Risk Management

Suing Clients for Fees is Risky Business

By Ann Massie Nelson

Before you sue a client who isn't paying your bill, picture three scenarios:

1) you on the witness stand testifying about your representation of the client and the reasonableness of your fees before a jury of people drawn from your community;

2) judgment in hand, you attempting to collect from your nonpaying client by garnishing wages or other measures; and

3) you calling your professional liability insurance carrier to report a counterclaim for legal malpractice.

Client dissatisfaction over legal fees and expenses contributes to about one-fifth of all legal malpractice claims, according to some malpractice experts. If you're pondering suing a client for fees, the short answer is: Make sure the amount in question exceeds the deductible on your professional liability insurance policy.

Taking action against a client is seldom a simple business decision, however. Lawyers feel like jilted lovers when clients don't pay their bills, says F. Mark Bromley, an attorney in the Lancaster firm of Kinney & Urban. Reason may temporarily be cast aside while the lawyer fumes: Who do they think I am? Do they think I work for nothing?

The truth is, very few clients expect their attorney to work for free. Better (or at least more rational) questions to ask yourself are:

• Why isn't the client paying?
• Why am I suing my client?

Why isn't the Client Paying?

Most collection problems are the result of misunderstood or unmet expectations, Bromley says. An engagement letter and written fee agreement at the outset of your representation establishes expectations for both you and your client. Your letter or fee agreement should set forth:

• what services and expenses you will bill for;
• when you will bill and when you expect payment;
• how much you estimate the total bill will be; and
• the consequences for nonpayment.

If you and the client have a fee agreement and the client does not pay your bill, is it because the client can't pay or because he or she won't pay? By refusing to pay your bill, the client may be attempting to tell you he or she is dissatisfied with the outcome of the matter, the quality of your representation, the size of the bill or all of the above.

"Make an honest assessment of what you've accomplished for the client," recommends Bromley. "How much would you be willing to pay for the results you got?"

Even if the outcome of the matter is favorable, clients may be unhappy with your representation. "Ask a lawyer who's uninvolved in the case to conduct an objective review of your representation," recommends Katja Kunzke, director of claims at Wisconsin Lawyers Mutual Insurance Co. (WILMIC). Did you deliver what you promised? Did you treat the client with courtesy and respect? Are you confident your work meets the standard of care?

Nonpaying clients may simply feel the bill is unreasonable. "The collection rate is better for flat fees than for hourly bills. With a flat fee agreement, clients are not surprised by the bill. You've met one expectation - their expectation regarding the bill - regardless of the outcome of the matter," Bromley notes.

Look upon regular billing as a positive way to communicate with your clients, Kunzke says. "Your itemized bill tells clients what you're doing on their behalf when they're not looking. By paying your bill, clients are telling you they're OK with your representation."

How frequently you send bills depends upon the type of representation. Bill promptly when work is completed and periodically for ongoing representation, and always follow up on unpaid accounts. "Law firms have a much easier time walking away from a one-month bill than a 12-month bill," Kunzke notes.

What If a Client Can't Pay?

If a client is financially unable to pay, consider alternatives to a lawsuit. You're no more likely to collect on a judgment than you are an unpaid bill from a financially strapped client.

"You can reduce the bill, zero the bill or work out a monthly payment plan," Bromley says. "Sometimes, I write to the client and ask, 'How much do you think you should pay me?' or 'How much can you afford?' Other times, I decide it should have been a pro bono case from the beginning."

Bromley, who handles a number of bankruptcy and divorce cases, says the client who cannot pay now may pay later, or may refer another (paying) client to you. "I look at these as apples on the tree. Some rot. Some turn out good."

If you have some reservations about a client's willingness or ability to pay, you can request a retainer. Initial and periodic retainers help you assess how serious the client is about the legal matter and assure that you will be paid, Kunzke advises.

Consider turning collections over to your accountant or a law firm that does collections. This gives you the perspective of an objective third party, allows you to maintain a professional relationship with the client, and frees your time and energy to pursue new work.

Why am I Suing My Client?

After you've exhausted all the traditional methods of getting paid for your work, you may feel a lawsuit is your last recourse. Serious soul searching - the kind you would advise your clients to do before taking someone to court - is a prerequisite to a suit for legal fees.

"Are you doing this for the financial good of the firm? Or, do you have a vindictive, emotional need to prove a point?" Bromley asks. "When clients tell me that they want to sue for principle, I tell them, 'You won't like the results.'"

In the end, lawyers rarely benefit - emotionally or financially - from successful judgments against clients, according to Bromley. "I would bet the number of judgments that are vigorously pursued is less than 10 percent. If you're unwilling to garnish wages, levy bank accounts or request supplemental examinations under oath, then you're probably wasting the filing fee."

Finally, remember that the freedom to walk away from an unpaid bill can be enormously gratifying. Not only does an unpaid balance keep the client out of your office (at least until the next time he or she needs your services), you have the satisfaction of knowing that the client owes you.

"Occasionally, I mark PAID on a bill and mail it to the client with a cover letter," Bromley says. "Often, the client pays the bill right away. The only thing worse than owing money is owing gratitude."

Wisconsin Lawyer