The concept of “unbundled” legal services is laid out in Model Rule 1.2(c), which provides that lawyers may limit the scope of their representation in reasonable ways, if the client gives informed consent. The rule opens the way to representing a client as to one phase of a matter, or as to certain issues or tasks.

A New York appellate ruling last month, however, demonstrates that an intended limited-scope arrangement can come back to bite you if you’re not careful to lay out in detail — in writing — what you are and are not going to undertake, and the client’s express buy-in to the plan.

Negligence? Or thrift?

The January 11 opinion of New York’s First Department reverses the grant of summary judgment in favor of the client on its malpractice claim, and gives the law firm a chance to prove at trial that client thriftiness — and not sloppy lawyering — was the cause of the client’s alleged $85 million loss on a soured loan transaction.

The plaintiff, a venture capital fund, hired the firm to document loans that the fund was making to a third party borrower. The loans, totaling about $4.5 million, were to enable the third party to finance the purchase of several portfolios of life insurance policies, secured by the policies themselves, with a face value of $84 million. But the fund’s security interests in some of the loans were never perfected, because collateral assignment forms weren’t filed with the insurance carriers for the policies. The borrower defaulted on the loans, defaulted on a subsequent settlement, and was uncollectible. The underwriting insurers refused to pay proceeds of the collateral to the fund, because they had no records that the collateral had been assigned.

The question was, Whose fault was the slip-up? The fund pointed at the lawyers, saying that filing the collateral forms was the firm’s responsibility. It sued for legal malpractice, eventually moving for summary judgment on liability.

In the trial court, the law firm argued that it was not responsible for filing the collateral forms — that the fund expressly limited the scope of the representation as a cost-saving strategy, and further habitually minimized the role of outside counsel to “minimize legal spend.” The firm said that it was retained only to draft the loan documents, and that the limited representation was at the client’s express instruction.

Significantly, there was no retention letter documenting the engagement or its scope. The trial court granted judgment in favor of the fund.

Let’s have some paper with that….

This has a happy ending for the law firm — at least for now. The reviewing court noted New York’s version of Model Rule 1.2(c), and said that if the firm “wanted to limit the scope of its representation, it had a duty to ensure that [the client] understood the limits.” But the appellate division nonetheless reversed the summary judgment, holding that there were enough factual issues to justify trial — raised by warring e-mails between the client and the law firm, some of which suggested that the fund was looking to the firm to perfect its security interests, and some of which showed the contrary.

One fact that stands out, though, is the absence of an engagement letter that would have defined the scope of the representation and reflected the client’s assent. That could have protected the law firm here. As it is, despite beating summary judgment, the firm could still be at risk for an adverse trial verdict, absent some settlement.

Don’t be like the shoemaker’s children. We would always counsel our clients to “get it in writing.” When providing limited scope representation, the case for doing so is compelling.