On demand 1h 2m 02s Intermediate

Best Practices and Ethical Considerations When Negotiating, Drafting, and Enforcing Engagement Agreements

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Best Practices and Ethical Considerations When Negotiating, Drafting, and Enforcing Engagement Agreements

This ethics program will explore how in-house counsel can successfully master the Engagement Agreement process when hiring counsel, experts, consultants, and vendors for litigation or transactions.  Our speakers will guide attendees through the entire process – the necessary preparation (including the Request for Proposal (“RFP”) process); the drafting process (including incorporation of both hourly rates/fees plus any potential expenses to be incurred); and general best corporate/firm practices to maximize the benefits of what in today’s legal market is the most useful first step to address and prepare for an upcoming litigation or transaction.

Transcript

- [Sam] Hello everyone. My name is Sam Tasher, and I'm a managing director at Wyatt Partners. Here with me today are my colleagues Steven and Lindsay Tasher. First of all, we want to give a huge thank you to Quimby for having us, and a huge thank you for you all for joining us for this program. Wyatt Partners is a consulting firm that does three things. First, we provide expert evaluation and opinions concerning attorney's fees and settlements in litigation. Second, we advise companies on the management of their litigation and transactional portfolios. And third, we teach other lawyers, much like we are doing here today, on a variety of topics. A quick background on all three of us. I'll begin with Steven. He's a former deputy attorney general of the state of New Jersey, a partner in two international law firms, and in-house attorney at three businesses, including the DuPont Company and Wyeth. Steven has spent more than a decade since he founded Wyatt Partners focusing on litigation management and the attorney-client relationship, which are things he has dealt with his entire career. Since she graduated from law school, Lindsay has worked for a number of major law firms on securities and aviation litigation before she came to Wyatt Partners. In addition to focusing on litigation management at Wyatt Partners, she regularly teaches on a variety of subject matters around the country, including on the subject matter here today, and she gives her time to serve as counsel to local charity organizations. A little bit about myself, I've been with Wyatt Partners now for nearly a decade, focusing on litigation management and the ins and outs of the attorney-client relationship. I also have served as general counsel to a number of private equity groups and their portfolios managing their litigation and transactional needs. So as you can see, we bring a diverse array of experience, both from the perspective of outside and in-house counsel and both on litigation and transactional issues. So we hope our program today will be informative on a topic that will always be timely. We're gonna move to the next slide. As you can see, there are three parts to our presentation today. I will cover part one, which will focus conceptually on the engagement process and on the ethics rules that will apply to engagement agreements. After that, I will turn it over to my colleagues, and for parts two and three they will get into more practical and nitty gritty on the structure of the agreements and some provisions that you may wish to include or not include. One final point before we begin, if you have any questions, our contact information will be at the end. We would love to hear from you. Please feel free to ask any and anything you want about the presentation or any questions you may have. So let's begin by going to the next slide and start with part one, which will focus on the ethics issues governing the process. And in order to do this, I want to set the stage with some historical background and overview issues. The notion of engaging an advocate began in the days of ancient Rome, where an advocate could be hired but would not be permitted to charge fees. Rather, the advocate would be given a gift, known as an honorarium, from the client, so as to avoid any appearance of the lawyer being a hired gun rather than a principled advocate. Much has obviously changed since then, but our ethics rules that we're gonna talk about here have never lost this concept that an attorney should be a principled advocate, not a hired gun. So as we go through all of these rules and as we go through the presentation, I want to keep in mind the following statement by the American Bar Association when it first fixed the canons of ethics. Quote, "In fixing fees, it should never be forgotten that the profession is a branch of the administration of justice and not a mere money getting trade." So you can see the rules we're gonna cover here today, and we're gonna go to the next slide. And we're gonna start with Rule 1.5, the reasonableness factors. Some quick background before getting into the rule itself. In 1871, the New York Court of Appeals issued a ruling in the case People versus Supervisors of Delaware Company, which held that an attorney should be paid, quote, "what his services are reasonably worth." What does that mean, and why does that matter for us? It matters because the question of reasonableness has always loomed over fees and over attorney engagement agreements. So understanding what that means is critical to setting forth your engagement. In that case, the New York Court of Appeals looked to a couple of factors, which included, quote, "The labor, time, talent, and skill expended." The Fifth Circuit would put forth its own 12 factor test in its 1974 case, Johnson versus Georgia Highway Express, which would ultimately be adopted by the Supreme Court in its 1983 decision, Hensley versus Eckerhart. And as you see here on this slide, the American Bar Association consolidated this into an eight factor test, and we're gonna go through a couple of these factors right now, which you'll recognize resemble some of those original factors in the court of appeals decision from 1871. Starting with our first factor, this is a key factor that focuses on a couple of issues. So the first is the time and labor required. As you're sitting to prepare for your engagement, you have to think about what kind of time and labor is gonna be required on this matter. If this is a litigation, what's the discovery process gonna look like? If it's a transaction, what's your timeline to close? And figuring out who has the resources, what firms have the resources