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Archive for the ‘Professional Liability and MPL’ Category

Arbitration Clauses in Legal Engagements Are Not Per Se Void

Posted on: September 17th, 2020

By: Dana Maine

Joining with most other jurisdictions, the Georgia Supreme Court affirmed a Court of Appeals decision finding that arbitration clauses in attorney engagement agreements are not against public policy and clarified the burden of persuasion for demonstrating procedural unconscionability in Innovative Images, LLC v. James Darren Summerville, et al., (Sept. 8, 2020).  In reaching this decision, the Supreme Court disregarded the question of whether the attorney violated Georgia Rules of Professional Conduct 1.4(b), which is identical to ABA Model Rule of Professional conduct 1.4(b).  This rule states, “A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”  ABA’s Standing Committee on Ethics and Professional Responsibility has issued a formal opinion (02-425) which requires the attorney to fully apprise his/her client of the advantages and disadvantages of arbitration before asking the client to enter into an agreement requiring arbitration.  

The issue of violation of Rule 1.4(b) is a separate issue from whether the clause is enforceable, according to the Georgia Supreme Court.  Simply put, arbitration is favored in the State of Georgia and is not void as against public policy.  For the same reason, mandatory arbitration is not substantively unconscionable, leaving only the question of whether it is procedurally unconscionable.

In order for the clause to be procedurally unconscionable, it must be one “‘no sane [person] not acting under a delusion would make and that no honest [person] would take advantage of’ and ‘one where one of the parties takes a fraudulent advantage of the other.’” (Quoting NEC Technologies, Inc. v. Nelson, 267 Ga. 390 (1996)). Under the facts in the case, the only “evidence” to support unconscionability was the fact that defendants had not demonstrated that plaintiff was a sophisticated client.  The Georgia Supreme Court found error with the trial court’s shifting of the burden in this regard from plaintiff to defendant.  Thus, according to the Georgia Supreme Court, plaintiff had not met its burden and the arbitration clause was enforceable.

While the Georgia Supreme Court invited the State Bar to issue an advisory opinion on the topic, it made it unequivocally clear that any opinion would have no impact on the enforceability of an arbitration clause, and the clause would be enforced as long as the procedure for entering into the agreement was appropriate.  A practitioner should keep in mind the general rules that the client must be fully informed about the scope and effect of the arbitration clause, and the lawyer’s liability cannot be limited by referral of the dispute to arbitration.  In the end, arbitration can benefit both parties by bringing any dispute to a speedy and cost-effective conclusion.   

If you have any questions or would like more information, please contact Dana Maine at [email protected], or any other member of our Lawyers Professional Liability Practice Group, a list of which can be found at www.fmglaw.com.

Avoiding Implied Attorney-Client Relationships with Individual Members of Small Companies

Posted on: September 15th, 2020

By: Jennifer Weatherup

Where an attorney represents a partnership or entity, there is the potential for him or her to create an implied attorney-client relationship with its individual members, imposing a duty of care that the attorney may not be prepared to satisfy. This risk is particularly strong with small entities and partnerships, and attorneys who act on behalf of these entities must avoid inadvertently creating an implied relationship with any individual officers or members.

In California, the factors for determining the existence of an implied attorney-client relationship were set forth in Responsible Citizens v. Superior Court (1993) 16 Cal. App. 4th 1717. The Court in Responsible Citizens noted that, as a general rule, the attorney for a corporation represents the corporate entity, and represents its stockholders and its officers exclusively in their capacity as corporate representatives. However, it held that an attorney for a partnership could, through his or her conduct, enter into an “implied” attorney-client relationship to represent the interests of individual partners. Various factors could indicate that an implied relationship existed, including the type and size of the partnership, the nature and scope of the attorney’s engagement, the parties’ conduct, the existence of agreements between the attorney and the individual partner, and the attorney’s access to information regarding the individual partner’s interests. These factors must be considered within the totality of the circumstances.

Responsible Citizens was most recently revisited in September 2019, in the matter of Sprengel v. Zbylut (2019) 40 Cal. App. 5th 1028. The court in Sprengel concluded that, although it was relevant that the attorney represented a limited liability company with two 50 percent shareholders, this arrangement did not, in itself, create implied attorney-client relationships between the attorney and the shareholders. Because there was no evidence to demonstrate that “the parties conducted themselves in a way that would reasonably cause a shareholder to believe the attorney would protect the shareholder’s individual interests,” the plaintiff in Sprengel was unable to establish an attorney-client relationship with the defendant attorney.

To avoid owing a duty to their corporate client’s officers or shareholders, attorneys who represent partnerships and closely-held corporations should set reasonable boundaries between their representation and individual shareholders or members to avoid creating any impression that the attorney would protect their individual interests.

