UNCONSCIONABLE LAWYERS
19 Georgia St. L.
Rev. 361 (2002). This paper was presented at Georgia State and to a
meeting of the Business Law Section of the ABA.
Lawyers
writing standard form contracts for clients to use in recording transactions
with parties not represented by counsel have a professional duty to restrain
their zeal. It is my impression that many lawyers are unaware of such a duty.
As a consequence, many cause injustice and expose themselves and their firms not
only to appropriate moral sanctions such as the contempt of fellow citizens and
other lawyers, but also to some risks of tort liability and professional
discipline.
Some
contract provisions now in fashion disgrace our profession. They are designed
by lawyers to strip inadvertent, improvident, and impotent citizens of
procedural rights they need to enforce the substantive rights that may become
important to them in the future, not only those rights set forth in the standard
form contract of which the dispute resolution clause is a part, but also
substantive rights created by state and federal laws enacted to protect
consumers, employees, investors, and small business from diverse predatory
business practices, laws that commission individual citizens as private
attorneys general to discourage as well as seek compensation for such
predation. Many of our state and federal laws regulating business practices are
enacted to be enforced by private citizens who serve others by pursuing their
own claims. What some lawyers seek to do for their clients is to secure the
private repeal of those laws, or failing that to cause individuals to be believe
that they have been repealed.
Among
the procedural rights that some lawyers seek to deny to parties with whom their
business clients deal are the rights to (1) a convenient forum, (2) trial by
jury, (3) a public hearing; (4) an impartial judge, (5) one who is accountable
to a higher court for his or her adherence to the governing law, (6) exemplary
or treble damages if provided by controlling law, (7) provisional remedies such
as preliminary injunctions or attachments, (8) the traditional American rule
with respect to the taxation of attorneys’ fees, (9) the right to conduct a
private investigation of possible wrongdoing and to gain access to the
information of an adversary through the use of modern discovery rules, and (10)
the right to participate in a class action. It is of course in the interest of
any litigant to control the resolution of all these features of conventional
American civil procedure. It may be especially advantageous to gain such
control if the client hiring the lawyer to write the contract is engaged in
sharp business practices and thus expects to be an “habitual defendant” in civil
actions.
To be
sure, all the procedural rights enumerated may be waived by parties engaged in
the resolution of an existing dispute. But it does not follow that they may be
waived by parties before they are engaged in a dispute, when they cannot
reasonably be expected to contemplate future disagreement, when they are not
advised by counsel, or when they have little or no bargaining power with the
firm that is imposing its business form on them as a record of an unnegotiated
transaction. Under traditional common law principles, predispute waivers are
revocable.
There
is, however, at present a raging epidemic of provisions in standard form
contracts purporting to strip the party on whom they are imposed of needed
procedural rights. Some have the apparent effect of making the purported
contract illusory to a consumer or worker contemplating their application to a
present controversy with the party providing the printed form. Many also have
the apparent effect of making it difficult or impossible for the individual on
whom the form is imposed to enforce non-waivable substantive rights or to
perform the public role of private attorney general. There is no reader
of this article who has not recently been given such a standard form to record a
transaction with some business that contains provisions imposing disadvantages
on him or her that would be significant only if he or she should later fall into
a dispute with the firm for whom the form was written.
It seems
unlikely that business clients, on their own and out of the blue, generate the
idea of imposing such terms on the inadvertent, improvident or impotent persons
with whom they deal. It must often be suggested by counsel who draft the
standard form contracts while knowing that some persons with whom their clients
will consummate the contracts will find that the procedural rights purportedly
abrogated by the form are needed to pursue claims against the business that
imposed an unjust provision on them.
The Law of Adhesion Contracts
Printed
form contracts were not in general use until the latter half of the 19th
century. They are of course necessary in the modern world to structure and
record a vast array of commercial relationships.
Businessmen making deals are rightly accountable for the terms in forms
they sign, whether they read them or not. But even businessmen may not be held
to terms that conflict with the printed forms they offer to those with whom they
make contracts.
Consumers, employees, and franchisees do not generally provide forms to record
their transactions with the businesses with which they deal. Perhaps they
should consider doing so,
for if they did, and there were thus “battles of forms,” many of the dispute
resolution clauses contained in many forms would be set aside on account of the
obvious lack of mutual assent.
Whatever
may be the case for businessmen engaged in important exchanges, the reality is
that most of the “contracts” that most of us make as consumers are never read,
and for the good reason that they are not really contracts in the moral and
classical legal sense of that term.
Not infrequently, as is often the case with insurance policies, the purchaser
may not even have an opportunity to read or sign the written instrument because
it is delivered after the transaction has been performed.
Even if such documents are in hand earlier, life is much too short for consumers
of goods and services to read with care printed passenger tickets, bills of
lading, warehouse receipts, insurance policies, hospital admission forms,
apartment leases, warranties on consumer goods, package inserts, service
contracts, terms flashed on a computer screen as part of an order form,
envelope inserts that come from banks or credit card companies, or brokerage
agreements. Such instruments are virtually unreadable by most persons to whom
they are presented, even those who are well educated and wearing their
prescription glasses. Never mind those millions who are illiterate, uneducated,
disabled, or to whom English is a foreign language, none of whom can possibly be
said to have assented to any terms disadvantageous to themselves.