to handle that time and labor? And this touches on the fifth factor, the time limitations imposed by the client or the circumstances. A second part to factor one is the complexity and the difficulty of the case. What kind of laws are gonna be involved? What kind of legal issues? What firms have, we'll take a look at the seventh factor here, the experience, reputation, and ability to handle these kind of cases? Will this need to be a big firm or can this be handled by a smaller firm? If we look at the third factor, the fee customarily charged in the locality for similar legal services. So starting with the similar legal services component, this requires looking at all of the other factors. What the complexity is going to be in this case, what the stakes are, all of the issues that will confront what kind of laws are gonna be involved, and who is capable of handling that, and what locations are involved. This may be simple, such as what's the venue? But it may not necessarily be that simple. If there's a jurisdictional fight, if it's a multi-district litigation and you need multiple sets of counsel or a national coordinating counsel, what do you need? Where are the documents that will be needed to look at in a litigation or transaction? Where are they located? Who's in the best position to go get them and deal with them? And figuring all of this out in advance of your engagement is gonna be important to figuring out who the best person or firm is to handle this. Looking at the fourth factor, the amount involved and the results obtained. This involves matching up the stakes of the matter and the desired goals to the firepower needed to litigate or process the transaction. If this is a bet-the-company case and needs a much larger firm with the resources to do that, so be it. That's what you have to do. Other cases won't necessarily warrant that level of expenditure, and matching that up with the best firm to handle this is gonna be key. The sixth factor, the nature and the length of the relationship with the client. Those of you who have been in-house counsel before know what this is all about. You have that one trusted firm who's been around forever, who knows everything going on. We, to illustrate, we recently completed the end of last year in arbitration over the attorney's fees incurred in that arbitration. Got a great result for the client, and that was confirmed by the Southern District earlier this year. And in that case, the client turned to the lawyer who wrote the contracted issue to litigate it. And there may have been, it is argued, firms that could have handled this for a little bit lower hourly rates or a little less cost, but he knew every in-and-out of that contract. And in the end, not only did the bills show up because he didn't have to relearn everything, but the results showed because he won everything. And I mean he won everything, 'cause he knew everything about it. So that will be an important thing to consider as well. And matching up the what you need with the kind of case and the kind of firm that's out there. We're gonna move on to our next rule, rule 1.5b on the next slide. And this is gonna note what may seem obvious to all of us, that agreements about legal fees should be put in writing. While this is always a best practice, oddly enough, not all states require this. In fact, most states don't. One notable exception is New York, which does require, for the most part, engagement agreements in writing. However, even those states that don't, require it under certain circumstances. So two examples of that. Contingent fee agreements. Everywhere I've ever seen requires that be in writing, and there are several aspects to that. One, what's the percentage, obviously, but also what are the mechanics of the contingency? Is it off the gross or off the net? Is your contingent fee contemplating there might be some non-cash component? In which case a lot of courts have held you need to put that very explicitly in writing and put provisions on the mechanics of that, like how do you value it? What if there's dispute? What's in, what's out? The more you put in writing upfront, the less likely it is you're gonna have a problem. Another kind of arrangement that must be in writing in certain states is fee splitting. So when one firm and another firm are going to be splitting the same bill, you have to disclose that in the engagement agreement to the client in writing, and disclose the breakdown. New York is one state, Rule 1.5g, Texas is another one, 1.4f, that promotes disclosure and transparency with the client. Even when in writing, certain engagements are prohibited. Contingency matters in criminal cases or in divorce cases, those are universally prohibited. The other important thing to remember is that at this time, when you're doing a written engagement agreement, this is the best time to start including any rules of the road, like billing guidelines, budget requirements, and anything that you expect counsel to follow, 'cause the key here is eliminating any surprises and promoting transparency, so that the client doesn't get the first bill and says, "Hey, what the heck is this?" Having an understanding upfront is always the best way to proceed, and getting it in writing during the engagement process is really the best time to take care of that. We're gonna go to the next slide and talk about our next two rules, Rules 1.2 and 1.4, which work in tandem. And one other thing I want to emphasize, always check your state's rules first, because we're gonna show you the model rules. Every state's different. Rule 1.4 is generally uniform, but Rule 1.2 has some state variations I'm gonna highlight. So Rule 1.2 requires a lawyer to consult with the client and determine the way the case should be handled. Four states, I want to highlight their variations on this rule. So California requires consulting with the objectives of the representation. Delaware requires consulting about the objectives and means of the representation. New Jersey, about the scope and objectives of the representation, and Texas, the objectives and general methods of the representation. So ultimately if the client has to make his or her mind up about the goals of the representation and how to get there. But how does the client know? Well that's where we go to our next slide. Rule 1.4 comes in. And Rule 1.4 has three general components to what a lawyer must do. First, consult with the client about the client's scope and objectives. Second is explain the matter to the client, educate the client, and inform the client. And third, enable the client to make informed decisions