February 2018

Anatomy of an Engagement Agreement: An Overview of the Ethical and Practical Imperatives Requiring an Agreement

By Charles Berwanger

Gordon Rees Scully Mansukhani, LLP

You have done your conflict check and are now ready to undertake the representation of a client. For ethical and practical reasons, that representation should be embodied in a written agreement that identifies the undertaking, the terms of the relationship, and all the other facets involved in representing your client.

We all know the benefits of a written contract. The writing memorializes the understanding of the parties, provides certainty in the relationship, minimizes the areas where there may be dispute, and embodies the expectations of the contracting parties in their relationship.

Those reasons, plus the protection a writing affords if a dispute does arise, as well as compliance with ethical requirements, demand a written agreement. The requirement for a written representation agreement is not limited to litigation but applies equally to transactional matters. Business and Professions Code sections 6147 and 6148, and provisions of the California Rules of Professional Conduct, not only require written engagement agreements but also dictate their contents.

Section 6147 declares that the representation of a client on a contingency fee basis shall be reflected by a written agreement signed by the client and the attorney. The agreement shall include the contingency fee rate; a statement as to how disbursements and costs incurred in connection with the prosecution or settlement of the claim will affect the contingency fee and the client’s recovery; and a statement the fee is not set by law but is negotiable between attorney and client.

Section 6148 requires a written engagement agreement in almost every matter not falling under section 6147 in which it is reasonably foreseeable the total expense to the client, including attorney fees, will exceed $1000. It mandates that the agreement describe the manner of compensation for the attorney; the general nature of the legal services to be provided; and the respective responsibilities of the attorney and the client as to the performance of the contract. The requirements for billings pursuant to the agreement are also detailed in section 6148. There are, however, several exceptions to the requirement of a written fee agreement, including where the client is a corporation.

A failure to comply with sections 6147 and 6148 renders an agreement voidable at the option of the client. If an agreement is voided, an attorney may still seek to collect a reasonable fee.

The State Bar has attempted to aid attorneys in their adherence to the ethical requirements attendant to having a written fee agreement. One may find explanatory information and sample fee agreements, instructions and comments on the State Bar website.

The following discusses some general areas of concern for the drafting attorney when preparing a fee agreement:

  1. Identify the client. When representing a corporate client, recall that you represent the corporation and not its directors, officers or spokespersons.
  2. Specify the date of the commencement of the attorney-client relationship to ensure you are not blamed for pre-representation events. This also starts the clock running on an entitlement to attorney fees.
  3. Describe the services to be rendered with specificity. Make it clear that no other legal services will be provided to the client unless the attorney agrees to do so in writing. For example, in litigation, exclude the representation of a client on appeal unless there is an intention to do so.
  4. For an hourly relationship or to establish a fund for costs in a contingency fee arrangement, make adequate provisions for the handling of the monies to be deposited into your trust account. You may want to make the deposit of funds in an hourly representation based upon an evergreen fund that must be refreshed upon its exhaustion. You should also consider having the agreement provide for a substantial increase in the amount on deposit 90 days before trial due to the extraordinary expense trial preparation typically involves.
  5. Identify the hourly rates for all categories of attorneys who will work on a matter, as well as any paralegals. You should specify an intent to raise those rates, whether annually or otherwise. Even if you have a contingency fee relationship, rates should be included and you should prepare monthly statements in the event you have to seek your fees through quantum meruit.
  6. The handling of liens can be tricky. In contingency matters, the agreement may provide for a contract lien in favor of the attorney on any recovery. Other liens, such as a lien on real property, have heightened disclosure and documenting requirements.
  7. Include a provision for the discharge of the client.
  8. Give thought to requiring arbitration of any and all disputes relating to the services rendered by you. (The Mandatory Fee Arbitration Act proscribes requiring a client to submit a fee dispute to mandatory arbitration unless the client agrees to do so post dispute.) Requiring the arbitration of a malpractice or breach of fiduciary duty claim may be included in an agreement. However, it is a good idea to explain the consequences of mandatory arbitration in the agreement. Also, your malpractice insurer should be notified of your intent to use such a provision.
  9. If you do not have malpractice insurance, or if it is terminated during the representation, the client has to be so advised in writing.
  10. Make it clear that you are not guaranteeing the results of your representation.

The foregoing will go a long way towards protecting your professional relationship with a client and compliance with legal ethics rules. This listing of provisions is not exhaustive, and it is strongly recommended you familiarize yourself with alternative terms and forms of engagement agreements. Every representation will have its unique features, as well as personalities, and you will want to tailor the engagement agreement to those dynamics.

**No portion of this article is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**