When entering into a new engagement, corporate counsel and outside counsel often rely on standard retainer agreements and engagement letters that they have been using for years without so much as a casual review of the document's language. Although it is natural for counsel to hesitate before completely overhauling their forms, attorneys practicing in-house and in private practice can benefit from a review of their standard retainer agreements to ensure they are drafted to limit the lawyer's representation to the claim being litigated. This is particularly important if the lawsuit is being financed by a third party, because issues surrounding the financing, unless specifically addressed in the engagement letter, may not be included in the scope of representation.

This issue was highlighted in a recent New York decision. In Francis v. Mirman, a Brooklyn law firm was sued for malpractice by its plaintiff client who, due to liens by third-party funding companies, received only $111 from a $150,000 settlement (No. 29993/10, NYLJ 1202583703771 (N.Y. Sup. Ct. Jan. 3, 2013)).

The court dismissed the plaintiff's complaint, concluding that he could not state a claim for negligence against the law firm based on the firm's failure to attempt to reduce the funding company's lien against the proceeds of the underlying action. Although the retainer agreement was silent on third-party loans, the court found that its scope was "clearly confined" to representing the plaintiff only regarding his personal injury claim, and that issues of third-party funding did not fall within that scope.

To compare and update your standard retainer language, see Standard Documents, Engagement (Retainer) Letter: Hourly Fee Arrangement and Engagement (Retainer) Letter: Contingency Fee Arrangement. For more information on dispute funding, see Practice Note, Third-party Litigation Financing in the US.