regarding the scope and the objectives of the representation. I like to call this the circle of life because it's a two-part approach. The client has to say first, "Here's what I'm looking for." And then the lawyer says, "Well here's the issues you're gonna have." And then the client is now in the position to say, "Okay, let's do this, this, and this, based on what you're telling me." I want to highlight one comment that exists in Pennsylvania's version of this rule. Comment 4, quote, "A lawyer's regular communication with clients will minimize the occasions on which a client will need to request information concerning the representation." This is why the engagement process is so key. Setting a good tone upfront with transparency and regular communication during the engagement sets the standards for what everybody expects and how to get to the end goal. We're gonna go on to our next slide, and we're gonna talk about Rule 5. Rule 5 requires a supervisory lawyer to supervise all subordinate lawyers and non-lawyers in the firm. So not only does this mean making sure that the work is performed in a competent and diligent manner, but to make sure that all the subordinate lawyers and non-lawyers are billing in accordance with Rule 1.5's reasonableness requirements as well as any engagement agreement or billing guideline specific items. So this is key as you build your engagement agreement and set your scope and objectives for at least three reasons. First, who is the supervisory lawyer? This is going to be the person in charge of directing the matter and understanding and implementing the scope and the objectives. Maybe it's the senior partner, that may be true, but there have been some instances where I found that the junior partner or the most senior associate actually best understood our needs because that person was really involved implementing the day-to-day. That person was actually the best person to look at the bills, and I requested that be done because that person knew what was going on every day. The senior partner really didn't do that. The second reason is this person is in charge of ensuring the fees are reasonable. And so you want somebody who you know has good billing judgment. We had a client a number of years ago who had hired the firm of Bradley Arant, a firm we've worked with on a number of occasions. And that lawyer at Bradley Arant, rather than staying in a hotel and billing the client, stayed on a friend's couch. Now did that save the client that much money? Well, okay, fine, but did the client appreciate the gesture? You bet, you bet. And we've talked with a lot of our clients over the years supporting their fees about how their lawyers didn't charge for a regular correspondence, regular routine emails, or the weekly check-in for 10 minutes. They just wrote that time off, and it just builds such goodwill for a little amount. That's why this is so important. The third, who are gonna be the subordinate lawyers and the team? Who's the core team that's gonna be performing much of the work, especially at larger firms where the senior partner's hopefully not doing all the day-to-day work? So how do new people getting added get dealt with? Is there some sort of a requirement that you have to inform the client and explain this? How you deal with replacing people. This is all important to understand in the engagement process and understanding that general core team, so you don't find out later on that you had a hundred lawyers put on the case for no reason. We go to the next slide. Couple final rules to talk about before I turn the mic over. Obviously, you want your lawyer performing the work competently and diligently. And with the diligence, do you have somebody who is going to be responsive and setting the tone early for ensuring that there's a responsiveness and you don't have a fire drill every time that there's a filing deadline? I want to touch briefly on conflicts procedures, because these are things that really need to be identified upfront during the engagement process, because if you don't do it right the first time, the middle of the matter comes around after a lot of money's been spent, and then the client starts from scratch. So if there's a potential conflict, identifying that early, three things must happen upfront during the engagement process. Number one, the lawyer fully discloses the interest to the client in writing. Second, the lawyer advises the client in writing that the client may wish to seek independent counsel. And third, the client will give written informed consent to the potential conflict and in proceeding. So these are all things that are important to ensuring an efficient, cost effective representation that doesn't fall apart in the middle of things. So I'm gonna close out this before we go to part two with three concluding thoughts and takeaways. First, I wanna recall Pennsylvania Rule 1.4's Comment 4, the more communication upfront with the client in the engagement process, the fewer issues that will likely arise, especially when that communication is in writing. Number two, always set a good scope and objectives upfront. Make that clear during the engagement process and be willing to be informed about how to better that scope and objectives throughout the representation through good communication. And third, the scope and the objectives and ultimately, whom to hire, should be informed through good communication and information by the Rule 1.5 factors like the stakes of the matter, the time and labor required, and the complexity and the difficulty. Set things off on the right foot early during the engagement process, and it's far less likely you will have any issues down the road, and it's far more likely you will have a good, healthy attorney-client relationship. With that, thank you so much for being here with us today. I will be turning it over to my colleagues to go into parts two and three. - [Steven] Thank you, Sam, very much. Very, very interesting way to set the table. Very, very informative, particularly on the issues of collaboration and transparency. I am going to turn to content, format, and structure of engagement agreements. And by the way, I apologize for the lack of introduction. I'm Steven Tasher, I'm the CEO of Wyatt Partners. There are a number of issues, as you can see in this first slide, which have to be taken into account when dealing with the content, format, and structure of engagement agreements. And they include, for example, the assessment of the matter. What is the it? Are we talking about a minnow or a whale? Are we talking about an intersection accident or, as