The Attorney-client Relationship

• Library: Minnesota Legal Ethics: A Treatise (MSBA) (2022 Ed.)

The Attorney-Client Relationship

I. INTRODUCTION

The law of attorney-client relationships is colorful. This chapter will favor the reader with characters including the Supreme Dictator of the Loyal Order of Moose, the "Earth Protector" Humphrey Bogart and Katherine Hepburn.

The law of attorney-client relationships is controversial. Courts have frequently disagreed, sometimes strongly, over fundamental issues. For example, Leonard v. Dorsey & Whitney LLP, 553 F.3d 609, 624 (8th Cir. 2009) stated that formulations of Minnesota law by the bankruptcy court and the district court, on the attorney-client relationship, "contrast[ed] mightily" with the Minnesota Supreme Court's authoritative determinations. The bankruptcy court regarded an expert's opinion that there was no attorney-client relationship as "close to a specious position," but the appellate court regarded the bankruptcy court's view as clear error. In re SRC Holding Corp., 352 B.R. 103, 187 n.61 (Bankr. D. Minn. 2006); Leonard, 553 F.3d at 624. To take another example, in Hornberger v. Wendel, 764 N.W.2d 371 (Minn. Ct. App. 2009), the district court sanctioned a lawyer for purportedly making a frivolous claim to represent an insured client, but the appellate court held that, as a matter of law, the lawyer did indeed represent the insured.

The law of attorney-client relationships is nuanced. Several types of clients are considered at length in this chapter: joint clients, fiduciary clients, insurance clients, and organizational clients. Other types of special clients are briefly considered: class action clients, clients with diminished capacity, and clients acting as agents.

The law of attorney-client relationships was unsettled on important issues for a surprisingly long period. When may the insured's defense counsel also represent the insurer? In entity formation representations, does the lawyer represent the principals, or the entity-to-be, or both? Third-party beneficiaries may have standing to sue a lawyer, but what are the circumstances in which they may do so? These questions first received definitive answers in the early twenty-first century. However, the Minnesota Supreme Court has not yet definitively answered another important question. In fiduciary representations, is the client the fiduciary entity or the fiduciary acting as such?

Because the formation of the attorney-client relationship is generally a matter of civil law, usually involving malpractice cases, this chapter will venture somewhat beyond the familiar borders of the Rules of Professional Conduct.

II. THE FOUNDATIONAL IMPORTANCE OF THE ATTORNEY-CLIENT RELATIONSHIP

Why is it of fundamental importance to know when there is an attorney-client relationship and when an attorney is acting as such? There are three good answers.

The first and most important answer is that identifying attorney-client relationships is foundational for legal ethics and fiduciary duty. Most of the Rules either refer to "a client" or begin with words like, "In representing a client . . . ." In cases involving such rules, whether there is an attorney-client relationship "is very important, for if there was no attorney-client relationship, there could be no violation of Rules 1.4 and 1.7." In re Perry, 494 N.W.2d 290, 294 (Minn. 1992).

Lawyers owe numerous and important duties to clients—loyalty, confidentiality, candor, and, within the bounds of professional judgment, obedience—but owe only a small number of duties to non-clients. "There are few of the business relations of life involving a higher trust and confidence than that of attorney and client, or, generally speaking, one more honorably and faithfully discharged; few more anxiously guarded by the law, or governed by sterner principles of morality and justice; and it is the duty of the court to administer them in a corresponding spirit, and to be watchful and industrious, to see that confidence thus reposed shall not be used to the detriment or prejudice of the rights of the party bestowing it." Stockton v. Ford, 52 U.S. (11 How.) 232, 247 (1850). Failure to identify clients correctly often will result in serious breach of duties.

A second answer to the question of when an attorney-client relationship exists is, malpractice plaintiffs almost always must prove such a relationship to have standing to sue. McIntosh County Bank v. Dorsey & Whitney, LLP, 745 N.W.2d 538 (Minn. 2008) (Recognizing a very limited exception to this standing rule, for third-party beneficiaries.).

A third answer is often needed to determine who, if anyone, is responsible for legal fees. This issue can arise in both implied and express contract cases.

