Court: Big Firm Goofed, No Arb Clause
Posted Jul 31, 2007 4:31 PM CDT
By Martha Neil
When lawyers from megafirm Sidley Austin agreed to write an opinion letter on the lawfulness of a tax shelter for a corporate executive who was a client of a Big Four accounting firm, they presumably weren't expecting problems. But after Staples Inc. Vice Chairman Joseph Vassalluzzo had to pay $7 million in back taxes, interest and penalties for participating in the tax shelter, he sued both the accountant and the law firm over Sidley's opinion letter.
At that point, Sidley sought to arbitrate the dispute, reports Massachusetts Lawyers Weekly. Although the firm itself never had an engagement letter with Vassalluzzo, it pointed out that he had agreed in an Ernst & Young engagement letter to arbitrate disputes "arising out of or relating to services covered by this letter." Thus, under the doctrine of equitable estoppel, Sidley should be included in the arbitration agreement, the law firm argued.
A Massachusetts judge rejected that claim, saying that Sidley can't expect a third party to be bound by an arbitration agreement that didn't expressly include the law firm. While a number of courts elsewhere have agreed with the equitable estoppel argument, Superior Court Judge Ralph D. Gants says in a written opinion, "There is nothing equitable about requiring a client, without the client's informed consent, to waive his right to a jury trial and his access to the judicial system when he prosecutes a malpractice claim against his attorney."