Sam talked about earlier, a complex litigation involving multiple venues, multi-district litigation? Very important to understand that as you structure an engagement agreement, Also, an evaluation of the risks and the stakes. What are the projected litigation costs? What are the potential liabilities, both damages, potential punitive damages? Are there criminal law implications to this? And what are the stakes to the client, both from a monetary perspective and a non-monetary perspective? And that set of factors will greatly inform a decision on what counsel are brought, or set of counsel are brought in to handle the matter. Evaluating the rules and responsibilities of counsel is vitally important. Understanding whether you're bringing a firm in with sufficient expertise, experience, bandwidth, and resources to do the job. And that, of course, is a fundamentally important part of the engagement agreement. One of the things that we found useful early on and incorporated into engagement agreements are two sets of things, early matter assessments and budgeting and billing requirements. These will assist in quantifying each of the issues that I've described before, and give an early snapshot into the manner in which the litigation or the transaction's to be conducted, the resources that will have to be brought to bear, and timing, and I'll get into that in a moment. Also, the expenses, including experts, consultants, vendors. The kinds of expertise that will have to be brought to bear. Will you need financial expertise, technical expertise, and other types of of experts, consultants, and vendors to assist in the matter? And how will those be treated? Also, incorporation of the stages of the matter. What is to be the timing, how is the matter to be staged? And other format and structure considerations. What quantum of time is to be required? Are we talking about a month, a year, multiple years? Those are very, very important factors to take into consideration. If we can turn to the next slide, the assessment of the matter. What is the complexity and the required workload that are to be anticipated? What are the issues? How much work is to be performed? What are the resources that are going to have to be brought to bear? In terms of jurisdiction and venues, Sam talked before about multi-jurisdictional, multi-venue litigation. Is it one of those? Are we in a single place? And what resources are going to be available in each of the locations to handle it? Who are the parties involved? Are we talking about a single party, a multiple set of parties? Is the federal government or state governments looming in the background to take a look at possible private causes of action or public causes of action? Understanding the entire landscape is going to be vitally important in the the assessment of the matter. Also, the location of key players and information. Where is the information that is going to provide the essence of handling the matter? Is it spread out over the United States, over the world? Who will have access to it? One of the things that we have discovered is that document review and discovery is an enormous driver of litigation costs. Understanding where that information is, is it in some cage or basement in a musty old building? Is it on a computer drive? All of those things will have to be understood so that a scope of work can be provided and can be taken into account in the engagement agreement. Some other critical issues. What resources are to be brought to bear against you? Are there multiple major firms who are going to be arrayed against you? This, of course, will have great bearing upon the selection of counsel and the determination of how the defense is going to go forward. And also, what is the conduct or anticipated conduct of the opposition? Are you gonna be facing a number of people who will engage in a scorched earth exercise or is it anticipated that it'll be a less onerous set of tasks? If we can turn please to the next slide. This may sound like a fundamentally silly issue, but is vitally important in an engagement agreement. Who is the client? It will impact the substance of the agreement in many ways. Who's paying for the services? Who is going to be involved in the decision making process? Who is gonna be involved, for example, in active and possibly engaged review of work that's to be performed? Who is going to be the ultimate decision maker on strategy? And also, who is going to be the ultimate decision maker in terms of settlement initiatives and efforts that go forward? All of those ought to be identified in the engagement agreement. Sam talked about conflicts before, and this is going to impact counsel and experts, consultants and vendors, understanding what potential conflicts may be coming down the road, and accounting for them so that you don't go through a fire drill at the last minute, but that you've already put in place a mechanism and a process for dealing with that. And of course, that will potentially impact the scope of work. Evaluation of the risks and stakes is a very important component to factor into the engagement agreement and factor into provisions of the engagement agreement, which I will get into a bit later. From a monetary perspective, is this about the company case? Does this case or will this case offer an existential threat to the company? And an evaluation of potential damages, judgments, and investment in required workload will be weighed with respect to an evaluation of the cost of the litigation. Is this simply an intersection accident which doesn't require the kind of bandwidth resources, expertise, and experience that a major firm has? But understanding all of these issues at the outset, vitally important. Also, what are the non-monetary risks involved as well? Many of you who have been involved in major litigation understand that public disclosure about the litigation, whether it's in SEC filings or even in the press can affect the reputational integrity of the company. It may also affect the company's ability to borrow money or to engage in additional business investments. Also, the community impact. We're involved in a case right now which is going to trial next month, and one of the issues is whether and to what extent this litigation may require plant closures. For those of you, like me, who've been in-house before and have had to preside over plant closures and the impact on the sometimes thousands of employees who are employed by the plant, the local businesses who rely very heavily on the having that plant in the location, the tax revenue associated with that, all of those things