Avoid the Accidental Attorney-Client Relationship
The attorney-client relationship gives rise to unique obligations and duties by an attorney to that client. For that reason, generally speaking, an attorney cannot be liable at law to those outside the limited class of people to whom the attorney owes a legal duty to exercise ordinary care, skill and diligence in the performance of professional services.
In most cases, this means that an attorney owes a duty to his or her clients to perform legal service in accordance with the standard of care ordinarily exercised by attorneys in the legal profession generally. But a duty may potentially be found to extend to nonclients and third parties in certain situations, whether because of a specific issue of third party liability or because the attorney has not taken proper steps to reduce such a risk.
Typically, there are three ways in which a duty can arise between an attorney and another person or entity sufficient to support a legal malpractice claim. First, and the most obvious, are situations in which an attorney agrees to undertake a representation for a client. In those circumstances, typically referred to as an express attorney-client relationship, it is largely indisputable that an attorney-client relationship exists. Such a relationship can be evidenced by the existence of an engagement letter, a fee contract, or other documentation in which the attorney acknowledges that he or she represents the client at the client's request.
Second, if the attorney acts in a way that causes someone to believe that the attorney is representing his or her interests, courts may find the existence of an implied attorney-client relationship sufficient to sustain a legal malpractice action. In most jurisdictions, the critical elements are whether the attorney's advice was sought and provided such that a reasonable person would believe in those circumstances that an attorney-client relationship existed.
Third, based on various common-law duties, courts have found that a professional owes a duty to those persons whom the professional is aware will rely upon the professional in the transaction or representation, even when those persons are not part of the attorney-client relationship. This doctrine is known as foreseeable reliance. For the doctrine of foreseeable reliance to create a duty to a third party, most courts find that the attorney must be aware that a third party will rely on his or her advice or opinions.
There are several ways to limit or even avoid the risk created by these duties. For express attorney-client relationships, an engagement letter or a fee contract that specifies the exact terms to which the parties have agreed can minimize risk. Unintended but implied attorney client relationships, as well as the creation of duties to known and unknown third parties, can often be avoided with disclaimers.
Here are some tips for managing this risk.
Engagement Letters and Fee Contracts
To reduce the risk of claims by nonclients, it is recommended that engagement letters should clearly and concisely identify the client, the scope of the representation, and the duration of the representation. Many firms also find it helpful to include language indicating that the benefits of the contract are not assignable to third parties.
It is generally recommended that the first step in drafting an engagement letter should be to identify each client by name and capacity. If more than one client or capacity is involved, then it is further recommended that the attorney also address and resolve any potential conflicts of interest.
To eliminate any misunderstanding, the engagement letter may state that the firm does not represent any person or entity that has not been specifically identified as a client and that no duties have been undertaken or assumed for any person or entity that has not been specifically identified as a client. This language is generally effective in avoiding implied and unintended attorney-client relationships.
After clearly identifying the client, usually the next step is to confirm exactly what the attorney has been hired to do, i.e. the scope of the representation. In the absence of some definition or limitation on the representation, a court may assume that the representation is a general representation for all purposes. To avoid this, it is recommended that the engagement letter clearly defines exactly what the attorney has been hired to do and makes clear that the attorney has not been retained for anything more.
Another problem that can be avoided by proper use of the engagement letter is determining the duration of the representation. Absent some limitation (or a file closing letter), a court could conclude that an attorney has an ongoing duty to a client that goes further than what the attorney envisioned. For example, an attorney retained to draft a will could have a continuing obligation to advise a client on changes in estate and taxation law long after the will has been executed, absent any limitation in the engagement letter to the contrary.
To address this risk, the scope of representation may also contain a time limitation. The termination of representation could be a final resolution by settlement or judgment in the litigation context. Alternatively, it could be defined by a specific period of inactivity, such as 12 months, in connection with the representation.
Another important component that can be included in an engagement letter is nonassignability language. Nonassignability language states that a claim for legal malpractice cannot be assigned to an unrelated third party. Although legal malpractice cases are not assignable in many jurisdictions due to the unique and personal nature of the attorney-client relationship, some jurisdictions still permit assignment of legal malpractice cases. Attorneys practicing in those jurisdictions may want to include a "no assignment" clause in their engagement or fee letters to ensure that they are held only to the duties implicated by the unique attorney-client relationship.