From Letters for Small Business Lawyers
The contract for legal services is the single most important piece of documentation or correspondence between an attorney and her client. Most critical to the contract for legal services are:
• identification of the client;
• purpose and scope of the engagement; and
• determination of fees and terms for payment of the same.
Other important provisions are included in the sample engagement letter in this chapter as well. However, attorneys should check with their state or local bar association for examples of specific requirements for contracts for legal services in the state where they practice.
Correspondence regarding invoices for legal services, particularly when responding to concerns about the amount of the bills and cost reduction, can make the difference between keeping clients or losing them. Clients inexperienced in working with lawyers, such as first-time entrepreneurs, are often shocked at how quickly legal bills can add up and need help understanding how they can help keep their costs down and how value is added when costs are incurred.
Good communication can help clients understand that it is often impossible to anticipate how long something will take when there are third parties involved or when a client is going through a process for the first time. One former client company was founded by three graduates of Harvard Business School who were engaged in their first business venture. The founders were all extremely bright and well educated, and wanted to thoroughly discuss every provision in every document and explore all of their options with regard to the same. This process went well beyond what one would consider prudent for the exercise of good business judgment and into the range of a scholarly or philosophical pursuit. Of course, this made all of their transactions very costly. Estimates for legal costs typically assume a level of efficiency, work, and preparation on the client’s part that sometimes proves unrealistic. The best thing an attorney can do in this regard is keep communication open along the way.
When a client terminates the engagement of legal counsel, facilitating a smooth transition with grace and leaving the door open for the client to comfortably return is the smartest approach, but admittedly difficult in some cases. Documenting when the representation is terminated or when the attorney declines a representation is also very important for risk management purposes.
Other issues addressed in this chapter’s sample letters include helping a client understand the attorney-client privilege, an attorney’s change in firm affiliation, termination for non-payment of invoices, and the handling of a client’s file, among other items.
Engagement Letter with Alternative Paragraphs
{Date}
{Name}
{Company Name}
{Address}
{City, State, Zip Code}
RE: Agreement for Legal Services
Dear {Salutation}:
This will confirm that COMPANY, a California corporation (Company), has requested that the FIRM (Firm) assist it by [drafting an executive employment agreement] [providing outside general counsel services]. The Firm is happy to provide these services, along with such other legal services as we may agree on.
[The letter sets forth the terms and conditions for our provision of general corporate counsel services, waiver of the Firm’s usual retainer requirement, and deferral of up to $__________ in fees until the Company has received funding, in exchange for equity participation in the Company, in addition to payment of its fees upon funding of the Company.] Please review this letter, including the attached terms and conditions, and if it meets with your approval, sign below to signify your agreement. This letter shall be a contract for legal services between the Company and the Firm, as discussed more fully below.
If you accept the terms set forth in this letter, please sign and return it to me [with a check in the amount of $___________ for your retainer. Alternatively, you can return the signed engagement and retainer via fax or e-mail using a credit card or wire transfer for payment.].
If you have any questions, please do not hesitate to call me. I want to take this opportunity to thank you for choosing the Firm to satisfy your need for legal services. I look forward to a mutually rewarding relationship.
Very truly yours,
FIRM NAME
Lawyer Name
Enclosure
Accepted and agreed this ____ day of [MONTH], 20___:
COMPANY
By: _______________________________
[EXECUTIVE], [TITLE]
Terms and Conditions
[The Company is the Client. The Company is the client. To the extent any shareholders, officers, directors, or employees of the Company desire legal advice regarding their individual interests with respect to any transactions of the Company, they understand they must seek independent counsel.]
Fees and Services. Our fees will be determined by the number of hours worked, the reasonable value of legal services provided, and the billing rate of the individual performing services. At present, partners are billed at $____ per hour and associate and contract attorneys are billed at $____ per hour. Our fees are not contingent upon completion or success of the proposed matter. We reserve the right to modify our hourly rates from time to time. The Firm will perform the services described herein with reasonable professional skill and reasonable dispatch, subject in all material respects to your direction.
[Retainer. A retainer in the amount of ____________________ Dollars ($______) has been requested. The retainer will be deposited in our client trust account, and we will draw against those funds to satisfy our invoices in this matter. When the retainer has been exhausted, you will be invoiced as set forth below.]
[Fee Deferral. The Firm herby agrees to defer demand for payment of the fee portion of its invoices up to an aggregate of $__________ in fees for legal services until the Company achieves Funding (as defined below). In exchange, the Company hereby agrees to sell the Firm __________ shares of the Company’s common stock at the founders’ price of $______ per share and to pay the Firm’s fees in full immediately upon achieving Funding and to pay such fees currently thereafter. “Funding” is hereby defined to mean: (a) the sale or issuance by the Company of one or a series of equity securities or debt instruments of the Company which, in the aggregate, result in the Company receiving at least $__________; or (b) the merger of the Company, acquisition by another company of its major assets, or other combination whereby the Company is no longer operated as an independent entity.]
[Fee Deferral. The Firm herby agrees to waive its usual retainer requirement and defer up to $___________ in legal fees until the Company has received funding, in exchange for participation in the Company’s next financing transaction as described herein, in addition to payment of the deferred fees upon funding of the Company. The Company hereby agrees to issue securities to the Firm valued at $_____________ (Securities) at a 50% discount to the price paid by investors in the Company’s Next Round of Financing (as defined below) as compensation for the Firm’s agreement to defer fees. For the avoidance of doubt [debt?], no cash shall be due from the Firm in connection with the issuance of the Securities. No late fees shall be charged on the deferred legal fees during the term of the deferral. The “Next Round of Financing” is hereby defined to mean an aggregate of $_____________ raised in exchange for the issuance of equity or debt by the Company. Upon closing the Next Round of Financing, the Company shall promptly issue the Securities to the Firm and remit payment for all fees for legal services rendered by the Firm to the date of closing. Thereafter, fees shall be invoiced and paid in accordance with the Firm’s general Terms and Conditions set forth herein.]