will have significant non-monetary impacts. In addition to that, if, I talked before about timing and the, whether the matter will be protracted over a period of time. Matters that have to be defended, particularly major complex litigation, requires a significant amount of collaborative effort and information providing by members of the corporations themselves who are sued. And so people who would otherwise be free to run the businesses and do what they do on a daily basis will be distracted and have their time diverted. So the diversion of corporate resources, the distraction, the psychic energy that has to go into into these pieces of litigation are gonna be very important factors and considerations as well. And then in terms of other industry specific impacts, will your competitors seize upon this litigation to gain competitive advantage? And all of those have to be taken into account and will really inform the determination of the team that you put together to handle this matter. One of the important components of an engagement agreement is setting forth the roles and responsibility of counsel. And this is a critical component. Who is going to be doing what? Sam talked earlier about transparency, and communication, and understanding what is to take place. This is a very important part of an engagement agreement, setting forth the roles and responsibility of counsel, making clear of who is going to be doing what. So for example, in terms of primary versus local counsel, if the matter is in a venue where you're going to have primary and local counsel, do you have separate agreements and scopes of work for each of them? We were involved in a case a couple of years ago where local counsel essentially morphed into co-primary counsel with an extensive amount of duplication of effort and some confusion. And it's very important at the outset to avoid any level of confusion, understand exactly who is gonna be responsible for doing work. And particularly in case management and staffing, structuring, and delegation of work in order to handle things as cost effectively as possible to avoid duplication, those things ought to be laid out in great substance in the engagement agreement, and really the same for the experts, vendors, and consultants. Understanding what each of them is to do, who is going to be supervising and reviewing that work. All of these should be discussed and provided for in your engagement agreement. In terms of the hourly rates, those should be set forth in the engagement agreement. And to the extent there are going to be increases in rates, particularly as I said before, if a matter is gonna be protracted over a period of time, how you deal with raising hourly rates and those types of provisions and thoughts ought to be set forth in the engagement agreement. Some companies do not want any raising of hourly rates during the course of the engagement. Others provide that a reasonable rate can be effectuated on an annual basis with the permission, a written consent of the client. And so those things ought to be laid out in in advance. Also, as I said before, your matter may involve multiple co-counsel and co-defendants for complex litigations and transactions. All of those should be set forth either in one engagement agreement or multiple engagement agreements. And the identification of who is to do what, including adding additional timekeepers as matters go forward, very important. I know that matters evolve over time and litigation can change on a dime, but we have found that two useful tools that I'll be discussing in a moment, one is early matter assessments and the other is budgeting and billing, can provide you with an important early window into the manner in which the matter is to be handled and related costs and resources expended and issues to be involved. So we have found that early matter assessments allow for a forward-looking view of the litigation and the transaction, with an identification of resources, staffing. Very, very useful indeed. Where will the cost likely be incurred, identification of various stages of litigation. What do we envision motion practice to look like? What is going to be the resource that's gonna have to be put into the trial? Discovery. Breaking down these costs and including them in an early matter assessment are very important planning tools for a matter. What will be the key issues in the case that will impact necessary language in the agreement? Will there be extensive discovery, travel for depositions, even appellate related work, whether on an interlocutory basis or ultimately, if the matter doesn't resolve satisfactorily. This tool will enable counsel and client to communicate as early as possible as to strategy and necessary resources. And we have also found it's an extremely useful tool in a risk-based analysis of determining whether and to what extent to settle a case. So if, for example, the cost of the litigation and all of the costs that I've just described are gonna be X, and the actual potential liability is gonna be less than X, it becomes an important consideration as to whether the matter is one that is subject for an amicable resolution. Equally important and useful a tool are budgeting and billing, and these can be helpful in assessing to what extent you can utilize counsel and experts over the course of your litigation. All of these will provide you with some assessment and some idea of what the matter is going to cost. And one of the things that's very important is to clarify who is the primary contact for counsel and experts regarding the supervision of the work product as well as the experts' invoices. Sam talked before about the supervising lawyer. In most cases that is the person who it is to be, but it doesn't necessarily have to be. But having a focal point, having someone who is your primary contact is very important. One last point that I will make is the incorporation of outside counsel billing guidelines. Many of you who are in-house in corporations have those, many of you do not. And those outside counsel billing guidelines can provide an ongoing set of rules of the road for the conduct of the matter. And one thing to consider is to include those rules of the road into the engagement agreement themselves. In terms of the next slide and expenses, again, as Sam indicated earlier, transparency is the key. The more in writing, the better. This applies to engagement agreements with experts, vendors, and consultants as well. Asking the same questions. Who's the client? Who's responsible for supervising the work, and what is the scope of work for each of these specific