ENGAGEMENT LETTERS: A GUIDE FOR PRACTITIONERS
III. MULTIPLE PARTY REPRESENTATION IN BUSINESS CONTEXT
INTRODUCTION
This form illustrates some of the issues to be addressed in the representation of business interests. The focus of the form is on the creation of the business entity. Here, the fact of creation of the entity itself, a new client, poses an immediate conflict of interest with the organizers as individuals.
Over time there is likely to be an evolution in the representation of the entity and its owners, employees, officers, and other involved parties which may include spouses, other members of the same family or others whose interests are related. For example, there may be a death or withdrawal of a significant owner or there may be a change in control of the entity. The lawyer must be particularly alert to the impact of the new entity, the shifting interests within it and among the individuals involved, and the emerging potential for conflicts arising as a result of events which have not been identified in advance. It is important to require the client to keep the lawyer continuously advised as to the emergence of intraorganizational and interpersonal conflicts that, if not promptly resolved, may destroy the representation.
The form letter in this section contemplates the creation of a new entity as the reason for the engagement of counsel. If the entity has already been in existence, however, the lawyer may be retained for a specific purpose, e.g., to prepare appropriate buy/sell agreements, establish employee benefits, participate in designing compensation arrangements, or to establish rational succession planning. The form should be tailored to meet the circumstance.
Whether or not there is an evolution in the representation, or the representation involves an existing business entity, it is important for the lawyer constantly to be aware of who is the client and in this respect, to be careful to document the relationships as they may change from time to time.
In each situation the engagement letter should define and limit the scope of the representation. As change occurs, amendments to the initial engagement letter may have to be delivered to all of the parties in interest and their consents to the continued representation obtained.
References to the ACTEC Commentaries (3d Edition):
(Note that the page numbers shown below refer to the printed version of the ACTEC Commentaries)
General Principles (re Scope of Representation), pp. 50-51
Time Constraints Imposed by Client, p. 84
Encouraging Communication; Discretion Regarding Content, p. 91
Communications During Active Phase of Representation, p. 92
Termination of Representation, pp. 94-95
Fee Paid by Person Other than Client, pp. 104-105, 189-190
Joint and Separate Clients, pp. 118-119
Joint Representation Presumed, p. 119
Multiple Separate Clients, pp. 119-120
Confidences Imparted by One Joint Client, pp. 120-122 Separate Representation of Related Clients in Unrelated Matters, pp. 122-123
Implied Authorization to Disclose, p. 124
Prospective Clients, p. 128
General Nonadversary Character of Estates and Trusts Practice; Representation of Multiple Clients, p. 150
Disclosures to Multiple Clients, pp. 150-151
Consider Possible Presence and Impact of Any Conflicts of Interest, pp. 152-154
Organization as Client, pp. 209-211
Declining or Terminating Representation, pp. 232-236
MULTIPLE PARTY REPRESENTATION IN BUSINESS CONTEXT
CHECKLISTI. Who is the client?
A. Options
1. An entity, such as a corporation, general partnership, limited partnership, family partnership, limited liability company, limited liability partnership.
2. A specific person or persons, such as prospective shareholder, board member, trustee, general partner, limited partner, member or manager.
3. All of the above.
B. Issues the lawyer should consider before accepting the representation
1. Is there any previous or existing client or advisory relationship between the lawyer (or his or her firm) and any of the parties, their spouses or families? If so, does the lawyer have any conflict in representing any of the parties? If the lawyer (or the lawyer's firm) has represented any of the parties, their spouses or their families before in what capacity (e.g., individually, as an officer or director, as a fiduciary, as a general or limited partner, etc.)?
2. How well does the lawyer know the parties?
3. What common connections do the parties have with each other (e.g., shareholders in a family corporation, partners in a family partnership, members in a limited liability company, fiduciaries or beneficiaries of a family trust, etc.)?
4. Financial relationships.
a. Lender? Bank? Insurance company? Fiduciary?
b. Private investors5. Who are the other professionals: accountants, appraisers, brokers, etc.
6. Fee arrangements (e.g., hourly, with or without an estimate, or a cap).
a. Factors which might cause fee to be different from estimate.
b. Billing policies.
(1) Monthly or progress billing
(2) Retainer
(3) Costs to be advanced
(4) Payment expectations, e.g., 30 days
(5) Address and attention for billing responsibilityc. Who is liable for fees and costs?
(1) New entity?
(2) Pre-existing client?
