ABA releases ethics opinion on engagement agreement provisions

A new formal opinion from the American Bar Association Standing Committee on Ethics and Professional Responsibility addresses provisions in engagement agreements with clients, such as prohibitions on recording conversations, posting to social media or using artificial intelligence.

While not binding, the formal opinion gives clarity to Rule 1.16(b)(5) of the Model Rules of Professional Conduct, dealing with when an attorney should withdraw from representation.

Formal Opinion 523, released May 20, deals with provisions in engagement agreements that would allow a lawyer to withdraw when the client “fails substantially to fulfill an obligation regarding the lawyer’s services.”

“ABA Formal Opinion 523 explains and expands on one of the permissive withdrawals a lawyer can use to terminate represtnation of a client,” former Virginia State Bar Ethics Counsel James McCauley said.

One such obligation is obvious — to pay the lawyer for his time. But there are any number of other ground rules that lawyers may think are prudent to include in their engagement agreements, the opinion notes.

“Many law firms now include in their engagement agreements a variety of clauses addressing law firm policies for handling expenses, including e-discovery charges, as well as provisions addressing, among other things, dispute resolution, choice of law, file retention, and anticipated adjustments in lawyer hourly rates on a periodic basis,” the opinion states.

It adds that, “within ethical limits,” the engagement agreement may also set forth obligations of the client that “are not otherwise implicit.”

“For example, a lawyer may include a provision in which the client agrees not to make an audio or video recording of communications between the lawyer and client, or not to discuss the lawyer or the representation on social media during the course of the representation,” the opinion states.

The opinion highlights what lawyers should well understand is out of bounds, like making the client promise not to later
pursue a disciplinary complaint or bar grievance against the attorney or law firm or forcing the client to accept a settlement recommended by the lawyer or reject a settlement that the lawyer disapproves of.

Otherwise, however, an attorney can set forth other legitimate client obligations that may form a proper basis for the lawyer’s withdrawal, the opinion notes.

“Before the lawyer can withdraw or terminate the representation, the lawyer must first provide a warning to the client that the lawyer will withdraw unless the client fulfills the obligation,” McCauley said. “Examples include that the clietn has failed to pay for the lawyers services or has failed to communicate or cooperate with the lawyer.

Rule 1.16 in Virginia

The Virginia State Bar could not be reached for comment on whether or how it intends to incorporate the ABA’s opinion into Virginia’s Rules of Professional
Conduct.

Virginia’s Rule 1.16 governs how a lawyer may withdraw representation if withdrawal can be done without “material adverse effect on the interests of the client.”

McCauley noted that Virginia has an identical permissive withdraw provision to the ABA in Virginia’s Rule 1.16(b)(4), which states that an attorney can withdraw when a client “fails substantially to fulfill an obligation to the lawyer regarding the lawyer’s services and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled.”

“The most common example of a permissive withdraw under this rule is the client’s non-payment of legal fees or expenses,” McCauley said, noting that an attorney must notify they will withdraw before doing so.

The ABA states that other requirements, such as an agreement to not record communications or discuss the representation on social media, can be included.

But enforcement of some of the provisions outlined in the opinion could be different in Virginia due to a major departure from the ABA rules.

Virginia has adopted Rule 1.16(b)(7) in its local rules, which differs completely
from the ABA’s model rules. That rule is a lengthy provision explicitly stating that original client furnished documents and “any originals of legal instruments or official documents which are in the lawyer’s possession,” like wills or corporate minutes, are the client’s property.

Upon termination of representation, those items must be returned “within a reasonable time” to the client or transferred to their new attorney.

McCauley noted that taking both the ABA and Virginia rules together creates a main takeaway for attorneys in Virginia.

“An important takeaway from Formal Opinion 523 is that a lawyer’s agreement does not have to spell out grounds for termination that are implicit from ABA Model Rule 1.16(b)(5) or Virginia Rule 1.16(b)(4),” McCauley said.

“A client that consistently fails to respond to the lawyer’s communications, fails to be available for meetings, conferences or hearing dates, or ignores requests for information to comply with the opposing party’s discovery request may be terminated under this rule
even if the agreement is silent on those issues.” — James McCauley, former VSB ethics counsel

McCauley added that although not required, it is “good practice” for attorneys to put the circumstances in writing in case they face a challenge from the client.

The AI issue

Amongst its mentions of not allowing public comment on the representation, the ABA’s opinion makes no explicit mention of attorneys barring clients from using generative AI tools regarding their matters during the course of their representation.

Given how big an issue AI has become, Boston attorney Richard J. Rosensweig told a Lawyers Weekly reporter he was surprised that the ABA’s opinion did not more directly address the issue of AI use by the client.

Boston attorney Jessica Gray Kelly agreed.

“With the uptick in the use of AI and AI recording devices, I think it makes sense to include language in the engagement letter warning the client not to use the client’s own AI tools in connection with the representation and not to record attorney-client communications, because it could result in a waiver of the privilege,” she said.

It also makes sense to state that the attorney or firm may withdraw if the client insists on using AI, Gray Kelly added.

Both she and Rosensweig noted that the basis for the provisions forbidding clients from relying on AI is to protect the client’s interest in keeping their attorney communications confidential and privileged.

“It is the client’s decision if the client wants to waive the privilege,” Rosensweig said. “The lawyer can’t stop the client if that’s what they want to do.”

Virginia’s formal ethics opinions are also silent on this specific issue of the use of artificial intelligence.

Virginia Legal Ethics Opinion 1901 merely discusses billing practices for attorneys who use generative AI to aid in their work and discusses moving away from the billable hour for such cases.

Proposed earlier this year, Legal Ethics Opinion 1902 again focuses on attorney usage of the tools rather than client usage and gives advice on when attorneys should alert the court or the bar that opposing counsel has mistakes or “AI hallucinations” in their filings.

Like many ethics opinions on the topic, the proposed LEO 1902 would encourage attorneys to use their judgment and reach out to ethics counsel for guidance, rather than drawing a hard bright-line rule, “requiring the attorney to use professional judgment, taking into account the seriousness of the errors and other relevant circumstances.”