Implied contract analysis was needed to determine whether the Loyal Order of Moose would have to pay fees at a lawyer's rate, rather than the lower rate of a mere "Dictator." When Leslie High, a lawyer, became "Dictator" (head of the Duluth chapter) of the Moose, he inherited numerous debts and other problems. Acting both as "Dictator," and lawyer for the organization, High cleaned up the situation—"[a]pplying himself with diligence and perseverance, although not always with tact . . ."—and billed his legal work to the national organization. High v. Supreme Lodge of World, Loyal Order of Moose, 210 Minn. 471, 473, 298 N.W. 723, 725 (1941). The Supreme Dictator refused to pay. Claiming his attorney fees, High wrote, "'This isn't a Dictator's job. This is legal work.' To this the Supreme Dictator replied, 'There is no doubt about that.'" Id. at 475, 298 N.W. at 725-26. The Court affirmed a finding of an implied attorney-client relationship. "In such case, it is not expected that the elements of a contract will be as vividly portrayed by the evidence as where an express contract has been pleaded." Id. at 473, 298 N.W. at 725.

Express contracts are not always expressed-clearly contracts. Saliterman (S) owned and was CEO of a corporation, LOS. Fredrikson and Byron (F&B) represented LOS in arbitration, while S had separate counsel. The engagement letter, addressed to S, stated, "Thank you for selecting Fredrikson & Byron, P.A. to represent you in the litigation matter concerning [LOS]." Fredrikson & Byron, P.A. v. Saliterman, No. A12-0906, 2012 WL 6652633, at *1 (Minn. Ct. App. Dec. 24, 2012). S signed a related fee agreement, without adding LOS, or referring to his relationship with LOS. LOS had no assets. When S did not pay F&B's fees, F&B sued S. In the engagement letter, did "you" refer to S, to LOS, or to both? The Court of Appeals, reversing a summary judgment for F&B, concluded that the engagement documents were ambiguous and the extrinsic evidence was inconclusive. One lesson from this case is for lawyers to identify clients in engagement letters by clear statements, such as, "In this matter, this firm represents only [CLIENT NAME]." Another lesson, for avoiding claims from would-be third-party beneficiaries, is also to include in standard engagement letters, "It is mutually understood that these services are solely for the benefit of [CLIENT NAME]." McIntosh Cnty. Bank v. Dorsey & Whitney LLP, 745 N.W.2d 538 (Minn. 2008).

III. COMMON CONFUSIONS ABOUT CLIENT IDENTIFICATIONS

Lawyers represent clients. Lawyers assist clients in furthering or protecting their interests, or in fulfilling their duties. Third persons often appear either as client agents, or as direct or indirect beneficiaries of the attorney-client relationship. These interests, duties and third persons are important—but they are not clients. Courts, parties and commentators have sometimes mistakenly equated the importance of these third persons and these goals of legal representations with client status.

These errors appeared in In re SRC Holding Corp., 352 B.R. 103 (Bankr. D. Minn. 2006). (The author was actively involved in defense of this case.) Reviewing courts found clear error. Leonard v. Dorsey & Whitney LLP, 553 F.3d 609 (8th Cir. 2009); In re SRC Holding Corp., 364 B.R. 1 (D. Minn. 2007). The bankruptcy court erred first, in finding an attorney-client relationship by regarding ultimate interest-holders as clients. SRC Holding Corp., 352 B.R. at 170. Another court had previously drawn the correct distinction: "Representing the 'interests' of a party is, however, not the same as representing the party . . . ." Bieter Co. v. Blomquist, 132 F.R.D. 220, 225 (D. Minn. 1990). The bankruptcy court also erred by attempting to create a public policy basis for standing to sue lawyers - arguing that if lack of standing is a valid defense, "the integrity of these types of commercial transactions are at risk." SRC Holding Corp., 352 B.R. at 173. Leonard considered public policy at length, noting a "trend against granting protection to participating banks" generally, and rejected the bankruptcy court's view. Leonard, 553 F.3d at 625-6. The bankruptcy court also erred in holding that Dorsey had an attorney-client relationship with parties who were unknown potential future buyers at the time of Dorsey's legal work for a party which created financial interests that it expected to sell. SRC Holding Corp., 352 B.R. at 169-70.

The Minnesota Supreme Court has sometimes described an intent to benefit a party, or even having a party "in mind," when performing legal services as relevant or determinative of client identification. Thus, dictum in Humphrey ex rel. State v. McLaren, 402 N.W.2d 535, 543 (Minn. 1987) (discussed below), identifies "the public," acting "through its various governmental agencies" as the client of the state government lawyer, even though the court, in adopting Rule 1.13(a) in 1985, identified the organization (the state or an agency) as the client. A state lawyer can keep the public good "in mind," without supposing that client duties of disclosure and limited obedience are ultimately owed to the public. Similarly, the fact that an attorney represents a minor through her natural guardian pursuant to statute suffices for client identification. Cook v. Connolly, 366...