Forty-three hours after I had landed in Tegucigalpa, Honduras, Ron Haggerty was served.1 I had remained in the car. The process server “team” had returned and given a report. “He was surprised, really surprised,” Alonso, one of my Honduran lawyers, related. “His face kind of twisted. He was not angry. He was stunned.” Carlos, our second lawyer, had stood at the door. Crisanna, the notary, handed Ron the papers and explained the purpose of the visit. Alonso, whose English was better, made sure Ron understood.
A Man-Bites-Dog Story: Lawyer Sues Former Client for Fees
For a variety of reasons, a lawyer suing a former client for fees has long been a man-bites-dog story – that is, an unusual and infrequent event.2 This is true despite the fact that clients’ failure to pay their bills is not that unusual or infrequent. Some clients are disappointed in the result and rationalize their disappointment by blaming the lawyer and refusing to pay. Some clients run out of money. It is my observation that an alarmingly high percentage of clients will, if they can, walk away simply because they think they can get away with it.
Lawyers are reluctant to sue former clients for fees in large part because professional liability carriers counsel against it or threaten to raise premiums in response to the practice. (For an insurance provider’s perspective, see the Risk Management column, “Suing for Fees: To What Lengths Should You Go to Get Paid?” at page 47.) Carriers are concerned about defending counterclaims. Additionally, lawyers are reluctant to sue former clients for fear of inviting a complaint to the Office of Lawyer Regulation (OLR), which might decide to investigate and recommend discipline, if appropriate.
I don’t subscribe to the view that lawyers should not sue for fees. Early in my career, I read a book about Abraham Lincoln’s career as a lawyer.3 Lincoln ran something of a general-practice “mill” in Springfield, Ill. He believed that he charged fair fees for his work. If a client did not pay, Lincoln had no reservation about suing the client for fees.4 It was not a matter of making a sound business decision – then, as now, this usually occasioned writing off both the client and the debt – and moving on. For Lincoln, suing for fees was a matter of pursuing justice and preserving self-respect.5
com dhf dewittross Douglas H. Frazer, Northwestern 1985, is a shareholder in the Metro Milwaukee office of DeWitt Ross & Stevens S.C. He focuses his practice on tax litigation and controversy.
Lincoln has been my inspiration. I view the extra time I spend on collection matters less in dollars-and-cents terms and more as a form of doing for myself what I’d otherwise do for a long-time client. A good attitude goes a long way in keeping one’s emotions in check. In fact, if you can remain professionally detached, suing for fees can be an interesting exercise. Our firm’s managing partner carefully reviews recommendations to put fee matters into suit. He is selective in authorizing suits. There must be a signed engagement letter, and the lawyer involved must convince the managing partner that he or she pursued the matter diligently and competently and communicated with the client throughout the representation. Many are small-claims cases.
Has a client counterclaimed against me? Once. The court commissioner dismissed it at the hearing. Has a client filed a complaint against me with the OLR? Twice. Each time the OLR, after investigation, dropped the matter. Year to year, the OLR has determined that the overwhelming majority of filed grievances did not warrant investigation because insufficient information existed to support an allegation of misconduct.6
The Former Client
In my view, Ron Haggerty (not his name) did not pay me because he thought he could get away with it. The story was dramatic. On May 27, 1998, Ron packed his belongings into his truck and drove south from Crawford County. He left behind a note for his wife Betty and his two children and left financial devastation in his wake. Through years of mismanaging a series of realty companies and other enterprises, Ron and Betty had amassed devastatingly large debts to tax authorities.
I was their tax lawyer.
Ron communicated with me for a year and then decided to stop doing so. He decamped to Honduras to start a new life. Along with not paying tax authorities and other creditors, he left his legal bill unpaid – and Betty without resources.
I soldiered on. It was hard to drop Betty as a client. We hoped to settle with the tax authorities. The funding for the settlement, and payment of our fees, would come out of the proceeds of the sale of the remaining real property. Ron did not disguise the fact that he had started anew in Honduras. From time to time he communicated with us by email. It’s up to you and Betty, he told us. I can’t deal with it.
Betty’s and my plan failed. In 2002, the lenders forced a foreclosure sale of the real property before we could find a qualified buyer. Betty found someone to share rent with and got a part-time job at a local store.
