NM Court of Appeals: Attorney-client arbitration contracts must be supported by informed consent

When Ray Castillo retained lawyers to represent him in his personal injury case, he signed a contract with them which provided that “[s]hould any dispute arise, Client and Attorney agree to submit their dispute to arbitration.” When Castillo later sued his lawyers for malpractice, the trial court ordered that the arbitration clause be enforced, despite a dispute of fact about whether the lawyers had explained the clause’s meaning and effect to Castillo.

In Castillo v. Arrieta, the Court of Appeals held (in a unanimous opinion written by Judge Linda Vanzi) that lawyers and clients may agree to arbitrate malpractice claims, but an arbitration clause will not be enforced unless the lawyer can prove that the client gave informed consent. This means that “[a]t a minimum the attorney should inform his client that arbitration will constitute a waiver of important rights, including, the right to a jury trial, potentially the right to broad discovery, and the right to an appeal on the merits.”

The Court explained that this conclusion flows from the lawyer’s fiduciary obligation to his or her client. In other words, unlike in arms-length relationships, a lawyer cannot simply ask a client to agree to arbitration without explaining the pros and cons.

In this case, the lawyers submitted affidavits saying that they explained the clause to Castillo, but Castillo signed an affidavit saying they hadn’t. The case is being remanded to resolve this factual dispute, but this serves as a reminder that if a lawyer wants to enforce an arbitration agreement with a client, it’s far better to explain the advantages and disadvantages of the agreement in writing, and advise the client, in writing, that he or she should seek independent legal advice about the agreement.

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