Wisconsin Lawyer: Managing Risk Document Everything: It’s Vital to Managing Risk:

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    Managing Risk
    Document Everything: It’s Vital to Managing Risk

    Anything you don’t write down can be used against you. If an unhappy client decides to challenge the results of litigation, a transaction, or some other aspect of a representation, you don’t want to be caught with your head in the sand. 

    Thomas J. Watson

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    There’s an old saying, “If it’s not in writing, it didn’t happen.” Lawyers must continue to take this seriously. Some lawyers are better at documentation than others. Just ask Matt Beier, claims attorney at Wisconsin Lawyers Mutual Insurance Co. (WILMIC). “If something isn’t in writing, the door is wide open to complaints and misunderstandings. In some cases, the misunderstandings are that the case didn’t turn out as the client wanted: that is always a possibility, and it should be something discussed and documented beforehand.”

    Beier says in the context of a legal malpractice lawsuit, the client will likely claim that he or she was not properly advised. That’s when written documentation is essential. “In addition to formal documents and pleadings, if a lawyer sends follow-up letters, maintains contemporaneous notes, and has written documentation in the file, the client will be hard-pressed to take a position that isn’t credible.”

    What kind of difference can documentation make in a case? Several real-life scenarios illustrate how important it can be.

    Documentation in Practice

    Brian Anderson, senior claims attorney at WILMIC, describes a jury called on to decide a legal malpractice case based on a real estate transaction.

    Thomas J. Watsoncom Tom.Watson wilmic Thomas J. Watson, Marquette 2002, is senior vice president and director of communications at Wisconsin Lawyers Mutual Insurance Co., Madison.

    “The jurors heard testimony and evidence concerning a commercial real estate and investment transaction that, in the end, resulted in the client losing a lot of money when the project failed. This development project was a victim of the failing real estate market and stock market crash in 2008.

    “The lawyer testified that at all times he advised his client of the risks involved with the investment and that it was the client who decided to move forward with the deal. The lawyer further testified that it was the client that brought the real estate investment deal to him, it was the client that was familiar with the project, and the client understood the pros and cons of the investment and the risks involved. Ultimately, the client wanted to move forward with the purchase of and investment in the property. Long after the closing, when the real estate market investment failed, the client blamed the lawyer for failing to properly advise him with respect to the risks involved in the underlying investment that resulted in losses of several million dollars.

    “The jury, in its deliberations, focused on the fact that the lawyer did not have a written document supporting his testimony that the client was advised of the risks involved prior to making the investment. The insured firm was found negligent and responsible for failing to obtain consent or properly inform the client of the risks involved prior to entering into the transaction and was hit with a substantial damages award.”

    Anderson says one jury comment resonated with him more than any other. “The comment was: ‘Lawyers put everything in writing.’ The fact that this important cautionary advice was not contained in a written document and sent to the client was considered to be the most important factor in the jury reaching the adverse determination.”

    Anderson cites another trial in which the outcome was quite different.

    “That case involved ‘buyer’s remorse,’ after the client entered into a land contract with what turned out to be a fraudulent seller. The clients fell in love with a north woods vacation property. They found the perfect cabin and lot, at a price that could not be beat. Our insured lawyer was retained to draft the land contract and handle the closing.

    One jury comment resonated more than any other. The comment was: “Lawyers put everything in writing.”

    “He cautioned his buyer clients of the risks involved in moving forward with the purchase of this property without first obtaining title insurance. This advice was followed up with a letter to the clients. The clients did not want to lose a great deal and trusted the seller, so they instructed the lawyer to prepare the contract and set up a closing.

    “Unfortunately, after the land contract was signed and a substantial down payment was paid, the clients found out that the seller had numerous undisclosed liens against the property. The clients blamed the attorney for allowing them to enter into the transaction, without first obtaining title insurance. After hearing the evidence and testimony, the court concluded that the lawyer was not negligent in his handling of the underlying land contract, because he advised the clients in writing of the pros and cons of proceeding without title insurance, prior to the execution of the land contract.”

    In these two scenarios, similar complaints had different results. But as Anderson points out, “The key is putting your advice in writing in a way the client can understand it. The lawyer in the land contract claim explained the risks, in writing, with significant detail for the client to understand, and the clients failed to indicate that they were concerned or did not understand the advice being given. That is precisely why the court entered judgment in favor of the lawyer.”

    A lawyer is not a guarantor of the outcome and is not a mind reader. But it is the lawyer’s job to advise and then let the clients make the decision – informed consent. Having that advice in writing is not only helpful in sorting out a potential malpractice claim, it’s good client communication.

