The Relationship Between Legal Fees and Legal Malpractice

Fees have a complex relationship with legal malpractice. While definitive statistics regarding the impact of legal fees on legal malpractice are not available, TLIE has noted that fee issues often provoke or aggravate legal malpractice claims. Learning methods to avoid fee issues can have a significant impact on loss avoidance.

Lawyers should make an initial determination about whether clients will be able to pay fees. Obtaining and replenishing retainers can avoid disputes over unpaid fees later. If retainers are not obtained, lawyers should consider credit checks of clients who will incur large fees. Intentionally taking on pro bono matters is quite acceptable-it is the unintended ones that are a malpractice risk.

Clients are often angered when they receive fee bills they do not expect, and anger is what often drives clients to sue for malpractice. Anything that can be done to explain in advance how much legal fees are likely to cost is positive. Putting fee agreements in writing helps avoid the anger associated with unanticipated legal fees. Frequent billing when a matter involves hourly rates allows the client to pay the bill in smaller chunks. If the client fails to pay timely when billed frequently, the attorney can withdraw before the amounts of money at stake are large.

Suits and interventions for fees should be avoided. Legal malpractice is a mandatory counterclaim in a fee suit and a defense to payment of fees. Lawyers often fail to analyze whether their time is more valuable spent on other paying clients rather than on pursuing uncollected fees. Fee suits are often started against clients who have no easily attached sources to fund a judgment. If a fee agreement is not in writing, a lawyer may have a difficult time showing that he or she is entitled to a fee.

Of most concern in fee suits, however, is that lawyers often fail to appreciate how a malpractice claim might be pursed in the course of the fee suit. If a client does not get a result from the legal representation that a lay jury will understand as positive, lawyers will often be saddled with a significant malpractice judgment. Getting a result where your client merely pays half as much as they would have might be a great result your lawyer friends will applaud, but a lay jury may only see that you didn’t get a zero verdict. The size of legal fees an attorney is seeking also has the potential to bias a jury against the attorney.

Many lawyers fail to understand that the actual bills will often be evidence of what was or was not done for a client in a legal malpractice case. Depending upon the circumstances, it may be appropriate for a lawyer include more or less detail in a bill than they would otherwise. For example, if a client is claiming that the lawyer did not discuss a particular issue with the client, a detailed billing entry indicating what issue was discussed at a conference may supports the lawyer’s version of the story. On the other hand, if a bill is being paid by a third party such as an insurer, a detailed bill should avoid indicating potential coverage issues.

If a bill contains an error or appears on the surface to be unfair, this may affect a legal malpractice case. On a number of occasions, lawyers have submitted bills with more than 24 hours in a day for a single attorney that later are used against them in a legal malpractice case. Setting up profit centers for expenses is contrary to the rules of ethics, see ABA Formal Opinion 93-379, and can create problems in a legal malpractice case.

Changing the structure of a fee agreement after representation has begun can cause serious problems. The fee agreement between a lawyer and the client is a business transaction, and any proposed change in the agreement presents a substantial likelihood that there will be a conflict between the interest of the attorney and the interest of the client. If a lawyer determines that he or she must seek a change in the fee agreement in order to proceed, the best course is to have the client get independent counsel from another attorney. Otherwise, the client may later claim that the lawyer took advantage of the client when the agreement was changed.

Fees are a significant factor in legal malpractice cases. If you have a client who is not paying fees, seek to withdraw early in order to avoid a claim of prejudice from your withdrawal. Writing off a portion of a fee when questioned by a client can often avoid problems later. If you are a TLIE insured, we’d be happy to talk through the potential malpractice issues associated with your problem fee situations.

By Jett Hanna