Suing a client for unpaid legal 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 it will not prevent a bar complaint from being filed and if done frequently it impacts your attorney malpractice premiums.
We have heard 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
Approximately 1/3 of all malpractice claims involve some aspect of a fee dispute. Often 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. Attorney Malpractice Insurers know this. Many insurers will not write law firms that make a regular practice of suing clients for fees. This increases your premiums. Other insurers will write the firm but will put a retaliatory fee suit exclusion endorsement on the policy. This can mean an uninsured loss for the firm.
Worse yet, for firms that have had retaliatory fee suit claims or bar complaints filed against them, it pushes the law firm closer to the non-admitted/surplus insurance market. Where like “Double Jeopardy” the premiums 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, not all like the business side of law. Collecting client fees start with the client intake. A retainer to be paid up front, if possible, is a good start. If the client can’t afford the retainer, will they be able to afford payment later?
Avoid fee disputes by explaining the fee arrangement 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 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 have someone other than the attorney that is handling the client matters reviewing the firm’s billings monthly. If invoices are going unpaid, then these unpaid invoices 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 legal fees 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. Defending a retaliatory fee suit is time not spent on billable hours. Keep in mind 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