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:
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:
E-mail Footers for Correspondence with Clients
OPTION 1:
Confidentiality Notice: This electronic mail transmission is privileged and confidential and is intended only for the review of the party to whom it is addressed. If you have received this transmission in error, please immediately notify the sender and delete it. Unintended transmission shall not constitute waiver of the attorney-client or any other privilege.
OPTION 2:
Confidentiality Notice: This communication is intended only for the person to whom it is addressed and may contain information that is privileged, confidential, or exempt from disclosure under applicable law. If the reader of this e-mail message is not the intended recipient, or the agent responsible for delivery of this communication to the intended recipient, such reader is hereby notified that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please notify the sender immediately and delete it, along with any attachments, from your computer. Thank you.
Circular 230 Disclosure: To the extent this communication, including attachments, contains any statement regarding federal taxes, such statement is not a covered opinion as described in Treasury Department Circular 230 and cannot be relied upon to avoid any tax penalties or to support the promotion or marketing of any transaction or matter addressed herein.
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Authorization to Transfer Files to New Firm
{Date}
{Name}
{Company Name}
{Address}
{City, State, Zip Code}
RE: New Firm Affiliation
Dear {Salutation}:
I am pleased to announce that I am moving my business transactional practice to the law firm of [FIRM] as of [DATE], where I will be the managing partner in the Firm’s [CITY] office. It has been my pleasure to work with you these past years, and it is my hope that we will continue to work together for many years to come.
[FIRM] is a full-service law firm offering expertise in diverse areas of practice in additional to general business transactions, including employment litigation, patent prosecution, and taxation, among others, enabling me to bring all of your legal services under one roof, should you choose to have me do so in my role as COMPANY’s outside general counsel.
My new contact information is as follows:
{Firm Name}
{Address}
{City, State, Zip Code}
{Telephone}
{E-mail}
In order to have me continue as your attorney, please provide your consent below to the transfer of your files and any related electronic data from my former firm to [FIRM] and sign and return the enclosed engagement letter at your earliest convenience.
I look forward to continuing to work with COMPANY. If you have any questions or concerns with regard to this transition or the enclosed engagement letter, please do not hesitate to call me.
Very truly,
FIRM NAME
Lawyer Name
Enclosure
To: {Firm Name}
RE: COMPANY Files and Ongoing Legal Representation
Upon the departure of ATTORNEY from [FORMER FIRM], please follow the instruction selected below:
_______ Transfer my files to ATTORNEY at [FIRM]. I/We will look to [FIRM] for any current or ongoing legal matters as of the date such transfer is completed.
_______ Keep my files at your office and contact me immediately to discuss which of the remaining partners will assume primary responsibility for the handling of my current and ongoing legal matters.
_______ Send my files to me at the address below. I hereby discharge your firm and acknowledge your firm will have no further responsibility for my legal matters, for which I hereby assume sole responsibility.
Sincerely,
{Name}
{Company Name}
{Address}
{City, State, Zip Code}
Protecting the Attorney-Client Privilege
{Date}
{Name}
{Company Name}
{Address}
{City, State, Zip Code}
RE: The Attorney-Client Privilege
Dear {Salutation}:
One of the benefits of having legal representation is the assurance that your communications with counsel will be held in the strictest confidence, protected from disclosure to third parties by the attorney-client privilege. This is a privilege held by the client, and it is up to the client, not the attorney, to determine whether that confidence should be breached. Rest assured we are taking every reasonable precaution to ensure that your privileged communications are protected.
With that in mind, I’d like to call to your attention the possibility that you may compromise your ability to claim the protections of the attorney-client privilege by copying others on your correspondence to me, forwarding copies of my correspondence to you to third parties, or including third parties in our meetings or telephone conferences. By including such third parties in our communications, you may be waiving your privilege with regard to such communications or to our legal representation of you in connection with this matter generally. Of course, there are exceptions to the general rule, such as where the third party is integral to the representation, such as communications with a retained expert. However, it always best to exercise discretion and to ask me first when you are not certain whether the inclusion of a particular third party might compromise your privilege.