    Among professionals, lawyers as a group are likely to know the importance of documentation. But properly documenting a file can be more difficult than it appears at first glance, according to Beier.

    “In addition to engagement and disengagement letters, calendaring, and maintaining formal pleadings, attorneys should be documenting all issues discussed with clients, opposing counsel, and anyone else involved in a particular matter. Documentation doesn’t always have to be pretty. It can be in the form of handwritten notes taken contemporaneously with a telephone conversation, tickler systems, an internal or self-authenticating e-mail, confirming letters, or memoranda. If a legal malpractice claim is made or a lawsuit is filed, the first thing the lawyer reaches for, and we as claims attorneys ask for, is the file. It is, after all, the most complete reflection of the nature and extent of the work performed for the client.”

    Commencement of Representation

    The first important documentation any lawyer must undertake is the engagement letter at the beginning of a representation. An engagement letter or client contract should focus on the following:

    • Client identity;
    • Scope of the engagement;
    • Fee arrangements; and
    • Disclosure of and consent to potential conflicts.

    The issues addressed by engagement letters should be reevaluated as circumstances change. Too often, lawyers fail to understand that later events can change the scope of representation or any other terms included in the engagement letter.

    Documentation During Representation

    As Beier and Anderson note, advice given during representation should be documented. “Discussing and documenting the pros and cons, as well as strategy of a client’s case, can avoid claims that the lawyer failed to recommend a particular course of action,” says Anderson.

    As Anderson’s scenario about the client wanting to buy a vacation property illustrates, it is particularly important to document advice when it appears the client will not follow the advice. Without documentation, often what a client remembers is that you were his or her lawyer, and not that you advised against the action the client ultimately took.

    Beier illustrates from recent claims a good outcome and a bad one. First, the good. Beier says an insured lawyer contacted WILMIC voicing concern about a potential claim. He describes the sequence of events:

    • The clients asked the lawyer to draft an option to purchase real estate, which he did.

    • The lawyer called the clients and offered to have the parties come to his office to sign the option to purchase.

    • Fearing additional legal fees, the clients said, “No, we’ll take care of it.”

    • Anticipating pitfalls, the lawyer sent a follow-up email (document!) again asking the clients to come in, but requested that if they maintained their decision not to, they should provide him with signed copies of the option to purchase, once executed.

    • The option to purchase called for acceptance on or before Oct. 15; on Nov. 1, two weeks later, the clients signed the document and provided the lawyer with copies.

    • The lawyer called the clients to express his concern that the contract was void by its terms and offered his help to fix it.

    • Again, the clients said, “No, no. We’ll take care of it.”

    • Disappointed by the clients’ statement, the lawyer sent the clients an email reiterating his concerns discussed by phone (document!).

    • After no response from the clients for more than a week, the lawyer wrote a final letter (document!) to the clients advising this was a significant potential problem and the time to fix it was while everyone was still friendly.

    Beier says, “In this circumstance, everyone hopes the flawed execution of the document does not adversely impact the clients. Absent the lawyer’s documentation of the clients’ poor choices despite his advice, the lawyer would be in a difficult bind to defend a claim of malpractice. As it stands, though, if a claim is brought, the lawyer is in a very defensible position.”

    In stark contrast, Beier cites the following lack of documentation to illustrate bad habits (and bad practice), with significant effects on the lawyer:

    • The client retained the lawyer to investigate and commence a personal injury action, which the lawyer did after several months (the delay in filing and reasons for it are unknown and undocumented – strike 1).

    • The lawyer failed to calendar the matter, including any applicable statutes of limitation, and the case was dismissed when the lawyer missed a deadline (strike 2).

    • After the client sent several emails seeking an update, the lawyer, confident the case would be successfully appealed, replied to tell the client the case was progressing normally. While misleading the client, the lawyer filed appeals without the client’s authority to try and resurrect the action without success (strike 3).

    When the lawyer finally came clean and disclosed the dismissal of the case, the client stated she just wanted closure and would not sue the lawyer, but the client changed her mind and did sue the lawyer several months later. Not only is the lawyer’s position indefensible, it was made worse by the lawyer’s “self-help” efforts.

    Conclusion

    One of the most vital parts of client communication is the creation of proper documentation. Documentation by a lawyer provides a checklist of things that should be done and it also may help the lawyer recall details at a later date, especially if issues are in dispute.

    When a problem arises, documentation often allows a matter to be resolved more quickly. As Anderson reminds us, “The key is putting your advice in writing in a way the client can understand. And finally, if a mistake is made, let your malpractice insurance carrier know as soon as possible.”