Law Alert: Recent Connecticut Supreme Court Decision Demonstrates Importance of "End of Representation" Terms in Engagement Agreements

by Pullman & Comley, LLC
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In its recent decision in Flannery v. Singer Asset Finance Co., LLC, 312 Conn. 286 (2014), the Connecticut Supreme Court provided a perfect illustration of how important it is for a law firm to have in place a mechanism for clearly marking the end of the representation.  In a split decision, the Court affirmed summary judgment in favor of a defendant on statute of limitations grounds, and did so primarily on the basis of language in a law firm’s engagement agreement that prospectively identified the events that would be deemed to end the representation.  The defendant was not a lawyer or law firm, but it was accused of aiding and abetting the misconduct of a lawyer and law firm.  Therefore, the limitations period applicable to the claim against the law firm was deemed applicable to the non-law firm defendant.  Lucky for the defendant, the terms of the law firm’s engagement agreement with the plaintiff made it easy for the Supreme Court to determine the date the representation ended, and, therefore, the day the limitations period began to run.

In 1988, plaintiff Flannery won $3 million in the Iowa state lottery, to be paid in twenty annual installments of $150,000.  In 1999, he sold his remaining installment payments to the defendant, accepting a discounted lump sum payment of $868,500 for the $1.2 million in remaining payments

The attorney Flannery retained for the transaction advised him that the sale proceeds were taxable at the capital gains rate, not as ordinary income.  Time passed, and in 2002, when the IRS assessed substantial additional taxes, Flannery learned that the advice the lawyer had given him was incorrect.  In 2005, Flannery sued the attorney, his firm and the defendant, claiming, among other things, that the defendant had aided and abetted law firm’s breach of its fiduciary duty of loyalty to the client. 

The trial court granted summary judgment for the defendant on the ground that the aiding and abetting claim was time barred (the lawyer and law firm were already out of the case).  Any breach of fiduciary duty by the law firm “ceased to exist” when the law firm sent its final bill in September 1999, well over three years prior to the commencement of the action.

When the Supreme Court took up the case, it held that, contrary to the decisions of the trial court and the Appellate Court, Flannery had adequately pled the continuing course of conduct doctrine in avoidance of the statute of limitations defense.  The Court then turned its attention to whether the doctrine was applicable.  Flannery’s novel theory was that where there has been a breach of fiduciary duty, the limitations period never ends, or at least does not end until such time as the law firm confesses to the client that a conflict of interest tainted the representation.

The Court rejected that argument as inconsistent with the rationale of the continuing course of conduct doctrine – that the limitations period is tolled for so long as the attorney is in a position to correct the harm his wrongful conduct has caused.  As applied to the contours of the Flannery case, this meant that the attorney’s alleged breach of his fiduciary duty ended, at the latest, when the lottery proceeds were sold and the attorney relationship ended in 1999.   “Accordingly, even if [the lawyer’s] continuing course of conduct properly is attributable to the defendant for tolling purposes, the plaintiff’s claims against the defendant remain untimely.”  Notwithstanding the plaintiff’s characterization of the underlying conduct, to permit tolling past the end of the representation would have been inconsistent with the strong public policy underlying statutes of limitations: avoiding stale claims. 

In the Flannery  case, the Court could readily determine when law firm’s representation of Flannery ended.  The engagement agreement between Flannery and the law firm not only identified the agreed-upon scope of representation, it also expressly identified an act that would demarcate the end of the representation.  The exact language of the agreement and attached standard terms was as follows:

The scope of the legal engagement is to represent you in negotiating a lottery sale contract, to help you evaluate the tax and other legal consequences of such a transaction, and to draft or review all the legal and court documents needed to execute such a transaction. . . .  It is also our policy that the attorney-client relationship will be considered terminated upon our completion of any services that you have retained us to perform. . . .  Unless previously terminated, our representation of you with respect to the agreed upon scope of representation will terminate upon sending you our final statement for services rendered.

The Lesson for Law Firms

The “best practice” lesson to be gleaned from the Flannery decision is a simple one, and easy to implement: a law firm can, and should, include a provision in its client engagement agreements that both (1) clearly identifies the scope of the representation; and (2) identifies an end point for the representation.  The language the Court quoted in the Flannery decision is one way to provide an end point, and clearly one that saved the day for the defendant in that case.  Another suggestion for such a provision is as follows:

If not formally terminated sooner, this representation will be considered terminated upon the conclusion of the matter for which you have engaged us.  If you ask us to perform additional services after the termination of the engagement, the additional work will constitute a new matter.  After completion of the representation, changes may occur in the applicable laws or regulations that could have an impact upon your future rights and liabilities. Unless the terms of this agreement expressly provide otherwise, we have no continuing obligation to advise you with respect to any such changes that occur after the termination of the engagement.

Pullman & Comley, LLC appeared as counsel for Singer Asset Finance Co., LLC at the trial court, Appellate Court and Supreme Court stages of Flannery v. Singer Asset Finance Co., LLC.

Copies of the opinion and the dissent may be found here:
http://www.jud.ct.gov/external/supapp/Cases/AROcr/CR312/312CR77.pdf
http://www.jud.ct.gov/external/supapp/Cases/AROcr/CR312/312CR77E.pdf 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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