Moreover, insofar as such forms deal with future disputes, the matters they
address are perceived to be so remote and unlikely that their terms are of no
immediate interest to a reasonable consumer. As Melvin Eisenberg put it, given
the risk preferences of all but the most suspicious persons, it is not
worthwhile to investigate the possibility of an adverse dispute resolution
clause in a printed form contract.
No “single shot player”, not even a Samuel Williston fascinated with contract
terms,
can be reasonably expected to take the time to pursue the meaning and
significance of the terms of such form contracts because he, unlike the party
imposing its terms on him, would not enter the transaction at all if his mind
were on the calamities that are the subject of the unread terms. In contrast,
it pays the “repeat player” to be attentive and hire a draftsman of forms to
assure himself of every available advantage when the inevitable disputes arise.
Lawyers who write standard form contracts know these things full well.
These
are the reasons that consumers of goods and services have no practical choice
but to rely on the integrity of the businesses that print the forms to record
their transactions and on the professional responsibility of the lawyers who
write them to assure that their substantive rights are not impaired by the terms
set forth in the forms. That would be so even if the onerous provisions were
written in large type and came with a full explanation including a glossary of
terms.
Thus, the Uniform Commercial Code invalidates unconscionable terms no matter how
large the print in which such terms are written. And thus it is that insurance
contracts are closely regulated in every state.
The
problem of standard form contracts is somewhat different for the job applicant
or the person seeking a franchise for his or her local neighborhood business.
With regard to such parties to contracts, the issue is simply one of bargaining
power. As the Supreme Court of California has recently emphasized,
Williston himself if he wanted routine employment would not feel free to try to
negotiate with a prospective employer over a dispute resolution clause. Even if
it was in the back of his mind, he could not say to a prospective employer, “Now
let’s talk about my right to sue you if I am mistreated or fired.” Unless he
was an extraordinary talent in great demand in the employment market, a person
expressing such a concern at such a time would not expect to get the job. The
matter might be otherwise if the prospective employee is an executive officer, a
star athlete or an entertainer rather than a routine applicant. It is because
most employees lack bargaining power with their employers that the federal and
state governments find it necessary to regulate employment relationship. If
such persons had the economic power to gain a fair bargain, the labor market
would not be regulated, as it is in every civilized nation. Likewise, if small
franchisees had the power to secure fair terms, there would be no need for
legislation to protect them, as most American states do.
For all these reasons, courts
have long exercised caution in enforcing provisions in form contracts that are
unduly favorable to the party who printed the form and presented it as the
predestined assent of the consumer, employee, small business or other person
expected and indeed as a practical matter required to submit to their terms.
Thus, in 1889, even in the age of rampant Social Darwinism, the Supreme Court of
the United States held that a disclaimer of liability for negligence in a bill
of lading is invalid.
In 1909, Roscoe Pound
explained that contract is often a means by which persons with economic power
exploit the weakness or inadvertence of those with less power whose wealth is
thereby transferred from the poor to the rich.
In 1919, Edwin Patterson, commenting on then recent developments in state
courts, introduced into our vocabulary the term “contract of adhesion.”
The term applies to agreements that are not the result of bargaining and are
recorded on printed instruments. Patterson noted that in such transactions,
“‘freedom of contract’ rarely exists” on both sides. Courts therefore seek to
protect the party who casually or inadvertently assents to a very improvident
term.
The 1889 Supreme Court
decision foretold provisions in both the Restatement of Contracts
and the Uniform Commercial Code
that counsel general restraint in the enforcement of provisions in adhesion
contracts that may be overbearing. A lucid explanation of that view was
provided by Karl Llewellyn, the draftsman of the Code:
Instead of thinking about
‘assent’ to boiler-plate clauses, we can recognize that so far as concerns the
specific, there is no assent at all. What has in fact been assented to,
specifically, are the few dickered terms, and the more broad type of the
transaction, but one thing more. The one thing more is a blanket assent (not a
specific assent) to any not unreasonable or indecent term the seller may have on
his form, which do not alter or eviscerate the reasonable meaning of the
dickered terms. The fine print that has not been read has no business to cut
under the reasonable meaning of those dickered terms which constitute the
dominant and only real expression of agreement, but much of it commonly belongs
in.
It bears
emphasis that form contracts containing dispute resolution clauses often bear on
the enforcement of statutory rights conferred on parties lacking economic power,
to protect them from predatory practices of stronger party. Our economy is
replete with such regulation of contracts. Thus, Congress has long regulated
the freedom of carriers to write clauses into passenger tickets or bills of
lading that are disadvantageous to passengers or shippers. Every state provides
elaborate regulation of the language of insurance policies. In the 19th
century, Congress enacted the first antitrust law;
it was amplified in 1914.
Many other federal laws have since been enacted to give more specific protection
to small businesses that were inviting targets for predation by larger
businesses. These include, for examples, special federal legislation to protect
automobile dealers
and petroleum product dealers.
Every state legislature has enacted some similar laws, such as franchise
investment laws to prevent all sorts of franchisors from overbearing their
economic power over franchisees. Congress has also long regulated the freedom
of contract of employers to prevent the exploitation of people who need work;
and, again, so has every state. No law enacted to limit freedom of contract for
the protection of the weaker parties to transactions can rightly be treated as
subject to virtual repeal by the inclusion in adhesion contracts of provisions
disabling those protected by such laws from enforcing their rights.
