Preventing Fee Problems: A Preventative Approach
FeesFee disputes with clients lead to a number of problems. Legal malpractice claims are often filed when clients are dissatisfied with fees. If a lawyer tries to collect fees from an unwilling client, the client will often counterclaim for malpractice. Legal malpractice is a mandatory counterclaim in a fee suit. Collection litigation can be expensive even if no counterclaim is asserted, and the prospect of recovery is not always good.
This article will suggest ways to avoid fee disputes. It will also discuss factors that should be considered in the event an attorney is tempted to sue for fees.
Client Selection
Lawyers need to make an assessment up front as to whether a client can afford their services. Taking pro bono cases is a very noble endeavor, but lawyers need to make sure to take pro bono cases that are intended to be pro bono cases from the start.
There are several approaches to determining if clients can afford fees. Giving a client a reasonable estimate of fees and expenses and judging the potential client’s reaction can help avoid problems. Requiring a retainer and requiring that the client replenish it on a regular basis provides a way to weed out those clients who are less likely to pay when the bill comes. Keep in mind that retainers must be kept in a trust account until earned.
As the case progresses, talk with the client as soon as a bill goes unpaid or retainer is not replenished as agreed. Certainly there are situations where a lawyer may consider floating a client for a short period, but it is common for clients to fall behind and never catch up. It is best to withdraw before a bill grows even larger. Withdrawal becomes more difficult as litigation or a transaction approaches conclusion.
Client Communication
All fee arrangements should be in writing. Contingent fees must be in writing under the disciplinary rules. Combining fee agreements with engagement letters specifying work to be done is a very efficient way to assure that communications about fees are in writing.
Simply giving clients hourly rates does not give them the full impact of the cost of services in more complicated matters. Estimating the full cost of the representation helps them understand how expensive the matter may be. Making it clear that the lawyer must be paid regardless of outcome and that there are downside risks to litigation is critical. Clients who are fully informed about costs and risks are less likely to complain about fees.
Communication with the client is not something lawyers should consider just at the beginning of representation. As the case progresses, provide clients with documents which have an effect on there prospects for success or failure in the litigation as soon as possible. Discuss any developments which either increase costs or decrease the likelihood of success very shortly after they occur. Provide the client with new estimates of cost in writing as the case continues.
Billing
Bill clients early and often. That may sound funny, but it is sound advice. Detailed interim billing lets the client know how much work has been done, and lets the client pay the bill in smaller pieces. Psychologically and practically, it is often easier to pay several smaller bills than one larger bill, even if the ultimate amounts paid are the same. Billing in this manner also makes it easier to determine when a client is going to have financial difficulty.
The format of bills is important, for a number of reasons. In some cases, the primary communications clients read are the bills. Bills should be prepared as carefully as an important letter. Details should specify the date of service, who provided the service, and a description of the service. Expenses should be itemized as well. If a client is not following advice, note discussions with the client in the bill, as well as the gist of the advice. If the client later claims they were following advice, the bill can be evidence to the contrary.
Bills often become important evidence in litigation. Errors on bills reflect badly on attorneys. If expenses do not reflect actual costs and seems to be higher than would be paid in another context, a jury in a malpractice case will not look favorably the attorney. Bills in which a lawyer charges for more than 24 hours in a day, for example, do not help in the malpractice case.
Account Collection
When a client has not paid a bill timely, consider this a message from the client. The client may be dissatisfied, may no longer have the ability to afford additional services, or may be interested in alternatives to the current course of action. Discuss the situation immediately with the client, and act quickly on what is learned. Whatever the next action-a payment plan, referring the matter to another lawyer, or withdrawal-do not delay. Document the action taken.
When withdrawing from litigation, lawyers must provide the client with information about the status of the case. Until the court approves withdrawal, a lawyer must continue to represent the client and avoid defaults and damage. Provide the client with any materials needed to continue their case. Asserting a lien against their critical documents often invites a malpractice claim.
Suits for Fees
If a client fails to pay and a lawyer contemplates a collection suit, several factors must be considered. Poor legal work is a defense to fee collection, and malpractice claims are often asserted against lawyers filing collection actions.
The following checklist is one TLIE follows when discussing fee suits with insureds.
- Consider the economics of pursuing a collection suit. In many cases, lawyers get judgments against clients that are ultimately uncollectible. Time spent on suits for fees often take away time from more lucrative new representations.
- Was the outcome of the case clearly a good one for the client? If the result of a case is not one that is obviously favorable to the client, avoid suing for fees. A jury is more likely to see the quality of services in general terms, not the technical quality of the services. If a client suffers a judgment against them, that is not a good situation for pursuing collection.
- Have another attorney review the matter before pursing a suit. Lawyers in firms should consult with other lawyers in the firm first to see if they can perceive any difficulties with the collection action or the possibility of malpractice.
- Hire experienced outside counsel to prosecute the suit. A lawyer who pursues his or her own case often has a fool for a client. The lawyer who is owed fees will not be objective about the fee suit in many circumstances, and often has no experience in such suits.
- Review documentation and do not sue if the basis of the fees is not clearly documented. Not is collection less likely without documentation, but in any associated malpractice claim the failure to document fees will reflect negatively on the lawyer’s professionalism.
No attorney likes to be stiffed for fees. Reacting out of emotion, however, often makes the problem worse. Treat client failures to pay fees as a business issue, not as a reflection on the quality of legal services.
