drafting client engagement agreements: legal ethics...

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

[email protected]

5 Megan Zavieh

Zavieh Law

12460 Crabapple Road, Suite 202-272

Alpharetta, GA 30004

[email protected]

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


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


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


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


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


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


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


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


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


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


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


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