Lawyers face a difficult choice when clients’ legal fees become long overdue. Filing suit over unpaid fees is a minefield because:
- Clients often countersue for malpractice. Defending these claims can cost more than the overdue fees.
- If you lose a malpractice case, you could face disciplinary action and licensing issues.
- Lawsuits can attract publicity, potentially damaging your firm’s reputation and making prospective clients reluctant to retain you.
- You’ll probably lose the client and any referral business they would otherwise send your way.
Many lawyers prefer to take their unpaid-fee cases into arbitration, where an impartial third party helps resolve the dispute in private. Arbitration also helps limit the scope of the case to unpaid fees.
Litigation, by contrast, opens up vast possibilities for opposing counsel to push your internal processes out into the public eye. Clients who suspect their lawyers of overbilling or unprofessionalism might be all too willing to air these allegations in court.
Before you sue, make sure you understand why the billing is running late. If the client can’t afford to pay your fees, there’s not much point in suing. If there’s any reasonable evidence of negligence, overbilling, or malpractice, then a lawsuit might not be the best option. You might prevail in arbitration, however.
Occasionally, clients let their legal fees pile up for months and then try to negotiate a discount, reasoning that you’ll accept, say, 20% less to avoid litigation and keep their business.
If your fees and expenses are well documented, you’ve done everything according to written agreements, and there’s little chance of being accused of malfeasance in court, then a lawsuit might be proper. It’s a difficult choice that should be taken only if you stand a strong chance of prevailing with your claim and defeating a counterclaim.
Proactive steps to avoid legal-fee lawsuits
You’re far better off building policies and procedures that ensure people pay their fees on time. It’s best to tackle these issues before they become clients and whenever their billings start to run late.
At the engagement phase:
Your engagement letter should spell out payment terms. Consider putting language in the engagement letter stating that fee disputes will be resolved in mandatory arbitration. Also, explain the difference between arbitration and litigation.
Throughout the engagement:
Send clients a bill or invoice every month spelling out exactly where their fee monies went. Building a robust billing system is one of the best ways to ensure people pay what they owe on time. Many long-overdue accounts result from the attorney failing to inform clients what they owe.
At the first sign of late payments:
Don’t let late payments slide. When a bill or invoice becomes overdue, be sure to inform the client. Often, a late payment is just an oversight. If, however, the client cannot afford to pay, you need to find out as soon as possible to decide whether you want to maintain the business relationship.
What if the client repeatedly refuses to pay?
Clients may withhold payment if they feel they have received poor representation or inadequate legal advice. If a client ignores multiple calls and letters requesting payment, find out if dissatisfaction is the culprit. When non-payment is a form of protest, then you need to decide whether to arbitrate, litigate, or break off the engagement and absorb a loss.
Conferring with your insurer over litigation risks
A Lawyers Professional Liability (LPL) policy can help you address the risks of fee-related lawsuits. Before you file a lawsuit for late fees, talk to your insurer about your coverage for malpractice claims and countersuits. Your policy may require you to inform the insurer at the first sign of a potential claim, so make sure you understand the actions that trigger your coverage.
If you have questions about LPL coverage or you’re in the market for a robust LPL policy, talk to the experts at McGowan Program Administrators today. You can also click below for a free online quote!