Reducing Risk Through Engagement Agreements

• Published date: 17 August 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Arbitration & Dispute Resolution, Trials & Appeals & Compensation
• Law Firm: Collins Einhorn Farrell
• Author: David C. Anderson and James J. Hunter

Attorneys can mitigate the risk of a malpractice claim from the moment a prospective client knocks on their door. A critical step to insulate an attorney from a potential claim'and even build in defenses to a future lawsuit'is through the thoughtful preparation of an engagement agreement.

Preparing an engagement agreement may seem routine, but its importance shouldn't be overlooked. And attorneys should pay close attention to changes in the law governing engagement agreements. For example, in the past two years there have been several important decisions regarding the enforceability of arbitration provisions in engagement agreements. See Delaney v Attorney, 242 A3d 257 (2020) (holding that for an arbitration provision in a retainer agreement to be enforceable, an attorney must explain to a client the pros and cons of arbitration); Imman v Attorney, 2021 Wy 55 (2021) (applying Utah law holding arbitration provision in retainer agreement not void on public policy grounds); Tinsley v Attorney, __ NW 2d __ (Mich Ct App 2020) (holding arbitration clause in engagement agreement enforceable when client consults with independent counsel).

There isn't a "one-size-fits-all" engagement agreement that works for every client and situation. So it's important to include key terms of the representation in a written agreement to ensure the attorney and client are on the same page. The basic requirements include: 1) identifying the client, 2) defining the scope of representation, and 3) delineating the fees and anticipated expenses. Failure to do so could negatively affect the representation and, unfortunately, may lead to a lawsuit.

Frequently, such disputes arise out of disagreements about the scope of representation. In the event a client sues, the client's new lawyer may weaponize any deficiencies in the engagement agreement to the attorney's disadvantage. On the flipside, properly defining the scope of representation can be the key to defending against the lawsuit. There's no way to ward off every potential lawsuit, but there are certain steps attorneys can take to limit their exposure with respect to defining the scope of representation.

Don't Just Fill in the Blanks

An attorney-client relationship is contractual in nature. ABA Model Rule 1.2(c) provides that "[a] lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent." Yet an engagement agreement that simply states: "Lawyer agrees to represent the client's interests with regard to _________________. . ." may not effectively define the scope of representation.

In a Michigan case illustrating this point, the plaintiff hired the defendant-attorney "to represent her in the sale of a restaurant and tavern business." Chapman v Attorney, 411 NW 2d 754 (1996). Plaintiff later alleged that the attorney was negligent because they didn't protect her security interest or draft a reassignment agreement. Arguing that the action was untimely, the defendant asserted that the plaintiff retained him only to assist with the sale and that the attorney-client...