If you have any questions or concerns with regard to the above, please do not hesitate to call me.
Very truly,
FIRM NAME
Lawyer Name
Forwarding an Invoice for Legal Services
{Date}
{Name}
{Company Name}
{Address}
{City, State, Zip Code}
RE: Invoice for Legal Services
Dear {Salutation}:
Enclosed please find a statement of your legal fees and costs through [DATE].
OPTION 1:
Please note there is no payment due at this time. Your new retainer balance is reflected in the attached.
OPTION 2:
Please note there is a past-due balance. A payment would be greatly appreciated.
OPTION 3:
Your account is seriously past due. We will not be able to undertake any significant additional work until your past-due balance is paid or we have reached an agreement on payment terms.
We enjoy working with you and appreciate your business. If you have any questions or concerns, please feel free to call me at [PHONE] or e-mail me at [E-MAIL].
Attached for your convenience, please find a credit card payment form, which you may return via fax or e-mail, as well as wire transfer instructions.
Very truly,
FIRM NAME
Lawyer Name
Enclosure
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Responding to Billing Inquiries
{Date}
{Name}
{Company Name}
{Address}
{City, State, Zip Code}
RE: Your Billing Inquiry
Dear {Salutation}:
OPTION 1 - Friend:
I track all of my time spent on client matters—e-mails, phone calls, meetings, etc.—not just preparation of documents. Over the past 20 years, I have become extremely disciplined about tracking my time throughout the day and sending regular invoices. When I do work for friends, I am conscious of excluding non-work-related correspondence and conversations. Please be assured I am very conservative with the amount of time I record for any activity; the half hour I billed was less than the time I actually spent. That being said, this is a small invoice. Let me know what you feel is fair, as I would like very much to maintain your good will (and, more importantly, our friendship).
OPTION 2 - Late fee:
Unfortunately, a number of our clients have fallen behind in their payments and we have had to adopt a systematic application of our late fee provision on all invoices not paid within 30 days, among other things. We cannot continue our current low billing rates unless invoices are paid on time. That being said, you may disregard the late fee on your invoice if the past-due balance is paid in full by the end of this month. I hope all is well at your end.
OPTION 3 - Client abandoned project:
In your deliberations over our outstanding invoices, please keep in mind that we worked at your direction for nearly 6 months, actively representing your interests in negotiations in pursuit of your desired outcome. However, as set forth in our fee agreement, “our fees are not contingent upon completion or success of the proposed matter,” and “we cannot guarantee any outcome.” Our activities on your behalf are well documented in our invoices. Our time is limited, and it is our only commodity. The time we spent on your transaction could otherwise have been dedicated to another client. The fact that the desired outcome has not been obtained is outside our control and does not change the fact that we have earned our fees. That being said, we are sympathetic to your situation. May I suggest we establish a payment plan, such as a preauthorized monthly credit card charge in the amount of $______, until the balance due has been paid?
OPTION 4 - Billing for small matters:
I apologize if our bill seems excessive. I really hate having to track and bill my time, but my time is my only commodity, and my days are often filled with seemingly small tasks for which more time is required than is readily apparent. For example, reviewing a brief e-mail may trigger calendaring changes and/or file and record book updates, which probably should all be noted in our time records to justify the .1 that we billed (our minimum billing increment), but often are not included in the interest of spending more time performing legal services than recording them. That being said, the amount of our bill that you take issue with is not significant, so please do whatever you think is fair in that regard. In the future, we will endeavor to provide more detailed and thorough descriptions of our activities. I appreciate having the opportunity to address your concern. Thank you.
OPTION 5 - Request for flat fee:
In response to your question about moving forward on a project-fee basis, I think it makes great sense to convert your high-volume, repetitive projects, such as offer letters and employment agreements, to a flat-fee arrangement. Please call me at your convenience to set up a time to discuss which areas of our representation are best suited for this approach and to discuss appropriate fees for those activities. I will then send you an amended fee agreement outlining the changes to our hourly engagement.
Please do not hesitate to call me with any questions with regard to the above.