There is
a public interest in the enforcement of all these laws enacted to restrict
freedom of contract. The small business that defends its rights against an
overreaching big business protects not only itself, but the public interest. So
does the worker who enforces her statutory rights. The laws enumerated
recognize that economic power is as subject to abuse as political power. In
other economically developed countries, primary reliance for the regulation of
private economic power is confided in a bureaucracy.
In America, distrustful as we are of government, we have confided in individual
litigants and their lawyers the responsibility of serving as private attorneys
general. This is why our laws confer bounties on lawyers and their
plaintiff-clients in the form of treble or exemplary damages, or one-way
fee-shifting. If a predatory business can exempt itself from the enforcement of
these laws by imposing disabling contract provisions on all the private
attorneys general on whom we rely, our substantive regulatory laws will have
been pro tanto repealed. Such a business would have achieved
self-deregulation.
There are surely those who favor sweeping deregulation who would favor that
result. However, the “national policy” favoring arbitration expresses no such
purpose, and no political institution accountable to an electorate would
contemplate such a policy.
The Ethics of Counseling
Self-Deregulation
It is of
course only natural that parties with greater economic power would (if
permitted) seek by adhesion contracts to self-deregulate by gaining control of
dispute resolution procedures through the terms of standard form contracts. The
question I here wish to address is the professional responsibility of lawyers
serving clients having the economic power to attempt that feat.
The
ethical problem begins with the impulse of lawyers to think of the drafting of
form contracts as an adversarial activity in disregard of any consideration of
the rights of the other parties to the contracts who may be illiterate,
ignorant, disabled, inattentive, improvident, or just too weak to protect their
interests, and almost certainly will not be advised by counsel at the moment
when they receive the form. There being no real adversary, the conditions
justifying the adversarial tradition are absent. This observation is implicit
in the preamble to the Model Rules of Professional Conduct explaining the need
for zeal in the performance of the lawyer’s role as advocate. Lawyers who write
the forms are not justified in zeal blind to consequences, and they are in
serious danger of becoming parties to the overreaching of their clients.
In the
hope of easing the odium of my moral pretensions, I have a confession to make.
In 1955, I commenced the practice of law with a Dallas firm. A client of the
firm sold bicycles. He thought he would sell more bicycles if he staged a
bicycle race. Someone invited me to explain to him his possible tort
liability. Texas law did not seem to be entirely clear as to his liability if
two racing cyclists collided and were injured in the collision. In Dallas in
1955 only adolescents rode bikes, so this would be a race in which only minors
would participate. It occurred to me that a disclaimer of liability would be
advantageous for the client. It was a problem that parents asked to sign a
disclaimer would not only refuse to sign, but might forbid their kids to race.
I therefore conceived the idea of having the young competitors themselves sign
waivers. The waivers would be invalid on account of the age of the signers, but
they and their parents might not know that, and by making them sign, the client
could materially reduce the likelihood that he would experience tort liability.
I drafted a waiver form and sent it to the client for use. The kids signed, the
race was held, and no one was hurt.
No one,
that is, save me. At the time I wrote the contract, it did not cross my mind
that I was serving as a tool of deceit and injustice. Intuitively, I had
embraced and practiced a professional morality expressed by David Dudley Field,
the spectacular 19th century Manhattan lawyer who affirmed that it
was his duty to do for his clients whatever it was not unlawful for them to do
for themselves.
There was no law in Texas forbidding my client to secure invalid waivers from
kids participating in his race. I therefore assumed that he would want to
maximize profits by deceiving them and their parents in that way.
It now
seems to me that there were at least three things deeply wrong with my
assumption. First, it resulted in my using my professional skill (if that is
what it was) to the unjust disadvantage of ignorant adolescents and their
parents. It was my free choice to use my professional knowledge in that way. I
was under no contractual or professional duty to prepare a waiver form. If
David Dudley Field imposed such duties on himself, that was his moral choice.
Perhaps he held himself out to prospective clients as one who would ruthlessly
advance their interests by every means not punishable by law. He was known to
his colleagues at the bar as a man who rapaciously served rapacious clients.
But I had not held myself out in that way; few lawyers have. We have no
professional obligation to be rapacious.
Secondly, the moral issue presented by the use of an invalid waiver was not mine
to decide in the first instance, but was the client’s. I had no right to
assume, as I did, that money was his only measure of value. If the client had
raised the possibility of a waiver and upon hearing my legal advice had then
made an informed choice that he wanted to get the kids to sign an invalid
waiver, then the moral issue would have been returned to me, to decide whether I
wanted or needed to spend my time and meager talent to provide the requested
instrument. Such a fully informed choice by the client would be one in which
ethical as well as legal considerations had been presented by me and considered
by him. By informing him on the ethics as well as the law, I could have placed
the primary moral responsibility where it belongs, on him. There are, however,
many individuals, including even many prosperous businessmen, who would not on
reflection wish to pursue their monetary interests by reprehensible means. Many
bicycle dealers would on mature reflection choose to forego the conduct of a
bike race or would bear the cost of insurance coverage rather than create the
false appearance of non-liability.
Third,
my release form was a fraud. Fraud is a tort and can be a crime.
It thus
now seems clear that my conduct was a breach of professional responsibility and
tortious. I was myself in this sense a party to the form contract
I wrote. Had a participant in the race been hurt, and had his claim to
compensation been impeded in any way by my form, I was and should have been
morally and legally accountable for what I did.
