Your Engagement Letter is Not a “One Size Fits All” Bucket

What a Good Engagement Letter Can Do

Engagement letters are an essential tool in the lawyer’s toolkit.  Done correctly, they set the stage for the lawyer-client relationship, provide clarity, and minimize misunderstandings.

The best engagement letters follow a predictable formula:

  • A specific description of the legal problems the lawyer will handle
  • A specific description of the legal problems the lawyer will not handle
  • Steps the lawyer has taken already on the prospective client’s behalf
  • Steps the lawyer will take, once engaged
  • Steps the clients must take for engagement to commence
  • Future or ongoing client responsibilities

Combine Your Fee Agreement and Engagement Letter for Maximum Effect

Ideally, the terms of engagement are wrapped into the lawyer’s fee agreement.  This simplifies the process – the client need only review a single document to know what the lawyer will do, how much it will cost, and what the client’s responsibilities are.

Create Templates for Efficiency

Practitioners can streamline the engagement process fairly easily. While some terms will vary, most of these letters contain enough boilerplate for a lawyer to benefit from creating forms or templates.  [Rewriting an engagement letter/fee agreement for each client is a real time-waster.]

Don’t Fall Into the “One Size Fits All” Bucket

Some lawyers attempt to use their engagement letter as a one size fits all bucket.  For inspiration, they look to every case where a transaction or engagement went awry and proceed to add disclaimers to ward off future problems.  For example, lawyers who handle matters where property valuation is an issue may add language to the initial engagement letter forewarning the client of the need to obtain an appraisal.

How Could this be a Bad Thing?

  • Multiple disclaimers make for longer, more complicated engagement letters and fee agreements.
  • The longer and more complicated your letters are, the more likely the client will miss the key points:  what you are going to do (or not do) and what it will cost.
  • In the end, it could all be for naught if the goal is to avoid a potential legal malpractice claim….

Which Approach is More Effective?

Lawyer 1 incorporates a disclaimer into his engagement letter forewarning the client: if property value becomes an issue in this case it will be client’s responsibility to obtain an appraisal.  Without an appraisal, client assumes the risk of under (or over) valuing said property.  Lawyer 1 proceeds with representation, relying on the disclaimer in his initial engagement letter.

Lawyer 2 limits her engagement letter to the usual points discussed at the beginning of this post.  When the value of property becomes an issue in the case, lawyer informs the client of client’s responsibility to obtain an appraisal and the risks of failing to do so.

Keep it Contemporaneous

This is a no-brainer.  Disclaimers given at the beginning of representation don’t have the same value as disclaimers given contemporaneously.  Clients need context to make sense of your warning.  At the beginning of the case, there is no context.  Even if the client nods and understands, the disclaimer in your engagement letter will be long forgotten by the time the property issue arises.

Parting Thoughts

A well-written engagement letter and fee agreement is all about balance.  Include sufficient information about the scope of your work, division of responsibilities, and what your services will cost, but don’t fall into the trap of trying to disclaim or forewarn of everything that could ever go wrong.  If helpful, consider developing a client handout that addresses common issues or questions that arise.  Give specific disclaimers and warnings contemporaneously when the client can put the information into context.

[All Rights Reserved 2015 Beverly Michaelis]

 

 

Crowdfunding Your Law Practice

crowdCrowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people, typically via the Internet.

The crowdfunding model is fueled by three types of actors: the project initiator who proposes the idea and/or project to be funded; individuals or groups who support the idea; and a moderating organization (the “platform”) that brings the parties together to launch the idea.

In 2013, the crowdfunding industry grew to be over $5.1 billion worldwide.
Source: Wikipedia.

Crowdfunding for Lawyers

Potentially, lawyers could use crowdfunding at any time – to jumpstart a law practice, expand a law practice, or bridge the gap during a downturn in business.

As you might expect, crowdfunding is most successful when used to promote a cause or new product idea rather than a service.  But it could work for lawyers if donors find the practice area and marketing pitch appealing.

