Client Engagement Letters: The Basics
When you have a new client, or take on a new matter for an existing client, the terms of the engagement should always be in writing. This is not just a matter of adhering to Connecticut’s Rules of Professional Conduct, it also is a “best practice.”
Our state’s version of Rule 1.5(b), unlike its Model Rules counterpart, requires that the terms of the engagement be in writing. And as law firm risk managers and insurers increasingly are concluding, a tightly worded engagement letter is one of the best tools for minimizing the practitioner's exposure to a malpractice claim or a grievance complaint.
A well-written engagement letter can mean the difference between a dismissal of a grievance complaint your former client files against you and a finding of probable cause on the complaint, or the difference between getting summary judgment and the court finding a triable issue of fact in the malpractice action. It confirms the exact nature of the agreement the lawyer and client reached at the beginning of the relationship concerning the fees and the services to be provided. Thus, the virtue of a comprehensive written agreement is one lawyers routinely point out in advising clients to have written contracts: in the event of a subsequent dispute, you don’t have to rely on memory (always tricky) or resort to calling the now-former client a liar (unlikely to succeed).
A proper engagement letter does more than establish how the lawyer will be paid. In fact, Rule 1.5(b) provides that, at the beginning of the representation, you must memorialize in writing three essential items: (1) the scope of the representation; (2) the basis or rate of the fee; and (3) the expenses for which the client will be responsible. And while there is no such thing as a one-size-fits-all engagement agreement, there are a number of other items that you should consider including in your standard engagement letter.
Identifying What Tasks Are, and Are Not, Included in the Representation
From the risk management perspective, the most important provision of the engagement letter is the first requirement: defining the scope of the representation. You should use the engagement agreement to establish exactly what tasks your law firm will undertake for the client, and each engagement agreement should include a description specifically tailored for the new client matter. And when taking on a new matter for an existing client, you also should describe in some form of writing—an e-mail message will suffice—the scope of the new matter.
Equally important: identify those tasks that are not within the engagement. For example, if the client directs you not to do something, be sure the engagement letter reflects that request. (“Your accountant will provide tax advice about the transaction.”) Similarly, if you contemplate representation only through trial, the engagement letter should indicate that any post-trial representation will require a new retention agreement. And in any matter in which the representation is staged in that way, be sure to provide the client with a new engagement letter when the matter reaches a stage not within the scope of the original arrangement.
The description of the scope of your representation should never include anything that could be construed as a promise to obtain a particular result. As a general rule, you should also avoid superlatives such as “our firm will provide the highest quality representation” or “we will always be professionally responsive to your situation,” and promises that the matter will be staffed in a specific way. The risk of including such language in the engagement agreement is that it could be construed as an enforceable guarantee of success, promise of staffing, or the law firm’s assumption of a standard of professional care higher than “ordinary.” It also may unreasonably elevate the client’s expectation of success. You should even consider including a specific disclaimer such as this: “As you and I have discussed, the outcome of legal matters is inherently uncertain and I have not guaranteed, and cannot guarantee, a favorable result.”
Better to achieve the client’s trust and confidence through performance and personal interaction rather than through puffery or guarantees in the engagement agreement.
Identifying Who Is, and Who Isn’t, the Client
In identifying the scope of the representation, it also is important to be specific about who is the client and who is not the client. Lack of clarity about who, exactly, your firm represents can arise in many common situations: when the firm represents a company, but not its affiliates; when a firm represents a partnership, but not the individual partners (or vice versa); in family matters, when only some family members are represented; estate maters when the testator or executor is represented, but not the beneficiaries; and immigration matters when the attorney represents the employer or the immigrant employee, but not both. In such situations, it may be necessary to spell out the scope of the attorney client relationship. For example: “The firm represents the company in the matter. The company agrees that the representation does not create an attorney client relationship between the firm and the company’s affiliates.” Proper identification of the client can help defeat a motion for disqualification or a claim that a prohibited conflict of interest tainted the lawyer’s representation.
If the representation involves multiple clients, it is essential that the engagement letter address potential adversity between the jointly represented clients, and that the letter contain provisions for the clients’ consent to the joint representation, with the letter to be signed by each of the clients. With jointly represented clients, the engagement letter should explain that, unless otherwise agreed, confidential information will routinely be shared among the clients. It also should explain what will happen in the event of future adversity among the clients: the firm’s complete withdrawal from the matter or the continued representation of one or more, but not all, of the parties, depending on the nature of the future adversity.
