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Summerville v. Innovative Images, LLC

Court of Appeals of Georgia, First Division

March 15, 2019

SUMMERVILLE et al.
v.
INNOVATIVE IMAGES, LLC; and vice versa.

          BARNES, P. J., MERCIER and BROWN, JJ.

          BARNES, PRESIDING JUDGE.

         Innovative Images, LLC ("Innovative") sued James Darren Summerville, Summerville Moore, P. C., and the Summerville Firm, LLC (collectively, "the Summerville Defendants") for legal malpractice. The Summerville Defendants acknowledged service of the summons and the complaint but did not file a timely answer. The trial court subsequently granted the Summerville Defendants' motion to open default but denied their motion to compel arbitration on the ground that the arbitration clause contained in the parties' attorney-client contract was unconscionable. The trial court issued a certificate of immediate review from its order denying the motion to compel arbitration, and the Summerville Defendants filed an application for interlocutory appeal. This Court granted the application, leading to the Summerville Defendants' appeal of the trial court's order denying their motion to compel arbitration in Case No. A19A0258. In Case No. A19A0321, Innovative cross-appeals from the trial court's order granting the Summerville Defendants' motion to open the default. For the reasons discussed below, we reverse the trial court's order denying the Summerville Defendants' motion to compel arbitration, and we affirm the trial court's order granting their motion to open the default.

         Case No. A19A0258

         1. The Summerville Defendants contend that the trial court erred in denying their motion to compel arbitration.

         Under the Georgia Arbitration Code ("GAC"), OCGA § 9-9-1 et seq., "a party may seek an order compelling arbitration, and upon a challenge to the validity of the agreement, the trial court 'shall summarily hear and determine that issue and, accordingly, grant or deny the application for an order to arbitrate.'"Kindred Nursing Centers v. Chrzanowski, 338 Ga.App. 708, 713 (1) (791 S.E.2d 601) (2016), quoting OCGA § 9-9-6 (a). Whether the contracting parties have submitted a particular dispute to arbitration and the validity of the arbitration provision are questions for judicial determination unless the parties clearly and unmistakably provided otherwise in their contract. Salinas v. Atlanta Gas Light Co., 347 Ga.App. 480, 482 (1) (819 S.E.2d 903) (2018); Harris v. Albany Lime & Cement Co., 291 Ga.App. 474, 475 (1) (662 S.E.2d 160) (2008).

         Guided by these principles, we turn to the factual and procedural background pertinent to the main appeal in this case. In July 2013, Innovative retained Mr. Summerville and his law firm to represent it in post-trial proceedings following an adverse civil judgment, and the parties executed an attorney-client engagement agreement that set out the terms of the representation (the "Engagement Agreement"). A section of the Engagement Agreement entitled "Other Important Terms" included a choice-of-law clause stating that the "agreement and its performance are governed by the laws of the State of Georgia." That section of the Engagement Agreement also included an arbitration clause (the "Arbitration Clause" or the "Clause") stating:

Any dispute arising under this agreement will be submitted to arbitration in Atlanta, Georgia under the rules and procedures of the State Bar of Georgia Committee on the Arbitration of Attorney Fee Disputes, if concerning fees, or by an arbitrator to be agreed to by the parties, if concerning any other matter. Alternatively, you may choose to arbitrate any dispute arising under this agreement in Atlanta by a single arbitrator provided through the Atlanta office of Judicial Arbitration and Mediation Service ("JAMS"). The decision of any such arbitrator or arbitrators shall be binding, conclusive, and not appealable. In the event a dispute is not or cannot be arbitrated, the parties consent to the jurisdiction of and venue in the courts of Fulton County, Georgia.

         In October 2017, Innovative filed the present legal malpractice action in the State Court of Fulton County against the Summerville Defendants for the allegedly negligent post-trial representation of Innovative in the underlying civil suit, asserting claims for breach of professional negligence, breach of contract, and breach of fiduciary duties. During the course of the litigation, [1] the Summerville Defendants filed a motion to stay discovery, compel arbitration, and dismiss the legal malpractice action based on the Arbitration Clause (the "Motion to Compel Arbitration"). Innovative opposed the Motion to Compel Arbitration, contending, among other things, that the Arbitration Clause was unconscionable because the Summerville Defendants had not advised Innovative of the possible disadvantages associated with arbitration.