agreements? And these agreements are also subject to the same Rules of Professional Conduct as counsel. Again, these are simply factors that you should take into account during the stages of the, the various stages of the matter, pre-litigation, motion practice, work related to experts, trial and appeal, different phases of due diligence for the transaction, all of these are components which should be incorporated to the extent practical into your engagement agreement. And if I can just turn to the last slide of my section, please. Other format and structure considerations. As I talked about before, the incorporation of outside counsel billing guidelines. Do you wish to establish a set of rules of the road at the outset in your engagement agreement? These can be very useful ways of parsing out and identifying exactly how you wish counsel to proceed. Clarity with respect to methods for supplementing or changing the scope of work. As I said before, litigation evolves over time. If the scope of work increases or budgets are not what was anticipated, establishing a mechanism for doing so and having a process in place so that the changes can be made anticipated in advance to the extent possible. And also the consideration of any necessary attachments, whether they're pertinent state, federal rules, statutes, or other company history documents, are very important to consider as well. Now I would like to turn the program over to Lindsay, who will address additional considerations. - [Lindsay] Thank you so much Sam and Steven, and most importantly thank you again so much to our colleagues at Quimby for having us back, especially to Jillian and to Kelsey for all of your wonderful support throughout this entire process. So at this point in the program, Sam has done a great job of laying out the basis and the rules for the best practices and the ethical issues that come up when creating these engagement agreements. And Steven has a very thoroughly walked us through big picture considerations that need to be factored in, such as the who, the what, the how. And now in part three, we're gonna go the extra mile and take a look at some specific clauses and provisions. Having seen all kinds of engagement agreements, some are very, very long, some are very sparse, we wanna focus on the particular provisions where, if they are missing or not addressed as thoroughly and comprehensively as they can be, it's where we see complications and disputes arise. And highlighting them here should give everyone a full understanding of why they're so important. So we're gonna focus on the following ones, choice of law, dispute resolution, staffing and rates, revisions and supplementation, insurance related provisions, and the incorporation and assessment of outside counsel billing guidelines. Again, these are not by all means the only important provisions that go into an agreement, but they're the ones that we would like to focus on today. The one goal that we consistently come back to, and as Sam described in detail in part one, is clarity and transparency under the Rules of Professional Conduct, notably Rules 1.2 and 1.4, scope and communication. And as Sam referenced the circle of life in his presentation, our discussion now is going to bring those goals full circle in the circle of life. So with that, if we could go to the next slide and talk about choice of law. This is a provision that, if left unaddressed or incompletely addressed, I guarantee you will inevitably come up as a problem later. The takeaway here is the big what if something goes wrong and some sort of dispute arises with respect to the agreement between client and counsel. And the dispute is gonna have to take place somewhere in a specific location that's going to apply a specific set of laws, and you'll wanna consider the location of not just where all the parties are, but as Steven mentioned before, where all the information is going to exist. For example, let's say you have a big piece of litigation or a big transaction, and you are hiring a Florida based law firm, but the specific area of practice or the department you are working with is in their California office, you do want to take that into account because if your files, and the courts, and all the witnesses are going to be in California, does it make sense for the agreement to even be in Florida? Maybe or maybe not, but it is something you want to think about. Another what-if. What issues could arise in the event of a dispute between between client and counsel? Could it be malpractice, a payment dispute, a breach of contract? Different jurisdictions have different ways of handling certain claims or treat them differently, and you will want to consider that too. One thing that's interesting, and we've seen it before, where engagement agreements can designate different locales or choices of law for different claims or issues. So for example, we've seen engagement agreements put a venue or law something in one particular state court, but separately, the engagement agreement says if a fee dispute arises, we're gonna put it somewhere else or even go the avenue of alternative dispute resolution. I am going to abbreviate that and refer to that as ADR going forward. Which brings us to the last bullet here. Choice of law can also factor in these alternative dispute resolution, AKA ADR issues, which can be very, very important. So with that, if we could go to the next slide and talk dispute resolution. Biggest takeaway here, make sure the articulation of what you are deciding to do is clear and that everyone understands exactly what it is they are agreeing to with this ADR. Specifically the nature, the timing, the logistics, and most importantly, the cost of the mechanism being utilized to resolve the dispute. Arbitration, for example, can vary on all of these fronts. The American Arbitration Association has its own set of rules and regulations for both procedural and substantive issues. JAMS, which stands for the Judicial Arbitration and Mediation Services, they have their own rules, and that can be interesting. JAMS, for example, has some very specific procedural differences. They can tend to run faster than state or federal courts do. It's done on an expedited basis occasionally, and also allows for limited discovery. So depending on where you stand on documents and certain other issues, a quick moving arbitration with limited discovery may not be what you want. It may not be in your best interest and may not be in the law firm's best interest. You also want to know whether this ADR process is binding or not binding, like if you agree to a mediation. Also