The War of the Forms - Ethics, Risk, and Other Challenges with Law Firm Engagement Letters and Client Billing Guidelines

The War of the FormsEthics, Risk, and Other Challenges withLaw Firm Engagement Letters andClient Billing Guidelines

John C. KoskiPartner and Global Chief Legal OfficerDentonsChicago+1 312 876 [email protected]

CLE Seminar for In-House CounselJune 8, 2016Chicago, Illinois

• The Ethics Rules and Law Firm Engagement Letters

• Needs

• Depends

• Would Be Nice

• Client Guidelines

• Acceptable

• Let's Discuss

• Problematic

• Towards a Middle Ground

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Agenda

What Your Outside Lawyers Don'tLike About Your CorporateGuidelines -- Even Though YouMay Not Really Care That Much

Things Inside Counsel ShouldWatch Out For When You See AnyOutside Law Firm's EngagementLetter

If You've Been Asked to Develop orRevise Your Company's BillingGuidelines Recently, Here AreSome Things You May Want ToInclude -- Even Though YourOutside Counsel Won't Really LikeThem

A Sophisticated Dialogue AboutThat Awkward Part Of OurRelationship When We Have ToNegotiate With Each Other AsAdversaries, Rather Than OurPreferred Role As Serving As YourTrusted Advisor

• One-line: "For services rendered"

• Short Engagement Letter

• Billable Hour

• Longer Law Firm Terms

• Client Guidelines

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How Did We Get Here?

Month Day, Year 8

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Wonka On Contracts

Beauregard: What's thisabout?

Wonka: Standard form ofcontract.

Beauregard: Don't talk tome about contracts; I usethem myself. They're forsuckers.

Wonka: You wouldn'tbegrudge me a littleprotection? A drop?

Law Firm Engagement Letters

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Do the terms of the lawyer-client relationship have tobe in writing?

• Model / Illinois Rule 1.5(b): The scope of the representation and thebasis or rate of the fee and expenses for which the client will beresponsible shall be communicated to the client, preferably in writing,before or within a reasonable time after commencing the representation,except when the lawyer will charge a regularly represented client on thesame basis or rate.

• Model Rule 1.5, Comment [2]: Generally, it is desirable to furnish theclient with at least a simple memorandum or copy of the lawyer'scustomary fee arrangements that states the general nature of the legalservices to be provided, the basis, rate or total amount of the fee andwhether and to what extent the client will be responsible for any costs,expenses or disbursements in the course of the representation. A writtenstatement concerning the terms of the engagement reduces thepossibility of misunderstanding.

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The Rules

• DC Rule of Professional Conduct 1.5(b): When the lawyer has notregularly represented the client, the basis or rate of the fee, the scopeof the lawyer’s representation, and the expenses for which the clientwill be responsible shall be communicated to the client, in writing, beforeor within a reasonable time after commencing the representation.

• California Business and Professions Code 6148(a): In any case … inwhich it is reasonably foreseeable that total expense to a client, includingattorney fees, will exceed one thousand dollars ($1,000), the contract forservices in the case shall be in writing [and] shall contain all of thefollowing:

(1) Any basis of compensation …;

(2) The general nature of the legal services to be provided to the client.

(3) The respective responsibilities of the attorney and the client as to theperformance of the contract.

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The Rules

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The Law Firm Engagement Letter: Essentials

• Scope of Representation

• Defined narrowly for liability purposes

• Broad enough to include ancillary work

• Carve outs (insurance coverage)

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• Fees

• Retainer

• Hourly rates: timekeepers, changes

• Contingency

• Terms (billing cycle, interest)

• Expenses

• Responsibility

• Copy costs

• Bulk purchases

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The Law Firm Engagement Letter: It Depends

• Retainers: Illinois RPC 1.15; Dowling v. Chicago Options Associates,Inc., 226 Ill. 2d 277 (2007).

• General Retainer: Paid by a client to the lawyer in order to ensure the lawyer'savailability during a specific period of time or for a specific matter. This type ofretainer is earned when paid and immediately becomes property of the lawyer,regardless of whether the lawyer ever actually performs any services for theclient

• Security Retainer: Secures payment for future services and expense, and mustbe deposited in a client trust account. Funds in a security retainer remain theproperty of the client until applied for services rendered or expenses incurred.

• Advance Payment Retainer: Present payment to the lawyer in exchange forthe commitment to provide legal services in the future. Ownership of thisretainer passes to the lawyer immediately upon payment; and the retainer maynot be deposited into a client trust account because a lawyer may notcommingle property of a client with the lawyer's own property. Any portion of anadvance payment retainer that is not earned must be refunded to the client.

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• Conflicts:

• Conflicts under Illinois RPC 1.7 and 1.9 can be waived with "informed consent."

• Informed consent "denotes the agreement by a person to a proposed course ofconduct after the lawyer has communicated adequate information andexplanation about the material risks of and reasonably available alternatives tothe proposed course of conduct. Illinois RPC 1.0(e).

