The Lawyer's Office

This article will discuss the reasons engagement letters are utilized, the benefits they provide, and examples of the content of portions of engagements letters that are commonly in use. Why use engagement letters?

Many types of practice do not lend themselves to engagement letters. In personal injury practice, the contingent fee contract is an alternative that is required by statute. In domestic relations and criminal law practice, a legal employment agreement is often a substitute for an engagement letter.

Nonetheless, for most common engagements, the engagement letter serves the purpose of defining who the client is and the scope of the engagement, and also informs the client of many basic terms and conditions that will apply to the attorney-client relationship created when the engagement is accepted.

Many engagement letters begin by indicating that conflicts have been checked and that no conflict exists that would prohibit the engagement of the named client.

A specific naming of the client is important, and it is sometimes appropriate to indicate that the engagement does not include representation of other involved parties or the named client in any capacity but the capacity described.

Example: A long-term client developer appears in your office and requests that you create an entity to develop a multi-building condominium complex. He has his construction manager with him and you take the information and become the entity attorney.

The entity fails and you receive a letter from the construction manager's attorney, who accuses you of failing to create an employment contract providing a severance package for the construction manager.

The evidence you have to show that the construction manager had a clear understanding he was not your client is the engagement letter he received, stating the named client as the developer and entity.

This example also illustrates the importance of sending the engagement letter not only to the client represented, but also to parties not represented but having an interest in the engagement.

There are occasions where clients are represented in one capacity, but not in other capacities.

Example: Five securities brokers retain you to negotiate a new employment contract for them with their brokerage house employer. Each is also the owner of a five percent interest in the brokerage house.

In this instance, the engagement letter needs to define the engagement as the limited task of dealing with the employee relationship.

The engagement letter needs to detail that it does not include protection for the different considerations each broker has in obtaining an employment contract, and also to state that the engagement does not include representation of the combined group as owners of 25 percent of the employer.

This example illustrates the fine line some attorneys need to observe in defining complex engagements.

After naming the client and defining the engagement, the letter needs to set out how the lawyer is to charge for the engagement. It can state a flat fee charge, an hourly rate specifically stated, a contingent fee, or whatever the basis of the charge will be.

Example: My applicable rate is $175 per hour, and it is anticipated that I will do a majority of the work on this engagement. To the extent possible, I will utilize paralegals and lawyers with lower rates to perform such services as can be delegated in order to cause your bill to be lower than it would be if I performed the entirety of the work necessary to complete your engagement.

It is also important to detail the billing frequency and what will be included in the bill.

Example: You will receive an itemized statement on a monthly basis so you will be aware of the services being rendered on your behalf at all times. The disbursements you will be charged for include long-distance telephone calls, delivery charges, reproduction costs, fax charges, and similar expenses.

Many clients believe an attorney's file is their file, and that they have paid for it in the course of the representation. This is a belief that should be dispelled in the engagement letter.

The ISBA has specific opinions on this subject that detail how clients may receive copies from their files; however, that is a subject for another day. (See Illinois Ethics Opinions No. 94-13 and No. 95-2.)

Example: The files of this firm, including lawyer work product pertaining to the matter, will be retained by the firm. All such documents retained by the firm will be transferred to the person responsible for administering our records and retention program.

For various reasons, including minimization of unnecessary storage expenses, we reserve the right to destroy or otherwise dispose of any such documents or materials retained by us within a reasonable time after the termination of the engagement.

There is less than universal agreement among lawyers about whether disengagement discussions should be included in every engagement letter sent. Some feel it is too harsh a beginning to an engagement, while others believe it to be an indispensable part of every engagement letter.

The author believes this needs attention on a case-by-case basis with careful language being used in any event.

Example: This office reserves the right to discontinue representation in the event any statement for services rendered becomes delinquent more than 60 days.

Under no circumstances will the representation be discontinued without notice that the engagement has become one where services will be suspended, based on specific notification subsequent to any discussions relating to extended terms for the payment of any outstanding charges.

In addition to the foregoing engagement letter subjects, the subjects that are appropriate because of the nature of representation should be included in the engagement letter. It should be noted, however, that less rather than more should be the rule where prediction of results is concerned.

There are so many additional factors that arise in the course of representations, that the client should not feel after reading the engagement letter that he is assured of victory in all events.

Whether or not the engagement letter should request that the client sign the engagement letter, as acknowledgment of his understanding of the contents of the letter, depends on the relationship of the lawyer with the client and the type of engagement covered by the letter.

If the engagement will be extensive for a substantial amount of work, very often the signature and return of a copy of the engagement letter is important.

For clients who are receiving the letter as a reminder of the billing practices of the firm, and as the identification of the client and the specific subject matter of the engagement, it is unnecessary to request a signed copy of the engagement letter.

In that event, the letter should conclude with a simple positive statement that acknowledges the importance of the client and the existence of the engagement involved.

Example: I am pleased to have the opportunity to provide services on your behalf, and look forward to hearing from you at any stage of the process to accept your input and answer such questions as you believe are appropriate.

There is all too little guidance on the subject of engagement letters that is available for reference, and this article is inclusive of the thinking and opinions of the author.

Every practitioner should give careful thought to the benefits being sought and the contents of all portions of engagement letters used with clients as new work is undertaken.

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