Retainer agreements, not billing invoices, control client’s payment obligations to law firm 

By Joe Forward, Legal Writer, State Bar of Wisconsin

Dec. 22, 2010 – A Wisconsin law firm that sued its client for 18 percent interest on unpaid legal fees lost after the District II Wisconsin appeals court found that the lawyer-client engagement letter was silent on the client’s obligations to pay interest.

Great Lakes Dart Manufacturing, Inc. (GLD) hired Ziolkowski Patent Solutions Group, S.C. (Ziolkowski) to prosecute and draft patent applications in 2004. The engagement letter that Ziolkowski sent, and GLD returned, did not include any provision regarding interest.

However, a clause at the bottom of Ziolkowski’s billing invoices imposed a finance charge of 1.5 percent per month on all accounts past due. After representation ended, the law firm sued seeking $45,656 in unpaid legal fees plus 18 percent interest. The circuit court awarded Ziolkowski the unpaid legal fees but rejected its claim for interest.

Ultimately, the circuit court entered judgment against GLD for the unpaid principal plus 5 percent simple annual interest under Wis. Stat. section 138.04, which sets a statutory annual interest rate of 5 percent.

But the court awarded costs to GLD, accepting GLD’s argument that the law firm did not respond to its statutory offer of judgment before the deadline. Ziolkowski appealed.

Invoice clause 

The Ziolkowski Group argued that it was entitled to 18 percent interest pursuant to the billing invoice clause, but the appeals court rejected that argument.

Interpreting the engagement letter, the appeals court in Ziolkowski Patent Solutions Group, S.C. v. Great Lakes Dart Manufacturing, Inc., 2010AP276 (Dec. 22, 2010), ruled that Ziolkowski was not entitled to the 18 percent interest.

The court noted that Wisconsin’s Rules of Professional Conduct require attorneys to clearly draft the scope of the representation and the basis or rate of the fee and expenses for which the client shall be responsible.

In an opinion by Judge Paul Reilly, the court ruled that Ziolkowski could not unilaterally add an interest charge on invoices without express agreement from GLD.

Ziolkowski based its argument on Mid-State Contracting, Inc. v. Superior Floor Co., 2002 WI App 257, 258 Wis. 2d 139, 655 N.W.2d 142, in which the court awarded 18 percent annual interest on accounts past due even though the terms of the original contract did not discuss interest.

But the appeals court explained that in Mid-State, the parties were merchants and the case was governed by Wisconsin’s codification of the Uniform Commercial Code. Mid-State dealt with the sale of goods “while this case deals with legal services,” Judge Reilly wrote.

Costs 

Ziolkowski argued that the circuit court should not have awarded costs to GLD because the circuit court’s judgment was higher than GLD’s statutory offer of judgment.

GLD offered 5 percent interest on the total amount of $7.43 from Oct. 12, 2009, to the date of entry of judgment, but omitted the necessary word “per diem” after the amount. The circuit court’s judgment recognized interest on $7.43 per day during that period.

Under section 807.01(1), if the plaintiff does not accept an offer of judgment but fails to recover a more favorable judgment, the defendant recovers the costs.

Here, the appeals court explained, Ziolkowski (plaintiff) recovered a more favorable judgment than offered by GLD. Thus, it was error to award costs to GLD under section 807.01(1).