When a client has not paid his or her legal bills, you have probably asked yourself this question: Should I sue this client for fees? When lawyers ask me at seminars or conferences whether it’s okay to sue for fees, my answer never satisfies them: “It depends.” Then they ask, “On what?”
Well, on each individual case, for starters. Suing for fees is not a one-size-fits-all proposition. Each case is unique, as is each client. How much money does the client owe you? Is it enough to justify the time and trouble of a lawsuit? Did you have a good working relationship with the client? What type of case is it? Are you prepared for the possibility of a counterclaim malpractice suit?
Lawyers often call Wisconsin Lawyers Mutual Insurance Co. (WILMIC) or the State Bar of Wisconsin’s Ethics Hotline to discuss whether it makes sense to sue a client for fees. There are circumstances in which it does, and lawyers certainly should be paid for the work they do. However, Sally Anderson, vice president of claims at WILMIC, says, “Conventional wisdom is that this is not a decision to be made lightly, and the repercussion of a counterclaim for legal malpractice is not an unusual client response when the lawyer pushes to collect a fee.”
At WILMIC, Anderson says, hundreds of thousands of dollars have been paid to defend malpractice counterclaims. “Defending these claims has cost from several thousand dollars for some cases to six figures for others. In the last several years, plaintiffs have prosecuted these counterclaims more often and more successfully than in the past. The resulting indemnity payments have exceeded $100,000 in several matters. Many of these malpractice claims would not even have been made in the first instance, but for the lawyer’s fee suit, which sends the former client to a new lawyer and creates the ‘best defense is a good offense’ response from the client.”
This is especially true in situations in which the client did not get the desired outcome in the matter, and the client wasn’t prepared for the possibility that could happen. Anderson says the best preparation is to have written documentation of the fact that the matter might not turn out as the client wishes.
“That provides the client the opportunity to continue to the next level (or not) only after consultation about the chances for success and at what cost. In cases where the client does not understand the value of the legal work done on her behalf, it is not unusual to see pushback from the client when the bill comes.”
So how do you ensure that clients will pay for the work you do? Suing every client who owes you money is not a good business practice. As Anderson points out, “Not only does a suit for fees often lead to a counterclaim for legal malpractice, not to mention the OLR [Office of Lawyer Regulation] grievance potential, the counterclaim makes the legal malpractice claim much more difficult to defend. When the counterclaim hits, the fee claim can become worthless, regardless of what happened in the representation.”
The best way to handle fee disputes is to be proactive: avoid them through the use of good procedures. Anderson says this starts with vetting clients to determine if they are suitable for your practice. “Stay in the areas of law that you know. Talk with potential clients about their goals and the probabilities of attaining them, as well as their ability to pay you for the work that needs to be done. Say no to a representation that is outside of your parameters, including when your stomach tells you that taking on this client is a bad idea.”
Communication Is Key
Several billing and practice methods that can help you avoid using your valuable time to go after uncollected fees are outlined below.
Talk. Discussions about fees and bills are opportunities to communicate with your client. At the initial meeting, assess the cost of representation with the client, together with the client’s ability and willingness to pay.
Document. Draft and use engagement letters and fee agreements. The dangers of not sending an engagement letter are too great to ignore. Without engagement letters, or fee agreements, misunderstandings are almost inevitable. A good engagement letter that sets out the client’s goals, what the lawyer is agreeing to do to work toward those goals, and how the fees will be computed and charged not only is required under the Rules of Professional Conduct but also can minimize the likelihood of malpractice. So can regular invoices, describing the work that was done and the time devoted to the client’s matter.
Bill. Send bills to the client periodically and consistently. You should clearly detail the work performed and the charges submitted. A clear accounting is essential. “Often one of the first things asked for in a malpractice suit is a copy of all the attorney’s bills,” says Anderson. “The lawyer who did the work should proofread them, and above all, should understand they will be carefully scrutinized, sometimes painstakingly so. A lawyer’s bills and billing procedures reflect directly on the professionalism of the lawyer – there’s no excuse for misspelling the client’s name.”
