By Mitchell L. Lathrop
Professional ethics require that at the outset of the attorney-client relationship, the client is made aware of the nature and scope of the attorney’s responsibilities, usually through an engagement letter. Few things are as important in today’s law practice as engagement letters. Inadequate or poorly drafted engagement letters can spell real problems for the lawyer. Boilerplate terms can also be a source of trouble for the lawyer or firm utilizing them. Limited engagement letters are problematic when the limited scope is not followed. When the lawyer exceeds the scope of a limited engagement, the limited engagement letter will not protect the lawyer in subsequent legal malpractice proceedings. (Astral Brands v. Boyd, 2021 U.S. Dist. LEXIS 114224, 2021 WL 2448358 (N.D. Ga. Apr. 28, 2021). As the court pointed out in Piscitelli v. Friedenberg (2001) 87 Cal.App.4th 953, 983, “An attorney’s duty to his or her client depends on not only the existence of an attorney-client relationship, but also the scope of the duties assumed by the lawyer.” Where an agreement for legal services violates the Rules of Professional Conduct, it may be declared unenforceable. (Chambers v. Kay (2002) 29 Cal.4th 142 (enforcement of a fee division agreement undertaken without written client consent held unenforceable on the ground that the arrangement violated the Rules of Professional Conduct).)
An engagement letter must also identify the client or clients properly. For example, a husband and wife consulted a law firm in connection with a business transaction. The engagement letter was sent only to the husband and contained an arbitration provision which the wife never saw or agreed to. When a dispute arose between the firm and the clients, the wife successfully avoided arbitration (Clarey v. Superior Court, 2003 Cal. App. Unpub. LEXIS 552, 2003 WL 141629 (Cal. App. Jan. 21, 2003). However, where the terms of the engagement letter are clear, they will be upheld. (East Coast Foods, Inc. v. Kelly, Lowry & Kelley, LLP, 2016 Cal. App. Unpub. LEXIS 3095, 2016 WL 1755812 (Cal. App. Apr. 29, 2016).) Even non-signatories may be compelled to arbitrate under some circumstances. (Crowley Maritime Corp. v. Boston Old Colony Ins. Co. (2008) 158 Cal.App.4th 1061, 1070 (preexisting relationship “gives the party to the agreement authority to bind the nonsignatory”); Matthau v. Superior Court (2007) 151 Cal.App.4th 593, 600 (preexisting relationship “supports the implied authority of the party to bind the nonsignatory”); (NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 81-84 (nonsignatory received the benefit of the contract containing the arbitration agreement); Harris v. Superior Court (1986) 188 Cal.App.3d 475, 478-479 (doctor bound by an arbitration agreement as a third party beneficiary of the arbitration agreement).)
Advance conflict waivers in engagement letters are permitted under California law provided the lawyer makes full disclosure of the potential for a future conflict of interest and the client gives informed written consent to the subsequent representation. (Montgomery v. Superior Court (2010) 186 Cal. App. 4th 1051; but see Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc. (2018) 6 Cal. 5th 59). Overreaching by counsel in an engagement letter and subsequent conduct can result not only in the loss of any fee but the possibility of discipline as well (Amjadi v. Brown (2021) 68 Cal. App. 5th 383). The bottom line is clear: engagement letters should be in writing, clearly identify the scope and terms of the engagement, and be fully understood and accepted by the client.