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In a dispute over legal fees, a Manhattan judge has refused to enforce an arbitration clause in a law firm’s engagement letter, ruling that the firm failed to notify its client of her rights and that the “one-sided,” “unethical” and “illegal” clause violated public policy. The contested clause ostensibly allowed Scarola Reavis & Parent to arbitrate any claims against its former client, Deborah Larrison, while precluding her from asserting any of the claims or counterclaims ordinarily available under Part 137 of the Rules of the Chief Administrator to a client in a fee dispute arbitration. Though Larrison sought only a temporary injunction, Acting Supreme Court Justice Ronald A. Zweibel permanently stayed the arbitration. Zweibel also ruled that the statute of limitations, which ordinarily precludes a court from staying arbitration more than 20 days after a defendant has been served, did not apply in the present case. “If the issue to be arbitrated is against public policy, the arbitrator does not have the jurisdiction to reach a conclusion concerning a provision of an agreement which is patently illegal,” he wrote in Larrison v. Scarola Reavis & Parent, 600194/05. “Thus, even if the Statute of Limitations has expired, the commencement and continuation of this arbitration with respect to that provision is void ab initio.” In the underlying suit, Larrison hired Scarola Reavis to represent her in connection with claims against her former employer, American Strip Steel, where Larrison served as chief executive officer. She claimed the company fired her without cause following her rejection of inappropriate sexual advances by the company’s chairman and majority shareholder. During the three months that Scarola Reavis represented Larrison, it ran up more than $56,000 in legal fees. When Larrison switched legal representation in June 2004, she refused to pay the outstanding debt of $29,000, claiming she had been poorly advised and over-billed. Shortly thereafter, Scarola Reavis initiated arbitration proceedings, seeking payment of outstanding fees and expenses. A month later, Larrison’s new counsel participated in a teleconference with attorneys from Scarola Reavis. Subsequently, Larrison initiated the present motion, seeking to preliminarily enjoin the arbitration. She alleged among other things that the firm’s claim for fees was non-arbitrable because the engagement letter and its arbitration provision violated public policy. The firm countered that Larrison waived her right to stay the arbitration by actively participating in the proceedings, as exemplified by her new attorney’s alleged participation without objection in the teleconference. Zweibel found for Larrison. “[W]here the parties have expressly agreed to arbitrate their dispute, it remains to be determined whether the subject matter … is one that may be submitted to arbitration without any violation of any law or public policy,” he wrote. “In this case, to allow the respondent to circumvent the Rules of the Chief Administrator would be against public policy.” The firm’s engagement letter “purports to require that any claims [for] legal fees be submitted to binding arbitration, without de novo judicial review,” Zweibel noted. He added that the firm “appears to concede” that it failed to advise Larrison of her rights under Part 137. A client is entitled, for example, to elect non-binding arbitration of a firm’s fee claims, to assert her own claims or counterclaims at arbitration, to seek de novo judicial review and to do so “without the threat of being responsible for any attorney’s fees incurred by [the firm] in attempting to collect its alleged legal fees,” Zweibel wrote. “This Court believes that absent a clearer statement in the arbitration agreement, the election to pursue arbitration or go to Court belongs to the client,” the judge concluded. “Based on the record before this Court, this Court cannot conclude that petitioner made an informed and voluntary waiver.” Scarola Reavis & Parent is now known as Reavis Parent Lehrer, following the departure of Richard J.J. Scarola to form Scarola Ellis. Neither Helen D. Reavis nor Scarola could be reached for comment.

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