you want to figure out how many people are going to be on your arbitration or your mediation panel. Who picks them? How are they selected? All of these things should be fleshed out in advance, in writing, before you sign an agreement. Based on the procedural rules and the process, you are also going to want to be sure to appreciate the costs associated with your dispute resolution. This can get pricey depending on how long it takes, how many panelists you have. So this concept that we've sort of all been led to believe, that dispute resolution is cheaper, honestly may or may not be the case. Again, clarity, transparency, full due diligence of what it is you are agreeing to if you want to resolve things amicably. So with that, can we please turn to the next slide on staffing, which I know Steven spent some time on during part two, and I want to highlight a few new things and then supplementing a few others. So when you're addressing staffing and rate issues, best practice, and from a 1.2 and 1.4 standpoint for the Rules of Professional Conduct, when in doubt, more information is better. Oftentimes, you'll see engagement agreements that include specific titles of timekeepers as well as their rates, so the partners bill at X dollars an hour, associates bill at Y dollars an hour, either within the engagement agreement itself or on a separate sheet of paper attached as a rider with the law firm's full rate structure and titles. That is always a great thing to do, and we would suggest going further with that even to incorporate support staff. And I would like to spend a minute talking about this. One of the things we often encounter in fee disputes involves work performed by support staff, mainly 'cause the client was not always clear as to what specific support staff titles meant. They weren't sure what type of work these timekeepers were staffed to handle, and they also weren't sure what levels of experience the support staff had that rendered specific work task appropriate for what these rates were. And you'll often see in invoices support staff titles such as paralegal, senior paralegal, litigation support, litigation specialist. And oftentimes the client just doesn't know what the differences are in these phrases. And when they look at the bills, the time records in the bills don't shed a lot of light on the answer. So to the extent the engagement agreement is able to articulate those titles and those roles and the levels of experience in the context of the billing rates, two things, the better the client's understanding will be as in terms of what is supposed to happen, and also the easier it's going to be for the client to review and approve the invoices for payment down the road. We'd also recommend as a best practice addressing methods for adding the staff. Does the client have to approve in writing or via some other way? I'd like to talk specifically about rates. And Steven did address a lot of this. There are a couple of supplemental examples especially I wanna talk about here. And as he said, err on the side of inclusivity when it comes to demonstrating the range of your rate structure, Steven was very clear about addressing methods for and the notice of rate changes. Usually in firms, this happens on an annual basis, but whatever schedule it is on, if it's on a different schedule, the client should know how this is going to work in writing. One other issue we see that comes up a lot is what happens if a partner changes firms mid-representation, to a firm with a higher rate structure? We see it happen all the time. People change firms. Where the client's counsel, which usually the senior partner on the case, switches from a small or a medium sized firm in one locality to a big firm in a large city where all of a sudden boom, the entire rate structure changes overnight. And in some cases, it can be a lot of money. It's not just the partner, it's the whole team, it's the associates, it's the support staff, it's everybody. And in each case, in the fee disputes where we've seen this happen, it becomes a big issue. And look, while no one can ever predict 100% if somebody's going to move, to the extent it's something where it can get addressed upfront in the event it happens, that is always a best practice. While we're on the subject of rates in different localities, there's also an opportunity in an engagement agreement to address other interesting issues. So what if you have firms representing a client on different issues, and the bankruptcy associate in New York City has a higher rate than the senior partner trial counsel in the different locality? We've seen that come up too. And there are definitely ways to address that upfront, either via blended rates or some other way to negotiate this. But again, it is something that can and should be negotiated and put in writing upfront. So with that, let's go to the next slide on revisions and supplementation. Here is the next important thing you will want to consider. What if over the course of the representation, something has to be changed or supplemented? You want to make a hundred percent sure it is done in a way that is not only enforceable but clear. How do you do that? Do you create a rider or an addendum, or should you draft an entirely new agreement? Before we get into the best practices, I think it might be helpful to talk through why would this happen? Why would you need to change an agreement? A number of reasons. Scope of work could change, the parties could change, or something could happen that just completely sends your litigation or your transaction down an unexpected path. Couple examples. The case could switch jurisdictions. You're litigating a case in New York for months, then all of a sudden, it moves for jurisdictional reasons and you wake up the next day, you are in Ohio, you need Ohio counsel. Same situation, only there is a jurisdictional dispute, and the judge orders preliminary discovery on this issue that no one ever anticipated. Somebody has to do this doc review and discovery. It is going to impact your staffing and you are going to need to address it. You could be proceeding in a case and overnight a bankruptcy issue plows in. One of the defendants declares bankruptcy. You are going to need a bankruptcy attorney to evaluate this issue. They have different rates, they may be in different offices. All of those things could happen. They do happen. And to the extent you need to get this into a written document, you should. For the most part, the majority of these issues can be addressed in a rider or an addendum to the original agreement, so long as it's clear