Wisconsin Lawyer: Managing Risk: Suing for Fees: To What Lengths Should You Go to Get Paid?:

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  • Wisconsin Lawyer
    June
    01
    2013

    Managing Risk: Suing for Fees: To What Lengths Should You Go to Get Paid?

    Thomas J. Watson

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    Suits against clients for unpaid fees are not strictly off-limits, but lawyers should thoroughly evaluate each potential case to determine if the fees at issue justify both the costs and the possibility the attempt will not succeed.

    Dog barking up a treeWhen the plumber comes to your house and fixes your clogged drain, you never consider not paying the bill, do you? When the mechanic fixes your car, that service deserves payment, right? When the dental hygienist cleans your teeth, payment is not something that is in question, is it? So why do clients sometimes neglect, intentionally or otherwise, to pay lawyers for legal services rendered? It’s an issue lawyers struggle with far too often.

    Few lawyers have not been confronted with the question whether they should sue a client for fees when it seems clear the client does not plan to pay the bill. When lawyers ask me this question, my answer is always an unsatisfying one to them: “It depends.” Then they ask, “On what?”

    To start, it depends on the individual case. Suing for fees is not a one-size-fits-all proposition. Each case, and each client, is unique. Relevant factors include how much money the client owes, whether the amount is enough to justify the time and trouble of a lawsuit, whether you have a good working relationship with the client, and what type of legal matter was involved

    These aren’t all. You should also consider the following when contemplating a lawsuit for fees:

    • Could this trigger a counterclaim malpractice suit? (At least 10 percent of malpractice claims arise from a suit for fees.)
    • Is there an alternative to suing for the fee?
    • Would a judgment be collectible?
    • Why is the client not paying? (Possible reasons include dissatisfaction with the attorney’s work, unhappiness with the result of the case, and lack of money to pay.)

    After considering this information, a lawyer must then determine whether the circumstances are appropriate for going after a client for fees. The policy of Wisconsin Lawyers Mutual Insurance Co. (WILMIC) is that this is a personal business decision each lawyer must make. WILMIC, unlike some other carriers, does not drop policyholders or add a surcharge to their premium based solely on suits for fees. However, an excessive number of suits for fees would raise some red flags. It could be a sign that clients are unhappy with the quality of work being done, that the lawyer is taking on risky, financially unstable clients, or that the lawyer is sloppy in his or her communication with clients, who then become unhappy because they don’t understand the services for which they are being charged.

    Unpaid Fees: What is the Client Telling You?

    Lawyers who are continually running into problems getting paid should take a close look at how they are providing client services and how they are communicating with their clients. An unpaid bill may be a client‘s way of expressing dissatisfaction with the legal services that were provided. Or maybe the client is saying he or she doesn’t understand what services were provided. A client might think you are overcharging. What leads to this type of misunderstanding, or to disagreement over the value of the services rendered?

    Thomas J. Watsoncom Tom.Watson wilmic Thomas J. Watson, Marquette 2002, is senior vice president and director of communications at Wisconsin Lawyers Mutual Insurance Co., Madison.

    "In determining whether to sue a client for fees, consider the type of legal matter involved, the amount owed and whether it justifies the trouble of a lawsuit, whether a judgment could be collected, whether a suit might trigger a counterclaim malpractice suit, and more."

    A lawyer‘s bill is more than just an invoice. It is a communication tool. You have many opportunities during the course of legal representation to explain to your clients what is happening in their case, and what you are doing for them. Bills for legal services should be just that — an explanation of the legal services provided, and why those services have value.

    Too often lawyers are singularly focused on doing the work in a case but fail to keep their client informed. Consequently, when it comes time for the bill, clients are sometimes surprised (and sometimes unhappy with the amount they owe).

    If a client is surprised at a bill, that may be a sign that you need to communicate better to keep the client informed of what you are doing in the case. For example, the danger of not drafting an engagement letter or fee agreement and reviewing it thoroughly with a client is too great to ignore. A lawyer once shared with me the story of a case he had several years ago in which he was not paid. He then tried to learn why that happened, and to change his practices accordingly. The lack of an engagement letter or fee agreement was at the heart of the problem in that case. Without an engagement letter, a misunderstanding was almost inevitable. Most clients will not recall everything that was said, or agreed upon, especially early in a case. That can lead to dissatisfied clients, collection problems, and possibly other complaints.