(3) New individual?
(4) If entity, though carefully planned, is never organized?C. What is the scope of representation?
1. Recommendation of form of entity.
2. Structure of entity (e.g., if corporate, a C or an S Corporation; if partnership, general or limited partnership, limited liability company or limited liability partnership).
3. What do the clients expect the "style" of the representation to be (e.g., initial separate meetings with various groups to promote candor; combined initial meetings; combined or separate meetings with respect to later day to day business operations? Do the clients intend to share specific materials relating to finances, documents, either existing or to be prepared? Do they intend that information be transmitted in writing or orally? What about sharing of disclosures to or from (i) accountants; (ii) appraisers; (iii) insurance advisors; (iv) other professionals)?
4. Explanation of ethical issues as a reason for defining scope of representation.
II. The lawyer's continuing role
A. In situations where there is multiple representation, what conflicts of interest exist or may exist among the multiple clients and how do they affect the multiple representation? Are there any past, present or likely future events that might suggest, create, or constitute a conflict of interest between or among the parties (e.g., marriages, divorces, premarital agreements, property settlements, different citizenship, non-residence, adoptions, special needs, etc.)?
B. What disclosures does the client expect or consent to be made? In the joint representation of shareholders (partners, members) in a proposed new entity do the prospective shareholder (partner, member) clients consent to the disclosure of all confidences among the other shareholders (partners, members) relating to the business or do the clients prefer that all confidences be maintained among various groups if those exist? Are the clients willing to allow the lawyer to disclose among the various groups only those confidences which the lawyer believes are relevant and material to the overall planning?
III. Resolution of future actual conflicts of interest. When representing the entity, if the entity representation breaks apart for any reason, which, if any, of the multiple clients may the lawyer continue to represent in the matter at hand or related matters? E.g., does the lawyer (or the lawyer's firm) on the basis of longstanding relationship with one of the important shareholders (partner, member) intend to represent that client in the future even if the lawyer (and the firm) no longer represents the entity or will the lawyer (and the firm) withdraw from representing any of the parties involved? See engagement letter form for prior consent to such continuing representation since consent of the parties after the conflict occurs may be difficult to obtain.
IV. Documenting the multiple representation
A. Does the lawyer send out a proposed engagement letter to all of the prospective clients prior to a first meeting or does the lawyer send out a letter to all of the parties involved after the first conference? In that connection, is it the lawyer's practice to require that each of the proposed clients/parties to the representation sign and return a copy of the engagement letter acknowledging the terms of the representation?
B. Does the lawyer suggest that any person or any potential client who is uncomfortable with agreeing to the arrangement consult another lawyer before signing?
MULTIPLE PARTY REPRESENTATION IN BUSINESS CONTEXT
ENGAGEMENT LETTER
(date)
Dear (owners, new client, old client, key person, or persons):
Thank you for selecting me to represent (describe proposed new client or clients) in connection with the formation of (describe business entity). I have agreed to the representation and wish to confirm the terms and conditions of my engagement.
I will assist you in the formation of a (corporation/partnership/limited liability company, etc.). I will counsel you on the legal aspects of forming this new business entity and the relationships that the new entity will then have with its organizers and members. I will also prepare the documentation necessary for creating the entity and will provide legal advice to the (board of directors, general partner, managers, etc.) as may be requested. Please be advised that matters disclosed to me by any of you may be disclosed by me to any of the others.
I will bill for my services on the following basis: [Describe arrangements pertaining to fees, billing and responsibility for payment].
If I am asked to perform tasks not described in this letter, an additional engagement letter may be required.
[CHOOSE ALTERNATE A-1 OR ALTERNATE B-1]
A-1 [To be used when the lawyer or the lawyer's firm has previously represented one or more of the individuals or entities in the business representation]
I have previously represented and continue to represent (client) in (describe representation, e.g., estate planning, litigation, real estate matters, etc.). I have also represented (any other controlled entities, e.g., trust, estates and so forth). I have not previously represented (describe all other parties involved who were not previously represented).
In my previous representation of (describe) I have made certain not to disclose any details of confidential affairs and will continue to maintain those confidences. However, there is no reason I cannot continue to represent (describe client representation) and represent (describe others) at the same time as long as everyone is aware of the potential problems regarding the preservation or sharing of confidential information and the resolution of conflicts of interest that arise when I undertake to represent more than one individual or entity.
