opposed.

Sternberg Petition for Mandatory Fee Arbitration

The committee opened a discussion of the Sternberg proposal. It quickly became apparent to committee members that the proposal has a significant problem, i.e. the provisions permitting either party to the arbitration to decline to be bound by the arbitrator's decision coupled with the option of seeking a de novo hearing in civil court.

During the review of the specific provisions of the Sternberg proposal, committee members agreed that they were expending a substantial effort analyzing the procedural language of a proposal they believe is so flawed in its conception that their efforts would be wasted should the Board of Governors agree with their primary objection

Therefore, rather than undertake a review of the details of each component of the Sternberg proposal, the committee decided it should approach the matter in the following way:

1. Communicate its primary concerns regarding the Sternberg proposal to the Board of Governors.

2. Propose that the State Bar's existing program be revised as a mandatory program.

3. Request time in which to revise the rules of the existing program.

However, if the Board of Governors directs, the committee will review all of the specific provisions of the Sternberg proposal and report to the Board before its scheduled March meeting.

Concerns

What purports to be an arbitration program is not. The provisions of proposed SCR 14.01 undo the whole point of the proposal. A lawyer can refuse to accept arbitration and then "seek a trial de novo pursuant to Wisconsin's rules of civil procedure...." The committee strongly believes that this procedure effectively defeats the purpose of the proposal and is a prescription for a public relations disaster. If a client is already unhappy with a bill, how much more will be the client's unhappiness when, after taking the time to participate in "arbitration" the client finds him or herself in a civil action?

Attorney Sternberg's proposal permits a lawyer to "go through the motions" of arbitration while all along having no intention to accept the outcome. It could even further alienate clients.

A second major concern is the Sternberg proposal that the Wisconsin Supreme Court consider development of a mediation component of the mandatory arbitration program. (See SCR 14.01, Commentary, Para. 2) The committee disagrees. Mediation, while a useful means for reducing conflict and resolving fee dispute issues, should not be a part of a mandatory binding arbitration program. Arbitration is not mediation and arbitrators are not mediators. Fee mediation could be a prerequisite to arbitration or could be a suggested alternative to arbitration; the two should not, however, be combined.

General Observations and Comments on Mandatory Fee Arbitration

Finally, committee members made several observations and comments they feel the Executive Committee and Board of Governors should keep in mind when considering the general question of whether to support the adoption of mandatory fee arbitration.

1. An increase in requests could put a heavy burden on volunteer unpaid volunteers. Some committee members fear resignations by arbitrators.

2. Lawyers volunteering time as arbitrators may be unwilling to offer their time if the fruit of their labors can be ignored.

3. Lawyers may not wish to be associated with a program imposed on the bar by the Wisconsin Supreme Court.

4. Training would have to be mandatory for all arbitrators, both lawyers and non-lawyer arbitrators.

5. A means must be found for the State Bar of Wisconsin's and the Milwaukee Bar Association's fee arbitration programs to work together to administer a mandatory fee arbitration program.

6. Mandatory fee arbitration would encourage attorneys to develop and use written fee agreements detailing all charges for the legal services.

7. The profession has a communication problem, not only with the public but also with its peers. Mandatory arbitration might be appropriate in the public relations framework of the profession.

8. Mandatory arbitration will put the attorney into a better position to correct disputes over fees and therefore mandatory arbitration should not be unduly oppressive to the attorney.

The committee discussed budget implications of mandatory fee arbitration and made the following observations:

1. The volume of arbitration hearings will probably increase

2. The districts will need more arbitrators

3. Arbitrator training should be mandatory

4. The frequency of training will probably increase

5. The scope and depth of training will increase.

In his Commentary to SCR 14.01 Atty Sternberg noted that "The court should ensure adequate funding for an effective program." The committee agrees with this observation and wants the Board of Governors to understand that increased funding will almost certainly be a consequence of any program of mandatory fee arbitration.

The committee believes that the existing fee arbitration program, with modifications that take into account a Wisconsin Supreme Court mandate, could be made the basis for a mandatory fee arbitration system. The existing rules can be modified.

The committee recommends that the Board of Governors oppose the adoption of the mandatory fee arbitration proposal submitted by Attorney Sternberg and offer, as an alternative, the existing fee arbitration program modified to account for the effect of the Court's mandate.

Recommendations

With these observations in mind, the Committee on Resolution of Fee Disputes makes the following recommendations to the Executive Committee for consideration by the Board of Governors:

1. The State Bar of Wisconsin should support in principle the concept of mandatory arbitration.

2. The State Bar of Wisconsin should oppose the adoption of Attorney Sternberg's petition for the reasons stated.

3. The State Bar of Wisconsin should take the position that with modification of its rules, the program now administered by the Committee on Resolution of Fee Disputes should be the basis for a mandatory fee arbitration program.

4. The State Bar of Wisconsin should propose to the Wisconsin Supreme Court that it direct the State Bar to develop rules for a mandatory fee arbitration program and that the State Bar be given 12 months in which to complete its task and to submit the proposal to the Court.

Respectfully submitted,

Robert W. Swain, Jr., Esq.
Chairperson
Committee on Resolution of Fee Disputes