Lawyers often leverage their practice by accepting clients on a limited scope of representation basis. A New Jersey lawyer recently dodged a bullet when his sloppy management of a limited scope representation resulted in a $10,000,000 malpractice claim. He had agreed to review the settlement agreement for a wealthy client’s divorce that was mediated by the corporate counsel for her husband’s closely held company. She was to get $500,000, three of four houses, $100,000 annually in alimony, and 15% of the stock of the husband’s company. The lawyer took the matter with the written understanding that he would only review the agreement to interpret the settlement conditions. He would not conduct discovery, review company tax records, review case documents, or recommend whether the settlement should be accepted. Subsequently, the lawyer had the client sign his standard retainer agreement that included boilerplate language indicating he would perform “legal research and factual investigation.” Shortly after the client signed the settlement agreement the husband’s company went public at a value of $100,000,000 more than he had represented. The wife got the settlement agreement revoked and obtained an upward adjustment. As a result of a drop in share price, however, she received $10,000,000 less in stock value than if she had received the shares with the original settlement. She then sued the lawyer for malpractice claiming $10,000,000 in damages.
The client argued that a lawyer cannot simply be a “potted plant” and that even a limited scope representation in a divorce matter must involve more than a bare reading of a document. Luckily for the lawyer the New Jersey Superior Court had no trouble with the propriety of limited scope representations and ruled that the standard of care required in such a matter is determined by the limited service agreement. The Court observed that the conflicting boilerplate retainer agreement was a mistake, but found that the document reflecting service limitations was the undisputed operative understanding between the lawyer and the client. Thus, the lawyer had not malpracticed.
Normally, following routine client intake procedures is the safest way to practice. This case is a good example of getting trapped by blindly using a standard retainer agreement in a special situation thereby opening the door to a risible malpractice claim. To avoid this problem one risk management expert recommends that limited scope letters of engagement contain the following information:
For more information on risk managing limited scope representations read “Limited Scope Representation -- “Where L.A. Law Meets Home Improvement” on our web site in the Avoid Malpractice Section, Bench & Bar Articles.
Sources: Lerner v. Laufer, 819 A.2d 471(N.J. Super. App. Div. 2003); “ Lawyer May Limit Scope of Representation to Surface Analysis of Mediated Settlement,” ABA/BNA Lawyers’ Manual on Professional Conduct, Current Reports, Vol. 19, No. 9, p.226, 4/23/03; “Avoiding Malpractice In Unbundled Services,” Katja Kunze, Director of Claims, Wisconsin Lawyers Mutual Ins. Co.