Patton Boggs is putting a tighter squeeze on clients to pay their bills on time as the firm continues cost-­cutting measures and entertains a potential merger. At the same time, the firm is suing to collect unpaid bills, filing the latest lawsuit this month in a series of fee disputes in Washington-area courts.
Big law firms don’t often take fee fights to court. But since June, Patton Boggs has filed four lawsuits in District of Columbia and Virginia courts seeking nearly $2 million. The firm’s general counsel, Charles Talisman, acknowledged it was rare for a law firm to sue a client.
“The ethical rules require that we exhaust all other possibilities before we bring a case against a client,” Talisman said. “We do our best to follow that.”
Separate from the litigation, Talisman said Patton Boggs was tightening up its billing practices after a “poor collection year” in 2012. For example, most new clients were paying bills within about 45 days — a quick turnaround, he said. “We’ve made conscious efforts to get our bills out more quickly, to be a bit more conscientious about following up with clients if they’re late in paying.”
Patton Boggs, Talisman said, was “more focused now on making sure our clients pay their bills than perhaps we were in the past.” However, he said, the recent spate of litigation did not reflect a change in the firm’s policies on when to sue clients over alleged unpaid invoices.
The nearly $2 million at stake in the suits filed this year is relatively small compared with the firm’s bottom line, representing less than 1 percent of the $317.5 million in gross revenue earned during 2012, according to NLJ affiliate The American Lawyer.
Patton Boggs has struggled financially in recent years. Gross revenue dropped by 6.5 percent between 2011 and 2012, according to The American Lawyer. On Nov. 14, the firm announced its second round of layoffs this year — 10 lawyers and 35 staff members. The firm last week confirmed it is in merger talks with Locke Lord, The Am Law Daily reported.
Talisman said the lawsuits were unrelated to recent cost-cutting measures and merger discussions. “We would have brought these cases regardless of the year we were having, whether it was a great year or a poor one,” he said.
Patton Boggs’ latest bout of litigation began on June 24, when the firm sued former client Keystone Global Co. Ltd. in D.C. Superior Court. The firm unsuccessfully tried to have the lawsuit sealed, citing concerns about disclosure of protected or sensitive information. It claimed Keystone owed more than $925,000.
A judge dismissed the case in August, citing rules requiring plaintiffs to serve defendants within a certain period of time. Patton Boggs refiled the lawsuit on Sept. 27. Keystone did not list a lawyer of record and attempts to reach the company were unsuccessful.
On Sept. 13, Patton Boggs filed a lawsuit in the circuit court for Loudoun County, Va., accusing former client Essam Shanoudi of failing to pay more than $80,500 in fees. The firm represented Shanoudi from November 2009 through December 2010. In a response filed with the court on Oct. 31, Shanoudi, represented by Surovell Isaacs Petersen & Levy in Fairfax, Va., denied owing fees.
Patton Boggs on Oct. 28 sued former client BaySys International LLC in the circuit court for Accomack County, Va. According to the complaint, BaySys hired the firm in 2011 for unspecified “general legal services.” Aside from approximately $4,500 paid in November 2011, Patton Boggs said, BaySys owed nearly $230,000 in fees. BaySys did not identify an attorney in court records. Attempts to reach the company were unsuccessful.
In the latest action, Patton Boggs on Nov. 8 sued former client Kevin Bertram, chief executive officer of Distributive Networks LLC, for $728,950. According to the complaint filed in D.C. Superior Court, Bertram paid about half of what he owed by early 2008. After failing to pay the rest over the next five years, he racked up nearly as much interest as he previously had paid in fees, the complaint said. Attempts to reach Bertram were unsuccessful. Court records do not identify his counsel.
Law firms don’t always sue when a client doesn’t pay. Shari Klevens, partner and associate general counsel at McKenna Long & Aldridge, said firms — especially large firms — sometimes will eat unpaid fees if the amount doesn’t outweigh the cost of litigation and the risks associated with exposing billing practices to scrutiny by a judge and the public.
“The client might … allege they were unhappy with the work that was performed. Attorneys don’t really like all of that coming out in a public forum,” Klevens said.
Talisman said that in deciding whether to sue, Patton Boggs was more concerned about its ethical obligation to “minimize embarrassment” to the client. “That factors into our being reluctant to file a suit,” he said. “I wouldn’t say we’re reluctant because we’re worried it will reflect on us.”
Patton Boggs considered a number of factors before suing, Talisman said, including whether there was a “bona fide” dispute about fees; whether the dispute involved enough money to merit litigation; and whether the client had repeated opportunities to pay and failed to do so.
Firms are more willing to let certain fees slide if it means future business with a client, said Thomas Morgan, a professor at George Washington University Law School.
If a client is unhappy and withholds fees, “many of those cases have traditionally been ones where both sides essentially cut a deal on the particular case and go on to future representation — or not, as the case may be,” Morgan said.
Once a firm decides to sue a client, it becomes easier to file additional cases, Klevens said. “Once you’re exposing your procedures, your policies and putting your name out there in the media, there’s less risk of doing it a second time or a third time,” she said.
Zoe Tillman can be contacted at firstname.lastname@example.org.