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District Court Enforces Fee On Termination Arbitration Clause

The case involves a fee dispute between a law firm and its former clients. The law firm took the underlying case on a contingent fee basis. The law firm inserted the following provision in its engagement letter, which requires arbitration of any fee disputes:

4. FEE ON TERMINATION. If Client terminates Firm’s employment before, conclusion of the case without good cause, Client shall pay Firm a fee and expenses based on the fair and reasonable value of the services performed by Firm before termination. If any disagreement arises about the termination fee, the client may choose two persons from a service profession, and the firm may choose one person. The firm will be bound by a majority decision of the three persons as to a fair fee. If the Firm terminates the representation, then it shall receive no fee or expenses.

The plaintiff law firm was terminated after it had received settlement offers from the other parties in the underlying lawsuit. (It is likely the lawyers felt that they had been unfairly terminated where they had been on the brink of achieving a settlement for their client).

The law firm offered the client arbitration, but the client declined. The law firm then filed suit. The law firm alleged that the defendant (former client) had repudiated the contract so the arbitration clause did not apply.

The district court disagreed, holding that the strong policy in favor of arbitration in the Federal Arbitration Act, 9 USC ยง1, required the fee dispute to be arbitrated. The court enforced the arbitration clause in the fee agreement.

Source: MEIERHENRY SARGENT LLP v. Williams, Dist. Court, D. South Dakota 2017 – Google Scholar