    Communication Is the Key

    Consider several billing and practice methods that can help you avoid using your valuable time to go after uncollected fees.

    • Discussions of fees, and bills, are opportunities to communicate with your client. At the initial meeting, give the client an estimate of how much the representation will cost and try to assess the client’s ability and willingness to pay.
    • Draft very detailed and specific engagement letters or fee agreements. Be sure to include a discussion of fees and costs in engagement letters.
    • Bill periodically and consistently. You should clearly detail the work performed and the charges submitted. A clear accounting is essential, says Sally Anderson, vice president – claims at WILMIC. “Often one of the first things asked for in a malpractice suit is a copy of all the attorney’s bills. The lawyer who did the work should proofread them, and above all, prepare them for scrutiny. A lawyer’s bills and billing procedures reflect directly on the professionalism of the lawyer.”
    • Keep your client in the loop. Keeping the client abreast of developments, especially negative developments, can lessen the shock to the client when he or she learns that the matter is taking more time or costing more than was originally anticipated and may prevent a later dispute about the fee agreement and the amount or quality of work performed.

    Sometimes, these proactive steps won’t be sufficient to avoid a client’s not paying your bill. When considering a collection suit, undertake the following analysis first:

    • Was the client pleased with the outcome of the underlying representation?
    • Are you critical of your own performance?
    • Has a disinterested attorney assessed your representation to determine if any elements of your work are fairly open to criticism?
    • Is the amount at stake (after taxes) worth the risk of a claim?
    • Is there any alternative to a lawsuit for unpaid fees (a fee arbitration program, for example)?
    • Would a judgment be collectable?
    • How will your malpractice carrier view such a claim?

    Should I Ever Sue For Fees?

    Are lawyers ever justified when suing a client for fees? Sure, says Anderson. Although bringing suit against a client is never a pleasant situation, Anderson says sometimes it is unavoidable. “Some clients deserve to be sued for fees and some don’t. Just be sure you’re picking the right ones.”

    Anderson tells the story of a four-person firm that decided to write off fees in excess of $65,000. The firm represented a company that was trying to sell the business, with the goal of using the sale proceeds to cover all outstanding bills, including those of the law firm. Protracted negotiations with two separate potential buyers fell through, and with no other buyers on the horizon, there was no money to pay the legal fees.

    Anderson says, “They decided, deal or not, the business client was likely to try to find some fault with the legal services to avoid paying. It just wasn’t worth it for the firm to spend more time and money suing for fees, with no guarantee of a good result.”

    For many smaller firms and solo practitioners, writing off fees is something they cannot afford to do often. They have bills to pay. They believe pro bono work should be something a lawyer does voluntarily, not involuntarily. Nevertheless, according to retired La Crosse attorney and former State Bar president Tom Sleik, “Suing a client for fees should be a last resort. Unless they owe you a lot of money, getting a judgment against a client is usually not worth it.”

    The best way to handle fee disputes is to be proactive; avoid them through the use of good procedures. Sleik says he always made sure that he, not someone else on his office staff, was the one talking with the client about fees. “I tried to get as personally involved in the case as possible and talked with clients directly about payments – rather than simply having someone from the office send them a bill, or a cold, impersonal collection letter.”

    Check with Your Insurance Carrier

    As mentioned earlier, suing for fees may lead to higher liability insurance premiums. Some insurance companies consider a firm’s history of suing for fees when looking at that firm’s insurability and the amount of premium. Joe McCarthy, vice president – underwriting at WILMIC, says it’s a good idea for lawyers to check with their carrier. “Ask your carrier whether it impacts the premium you’re paying. Some carriers even consider dropping a policyholder, depending on the number of times a firm has sued for fees. It’s definitely worth asking about.”

    Conclusion

    Fee disputes often arise because of a lack of communication and understanding between the lawyer and the client. Even lawyers who maintain good communication with clients might not pay sufficient attention to the possibility of nonpayment. “Billing is part of a good business plan, and some lawyers are very good at practicing law, but not as good at running a business,” Anderson says. “Just being a good lawyer isn’t good enough these days.”

    For one attorney’s experience trying to collect a fee in Honduras, see “James Bond or Jay Gatsby? An ‘Operation’ to Recover a Judgement Abroad” at page 28. To learn the legal process for collecting debts, including unpaid fees, see “101: How to Collect a Debt” (May 2013).