Engagement Letters in Transactional Practice: a Reporter's Reflections - D. Christopher Wells

• Jurisdiction: United States,Federal
• Publication year: 1999
• Citation: Vol. 51 No. 1

Engagement Letters in Transactional Practice: A Reporter's Reflectionsby D. Christopher Wells^*

Introduction

In recent years, lawyers have turned increasingly to written contracts, usually called "engagement letters," to memorialize their professional representations.¹ This practice grows absent specific directives requiring such writings,² apparently deriving from professional preference rather than mandatory rule. It grows also despite scant attention paid by law reviews and bar publications. Only infrequently do publications appear noting this practice or offering advice on drafting engagement letters.³ Even continuing legal education programs give them only occasional attention.⁴

One of the most ambitious treatments of engagement letters came in 1997 from the State Bar of Georgia in the form of a report from its Corporate and Banking Law Section entitled Report on Engagement Letters in Transactional Practice ("Report").⁵ The Report encourages regular use of engagement letters, suggests an appropriate scope and format, offers an extensive menu of sample provisions, and discusses the ethical and legal principles that underlie its suggestions. Although the Report originated with and was directed toward Georgia transactional lawyers, most of its suggestions may be generalized to other jurisdictions and practices. Indeed, its general nature and content should be useful to lawyers in all types of private practice. One purpose of this Article is to bring the Report's suggestions to the attention of this broader audience.

Lawyers unfamiliar with engagement letters may wonder about the Report's strong support for increased use of engagement letters and may question how engagement letters weave into the traditional fabric of legal practice,⁶ what ends are to be achieved with such letters, and whether such letters are justified by sufficient legal, economic, and professional rationales. This Article targets that audience especially and, as the Report itself does, addresses those questions.

This Article offers insight into the Professionalism Project's design and drafting process. As with legislation and sausage-making, one might wish to avoid attention to this creative process. Here, though, a review of the creative process might help lawyers understand and accept the Report's advice. Knowing how the Committee wrestled with some of the demons might help lawyers do the same. Not all lawyers may agree with the Committee's specific suggestions or even with its general support of engagements letters, but understanding the Committee's purposes, motivations, and concerns should make their choices better informed.

In bringing the Report to the attention of a larger audience, this Article is designed not only to propagate the Committee's suggestions unashamedly but also to cause lawyers to reflect more generally on the rationale, application, and form of engagement letters. Perhaps such reflection will benefit future bar committees when they elicit suggestions for improving engagement letters and lawyer-client relationships.

Part I of this Article has the substance of an "apology," as the Greeks might have used that word, directed particularly to those readers who are interested in the history and the rationale of the Committee's engagement letter project, especially its suggestions for format and specific provisions.⁷

Part II is directed to readers who wonder how engagement letters fit within the laws of contract and fiduciary relationships and whether engagement letters make practical sense for the lawyer and the client. For many lawyers, entering into a written contract with a client raises serious questions about the nature of the professional relationship and the purposes to be served by a writing. At bottom, the question becomes whether this added formality presents a salutary development in that relationship.

Finally, the Appendix sets out brief excerpts from the Report and includes limited commentary on the purpose of the suggested engage- ment letter provisions. To preserve trees and readers' patience, the Report does not appear in its entirety. Those who wish to know more will find the complete Report accessible in electronic form from the State Bar of Georgia.⁸

I. Background and Purposes of the Engagement Letter Project

A. Background

In 1995 the Corporate and Banking Law Section of the State Bar of Georgia formed an ad hoc Professionalism Committee and charged it with addressing professionalism issues of special importance to corporate practitioners. The Committee's work proceeded under the leadership of several experienced transactional lawyers, including Elliott Goldstein, considered by many to be the dean of Georgia's corporate and banking bar. Other corporate practitioners from across the state comprised the Committee.⁹ Serving as co-chair was one corporate general counsel who provided some client perspective on the nature and use of engagement letters.

In essence the Committee's charge from the State Bar required it to determine which "professionalism" issues appeared both ripe for study and amenable to committee action. Preliminary discussions about the intersections of professional ethics, tradition, and practice led the Committee rather quickly to the subject of engagement letters. Two observations seemed to inspire this focus.¹⁰ First, in their practices, Committee members had noted increasing use of engagement letters in representing corporate clients in transactional matters, a trend supported by substantive concerns and not mere fashion. In some cases, the members had noted that engagement letters (or the impetus to create one) had originated with the client rather than the law firm. Second, Committee members' experiences suggested that the potential benefits of engagement letters could exceed their costs and that the benefit/cost ratio would increase proportionally with the size and complexity of business transactions.

From these two observations, the Committee saw great promise for engagement letters to assist transactional lawyers in establishing more sound and successful relationships with clients. They saw improvements to be derived both from the process of engagement letter discussion and from the improved precision and thoroughness of the agreement itself. The joint lawyer-client process of developing the engagement letter established better lines of communication, which, communication, in turn, better clarified client needs and party expectations. Even skeptical Committee members agreed that the idea deserved study: whatever would assist lawyers and clients to develop a clear understanding of their relationship and goals—whether the ultimate product became a writing or not—had promise for improving professionalism. Some members also wondered whether there might be a darker side to engagement letters, resulting in negative but unintended consequences for clients.¹¹ So far as possible, any end product should protect the client's interests and avoid lawyer overreaching.

Once the Committee had decided to pursue the engagement letter project, it considered the form its recommendations should take. Some understood that the Bar expected the Committee to propose amendments to the rules of professional ethics. Whether or not that was correct, the Committee consciously sought to avoid a course of action that could be too easily delayed or derailed by political, judicial, or legislative processes. It recognized that proposing mandatory rules or even precatory ethical considerations could raise the stakes so high as to engender opposition, if only on fine points of drafting.¹²

The Committee also eschewed creating a long, abstract list of rules. It worried that such a list would be difficult to draft, much less to read and understand. Such rules, as with all rules, would likely tend toward interpretation and application quandaries. Undoubtedly, each rule would have innumerable corollaries and exceptions that the Committee would feel obligated to identify and explain. If success for the drafting endeavor was even possible, the entire work might just collapse of its own weight. Neither situation would advance the Committee's, the profession's, or the prospective clients' interests. Ultimately, the Committee concluded that a sufficient number of transactional lawyers were employing engagement letters that a rule would be unnecessary. What lawyers needed, if anything, was help to improve the quality of their letters and to increase their ease of use.

To increase the chances of professional understanding and acceptance and to avoid the time commitments attendant to a more politicized process, the Committee consciously chose the lightest precatory approach for its bar colleagues.¹³ The Committee decided to promote the use of engagement letters by offering lawyers something of practical use in the form of a bank of suggested engagement letter provisions especially appropriate for corporate practice.¹⁴ In that way, lawyers would be free to use, adapt, or reject the Committee's suggestions. An alternative "statute of frauds" approach of requiring a written lawyer-client agreement, however qualified, would have not only been impractical but also contrary to the general development of contract law.

B. The Project: Focus on Engagement Letters

Engagement letters may have been in use for a long time, but it goes without saying that not all lawyers use engagement letters. Even those who do might not use them for all representations. Very probably, many lawyers seldom use them, and some never do.¹⁵ No ethical rule requires their use in typical transactional practice, and no strong professional tradition encourages their use. If anything, the tradition has tended in the opposite direction because of the notion that a healthy professional relationship should proceed on trust, bound by little more than a handshake. Those who choose to employ engagement letters do so because of a sense of propriety based on a personal...