How to Avoid the Legal Fee Suit Counterclaim
You finish a client matter. You feel good about the quality of your work, and you are pleased that you got such a good result for your client. Then, as sometimes happens, you are forced to come to grips with the reality that this client has stopped making payments on a rather significant outstanding balance. It should go without saying that you deserve to be paid, so what are your options? The temptation, in light of the quality of work and the outcome obtained, is to file suit. Of course, once that happens, the fact that your work was solid, and you got a good result will mean nothing to the client.
If you ever decide to sue for fees based upon the reasons set forth above, don’t be surprised if or when a malpractice counterclaim is filed because the decision to file suit was based on the wrong reasons. With this in mind I offer the following thoughts, shared with the intent of helping you avoid ever having to consider suing for fees.
- It begins at intake and the best advice I have to share is this. Never take on a client who can’t afford your services from the get-go. This will always be a losing proposition and you’re going to be the one who will make the decision to step into that mess. If you do so, don’t blame the client when the bill goes unpaid.
You really must determine every prospective client’s ability to pay for all proffered services before you take any matter on. This will always require a thorough discussion. For example, it’s not enough to simply state that your hourly rate is $225. That figure is meaningless absent a reasonable estimate of the number of hours involved. Fail to do this properly and you’ll find yourself torn between doing all the work that is truly called for while also trying to minimize the financial hit you’re about to take.
Never forget that while it’s easy to get involved in a matter, it’s often far more difficult to exit prior to its completion. You want to do all that you can to avoid the headache. Learn to identify and say no to prospective clients who simply don’t have the financial wherewithal to move forward.
- Have a written fee agreement with all new clients and on all new discrete matters for existing clients. This doesn’t mean the document used must always be your firm’s standard multipage engagement contract. For repeat work, a simple “thanks for stopping by” email or letter that confirms your regular rates apply may suffice. Whatever its form, the document should clarify the scope of representation and set forth the fee structure. Where appropriate, be specific regarding the types of out-of-pocket expenses the client will be responsible for, such as filing fees, court costs, expert witness fees, photocopy charges, travel, etc. If possible, estimate what those expenses might be because first-time clients often are astonished by the amount of out-of-pocket expenses that can be incurred on their behalf.
- Always bill monthly unless the client has specified otherwise. Regular billing can prevent a client from receiving a large, unexpected bill that can all too easily leave them with sticker shock and anger. It also encourages clients to make regular payments on their accounts, which will help prevent delinquencies from ever developing. Think about it this way. When clients receive bills on a haphazard basis, the message they receive is its fine for them to pay whenever they decide to get around to it. After all, if regular billing isn’t important to you, why should making a timely payment be important to them?
- Never try to raise your rates on an active matter. If you undervalued your work at the outset, that is your Put yourself in your client’s shoes and think about how you would feel if your lawyer tried to raise her rates midway through. In short, this can be an invitation for trouble. If your fee structure is changing, change it only with new clients and on new matters with current clients.
- Provide detail in your billing statements using everyday language, not legal jargon. The billing statements should detail the daily work performed and state why the work was necessary, who did it, and how long it took. In addition, an entry such as “3.5 hours - research” is unacceptable. Rather, the entry should read something like, “3.5 hours to research state case law on piercing the corporate veil in order to create a preliminary strategy.” Clients want to be able to see that their matter is progressing and to understand what they’re paying for. Create bills with this in mind.
- Review all your outgoing bills. Prior to mailing, review each bill in order to check for errors, identify any write downs that should be made. Also consider adding a brief personal note or update, which would be particularly important if the bill is going to be higher than the client is expecting. For those who are current with their bills this personal note could be as brief as “Thank you for keeping your account current. I appreciate your business!”
- Copy the client on all correspondence and other materials relating to the client’s matter. These blind copies not only show your client that you want to keep her informed, they also indirectly serve as informal status reports. Ask yourself which client is more likely to pay the monthly bill: the client who hasn’t received a single sheet of paper from her lawyer in three months, or the one who regularly receives informational copies?
