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On Risk Management: Think Twice Before You Sue for
Unpaid Fees Client dissatisfaction over legal fees and expenses contributes to about one-fifth of all legal malpractice claims, according to many experts. So, before you file suit for fees make sure you consider all the issues involved with this decision. Remember, in many such instances, a lawsuit for a fee will draw a counterclaim for malpractice. In fact, most professional liability insurance applications, in the area of "Firm Management and Procedures" ask the question..."How many suits for the collection of fees have been filed by the firm in the past 3 years?" The question has been validated by the malpractice exposure such conduct can create. To begin with, your office should have a system for billing procedures. Ask yourself the following questions: 1. Do I make daily entries of the work that was performed for each client and by whom, including telephone calls, research, etc.? 2. Do I bill the client on, at least, a monthly basis? Even if the answer to both questions is a resounding "yes"...and the client still isn't paying your bill...picture these scenarios before you sue a client for your fee: a) You on the witness stand testifying about your representation of the client and the reasonableness of your fees before a jury of people chosen from your community; b) Judgment, in hand, you attempting to collect from your non-paying client by garnishing wages or other measures; and c) You calling your professional liability insurance carrier to report a counterclaim for legal malpractice. Taking action against a client is seldom a simple business decision,
and the truth is, very few clients expect their attorney to work for
free so the two important questions to ask yourself are: Why Isn't the Client Paying? Most collection problems are the result of misunderstood or unmet expectations. An engagement letter and written fee agreement at the outset of your representation establishes expectations for both you and your client. Your letter or fee agreement should set forth: a. What services and expenses you will bill for; If you and the client have a fee agreement and the client does not pay your bill, is it because the client can't pay or because he or she won't pay? By refusing to pay your bill, the client may be attempting to tell you he or she is dissatisfied with the outcome of the matter, the quality of your representation, the size of the bill or all of the above. Make an honest assessment of what you've accomplished for the client. How much would you be willing to pay for the results you got? Even if the outcome is favorable, clients may be unhappy with your representation. You may want to ask a lawyer who's uninvolved in the case to conduct an objective review of your representation...or simply ask yourself, "Did I deliver what I promised? Did I treat the client with courtesy and respect? Am I confident that my work met the standard of care?" Non-paying clients may simply feel the bill is unreasonable. The collection rate is better for flat fees than for hourly bills. With a flat fee agreement, clients are not surprised by the bill. You've met one expectation...their expectation regarding the bill...regardless of the outcome of the matter. Look upon regular billing as another positive way to communicate with your clients. Your itemized bill tells clients what you're doing on their behalf. By paying your bill, clients are telling you they're OK with your representation. How frequently you send bills depends upon the type of representation. Bill promptly when work is completed and periodically for ongoing representation...and...always follow up on unpaid accounts. Law firms have a much easier time walking away from a one month bill than a twelve month bill! What If a Client Can't Pay? If a client is financially unable to pay, consider alternatives to a lawsuit. You're no more likely to collect on a judgment than you are an unpaid bill from a financially strapped client. You can reduce the bill, zero the bill or work out a monthly payment plan. Sometimes, it pays to write to the client and find out "how much they think they should pay you" or "how much they can afford". Other times it may be just as well to decide it should have been a pro bono case from the beginning. But, the client who cannot pay now may pay later or may refer another paying client to you. If you have some reservations about a client's willingness to pay or ability to pay, you can (and probably should) request a retainer. Initial and periodic retainers help you assess how serious the client is about the legal matter and assure you that you will be paid. Consider turning collections over to your accountant or a law firm that does collections. This gives you the perspective of an objective third party, allows you to maintain a professional relationship with the client and frees your time and energy to pursue new work. Why Am I Suing My Client? After you've exhausted all the traditional methods of getting paid for your work, you may feel a lawsuit is your last recourse. Serious soul searching, the kind you would advise your clients to do before taking someone to court, is a prerequisite to a suit for legal fees. Are you doing this for the financial good of the firm or do you have a vindictive, emotional need to prove a point? In the end, lawyers rarely benefit...emotionally or financially...from successful judgments against clients. The number of judgments that are vigorously pursued is less than 10 per cent. Unless you're willing to garnish wages, levy bank accounts or request supplemental examinations under oath, then you're probably wasting the filing fee. In Conclusion Remember the freedom to walk away from an unpaid bill can be enormously gratifying. Not only does an unpaid balance keep the client out of your office...at least until the next time he or she needs your services...you have the satisfaction of knowing that the client owes you...or...you could mark PAID on a bill and mail it to the client with a cover letter. Often, the client pays the bill right away. "The only thing worse than owing money is owing gratitude." Resources "Before You File Suit For Fees..." - Malpractice
Alert!, OBLIC (Ohio Bar Liability Insurance Company), July 2000. Kay G. Kenny is Assistant General Manager of the Legal Mutual Liability Insurance Society of Maryland. This is the fourth in a series of articles that includes claim prevention techniques, designed to minimize the likelihood of being sued for legal malpractice. The material presented does not establish, report or create the standard of care for attorneys, is not legal advice and does not represent a complete analysis of the topics. Readers should conduct their own appropriate research. |
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© 1998-2007 Legal Mutual Liability Insurance Society of Maryland. All Rights Reserved. |
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