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Client Engagement Agreements: Ethical Considerations for Counsel

Drafting and Leveraging the Agreement to Defend Against Disciplinary and Malpractice Actions Today’s faculty features:

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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

• A. Neil Hartzell

LeClairRyan One International Place Boston, MA 02110 neil.hartzell@leclairryan.com

5

Craig D. Singer

Williams & Connolly LLP 725 Twelfth Street, N.W. Washington, D.C. 20005 csinger@wc.com

William T. Burke

Williams & Connolly LLP 725 Twelfth Street, N.W. Washington, D.C. 20005 wburke@wc.com

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

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IMPORTANT PROVISIONS OF ENGAGEMENT LETTERS

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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

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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

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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

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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

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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

• r support or property settlement

 Representing a Defendant in a Criminal Case

 Division of Fees

• Disclosed in Writing
• Total Fee is Reasonable

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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

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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

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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 Rules

See ABA Model Rule 1.8(h)(1)

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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

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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

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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)

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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

• n 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.

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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.

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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

• ften 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).

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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.

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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.

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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
• f 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)

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DEFENDING MALPRACTICE CLAIMS –

IDENTITY OF CLIENT

 Other sources of claims by non-clients:  Representing the lead underwriter with respect to an

• ffering, 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.

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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.

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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.

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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.

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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.

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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.

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