- If you are one who continuously struggles with delinquent accounts, try collecting a retainer at the start of all new matters. If the request for a retainer causes a prospective client to take his business elsewhere, he probably wasn’t a client worth having. Just remember that a retainer is almost always considered an advance payment and thus is fully refundable (minus what may have been earned for work started or costs advanced) if the client later decides to take her business elsewhere.
- Take prompt action on all accounts in arrears. This is the single biggest mistake lawyers make with respect to fee disputes. A client who can’t pay your fee today isn’t likely to have the financial wherewithal to pay it tomorrow, and the bill won’t get smaller or easier to collect over time. Require timely payments and, if it becomes necessary, withdraw if you can as soon as the situation becomes clear. One side note here. Beware of clients who promise to pay next month. That’s often one of those “fool me once shame on you, fool me twice shame on me” situations and the money never materializes. If you can, it’s better to withdraw cut your losses when the past due amount is $2,500 as opposed to having to eventually write off $25,000. Again, if they can’t pay now, most won’t be able to pay later.
- If a delinquency is developing, you should personally speak to the client within the first sixty to ninety days. You will have far more success with a personal phone call asking for payment than you will with letters from your bookkeeper or a collection call made by your receptionist. At the very least, you will have made a good faith effort to collect the fee and you might learn something that can help you decide how to proceed.
- Establish a strong policy against suing for fees. If you can’t work out a realistic payment plan with the client, consider other alternatives such as arbitration or mediation. If you are tempted to sue for fees, consider this: the counterclaim for legal malpractice usually seeks an amount far in excess of the legal fees in dispute. In the vast majority of these cases, the lawyer ends up dropping the fee suit just to get rid of the malpractice claim.
- If you feel you have no alternative other than to sue for fees, and this is of particular importance, never sue a client who never had the ability to pay your bill in the first place. Accepting them was your mistake, not theirs; and they will often counterclaim. What other option do they have?
- Assuming the ability to pay isn’t the underlying problem, and prior to deciding to sue for fees, have another lawyer first do a thorough objective review of the client file. This might be done by someone in your firm who has had no relationship with the file or a local member of the bar who does collections work. The purpose of the review is to see if there are any facets of the work that could be questioned and to make certain that the client’s matter was handled with the utmost diligence. For many lawyers, once a client is in the hole for a significant sum, it’s nearly impossible to be objective about the file and the work that was done for that client. More importantly, understand that if and when that client file is put under the lens that comes with a malpractice counter claim the client made in response to the collection action you started, that file is going to be critically reviewed in every detail. There is value in knowing where the weaknesses are to enable you to make an informed decision about whether to try and collect on the debt.
- And last but not least, if you decide to pursue collection activity, never do this work yourself. One of the most important services provided by a lawyer is objectivity. Clients will view their lawyer as someone who is a knowledgeable third party and able to help protect their interests. Do something similar and send the matter to a specialist who can be objective and mediate any concerns that may arise.
These ideas are not meant to be the final word in effective collection practices. In addition, a decision to follow them doesn’t mean you will never face a fee dispute. All I can say is this. If you ignore the above, you can unintentionally give a disgruntled or unscrupulous client the opportunity to take a shot at your malpractice insurance coverage (via a counterclaim) if you ever end up deciding you have no other option but to file a suit for fees. Personally, I don’t like the idea of painting a target on my chest and I suspect you might feel similarly.
Authored by: Mark Bassingthwaighte, Risk Manager
Since 1998, Mark Bassingthwaighte, Esq. has been a Risk Manager with ALPS, an attorney’s professional liability insurance carrier. In his tenure with the company, Mr. Bassingthwaighte has conducted over 1200 law firm risk management assessment visits, presented over 550 continuing legal education seminars throughout the United States, and written extensively on risk management, ethics, and technology. Mr. Bassingthwaighte is a member of the State Bar of Montana as well as the American Bar Association where he currently sits on the ABA Center for Professional Responsibility’s Conference Planning Committee. He received his J.D. from Drake University Law School.