In 2003, our firm filed a collection suit against Ron and Betty and obtained default judgment of just over $16,000.7 Betty was uncollectible. Ron, on the other hand, was doing well. Through an Internet search, my legal assistant and I discovered that Ron apparently owned and managed a foreign-visitor event-planning business in Tegucigalpa. Ron lived and worked in the upscale neighborhood of Lomas del Guijarro. Margaret, my legal assistant, subscribed to his business’s email bulletins. Margaret spoke with Ron a few times by phone to inquire about his services. This was easy to explain because Margaret was, in fact, the owner and director of an area volleyball club that was interested in competing internationally.
The trouble was that we were in Wisconsin, and our guy was in Tegucigalpa. And so began a legal experiment, an adventure, to see if we could register and collect a judgment, with postjudgment interest now worth about $35,000, in a foreign country.8 Was it worth the time, the money, and the effort?9 It’s hard to say. You can’t succeed without risking failure in the attempt.10
Registering the Judgment in Honduras
Our Wisconsin firm needed to associate with a law firm in Tegucigalpa. After considerable research and reference checking, we settled on Tegu-Law, a 12-person law firm. Tegu-Law agreed to a contingency-fee arrangement with cash up front for expenses. Margaret and I then began the process of obtaining and authenticating documents.
We obtained a certified copy of the judgment from the Crawford County clerk of courts. Then, consistent with Honduran law, we delivered the certified judgment to the Wisconsin secretary of state for an apostille authentication.11 Next, we delivered the certified judgment to the Honduran embassy in Washington, D.C., for Honduran certification. The embassy did not charge us for this service. We then mailed the certified documents to Tegucigalpa.
Time passed. The firm in Tegucigalpa informed us it would need additional certified documents from the case. The process began again. We ordered certified copies of the other documents we had filed in the Crawford County action. These included a proof of publication, affidavit of mailing, certificate of nonservice, affidavit of default and nonmilitary service, and the default judgment. Again, we forwarded these documents to the Wisconsin secretary of state for apostille authentication. This time we added a Tegu-Law-prepared power of attorney in favor of our Honduran counterparts, and a copy of my passport page. (One of our former legal assistants, fluent in Spanish, translated the document into English.)
Then, back to the Honduran embassy for its seal. This time, the embassy informed us of a fee structure for this service. We calculated that we could save on the fees by combining various documents and requesting certification of the bundle. After a few more delays, the embassy returned all the documents with the seals affixed. We forwarded the package to Tegu-Law by registered mail.
Months passed. Because we lacked knowledge of Honduran legal procedure, we thought, mistakenly, that we were waiting for the Honduran court to accept our petition and register the judgment. In June 2011, now eight years after taking judgment in Crawford County, Carlos emailed that serving process on Ron was proving difficult. Carlos was concerned the court would lose patience and dismiss the matter. Carlos recommended we advance another $310 to hire a notary to assist with service. We could not understand the delay, in part because Tegu-Law had not explained to us that this part of the procedure could be a problem. How hard could it be to serve this guy? We knew where he worked; we knew which neighborhood he lived in.
James Bond or Jay Gatsby: The “Operation” to Serve the Former Client
I decided to fly to Tegucigalpa. I informed my attorneys of my plan. “Glad to have you” was the reply. “Any help you can give us will be appreciated.”
On one hand I felt like James Bond. True, I was missing the Aston Martin, the tuxedo, the martinis, and the beautiful women, but it seemed exciting. On the other hand, maybe this trip was more like something out of F. Scott Fitzgerald’s story The Great Gatsby. Jay Gatsby is a fabulously wealthy, handsome, well-dressed, and ambitious businessman whose background is a bit of a mystery. Gatsby throws great parties in the West Egg district of Long Island and knows everyone. For a while, Gatsby enjoys success in transforming his oversized dreams into reality but his efforts, in the end, turn out to be a fool’s errand.
My first night in Tegucigalpa, I drove around to orient myself. Locating people, I quickly learned, could be difficult. There were no street addresses and often no street names. Rather, a place was described by reference to its proximity to something else. For instance, the law firm’s address was 125 meters north of the Sierra Norte building. This building, in turn, was just north of the new national theatre, and so on.12
The next morning Carlos, the senior Tegu-Law partner, explained that the Honduran courts have their own service-of-process unit. That unit, with a business address at Casa Colombia, had made several service attempts but had not succeeded. After the meeting, I walked over to Casa Colombia. The address turned out to be imprecise. Casa Colombia had a main building, a separate Annex A next door, and a separate Annex B across the street and around the corner.