B-1 [To be used when the lawyer or the lawyer's firm has not previously represented any party]
You have asked me to represent all of you in the formation of a (corporation/partnership/limited liability company, etc.) and in preparing the necessary documents for that purpose. I am pleased to do so; however, it is important that all of you understand and consent to the considerations involved in such a representation.
Since I have agreed to serve as counsel to this (describe entity), I must advise you that the interests of the entity may not always be identical to the interests of its (shareholders, majority and minority, partners, members, officers, board of directors, etc.). Therefore, you should be aware that in your individual capacities you are entitled to, and should definitely consider whether to retain separate independent counsel to advise you in your individual capacity. Although the mere possibility of a future conflict of interest does not prevent me from representing more than one party to a transaction, such as the formation of the new entity, if a conflict of interest should arise in the course of my representation, I may be required to withdraw from my representation of the (new entity) but reserve the right to continue to represent (old client). The possibility of unexpected future conflicts makes it imperative that each of you be continually alert to the existence of such a conflict and to call any such situation to my attention in order to preserve the impartial nature of my representation of all of you.
As your attorney, I owe you a duty to preserve any confidential information you share with me unless you authorize me to disclose such information. Similarly, I owe you a duty to act solely in your best interests without being influenced by the conflicting interests of any other clients. If I represent two or more parties to a transaction I have a potential conflict of interest resulting from my conflicting duties to the various separate parties.
Each of you may have differing and conflicting interests and objectives. In some situations it may be advisable to take advantage of available tax benefits which may benefit some of but not all of you. Each situation is unique.
Provided that you knowingly waive your right to separate counsel, I am prepared to represent the interests of all of you and (the new entity) for as long as I believe no one will be substantially harmed by such representation and provided that everyone has consented in writing to the mutual representation. In weighing your decisions to waive any potential conflict of this representation, each of you should be aware that as attorney for (the entity) the confidentiality between you and me as the attorney is limited in scope to those matters concerning (the entity). Other communications may not be privileged. Moreover, any communications which materially affect the interests of (the entity) may not be privileged and are required to be disclosed to others.
[CHOOSE ALTERNATE A-2 OR ALTERNATE B-2]
A-2 [To be used when the lawyer or the lawyer's firm has previously represented certain parties]
If I begin with representation of all of you and the entity you plan to create jointly, any one of you is completely free to change your mind and have separate counsel at any time. If one or more of you who are new clients of mine choose to seek separate counsel, I will continue to represent (old client). If (old client) chooses to seek separate counsel, I will withdraw from representing the new entity and any new clients unless (old client) consents to my continued representation of (the entity and the new client).
B-2 [To be used when the lawyer or the lawyer's firm has not previously represented any party and is an option that may be used even if the lawyer or the firm previously represented one of the parties]
[CHOOSE ALTERNATE B-2-1 OR ALTERNATE B-2-2]
B-2-1 If I begin with representation of all of you and the new entity you plan to create jointly, any one of you is completely free to change your mind and have separate counsel at any time. In such case, I will withdraw from representing both the new entity and any of you unless all of you consent to my continued representation of the new entity and one or more of you.
B-2-2 If I begin with representation of all of you and the new entity you plan to create jointly, any one of (old client, new client or new entity) is completely free to change its mind and have separate counsel at any time. In such case, I will continue to represent (the entity and the other remaining clients).
This letter is intended to advise you of the scope of representation of (the new entity) and of the ethical implications of my representation of you (individuals) and (new entity) in the event each of you agrees to waive the potential conflicts. If there is anything contained in this letter that is unclear, please contact me immediately so we can discuss it further.
If the terms outlined in this letter are satisfactory to (describe client), please sign and return the enclosed copy of this letter acknowledging that you have read and understand it and wish me to proceed to represent (the new entity) and its (shareholders, partners, members, etc.) If you have any questions about anything discussed in this letter, please let me know. In addition, you should feel free to consult with another lawyer about the effect of signing this letter.
Very truly yours,
CONSENT
I/We have read the foregoing letter and I/We understand its contents. I/We consent to the representation of (entity) and (describe the parties) and we agree that what (any party) tells [LAWYER] may be disclosed to the others. Further, I/we understand that if an irreconcilable conflict should arise or if any one withholds relevant business information from you as attorney, it is possible that you will not be able to continue the representation of (entity). We know of no reason at the present time that joint representation of (the entity) and (all other parties) is inappropriate but will let you know if that circumstance should develop.
Dated:______________________ ____________________________________
Dated:______________________ ____________________________________
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