Commercial Arbitration Potholes: The Disbarred Lawyer

shutterstock_3456390We continue to address things that rarely come up in commercial arbitration, but are tricky if they do. Last week we considered the case of the locally unlicensed lawyer. That is, a lawyer who represents a client in an arbitration taking place in a jurisdiction where the lawyer is not licensed.  The approach taken by various courts and legislatures was sometimes surprising, but with a little research and effort you will be normally be able to find your way through that.

Let’s now take on a new one, this time from the perspective of the arbitrator.

The situation

Consider this situation. You are in the fourth day of what promises to be a five day arbitration hearing.  You are the sole arbitrator. You are holding the hearing in your office in Minneapolis.  The case is somewhat complex, involving contract and IP issues.  It has been quite well presented so far.  Minnesota law applies, according to the arbitration clause.

You arrive right on time, greet everyone, sit down and say, “Mr. Plaintrep, please proceed with the continued cross-examination of Ms. Jones.” Counsel for the respondent, Ms. Defrep then pipes up.  “Mr. Arbitrator, before we proceed, something critical has come up that we need to address.”  You ask her to explain.  She continues, “We have just learned that counsel for the Claimant, Mr. Plaintrep, was recently disbarred in his home state of Texas.  We checked and he no longer has a license to practice law anywhere.  Of course, we are going to have to stop these proceedings. He is the only lawyer here for Claimant.  Frankly, I think you should grant a default against Claimant as it cannot proceed.”

Mr. Plaintrep replies, “This is outrageous. It is true the state ethics board came to some mistaken conclusions based on false evidence.  And I must admit that the courts blindly accepted the board’s incorrect decision that I should be temporarily suspended.  But that has no bearing in this arbitration.  Mr. Arbitrator, you are not an ethics board.  And, as you know, this is a contractually based arbitration and not a court.  My client is from Texas and wants me as counsel.  We have worked together for years.  Besides, Ms. Defrep should have been well aware I had no Minnesota license when this all started.  All my stationary just says “Licensed in Texas.”  So what’s the difference?  I didn’t have a license here anyway and they knew that.  They just know they are losing and want to have a do over!”

Fortunately, you read the last post in this series, so you know the issue of unlicensed lawyers varies by state. (Sorry, I couldn’t resist the reference to the last post.) Being a careful sort, you secure the parties’ agreement to postpone the session for the day, do the necessary research, and meet again the next morning to address the issue.

You note that you are under AAA Commercial Rules and suggest that, while the parties can raise any arguments and law they like, you would like them to include their take on the part of rule 26 that says “[a]ny party may participate without representation (pro se), or by counsel or any other representative of the party’s choosing, unless such choice is prohibited by applicable law.”

You will, of course, wait to actually decide until you get everyone’s input.  But let’s use this scenario to explore the issues.

Analogy to locally un-licensed lawyers

We will start with an analogy to the locally unlicensed lawyer discussed in the last post. But in many cases, the analogy breaks down right away. Some states, such as California and Florida, specifically allow an out-of-state lawyer to represent clients in arbitration if certain conditions are met. But a key condition is that the lawyer be admitted to practice and in good standing somewhere. In this case, Mr. Plaintrep is not.  He is disbarred.  So forget that route in states with rules of that kind.

Statutes and rules

But Minnesota, the state we have posited, does not have a specific statute allowing out-of-state lawyers to practice in arbitrations in Minnesota that I can find. It does, however, basically follow the ABA Model Code of Professional Conduct.  Rule 5.5. of Minnesota’s Rules of Professional Conduct provides that a lawyer “admitted in another United States jurisdiction, if not disbarred or suspended from practice in any jurisdiction can provide services in an arbitration if the services are reasonably related to the lawyer’s practice and are not services for which the forum that requires pro hac vice admission.” (Emphasis added.)  AAA is not such a forum.  But Mr. Plaintrep is out of luck as an ethical matter, since he is disbarred in Texas.

Unauthorized practice?

Of course, the professional conduct rules don’t necessarily have the force of law. Minnesota’s rules note that violations of the rules should not themselves give rise to a cause of action, nor do they necessarily warrant disqualification of a lawyer in a legal proceeding. See Scope ¶ 20. Indeed the rules warn that “an antagonist in a legal proceeding” does not necessarily have standing to enforce a rule.  It is not clear whether an arbitrator should either.  Generally, violations are handled by the Lawyers Professional Responsibility Board, not an arbitrator. Then again, we know that courts often enforce the rules and disqualify counsel or the like.