I learned that Ron used to have an office in the Casa Columbia main building but that he had moved to Annex B. This was a key discovery; the fact that Ron no longer worked in the main building might have been why the court’s process server had been unsuccessful.
I also learned that Ron came in irregularly. Mostly, he worked from home.
In any event, if the court’s process server cannot complete service, a party can petition the court to appoint an independent notary – usually a lawyer – to take up the task. Coincidentally, Carlos had just received such authorization that morning. Our notary, Crisanna S. Saurez, was duly appointed. We were ready. But we needed a meeting with Ron.
As luck would have it, things were coming together. Margaret learned that Ron was scheduled to be in the office at 10 the next morning.
The next day, I arrived at Tegu-Law’s office at 9:15 a.m. Alonso greeted me. We were on schedule. We drove to the building where Ron worked, and Carlos, Alonso, and Crisanna walked into Ron’s office at 10 a.m. With Carlos at the door and Alonso translating, Crisanna served Ron Haggerty with the Honduran legal documents.
Postservice Strategies, Maneuvers, and Obstacles
Ron did not ignore the matter. He hired a lawyer and moved to dismiss the case on the basis that he did not owe the money. We responded that the merits of the underlying case were closed and the registration of the Wisconsin judgment and service of papers on the defendant was consistent with Honduran law. The Honduran court denied Ron’s motion.
Collecting on a judgment, of course, is very different from getting a judgment in the first instance. Honduran law does not provide for the equivalent of a Wis. Stat. section 816.06 postjudgment “supplemental” examination. This procedure permits a judgment creditor to compel a judgment debtor or other witness to appear before a circuit court commissioner and answer questions under oath concerning the debtor’s financial circumstances. Our attorneys in Tegucigalpa conducted public-record asset searches and determined that Ron had his assets well-disguised: his business, vehicles, real property, and other assets had been placed in an entity or titled in someone else’s name.
We learned that Ron had obtained Honduran permanent-resident status. I found out that Ron’s status as a judgment debtor would not affect his eligibility to remain in the country.
Carlos told me that to search for assets under Honduran court auspices, we would have to commence a totally new collection lawsuit. This, however, would involve additional out-of-pocket costs that, given the relatively small judgment amount, might well involve throwing good money after bad. And no guarantee existed that we’d succeed in serving Ron a second time.
We knew Ron traveled back to the United States from time to time to visit relatives. Whether Ron came into Wisconsin was uncertain. If we knew when he was in the United States, we could serve him then with a Wisconsin court order requiring him to appear at a Wisconsin “supplemental” hearing.
I contacted an immigration attorney. If a criminal matter were pending against Ron in the United States, immigration authorities would have cause to detain Ron if he tried to enter the country and we could serve him while he was detained. A civil matter, the lawyer said, probably would not be sufficient to give rise to an immigration hold.
Ethics rules inform and limit permissible conduct in connection with the collection of fees from a former client. “A lawyer may reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary … to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client….”13 No further Wisconsin-source guidance exists as to the meaning of this rule as it pertains to prejudgment or postjudgment collection activity. Thus, I consulted several times with Tim Pierce, the State Bar of Wisconsin’s ethics counsel. Pierce suggested that by its reference to “a claim or defense,” the rule might be read to suggest that the fee controversy must be taken up in the form of a lawsuit. The states, it turns out, are divided on this issue.14
For this reason, it is unlikely that “shaming” techniques would be permissible. On the other hand, matter-of-fact communications with third parties in the normal course of a postjudgment asset search should be permitted.15
Is Ron a beneficial owner of one or more foreign accounts that he has not reported, as required, on his federal return?16 The probability is high. Could I, as his former attorney, file a whistleblower claim on these grounds? Given this set of facts, I probably could. Because my representation of Ron did not involve even a whisper of a foreign account, such a claim would not violate SCR 20:1.6(a), because it would not relate to information learned in the course of the representation. Might I, years from now, ride the creditor coattails of the IRS and recover a reward as the whistleblower?17 Possibly, but not likely.