Very truly,
FIRM NAME
Lawyer Name
Professional Reference for Client for Foreign Banking Purposes
{Date}
To whom it may concern:
The purpose of this letter is to provide a personal and professional reference for FOUNDER so that FOUNDER may be allowed to establish a bank account on behalf of COMPANY in [foreign jurisdiction], where FOUNDER and COMPANY have business and real estate interests.
I have known FOUNDER for the past [5 years]. During this time, we have had a professional business relationship. I assisted FOUNDER in the formation of COMPANY. Based on my personal knowledge and experience, without making an inquiry, FOUNDER is an individual of high moral and ethical character, and COMPANY is a corporation duly formed and validly existing under the laws of the state of Delaware.
If you have any questions with regard to the above or need any additional information, please feel free to contact me directly.
Very truly,
FIRM NAME
Lawyer Name
Letter to Client Who Is Tranferring to Other Counsel
{Date}
{Name}
{Company Name}
{Address}
{City, State, Zip Code}
RE: New Counsel
Dear {Salutation}:
I have been contacted by ATTORNEY at FIRM and advised that you have retained them to provide legal services to COMPANY going forward. ATTORNEY has forwarded your signed request that the COMPANY’s file be forwarded to ATTORNEY.
I understand why you feel this is the best move for COMPANY at this time, but I remain optimistic we will find a way to work together again one day in the future. In the meantime, I will forward COMPANY’s file to ATTORNEY at FIRM without delay. Enclosed please find COMPANY’s final invoice.
Best wishes to you and the COMPANY for continued success.
Very truly,
FIRM NAME
Lawyer Name
Enclosure
Termination Letter to Client for Nonpayment
{Date}
{Name}
{Company Name}
{Address}
{City, State, Zip Code}
RE: Discontinued Legal Representation
Dear {Salutation}:
I regret to advise you that effective immediately the FIRM will not undertake any further legal work on behalf of COMPANY due to nonpayment of our invoices. COMPANY’s outstanding balance with the firm is seriously past due, and you have failed to contact us to make payment arrangements despite our numerous requests. As set forth in our fee agreement, “[t]imely payment in full is a condition of our continuing legal representation.” Enclosed please find a Notice of Client’s Right to Arbitration and a copy of our most recent invoice.
It will be COMPANY’s responsibility to ensure that it complies with all corporate, tax, and other regulatory requirements going forward. If you would like arrange to pick up COMPANY’s file, please let me know. In the meantime, I wish you the best. It has been a pleasure working with you.
Very truly,
FIRM NAME
Lawyer Name
Enclosure
Letter to Former Client Regarding Disposition of File
{Date}
{Name}
{Company Name}
{Address}
{City, State, Zip Code}
Dear FOUNDER 1 and FOUNDER 2:
This will confirm that FIRM is no longer representing COMPANY 1, COMPANY 2, or either of you individually.
Enclosed please find your final invoice [and a refund of your remaining retainer balance]. [Please pay the balance due at your earliest convenience.] This will confirm that I do not currently have any work pending for either company.
OPTION 1:
Your files have been forwarded to your new counsel.
OPTION 2:
Pursuant to your recent request, enclosed please find copies of our files for COMPANY 1 and COMPANY 2, with the exception of our e-mail files, which were forwarded to you electronically on [DATE].
It has been a pleasure working with you. I wish you every success going forward. Please don’t hesitate to let me know if I can be of any further assistance.
Very truly,
FIRM NAME
Lawyer Name
Enclosures
Letter Forwarding File to New Counsel
{Date}
{Name}
{Company Name}
{Address}
{City, State, Zip Code}
RE: COMPANY 1 and COMPANY 2
Dear {Salutation}:
I am forwarding the enclosed file at the request of EXECUTIVE on behalf of the above-referenced entities.
Please don’t hesitate to call me with any questions.
Very truly,
FIRM NAME
Lawyer Name
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Enclosures: |
COMPANY 1 minute book materials |
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COMPANY 2 minute book materials |
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Signed original Executive Employment Agreement for |
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EXECUTIVE |
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Pro Forma Stock Ownership Analysis for COMPANY 1 |
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Draft Convertible Note for INVESTOR |