The Ethics of it All

Before we get too excited about this idea, we need to do a gut check.  Simply put: is crowdfunding ethical?

A quick Internet search produces a list of posts and articles on the subject.  Here are a few:

The first result is by far the most interesting for Oregon lawyers.  In Crowdfunding: The Future Of Public-Interest Funding? author Sam Wright reports a conversation with Oregon lawyer Kellie Ann Furr who is crowdfunding a “private-public interest environmental law firm” on Indiegogo.  Furr is halfway to her fundraising goal of $7,500.  Take the time to look at her campaign and you’ll understand the appeal and her success.

But back to the ethics of it all…

In his Above the Law post about Furr, Wright tells us:

First, she sought and received an informal opinion from the Oregon State Bar on “the ethics of donation-based crowdfunding” to make sure she was on sound ethical footing. She was also careful to select “perks” for donors that would not affect her “professional independence” — in her case, the perks mostly involve volunteer time or pro bono assistance to environmental organizations. And she includes appropriate disclaimers on her campaign page.

So does this mean Oregon lawyers are off and running – free to set up crowdfunding campaigns without a second thought?  Not quite….

Crowdfunding is a “Communication Concerning a Lawyer’s Services” for Purposes of Oregon RPC 7.1

By necessity, crowdfunding involves representations about your potential or ongoing law practice. Therefore, Oregon RPC 7.1 – Communication Concerning a Lawyer’s Services – would apply to the content contained in your crowdfunding appeal:

“A lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services. A communication is false or misleading if it contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading.”

Simply put: lawyers are responsible for ensuring that representations made about their practice are accurate.  For an excellent discussion of this topic, see OSB Formal Opinion No. 2007-180 Internet Advertising: Payment of Referral Fees and the following articles:

“Dishonesty, Fraud, Deceit, or Misrepresentation” – the Companion of RPC 7.1

A violation of Oregon RPC 7.1 (communication that is false or misleading) could also implicate Oregon RPC 8.4:

“It is professional misconduct for a lawyer to … “engage in conduct involving dishonesty, fraud, deceit, or misrepresentation that reflects adversely on the lawyer’s fitness to practice law.”

But lawyers can run afoul of RPC 8.4 in other ways.  As discussed below, crowdfunding campaigns often promise “rewards” or “perks” for donors.  Assuming that offering something in return for a donation is ethical, failing to deliver the “reward” or “perk” if all conditions are met would likely be construed as a violation of 8.4.

The Granddaddy of them all: Is Crowdfunding Fee Sharing with a Nonlawyer?

Lawyers and law firms are prohibited from sharing legal fees under Oregon RPC 5.4, except in limited circumstances.  This begs the question: if a donor gives a lawyer money to fund his or her law practice, does this constitute impermissible fee sharing?

Maybe yes.  Maybe no.  Where is the “fee” and how is it “shared?”  Compare the following scenarios:

  1. Lawyer and nonlawyer wish to form an LLC offering business advice.  They intend to charge potential clients a flat fee of $1,000 for their services and split the fee 50/50.  Lawyer will provide the legal advice; nonlawyer will coach clients on business strategies, financing, marketing, and the like.
    While this arrangement raises a number of issues, the question here is: does the proposed fee split violate Oregon RPC 5.4?  The answer is a straightforward: yes!
  2. A donor gives money to a lawyer to start her law practice, no strings attached – the funds are a gift, not a loan; the donor is seeking nothing in return; the lawyer is providing nothing in exchange for the donation.  There is no “fee.”  There is no “sharing.”  The donor could be Mom, Dad, a friend, or a stranger responding to a crowdfunding appeal.  It is hard to understand how this could be a violation of RPC 5.4 – but as always, I encourage readers: take your questions to the experts – OSB General Counsel’s Office.

