drafting client engagement agreements: legal ethics...
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Drafting Client Engagement Agreements:
Legal Ethics Considerations for CounselLeveraging the Agreement to Defend Against Disciplinary Actions and Malpractice Claims
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THURSDAY, DECEMBER 5, 2019
Presenting a live 90-minute webinar with interactive Q&A
A. Neil Hartzell, Partner, Freeman Mathis & Gary, Boston
Megan Zavieh, Attorney, Zavieh Law, Alpharetta, Ga.
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CLIENT ENGAGEMENT
AGREEMENTS:
ETHICAL CONSIDERATIONS FOR
COUNSEL
A. Neil Hartzell
Freeman Mathis & Gary
60 State Street
Boston, MA 02109-1800
nhartzell@fmglaw.com
5 Megan Zavieh
Zavieh Law
12460 Crabapple Road, Suite 202-272
Alpharetta, GA 30004
megan@zaviehlaw.com
SUMMARY OUTLINE
Important Provisions
Client identification
Scope of engagement
Terms of Payment
Staffing Concerns
Conflicts
File and documentation retention
Defending Disciplinary Proceedings
Defending Malpractice Claims
6
IMPORTANT PROVISIONS OF ENGAGEMENT
LETTERS
7
CLIENT IDENTIFICATION
Identify in Engagement Letter
Corporation and Board Members
Close Corporations and Family Members
Trust and Estate Matters; Trustees and Family
Members
Multiple Parties in Criminal Cases
Corporations and Subsidiaries
Put it in writing
8
ORGANIZATION AS CLIENT
ABA Model Rule 1.13
you represent organization
Rule provides guidelines as to what happens if facts
come to light adverse to corporation
Shareholder or Board Member asks you for advice
▪ Is there a conflict?
▪ Can conflict be waived?
▪ In Writing
▪ All involved must consent
9
SCOPE OF ENGAGEMENT
Changes During Representation
Additional Matters
New parties
New family member
Subsidiary of Corporation
Parent corporation
Send updated Letter Describing Work Scope
and Identifying What Will Happen If Conflicts
Develop
10
SCOPE OF ENGAGEMENT
How and When Can Client Terminate
Representation
How and When Can Lawyer/Firm Terminate
Representation
Provision For Payment of Fees When
Representation Terminates
Contingent Fees; Payment For Value of Services
If Representation Terminated
Multi Firm Representation
11
SCOPE OF ENGAGEMENT
Representing XYZ corporation as plaintiff or
defendant in a Specific Litigation
Representing Individual or Corporation in
Investigation
Representing party in Environmental Matters
Investigation?
Appearances before state or federal agencies?
Litigation?
Should Always Clearly Identify
12
TERMS OF PAYMENT
Put all terms of payment in engagement letter
Rates and who will be primarily responsible attorney
and how the client can get in touch with you
Representing friends and family members: always
put in writing
Relationships change; people develop health problems or die
Third Party Paying For Fees and Expense. See ABA
Model Rule 1.8(f)(1) and (f)(2)
Informed Consent
No interference with protected judgment or lawyer-client
relationship
Information protected under 1.6
Factoring Companies 13
TERMS OF PAYMENT
Know About Restrictions
Cannot Charge Fee In Domestic Relations Matters
contingent on securing of divorce, amount of alimony
or support or property settlement
Representing a Defendant in a Criminal Case
Division of Fees
▪ Disclosed in Writing
▪ Total Fee is Reasonable
14
TERMS OF PAYMENT
Increases in Rates
Contingent Fees
See ABA Model Rule 1.5
Always put in writing
Some states now require it; model rules require it
Know about restrictions on contingent fees
Must be Reasonable
How Expenses are Paid Needs to Be in Writing As
Well
15
STAFFING CONCERNS
Have language in Engagement Letter Identifying
who will work on case
Add such other attorneys and staff in the primary
attorney’s judgment as necessary to represent client’s
interests
Third Party Document Reviews
Consultants
Experts
Disclose and Obtain Written Confirmation
Insurers Require It
16
CONFLICTS
Know ABA Model Rules
Rule 1.7 Current Clients
Rule 1.8 Current Clients; Specific Rules
Cannot Prospectively Limit Malpractice Liability
unless client is separately represented when making
agreement
Model Rule 1.8(h)(1)
17
CONFLICTS
Cannot Ask For Advance Waiver of Claims
Arising From Violations of Disciplinary RulesSee ABA Model Rule 1.8(h)(1)
18
ENGAGEMENT LETTERS/ CONFLICTS
A conflict waiver in an engagement letter needs
to be specific and is not always a guarantee of
protection
Walton Houston Galleria Office LP v.s.
