The latest edition of the always excellent Hinshaw Lawyers' Lawyer Newsletter contains several updates, including: Limiting the Scope of Engagements — Duty to Provide Advice on
Transactional (Business) Risks [Peterson v. Katten Muchin Rosenman LLP, 792 F.3d 789 (7th Cir. 2015)]. --
- "The Funds' bankruptcy trustee sued the firm, alleging that it breached its duties to the Funds by failing to advise Bell that having no direct contact with Costco, and receiving no money directly from Costco, suggested that Petters' business was fraudulent."
- "In reversing the district court's ruling, the appellate court rejected a 'bright line' between business advice and legal advice, recognizing that a transactional lawyer must counsel the client on the level of risk inherent in different legal structures, and draft and negotiate contracts that protect the client's interests. In general, it is the role of the transactional attorney to provide legal advice on the best security for a transaction, to inform the client's business decision based on that legal advice. Where the lawyer fails to recognize the need for the advice, the representation is inadequate; however, where the advice is provided, but the client rejects the advice, in general, the attorney has met the standard of care and need not badger the client."
- "Notably, the appellate court recognized that 'the scope of engagement' in the engagement letter establishes the lawyer's role and duties. Where retained to provide advice on how to structure transactions, the attorney has a duty to advise the client on the relevant legal forms available, and the risk associated with the various forms. However, the transactional lawyer has no duty to question either the client's business objective or the client's business relationships."
- "Risk Management Solution: This opinion emphasizes the need to include a carefully drafted and detailed scope of engagement in every written engagement letter. Where retained to provide legal advice related to business transactions, the lawyer must ensure that the client acknowledges, and is in agreement with, the scope of the engagement. Transactional attorneys are not retained to provide business advice. However, lacking an appropriately described scope of retention, a transactional lawyer will be held to the standard generally applied, including the need to recognize and counsel on the risk associated with various legal structures."