Bells and Whistles Making Arbitration
Clauses Unconscionable
I turn
to a more current example involving what purported to be an arbitration clause.
Such clauses are in high fashion because of the “national policy favoring
arbitration” that has been created by the Supreme Court, a policy to be
distinguished from a non-existent national policy favoring self-deregulation.
St.
Clair Adams went to work for Circuit City in 1995. As a condition of his
employment, he was required to sign a Dispute Resolution Agreement containing an
arbitration clause. In 1997, Adams sued Circuit City in state court alleging
that he had been constructively discharged by repeated harassment over his
sexual orientation in violation of the California Fair Employment and Housing
Act
and the California Labor Code.
Circuit City secured in federal court a stay pending arbitration, invoking the
Federal Arbitration Act as preemptive of the California laws. That stay was set
aside by the Ninth Circuit on the ground that the Federal Arbitration Act did
not apply to employment agreements such as that between Adams and Circuit City.
Last term, the Supreme Court of the United States reversed that decision,
holding that the exclusion of employment agreements in the text of the federal
law should be narrowly construed to apply only to transportation workers.
On remand, the court of appeals considered the alternative contention of Adams
and held the Dispute Resolution Agreement to be unconscionable and invalid as a
matter of California Law and ordered the district court to dismiss the case,
leaving Adams free to pursue his remedies in state court.
The
arbitration clause was indeed unconscionable because of the bells and whistles
it included. The Circuit City agreement required Adams to arbitrate any claim
he might have against it, while it was under no such constraint with respect to
any claim it might assert against him. Adams was required to pay half the cost
of any arbitral proceeding, including the filing fee, the daily fee of the
arbitrator and the fee of a reporter, costs he would not have borne in
litigation. He was required to assert any claim within a year of its accrual
instead of the longer period allowed by state law. And any damage remedy would
be limited in amount and exclude punitive damages. It was these extra
provisions that made the predispute arbitration clause unconscionable. The
court of appeals referred to them as a heavy thumb on the scale making it
unlikely that Adams would be able to enforce any rights that the California
legislature had conferred upon him. The effect of the court of appeals decision
was to reinstate the full settlement value of his claim and restore his role as
a private attorney general to enforce the state’s anti-discrimination laws. The
Supreme Court denied certiorari.
Similar bells and whistles
including a short statute of limitations, restrictions on remedies and elevated
costs appear in the arbitration clause in the standard form contract AT&T
recently sought to impose on its California customers for long distance
service. It was the added features that led the judge deciding a suit
challenging the terms of that contract to conclude that:
This lawsuit is not about
arbitration. If all AT&T had done was to move customer disputes that survive
its informal resolution process from the courts to arbitration, its actions
likely would have been sanctioned by the state and federal policies favoring
arbitration. While that is what it suggested it was doing to its customers, it
was really doing much more; it was actually rewriting substantially the legal
landscape on which its customers must contend. . . . It is not just that AT&T
wants to litigate in the forum of its choice – arbitration; it is that AT&T
wants to make it very difficult for anyone to effectively vindicate her rights,
even in that forum. That is illegal and unconscionable and must be enjoined.
In
another recent case,
a motel chain wrote into its franchise agreement form a provision requiring that
all franchisees arbitrate any dispute with the franchisor at the place of the
chain’s headquarters in Maryland. The effect of that provision was to disable a
Montana motel from contesting any issue arising out of its relationship with the
chain, save perhaps a franchise termination. Under Montana law, such a forum
selection clause imposing such inconvenience on a citizen is unconscionable and
to that extent invalid. The Ninth Circuit, applying Montana law,
held that any arbitration must be held in Montana. The Supreme Court denied
certiorari in 2002. Arguably, the entire arbitration clause should have been
held void, as was the clause in Circuit City, in order to discourage the
risk-free inclusion of overbearing terms in such a clause.
The
Seventh Circuit also held in 2002 that an arbitration agreement was void because
it was linked to an unconscionable provision inconsistent with the plaintiff’s
right to recover counsel fees on a successful Title VII claim.
The court did not need to consider the other provision in that agreement that
required the Title VII plaintiff to pay half the arbitrator’s fee, win or lose.
The
United States Court of Appeals for the District of Columbia has addressed the
demerits of such bells and whistles in the context of arbitration of employment
discrimination claims and has affirmed that some features of traditional
American commercial arbitration practice must be modified when arbitration is
used to resolve statutory claims of employees. While enforcing the arbitration
agreement, that court insists that plaintiffs enforcing such laws are entitled
to “procedural due process.” These “minimal standards of due process” require,
for example, that the arbitrator be a lawyer schooled in the pertinent law who
would write an opinion subject to judicial review.
Also,
the Supreme Court has explicitly acknowledged the unenforceability of
arbitration clauses imposing additional costs on individuals seeking to enforce
their rights, whether these be statutory rights or contractual rights.
That would seem to endorse the Ninth Circuit’s refusal to require the Montana
motel to take its claim to Maryland to be resolved there.
It can
be safely assumed that a clause in a printed form that empowers the defendant to
select the arbitrator will not be enforced. Such provisions are not as rare as
one might suppose.
The Supreme Court of Alabama, an institution not given to assaults on freedom of
contract as practiced by business enterprise invalidated one such clause in
2002, dismissing the argument of the mobile home firm drafting the form that the
rules of the American Arbitration Association were a sufficient guarantee of
fairness.