Andrews Kurth LP, 2011-22533 (Harris County
Texas)
Allegation for malpractice when conflict waiver signed
without disclosing that other client was subject of SEC
investigation
19
FILE AND DOCUMENTATION RETENTION
Folder For Original Signed Engagement Letter
Document Collection-Instructions In Writing
Clearly Label What You Have Received From
Whom and When
Memos to File Regarding Interviews Regarding
Document Collection
What Files Kept By Who At Client
Track Receipt of All Client Documents
20
DEFENDING DISCIPLINARY PROCEEDINGS
Overview of the attorney discipline system
Resources/Counsel
Responding to complaints
Key to a successful defense
21
OVERVIEW OF DISCIPLINARY SYSTEM
Each state has own system – learn about yours
Generally an investigative/prosecutorial body
Investigation
Opportunity for hearing
Sanctions imposed
Resource for assistance – LAP (can favorably
impact disciplinary process)
22
AVAILABLE RESOURCES
States have ethics hotlines
Confidential
Advisory
States publish sample engagement letters –notice
that they never include prospective limitations on
discipline exposure
23
WHERE TO FIND COUNSEL
APRL: Association of Professional Responsibility
Lawyers
ADDC: California – Association of Discipline
Defense Counsel
24
BAR COMPLAINT: YOUR FIRST STEPS
Receive letter from the State Bar (or regulator)
Consider hiring counsel
RESPOND
25
RESPONSE OPTIONS
No response at all
Never a good idea
Duty to cooperate
Tell them EVERYTHING
Likely not a good idea
Respond completely and effectively
26
DRAFTING A COMPLETE AND EFFECTIVE
RESPONSE
Accept it
Read it
Stick to the deadline
Answer all questions
Address all cited rules
Read the rules – cite others to show compliance
Provide your engagement agreement to
demonstrate what you agreed to do (and did not
agree to do)
27
DRAFTING A COMPLETE AND EFFECTIVE
RESPONSE
Detail affirmative steps taken to ensure
compliance
Address mitigating factors (read rules to help
identify them)
Back up your statements with verifiable facts
and documents
28
AVOID PITFALLS
Privilege – who is complaining witness?
Privilege waiver?
Deadlines
Opening door to additional issues
29
GET HELP
Counsel (limited or full scope)
Advice of friends
Ask regulator for resources
30
KEYS TO SUCCESSFUL DEFENSE
Know the system
Respond in full and on time
Reasonable expectation of outcome
Run your practice to prepare for eventual
complaint
31
DEFENDING MALPRACTICE CLAIMS -
GENERALLY
An engagement letter can have enormous impact
on a legal malpractice case
So too can the lack of an engagement letter
An essential element of a legal malpractice claim
is the existence of a duty owed by the lawyer to
the plaintiff.
The duty typically arises from the existence of an
attorney-client relationship.
Engagement letters are useful tools in defining
the scope of the attorney-client relationship and,
therefore, the scope of the duty owed to the client.32
DEFENDING MALPRACTICE CLAIMS -
GENERALLY
Engagement letters can help:
• Identify a lawyer’s client
• Define the scope of the lawyer’s duty
• Identify the law firm responsible for the engagement
• Memorialize the client’s consent to waive conflicts of
interest
• Determine the applicable law
• Determine the applicable forum
Any of the above may be dispositive or otherwise
significant in a legal malpractice case.
Lawyers can protect themselves from some legal
malpractice claims by carefully defining the
relationship in an engagement letter. 33
DEFENDING MALPRACTICE CLAIMS –
IDENTITY OF CLIENT
Non-clients who benefit from the lawyer’s work
may incorrectly view themselves as clients.
