ETHICAL ISSUES IN SETTING ENGAGEMENT TERMS Professor Linda Galler, Hofstra University School of Law Fred Murray, Grant Thornton Chris Rizek, Caplin & Drysdale Chad D. Nardiello, Nardiello Law Firm, PLC ABA TAXATION SECTION WEBINAR APRIL 27, 2016 1
Program Overview Engagement Letter Fundamentals Duties & Termination of Engagement Waivers of Conflicts of Interest Arbitration of Malpractice Provisions Prospective Liability Limitation 2
Why Have An Engagement Letter? Memorialization of the Parties Understanding Loss Prevention Legal and Ethical Requirements 3
Engagement Letter Fundamentals Who? - identify the client(s) and non-client(s) - resolve conflict issues What? - scope of the engagement When? - effect of the start date of the engagement 4
Engagement Letter Fundamentals Fee Arrangements - a writing and the risks of not having one - unreasonable/unconscionable fees - describing contingent fees and expenses - deposits/retainers and entitlement to interest - billing practices and collection - fee adjustments up or down Dispute Resolution - choice of law - arbitration/mediation - limitations on liability 5
Duties of Engagement & Termination Attorney Responsibilities - confidences, competence, communication, and completion Client Responsibilities - candor, cooperation, communication, and consideration Discharge & Withdrawal - discharge by the client - permissive withdrawal by the attorney see client responsibilities 6
Waivers of Conflicts of Interest Engagements with Existing Client Conflicts Dual representation in the same matter - ABA Model Rules - California - rule discussion references practical limitations Dual representation in unrelated matters - Informed consent (what about confidentiality?) - writing and retention requirements 7
Waivers of Conflicts of Interest Engagements with Potential Client Conflicts Rules regarding conflicts may permit representation (waiver required) Engagement letter-related considerations - Notification to client(s) - Sharing confidential communications - Independent counsel acknowledgement - Informed waiver - Requirements if conflict materializes 8
Hypothetical 1 - Conflicts Suppose A and B, the shareholders of XYZ Corp., contact Attorney to represent each of them individually in an examination by the IRS regarding potential IRC section 6672 liabilities ( trust-fund penalties ). Assuming the shareholders are aware of their potential for joint and several liability, as well as their respective rights of contribution from one another if liable, can Attorney represent both of them? - Is there an existing or potential conflict? - ABA Model Rules, DC, & NY? - California? Contents of a writing with respect to the engagement? 9
Arbitration of Malpractice Claims Public Policy Regarding Arbitration Legal Permissibility of Including an Arbitration Provision Ethical Permissibility of Including an Arbitration Provision - California s new vs. existing client distinction - DC s written advice requirement for independent counsel 10
Arbitration of Malpractice Claims Arbitration Provision Considerations - Privacy - Cost - Quickness - Legal Fees - Trial Waiver - Appeal Waiver (unless reviewable) - Independent Counsel Review 11
Hypothetical 2 Arbitration Suppose Client and Attorney enter into and sign a written engagement agreement that includes a binding arbitration provision with respect to malpractice claims. After a malpractice claim arises, Attorney attempts to force arbitration but Client refuses on the basis that Client was unaware of the arbitration provision and would not have consented if made aware. Will Client be able to avoid arbitration and proceed to court litigation against Attorney? What can Attorney do to ensure the enforceability of the arbitration provision? 12
Limiting Liability Permissibility of Provision with respect to Prospective Limitation - Historical Rule NY, DC, CA - Modern Rule ABA - independent counsel Limited Liability Entities (LLP, professional corp., etc.) 13
Kovel Agreements Assistance to the Attorney [I]f the lawyer has directed the client to tell his story to an [individual] engaged by the lawyer, who is then to interpret it so that the lawyer may better give legal advice, communications by the client reasonably related to that purpose ought fall within the privilege. United States v. Kovel, 296 F.2d 918, 922 (2d Cir. 1961). Effect of a Kovel on the Attorney-Client Relationship 14
Kovel Agreements Components Maintaining the Status Quo - Engagement - Coordination - Privileges - File Maintenance - File Ownership - Third-Party Requests - Notification - Liability 15
Kovel Agreements Generally no desire by Kovel agent to limit prospective liability Kovel-CPAs may have a different perspective - Services tend to be substantial - No ethical limitation similar to attorneys - Attorney exposure 16
Questions? 17