Not just anyone can sue an attorney when an alleged mistake has been made. An attorney's liability is limited to the 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 her or his clients to perform legal service in accordance with the standard of care ordinarily exercised by attorneys in the legal profession generally. But, absent adequate precautions, a duty may potentially be found to extend to nonclients and third parties in certain situations. All involve the existence of a duty by the attorney and that is the best place to start with avoiding risks.
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, it is indisputable that an attorney-client relationship exists.
Most courts refer to those circumstances as an express attorney-client relationship. Such a relationship can be evidenced by the existence of an engagement letter, a fee contract or documentation in which the attorney acknowledges that she or he represents the client.
Second, if the attorney acts in a way that causes someone to reasonably believe that the attorney is representing his or her interests, courts often find the existence of an implied attorney-client relationship sufficient to sustain a legal malpractice action. The critical elements are whether the attorney's advice was sought and provided such that a reasonable person would believe 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, even nonclients. This doctrine is known as foreseeable reliance. For the doctrine of foreseeable reliance to create a duty to a third party, the attorney must be aware that a third party will rely on her or his 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 be avoided with disclaimers.
Here are some tips:
Engagement letters and fee contracts
To reduce the risk of claims by nonclients, engagement letters should clearly and concisely identify the client, the scope of the representation and the duration of the representation, and may also include nonassignability language.
The first step in drafting an engagement letter is to identify each client by name and capacity. If more than one client or capacity is involved, then the attorney should also address and resolve any potential conflicts of interest.
To eliminate any misunderstanding, the engagement letter may also 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 effective in avoiding implied and unintended attorney-client relationships.
After clearly identifying the client, 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 often assumes that the representation is a general representation for all purposes. To avoid this, the engagement letter should clearly define exactly what the attorney has been hired to do and make clear that the attorney has not been retained for anything more.
Another problem that can be avoided by the engagement letter is determining the duration of the representation. Absent some limitation (or a file closing letter), an attorney retained to draft a will might have a continuing obligation to advise a client on changes in estate and taxation law long after the will has been executed.
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.
File closing letters
When it comes time to terminate an attorney-client relationship, the use of a file closing letter can help provide clear guidance to both the client and the attorney. The act of closing a file is not an overly complicated task but it bears great importance.
Closing a file affects the tolling of any applicable statute of limitations if there is an ongoing error or breach of duty to a client. Closing a file also helps terminate an attorney's duty to a former client. It can cease the obligation to disclose or provide information, such as intervening change in applicable law, and helps avoid a "springing" statute of limitations. Thus, the termination of the attorney-client relationship ends certain ethical duties and limits potential exposure for malpractice.
Ideally, a file closing letter will include an accounting of all funds received, confirmation that the representation has ended (typically as of the date of the letter, if not before), notice that the attorney or law firm will no longer be providing any legal services absent a further retention, and a description of the attorney's and/or law firm's document retention policies.
Closing files ends an attorneys' duty, either to clients or others, and thus is another way to limit the possibility of receiving a claim from a third party.
As discussed above, in general, a plaintiff cannot recover in a legal malpractice action unless there is an attorney-client relationship with the attorney-defendant. However, in some contexts, third parties may attempt to argue that an attorney owes duties to nonclients. To minimize risks of such claims, attorneys should use written disclaimers when dealing with nonclients.
For implied attorney-client relationships, the attorney may want to provide the nonclient with a document stating that the firm does not represent the nonclient as an attorney and that the nonclient is entitled to obtain counsel of his or her choice if he or she so desires.
A disclaimer can also be used to defeat a claim of foreseeable reliance. A disclaimer used for that purpose should alert the third party that he or she may rely upon the information only at their peril. The disclaimer should also state that no duties are assumed, intended or created by the communication. The disclaimer should also state that if the third party has not executed a fee contract or an engagement letter, the firm does not represent the third party as the third party's attorney. Lastly, the disclaimer should also encourage the third party to retain counsel of his or her choice if the third party desires to do so.
By implementing these recommended steps, attorneys can limit or even avoid the risk of a potential claims brought by a nonclient.
As published by American Lawyer Media