By identifying the client with precision, an
engagement letter can be helpful evidence in
defending a legal malpractice claim by such non-
clients.
Engagement letter may state that there are no
third party beneficiaries of the engagement.
Consider also a “non-engagement” letter to
identified non-clients.
34
DEFENDING MALPRACTICE CLAIMS –
IDENTITY OF CLIENT
Claims by non-clients can arise in multiple contexts:
• Client wearing multiple hats. Hallman v. Kantor, 2010 WL 3547427 (N.Y. 2010) (engagement
letter that specified that client was a co-executor helped defend
against claims asserted by the client in an individual capacity).
• Representing a closely-held corporation, but not its
shareholders, even though the shareholders are
often the ones giving instructions to the lawyer. Model Rule 1.13: the organization is the client, not its owners.
Fromhart v. Tucker, 2013 WL 3364451 (N.D.W.Va. July 3,
2013) (dismissing malpractice claim by shareholder because
engagement letter specified that company, not shareholder,
was the client).
35
DEFENDING MALPRACTICE CLAIMS –
IDENTITY OF CLIENT
Other sources of claims by non-clients:
• Representing a corporate entity, but not its parents,
subsidiaries, or affiliates, even though the other
members of the corporate family may sometimes
benefit from the representation.
ABA Formal Opinion 95-390: “The fact of corporate
affiliation, without more, does not make all of a corporate
client’s affiliates into clients as well. Nonetheless, the
circumstances of a particular representation may be such
that the corporate client has a reasonable expectation that
the affiliates will be treated as clients, either generally or
for purposes of avoidance of conflicts, and the lawyer is
aware of the expectation.”
An engagement letter can demonstrate that a corporate
client did not have a reasonable expectation that its
affiliates would be clients.
36
DEFENDING MALPRACTICE CLAIMS –
IDENTITY OF CLIENT
Example: lawyer represents Corporation A in litigation.
The Court rules against Corporation A with respect to a
legal issue that also could affect the business of
Corporation B, which is owned by Corporation A’s parent,
Corporation C. Corporation A alleges malpractice.
Corporations B and C join as plaintiffs and allege that
they, too, were damaged.
An engagement letter that specifically excludes the
representation of any entities other than Corporation A could
help defend the lawyer from the claims of Corporations B and
C.
37
DEFENDING MALPRACTICE CLAIMS –
IDENTITY OF CLIENT
Other sources of claims by non-clients:• Representing an underwriter when legal fees are
being paid by the issuer.
International Tele-Marine Corp. v. Malone & Assocs., 845 F.
Supp. 1427, 1432-33 (D. Colo. 1994) (finding genuine issue
of fact regarding whether issuer was client because fee
agreement with issuer was ambiguous).
• Representing the originator, but not participating
banks, in a lending transaction.
McIntosh County Bank v. Dorsey & Whitney, 745 N.W.2d
538 (Minn. 2008)(in absence of engagement letter, lower
court found genuine issue of fact as to whether law firm
represented participating banks; law firm prevailed only on
appeal to Supreme Court) 38
DEFENDING MALPRACTICE CLAIMS –
IDENTITY OF CLIENT
Other sources of claims by non-clients:
Representing the lead underwriter with respect to an
offering, but not the other underwriters.
Representing an individual, but not family members
who might benefit.
Trust and estates: lawyer represents the testator when
drafting a will, but not the beneficiaries.
Transaction involving a business owned by an individual:
the lawyer might represent the individual owner, but not
his children who will one day own and control the business.
39
DEFENDING MALPRACTICE CLAIMS –
IDENTITY OF CLIENT
Practice Tip: Pay Attention to Billing Guidelines
Some client “billing guidelines” purport to expand the
attorney-client relationship beyond what the
engagement letter specifies.
For example, billing guidelines may state that,
notwithstanding anything in the engagement letter
to the contrary, by representing the company, the
lawyer also agrees to represent all of its parents,
subsidiaries, and affiliates.