The Supreme Court of North Carolina has recently denied enforcement to a clause
written into a health care form by the Duke University Medical Center; that
clause purported to reach claims arising out of health care antedating the
hospital care and was signed by the patient’s spouse who, the court held, had no
authority to bind her husband to arbitrate a pre-existing dispute.
The Arkansas Supreme Court has held that an arbitration clause in an agreement
between a payroll check cashing service and its patron was unconscionable
because it bound the patron but not the service.
The West Virginia Supreme Court has held invalid an arbitration clause invoked
to forestall a class action brought to correct a course of business fraud by a
credit jeweler.
The Montana Supreme Court has invalidated an arbitration clause in a from
contract between a broker and an elderly investor.
We do not know, of course, how many mobile home buyers in Alabama or medical
malpractice victims in North Carolina or check cashers in Arkansas were
intimidated by clauses later held unconscionable and accepted settlements they
might otherwise have rejected. In all of these cases, the arbitration clauses
invalidated contained “bells and whistles” increasing the costs of rights
enforcement or making it less likely that a claim could succeed. No instance
has been encountered of a business writing a standard form giving an advantage
to its customers or workers in a future dispute.
Some
laws can be effectively enforced only by class actions. The Truth in Lending
Act appears to be such a law.
This is so because few borrowers can prove damages resulting from a violation of
the law.
On that account, the statute provides explicitly for penalties to be enforced by
class actions. Some lawyers representing lenders have perceived that they might
defeat enforcement of the act by writing arbitration clauses into loan
agreements, thereby barring each borrower from participating in a class action
in court. At least one federal court has sanctioned this practice.
But courts more attentive to what is happening and faithful to the controlling
state law of contracts should not allow an arbitration clause to prevent
participation of borrowers in class actions indispensable to the enforcement of
their rights under Truth in Lending laws.
To the extent that an arbitration clause prevents enforcement of the law, it is
unconscionable even though it contains no language explicitly foreclosing
participation in class actions. A possible solution is an aggregation of
individual arbitrations before a single arbitral tribunal.
Thus,
while some lower federal courts have been inattentive to the unacceptable
consequences of some unconscionable bells and whistles written into arbitration
clauses, it seems increasingly clear that the national policy favoring
arbitration does not establish a principle of freedom of contract entitling
businesses to self-deregulate by means of unconscionable terms in dispute
resolution clauses.
Professional Discipline of Draftsmen
Could
the lawyers writing objectionable standard form contracts be subject to
professional discipline? The Preamble to the Model Rules of Professional
Conduct affirms that “A lawyer should be mindful . . . that the poor, and
sometimes persons who are not poor, cannot afford adequate legal assistance.”
As suggested, it is not clear that Samuel Williston can afford his own legal
assistance to interpret and assess the legal consequences of all the adhesion
contracts he would encounter in today’s world. There is also Rule 1.2 of the
Model Rules exposing to professional discipline lawyers who engage in unlawful
activities.
Possibly that might include the imposition of invalid and unconscionable
provisions on unwary citizens. And even a valid contract may be an instrument
in an unlawful activity such as a violation of antitrust or securities laws, or
RICO.
There is, however,
no language in the text of the ABA’s Model Rules of Professional Conduct that
appears explicitly to authorize professional discipline on lawyers who write
unconscionable contracts. The Kutak Commission that drafted the Model Rules
proposed a prohibition against a lawyer assisting a client to conclude an
agreement “that the lawyer knows or reasonably should know is illegal, contains
legally prohibited terms, would work a fraud, or would be held to be
unconscionable as a matter of law.”
The latter term was intended to incorporate into the Rules the standard of
Section 2-302 of the Uniform Commercial Code. It was criticized as too
indeterminate to serve as the standard for quasi-criminal professional
discipline.
Perhaps that was the reason that the provision was deleted in the final draft of
the Rules.
Rule 1.2 of the
Model Rules forbidding lawyers to participate in unlawful activities is an echo
of the older Code of Professional Responsibility Rule 7-102.
It is elaborated in Rule 8.4 forbidding “conduct involving dishonesty, fraud,
deceit, and misrepresentation.”
The law of
professional discipline was scant in the years antecedent to 1960. However,
Canon 15 of the Canons of Professional Ethics promulgated by the ABA in 1908
exhorted lawyers to refrain from assisting their clients in fraud or chicanery.
The latter term was certainly broad enough to encompass the drafting of
unconscionable provisions purporting to disable parties from enforcing their
substantive rights. I have found one case decided under the Canon that
disciplined a lawyer for drafting a usurious note.
These provisions and the case
cited can be said to reflect a longstanding tradition of professional morality
observed by many honored American lawyers. George Wythe, the Virginia lawyer
who taught Jefferson, Marshall, and Clay, was famous for dismissing clients
whose conduct he disapproved; it was said that “no dirty coin ever got to the
bottom of his pocket.”
David Hoffman, writing in Baltimore in 1817, insisted that “My client’s
conscience and my own are distinct entities; and . . . I shall ever claim the
privilege of judging to what extent to go.”
My client, he said, “shall
never make me a partner in his knavery.”
Timothy Wright, writing in
Cincinnati in 1844, counseled that a lawyer should never advise a client
contrary to his own moral conviction.
George Sharswood, writing in
Philadelphia in 1854, strongly cautioned against the subordination of a lawyer’s
moral judgment to a client’s interest or desire.
