This week, we are continuing our talk about the area of “administration” as one of the elements that make up the five parts of every business in the world. Opening up an initial file in your office with your client is one of the most important activities you can do with regard to taking on new legal business. The utilization of either contracts or engagement letters with every new client and every new matter is a suggested practice. This week’s “tip” specifically deals with engagement letters. Last week we talked about contracts and how my office used to extensively use contracts, but now have almost exclusively switched to engagement letters.

The nice thing about engagement letters is that people are used to reading correspondence much more than they are used to reading contracts. When you put together an engagement letter I have found that the clients seem much more relaxed during the time they read the letter and usually have either very few questions or simply ask for a pen so they can sign the letter on the spot. As I indicated in last week’s article, the Missouri Bar Association has prepared a book called the “Client Keeper” that you can get through the Missouri Bar Continuing Legal Education department which has sample contracts and engagement letters in both hard copy and on disk.

The following will help you understand why engagement letters are useful in your practice and why they may be better than standard short form contracts.

Your engagement should letter should be addressed to all the people who will be asked to sign the engagement letter. Be sure to get correct addresses from the New Matter Report you have previously filled out in order to open the file. Be sure to caption the letter in the “re:” area with exactly the type of matter you are going to be taking on for the client. In our office we always use as much information as we can put there to show what it is we will be handling on behalf of the client. If we are to be the plaintiff in a piece of litigation we always use the client’s last name first, then first name with a “v.” right after the name showing that they are the plaintiff and then the defendants’ names, last name first. This allows us to easily parallel the information that we have on the New Matter Report, the information that we will be putting in the client’s file and the information that we will put in all of the client contact and conflicts check areas in our firm no matter whether they are hard copy or electronic.

The next paragraph deals with the “Legal Services to be Performed.” Please note in the second sentence of this paragraph that if you are not going to enter your appearance in an appropriate court, you need to specifically state in that paragraph that you will not be entering your appearance until after an additional engagement letter is entered into.

The next area is “Cooperating Attorneys and Fee Sharing.” If you have been following these articles you know about my “Virtual Law Firm” where I work with cooperating attorneys on client matters and we both have an attorney-client relationship with the client and both take responsibility for the work, and split the fees pursuant to written agreements with the clients. You will note that this paragraph specifically states that we will be “cooperating with other firms and attorneys,” and will be “sharing fees with such firms and attorneys.” This paragraph specifically authorizes your firm to work with other firms and attorneys and to share fees with such firms and attorneys. This paragraph is in keeping with the Missouri Rules of Professional Responsibility.

The next paragraph regarding “No Representations or Guarantees” is self explanatory, but nonetheless is very important to put in your engagement letter.

The next portion of the letter “Contract Cancellation” allows your law firm to cancel your contract with the client under certain conditions. One of the major areas would be the client’s failure to abide by the terms of the contract such as payment, and this language allows you to get out of the contract if need be.

The next paragraph deals with “Settlement” and it is important that the client know that you will not settle their case without their consent.

The next paragraph deals with “Conditions to Engagement,” such as signing and giving to the attorney the original engagement letter as well as the payment of any retainer. If the matter is one that needs additional authorizations such as medical or wage, you can place information here that says that the contract will not go into effect until you have those signed authorizations. Additionally, in some cases you may have a client questionnaire that needs to be filled out such as in the area of personal injury, work-comp or domestic cases, and under those circumstances you will want to have all that information before the contract goes into effect.

The next paragraph deals with “Fee Arrangement” and you can set out there your hourly rates for various people in your office as well as the contingent fee arrangement if the case is to be on a contingent fee. If you are going to have any rate changes during the time that the matter is being handled, you need to state here that the hourly rates are subject to annual review and modification. If you are going to have an additional fee of any kind with regard to handling an appeal it is very important that you put in a special paragraph with regard to that percentage. The timing as to when various percentages come into play is very important and it needs to be clearly set forth in the fee arrangement portion of your engagement letter so there is absolutely nothing left to the imagination for both you and the client. Many contracts for contingent fee matters have a provision that an increased percentage will be in effect once a matter reaches a certain period of time before trial. I have seen everything from one week to one month. There is no science to this, it is simply an art form, and whatever you think would be reasonable in keeping with the Rules of Professional Responsibility would be appropriate.