• "If it is not feasible to obtain or transmit a written confirmation, if required, at thetime the client gives informed consent, then the lawyer must obtain or transmitit within a reasonable time thereafter. If a lawyer has obtained a client’sinformed consent, and written confirmation is required, the lawyer may act inreliance on that consent so long as it is confirmed in writing within a reasonabletime thereafter." Illinois RPC 1.0, Comment [1]

• If a lawyer is entering a business transaction or acquiring ownership interestadverse to a client, the terms, lawyer disclaimers, and client's consent must bein writing. Illinois RPC 1.8(a).

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• Simultaneous Representation: "When representation of multiple clientsin a single matter is undertaken, the information must include theimplications of the common representation, including possible effects onloyalty, confidentiality and the attorney-client privilege and theadvantages and risks involved." Illinois Rule 1.7, Comment [18].

• Third-Party Payor:

• Exclusive or Joint Obligation

• Client Status

• Potential for Conflict

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The Law Firm Engagement Letter: It Would Be Nice

• Affiliates: The lawyer only represents one client, not the corporate family.

• Advance Waiver: What types of other engagements will not count asconflicts.

• Client’s Duties: Client must provide complete and accurate information,including updates to information previously furnished

• Client's Rights: Recital of Client’s right to consult with other counselregarding the terms of the Engagement Letter

• End of Engagement: When will the engagement automatically end:completion of scope, x months after last statement

• Entire Agreement: This is it; trumps guidelines

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• Estimates: Estimates are not budgets

• Fees: Recognition that law firm may increase fees periodically duringthe course of the engagement

• Law Firm's Privilege: Recognition of internal privilege forcommunications between lawyers and law firm's General or In-HouseCounsel

• Publicity: Law firm can disclose client identity

• Records Retention: Who owns the file; what about subpoenas

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Client Guidelines

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Examples -- Laudable

• Contractor and its employees, agents and subcontractors,shall comply with the [CLIENT's] No Smoking Policy ….

• Contractor shall not use [CLIENT] funds to purchasebeverages that do not meet the [CLIENT's] nutritionalbeverage criteria. The six categories of nutritionalbeverages that meet these criteria are (1) water with noadditives; (2) 100% fruit juices with no added sugars,artificial flavors or colors (limited to a maximum of 10ounces per container); (3) dairy milk, nonfat, 1% and 2%only, no flavored milks; (4) plant derived (i.e., rice,almond, soy, etc.) milks (no flavored milks); (5)artificially sweetened, calorie reduced beverages that donot exceed 50 calories per 12 ounce container (teas,electrolyte replacements); and (6) other non-caloricbeverages, such as coffee, tea, and diet sodas. Thesecriteria may be waived in the event of an emergency or inlight of medical necessity.

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Examples -- Laughable?

• Supplier will ensure that prior to the commencement ofservices each Supplier Resource is screened for the presenceof the following drugs: amphetamines, benzoylecgonine(cocaine), cannabinoids, opiates, phencyclidine ….

• [CLIENT] expects Outside Counsel to use their best effortsto identify and discuss with the Relationship Manager anypotential conflicts of a philosophical or policy-drivennature that may compromise a position taken by the Company.

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Examples -- Compliable?

• The [Law Department] in consultation with Outside Counsel,may designate a Relationship Partner to manage therelationship between Outside Counsel and the [CLIENT].

• All actual or potential conflicts must be waived in writingconsistent with the processes and procedures outlined inthese Guidelines…. Potential conflicts of interest involve alaw firm’s representation of a client in a matter in whichthe other client’s interests may become adverse to those of[CLIENT].

• It is the Client’s policy that, notwithstanding ABA EthicsOpinion 95 390 (January 25, 1995), outside counsel'srepresentation of the Client includes each of itssubsidiaries and affiliates such that a conflict with anysubsidiary or affiliate is deemed a conflict with theparent, and vice versa.

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Examples -- Amenable?

• Office conferences among one or more attorneys or paralegals inyour firm to discuss [CLIENT] matters should be kept to aminimum.

• We will not pay for intra-firm meetings and consultationswithout our prior approval.

• [CLIENT] will also not pay for internal firm conferences or forassociates to attend meetings or hearings for the purpose of"associate development."

• [CLIENT] will scrutinize conference calls … and other similaractivities in which multiple timekeepers participate. If it isnecessary in the considered judgment of the billing partner tohave more than one attorney or paralegal participate in anactivity, outside counsel should bill for this with discretionand, where the necessity is not compelling or there is anyquestion of the appropriateness of involving multipletimekeepers, obtain the prior approval . . . .

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Examples -- Unreasonable?