If you have questions or would like more information, please contact Jennifer Weatherup at [email protected]

Statute of Limitations Tolled in California Amid Pandemic

Posted on: August 3rd, 2020

By: Matthew Jones

In response to the COVID-19 pandemic, California’s Governor Gavin Newsom issued a “state of emergency” for the entire State. In response, the California Judicial Council adopted several Emergency Rules to implement during the pandemic. In particular, Rule 9 states that all statute of limitations for civil causes of action are tolled from April 6, 2020 until 90 days after the state of emergency related to COVID-19 is lifted by the Governor. Therefore, if a party’s claim would have expired pursuant to the applicable statute of limitations during this timeframe, such claims are still very much alive. In regard to those claims, there is currently no deadline to file them since the “state of emergency” has yet to be lifted by the Governor. Once lifted, claimants will have six months to file their respective claims.

Additional Information:

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients.  Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments.  For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER:  The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19.  The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement.  We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG.  An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you.  We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such.  We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**

How CPAs Can Minimize Liability When Assisting Clients With PPP Loan Forgiveness

Posted on: July 21st, 2020

By: Nancy Reimer and Elizabeth Lowery

The CPA’s client received funds from the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and is asking if and how they will qualify for PPP loan forgiveness. As of this date, there is uncertainty over some of the program details and businesses worry about meeting and maximizing the loan forgiveness requirements. With the uncertainty surrounding the loan forgiveness process how can CPA’s protect themselves from liability while assisting clients seeking loan forgiveness? 

The best protection tool in a CPA’s arsenal is the Engagement Letter. An engagement assisting clients seeking loan forgiveness under the PPP is considered a consulting engagement in accordance with the Statement on Standards for Consulting Services issues by the American Institute of Certified Public Accountants (“AICPA”). Like any engagement letter, the PPP loan forgiveness engagement letter should spell out the nature and scope of work to be performed, the CPA firm’s responsibilities, the client’s responsibilities and the work product to be delivered to the client.  The Engagement Letter should also contain limitation of liability and indemnification clauses. 

In drafting the engagement letter, the following considerations should be taken into account:

  • The terms and scope of the consulting services should be discussed with the client and clearly described in the letter
  • Describe the engagement’s objectives.
  • Describe the scope and limitations of the engagement.
  • List the services that are not within the scope of the engagement.
  • Summarize the tasks to be performed and completed.
  • Describe the deliverables.
  • List the applicable professional standards.
  • List the client’s responsibilities.
  • List the CPA’s responsibilities.
  • State when the services will begin and conclude.
  • State the limitations on the use of the deliverables.

We also recommend stating the CPA is not involved with and has no influence upon the loan forgiveness process and cannot guarantee the Application will be approved. It is important for the client to accept responsibility for the accuracy and completeness of all certifications included in the Application and maintain all required documentation to support the application.

While clients may be anxious to apply for forgiveness keep in mind the following factors:

  • Most lenders are not ready to process forgiveness applications as they are awaiting guidance from the Program.
  • Many lenders are developing forgiveness portals to make the process more efficient.
  • Businesses have 24 weeks to use the PPP funds leaving more time to take steps to help qualify for forgiveness
  • Payroll costs are a significant component of PPP forgiveness. Most payroll providers are developing special reports to help the process. But they too are waiting for guidance.
  • Payments are not due yet. Borrowers are not required to make loan payments before they apply for forgiveness or until 10 months after the covered loan period ends.

While it can be difficult for a client to be patient with the ongoing uncertainty prevented by COVID-19, as their trusted advisor, a CPA can help calm the fears while awaiting proper guidance from the PPP.

Even apart from Coronavirus issues, CPAs should periodically review and update their engagement letters. Stay tuned for our upcoming Webinar on Engagement Letters.

If you have questions or would like more information, please contact Nancy Reimer at [email protected] or Elizabeth Lowery at [email protected].

Are “Flat Fees” For Legal Services Okay in California?

Posted on: July 15th, 2020

By: Greg Fayard

Many lawyers in California charge their clients “flat fees.” That is, immigration lawyers, criminal defense lawyers, bankruptcy and estate planning lawyers, and patent lawyers all routinely charge “one price” for all services, regardless of the time it took the lawyer to do the work.

Under the old rules of Professional Conduct for California lawyers, if a lawyer received a flat fee, the rules were silent on where to put those funds—the lawyer’s trust account or operating account? Under the current rule, Rule 1.15, flat fees MAY go into the lawyer’s operating account.

Flat fees over $1,000 can go into the operating account provided the lawyer discloses in writing that the fee MAY go into the client’s trust account until earned and the client is entitled to a refund of any amount that is unearned.

If the lawyer does not have this disclosure in writing, which the client must sign, flat fees over $1,000 MUST go into the lawyer’s trust account.

Fortunately, the California State Bar has ethics guidelines to help lawyers determine what part of a flat fee is earned and when. For those California lawyers who charge flat fees, please read Rule 1.15 to make sure you are in compliance.

If you have any questions or would like more information, please contact Greg Fayard at [email protected], or any other member of our Lawyers Professional Liability Practice Group, a list of which can be found at www.fmglaw.com.