Specific Engagement Agreements Create a Legal Right to Sign
On appeal to the U.S. Court of Appeals for the Fifth Circuit, the appellate court affirmed the lower court’s decision. The appeals court agreed that the law firm did not make any false or misleading representations under Texas’s fraud statute because the law firm had a legal right to sign and send the letters under the law firm’s engagement agreement. The contract specifically stated that the letters would be sent under the clients’ name “and [would] not be identified as being sent by” the law firm.
Additionally, the Fifth Circuit reasoned that because the attorney-client relationship is an agency relationship, an attorney’s actions within the scope of his or her employment are attributed to the client. It also noted that the plaintiffs failed to establish that they justifiably relied upon any representation in the letters, as their “internal policies require[d] them to investigate and respond to dispute letters sent by consumers and third parties alike.” Lastly, the appellate court held that the law firm did not have a duty to disclose the origin of the letters, because the firm had a legal right to send the letters on the clients’ behalf and with their signature affixed.
Section Leaders Say Defining Scope of Services Is Key
Litigation Section leaders note that attorneys should designate all aspects of the engagement agreement to protect themselves against liability. As a practical matter, the “best practice would have been to avoid this lawsuit either as providing a disclosure or having the clients actually sign the prepared letters,” advises John S. Austin, Raleigh, NC, cochair of the Section’s Trial Practice Committee.
Nevertheless, leaders suggest that the law firm was able to act on its clients’ behalf because of the agency relationship. “An agent may speak for and on behalf of its client, within the bounds of authority granted by that client,” opines Elizabeth T. Timkovich, Charlotte, NC, cochair of the Section’s The Woman Advocate Committee. “As attorneys, we regularly prepare correspondence for our clients, to be signed by our clients. And clients may authorize us (or others) to put pen to paper and sign correspondence for them,” Timkovich suggests. She noted that this principle also applies to guardians, conservators, and individuals with powers of attorney.
If law firms are unable to have their clients sign these letters, specifically detailed agreements are necessary. Section leaders suggest that engagement agreements should establish the scope of an attorney’s agency to write credit dispute letters. “The fact that the engagement agreement expressly set forth authorization for [the law firm] to prepare the type of correspondence in question, and to sign for the client/consumer, is what was fatal here to the plaintiffs’ fraud-based claims,” Timkovich concludes.