Wright explained to
novitiates the importance of living within their means so that their clients
would not have irresistible power over them. Thomas Cooley, speaking as
President of the American Bar Association in 1893, counseled its members on
their professional duty to restrain their employer-clients from abusing their
economic power over their workers.
Louis Brandeis conducted a
law practice in Boston for forty years that established a standard of
professional responsibility for corporate lawyers;
we can be sure that he wrote no adhesion contracts attempting to strip workers
or consumers of their ability to enforce their rights. His published thoughts
on the responsibility of the duties of business lawyers echoed the earlier
remarks of Thomas Cooley.
Indeed, he expressed contempt for lawyers who lobby legislatures to advance the
selfish interests of their clients against what they must surely know to be
contrary to the interests of the unrepresented public who are the other parties
to form contracts. Despite his restraint in such matters, Brandeis attracted an
enormous clientele of businessmen who placed a very high value on his
professional advice.
In forbidding lawyers to
participate in their clients’ illegal activities, the Model Rules of 1983 and
the Disciplinary Code of 1963 seem to leave room for courts consistently with
the traditions of professional honor to reprimand lawyers who assist their
clients in an effort to self-deregulate by writing overbearing dispute
resolution clauses into standard form contracts that are unconscionable and thus
unlawful within the meaning of the Restatement of Contracts or the Uniform
Commercial Code.
There is, however, another
tradition of law practice reflected in my own deplorable behavior in 1955. I
mentioned the ethics of David Dudley Field who became a very rich lawyer by
doing anything for his clients that they would not be criminally punished for
doing themselves, even when there was no professional adversary to question or
contest the deeds he performed for his clients. Field was widely suspected of
doing even a bit more than his clients would have dared, of pushing the ethical
envelope to the limit, in the belief and knowledge that other lawyers and judges
would be reluctant to condemn his conduct without proof of deliberate wrongdoing
of utmost clarity. It was nevertheless on account of his conduct that Field was
only belatedly and reluctantly permitted to join the Association of the Bar of
New York and was not invited to join in the founding of the American Bar
Association.
Field’s view of his professional responsibility had English ancestry in a famous
utterance by Henry Brougham, who was like Field a notable law reformer as well
as a fierce advocate. Brougham was explaining his defense of a person charged
with a capital offense when he said that the “highest and most unquestioned"
duty of the advocate was to advance the interests of his client by "all means
and expedients," and
he must not regard the alarm, the suffering, the torment, the destruction which
he may bring upon others. Separating the duty of the patriot from that of the
advocate, he must go on reckless of consequence, though it should be an unhappy
fate to involve his country in confusion.
It
is, however, important that Brougham was a Barrister defending a capital case,
and was not what today would be called a transaction lawyer. He could assume
that his unrestrained advocacy would be met in court by unrestrained advocacy on
the other side of the case. As Brandeis insisted, the model of the lawyer as
fearless combatant simply has no bearing on the circumstances in which lawyers
employ their talents to the detriment of unrepresented interests.
Expressing the
ethics of Brandeis and the others named, and foretelling the conduct of
contemporary draftsmen of adhesion contracts, President Theodore Roosevelt
denounced the many members of the bar who made it “their special task to work
out bold and ingenious schemes by which their very wealthy clients . . can evade
the laws which are made [to control] the use of great wealth.” This comment
brought a response from Moorfield Storey, a Boston lawyer who was at the time
the President of the American Bar Association. Storey was a founder of the
NAACP and perhaps the primary critic of Roosevelt’s imperial policies in the
Philippines and Panama. In responding to Roosevelt’s accusation, Storey
explained that he and other business lawyers were merely telling their clients
what the law permits. “This is not evading, but obeying the law.” Citing
Lincoln, he protested that such reverent obedience to the law should be “the
political religion of the nation.”
No doubt there have
been many good and honorable lawyers – Storey was such a one – who have beguiled
themselves with this sort of rhetoric into the belief that it is their
professional duty to practice law as David Dudley Field did, even if that
entails writing oppressive forms purporting to be contracts expressing the
mutual assent of parties, who take pride in telling their business clients what
they can get away with rather than telling them what is prohibited.
Lawyers who follow
the Field principles of ethics are no doubt correct that other influential and
powerful lawyers would be reluctant to challenge their ethics. Even though the
writing of unconscionable contracts could be the subject of discipline under the
Code, discipline remains a remote possibility. Discipline committees are for
the most part governors of the practices of those lawyers who represent
individuals and are seldom interested in the conduct of those who represent
institutions. They have perhaps enough to do in disciplining lawyers who betray
their individual clients. Moreover, even if a grievance committee did recommend
disciplinary action to the courts, many judges would shudder at the thought that
they, like myself, may at times past have been guilty of similar transgressions
against unrepresented persons. For these practical political reasons, big law
firms representing big clients need not much fear discipline committees if all
they do is assist their clients in abusing their economic power.
Malpractice in Drafting Unconscionable
Contracts
Lawyers
who write unconscionable provisions in contracts of adhesion, like one who
drafts invalid waivers to be signed by minors, may be more exposed to tort
liability than to professional discipline. First, they may be guilty of
professional negligence harmful to their own clients. Earlier decisions of
state and federal courts sitting in California or Montana made it foreseeable
that the contracts written for Circuit City or AT&T or the motel chain would be
determined to be unconscionable and unenforceable.
