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 reviewed law firm collection suits against former clients filed in the past two months in Manhattan Supreme Court. Each week, between three and seven such suits were filed during the period.
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, and 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 individuals owing a total $198, 946, according to the complaints.
Epstein Becker also has filed at least three other collection suits this year, those totaling about $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 programs 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 ADR 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, D.C., 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 that in her experience, most litigation settles, with the firm accepting a discounted fee.
Howard Koh, of 50-attorney Meister Seelig & Fein which has sued clients for fees in the last year, said that before initiating litigation, the firm considers the client’s ability to pay, what the firm considers to be the value of its work, the client’s expectations of cost and the risk of counterclaims.
“If we honestly and genuinely believed we had” not served the client well, “we would not bring suit,” Koh said. “When we bring a lawsuit we have made a decision that despite what the client may say after the fact, no malpractice occurred.”
Koh drafts and oversees collections suits at his firm in addition to his commercial litigation practice.
“It’s not the most glamorous but it’s the straw I drew,” Koh said. Time spent on these cases, he recognized, is “time that could be spent billing existing clients and generating revenue that way.”
While the firm has no set guideline for how long it waits to be paid, Koh said, “any invoice that’s been outstanding for more than two months is fair game” to initiate collection efforts.
Paul Goldberger, of three-attorney Goldberger & Dubin, which recently filed suit against a former client for $8,800, said if the firm knows a client is in financial difficulty, it may let the bill pass.
“But somebody who does have the financial means to pay the bill they’ve committed to, then they’ve got to pay,” he said.
Overall, lawyers “are much more aggressive about collecting money,” he said. “The economy is part of it. I just think that people feel like we’ve put in the time and business isn’t great. Now I want to get paid.”
Judd Burstein, who runs a three-lawyer litigation boutique, recently filed suit for $2 million against a former client.
“This was an extreme situation,” he said. “I wasn’t going to walk away from that kind of fee based upon what I thought was a flatly wrong interpretation of our agreement.”
In billable hour cases, Burstein said he takes a retainer and requires the client to replenish the retainer at certain points so he’s always significantly ahead of the client on fees, he said.
“The simple rule is this: I would never think about suing a client for fees unless I was owed a significant six-figure amount. And the way I run my practice, that’s almost impossible,” Burstein said.
Wasser, from Phillips Nizer, said that before suing, the firm would consider the amount owed, any good faith efforts made to pay and the quality of the relationship with the client.
Most of the time the firm has filed collection suits, it recovers most or near the amount it was seeking, said Wasser, chair of the firm’s finance committee, which authorizes every fee suit.
While his firm has taken part in the courts arbitration program, Wasser said the process is slow because of volume and it can take months for an arbitrator to be assigned and a conference to be set.
He noted that most law firms today send partners daily emails on billing and collections.
“There’s more pressure in general and more oversight,” Wasser said.
Solo practitioner Sanford Young, who represents clients in fee disputes with their former attorneys, said some firms are very deserving of the funds they are seeking, while others are not. Most of the fee disputes he handles arise from matrimonial cases, he said.
“There are many cases in which firms overcommitted. They did things in the case and put in time and effort that was not commensurate with what the case was worth and deserved,” Young said.
@|Christine Simmons can be contacted at email@example.com.