What’s a Relationship without a Formal Engagement? Trouble!

Best Practices for Engagement Letters

By Scott R. Schaffer and Michelle Park, Wilson Elser LLP

This article provides recommendations for best practices when preparing an engagement letter for a new or existing attorney-client relationship. The engagement letter establishes the foundation for the relationship by defining the identity of the attorney’s client, the services that will be provided by the attorney, the respective duties of the attorney and the client, the attorney’s billing and fee structure, and the manner in which the representation will be handled. A well-drafted engagement letter can reduce the probability and severity of an ensuing legal malpractice claim, and help manage client expectations and define the parameters and goals of the representation. 

Engagement Letters
The American Bar Association Model Rules of Professional Conduct “prefer” written engagement letters and require written agreements only where a contingency fee is permitted (Rule 1.5(c)) or where the fee charged may be considered entering into a business transaction with a client (Rule 1.8(a)). The Comments accompanying Rule 1.5 state that in order to avoid possible misunderstandings, it is “desirable” for an attorney to provide the client with a memorandum or statement containing “the general nature of the legal services to be provided; the basis, rate or total amount of the fee; and whether and to what extent the client will be responsible for any costs, expenses or disbursements in the course of the representation.” 

Additionally, many states require written engagement letters, including California, Washington and New York; indeed, the general “Standard of Care” is to have an engagement letter. Attorneys should consult the rules of professional conduct for the states in which they are admitted to practice before settling on the form of engagement letter to use as a guide.

As a basic outline, an engagement letter should include the following sections:

• Identity of the Client
• Scope and Duration of Representation
• Fees, Expenses and Billing Practices
• Staffing the Representation
• Client Communications
• Conflicts
• Document and File Retention
• Signature of Counsel and Client.

Identity of the Client. Attorneys owe duties to their clients with whom they are in an attorney-client relationship, and generally do not owe special duties to parties that are outside of this relationship. Accordingly, the first step in drafting a strong engagement letter should be to identify the client(s), so as to limit the class of persons to whom the attorney owes duties, and thereby curb the potential claimants who could later assert a legal malpractice claim. If the client is an organization, the letter should specify whether or not the organization’s owners, principals, directors, officers and/or managers are all considered clients for the purposes of the representation. The addition of exclusionary language, such as “no duties have been undertaken or assumed for any person or entity that has not been specifically identified as a client,” may be prudent to preclude non-clients from asserting an attorney-client relationship.

Scope and Duration of Representation. The scope and duration of the representation should be clearly articulated, whether it is for a consultation, document preparation, transactional services or litigation. In the event the representation will include civil or criminal litigation, the engagement letter should state whether the representation extends to arraignment, pre-bail hearings, pre-trial conferences, discovery, arbitration, mediation, trial or a potential appeal. By clearly defining the services the attorney has been retained to provide, the attorney can rely on the engagement letter to defend against potential legal malpractice claims in which the claimant asserts that the attorney “should have done more” than what was listed in the engagement letter. In the event there is no limiting language in an engagement letter, a court could infer that the representation is general, which could be dangerous in both a liability and statute of limitations analysis. An ongoing, general representation could toll the statute of limitations for an alleged wrongful act conducted by the attorney, and could be viewed as including the provision of services that were not explicitly confirmed by the attorney, but assumed by the client. 

Fees, Expenses and Billing Practices. The engagement letter should set forth the billing structure and terms of payment, including the possible provision of a retainer; the frequency of payment and billing; whether services will be billed at a flat rate, a contingency fee or an hourly rate; the rates for different types of attorneys (associates, senior associates, partners, senior partners); the rates for non-attorney staff (paralegals, medical paralegals, etc.); the definition of expenses for which the client would be responsible; and any consequences in the event payment is not made in a timely manner. The attorney’s right to recover fees and costs in the event of a severing of the attorney-client relationship, including the ability to recovery quantum meruit fees, should be included in the engagement letter. Providing an estimated budget of the cost of the representation also could be helpful in avoiding any misunderstandings about whether the client will be able to afford the legal services being provided. While the estimate will likely be just that, an estimate, and may change depending on the course of the representation, the client will have a preliminary sense of what to expect in terms of legal fees. 