Describing the Fee
Clarity in the fee provisions of an engagement agreement is essential because so many malpractice claims arise only when the firm seeks to collect an unpaid fee. Along with setting forth how the firm’s fee will be calculated, the engagement letter may include a provision for payment of a retainer deposit, staged payments, or payment of a so-called “evergreen” retainer, which serves as a kind of security deposit. If you elect not to require an advance deposit, you should at least reserve the right to condition future services on receipt of a deposit or advance payment.
Another important provision to include is a reminder that the firm cannot predict what the total fee will be. If you are asking for a retainer deposit from your client, the engagement agreement should include language reminding the client that the retainer payment is not an estimate of what the total fee will be and that he or she will be responsible for any amounts owed over the amount of the deposit. And remember: if you take a mortgage or other security interest to secure payment of the fee, you will trigger the disclosure and advice duties described in Rule 1.8(a) for business transactions with clients.
And pursuant to Rule 1.5(b), you must specifically identify each category of expenses for which the client will be expected to pay or reimburse you.
Termination of the Engagement
You may also want to consider adding to your engagement letter provisions for establishing when the representation will be deemed to have ended (“unless previously terminated, my firm’s representation will end when my firm sends you a final bill for services in this matter”), and setting forth your firm’s policies on record retention. Establishing an end point for the representation helps to establish two things: (1) the point at which the statute of limitations begins to run; and (2) the point at which the client becomes a former client for conflicts analysis purposes.
Courts and disciplinary authorities have blessed the use of provisions advising the client that any dispute concerning the firm’s fees will be resolved by binding arbitration in accordance with procedures such as those of the Fee Dispute Resolution Program of the Connecticut Bar Association. Similarly, a choice of venue provision will be deemed enforceable against a client.
The Client’s Signature
With the exception of contingent fee agreements or engagement letters that include consents to conflicts and/or potential conflicts, the Rules do not require the client’s countersignature on the engagement letter. But the best practice is to have the client sign. Indeed, a client’s reluctance to sign an engagement agreement may be an early indication of a difficult attorney-client relationship. If you do not require the client’s signature on the letter, at least send a copy by some time-stamped method such as e-mail or fax.
If you do ask for the client’s signature, and for all matters that require a consent to a conflict and/or potential conflicts, make sure you have procedures in place to: (1) remind the client to return the executed copy; and (2) monitor that any required consents have been obtained prior to the firm commencing work on the matter. If there is a subsequent dispute, the client’s failure to sign might excuse the client’s performance of engagement agreement obligations. And the lawyer who requests a written consent, but then fails to obtain it, will be severely hampered in defending against a subsequent disciplinary claim or breach of fiduciary duty claim based on the allegation that the lawyer had a conflict of interest.
The Non-Engagement Letter
When you decide not to represent someone, it is a good idea to write the prospective client confirming that you have declined the representation and that your firm will not perform any services in the matter. The “you-are-not-a-client” letter should also confirm that the firm received no confidences (or received only limited confidences) and has returned any documents the prospective client provided. While it is inadvisable to provide specific legal advice, you should, when appropriate, advise the rejected client that because of the possibility of a looming statute of limitations or other deadline applicable to the matter, he or she should promptly consult with other counsel.
Lawyers often resist detailed written client engagement agreements because of the fear that a potential client might be turned off by its length or by the self-protective (“CYA”) nature of the document. And it is true that a comprehensive engagement letter does not, and cannot, inoculate the lawyer against claims by a dissatisfied client. But the well-drafted engagement letter still is one of the best means available to minimize, or even avoid, the financial and reputational risks of disputes with clients.
Marcy Tench Stovall is an attorney in the Professional Liability Practice Group of Pullman & Comley LLC. Her practice concentrates on the representation of lawyers and law firms in defending legal malpractice and disciplinary (grievance) complaints. She is a member of the CBA Litigation Section, Labor and Employment Section, Standing Committee on Professional Ethics, and Unauthorized Practice of Law Committee. Reprinted with permission of the Connecticut Bar Association from Volume 24, Number 8. Copyright the Connecticut Lawyer.