So crowdfunding looks like a “go,” right?  Not so fast … here’s the thing about crowdfunding.  Donations aren’t generally a “gift” with no strings attached:

The Crowdfunding Centre’s May 2014 report identified the existence of two primary types of crowdfunding:

Rewards crowdfunding: entrepreneurs pre-sell a product or service to launch a business concept without incurring debt or sacrificing equity/shares.
Equity crowdfunding: the backer receives shares of a company, usually in its early stages, in exchange for the money pledged. The company’s success is determined by how successfully it can demonstrate its viability.

Source: Wikipedia.

Permitting donors to take an equity interest in your law firm is clearly impermissible under RPC 5.4.  A rewards approach could quickly go awry if the lawyer violated RPC 7.1, 8.4, or other applicable rules.  Remember Kellie Ann Furr?  Her Indiegogo campaign offers four different “perks” or rewards for donors:  volunteer time, pro bono work, or a one-hour consultation.  She carefully limits the one-hour consultation to Oregon residents only and includes a disclaimer that donating to her campaign does not create an attorney-client relationship. Is this sufficient?  At the risk of repeating myself: take this question to the experts – OSB General Counsel’s Office.

Funding a Law Practice Is Only Part of the Picture: Student Loans, Litigation, and Securities Regulation

Crowdfunding raises issues in other areas as well.  Check out these posts:

Learn More

If you want to learn more about crowdfunding, read the following:

Next, get ethics advice – from independent ethics counsel with whom you form an attorney-client relationship or OSB General Counsel’s Office.  The General Counsel’s Office can help you identify applicable rules, point out relevant formal ethics opinions and other resource material, and give you a reaction to your ethics question – they are always a good place to start.

All Rights Reserved [2015] Beverly Michaelis

Postscript:

In addition to the above, practitioners should also consult with a tax lawyer or CPA. Money raised via crowdfunding will likely be considered taxable income. Check out these guidelines, available from PayPal. A word of caution: as noted here, failure to meet PayPal’s threshold for purposes of generating a 1099 doesn’t mean you aren’t obligated to report the income.

Smartphone Email Signatures

Does your standard e-mail signature include a disclaimer?  Perhaps the IRS Circular 230 Disclosure:

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Or maybe yours seeks to protect confidentiality and the attorney-client privilege:

This message may contain sensitive and private privileged information.  If you are not the intended recipient, or if you believe you have received this message in error, please notify me immediately by reply e-mail.  Please keep the contents confidential and delete the message and any attachments from your system.

Whether such disclaimers work is a debate for another day.  For the purpose of today’s post, let’s assume they do and you want to include a disclaimer in your e-mail signature.  Easy enough – when you are working on your desktop or laptop – but long e-mail signatures are not supported by mobile devices like the iPhone.  What can users do?

One option is to post the e-mail communication policy/disclaimer on your firm’s Web site.  If your device will support a signature that contains an outside link, problem solved.  Here is an example:

This can be done on the iPhone using an app like the Signature Creator Tool that supports HTML signatures with URLs.

If that sounds like too much work, another choice would be to include appropriate disclaimers in the client’s initial fee agreement so the client understands up front that all communication by e-mail is subject to the conditions contained in the initial disclaimer.  In that case, if an attorney preferred, his or her mobile e-mail signature could look like this:

 

If you are beyond the initial fee agreement stage and don’t want to hassle with special apps that support HTML signatures with URLs, then do a mass paper mailing or mass e-mail to all clients including a copy of the firm’s disclaimer and e-mail communication policy.  Explain to clients that your policies and disclaimer apply to all messages, whether sent by tablet, smartphone, desktop, laptop, or some future means yet to be invented.  If you are particularly concerned, ask clients to acknowledge and consent to your terms.  This can be done by signing and returning the policy/disclaimer or by replying to your e-mail blast.  (If you send a group or broadcast e-mail to all clients, be sure to put addresses in the bcc: field).

Copyright 2012 Beverly Michaelis