Adjunct Law Prof Blog

Editor: Mitchell H. Rubinstein
New York Law School

Sunday, October 17, 2010

The Importance Of Engagement Letters

Engagement and Closing Letters is an interesting article from the July 6, 2010 New York Law Journal. As the article explains, it is critical to draft appropriate engagement and closing letters which defined the scope of representation to avoid ethicial and disqualification issues. As the article states:

Thus, this case illustrates the value of using written engagement agreements for each new matter, even if the client is an established one. The case also implicitly recognizes the value of preparing non-engagement letters when dealing directly with unrepresented parties. An explicit communication of non-engagement is especially valuable when the law firm has formerly represented the now opposing, non-represented party. Any communications with non-represented parties should begin with a written statement that the lawyer is not representing that party, and recommending that the party retain his own attorney if he feels it is necessary.

The second case, from New Jersey, also illustrates the importance of crafting engagement letters to identify with clarity who are—and who are not—intended to be the clients in a newly forming attorney-client relationship. In Kurre v. Greenbaum, Rowe, Smith, Ravin, Davis, and Himmel, LLP, 2010 WL 2090092 (N.J. Super. Ct. App. Div., April 16, 2010), two large shareholders for Labriola Motors, Elizabeth Labriola Kurre and Michael Labriola (plaintiffs), sued Greenbaum Rowe Smith Ravin Davis & Himmel and partners thereof (Greenbaum) for individual malpractice damages arising out of a failed transaction.

Labriola Motors, a Nissan franchise, experienced financial difficulties causing Nissan to urge the company to sell to avoid termination of the franchise. Labriola Motors retained Greenbaum to represent it in a proposed sale. The retainer letter specifically advised plaintiffs and the other shareholder that because their "interests and concerns as shareholders of the Company differ in connection with the proposed transaction," each "should retain independent legal counsel."

Further, by countersigning the letter plaintiffs acknowledged "that (i) this firm will represent only the Company in connection with the proposed transaction, and (ii) this firm has advised you of your right to obtain independent legal counsel" by signing the retainer agreement. In fact, plaintiffs did retain their own counsel.

The Appellate Division affirmed summary judgment for Greenbaum on the basis that plaintiffs had no standing to sue. First, the retainer agreement plaintiffs signed precluded any consideration that Greenbaum represented them personally. Indeed, plaintiffs actually had engaged their own counsel for the entire period in question.

Second, the court held that although lawyers can in some circumstances be sued by third parties who rely on their advice, here plaintiffs were a part of the corporate client and had no right to rely on anything said by Greenbaum except to make decisions as shareholders.

Mitchell H. Rubinstein

Articles, Ethics | Permalink


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