Suing a client for unpaid fees is usually a bad idea. Yes an attorney can wait till after the statute has run, and yes this may prevent a counter claim or at least provide a defense. But no it will not prevent a bar complaint from being filed and if done with any frequency will likely have an impact on your attorney malpractice premiums.
We have heard all of the arguments for suing clients for fees:
1. I do not want to work for free
2. I could get a reputation for not having clients pay me
3. It was not much money
4. It was a lot of money
5. We did everything right, but they still would not pay
6. We let the statute of limitations run prior to suing
7. I am angry with this client
The reality is that approximately 1/3 of all malpractice claims involve some aspect of a fee dispute. Many times there is something else going on when a client has not paid. The fee suit can open up old wounds that provoke retaliatory suits and bar complaints. Lawyers Professional Liability Insurance Companies know this. Many malpractice insurance carriers will not write a law firm that makes a regular practice of suing clients for fees. This increases the premiums that a law firm will pay. Other carriers will write the firm, but will put an exclusion endorsement on the policy for retaliatory fee suits. This opens the firm’s and attorneys’ assets up in the event of a retaliatory suit.
Worse yet, for firms that have had retaliatory fee suit claims or bar complaints filed against them, it pushes the law firm closer and closer to the non-admitted/surplus insurance market where like “Double Jeopardy” the premium dollar amounts can double.
As important as a good docket control system and intake procedures are, so are good billing practices. An ounce of prevention can go a long way to preventing an uncollectable fee. While attorneys normally love practicing law, many do not like the business side of law. Collecting of client fees, start with the original intake of the client. Make sure that the firm makes arrangements for their retainer to be paid up front, if possible.
Avoid fee disputes by explaining the fee arrangement in great detail during the first meeting. Confirm this understanding in writing and have the client agree by signing the agreement. When billing the client, ensure there is enough detail in the bill to allow the client to understand everything you are doing on their behalf. Use simple terminology and avoid abbreviations to make sure the bill is easily understood.
Depending on the services provided, there may be ongoing fees. If this is the case regular monthly billings should be part of the firm’s processes. Firms should also have someone other than the attorney that is handling the client matters reviewing all of the firm’s billings monthly. If billings are going unpaid, then these unpaid bills should be a regular part of the management committee’s or managing partner’s meetings.
Communication with the client on unpaid fees should take place promptly to determine what the issue is before the unpaid bills get out of hand.
If none of the above works and the law firm decides to sue for fees, make sure you pick your battles. If the unpaid fees are below a certain amount, it is likely not worth it. If there are issues with how the firm handled the client’s work, then think carefully prior to filing. If the client has no money, it is tough to get “blood out of a turnip”.
If you are committed to filing suit, remember the repercussions of a retaliatory suit. Time that the firm will end up spending on the matter is time not spent on billable hours. Remember the possible impact on the firm’s attorney malpractice premiums.
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Lee Norcross, MBA, CPCU
Managing Director, CEO
(616) 940-1101 Ext. 7080