Perhaps their clients were so advised and stubbornly insisted on loading up
their contracts with provisions that would (if enforced) effectively disable
their prospective adversaries from enforcing their rights, or would at least
greatly diminish the settlement value of any such claims. But it seems more
likely that their clients were poorly advised by their lawyers. The
consequential damages for this malpractice would include not only the cost of
fees expended in defending the indefensible but also compensation for the
intangible harm inflicted on the reputations of the client firms for their
participation in unconscionable behavior.
The
defense against malpractice liability would rest on the fact that the
self-deregulation gambit attempted by Circuit City has sometimes worked, at
least in jurisdictions other than California. Their lawyers and their
managements may have been inspired, for example, by the occasional success of
Gateway Computers.
That company emerged as a player in the personal computer market by conducting
its business on the telephone. If one wanted to buy a widely advertised
computer from them, one called a phone number in South Dakota. A polite voice
would take your order and credit card number, and in a few days, a box
resembling a cow would arrive at your door. It would likely contain the
computer you ordered. In the bottom of the box would be a document labeled
“terms.” Of course, anyone ordering a computer would expect the seller to stand
behind it and would assume that the computer was of merchantable quality. Only
a person with time as well as a new computer on her hands or possessed of a
morbid curiosity and confidence in her ability to comprehend legal
discourse would read the written terms of sale unless and until she
became motivated by dissatisfaction with the product. Gateway and
its lawyers surely knew this. If anyone did read the warranty, they found that
they could return the computer for any reason but only if they did so in a short
time. Otherwise, they would have to make a claim that would be arbitrated in
Chicago.
The
Hills are Arkansans who ordered a Gateway computer. When a few months after it
arrived, their computer failed, they sought relief. Gateway succeeded in
getting the United States Court of Appeals for the Seventh Circuit to order the
district court to compel the Hills to arbitrate in Chicago in compliance with
the terms imposed by the insert in the bottom of the box. As a consequence, the
implied warranty of merchantability was as a practical matter unenforceable and
illusory. To enforce it, the Hills would need to find and employ a Chicago
lawyer, pay the administrative fee of an ADR institution, and at least some of
the other costs of the proceedings. One who purchases a two thousand dollar
computer cannot afford to proceed in a distant forum unless much more is at
stake than the cost of the computer itself. Such a contract might well,
indeed should, be deemed unconscionable under the law of California or
many states, or indeed, under Section 2-302 of the Uniform Commercial Code, or
indeed under the general Arkansas law of contracts.
That possibility was not considered by the Seventh Circuit in the case
mentioned. That court, waxing on the glories of freedom of contract and the
solemn duty of consumers to investigate the bottom of the containers in which
their goods arrive, held that Arkansans aggrieved about the quality of a $2000
purchase must find a lawyer in Chicago if they wish to pursue a claim against
the seller Gateway.
Even had
they lost their case with the Hills, Gateway or a similarly situated client
would be unlikely to sue its lawyer for damages resulting from an excess of
professional zeal. Few clients regret having Rambo for their lawyer.
Lawyer Liability to Victims of
Unconscionable Terms
While
the Gateway example may provide a basis for doubt about my assertion that the
lawyers for Circuit City and AT&T should have known better than to write the
provisions they did, it also raises the question whether a lawyer writing such a
deceptive warranty into a client’s unconscionable contract might himself or
herself be liable to the third party who is the victim of the client’s predatory
behavior.
The late and revered Alvin Rubin affirmed that just as a lawyer cannot assist a
client in committing a crime, so he or she has no right and no duty to assist a
client in unconscionable conduct.
A warranty as illusory as a Gateway warranty might be deemed not only
unconscionable but also “deceptive” within the meaning of the Magnuson-Moss Act
of 1975.
The term is defined in the act to mean
(A) a written warranty which (i) contains an
affirmation, promise, description, or representation which is either false or
fraudulent, or which, in light of all of the circumstances, would mislead a
reasonable individual exercising due care; or (ii) fails to contain information
which is necessary in light of all of the circumstances, to make the warranty
not misleading to a reasonable individual exercising due care; or (B) a written
warranty created by the use of such terms as "guaranty" or "warranty", if the
terms and conditions of such warranty so limit its scope and application as to
deceive a reasonable individual.
While the Magnuson-Moss Act does not seem to authorize federal court damage
actions against lawyers who write “deceptive warranties,”
the law of many states do hold lawyers accountable for the acts of their clients
if they are actively involved in the perpetration of fraud,
and federal law may be used to define fraud in a state law action.
While lawyers may be protected from liability to third parties for the
negligence of their clients by a requirement of privity of contract,
they are not generally protected from liability when they participate in a
client’s intentional tort such as fraud.
In measuring the possible
liability of lawyers who write standard form contracts, it is
important to distinguish between advising a client that a particular term in a
form contract might not be unconscionable and serving the client by drafting an
unconscionable provision intended to impede enforcement of citizens’ rights.
Drafting the instrument effecting the harm is the step beyond advice that would
exposes the lawyer to possible liability for the consequences of misdeeds in
which he or she actively participated.
Thus,
the Magnuson-Moss definition of deceit might be suitably employed as a standard
of conduct to be imposed on a lawyer-draftsman in a tort action brought under
state law by a deceived consumer. As noted, that statute envisions enforcement
in class actions, and one can imagine a state law class action against the law
firm that drafted the Gateway clause rendering the warranty on the computers to
be “deceptive.” While there may be statutory impediments to professional
liability in some states,
one can imagine an award of punitive damages against Gateway’s lawyer.