         The trial court denied the Summerville Defendants' Motion to Compel Arbitration, agreeing with Innovative that the Arbitration Clause was unconscionable. The trial court reasoned that although the GAC does not prohibit the arbitration of legal malpractice claims, Rule 1.4 (b) of the Georgia Rules of Professional Conduct (the "State Bar Rules")[2] and American Bar Association ("ABA") Formal Opinion 02-425[3] support imposing a legal requirement on attorneys to explain to their prospective clients the possible disadvantages of binding arbitration clauses contained in attorney-client engagement contracts, such as the waiver of the right to a jury trial, the potential waiver of broad discovery, and the waiver of the right to appeal. And, because there was no evidence in the record that the Summerville Defendants explained the Arbitration Clause to their prospective client, Innovative, before the Engagement Agreement was signed, the trial court found that the Arbitration Clause was unconscionable and thus unenforceable.

         (a) The Summerville Defendants contend that the trial court erred in denying their Motion to Compel Arbitration on the ground that the Arbitration Clause was unconscionable. We agree.

         "An unconscionable contract is one abhorrent to good morals and conscience. It is one where one of the parties takes a fraudulent advantage of another. It is an agreement that no sane person not acting under a delusion would make and that no honest person would take advantage of." (Citations and punctuation omitted.) William J. Cooney, P.C. v. Rowland, 240 Ga.App. 703, 704 (524 S.E.2d 730) (1999). A contract is not unconscionable if permitted by statute. Avery v. Aladdin Products Div. &c., 128 Ga.App. 266, 267 (2) (196 S.E.2d 357) (1973). See William J. Cooney, P.C., 240 Ga.App. at 704 ("That which the law itself specifically permits cannot be unconscionable."). Moreover, in determining whether a contract is unconscionable, we must bear in mind that "Georgia law recognizes and protects the freedom of parties to contract," William J. Cooney, P.C., 240 Ga.App. at 705, and

contracts will not be avoided by the courts as against public policy, except where the case is free from doubt and where an injury to the public interest clearly appears. Absent a limiting statute or controlling public policy, parties may contract with one another on whatever terms they wish[, ] and the written contract defines the full extent of their rights and duties.

(Citations and punctuation omitted.) Hall v. Fruehauf Corp., 179 Ga.App. 362, 362 (346 S.E.2d 582) (1986).

         As to arbitration clauses, "Georgia has . . . enacted the [GAC], evidencing the legislature's conclusion that arbitration is not in violation of the public policy of this State and, therefore, cannot be said, per se, to be unconscionable." Results Oriented v. Crawford, 245 Ga.App. 432, 437 (1) (a) (538 S.E.2d 73) (2000), aff'd, Crawford v. Results Oriented, 273 Ga. 884 (548 S.E.2d 342) (2001). See Order Homes v. Iverson, 300 Ga.App. 332, 334-335 (1) (685 S.E.2d 304) (2009) ("In enacting the GAC, the General Assembly established a clear public policy in favor of arbitration.") (punctuation and footnote omitted). Furthermore, an arbitration clause is not unconscionable because the contracting parties have differing levels of sophistication or different understandings of how arbitration is conducted. See Crawford v. Great American Cash Advance, 284 Ga.App. 690, 693-694 (1) (c) (644 S.E.2d 522) (2007). And, when a party signs a contract containing an arbitration clause, the party is presumed to have read and understood the clause. Holt & Holt v. Choate Constr. Co., 271 Ga.App. 292, 294 (1) (609 S.E.2d 103) (2004). See also Northwest Plaza v. Northeast Enterprises, 305 Ga.App. 182, 189-190 (1) (699 S.E.2d 410) (2010) (where representatives of corporation signed contract, corporation was charged with having read the contract and understood its terms); Ghertner v. Solaimani, 254 Ga.App. 821, 825 (563 S.E.2d 878) (2002) (contracting parties who agree to an arbitration clause are "presumed to know the law" pertaining to arbitration).

