Engagement letters are a must. In case that wasn’t clear enough: all professionals should document the scope of the client relationship for each and every engagement. New clients and long-standing clients alike, engagement letters are a must. It’s a key aspect of best practices that is often overlooked. My client and I have developed a trusting, professional relationship over the years and therefore it is entirely unnecessary to propose an engagement letter. It may feel a bit like a prenuptial agreement. Why plan for the worst when things are going so well?
In a recent decision from the Pennsylvania Superior Court, lawyers were again reminded that even longstanding client relationships can eventually sour. In this particular case, a law firm had been hired in 2004 and represented the client in multiple cases over the course of six years. Although a written engagement letter with fee rates was provided in the initial case, many of them were handled without any such correspondence. When payments slowed to a halt, the firm brought an action against the client for breach of contract and quantum meruit. The client appealed after losing at the trial level and argued that the firm had unclean hands because it violated Pennsylvania Rule of Professional Conduct 1.5(b) regarding written communication of fee rates.
In rejecting this argument, the Superior Court noted that the Rules of Professional Conduct are not substantive law and Pennsylvania has long held that they cannot be used to create a presumption that a duty was breached. The court further held that even if that was the case, Rule 1.5(b) would not be applicable because of the firm’s longstanding relationship with the client. It then quoted the trial court, which held that “while [the firm’s] failure to provide written fee agreements to [the client] in the five civil matters may not have been a ‘best practice,’ it was not so egregious to be characterized as unethical.”
Although the firm was eventually awarded its attorneys’ fees, this case should serve as a cautionary tale for any professional. During his testimony, the client referred to one settlement as having been accepted “begrudgingly”, and another as a case that should have been taken to trial. While it would not be surprising if the firm would dispute these statements, the publicly available record of this case has only the client’s testimony. Furthermore, the firm was only able to succeed in its action after extensive discovery and a subsequent appeal, both of which were surely time consuming and arguably led to nothing more than a Pyrrhic victory.
All professionals should be sure to always provide written engagement letters before handling a matter, even for repeat clients. This may create some uneasiness with clients, especially the smaller ones used to doing business on a handshake, but the necessity is clear. When a professional’s job is often to handle situations that could go in unexpected directions, it is the ultimate irony when the professional ends up in court for failing to account for this same reality.