In a panel presentation at the 7th Annual Legal Malpractice Risk Management Conference last year it was observed that 15-20% of all malpractice claims are in the form of counterclaims that started out as a simple collection action by a law firm. Most often these counterclaims involve small law firms that can least afford a cash flow interruption and, therefore, are motivated to sue for fees. Given the difficult economic times we are in, it is expected that more firms than ever of all sizes will be motivated to begin collection actions against non-paying clients. Thus, it is ripe to review those things you should consider before filing a collection action and ways of avoiding a fee dispute in the first place.
Suing a Client for Fees is Like Playing Leapfrog With A Unicorn
Malpractice counterclaims, while often lacking merit, are onerous to defend, can be expensive, and hurt firm morale. Typically, individuals and small businesses bring them. Motivation for the claim often is that the client cannot pay fees, is seeking leverage for a fee adjustment; or may be able to pay fees, but was surprised or disappointed in the outcome of the matter.
A good policy is to avoid suing clients for fees, but when seriously considering bringing a collection action, use the following checklist to evaluate how counterclaim proof you are:
- Was a good result obtained in the underlying case?
- Is the size of the fee sufficient to warrant the risk of a malpractice counterclaim?
- Has a disinterested lawyer of experience reviewed the file for malpractice?
- How reasonable were your fees?
- Will work on the matter as reflected on billing withstand cross-examination?
- Does billing indicate over-practicing?
- Too many meetings, telephone calls, and research hours.
- Billing for several lawyers reviewing or preparing to discuss the file.
- Over-qualified personnel for the work.
- Are entries vague?
- No names and no billing rates for the work done.
- Itemized bills use generic terms such as “phone call” or “meeting” with no substantive information.
- Subject to being misconstrued?
- Billing for “soft costs” (copying, fax) and general overhead (heat, air conditioning).
- All telephone calls take .3 hours; all dollar amounts are nice round numbers or end in five; and inserted along with all the routine itemized expenses is a charge for expert witness fees of several thousand dollars.
- How much non-billable time will be spent defending any malpractice counterclaim?
- Will any judgment obtained be collectible?
- Will you recover more than you spend?
Avoid Fee Disputes Using Good Risk Management Techniques
- Begin with good new client screening procedures. Red flags are:
- The financial condition of the prospective client is problematic.
- The prospective client is difficult when discussing fees.
- The prospective client has unrealistic expectations for the matter.
- Maintain good client communications throughout the representation. Begin with a letter of engagement that includes the fee agreement in detail. In the letter clearly spell out the method of billing and the scope of engagement.
- Make fee collection as easy as possible. Get a retainer at the inception of the representation and insist on timely replenishment of the retainer as it is depleted. Accept credit card fee payments.
- Bill regularly and use descriptive invoices.
- Use itemized billings so that the client can tell what is being done on his behalf.
- Bill periodically, preferably monthly.
- Keep an accurate time log reflecting daily efforts expended on behalf of the client.
- Do not change the fee terms in the middle of a matter.
- Manage client expectations. Lawyers understandably do not like to send letter after letter to a client about unfavorable developments in their matter that may be taken to be excuses for poor work. Failure to do so, however, results in unreasonable expectations that when not realized can lead to the client not paying fees. One lawyer in discussing this issue said it is essential that all bad developments be promptly communicated to a client in what he calls CYA letters. In this case CYA does not stand for what you may be thinking – rather it means “Change Your Attitude.”
- Catch problems early. By billing regularly it becomes clear early on whether a client will be difficult about paying fees. Prompt withdrawal is often the best risk management in these circumstances. Accept a small loss and move on. Always do a fee payment review before filing a case. Once a case is under the supervision of a judge it is more difficult to withdraw. In some cases, notwithstanding the hardship to the lawyer, a judge may rule that the lawyer must continue the representation. Do not put yourself in that position if you can possibly avoid it.
- Read SCR 3.810, Legal Fee Arbitration. “The purpose of Rule 3.810 is to establish a procedure whereby fee disputes between attorney and client and fee disputes between attorneys may be resolved by submission to binding arbitration.”