The answer likely will come from focusing on the part of the AAA rule allowing any representative a party wants, “unless prohibited by applicable law.” Arguably the Rules of Professional Conduct are important to lawyers, but they aren’t necessarily laws.  Mr. Plaintrep may be a fool to continue in the arbitration if he ever wants to get his law license back, but it may or may not be illegal to do so.

This then brings us to unauthorized practice of law.  All states prohibit unauthorized practice of law, although they don’t all define it in exactly the same way. In Minnesota, unauthorized practice of a law is a misdemeanor and subjects the perpetrator to civil liability. See Minn. Stat. § 481.02, subd. 8.

This then leads to the question whether representing a party in arbitration is actually practicing law. The courts don’t all agree on this, depending on their view of arbitration.

Arbitration developed historically as merchants in Europe needed fast decisions on commercial disputes before sellers sailed back to their home ports. So respected merchants would serve as arbitrators, applying commercial standards rather than laws.

By analogy to these non-legal roots, at least some courts have held that representing a party in arbitration is not practicing law. See Cole, Blurred Lines: Are Non-Attorneys Who Represent Parties in Arbitrations Involving Statutory Claims Practicing Law?, 48  U.C. Cal. Davis L. Rev., 921, 939 – 40, 958 – 60 (2015).  For example, the court in Williamson, P.A. v. John D. Quinn Constr. Corp., 537 F. Supp. 613, 616 (S.D.N.Y. 1982), rejected a claim that out-of-state lawyer was engaged in unauthorized practice in representing a party in arbitration.  It reasoned that arbitration doesn’t take place in “a court of record; its rules of evidence and procedures differ from those of courts of record; its fact finding process is not equivalent to judicial fact finding; [and] it has no provision for the admission pro hac vice of local or out-of-state lawyers . . .”  At least two other courts have reached similar conclusions. See Cole at 958 – 60.

So there may be some hope for Mr. Plaintrep, but I wouldn’t count on it in Minnesota. While I can’t find a Minnesota case directly on point, Rule 5.5. of the Minnesota professional conduct rule appears to be based on the presumption that arbitration would be unauthorized practice for lawyers licensed elsewhere if not allowed by the rule. It would be strange indeed if the same presumption would not apply to former lawyer licensed nowhere and, in fact, disbarred.

Preliminary thoughts

We’ll wait here and get the parties’ input and arguments before we decide the issue. But from our musings, we can draw a few preliminary conclusions: (1) whether or not a disbarred lawyer can represent a party in arbitration depends in part on the forum’s rules, (2) the ethics rules provide guidance, but aren’t necessarily the last word, and (3) ultimately, the issues will depend on the state’s law, if any, on whether arbitration of the sort involved is the practice of law.

What about the hearing?

Finally, the arbitrator is left with what to do about the hearing. The requested default is out of the question.  Arbitrators can’t declare defaults.  They must decide the matter based on the evidence even if a party doesn’t show up.  AAA Commercial Rule 31.

But should you just declare hearing so far a nullity and start over? You could decide to decide to go ahead, complete the hearing and see how things turn out. After all you are almost done.  But the rules would not allow the continued representation if it is illegal under state law, which it may well be.  You may be able to let the parties calm down and consider whether it wouldn’t really be in their best interest to continue, particularly if the representation has been competent.  But let’s assume one party won’t agree.

You may also be interested to see when the Respondent learned of the disbarment. If they were keeping that under wraps to use only if they saw they weren’t doing well in the arbitration, you would probably want to at least take that into consideration.

You might also want to consider whether the participation of a disbarred lawyer would be grounds for overturning the award. Recall that, at least so far, participation of a lawyer licensed in another jurisdiction representing a party in arbitration has not been found grounds to overturn the award.  This is because the rather narrow standard for overturning an award had not been met.  But here, would the lawyer’s failure to let the arbitrator and other party even know he was disbarred and unlicensed meet the standard of overturning the award under FAA §10 because it was “procured by corruption, fraud, or undue means?”  This sure seems closer to that than the merely locally unlicensed lawyer, but does it rise to the level of actually procuring the award by corrupt or fraudulent means?  The standard seems to go more to fraudulent evidence, bribery or other matters closer to the merits than licensure of advocate, but this could be a close call, particularly depending on the facts of a particular situation.

What you do know, though, is this presents one of the more vexing problems you are apt to run into in arbitration. But having thought through this kind of problem in advance, I have found, helps you quite a bit the next time something  like this comes up.

As with all these potholes, stay calm and seek input from the parties on how to address the problem and preserve the efficiency of the process as much as possible..