         In the present case, in addition to the foregoing well-settled principles counseling against a finding of unconscionability, there was no evidence that the Summerville Defendants took advantage of Innovative, fraudulently or otherwise. Nor was there any evidence that Innovative was induced by the Summerville Defendants to forego reading the Engagement Agreement or inquiring into any of its terms, including the Arbitration Clause. Nevertheless, the trial court declined to enforce the Arbitration Clause on the ground of unconscionability based on its conclusion that, as a matter of public policy, lawyers have a duty to explain the possible disadvantages of arbitration clauses to their prospective clients before engagement agreements are executed, and there was no indication in the record that such an explanation had been provided to Innovative.[4] In support of its conclusion that public policy had been violated, the trial court relied on the duty of communication imposed on attorneys by State Bar Rule 1.4 (b) and the interpretation of Model Rule 1.4 (b) found in ABA Formal Opinion 02-425, reasoning that both were "relevant and persuasive in deciding whether [the Arbitration Clause was] an unconscionable imposition in a fiduciary relationship."[5]

         It is true that "contractual provisions between attorneys and clients which violate the public interest are unenforceable," Nelson & Hill v. Wood, 245 Ga.App. 60, 66 (2) (537 S.E.2d 670) (2000), and that public policy may be informed by the State Bar Rules. See, e.g., Eichholz Law Firm v. Tate Law Group, 310 Ga.App. 848, 851-853 (1) (714 S.E.2d 413) (2011) (fee-splitting provision of joint venture agreement, which permitted law firm to receive portion of contingency fee where firm's representation had been terminated by client before fee was earned, violated State Bar Rule 1.5 (e) (2) and was unenforceable on public policy grounds); Harris v. Albany Lime & Cement Co., 291 Ga.App. 474, 475-477 (1) (662 S.E.2d 160) (2008) (arbitration clause entered into between attorney and existing client was voidable at the option of the client on public policy grounds, where the attorney had an "egregious conflict of interest" in violation of State Bar Rule 1.8 (a); while the attorney was representing the client in a pending defective construction lawsuit in which the attorney also was named as a defendant, the attorney had persuaded the client to execute an agreement with him and his businesses pertaining to the renovation of the house in question that contained an arbitration clause). Notably, however, "[t]he fact that this case involves an attorney-client relationship does not mean that the rules of professional conduct preempt statutory law and case law regarding contracts." William J. Cooney, P.C., 240 Ga.App. at 705.

         Given our legislature's strong public policy preference in favor of arbitration as expressed in the GAC, and in light of our aforementioned case law regarding arbitration clauses and unconscionability, we decline to adopt a blanket rule that an arbitration clause in an attorney-client contract is unconscionable and against public policy if the attorney did not explain the potential disadvantages of the clause to his prospective client before execution of the contract. In reaching this conclusion, we are mindful that "the legislature is empowered by the Constitution to decide public policy, and to implement that policy by enacting laws[, ] . . . [and] the power of the courts to declare a contract provision void for being in contravention of a sound public policy is a very delicate and undefined power" that should be exercised cautiously. (Citations and punctuation omitted.) Jones v. Federated Mut. Ins. Co., 346 Ga.App. 237, 243 (2) (b) (816 S.E.2d 105) (2018). Furthermore, the Supreme Court of Georgia has the "inherent and exclusive authority to govern the practice of law in Georgia," Nodvin v. State Bar of Ga., 273 Ga. 559, 559 (1) (544 S.E.2d 142) (2001), and the Supreme Court has not addressed whether ABA Formal Opinion 02-425 should be adopted as the proper interpretation of State Bar Rule 1.4 (b). Accordingly, for these combined reasons, we conclude that the trial court erred in finding the Arbitration Clause unconscionable and in denying the Summerville Defendants' Motion to Compel Arbitration.[6]

