Note: This case study by Wendeen H. Eolis has previously appeared in the New York Law Journal. I republish this article in 4 parts during December 2009 in response to current client demand for advice on law firm retention arrangements (whe).
Fourteen months after the relationship began between the law firm and its new client, the litigation had blossomed and settled; Messrs Wise and Foreman were satisfied, if not overjoyed with the results, except for the firm's last invoice in the matter, which brought the legal bills well north of $1,000,000.
The cost of the representation was nearly 25% higher than I had projected for the most complicated scenario outside of trial. The bloom swiftly faded from the rose, as Mr. Wise cozied up to a stack of statements that his accounting department flung his way with a terse message, "Your lawyers have a penchant for increasing their rates, often. They apply their increases without notation."
This type of complaint has encouraged a few states, including New York (the company's home court), to pass legislation that requires law firms to tender a written letter of engagement that contains an "explanation of attorney's fees to be charged, expenses and billing practices." The applicable New York State statute is 22 NYCRR Part 1215, effective March 4, 2002. The new statute applies to most types of representation prior to beginning new legal work- with wiggle room to take care of legal emergencies, wherein the engagement letter may be delayed to the soonest practicable time. The primary virtue of this provision in the statute is to bring attention to a law firm's billing policies, before the client/law firm wedding.
The required letter of engagement must also set forth the breadth of the anticipated services and address the scope of the work that is required. In this regard, New York and other states with laws that contain similar language have a clear salutary effect for both counselor and client. When saddled with this responsibility, lawyers necessarily spend considerable time, up front, in preparing the engagement letter-laying out the issues and providing useful insights into how the firm proposes to address their legal matters. The engagement letter (signature not required) can have a significant impact upon a client's legal standing in the event of a later dispute. A mutually signed retention agreement has even more teeth.
The provisions of the current statute in New York (and elsewhere), however, leave largely to judicial interpretation precisely what details about the engagement (and billing practices) are intended by the rule. Therefore, as a practical matter, companies in New York (like my client), and other states with similar statutes are not automatically better protected than those states without such legislation.
It is up to the consumers of legal services to familiarize themselves, fully with a law firm's policies, to the extent that they affect the calculation of client costs and how the invoice is composed-- before the meter begins to tick. (A law firm that is confident about the validity of its invoices may propose to charge a fee for a burdensome review).
The retention agreement that is ideal for a law firm is not necessarily ideal for the client. These days, many big companies and others with sophisticated legal departments often present their own billing policy statements to prospective outside counsel. Admittedly, this may seem risky or offensive to some, such as was the case with my client who was "under the gun." But a well-negotiated, carefully crafted agreement addresses the business objectives of both sides and provides the delicate balance that is necessary for an enduring relationship-one that is going to transcend the matter at hand.
The third part of this article will appear on December 15.
