Suing clients for unpaid legal fees could become routine as firms are growing more assertive about collecting overdue bills.
“There was a time when a lot of firms would feel it was unseemly to bring an action against a client” regardless of the amount owed, said Martin Wasser, a partner at 75-lawyer Phillips Nizer. “I think that’s changed.”
“Firms are more aggressive in following up with bills than they’ve ever been,” said Wasser, whose firm is among the many that have filed suit to collect fees from former clients this year.
The New York Law Journal, an affiliate of the Daily Business Review, examined law firm collection suits against former clients filed in the past two months in Manhattan Supreme Court. Each week, three to seven suits were filed.
Several attorneys said lawsuits are a last resort and that whether to sue a client is decided on a case-by-case basis depending on factors such as the amount owed, the length of the relationship and whether the client can afford to pay.
The fee suits were brought by large and small firms, boutiques and solo attorneys who have pursued amounts ranging from a few thousand to hundreds of thousands of dollars or more.
On one day in September, Epstein Becker & Green filed four complaints against former clients, seeking a collective $390,000. The legal services provided to clients ranged from litigation to loan and corporate advice and general legal work.
Epstein Becker’s former clients included a T-shirt vendor owing $80,438, a cable company owing $53,335, a produce wholesaler with bills totaling $55,138 and four people owing a total $198,946, according to the complaints.
Epstein Becker also filed at least three other collection suits this year seeking $176,070, according to court documents.
“We only file collection actions after very deliberate and careful consideration, and we do not file often. The filing of more than one case on the same day was simply the culmination of a lengthy review process coupled with post-summer scheduling,” said Marichelli Hughes, a spokeswoman for Epstein Becker.
Not all fee disputes wind up in court. The number of cases closed in arbitration and mediation overseen by the state court’s Attorney-Client Fee Dispute Resolution Program increased to 1,179 last year from 579 in 2004. The figures don’t capture disputes going to private alternative dispute resolution providers.
Generally, attorneys can’t file suit against clients who have chosen to use the ADR program. The amount in dispute must be between $1,000 and $50,000, although it could be more if the attorney and client consent to arbitration.
Daniel Weitz, coordinator of ADR for the state court system, said he believes the rising caseload is likely due to the program’s increased exposure over the years rather than a struggling economy.
Shari Klevens, a McKenna Long Aldridge partner in Washington and Atlanta who represents malpractice insurers and firms sued for malpractice, said she believes the number of suits against clients is increasing because of the economic environment, where firms are less likely to let go of a large fee.
But she said she doesn’t recommend litigation as a first step.
“As soon as you say ‘you didn’t pay it,’ they say ‘well, the work isn’t good,’ ” Klevens said.
Malpractice claims are brought against firms in 42 percent to 47 percent of cases where the firm has sued for fees, Klevens said. Firms also face the risk of forfeiture or disgorgement if the client claims the legal services didn’t meet the appropriate standard, she said.
The number of suits against former clients tends to increase at the end of the year when firms try to wrap up their collections, she said.
“Clients who are not paying are identified in the third quarter” and through the fourth, she said.
Klevens said the ratio of reward to costs of suing should be less than 2:1, regardless of the size of the firm. For instance, if a firm is seeking $3,000 in fees, the cost to pursue the fees should be less than $1,500.
Klevens said in her experience, most litigation settles with the firm accepting a discounted fee.