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If All Else Fails, Sue
Cash flow, high realization, effective collections—these are all fundamental, and interrelated, aspects of "The Business of Law"®. Sometimes, however, problems happen. If a client, especially one with a signed engagement agreement, owes money and shows very little inclination to pay it, the relationship is clearly on the rocks, if not already broken.
If a fee payment impasse develops, there are two worst-case actions a lawyer can take. The first is to walk away. A lawyer cannot ethically cease representation when the client will be prejudiced—for example, by withdrawing within 60 days of a court date. But the ABA's Code of Professional Conduct, Rule 1.16, allows lawyers to withdraw if the client has not met an obligation to pay and the lawyer has given adequate warning that representation will end.
The second, and even more drastic, action is to sue a former client for non-payment. This should not be done lightly, and not without adequate communication with the client and careful records review of the client's billing and payment performance. Nonetheless, litigation is an option, and these are the things that you should consider before pursuing it.
First and foremost, review the file to make sure there are no legitimate potential claims of malpractice staring at you. Ask a colleague for peer review to confirm your conclusion. If a client can prove that payment halted because your representation was negligent, the result may be a state bar disciplinary action against you, complete with future "involuntary servitude" (or pro bono work) to fulfill your ethical obligations toward the client.
Second, take a close look at your insurance situation. Realize that your malpractice insurance carrier has risk management policies in place and you will want to know how these risk management policies may affect you in the event of litigation. For example, your policy coverage may exclude fee disputes, or your carrier may increase future deductibles or increase future annual premiums if you sue and lose. Perform due diligence to uncover the position of your carrier before you move, just as you should use due diligence to review the client's file before deciding your next step.
When lawyers sue for payment of fees, they are often met with malpractice claims either as an offset (counter-claim) or direct attack (cross-complaint). Of all the suits filed by lawyers to collect their fees, 10 percent arise as a result of counterclaim; 30 percent to 40 percent of the malpractice claims come from cross-complaints. About half of all lawyers' suits to collect unpaid billings will result in an offsetting claim of malpractice and, I suspect, only a few of these prevail against the lawyer. Evaluate the risk, know your carrier's risk management policies and evaluate the likelihood of winning your unpaid billing before filing suit. Then, define your claim, file suit and move forward.
Best wishes,
Ed Poll
lawbiz.com
800-837-5880
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By Edward Poll
(6x9", 143 pages + with CD of forms soft cover, ISBN: 1-59031-153-1, Published by American Bar Association, 2003)
The CD contains forms for intake, engagement letters, status report, budget, sample bills and collection letters, accounts receivable aging reports and more.
Click here to purchase the book and CD for only $79.95
What Readers Are Saying...
"Ed Poll has done it again. He's created a down-to-earth guide for lawyer to collect his or her unpaid bills. The book is full of practical advice such as, 'if you don't create a collection policy, your clients will create one for you.'
"The book offers lots of good advice on engagement letters, detailed bills, fee agreements and intake forms. Plus it's loaded with useful forms.
"If you read this book, you'll have a lot less trouble getting paid for your work."
-Larry Bodine, Web and Marketing Consultant
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