I recently presented a CLE program to a local bar association, and we got into a discussion about fee agreements, letters to clients, and the overall benefits of documentation. Of course, these are all effective tools to reduce the risk of malpractice claims.
But the audience at the program also agreed that these tools all fall under the general category of good client communication. And part of good client communication is an effective and comprehensive engagement letter or fee agreement.
The letter must be understandable, says Milwaukee lawyer Carlton Stansbury. “I rely on the ‘KISS’ method – Keep It Simple Silly. The letter is a contract, but rarely is the client a lawyer. The letter needs to be clear, concise, and free of legal language. It is the basics of the representation and cannot possibly anticipate all issues. And, an issue with one client does not mean that it will be an issue with all future clients. Issues that arise with a client after the engagement letter can be dealt with in follow-up letters, even with the client signing the subsequent letter. We keep our fee agreement to two pages with headings to help with clarity.”
Without engagement letters, or fee agreements, the risk of misunderstandings by the client rises significantly. Most clients will not recall everything you told them, or they will remember only what supports their desired resolution of a matter. When the actual resolution is different, the results might also include dissatisfied clients, collection problems, and possibly other complaints or grievances.
An engagement letter, a fee agreement, or another written communication is no guarantee that your client will not be unhappy with a failed result or less attention than he or she believes to have deserved from you, but having such a communication in place can help a lot. The use of letters to define your role with each client and potential client is highly encouraged. Here are some items to consider when writing certain letters.
Fee agreements are not only important but also sometimes required; the Supreme Court rules mandate use of a fee agreement in every matter in which the fees are expected to exceed $1,000.
Gregg Herman, who practices family law in Milwaukee, says, “On rare occasions, I may have to ask the court for a judgment against my own client, which would require a written agreement. Finally, many times a fee dispute will end up before an arbitration panel which, like a court, will want to see a written agreement.”
Contents of Engagement Letters
There are several elements that you should consider including in an engagement letter.
1) Clearly identify who the client is. Is it the shareholder of a corporation? A partner of a partnership? Mom or Dad? Children or parents? An estate, the personal representative, or the beneficiaries? It is amazing how often a lawyer in a malpractice case cannot clearly identify who or what entity he or she was representing. If the person or party you represent changes during the course of your representation, document that change. You and the client must always clearly understand and agree who the client is. Do not take this for granted.
2) Document the goals you and the client expect to accomplish. These may need to be updated from time to time as things progress. Stansbury says, “I like to provide clearly that we have made no guarantees to a result and that any settlement decision and the decision to proceed with litigation is entirely their decision. These terms help bring home the point that the lawyers are advocates and counselors, but do not step in the shoes of a client or act as a ‘guardian.’ Finally, we have a sentence that affirms that the total cost of representation cannot be determined at the time the letter is signed.”
By establishing objectives in the case, you help set client expectations. Wisconsin Lawyers Mutual Insurance Co. senior claims attorney Brian Anderson says unrealistic client expectations often lead to malpractice claims. “They sometimes set the tone for the relationship going forward. Overpromising at the beginning, for example, can lead to problems. A good engagement letter, setting out realistic goals and objectives, can prevent those problems that might otherwise occur.”
Anderson adds that lawyers should be extremely cautious about estimating the chances of success of a client’s case. An 80 percent chance of success means that even if everything is done right, the case has a two-in-ten chance of failure. A lawyer cannot guarantee success, and you should not say anything to clients that suggests you can do so.
Bob Gagan, a lawyer in Green Bay and past State Bar president, says, “Engagement letters are an easy way to set client expectations. Clients are prepared for different scenarios and circumstances that may arise during the case. I like to set expectations with clients early on in the representation and the engagement letter is one place to do that.”
3) It is important to explain in writing how and when you will communicate with the client, and how and when you will respond to faxes, email, and other “new” and old ways of communicating. If you want to transmit or receive important information by telephone call, not by fax, email, or voicemail, put that in the engagement letter.
An engagement letter, a
fee agreement, or another
is no guarantee that
your client will not be
unhappy with a failed
result or less attention
than he or she believes
to have deserved from
you, but having such a
communication in place
can help a lot.
4) The engagement letter, rather than a fee agreement, also signifies an opportunity to reach an understanding about your fees. Fee disputes are often sources of malpractice claims, so any chance to help your client understand the fees you are charging, and why, is a good step toward reducing the risk of a malpractice claim, or at the very least, a dispute over fees.
The engagement letter or fee agreement should be a confirmation of the fee that was negotiated or agreed to, and just as important, how the client will be billed. Discussions of fees and bills are opportunities to communicate with the client. At the initial meeting, assess the cost of representation with the client, together with the client’s ability and willingness to pay.
Anderson says, “This is the time to get an advance fee to be kept in trust until earned, as agreed in writing by you and the client. An advance fee gauges the client’s willingness to pay and the seriousness with which the client takes the matter. This is an important part of ‘vetting’ the client to determine whether you should accept the representation in the first instance.”
Explain the fee arrangement, including a specific statement of the expenses for which the client will be responsible, and when the client will be expected to pay. This would be a good place to include a description of any referral fee or fee-splitting arrangement.
Stansbury says it is crucial to define the financial terms for a client. “Hourly rates, other expenses, expert fees, use of a trust account, deadlines for payments, and charging of interest are all things my clients should understand at the outset of the representation.”
5) Engagement letters are also useful to define the scope of your representation, something else that can easily be misunderstood. Stansbury says, “The scope of the engagement is necessary so that the client doesn’t expect the lawyer to do something for which the lawyer was not engaged. Even within a typical representation, we may define the scope of engagement. For example, our firm does not represent a client in more than two hours of work regarding the valuation or distribution of household items. If the work goes past two hours, then the client acts on their own behalf or agrees to mediate or arbitrate personal property issues without our representation.
“Our engagement letter also gives guidance when either a client or the lawyer can terminate the engagement. This gives each a step-by-step process to alleviate confusion and inconsistent messages at a time that typically has high emotion and stress. We also ask the client to agree to deposit settlement proceeds in the client trust account. We do this to make sure that the client’s financial obligations are satisfied, as well as the payment of any expert fees and our fees. We also set a date by which the file will be destroyed so that we do not have to search for the client and get permission seven, 10, or more years after our representation has concluded.”
6) Finally, don’t forget to include the client’s duties during the representation. Among the client’s duties are keeping you informed of any changes in contact information and responding promptly when you need a decision from the client about how to proceed in the client’s matter.
Gagan says this is all part of good client communication. “There has to be a level of trust between me and my clients, as well as an understanding of what I need to know. Communication goes both ways. Not only do I need to keep them informed, but they need to do the same for me, and I make sure they understand that.”
Anderson adds, “Prompt payment of invoices from you or an agreement to contact you promptly if there are questions about what you are doing or charging can be included as well.”
Communication Is the Key
A good engagement letter is part of filling the communication gap between clients and lawyers. Clients and lawyers sometimes value different aspects of the lawyer-client relationship. This includes how the facts of the case are interpreted, the client’s goals and expectations, the lawyer’s goals and expectations, fees, the timetable for the case, and scope of representation. Anderson points out that there is a lot of information for the client to absorb, increasing the chances for misunderstandings.
In addition to drafting an engagement letter in the first place, it is important to go through the document carefully with the client. Make sure the client understands the letter and then signs it. It is all part of good communication with clients, which may be the most important risk-management safeguard.
Gagan says a good engagement letter is simply excellent service to your clients and good communication skills. “These are both part of a successful attorney-client relationship. An engagement letter is a perfect opportunity to set the tone for the representation going forward.”