Estimates and Outcomes. You understand that any estimate of fees and costs associated with our engagement is only an estimate, not a fixed fee or an agreed limit. The actual fees and costs incurred will depend on a variety of factors, some of which are beyond our control. At the same time, we understand that you may wish to establish a budget for your legal expenses and will work with you to establish such budgets on request. We will also work with you to help make the most efficient use of our time as practicable. Although we will perform our professional services to the best of our ability, you understand that we cannot guarantee, and we have not guaranteed, any outcome.
Costs. Costs in excess of _______________ Dollars ($_____) may be passed on to you for direct payment, or you may be required to pay such costs in advance in the Firm’s discretion.
Invoices and Payment. You will receive periodic invoices for services rendered and costs incurred on your behalf. Invoices are generally sent in the beginning of the month following the month in which services are rendered and costs are incurred and are payable upon receipt. A late charge of one percent (1%) per month on all balances outstanding for more than thirty (30) days will be added to the balance due. Timely payment in full is a condition of our continuing legal representation. This policy is conscientiously followed.
Client Files and Attorney Work Product. Upon our retention as counsel, a client file will be established regarding matters related to our representation of you. This file may become the repository for important legal documents as well as documents prepared by attorneys reflecting the attorneys’ thoughts, conclusions, and impressions. California law recognizes a privilege with respect to attorney notes, known as the attorney work-product privilege. Should you request the removal of the files from our offices, we reserve the right to retain all attorney work-product documents generated by our professional staff. Absent written instructions regarding disposition of client files, we reserve the right to store or destroy such files upon expiration of six (6) months following the conclusion of the representation.
Termination. You may terminate this Agreement at any time for any reason. Similarly, we reserve the right to terminate our representation of you for any reason upon reasonable notice. Following termination, we will submit a final invoice for services rendered and costs incurred, which will be due and payable upon receipt, less the amount of any remaining retainer funds.
Conflicts. You agree that we may continue to represent or may undertake in the future to represent existing or new clients in any matter that is not substantially related to our work for you even if the interests of such clients in those other matters are directly adverse to you. We agree, however, that your prospective consent to conflicting representation shall not apply in any instance where, as a result of our representation of you, we have obtained proprietary or other confidential information of a non-public nature that, if known to such other client, could be used in any such other matter by such client to your material disadvantage.
Confidentiality. The terms of this agreement shall be kept confidential.
Identification of Client. You agree that the Firm may identify you as a client for marketing or other purposes.
[Limited Scope of Representation. By this Agreement our firm agrees to represent you solely in regard to the matters set forth above. The firm disclaims any responsibility to advise you regarding any matters other than those specifically set forth herein, including any claims you might have against another party represented by the Firm. You must seek representation by independent counsel for all matters other than those specifically undertaken by the Firm.]
[Joint Representation; Conflicts of Interest. A possible conflict of interest for the Firm exists in the representation of a group of persons asserting claims against another entity or person. For example, a course of action or settlement proposal acceptable to one member of the group may not be acceptable to the others, and we will then be obligated to follow the dictates of the majority. By signing this Agreement, each of you hereby waives this conflict of interest and consents to our representation of yourself as well as the other members of the client group seeking recovery. We also reserve the right to withdraw from representing all parties hereto if we deem such action necessary to resolve a conflict that is not now apparent but may arise in the course of this representation.]
[Joint Representation; Attorney/Client Privilege. While we do not purport to give you advice as to any individual concerns you may have, we wish to call your attention to the fact that, except as to certain very limited exceptions, a joint client relationship makes the attorney-client privilege unavailable to the individual clients in any dispute or litigation between or among the jointly represented clients. While we do not now have reason to believe any such dispute or litigation will arise, we believe it is important for you to understand this serious consequence of your joint retention of this firm.]
[Prior Representation of Affiliate. Members of this firm have previously represented AFFILIATE with respect to various business and personal matters. While we do not anticipate that such prior representation will influence our judgment in any aspect of our representation of the Company, we believe it is important to advise each significant shareholder of the prior relationship. Therefore, we request that a copy of this letter be given to each shareholder of the Company who holds more than five percent (5%) of its equity securities and that such shareholders initial this paragraph and return a copy to the Firm.]
Entire Agreement. The terms set forth in this letter constitute our entire Agreement. Any modification of the Agreement must be made in writing. This Agreement is binding on you, the Firm, and the respective legal representatives and successors of each.
*TO MAKE A PAYMENT BY CREDIT CARD, COMPLETE THE FOLLOWING AND FAX TO [FAX NUMBER]:
Type of Card (circle one): VISA MasterCard American Express Discover
Name on Card: ______________________________________________
Card Number: ________________________________________________
CID: ___________ [Last 3 digits on back of card, or 4 digits above card number for American Express]
Expiration Date (MM/YY): __________
Amount of Payment: $_______________
Billing Address Zip Code: _______________
TO MAKE A PAYMENT BY WIRE TRANSFER:
Bank:{Name}
{Company Name}
{Address}
{City, State, Zip Code}
ABA #:
Account name: {FIRM Name}
{Address}
{City, State, Zip Code}
Account #:
Swift Code:
