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Engagement Agreements and Legal Malpractice

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.

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