Nine Tips for Handling Unpaid Fees

“As night follows day, a counterclaim for malpractice will follow a lawsuit for fees.”

So said Chicago insurance claims manager Brant Weidner at an ABA-sponsored legal malpractice panel.

And it will surprise exactly nobody that an insurer is not wild about the idea of  an insured going around suing clients for unpaid fees.

But the truth is everybody loses in a fee suit. In fact, by the time it reaches that point the lawyer has already lost.

Nine Ways to Avoid a Fee Dispute

1. Pick the right clients. Screen prospects wisely. Make sure they can afford your services. In some instances you will want to check their credit history. Don’t be shy. It is in everyone’s best interest to make sure the relationship will work.
2. Talk money up front. Be crystal clear about fees and costs at the outset of representation. Give an estimate when possible.
3. Use written engagement letters. This is the best – and simplest – way to avoid misunderstandings and conflicts. Tell the client what will happen if fees aren’t paid.
4. Communication is key. “Keeping a client informed can help prevent a client's bewilderment upon the receipt of a legal bill,” writes William T. McCaffery in the New York Law Journal. “A client that does not understand that for which she is being billed is more likely to question the bill, resulting in a conflict; whereas a client kept current with the status of her case is more likely to understand the work that was performed by the attorney, why the work was necessary, and is then more likely to willingly pay the bill.”
5. Implement a billing cycle – and stick to it. Bill methodically and regularly. Follow up. Deal with delinquent accounts consistently and quickly.
6. Send clients copies of letters, pleadings and significant documents. Show them what you are doing. Email and drop-box applications make document sharing a snap.
7. Weigh the risks and benefits of suing. Before drafting a complaint, consider how much time the lawsuit will take and the odds of success. Get an outside opinion (careful not to disclose confidential information). Consider whether your time might not be better spent working with good clients on good cases.
8. Beware a bar grievance. Fee claims often spark State Bar complaints. If you fail to promptly respond to the Bar letter, you will be in double trouble.
9. Read RPC 1.5. The rule sets out criteria for setting fees and a framework for resolving disputes.

State Bar Fee Dispute Resolution

Rule 1.5, Comment [10]: Participation in the fee dispute resolution program of the North Carolina State Bar is mandatory when a client requests resolution of a disputed fee. Before filing an action to collect a disputed fee, the client must be advised of the fee dispute resolution program. Notification must occur not only when there is a specific issue in dispute, but also when the client simply fails to pay. However, when the client expressly acknowledges liability for the specific amount of the bill and states that he or she cannot presently pay the bill, the fee is not disputed and notification of the client is not required. In making reasonable efforts to advise the client of the existence of the fee dispute resolution program, it is preferable to address a written communication to the client at the client’s last known address. If the address of the client is unknown, the lawyer should use reasonable efforts to acquire the current address of the client.

Rule 1.5, Comment [11]: If fee dispute resolution is requested by a client, the lawyer must participate in the resolution process in good faith. The State Bar program of fee dispute resolution uses mediation to resolve fee disputes as an alternative to litigation. The lawyer must cooperate with the person who is charged with investigating the dispute and with the person(s) appointed to mediate the dispute. Further information on the fee dispute resolution program can be found at 27 N.C.A.C. 1D, .0700, et. seq.

Sources:

• William T. McCaffery New York Law Journal http://www.newyorklawjournal.com/id=1202650560802/Avoiding-Attorney-Fee-Claim-Litigation?slreturn=20140627111155
• NC State Bar http://www.ncbar.gov/rules/rules.asp
• American Bar Association EthicSearch http://www.americanbar.org/publications/youraba/2014/july-2014/sue-and-be-sued.html

Jay Reeves a/k/a The Risk Man is an attorney licensed in North Carolina and South Carolina. Formerly he was Legal Editor at Lawyers Weekly and Risk Manager at Lawyers Mutual. Contact jay.reeves@ymail.com.