An unpaid bill is a communication to you from the client. Is something wrong? Does the client object to how the case was handled? The only way to find out is to ask in a timely fashion. Failure to follow up promptly gives your client your “permission” to ignore your bills.
The repercussion of a counterclaim for legal malpractice is not an unusual client response when the lawyer pushes to collect a fee.
Anderson has heard this referred to as a client’s “subliminally objecting.” “Every lawyer understands what it means for a client to ‘object subliminally’ when a client isn’t paying the lawyer’s invoice. And lawyers should understand that an unpaid bill is a strong message that there is some breakdown in the attorney-client relationship. Smart lawyers recognize this breakdown early, and make a prompt effort to repair the relationship or end it.”
Lawyers should not underestimate how effective a telephone call or meeting with the client can be when the bill is not paid promptly.
Keep Talking. Keep your client “in the loop.” Ensuring that the client is abreast of developments, especially negative developments, can lessen the “shock” of unexpected time or expenses, and may prevent a later dispute about the fee agreement.
If All Else Fails, Consider Filing Suit
Some lawyers believe suing a client for fees should be a last resort. So is there ever a good time to sue a client for fees? Probably not, but sometimes doing so is unavoidable.
If you find yourself in a situation in which you are considering suing for fees, Anderson encourages you to answer the following questions before you pull the trigger:
Was the client pleased with your services and the outcome of the matter?
Are you comfortable that the work you provided was necessary, helpful to the client’s case, and appropriately priced?
Have you communicated clearly with your client about the matter throughout the representation?
Is the client able to pay your bill? (It doesn’t make sense to sue a debt-ridden client for fees.)
Have you had a disinterested lawyer review your work to be sure what you did was appropriate and above criticism?
Are you willing to spend the time and effort necessary to defend a counterclaim for legal malpractice, should that occur?
Is the amount at stake worth the risk?
Will arbitration be a better venue than court?
Anderson adds that sometimes lawyers should consider fee arbitration through the State Bar of Wisconsin or a local bar program. “If a client consents to join you in this, and your fee agreement may require it, both sides get a hearing and the decision is binding on both. This forum may take the air out of the client’s case, and prevent a malpractice case from occurring.”
Check With Your Insurance Carrier
Firms suing clients to recover fees is traditionally considered risky by malpractice insurance underwriters. Joe McCarthy, vice president of claims at WILMIC, says, “The common belief is that doing so can and does lead to claims being made against the firm by the client as a counter to the suit for fees and as an explanation of why the fees are not owed. Many insurance companies will refuse to provide a policy to firms who sue for fees, because it is such a high risk factor.”
According to McCarthy, however, WILMIC does not take that same approach. “We work very hard to review each firm and their individual situation. We try to evaluate whether suing for fees is warranted. If work was done for a client and fees are legitimately owed, then we think the firm has the basis to seek payment. We know the risk of a counterclaim exists, but we try to weigh that risk against the firm’s right to obtain payment. We hope the firm is doing an analysis of the risk and weighing the same factors. If the firm is exercising good judgment and evaluating the overall impact of bringing suit against a client, then we want to be supportive.”
Without engagement letters, or fee agreements, misunderstandings are almost inevitable.
McCarthy also says an underwriter must look at a firm’s history of suing for fees because it may reveal something about that firm’s business practices as well as its client selection. “If a firm must continually sue in order to collect fees, maybe they are taking on the wrong clients. Or maybe they are not managing cases the way they should. That’s not always the case, but sometimes there are underlying issues that a firm needs to address.”
Suing for fees might lead to higher liability insurance premiums from some carriers. McCarthy 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 will consider dropping a policyholder, depending on the number of times a firm has sued for fees. It’s definitely worth asking about.”
Fee disputes often arise because of a lack of communication. But you should get paid for the work you do. As Anderson says, “If you’ve provided the services in an appropriate way, you may have to make the hard decision. Is it worth it?”