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Reed Smith Mandatory Arbitration Clause Ruled Unenforceable

Thursday, January, 7, 2016


 

The mandatory arbitration clause that pertains to law firm Reed Smith clients was recently ruled unenforceable, according to a Philadelphia judge. The reason the judge gave was that the engagement letter in which the clause is explained is not signed by clients and does not inform the client of the rights given up under the clause.

 

Reed Smith asserted the clause should be enforceable in the specific incident in question because the client was a “sophisticated businessman and attorney.” Reed Smith handled a claim for him related to a mansion fire that included separate lawsuits filed by tenants living in the space.

 

The case has been lingering through the Philadelphia court system for some time, with various parties filing appeals and motions. In the most recent ruling, the judge considered how likely it was a client would understand and fully agree to the clause and whether that agreement could be proven. He referred to a case in which it was determined that if clients sign arbitration clauses and know they are waiving their right to a jury trial, appeal, and broad discovery, the clause can stand. They must also understand the expense associated with the clause.

 

In this case, it was not possible to establish Reed Smith’s client ever read the arbitration clause or knew of its existence, since nothing had been signed. As a matter of fact, the clause was an addendum to the original engagement letter the client had received. The firm also cited no case law defending its specific position.