For purposes of these Guidelines, “Conflict of Interest” or “conflict” means asituation in which outside counsel (as an individual or law firm):

1. Has a personal, business, or financial interest or other relationship thatwould cause a reasonable individual with knowledge of the relevant facts toquestion their integrity or impartiality;

2. Was or is counsel to a party adverse to Client in a business transaction,lawsuit, arbitration claim or other dispute;

3. Engages in an activity that would cause Client to question the judgment orimpartiality of a lawyer or law firm representing or advising Client; or

4. Is at risk of disclosing confidential Client information to a lawyerrepresenting a competitor of Client (even if inadvertently). Such a situation canarise, for example, when a lawyer or law firm represents both Client and a Clientcompetitor.

The foregoing description of “Conflict of Interest” may be broader than anyotherwise applicable definition under outside counsel’s bar rules or canons ofethics. The Client may regard as an actual or potential conflict of interest therepresentation of another party, which may have differing interests, whether suchinterests are conflicting, inconsistent, or otherwise discordant, with those of theClient. We ask that you let us know, to the extent ethics rules permit, if yourfirm does work for any of our significant competitors. If you can describe thenature and extent of such work, it would help us decide whether there is a conflictfrom our perspective.

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Examples -- Unworkable?

Month Day, Year 32

• Advance Conflict Waiver

• Ancillary Documents

• Budgets / Estimates

• Continuing Duty to Inform / Update

• Insurance

• Intra-Office Conferences

• Publicity

• Relationship: Agency, Independent Contractor

• Time Entry

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Client Guidelines: Acceptable, If Understandable





• Insurance


• Publicity


• Time Entry

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• Insurance


• Publicity


• Time Entry

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• Insurance


• Publicity


• Time Entry

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• Insurance


• Publicity


• Time Entry

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• Insurance


• Publicity


• Time Entry

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• Insurance


• Publicity


• Time Entry

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• Insurance


• Publicity


• Time Entry

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• Insurance


• Publicity


• Time Entry

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• Insurance


• Publicity


• Time Entry

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• Audits

• Client Identity

• Confidentiality

• Competitor Conflicts

• Dispute Resolution

• Forum Selection

• HIPPA Business Associate Agreement

• Ownership / Work Product

• Privacy and IT Security Requirements

• Rate Freezes

• Term

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Client Guidelines: Let's Be Sure to Discuss

• Audits

• Client Identity

• Confidentiality



• Forum Selection




• Rate Freezes

• Term

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• Audits

• Client Identity

• Confidentiality



• Forum Selection




• Rate Freezes

• Term

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• Audits

• Client Identity

• Confidentiality



• Forum Selection




• Rate Freezes

• Term

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• Audits

• Client Identity

• Confidentiality



• Forum Selection




• Rate Freezes

• Term

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• Audits

• Client Identity

• Confidentiality



• Forum Selection




• Rate Freezes

• Term

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• Audits

• Client Identity

• Confidentiality



• Forum Selection




• Rate Freezes

• Term

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• Audits

• Client Identity

• Confidentiality



• Forum Selection




• Rate Freezes

• Term

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• Audits

• Client Identity

• Confidentiality



• Forum Selection




• Rate Freezes

• Term

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• Audits

• Client Identity

• Confidentiality



• Forum Selection




• Rate Freezes

• Term

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• Audits

• Client Identity

• Confidentiality



• Forum Selection




• Rate Freezes

• Term

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• Audits

• Client Identity

• Confidentiality



• Forum Selection




• Rate Freezes

• Term

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• Assignment

• Business Interest Conflicts

• Conflicts: New Definition

• Indemnification

• Limitation of Liability

• Most-Favored Nations

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Client Guidelines: Generally Problematic

• Assignment



• Indemnification



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How can a lawyer agree to represent an unknown client?What about duties to former client?What about conflicts?

• Assignment



• Indemnification



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• Assignment



• Indemnification



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• Assignment



• Indemnification



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• Does it guaranty an outcome, as opposed to providing a remedy?• Is the standard broader than negligence?• Does it ensure client will not be harmed, regardless of conduct of law firm?• Does it change the lawyer's role?• Does it create a conflict?• Does it interfere with insurance coverage?

• Assignment



• Indemnification



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• Assignment



• Indemnification



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Towards a Middle Ground

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Ever fired a law firm for violating your guidelines?

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Ever sued a law firm for violating your guidelines?

• Advice to My Colleagues

• Continue the Negotiations

• Accept Both

• Dollar Thresholds

• Corporate Legal Operations Consortium

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• Accept Both



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• As the client relationship lawyer, know what your clientexpects. Staff and schedule accordingly.

• When start work on a new matter, ask the lead lawyer ifthere are guidelines, and get to know them.

• When the client send you guidelines, before agreeing,send them to the Office of General Counsel for review.

• Build a database.



• Accept Both



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• Accept Both



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• Accept Both



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• Accept Both



See: http://cloc.org/industry-cloc/

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Dialogue?

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Thank You!We are very interested in your feedback -please take a moment to leave a note about this class andpresenter(s) on the back side of your evaluation form.

John Koski

Partner and Global Chief Legal Officer

Dentons

T +1 312 876 3161 [email protected]

dentons.com