Legal malpractice claim not encompassed by arbitration provision in contract for related escrow services.

The Superior Court of Pennsylvania had the opportunity to address the scope of an arbitration provision contained in a contract for a lawyer’s escrow services. Dakota Oil entered into an escrow agreement with the defendant-lawyer whereby the lawyer would serve as an escrow agent. Dakota Oil deposited $2.5 million with the defendant-lawyer to be released to a venture financing firm upon receipt of funding pursuant to a line of credit. The defendant-lawyer, however, released the funding without authorization or confirmation that any funding was received. 

Although Dakota Oil’s claim derived from the loss of the escrow deposit, Dakota Oil was able to successfully plead around the arbitration provision in the escrow agreement by characterizing its claim as one of legal malpractice based upon an implied attorney-client relationship. The court held that the legal malpractice claim, premised upon the contention that in his capacity as a lawyer, the defendant had the duty to ensure that the payment was protected by the escrow agent (i.e., the lawyer), the claim was a distinct cause of action, separate from the escrow agreement.

Although a non-precedential and unpublished decision, the opinion highlights two important points. First, the court emphasizes that arbitration provisions are strictly construed and will not be extended by implication. This case provides a good illustration of this principle as the court differentiates causes of action based on conduct that is essentially identical. In drafting arbitration clauses, one should bear in mind the fine line the court may be willing to draw and draft the clause in the broadest form possible. 

Second, the opinion provides an important reminder to practitioners of the need to specifically clarify the role in which the attorney is acting in any transaction. While there was no dispute the lawyer was acting in the role of escrow agent, the plaintiff was able to successfully plead the existence of an implied attorney-client relationship and, thus, negate the application of the arbitration clause altogether. Had the attorney ensured in writing that his role was limited to that of escrow agent, this opportunity may not have existed.
 

^{Case Law Alerts, 4th Quarter, October 2021 is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2021 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. This article may not be reprinted without the express written permission of our firm.}