Many attorneys will put off the decision of whether to pursue a client for unpaid legal fees until the end of the calendar year. With the second quarter of the year just beginning, the issue of unpaid fees may not be an immediate priority. After all, many clients will pay outstanding bills throughout the year. And repeatedly requesting that a client pay his or her bills can be an uncomfortable conversation for attorneys, especially for those with long-standing client relationships.
If an invoice (or invoices) go unpaid for too long, however, an attorney and law firm may be left to accept the loss of unpaid fees or, alternatively, to file a suit against the client. Either decision can create risk for the attorney that worked hard on the matter.
Many attorneys find that taking proactive steps throughout the year reduces the need of having to make that difficult decision. Enacting these strategies can help ensure that an attorney is paid on time, reduce exposure, increase fee collection, as well as promote positive client relationships.
Bill on Time Attorneys that expect their clients to pay on time may see better results if they send out timely bills. Some attorneys will avoid the work associated with preparing and issuing bills because it is not as enjoyable as the legal work. But sending out bills regularly not only helps attorneys meet their administrative and ethical obligations, but can also provide clarity to clients on the amount of their legal fees.
Untimely or irregular billing is one of the most prevalent and preventable causes of fee disputes. Issues can arise when a client is confronted with a substantial invoice all at once at the end of the representation. Providing clients with steady, manageable bills can help condition them to paying their legal fees, as well as ensure any issues concerning the amount of fees are addressed before they spiral out of control.
Honest and Regular Communication Determining the reason that the client is not paying a bill is important because it can dictate the appropriate and most effective course for an attorney to take. Generally speaking, clients may not pay a bill for one of four reasons. First, a client may have never actually received the bill or simply forgot. These unintentional oversights, which happen, can easily be remedied by a reminder. Addressing this circumstance early can help reduce the risk of a client mistakenly believing they paid the bill or deciding to contest the bill at a later date.
Another common reason that clients will not pay their bills is that they are unhappy with the amount that was charged, whether because the attorney billed at too high a rate or for what they deem too many hours. Some clients will also require strict adherence to onerous billing procedures. Nevertheless, addressing and understanding these constraints early in the representation can help ensure both parties are on the same page, and that bills are paid.
Unfortunately, some clients will not have the financial resources to pay the bill. This news may be especially troubling for a firm because it may be an uphill battle to recover the value of the services it rendered. Also, it generally means an end to the client relationship. In these instances a firm will still have to make a number of important decisions, such as whether to withdraw from or amend the scope of the representation. Although difficult to address, it is easier sooner than later in the representation.
Dissatisfaction with the attorney’s work or the outcome of the representation is a final reason that clients will refuse to pay. Unlike the first three reasons for nonpayment, this decision by the client may require the attorney to take additional steps to protect against future claims, including by reporting the circumstances to the attorney’s insurer.
Making the Decision Whether to File Suit The decision to sue a client is not an easy one. According to some sources, when attorneys sue their clients for unpaid fees, a little less than half of those cases will result in a counterclaim by the client for legal malpractice. Thus, a claim for unpaid fees can result in the firm being forced to defend the entire representation, rather than simply document their owed fees. Further, litigation costs time and money, and may result in a negative stigma for the firm with other potential clients.
Because of these risks, some firms decide as a matter of policy never to sue a client, no matter the circumstances. But for other firms that option may not be feasible or reasonable. When making that decision, the law firm can try to take steps to minimize the risks of that outcome.
Prelitigation Measures In lieu of filing suit against a client, there are other steps attorneys can take to attempt to recover unpaid fees.
The first option to consider is attending informal meetings and negotiation. In addition to hopefully resolving the dispute, these presuit meetings can also assist a law firm in gaining more information about the client’s position that could be beneficial if the matter proceeds to litigation.
A second step to consider is a more formal meeting, such as a mediation. An unbiased third party may help the parties reach an agreement.
Finally, another popular option is to resolve the fee dispute with the client through arbitration. One advantage to agreeing in advance to arbitration focused on the narrow issue of a fee dispute is that it can eliminate the risk of a counterclaim for legal malpractice in that forum. Others prefer arbitration for the privacy benefits. On the other hand, some firms find that they collect more fees in a litigation with a client than in arbitration.
The Connecticut Bar has a free Resolution of Legal Fee Disputes Program that “allows lawyers and clients with a dispute over the fees incurred for legal services to find a solution to their problem through mediation and/or arbitration, rather than litigation.” The program provides for mediation, with a volunteer attorney as mediator, or arbitration, with a hearing panel composed of two attorneys and one nonattorney.
Alanna Clair is a partner at Dentons US in Washington, D.C., and focuses on professional liability defense. Shari L. Klevens is a partner at Dentons US in Atlanta and Washington, D.C., and serves on the firm’s U.S. board of directors. She represents and advises lawyers and insurers on complex claims and is co-chairwoman of Dentons’ global insurance sector team. Klevens and Clair are co-authors of “The Lawyer’s Handbook: Ethics Compliance and Claim Avoidance.”