When a matter winds up, attorneys may spend significant time boxing up old files, complying with the terms of a protective order, and reflecting on the matter. However, it does not always occur to attorneys to formally close the matter internally and to send a file closing letter to a client. As a bookend to the engagement letter, a file closing letter can help attorneys reduce overall risk and keep a client informed. Here are some considerations to keep in mind.
File Closing Assists in Conflicts Review
There are many reasons why the formal termination of an attorney-client relationship through a file closing has such an impact on risk management. For one thing, it has significant positive implications for the ethical, legal and professional obligations of an attorney and the law practice. Once the attorney-client relationship ends, clients typically move from being current clients of the attorney and the firm to being former clients. For conflict of interest purposes, this is a significant distinction.
The ethics rules governing existing clients are different from those governing former clients, particularly with regard to conflicts of interest. Generally speaking, if a new matter involves issues that are potentially adverse to a current client, the conflict of interest rules require the attorney to obtain informed written consent of each client.
On the other hand, the conflict rules for former clients are generally less onerous. In essence, there may be real benefits for an attorney to officially note which clients are "former" clients for purposes of conflicts of interest analysis.
File Closing May Lessen Liability
In addition to the ethics issues, there are liability reasons why this transition is so important. In recent years, there has been significant appellate activity regarding when the statute of limitation begins to run for legal malpractice claims, particularly with regard to the trigger date for the statute of limitation. This flurry of appellate activity suggests it can be critical to determine when a client relationship ended for purposes of calculating a statute of limitation. Even if, for example, the project for which the attorney was retained is over, a client could argue that an attorney-client relationship continued on the same subject matter as that representation, thereby tolling the statute.
In legal malpractice lawsuits, clients often argue that an ongoing confidential relationship with their attorney means the applicable statute of limitation is tolled. Although the inquiry will typically focus on whether the continuous representation related to the same subject matter, it can be helpful for the client to point to the fact that the matter was never closed in the firm's systems or by letter. The client could argue that this alone reflects that the matter was ongoing and that they were clients of the attorney or the law firm.
One way to rebut such a conclusion is by closing the file when the representation ends. This simple step permits attorneys and their law firms to transition an existing client to become a former client, as well as eliminate some of the questions about whether the statute of limitation has begun to run.
Generally, effective file closings involve three parts: a file closing letter; an accounting of all funds received; and an administrative closing of the matter. It is the combination of all three that provides the most protection for attorneys.
The File Closing Letter
For many firms, the file closing letter may include the following: an accounting of all funds received; confirmation that the representation has ended (typically as of the date of the letter); notice that the attorney or firm will no longer be providing any legal services absent a further retention; and a description of the attorney or firm's document retention policies, if applicable.
Even if the firm has a document retention policy that permits the client to retrieve the file, it is often helpful for the attorney to retain a copy of the file. If a legal malpractice claim is ever asserted by the client, the attorney's file is one of the most important tools in defending against such a claim.
Many attorneys end a file closing letter with sentences consisting of "thank you for hiring us," and "please do not hesitate to call on us again." This can also help assuage some of the more business-minded attorneys who do not want the file-closing letter to be viewed by clients as the attorneys "breaking up" with the client. There can be a way to balance the risk of a continuously-open matter with the attorney's business goal of performing additional work for the client in the future (that would then be its own separate matter). The content of the file closing letter will likely vary depending on the reasons for the termination of the attorney-client relationship.
The accounting of funds must be accurate and complete. Open issues surrounding client funds always come up at the most inopportune time. In closing the file, it can be a good time to clean up all outstanding issues and create a final accounting. In many circumstances, this will include an accounting of all funds received, the application of funds toward outstanding expenses and fees consistent with the fee agreement or engagement letter, and the return of any funds to which the client may be entitled.
Administratively Closing The File
Attorneys and law firms continue to be surprised when a new client comes in and the computer system shows an old potentially conflicting representation is still an open matter. By closing old files both in a communication to the client and through the firm's internal administrative protocols, attorneys can take steps to reduce these unpleasant surprises. Sending a file closing letter, but keeping the matter "open" in the system may create headaches for the attorney down the line.