THE NEWSLETTER FOR LEGAL OFFICE MANAGERS
Volume XVI / Number 6 JUNE 2007
(Reprinted with permission of Ardmore Publishing Company)
The ins, outs, and terms of the engagement letter
WHO, WHAT, AND HOW MUCH
It tells who’s representing whom for what and for how much.
Its purpose is to see that the firm gets paid and stays out of arguments, whether about the representation or the fee.
It’s the engagement letter, and while it may not be a necessity for corporate clients with whom the firm has a sophisticated relationship, for individual representations, particularly one-time matters such as bankruptcy, domestic relations, and personal injury, it’s essential, says attorney and practice management consultant ROBERT HENDERSON of RJH Consulting in Jackson Hole, WY.
A client with a single legal issue often doesn’t understand what is and isn’t involved in legal representation. The engagement letter serves both, as education and surety against any claim that the firm misled the client.
So much so the latter that many malpractice carriers now require it, “because today, lawyers are subject to litigation just like everybody else.”
Here’s what that letter needs to cover and why.
FIRST, WHO’S PAYING THE BILL?
Start off with the obvious. Spell out “exactly who is retaining the firm,” Henderson says. That’s the person to whom the firm is responsible and also the one responsible for the bill.
NEXT, THE PLAYERS
Name the billing professionals who will work on the matter. But put in a provision that people other than the attorney who has been retained might work on the matter. “People typically retain attorneys, not law firms,” he says. “If someone retains a specific attorney and all of a sudden the sees that somebody else is working on the case, there could be an objection, and that can create problems.”
WHO’S GOING TO DO WHAT?
Explain what the attorney is being retained for and what the firm is and isn’t undertaking so the client doesn’t expect more services than the attorney plans to provide.
That provision can be quite specific. Henderson cites one client firm that does immigration law and has a different agreement for each type of immigration matter it handles.
Along with the firm’s work, explain the client’s responsibilities. The main provision there, he says, is that the client ‘will cooperate with the attorney and will keep appointments, give depositions, and produce documents.” Say too that the client will keep the attorney informed of updates, such as medical visits in a plaintiff’s matter.
A NO-GUARANTEE CLAUSE
There needs to be a provision on the outcome the client can expect. State simply that there is no guarantee of success in the representation.
PLUS A MATTER OF WHO’S IN CHARGE
Henderson also recommends adding a case control provision. That’s a statement that the attorney has the right to take whatever steps are necessary to achieve the desired result.
Say too that the attorney has the authority to employ investigators and other people necessary to prepare the case. If the client has to approve bringing in other people, it’s going to be difficult to manage the case properly.
AND NOW FOR THE MONEY
Give the flat fee amount or the hourly rates or the percentage of the settlement the attorney will receive.
Also give the retainer amount. There’s no rule of thumb for how much that should be, Henderson says. That depends on the matter and the attorney’s preference. Many criminal attorneys, for example, estimate the total fee and get it up front “because if the client goes to jail, chances are the attorney won’t get paid.”
Outline the billing process, or when the bills will be sent and when the client will pay, perhaps within 30 days.
Cover the costs. Say that the client will pay any costs incurred in preparing the cases such as filing fees and deposition costs.
With flat-fee agreements, add a provision that the client pays for work that becomes necessary but is not specifically covered in the agreement. That way, if the job gets more involved than originally expected, the firm gets paid.
With contingency matters, say that the attorney has the discretion to advance whatever costs are necessary and that the money will be subtracted from the settlement and the fee calculated on the net recovery. That’s necessary in most plaintiff matters, he says, because it can he difficult for the client to come up with the money to advance the costs.
In matters in which the client is to reimburse costs, also need a provision that the client will deposit $X in a trust account to cover costs, because if the result is not satisfactory, “it’s going to be difficult to collect the costs later.”
“It’s always been a problem for lawyers to talk money with their clients,” Henderson says. “And a lot of them have difficulty getting tough with clients who don’t pay.”
Let the engagement letter take the heat. If it spells out all the payment provisions, “there’s no question what the client agreed to do.”
He adds that getting paid at all is much a matter of getting paid as soon as possible. “The day a case is concluded, the client thinks the attorney is a hero. But 10 days later, that client isn’t so sure. And 30 days later, the attorney is a bum.” Get the money at the hero point.
FIGHT CONTROL TOO
Along with the fee provisions, there needs to be a statement that fee disputes will be settled by an arbitrator. “That avoids getting into litigation with a dissatisfied client,” a good move “because it’s tough to win.” Litigation is also a dangerous route to take, because the client is apt to respond with a malpractice suit.
OPEN THE BACK DOOR
Then include enforcement for the firm. Say that if the client fails to cooperate, the attorney can refuse to perform further legal services and can withdraw from the matter.
The reasons could be many. The client may want the attorney to do something unethical or even criminal. Or the client may have withheld information “or actually lied” and the relationship has deteriorated.
Cover payment there as well. Say that if the client doesn’t pay as agreed, the attorney can stop work or even withdraw from the matter. If the case is already in court, the court will have to decide whether the attorney can withdraw. But having that provision “gives the attorney the right to seek the withdrawal.”
What if the attorney withdraws and the client requests the file? The client is entitled to it, but only to the portions that don’t represent the work product.
MAYBE A PERCURSOR LETTER TOO
The engagement letter isn’t always the first to go out, however, Henderson adds. “When the attorney isn’t sure there’s a case” and also with contingency-fee matters, there needs to be a preliminary written agreement giving the attorney the right to investigate the matter and determine whether it has merit.
That letter eliminates any misunderstanding on whether there is or isn’t representation.
If the firm does reject the matter, it needs to send a letter of declination saying in no uncertain terms that it will not represent the individual in the matter and that there is no attorney client relationship.
The letter should also say the client is free to get a second opinion and that if that’s the choice, to do so immediately as there may be time limits on bringing au action.
The main concern is the timing. If the clock is ticking on filing deadlines, the firm has to make a decision quickly enough so as not to preclude the prospect’s taking the matter elsewhere.
EASY TO READ, EASY TO UNDERSTAND
A final note is to take the fear out of the letter so it gets read and understood. Explain to the prospect that it’s a routine document and that every client is required to sign it. Otherwise, the individual could later claim the firm expected problems with the matter from the start.
And to prevent any assertion that the client didn’t understand the provisions, take out the legal language so it doesn’t read “like a credit card disclosure.”
Go further. If English is not the client’s first language, have an interpreter explain it, perhaps a family member. “The only reason to have the agreement is to avoid problems,” Henderson says. The clearer it is, the fewer the problems with representation, payment and malpractice claims.