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Engagement Agreements and Legal Malpractice

Mar 10
If you need professional liability coverage, contact us now.

If you need professional liability coverage, contact us now.

Hinshaw & Culbertson, LLP recently wrote an article regarding M’Guinness v. Johnson, which pertains to lawyer’s professional liability. Below is a summary of the case and significance of the case as discussed in the Hinshaw & Culberston article. Click to read the full article.

In a recent case decided by the California Sixth District Court of Appeals, the complexities of legal representation were examined and the importance of structured legal agreements between the client and law firm were emphasized. The facts of the case M’Guinness v. Johnson are simple. A small construction company named Think It, Love It, Construct It, Inc (TLC) had three shareholders: James M’Guinness; Steven Johnson; and Scott Stuart.

In May of 2006, TLC sought the legal representation of a specific law firm. The nature of the legal representation was, “[a]dvice and representation concerning [TLC] and other general legal work directed by you from time to time.” The agreement between TLC and the law firm also included that TLC might “terminate” the relationship “at any time,” and that “at the conclusion of [the] engagement, at your request and at your cost for any file review, copy and delivery charges, we will review and deliver your files to you, along with any of your funds or property in our possession, charged at our hourly rate.”

On January 23, 2013, M’Guinness sued Johnson and TLC, claiming that Johnson had mismanaged the company. M’Guiness sought an involuntary dissolution of TLC. The law firm that Johnson retained was the same law firm that TLC had retained in 2006. Johnson argued that there was impermissible conflict of interest but the trial court held that the law firm was not disqualified. The Sixth District Court of Appeals overturned the verdict. The law firm was disqualified as the legal agreement between TLC and the firm was open ended and the representation was never officially ended.

This case highlights the importance of the legal agreement between the client and law firm. While a lawyer may be inclined to be a “jack of all trades” for a specific client, it expands the scope of duties the lawyer is obliged to provide and therefore the exposure to potential malpractice also increased. The best course of action is to clearly lay out the scope of the legal representation in the engagement agreement. Once the agreement is in place, both parties should abide by the terms.

Paragon Underwriters offers a comprehensive range of insurance options for professionals, including professional liability and commercial insurance. Contact us today to discuss the services we offer to fit your company’s specific needs.

Reduce Legal Malpractice Claims with Engagement Agreements

May 08

j0382652One step can greatly reduce legal malpractice claims: incorporate engagement agreements into a firm’s standard operating procedure.

In recent years, there has been a 14 percent increase in malpractice lawsuits* filed, compelling lawyers and law firms to devote time and resources to sustain their firm’s reputation. Including one simple step when agreeing to represent a new client or assume a new representation for a prior or existing client can significantly reduce the likelihood of a client filing a malpractice claim against them: the creation of an engagement agreement.

Engagement agreements help establish client expectations at the beginning of the attorney-client relationship. They serve as a written agreement to ensure that the attorney and his or her client have the same understanding of the scope and timing of the project before any work is undertaken. In the absence of such documentation, attorneys and clients may have a different understanding of the working relationship and its parameters, resulting in client dissatisfaction and even a lawsuit.


Real World Situations:

An engagement agreement can outline the scope of work.                                                

In an Ohio case, a law firm sued its former client for fees that it was owed. The client attempted to evade payment by contending that the law firm had told him that it would seek its attorneys’ fees from the opposing party. The court reviewed the engagement agreement between the attorney and client, which stated that it was the client’s responsibility to pay the law firm’s legal fees. It then ruled against the former client, citing the parol evidence rule.


An engagement agreement can outline what falls outside the scope of work.                   

In a New York case, a law firm represented a client in his administrative proceeding before the Internal Revenue Service (IRS). The client contended that the law firm committed legal malpractice by failing to pursue third parties for liability concerning the outstanding taxes. After reviewing the engagement agreement, which stated that the law firm was only representing the client in the administrative proceeding with the IRS, the court ruled in favor of the law firm.