         (b) Innovative contends that the trial court's denial of the Summerville Defendants' Motion to Compel Arbitration should be affirmed on the alternative ground that the Arbitration Clause was discretionary rather than mandatory with respect to any dispute other than over attorney fees. See generally Estate of Nixon v. Barber, 340 Ga.App. 103, 105 (1) (796 S.E.2d 489) (2017) (trial court will be affirmed if "right for any reason"); Reese Realty Co. v. Pal Realty Co., 182 Ga.App. 215, 217 (2) (355 S.E.2d 125) (1987) ("[A] judgment which is correct will not be reversed merely because the wrong reason is given for granting it."). According to Innovative, the Arbitration Clause gave it the option to arbitrate any non-fee disputes arising under the Engagement Agreement but did not compel such arbitration. We are unpersuaded.

         "The construction of an arbitration clause in a contract is subject to the ordinary rules of contract construction," and "[t]he cardinal rule of contract construction is to ascertain the intention of the parties." (Citations and punctuation omitted.) South Point Retail Partners v. North American Properties Atlanta, 304 Ga.App. 419, 421 (1) (696 S.E.2d 136) (2010). "It is well settled that when the terms of a written contract are clear and unambiguous, the court is to look to the contract alone to find the parties' intent." (Citation and punctuation omitted.) Shelnutt v. Mayor & Aldermen of the City of Savannah, 333 Ga.App. 446, 452 (3) (776 S.E.2d 650) (2015). Hence, "[w]here the language of the contract is plain, unambiguous, and capable of only one reasonable interpretation, construction of the contract is not permitted, and the language of the contract is given effect." (Citations and punctuation omitted). Joja Partners v. Abrams Properties, 262 Ga.App. 209, 211 (1) (585 S.E.2d 168) (2003). That is the situation here.

         The Arbitration Clause in the Engagement Agreement stated that "[a]ny dispute arising under this agreement will be submitted to arbitration." For non-fee disputes arising under the Engagement Agreement, the Arbitration Clause further stated that the arbitration would be conducted "by an arbitrator to be agreed to by the parties," or "[a]lternatively, . . . by a single arbitrator provided through the Atlanta office of Judicial Arbitration and Mediation Service ('JAMS')" chosen by Innovative. Taken together, these provisions plainly and unambiguously gave Innovative two choices over how to select an arbitrator for non-fee disputes arising under the Engagement Agreement, but not the option to disregard the Arbitration Clause altogether and proceed with litigation. See Joja Partners, 262 Ga.App. at 211 (1) (arbitration provision gave party some choice among alternatives, but not the option to litigate). See also Shelnutt, 333 Ga.App. at 453 (3) (treating the word "will" as mandatory language).

         It is true that the Arbitration Clause further provided that "[i]n the event a dispute is not or cannot be arbitrated, the parties consent to the jurisdiction of and venue in the courts of Fulton County, Georgia." But that venue provision, when read in pari materia with the other language of the Arbitration Clause, would apply only in the limited circumstances where both contracting parties chose to waive arbitration or the arbitration clause was deemed unenforceable by a court. Any other construction would render meaningless the mandatory language that "[a]ny dispute arising under the agreement will be submitted to arbitration," a result that clearly must be avoided. (Emphasis supplied.) See Paul v. Paul, 235 Ga. 382, 384 (219 S.E.2d 736) (1975) ("[T]hat construction will be favored which gives meaning and effect to all of the terms of the contract over that which nullifies and renders meaningless a part of the language therein contained[.]") (citation and punctuation omitted).

         Contrary to Innovative's argument, the Arbitration Clause was mandatory based on its clear and unambiguous language. Consequently, the trial court's denial of the Summerville Defendants' Motion to Compel Arbitration cannot be affirmed on the alternative ground that the Arbitration Clause was optional.[7]

         Case No. A19A0321

         2. In its cross-appeal, Innovative contends that the trial court erred in granting the Summerville ...


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