If the engagement letter says otherwise, and the lawyer
does not agree to represent clients other than the company
itself, then the lawyer should advise the client in writing
that the lawyer cannot agree to that aspect of the billing
guidelines. 40
DEFENDING MALPRACTICE CLAIMS –
SUBJECT MATTER OF REPRESENTATION
By specifying the subject matter of the representation with particularity, an engagement letter can be helpful evidence in defending a legal malpractice claim regarding matters beyond the scope of the engagement. SCB Diversified Mun. Portfolio v. Crews & Associates, 2012 WL13708
(E.D. La. 2012) (law firm prevailed on summary judgment because scope of engagement in engagement letter did not include environmental issues), aff’d by Coves of the Highland Community Dev. Dist. v. McGlinchyStafford, P.L.L.C., 526 F. App’x 381 (5th Cir. 2013).
Country Club Partners LLC v. Goldman, 954 N.Y.S.2d 758 (2009) (law firm prevails on summary judgment because engagement letter limited scope of engagement to acquiring assets of country club, not surrounding land)
AmBase Corp. v. Davis Polk & Wardwell, 866 N.E.2d 1033 (2007) (law firm prevails because engagement letter limited scope of engagement to litigating the amount of tax liability, not whether it could be allocated to another entity).
Kansas Public Employees Retirement System v. Kutak Rock, 44 P.3d 407 (2002) (law firm won summary judgment in malpractice case by demonstrating that “due diligence” in engagement letter meant only “legal due diligence”).
Note that law firm might have avoided litigation altogether with a more explicit engagement letter 41
DEFENDING MALPRACTICE CLAIMS –
IDENTITY OF COUNSEL
By specifying which law firm is entering into the
attorney-client relationship, an engagement
letter can be helpful evidence in defending a legal
malpractice claim against a law firm that did not
actually represent the client.
Multi-firm lawyers. Some lawyers may be affiliated
with more than one law firm, often as “of counsel.”
For such a multi-firm lawyer, an engagement letter that
makes clear which law firm represents the client can be
critical evidence in defending a legal malpractice claim
against the other law firm.
Lawyers transitioning between firms.
42
DEFENDING MALPRACTICE CLAIMS –
ADVANCE CONFLICT WAIVERS
Legal malpractice claims, or breach of fiduciary
duty claims against lawyers, often arise from
alleged conflicts of interest on the part of the
lawyer.
Advance waiver in an engagement letter may
prevent or help to defend against such claims.
Advance waiver shows that the client has
expressly consented to the alleged conflict, which
can
negate malpractice (because it was reasonable to take
the conflicting matter);
negate breach of fiduciary duty (because there is no
breach when the client consents).
43
DEFENDING MALPRACTICE CLAIMS –
WAIVERS OF EXISTING CONFLICTS
Seek to identify any existing arguable conflicts at
the outset of the representation.
If the conflicts are waivable, ask the client to
waive them in the engagement letter.
44
DEFENDING MALPRACTICE CLAIMS –
OTHER POTENTIALLY HELPFUL PROVISIONS
Choice of law clause.
Meyer v. Callahan, 2010 WL 4916563 (D.N.H. 2010) (choice of
law clause in engagement letter was drafted to cover entire
engagement, not just construction of the agreement, and thus
covered legal malpractice claim despite its basis in tort)
Choose a jurisdiction with which the lawyer is familiar
Arbitration clause.
Sanford v. Bracewell & Giuliani, LLP, 6 F. Supp. 3d 568 (E.D.
Pa. 2014) (enforcing arbitration clause in engagement letter
against client).
Client disclosure clause.
Engagement letter may expressly require the client to disclose
all relevant, material information
Use of electronic communications.
Prevent claim of negligent disclosure of confidential
information.
45
CONCLUSIONS
Engagement letters can be valuable tools for
controlling unnecessary liability.
They can be helpful in many contexts, including
attorney disciplinary proceedings and legal
malpractice claims.
Equally importantly, well-drafted engagement
letters can prevent disputes or
misunderstandings with the client and can
prevent claims before they arise.
A lawyer undertaking a new matter should give
careful attention to the terms of the engagement
letter, including the identity of the client and the
scope of the matter.
46
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