No engagement agreement leaves verbal agreements open to interpretation.                   

In Nevada, a family law attorney represented a client in her divorce proceeding. The client later sued the attorney for legal malpractice, asserting that the attorney failed to bring a personal injury lawsuit against the client’s ex-spouse. The attorney conceded that she and her client discussed the possibility of bringing a personal injury lawsuit, but ultimately made a joint decision not to do so. Unfortunately, the attorney neither drafted an engagement agreement nor memorialized the decision. Accordingly, the court denied the attorney’s motion for summary judgment in the legal malpractice action.



As part of CNA’s commitment to helping lawyers mitigate their exposure to professional liability claims, we have created 11 sample engagement agreement templates for use in the practice of law. These agreements include illustrative language that attorneys may wish to consider using in their own engagement agreements. The CNA Risk Control team utilized the American Bar Association Model Rules of Professional Conduct as a guide in creating these sample documents. However, attorneys must consult their applicable state rules of professional conduct, as well as the case law and ethics opinions of the relevant jurisdiction, when drafting their own agreements, letters and waivers.

Sample engagement letters and other pertinent risk management information have been posted at www.lawyersinsurance.com under the Risk Control Tool Kit tab, Lawyers’ Toolkit: A Guide to Managing the Attorney-Client Relationship.

*Source: CNA Lawyers Professional Liability Claims data from 2010-2012.

One or more of the CNA companies provide the products and/or services described. The information is intended to present a general overview for illustrative purposes only.  It is not intended to constitute a binding contract.  Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice. CNA is a registered trademark of CNA Financial Corporation.  Copyright © 2013 CNA.  All rights reserved.

NY Appellate Court Manages Litigation Issues Stemming From Pilfered E-Mails

Jan 29

Parnes v. Parnes,___ N.Y.S.2d ___, 2011 WL 102664 (N.Y. App. Div. 3d Dept. Jan. 13, 2011)

In a divorce proceeding, the wife’s counsel sought to depose the husband’s lawyer based on e-mails between the husband and his attorney that the wife had obtained, mostly improperly. The husband’s lawyer successfully moved to quash the deposition, suppress use of the e-mails, and to disqualify the wife’s counsel for using privileged information. The New York Appellate Division affirmed the trial court’s decision quashing the deposition and prohibiting use of the e-mails but reversed the disqualification of the wife’s attorney.

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New York High Court Declines to Broaden Liability of Third-Party Professionals for Client Fraud

Jan 28

Kirschner v. KPMG LLP, ___ N.E.2d ___, 2010 WL 4116609 (N.Y. 2010)

Under New York law, the fraud of corporate insiders will be imputed to the corporate entity regardless of the insiders’ intent or the degree to which the corporation benefited from the fraud. There is a limited exception to this rule when the fraud is against the corporation itself. In cases where fraud is imputed, the corporation is barred by the doctrine of in pari delicto from shifting responsibility for the fraud to third-party agents such as law firms or accounting firms.

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Ninth Circuit Sanctions Lawyers in High-Profile Case

Jan 27

In re Girardi, ___ F.3d ___, 2010 WL 2735731 (2010)

Relying on federal statutes and rules of professional conduct, the U.S. Court of Appeals for the Ninth Circuit sanctioned a group of attorneys who, in seeking to enforce a foreign judgment, made false statements to the court. The sanctions included monetary sanctions of $390,000 and ranged from a reprimand to a six-month suspension depending on the mental state, experience, and degree of involvement of each attorney.

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In-House Attorney Not Protected by Whistleblower Statute Because Reporting Wrongdoing Was Part of His Job Duties

Jan 26

Kidwell v. Sybaritic, Inc., ___N.W.2d___, 2010 WL 2517682 (2010)

A plurality of the Minnesota Supreme Court held that when an in-house lawyer reports wrongdoing to the client in order to pull the client back into compliance, the purpose behind such reports is not to expose illegality and therefore such attorneys are not afforded whistleblower protection.

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