and the appropriate cross references to the original document get included. When would you need an entirely new agreement? This happens if you get an entirely new matter. So let's say you're representing a client on a piece of commercial litigation and they decide they love working with your firm, and they have a corporate transaction that they want to hire you for using your California office. This should involve doing an entirely new agreement. It is gonna involve different staffing, very likely different rates, a different scope of work, all of the above. And the bottom line is you do not want to proceed putting all of your invoices together. You do not wanna co-mingle these matters for purposes of bill review or for purposes of clarity. So in that case, you are gonna wanna do an agreement. Okay, you are also going to want to make sure the engagement agreement is clear as to who has to sign off on the revision or supplementation. This often depends, as Steven discussed earlier, on who the client is. One last point, there may be some instances where the need to revise or supplement an agreement will demand an assessment of a client's outside counsel billing guidelines, or at least certain provisions that may or may not be working. I'm gonna use the example of the jurisdictional related discovery that we spoke about a few minutes ago. If the outside counsel billing guidelines, and we've seen this, say, "You may not put first year associates on the matter," but it truly may be that these junior associates would be in the best position from a rate or task appropriate standpoint to handle this work, that's a time where the client and counsel should come together and discuss this, again, under Rules 1.2 and 1.4 that Sam talked about. Scope, communication, clarity, transparency. I just wanna spend a minute or two talking about insurance related provisions. If a litigation or a transaction has an insurance related aspect, like for example, where a carrier is covering legal fees under an indemnification provision, this is another scenario where the fewer possible surprises, the better things that should be put in writing absolutely should be. Because with a carrier, with an insurance company, you're essentially involving a whole other person in a relationship, which can complicate things and require some additional lines of communication. For example, the carrier and the client may have two totally separate sets of outside counsel billing guidelines which have to be reconciled if there is a conflict. And you are always gonna wanna be sure to flesh that out. You wanna be sure to the extent the carrier has specific instructions on reviewing pleadings, who the particular contact is, the format and the content for submitting invoices for counsel. All of that should be laid out very, very clearly in writing. For this final part of the program, I wanna spend our last few minutes together mentioning a handful of miscellaneous clauses for everyone's consideration that help round out the edges of your engagement agreement and ensure the maximum amount of thoroughness and clarity. These clauses could go honestly in one of two places, and we've actually seen them appear in both, but they should show up in either the actual engagement agreement or the outside counsel billing guidelines. And just very quickly, one of the things we'd like to note is that a lot of times, to the extent a company or a client has outside counsel billing guidelines, one of the conditions for retention of counsel is that outside counsel has to agree to and sign the billing guidelines in the context of the engagement agreement. So the bottom line is, as a best practice, everyone should be reading both documents at the same time. So now let's talk about some of these clauses. The first is an audit provision. We mostly see this in the outside counsel billing guidelines, and it gives a client a certain window of time to go back and conduct an audit of counsel's invoices. We've seen it used occasionally when an actual budget has significantly deviated from the anticipated budget and in a few other circumstances, like when a new general counsel comes in and they like to do an assessment of who is working for them and what the legal spend is going forward. The most favored nation clause is another interesting one. It basically says that, as a client, I am telling you, the law firm, that you are gonna charge me the same rate structure that you do for whichever one of your other clients is currently receiving your lowest billed rates. So let's say for example, a firm has a massive multi-billion dollar client and they're charging them very low rates that honestly make no difference because of the sheer volume of the work. The most favored nation clause is something a client can negotiate to benefit from those rates. You wanna make sure the engagement agreement is very clear about payment instructions, and more importantly, who is on the hook in the event that the client does not pay and what the remedies are. You wanna address if stoppage of work is an option, interest about late payments, so there are no surprises. Discounts. A lot of times we see them applied casually or at random, but two scenarios where we've seen an issue develop is when they were applied at random and then all of a sudden they stop, or at times when a new partner steps into the case and say, "I'm not doing discounts anymore and there's no memorialization of prior discounts." So there can be an issue, the client can get upset. Termination. Key takeaway here, always make sure you are as clear as possible regarding what defines a material breach. Confidentiality. You especially want to make sure it is clear how files need to be returned or deleted after each case, and this often gets handled in conjunction with protective orders that may apply to the case or the transaction. Often there has to be an affirmative representation that everyone has done this, including experts, consultants, who may have signed the protective order, to say, "Yes, I have cleared my files, I've given everything back." Again, clarity, transparency, no surprises. And with that, I want to thank everyone again for joining us today. Thanks to Quimby. And as Sam mentioned, if you have any additional questions we were not able to address on this program, please feel free to reach out to us via our contact information on the last slide. Thank you again.

Presenter(s)

LT
Lindsay Tasher
Managing Director
Wyatt Partners
ST
Samuel Tasher
Managing Director
Wyatt Partners
ST
Steven Tasher
CEO
Wyatt Partners

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