Engagement Letter – Retainer Agreement (Contingency Fee)
This Contingency Fee Agreement is an agreement between outside counsel and a corporate client for the provision of legal services. Lawyer fee agreements are also called engagement letters and retainer agreements. This engagement letter uses a contingency basis to outline the parties’ respective duties. Parties use engagement letters (retainer letters) to memorialize the terms of an agreement (between a client and outside counsel). Typically, a client seeks to retain outside counsel in response to an event. For example, such events may include anticipated or ongoing litigation, an investigation, a subpoena, or another legal concern. Other times, the client retains a law firm to represent it in a particular transaction. Additionally, clients retain law firms for general or ongoing legal advice for certain work (for example, general advice about employment matters).
Terms covered by an engagement letter include the scope of the engagement, the parties’ respective duties, fees, and expenses. The engagement letter reduces the risk of misunderstanding between the client and outside counsel by helping to ensure that they have a meeting of the minds about their relationship before any work begins.
Although outside counsel usually draft engagement letters, many in-house law departments employ their own. An engagement letter typically becomes binding when countersigned by the client, although some law firms also make it contingent on the payment of a retainer (advance payment). However, some engagement letters are unilateral and are signed by only the law firm.
The engagement letter should:
- Define who the client is.
- Reduce to writing the nature and scope of the engagement based on discussions between the client and outside counsel.
- Specify the duties of outside counsel and the client.
- Describe the calculation of fees and expenses and whether a retainer fee is applicable.
- Include only provisions that the client and outside counsel discussed.
- Address known or potential conflicts of interest.
- Document any special arrangements about the representation to which the client and outside counsel agreed.
- Describe how the parties may handle disputes, such as through mediation or arbitration.
The client may negotiate certain terms in the engagement letter. In addition, corporate clients may have outside counsel guidelines describing the policies and procedures that outside counsel must follow during the attorney-client relationship. Because the client may require outside counsel to acknowledge their consent to outside counsel guidelines in writing, outside counsel should request and review those guidelines before drafting an engagement letter. Outside counsel guidelines generally cover policies and procedures, such as:
- Preparing schedules and budgets.
- Identifying and handling conflicts of interest.
- Billing, including a breakdown of the fees and expenses that are paid by the client (for example, travel expenses, overtime, and attorney conferences).
- Conducting legal research.
Outside counsel should tailor the engagement letter so that it does not conflict with any outside counsel guidelines to ensure agreement between the parties and to avoid confusion about the parties’ respective obligations and expectations. Even if the in-house law department has outside counsel guidelines, the client should incorporate any important terms into the engagement letter, or incorporate the guidelines by reference, to ensure that they are binding on outside counsel.
Contingency Fee Agreement
This engagement letter is for a contingency fee agreement or arrangement. Contingency fees are based on the outcome of the matter. Furthermore, under a contingency fee arrangement, outside counsel’s interests are more closely aligned with the client, sharing:
- The risk that the litigation results might not be favorable.
- The reward of a successful outcome to the case.
A contingency fee agreement is most appropriate for cases where:
- The potential damages make the arrangement worthwhile for the client and outside counsel. However, if not much money is at stake, a contingency fee may not be appropriate.
- There is a high likelihood of the client’s success.
- The client and outside counsel agree about key issues in the case.
The American Bar Association’s Model Rules of Professional Conduct (Model Rules) state that outside counsel should not charge a contingency fee:
- In domestic relations matters, if the contingent payment is based on:
- securing a divorce;
- the amount of alimony or support; or
- a property settlement in lieu of support.
- In criminal cases.
- If it is inconsistent with the client’s best interests.
States may prohibit the use of contingency fee arrangements beyond those identified in the Model Rules, so outside counsel should check the applicable ethics rules before entering into a contingency fee arrangement.
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Engagement Letter – Retainer Agreement (Contingency Fee)