The Model Rules of Professional Conduct Rule 1.5 states that “any changes in the basis or rate of the fee or expenses shall also be communicated to the client.” In other words, long-term clients or clients in extended cases must be informed of rate increases. Rule 1.5(a) also provides that an attorney may not charge “unreasonable” fees or expenses. The factors considered when determining reasonableness include:

• The time and labor required
• Any novelty in the legal issue presented and the skill required to perform the requested tasks
• The extent to which the engagement would preclude the attorney’s ability to service other clients
• The usual and customary fee for similar services
• The amount involved and the results obtained
• The time limitations imposed by the client or the circumstances
• The nature and length of the attorney-client relationship
• The experience and reputation of the attorney
• Whether the fee is fixed, contingent or hourly.

Staffing the Representation. Although not mandatory, it is helpful for the client to know the name(s) of the attorney(s) representing him or her. Clients must be informed of the use (or possible use) of paralegals and other support staff.

Client Communications. The Model Rules of Professional Conduct Rule 1.5 requires that the client be kept reasonably informed of the status of the matter. In this regard, the engagement letter should delineate the frequency and means by which the attorney will communicate with the client. Prior to the circulation of the engagement letter, the attorney should discuss the client’s preferred means of communication, including the possible use of electronic mail and texts. The attorney should determine whether the client desires special security measures, such as encryption. The client should be advised of the need to maintain the confidentiality of communications by avoiding unnecessary sharing of attorney-client privileged messages, including the use of secure email addresses that are not shared with others or accessible by employers, family or non-represented parties. 
Conflicts. The engagement letter also should set forth the manner by which an actual or potential conflict of interest will be handled. 

Document and File Retention. The engagement letter should outline how the client’s file will be maintained during the course of the representation and after the conclusion of the representation. This section should disclose how long the file materials will be held in accordance with the rules in the attorney’s jurisdiction. The engagement letter also should make reference to the client’s duties to preserve documents and information in the event a dispute arises.

Signature of Counsel and Client. The engagement letter should be signed by a representative of the law practice involved and the client (or designated representative of the client). A representation agreement without the client’s signature is less enforceable and may give rise to disputes about the client’s receipt or acceptance of the agreement.

Letter of Non-Engagement
In the event the attorney has an initial consultation with potential clients but the attorney is not retained, the preparation of a formal letter of non-engagement may be the best practice. Letters of non-engagement send a clear signal to the prospective client that the attorney is not representing him or her. These letters may be sent when (1) the attorney feels as if he or she does not have the resources and/or expertise to handle the case, (2) the attorney believes the client’s position lacks merit, (3) there is a conflict of interest, (4) the attorney has not heard from the prospective client since the initial consultation or (5) there is any other reason that the attorney decides the case is not a good fit for their business. Regardless of the reason for declining a representation, the best practice is always to send a non-engagement letter.

In the event allegations are made that the attorney did not do something or did not provide the services he or she was retained to provide, a non-engagement letter can be helpful from a risk management perspective as it could indicate that no attorney-client relationship existed. 

Disengagement Letters
Additionally, there may be certain circumstances where an attorney will seek to terminate an attorney-client relationship for reasons such as a difference in opinion as to strategy, nonpayment of the attorney’s fees or an irreparable breakdown in the attorney-client relationship. In these circumstances, an attorney should properly withdraw from representation by obtaining the client’s consent to the withdrawal, and if necessary, by seeking the court’s approval. A properly drafted disengagement letter should outline the basis of the attorney’s disengagement, warn the client of upcoming deadlines if any exist, and advise the client as to how his or her file(s) will be stored. 

A disengagement letter also is an effective risk prevention measure, as it establishes the date that the representation was terminated for purposes of setting forth a statute of limitations defense in any subsequent legal malpractice action. Further, the disengagement letter may limit arguments asserting that the statute of limitations was tolled based on continuous representation. 

Summary
Although the preparation of engagement letters may appear to be a routine practice, a well-drafted, unambiguous engagement letter can be used to establish a clear and transparent relationship with the client, increase the likelihood that the attorney will be paid promptly and regularly, and serve as a strong risk management tool for reducing the possibility of a subsequent legal malpractice claim. 

Sample Engagement Letters
Engagement Letter form
Joint Representation Engagement Letter form
Non-Engagement Letter form