As you can see with regard to the paragraph on “Expenses” below, we try to set out as many of the different expenses as possible that the client will be responsible for with regard to their matter. One of the ways that we have been able to hold down our attorneys fees is by trying to have the client pay as many expenses as possible and not having those simply be rolled into the fee. You can either have high hourly rates and not pass many expenses onto the clients or you can have lower hourly rates and have the client pay the expenses directly. Again, this is an art form and it does not matter which way you choose so long as one avoids having low hourly rates and absorbing all of the expenses as well. That is a sure path to being out of business. You also need to spell out whether or not the expenses come out of any recovery prior to attorney fees being determined or whether the expenses come out of the client’s share. I have seen this done both ways and frankly I believe I have chosen to take the expenses off the top and then split the fees because the clients seem to like this method better. At least in that set of circumstances the out of pocket expenses get reimbursed first and so you may not be getting the full amount of percentage of what your time is valued at, but at least you are getting 100% of the expenses.

The next paragraph deals with “Record Retention” and the fact that the file can be destroyed after a period of time. This paragraph puts the onus on the client to request the contents of the file. We will have a whole article in the future regarding record retention, so I will not spend much more time with it here, but I do need to point out even though it says you may destroy the file after one year, it is our practice to hold the file for a five year period before they are destroyed. Holding the files for a five-year period allows the statute of limitations on malpractice to expire. We never destroy any files where there are judgments, orders involving family matters or estate plans.

The next paragraph deals with “Discharge/Substituting Counsel.” This paragraph provides that the attorney can withdraw from representation if they are not getting paid. I hope you all understand why this is important! Additionally, it provides for the client to agree to execute a consent to attorney withdrawal.

The next paragraph deals with “Monthly Bills.” I have always tried to send out monthly bills to every client who says that they will pay the bill on a monthly basis. I remember that one time I was in the southwestern part of our state giving a seminar with regard to law office management and asked the question of some 300 lawyers, how many of them had a system in their office that would generate a bill every month for every client that agreed that they would pay their bill on a monthly basis. Out of the 300 people in the audience, only half a dozen raised their hand. The other 294 lawyers apparently had an extensive line of credit at their local bank.

The next paragraph deals with “Late Payment/Failure to Pay.” This paragraph provides that if a bill is not paid within a timely basis that that law firm can immediately cease all activity on behalf of the client and withdraw from any representation. There is also a provision here for the payment of attorney’s fees if any bill needs to be placed for collection. In our state, if you don’t have such a provision with regard to collecting attorney’s fees in your contract, you are simply not entitled to any such attorney’s fees.

The next paragraph deals with “Attorney’s Lien.” It is very important that you put this information in your engagement letter and that you remember that the only lien that you have in this matter is against any recovery and with regard to any work product that you have in the file. You do not have a lien against the client’s file itself or against the client’s documents regardless of whether or not the bill has been paid.

The next paragraph deals with “Notice.” It is important everyone understand that communication is absolutely the key in terms of satisfactory representation of clients. Keeping everyone informed of how everyone can be reached at any given time is incredibly important. The client, by executing the engagement letter, gives you authority to use all of the methods of communication you have set out in this paragraph.

The last section of the body of the engagement letter deals with “Questions or Comments” encouraging your clients to contact you if they have any questions of any kind about matters and assuring them that every attempt will be made to return their phone calls within the first 24 hours of receiving the call. This is a very strong way of cementing good client relationships.

The very last part of the letter itself contains a signature of someone on behalf of the law firm or the lawyer themselves and after that provides for a signature of the client and a place for the engagement letter to be dated when it is signed by the client. If there are going to be multiple clients on a particular matter, including business entities, putting a signature block for each and every one of these individuals and entities is very important.

I think that when you review the prior comments here as well as look at a sample engagement letter you will see that having such a “business contract” with your client can alleviate many of the problems that lawyers have by failing to do such letters. When you act professionally and businesslike in your duties and conduct relationships with clients in a professional and businesslike manner, the client will treat you professionally and respect you as a businessperson. If your clients are not willing to deal with you in a businesslike fashion, you will be a lot better off if you just do not deal with that client at all. Learning to say the word “no” to clients who are not willing to deal with you in a businesslike manner is a very important skill for your economic, psychological and emotional survival. The key to having a successful law practice and getting good results for clients is to try and spend the appropriate amount of time on the appropriate matter with the appropriate client, and expect to be paid appropriately.

Next week we are going to be talking about another item in the area of “administration.” Non-engagement letters including letters where you want to keep the matter even though you are saying that you haven’t yet been retained, as well as matters that you do not want to keep and that your are suggesting some other way for them to pursue legal representation if that is their wish. I think when you hear the story about how non-engagement letters came into play in terms of interviewing clients and taking on new business you will find that the story will simply scare you to death.

For a copy of a sample engagement letter, email me at mail@wirkenlaw.com

Talk to you next week!

Jim Wirken is a civil trial attorney and the Chairman of the Board of The Wirken Law Group in Kansas City.