Category Archives: Engagement Letters

Duties to Non-Clients: The Exception, Not the Rule

The standard malpractice claim pits former client against professional. In most scenarios, the client alleges that the professional’s conduct fell below the acceptable standard and/or below the expectations set forth in the engagement contract. On occasion, non-clients test the waters and sue professionals under various theories. However, the knee-jerk defense to claims from non-clients is usually lack of privity. Lack of privity is often a successful defense but there are exceptions to the general rule. Professionals must be aware of these exceptions and take into account non-clients who may have standing to assert a malpractice claim.

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Faulty Engagement Letters Is #1 Cause of Claims

Seriously; you still don’t require that your clients execute an engagement letter? Apparently not. Professional Liability Matters routinely warns of the risks of representing a client without a clear engagement letter. In addition to laying out the objectives of the representation, well-crafted engagement letters help to reduce the likelihood of claims from dissatisfied clients. It would seem obvious, then, that attorneys would require clients to sign an engagement letter as a prerequisite to any attorney-client relationship. However, in a recent national legal malpractice conference held by the ABA, industry experts cite faulty or missing engagement letters as the most prolific cause of legal malpractice claims.

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Out of State Advice Leads to Out of State Liability

Professionals may be exposed to liability outside of their “home” state. For those professionals that provide interstate advice, they may be subject to the jurisdiction and laws of any state in which they practice. Take for example the recent legal malpractice case in which a Connecticut law firm was dragged into a lawsuit in Arizona because of allegedly negligent tax advice. Sure, the first rule is to avoid a lawsuit. But, a close second rule is to implement procedures such that the professional is in a better position to defend the inevitable lawsuit. A forum selection and choice of law clause may be the key.

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First Circuit Enforces Arbitration Clause in LPL Suit

Professional Liability Matters has previously advocated the benefits of a well-drafted mediation or arbitration agreement in the professional engagement letter. The judicious application of alternative dispute resolution can help to mitigate costs, expedite conflict, and preserve business relationships. Although an ADR provision can lead to efficient resolution of the substance of a professional liability suit, invoking the provision itself can sometimes lead to contentious litigation in its own right.

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The Break-Up: Knowing When the Professional Relationship is Over

All good things must come to an end…and most bad things too. The same must be true with a professional’s engagement. Professional Liability Matters has previously warned of the importance of clear engagement letters to set reasonable expectations regarding the scope of the relationship. But many professionals may take for granted the importance of clarifying when that relationship has come to an end. This is a key risk-management pointer to avoid malpractice.

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Avoiding the Courtroom through a Mediation Clause

Litigation costs are higher today than ever. A recent Duke University survey revealed that litigation costs continue to rise and are consuming an increasing percentage of US corporate revenue. Since 2000, litigation costs have increased 73% and that increase is not due to higher hourly rates but rather more lawsuits. What is the takeaway for you Mr./Ms. Professional? Stay out of the courtroom! You’re reading Professional Liability Matters so you have adopted some risk management savvy but inevitably you are likely to confront some dispute despite your best efforts. Accordingly, your engagement letter and particularly a well-tailored mediation/arbitration clause may be the perfect safety net.

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A Disclaimer of Disclaimers – Limits on Limitation of Liability

Many classes of professionals utilize engagement letters with limitation of liability language. For example, accountants, real estate agents and home inspectors often include in their engagements a hold harmless or other clause with the goal of limiting potential damages. Such a clause will establish the extent of exposure, if any, that the professional can be held liable for should problems arise with the engagement. The question of whether the clause is enforceable is state specific and somewhat unpredictable.

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