Client Engagement Agreements: Ethical Considerations for Counsel Drafting and Leveraging the Agreement to Defend Against Disciplinary and Malpractice Actions Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. TUESDAY, DECEMBER 2, 2014 Presenting a live 90-minute webinar with interactive Q&A William T. Burke, Partner, Williams & Connolly, Washington, D.C. A. Neil Hartzell, Shareholder, LeClairRyan, Boston Craig D. Singer, Partner, Williams & Connolly, Washington, D.C. Megan Zavieh, Attorney, Zavieh Law, Alpharetta, Ga.
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Client Engagement Agreements:
Ethical Considerations for Counsel Drafting and Leveraging the Agreement to Defend Against Disciplinary and Malpractice Actions
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. McGlinchy Stafford, 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