The trap of ‘accidental clients’

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A hefty legal malpractice verdict in 2012 reminded attorneys to beware of “accidental clients.”

A jury ordered Holland & Knight to pay $34.5 million to two investors who believed the firm was representing them in forming a business entity with a third investor; the law firm claimed it represented only the business entity, not the individuals.

For lawyers who represent closely held businesses, partnerships or start-ups, identifying who is and is not your client is an important but sometimes overlooked step.

Lawyers who practice family law and estate planning can also experience problems with third parties, such as a spouse or an heir, mistakenly thinking they are represented by the attorney.

According to Lucien Pera, who advises lawyers on ethics, professional responsibility and malpractice, the law in nearly every jurisdiction says that an attorney-client relationship is formed in one of two ways: expressly formed if both parties agree or implied if a reasonable person in the accidental client’s shoes would reasonably believe an attorney-client relationship was formed.

A careful lawyer will state who is – and is not – the client in an engagement letter. Although that is useful, some of the listed “non-clients” may never see that document, said Henry Bryans, senior vice president of the Professions Group of Aon Risk Solutions, a professional liability insurance broker in Radnor, Pa.

To address that, some lawyers recommend making liberal use of the “I’m not your lawyer” letter.

Also known as a non-engagement letter, such a document states clearly that you do not represent the party and that they may wish to get their own lawyer.

A growing area of law that is fraught with misunderstandings about whom a lawyer represents is corporate investigations. Lawyers are frequently brought in by companies to interview employees about anything from financial misdeeds to government allegations to workplace sex harassment.

At the beginning of the interview, said Bryans, a lawyer should tell the employee, “I don’t represent you. Anything you disclose will be privileged, but the privilege belongs to my client, the company – not you. Therefore the company could waive it and disclose what you tell me to the [authorities]. That decision is not something that you will have control over.”

The situation can arise in any investigation where lawyers are talking to employees who may have done something wrong, said Pera, a partner at Adams and Reese in Memphis, Tenn.

In one case, he said, lawyers were hired by a company to investigate charges of stock option back-dating.

“The CFO … spills his guts to the investigating lawyers, [and is later] charged with crimes based on notes the lawyers turn over. He says, ‘Wait, those were my lawyers, not the company’s lawyers,’” Pera said.

That risk is why it’s becoming more common for the investigating lawyers to use a written “corporate Miranda” warning and ask the employee to read and sign off on it before the interview begins, Pera said.

But one downside to a written warning is that it can have a chilling effect on the information an employee is willing to disclose, Bryans said.