Could there be a better time than spring to think about engagement letters?! The birds are singing, the flowers are out, the sun is shining, and it’s the perfect time to clean up those client files and make sure you’ve got all your ducks in a row. Engagement letters can be summarized in one simple sentence: You need a good one. In fact, you need one in every single file, for every single client, and for every single matter. No exceptions.
Of course, the virtue of a strong engagement letter is a tale that has been told many times over. An engagement letter puts both lawyer and client on the same page as far as what is expected from both and can foster a strong attorney-client relationship. From a malpractice claims perspective, however, engagement letters can serve as a vital risk avoidance mechanism. When a claim comes through the door, a claims attorney will review the allegations relative to the attorney’s legal work and why or how the claimant believes it was deficient. Sometimes when we call the attorney to discuss the case, the attorney tells us that it was specifically agreed that he or she would or would not be doing certain work for the client, or that so-and-so was not included as a client at all. For these reasons, when reviewing an attorney file, one of the first documents claims attorneys will look for is the engagement letter. It is surprising how often an attorney’s file has a bare bones agreement or no engagement letter at all. Sadly, an attorney faces an uphill battle with a client when the battle boils down to a believability contest about the scope of the representation.
For example, a recent claim involved a disagreement between a client and his attorney about the content of their initial client interview, which occurred several months before the statute of limitations was set to expire. The client believed his attorney would be filing a lawsuit on his behalf. The attorney recalled the client expressing an interest in his rights under the circumstances but also having a strong aversion to litigation. The attorney said she agreed only to review the evidence and assess the client’s likelihood of success and then later recalled telling the client that the odds were low and that she would not be filing a lawsuit. After the statute of limitations expired, the client sued the attorney and the matter was reported to ALPS. A review of the attorney file revealed that several emails were exchanged about the case review but no engagement letter was ever sent to the client and no record was kept of any of the specific attorney-client conversations. An engagement letter could have been strong evidence that the scope of work specifically excluded the filing of a lawsuit. Instead, the client and lawyer were left arguing about the scope.
We also find engagement letters to be critical in situations involving fee disputes. One of the most common issues in malpractice claims is an unreasonable fee claim. Legal professional liability policies do not typically provide coverage for fee disputes which makes it even more important for attorneys to have an engagement letter in every file outlining specific terms related to all foreseeable fees, charges, and rates that you and your client can expect to encounter during your representation. You should make clear whether your fees will be charged by the hour, by a flat rate, on a contingency, or some hybrid fee structure. Let your client know and memorialize your client’s agreement on who is responsible for expenses, when payments are due, where retainer money will be deposited and held, how retainer amounts are withdrawn, and under what circumstances will retainers need to be replenished. The more detail you can give your client with regard to your fees (and how/when to pay them) the better the odds that you will avoid disciplinary proceedings or civil suits related to your fees.
Of course, a poorly drafted engagement letter could actually increase potential liability in situations where an attorney used a cookie cutter agreement, did not understand the terms of the representation, or failed to perform the duties addressed therein. So be cautious and deliberate when drafting them and revisit them from time to time to ensure you are complying with the terms. Even strong engagement letters won’t avoid all entanglements with clients, but it’s a good place to start. ALPS provides Sample Engagement Letters to get you started.