In the past we have often visited the subjects of legal fees and engagement letters. Two cases from 2012 suggest that there are some lessons that should be taken to heart if lawyers and their firms are to avoid, or at least minimize the scope for, disputes about whether they are entitled to a fee, and if so how it should be calculated. The first case, Asesores Y Consejeros Aconsec CIA S.A. dba Coronel Y Perez Abogados v. Global Emerging Markets North America, 841 F.Supp.2d 762 (S.D.N.Y. 2012) ( Asesores), addresses a perennial problem: How can a law firm confirm the details and scope of an engagement and protect its right to a fee where a client fails to countersign and return a properly and timely proffered engagement letter?
The second case, Toussie v. County of Suffolk , Nos. 01CV6716 (JS)(ARL), 05CV1814 (JS)(ARL), 2012 WL 3860760 (E.D.N.Y. Sept. 6, 2012), explores in depth the subject of time recording and billing practices. In contrasting ways, each case suggests a different New Year's resolution that lawyers may want to adopt.
In Asesores , a Delaware investment bank retained an Ecuadorian law firm to conduct due diligence on an Ecuadorian company that the bank planned to acquire. The law firm completed its engagement, but the deal did not close because the bank was unable to obtain financing. The bank then refused to pay any of the law firm's fees, claiming that their engagement did not require payment unless the Ecuadorian company was actually acquired.
The law firm sued for breach of contract and equitable relief. After a bench trial, Judge Miriam Goldman Cedarbaum of the U.S. District Court for the Southern District of New York found for the law firm and ordered the bank to pay the full amount of outstanding legal fees and costs, plus interest.
When the bank had initially contacted the law firm, the firm sent an engagement letter including the terms of its hourly fee, a $20,000 advance deposit, and a requirement that the bill be paid upon receipt, or else the bank would be charged interest. The bank did not, at the time, inform the law firm that its payment of attorney fees would be contingent upon its successful acquisition of the Ecuadorian company. A witness for the bank testified that it was the bank's "preference" or "practice" to pay if and when the deal closed.
The bank had instructed the law firm to begin work immediately due to time exigency, notwithstanding that the law firm had not received a countersigned engagement letter. In connection with the engagement letter, the bank requested two minor changes to the letter, but did not object to any of the payment terms, or inform the law firm that it would not pay fees unless the deal closed. The bank never countersigned or returned the engagement letter, despite repeated inquiries by the law firm. Nor did it forward the deposit.
The law firm continued to perform its work to close the deal by the targeted closing date, sending monthly billing statements by email. The bank claimed that it never received the emails because they landed in the company email junk mail folder, and did not see the invoices until a few months later, when the law firm started to demand payment. The law firm's records contained numerous emails demanding payment of more than $110,000 in fees. The bank never objected to the claim for payment; instead it offered assurances of payment or completely dodged the issue.
The law firm completed its work and delivered its report. The bank was ultimately unable to obtain financing to acquire the Ecuadorian company, and the deal fell apart. Two months later, the bank emailed the law firm to inform it for the first time that it would not pay the law firm's bills because the deal did not close, and suggested that the law firm might try to revive the deal so it could get paid. The law firm immediately denied that it had ever agreed to be paid on a contingency, and insisted on full payment. Negotiations were unsuccessful, and the law firm filed suit for breach of contract, quantum meruit and account stated. The bank claimed that the law firm's fees were excessive.
Applying New York law, Cedarbaum found that an agreement for legal representation does not require a signed contract to be enforceable. Parties can demonstrate the existence of a contract through their words and deeds. Silence is acquiescence when a party is under a duty to speak, but does not do so such that the silence would mislead the other party. Although the engagement letter was never signed, the conduct established that the bank accepted the terms of the law firm's offer by its silence and acceptance of the work performed. The court found this to be the result even if it accepted the bank's position that it never intended to accept the hourly fee terms (as evidenced by the bank's refusal to execute the engagement letter). However, the bank's subjective intent was not enough to avoid the enforcement of the contract.
While law firms sometimes find themselves performing legal services in situations where exigency and client demands that those services go forward before the client countersigns the engagement letter, firms in that situation risk encountering difficulties enforcing the terms of their engagement letter against the client's later repudiation. This case is important because it establishes that law firms may rely upon the client's agreement to the terms of an engagement even in the absence of a countersigned engagement letter.
However, there is a two-tier New Year's resolution to be found in this story. First, better practice is to ensure a "meeting of the minds" by securing agreement on the scope and terms of representation as quickly as possible, and not countenancing delay or evasion on this point. But if the client prevaricates while still demanding immediate services, sending a follow-up communication that explicitly recites the client's continued directions to the firm to provide services should serve to establish both that the firm is relying on the client's conduct as evidencing agreement, and that its reliance is reasonable.