So, here I sit, wiser but no richer, with fond memories of my trip to Tegucigalpa, Honduras, patient but stuck. I gaze at my maps of Wisconsin and Honduras. At the moment, I feel less like James Bond and more like Jay Gatsby – as I stare into the horizon, as did Gatsby, seeking to pick out the green light at the end of a far-away boat dock. The final line of The Great Gatsby echoes my thoughts about this chase, and captures the feeling, I suspect, that dwells in the soul of every practicing attorney. “So we beat on,” Fitzgerald reminds us, “boats against the current, borne back ceaselessly into the past.”
1 I have changed certain names, including all former client names, and other identifying place names and details. A portion of this article first appeared in the Milwaukee Bar Association Messenger (Spring 2010) and is used here with permission.
2 The reluctance of attorneys to sue for fees may be diminishing. See Christine Simmons, Firms Grow Bolder About Suing Clients for Unpaid Fees, N.Y.L.J. (Oct. 23, 2012).
3 John P. Frank, Lincoln as a Lawyer (Univ. Ill. Press 1961).
4 For a recent treatment of the subject, see William T. Ellis & Billie J. Ellis Jr., Competence, Diligence, and Getting Paid, in Abraham Lincoln, Esq. 156 (Roger Billings & Frank J. Williams ed., Univ. of Kentucky Press, 2010).
5 Id. In 1856, after achieving an important result, Lincoln billed his client, the Illinois Central Railroad, $2,000. The railroad flatly rejected the claim. Lincoln consulted with six other notable Illinois attorneys and submitted a revised bill of $5,000. The railroad again rejected the claim. Lincoln sued. The court returned a judgment for the full amount. Id. at 155, 156.
6 See Wisconsin Court System, Supreme Court Offices, Office of Lawyer Regulation, Annual Reports. The number of lodged grievances that the OLR deems worthy of formal investigation hovers from year to year at about 15-20 percent. Approximately 2 percent of the total grievances lodged result in public discipline.
7 Postjudgment interest accrued at 12 percent. The Wisconsin Legislature, in 2011 Wisconsin Act 69, changed the interest rates applicable to judgments applicable to civil actions under Wis. Stat. sections 807.01(4), 814.04(4), and 815.05(8). The act amended the rate of interest under these statutes from 12 percent per year to a rate of 1 percent plus the prime interest rate in effect on January 1 and July 1 of each year.
8 Most reported extraterritorial collection efforts involve large sums of money and great expenditures of legal resources. In a recent case, Elliot Management Corp.’s NML Capital Ltd., holders of Argentine sovereign debt, managed to persuade Ghanaian authorities to impound a visiting Argentine Navy cadet-training ship, the ARA Libertad, as security for the obligation. Shane Romig & Ianthe Jeanne Dugan, Argentine Navy Ship Remains Impounded in Ghana, Wall St. J., Oct. 11, 2012. On Dec. 15, 2012, the International Tribunal for the Law of the Sea ordered Ghana to release the vessel on the basis that as a warship it was immune from seizure. Ghana complied, and the vessel set sail on Dec. 19, 2012. Lawless at Sea, Wall St. J., Dec. 24, 2012.
9 The value of the time I put into this effort, together with my out-of-pocket costs, likely exceeded the amount of the original judgment. The time and costs, however, were my own, not those of my law firm.
10 Or, as Winston Churchill put it, “Success is stumbling from failure to failure with no loss of enthusiasm.”
11 The Wisconsin secretary of state’s office has a webpage dedicated to this service at www.sos.state.wi.us/apostilles.htm. When we called for guidance, we were delighted to discover that the ever-helpful secretary of state, Doug La Follette, sometimes answers the phone himself.
12 The same problem exists in Costa Rica. See Leslie Josephs, When Getting Directions, It Helps to Know Where the Fig Tree Was, Wall St. J., June 29, 2012, A1.
13 SCR 20:1.6(c)(4).
14 The majority of states that have addressed the issue allow a lawyer to use a collection agency to collect delinquent accounts, provided strict guidelines are followed. See, e.g., Alaska Bar Ass’n Ethics Committee, Op. 2000-3 (2000). Only a handful of state bars’ ethics committees have addressed the question of whether a lawyer may refer a client to a credit agency, and they are divided on the issue. Id.
15 See SCR 20:1.6(c)(4). See also Restatement (Third) of the Law Governing Lawyers §§ 41 (Fee Collection Methods), 65 (Using or Disclosing Information in Compensation Dispute) (2000) (updated Aug. 2012).
16 31 U.S.C. § 5322.
17 26 U.S.C. § 7623.