I have
found no statute comparable to the Magnuson-Moss Act that would denote as
fraudulent the behavior of the lawyer who wrote the Dispute Resolution
Agreement into the employment agreement for Circuit City. But perhaps
this is an arena in which some judge-made law might be developed to expose
lawyers to civil liability when they write form contracts that are unlawful.
Such
misconduct bears a resemblance to that of lawyers who participate in a
conspiracy of silence to prevent public notice of the risks associated with a
particular product by negotiating settlements conditioned on silence by the
plaintiff and her lawyer.
The injuries caused by such conspiracies of silence are experienced by later
purchasers of the product who would have avoided harm had they known of the
harms experienced by others. If the client has a duty to warn purchasers of
harms experienced by earlier consumers, the lawyer who actively negotiates a
silent settlement is an active participant in the public deceit of the client.
He or she is willfully creating a risk that some person unrepresented
at the negotiation will experience serious harm.
There
are also other state and federal laws regulating freedom of contract that impose
civil liabilities on business clients that may be shared by their lawyers where
it can be demonstrated that the lawyers were actively engaged in violations of
statutory restraints on commercial predation. Some of these laws may be
offended by overbearing adhesion contracts. These include antitrust laws,
securities laws,
RICO,
or other laws enacted to protect small business from the predatory conduct of
big business, and to protect investors, workers, and consumers.
It is imaginable that borrowers having to fight their way through a predispute
arbitration clause to impose a Truth in Lending penalty on a lender in a class
action may also have a claim in intentional tort against the lawyer who wrote
the clause for the evident purpose of depriving them of their substantive rights
under that Act.
In
addition, the Supreme Court has held that a lawyer cutting off an unrepresented
party’s right to due process of law might be guilty of violating his or her
civil rights, thereby exposing himself to liability under federal civil rights
laws.
One means by which that
wrong might be committed by a lawyer is the drafting of an unconscionable
dispute resolution clause.
In
addition to tort liability, it is also imaginable that a lawyer invoking an
unconscionable provision to impede a claim in federal court might experience a
sanction under Rule 11 of the Federal Rules of Civil Procedure. If a lawyer can
be sanctioned for presenting an affidavit that he should have known to be false,
he may perhaps also be sanctioned for invoking an arbitration clause that he
should have known to be unconscionable.
Wrongs by lawyers who draft
unconscionable form contracts might be corrected by class suits against
law firms that drafted the offending instruments and thus engaged themselves in
the wrongs of their clients.
The class in such an action might be all those citizens whose claims have been
impeded by the bells and whistles added to arbitration clauses inserted into
their form contracts. Thus, we can imagine a successful class action against
the lawyers representing Circuit City, for everyone who signed its Dispute
Resolution Agreement was wronged by those lawyers. Even if they have never had
a dispute with Circuit City, employees have been put in an intimidating
situation that likely influenced relationships within their places of business.
And anyone who settled a dispute with that employer almost surely settled on
terms adversely influenced by the unconscionable Agreement on the
settlement value of their claims.
Perhaps a better
avenue of correction than a class action would be a simple action by a single
individual who was wronged and who might be awarded exemplary damages against
the Circuit City lawyer sufficient to deter any other California lawyers from
drafting such provisions. It is not beyond belief that a civil jury would see
that such abusive dispute resolution agreements have become a way of life to
which they and all of us have been subjected. They might also be persuaded that
a large damages award is not only the best, but perhaps the only, means by which
professional misconduct of this kind can be constrained. It would not be hard
to make a closing argument to the jury that would have a fair chance of
producing a verdict of size against a law firm profitably engaged in stripping
citizens of their statutory rights.
As I earlier noted,
a jury verdict against a firm would be the paradigmatic American way to deal
with the problem. The ethical problem of unconscionable contracts is not one
that the organized bar or the courts are capable of dealing with on their own.
The bar and the courts are in a position similar to that of an administrative
bureaucracy that is politically beholden to the industry that it was created to
regulate. Much of the law restated by the American Law Institute as the law
governing lawyers is enforced primarily or even exclusively by private
lawsuits. This is necessarily so because independent lawyers and jurors are
immune to the social and political pressures and influences that subvert other
forms of control. So I conclude by toasting the lawyer who is the first to risk
his professional energy and reputation to impose a substantial liability on an
unconscionable law firm for writing unconscionable terms into a contract of
adhesion.
Green Tree Financial Corp. of Alabama v. Randolph, 531 U. S. 79
(2000). A useful example is provided
by Shankle v. B-G
Maintenance Management of Colorado,
163 F.3d 1230, 1234-1235 (10th Cir. 1999), where the court found that:
In order to invoke the procedure
mandated by his employer, however, Mr. Shankle had to pay for one-half
of the arbitrator's fees. Assuming Mr. Shankle's arbitration would have
lasted an average length of time, he would have had to pay an arbitrator
between $1,875 and $5,000 to resolve his claims. Mr. Shankle could not
afford such a fee, and it is unlikely other similarly situated employees
could either. The Agreement thus placed Mr. Shankle between the
proverbial rock and hard place - it prohibited use of the judicial
forum, where a litigant is not required to pay for a judge's services,
and the prohibitive cost substantially limited use of the arbitral
forum.[citation omitted.]