Risk Update

Engaging on Engagement Letters (Part 2) — When the Details Matter

Posted Dan Bressler

“The Perils of Sharing Privileged Communications with Third-Party Vendors” —

  • “On May 6, 2019, Magistrate Judge Gorenstein issued an order that should be a wake-up call for attorneys contemplating hiring and sharing privileged communications with an outside public relations firm. This decision also has wider implications, especially for companies engaging a forensic consultant to assist in responding to a cyber incident or data breach.”
  • “The issue in Universal Standard Inc. v. Target Corp., 331 F.R.D. 80 (S.D.N.Y. 2019), a trademark dispute, was whether sharing attorney-client privileged communications with a public relations firm waived the privilege.”
  • “Universal Standard argued that the emails were privileged and communications with the public relations firm did not constitute a waiver because: (1) the public relations firm was necessary to allow attorney-client communication; (2) the public relations firm was the ‘functional equivalent’ of a corporate employee; and (3) the public relations firm was a consultant used by lawyers to assist in certain tasks that ‘promote broader public interests in the observance of law and the administration of justice.’ The court found none of the exceptions applicable and the privilege had been waived.”
  • “As relevant here, the first exception applies where the disclosure is made to a third-party whose specialized knowledge and services aid the attorney in providing legal advice. This exception to waiver is narrowly construed…The second exception did not apply because the public relations consultant was not a de facto corporate employee and lacked the hallmarks of a ‘functional equivalent.'”
  • “Moreover, application of the privilege to confidential communications with a forensic consultant is not a foregone conclusion and there are no guarantees that a court will uphold the privilege. To help preserve the privilege and fend off such a claim, the guidance we previously provided with regard to public relations firms applies here: 1. The forensic firm should be engaged directly by outside counsel, not the client. 2. The engagement letter should be carefully written by outside counsel to make clear that: [read on for the whole list]”

“Using Mandatory Arbitration to Resolve Fee Disputes” —

  • “Many states, including California, have recognized the benefits of resolving attorney-client fee disputes through the use of arbitration by enacting statutes providing for arbitrations often conducted through local or state bar associations. However, because such arbitrations are often non-binding and may not be mandatory in all circumstances, attorneys and clients wishing to avoid any doubt regarding the proper forum for fee disputes may choose to include mandatory arbitration clauses in engagement letters or by other agreements.”
  • “While such state law provisions may apply, courts have recognized that the use of mandatory arbitration clauses in engagement letters may be subject to federal law, specifically the Federal Arbitration Act (FAA).”
  • “However, although the FAA may govern an arbitration clause absent any restriction by the parties, a state’s rules of professional conduct may still impact whether an arbitration provision violates public policy, such as to the extent such clauses infringe on a client’s right to be informed about the scope of the representation and the potential waiver of rights. Indeed, separate from the requirements of federal law, attorneys have certain duties to clients that can be reflected in the use of an arbitration provision in an engagement letter.”
  • “Considering those issues is consistent with the guidance provided by the ABA in Formal Opinion 02-425. There, the ABA recognized that it is generally ethically permissible for attorneys to include mandatory arbitration provisions in their engagement letters. However, Formal Opinion 02-425 recommends ensuring that the client has been ‘fully apprised of the advantages and disadvantages of arbitration and has given her informed consent to the inclusion of the arbitration provision in the retainer agreement.'”

“Debtor entitled to order sealing engagement letter containing commercially sensitive information” —

  • “As result of judgment from Quebec Court of Appeal, debtor and four others were found liable to pay damages of $13.5 billion.”
  • “Appointment of proposed restructuring officer, on terms set out in engagement letter, was approved. Debtor was entitled to order sealing engagement letter, which contained commercially sensitive information. Debtor was granted permission to continue application for leave to appeal to Supreme Court of Canada.”