August 16, 2018 feature

Law Firm at Risk for Nonspecific Scope of Representation

Unbundled legal services offer new opportunities and challenges

By Adam E. Lyons

An appellate decision shows the pitfalls of attempting to limit the scope of attorney representation without a clear agreement identifying those limitations. The holding highlights the need for practitioners to take specific precautions to avoid vexatious and lengthy litigation over the scope of representation.

Limiting the scope of attorney representation

Limiting the scope of attorney representation

Photo Illustration by Elmarie Jara | iStockphoto by Getty Images

The Genesis of the Problem

Genesis Merchant Partners, L.P. v. Gilbride, Tusa, Last & Spellane, LLC began as what appears to have been a successful attorney-client relationship. Genesis, the client, is a combination of venture capital firms. Between 2008 and 2011, the client agreed to make four secured loans to a third party to finance the purchase of several portfolios of life insurance policies. The polices were to serve as partial security for the loans.

The client retained a law firm to represent it in connection with the loans. The firm drafted the loan documents, including a collateral assignment and UCC-1 financing statement for each loan. The firm thereafter filed the UCC-1 statement for each loan. However, no one filed the collateral assignments for the loans.

After the third party defaulted, the client attempted to collect on the life insurance policies. The insurers refused to pay because there was no record of the collateral assignments.

Litigation Ensues

The client sued, asserting that it hired the firm to represent it generally, including ensuring that the client had a secured security interest in the collateral. The parties agreed that no one had filed the collateral assignments. The firm, however, claimed that the client had instructed it to limit its representation and not to undertake any work to perfect the security interests.

There was no engagement letter defining the scope of the firm’s representation. Despite the lack of specific language clarifying the firm’s role, the collateral assignments included language requiring the third party to deliver to the client proof of perfection of the security interest.

Reviewing this record, the trial court granted summary judgment in favor of the client, but the Appellate Division of the New York Supreme Court, First Division overturned. In doing so, it focused on the language of New York’s Rule of Professional Conduct 1.2(c). That rule generally follows the analogous model rule: “A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent.” The court also noted that an attorney has no liability for failing to act on an issue outside the scope of the representation.

The decision makes clear that a lawyer cannot be held responsible in malpractice for failing to do something that is not in the engagement.

Bradford S. Babbitt, Hartford, CT

Cochair, Commercial & Business Litigation Committee

The latter point is critical, advises Bradford S. Babbitt, Hartford, CT, cochair of the ABA Section of Litigation’s Commercial & Business Litigation Committee. “The decision makes clear that a lawyer cannot be held responsible in malpractice for failing to do something that is not in the engagement,” he adds.

In applying this law, the appellate court first found that the language in the collateral assignment form supported the firm’s assertion that the client had placed the obligation to secure the interest on the third party. Second, the court found that email traffic in which the firm asked whether the client was coordinating, executing, and delivering what the third party needed to perfect the interest supported the firm’s position of a limited representation. Accordingly, the court found that issues of fact existed that precluded summary judgment, and therefore remanded the matter for further consideration. The lawsuit, which the client initially filed in 2014, continues.

The Case for Unbundled Services

In July 2013, the ABA House of Delegates adopted a resolution encouraging attorneys to consider unbundled legal services. The fundamental requirement for such a practice is an agreement between a lawyer and the client that the lawyer will provide a specific “task” rather than the “whole bundle” of services. The ABA resolution came in response to the growing use of online and other self-help sources to reduce legal cost, as a way “to facilitate greater access to competent legal services” while acknowledging the public’s cost consciousness.

The ABA now maintains a website called the Unbundling Resource Center. There, practitioners can find articles, decisions, and toolkits. These may be helpful in handling unbundled legal services. Among the resources is guidance on how each state has addressed Rule 1.2(c) of the Model Rules of Professional Conduct, which allows under certain circumstances a limited scope of legal representation. According to the guidance, most jurisdictions have adopted some version of this rule.

Practitioners are well advised to consider undertaking unbundled legal services, according to the website. The ABA’s report on unbundled legal services that supports the House of Delegates’ resolution shows significant numbers of self-represented litigants appearing in court. The report points to those numbers and their increase during the Great Recession as evidence that cost is the factor driving a number of these self-representations.

The Unbundling Resource Center accordingly advises that unbundled legal services may be a significant growth area for practitioners: “Lawyers who unbundle their services in the marketplace charge their full rate, expand their client base because the cost per case is more affordable, and effectively compete with document preparation services,” the report states.

For Want of a Writing a Whole Relationship Was Lost

The Genesis litigation is the result of a small failure that has big consequences. “The litigation really comes down to not having an engagement letter,” such that the “crux of the dispute is what was the scope of the engagement,” in Babbitt’s analysis. The “relatively minor decision” not to write an engagement letter has “resulted in a lot of litigation” and in litigation that appears will continue for some time, he adds.

The ABA’s Center provides guidance on each state’s rules so that members can know exactly what is required. From that guide, it appears that a number of states have a written agreement requirement. Regardless of whether it is a requirement, the Genesis decision shows that having such an agreement can avoid problems.

A written confirmation of the engagement does not need to be overly formal, Babbitt assures. Instead of a lengthy letter, a simple email stating (1) whom the lawyer represents, (2) what the lawyer will do, and (3) how the lawyer is being paid likely suffices, depending on state rules, he notes. Taking those small steps not only protects the lawyer, but also forces the lawyer to go through the analysis of making sure that he or she knows who the client is and exactly what he or she is being retained to do, explains Babbitt. That little bit of analysis may be enough to protect against getting into the situation that caused the Genesis litigation, he believes.

Other guidance agrees that even though a written agreement may not be required, it is advisable. Previously addressing this issue in an ABA Journal article, one writer has advised that “‘[t]he biggest ethics consideration for the lawyer is to clearly define the scope of representation for the client,’” says Stephanie L. Kimbro, a solo practitioner in Wilmington, NC, and the author of Limited Scope Legal Services: Unbundling and the Self-Help Client. To do so, the “‘client should receive checklists that let him or her know specifically which tasks in the representation will be handled by the firm and which ones the client will be responsible for,’” she recommends.


Adam E. Lyons is a contributing editor for Litigation News.

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