Engagement Letters, Laying the Groundwork for Client Relationships
ALM Media
Updated
Engagement letters may be viewed as merely administrative items, which sometimes results in attorneys giving them little thought. However, a well-prepared engagement letter can a singularly strong tool an attorney can use to limit exposure to risks and to lay the groundwork for a successful and unambiguous attorney-client relationship.
Some legal malpractice insurers favor law practices that implement an engagement letter for every new representation. Due to the importance that an engagement letter can have to the representation and to reducing risk down the road, the question is usually not whether to have an engagement letter but what terms should be included in an engagement letter.
While every engagement/retainer letter or fee contract will vary depending on the facts and circumstances of the representation, here are five topics that lawyers and firms can consider implementing, if they do not already.
Identify the Client
Attorneys owe ethical, professional, and legal duties to their clients. As such, one of the most helpful things an attorney can do in the engagement letter is to identify specifically who the client is. In most situations, where a representation involves a single client in a single capacity, this is simple enough. However, there are other representations when it may not be so clear.
For example, in some situations, a single client can have multiple entities or multiple roles. In the estate context, this could involve a single person who is both an executor and an heir. In the corporate context, it could mean representing both an officer and the corporation itself. Or, it could just mean representing multiple parties to a transaction. For this reason, most attorneys will use the engagement letter to identify each client by name and capacity. (If more than one client or capacity is involved, then the lawyer can also address and resolve any potential conflicts of interests that may exist.)
To eliminate any misunderstanding, this section of the letter agreement could also include a disclaimer: "This firm does not represent any person or entity that has not been specifically identified as a client. No duties have been undertaken nor assumed for any person or entity that has not been specifically identified as a client."
Identify the Scope of the Representation
After identifying who the attorney represents, the engagement letter can also confirm exactly what the attorney has been hired to do. In the absence of some definition or limitation on the representation, it could be assumed that the representation is a general representation for all purposes.
General representations are fraught with risk. Specifically, in the absence of some limitation, a general representation could be unlimited in duration and scope. As a result, an attorney hired to represent a client charged with a traffic citation in an accident might be expected to represent the client in all matters arising out of the citation, such as, possibly, appearing at the hearing on the traffic citation, advising the client about liabilities arising out of the accident, or the statute of limitation for claims the client might have based on the accident. The attorney could have obligations to advise the client to report the matter to the client's insurer and to assist in collection of insurance proceeds for damages incurred as a result of the accident.
For the attorney who wants to represent the client in every aspect of the incident, a general representation might be acceptable. However, for the attorney hired to handle only the traffic citation in a criminal proceeding, a general representation makes less sense.
Similar problems could arise if the engagement letter does not define the duration of the representation. Indeed, absent some limitation (or a file closing letter), an attorney retained to draft a will could have a continuing obligation to advise a client on changes in estate and taxation law long after the will has been executed. Or, in a real estate transaction, the attorney could have a continuing obligation to renew security filings, or take additional steps to protect the client's interest long after the closing.
To address this risk, the engagement letter could contain some limitation on the scope of representation, whether by time or by event. For many firms, this opening engagement letter will be bookended by a closing letter, confirming that the matter has been closed.
Confirm the Fee
It is advisable for attorneys to negotiate their fee with clients before the attorney-client relationship begins. The engagement letter can then confirm exactly what that fee is and how it will be billed, paid, and/or collected.
Describe the Process for Withdrawal
While no representation starts with an expectation that it will not work out, the engagement letter can be used to prepare for that possibility. This usually includes confirming the name and address for purposes of communicating an intent to withdraw if necessary. The letter can govern the procedure to which the parties have agreed, including providing notice for purposes of withdrawal (although withdrawal may also be governed by the rules of court, particularly in an active litigation).
Confirm the Representation is Not Assignable
States vary regarding whether legal malpractice cases are assignable. Although recent Texas precedent recognizes that the attorney-client relationship is unique such that malpractice claims are generally not assignable, the question remains open in some other jurisdictions. The most effective way to address this risk is to expressly state that the representation is for personal services and is NOT ASSIGNABLE.
Other Provisions
There are other provisions that can be added, including waivers of remote conflicts that do not impair or otherwise adversely impact the independent professional judgment of the attorney. Some attorneys also include fee dispute agreements, including an agreement to either mediate or use fee arbitration procedures.
The most important step for effective risk management is to actually have an engagement/retainer letter or fee contract. Then, have the client execute the engagement/retainer letter or fee contract and return it.
Shari Klevens is a partner and Deputy General Counsel at Dentons US LLP in Washington, D.C. Randy Evans is a partner at Dentons US LLP in Atlanta, GA. Together, they have authored several books on legal malpractice, ethics compliance, and claim avoidance.
