South Carolina Lawyers Weekly: ALPS Risk Management Feature (Advertisement)

Thursday, September 2, 2010

Lawyers Weekly, Inc.

SPECIAL ADVERTISING FEATURE

Employ Common Sense to Dodge Delinquency
Mark Bassingthwaighte, J.D.
Risk Management Education Director, ALPS
mbass@alpsnet.com
December 2002

Fee disputes are at the heart of a significant percentage of all legal malpractice claims. Typically a delinquency develops, the attorney sues, and then she is countersued for legal malpractice. Attorneys who have effective billing and collection practices avoid the necessity of considering fee collection suits, and thus have a reduced risk of a malpractice claim. Here are a few rules that can help prevent a delinquency.

Don’t accept clients who cannot afford your services. This always will be a losing proposition, because the client will be unable to pay the bill. Determine the client’s ability to pay for the services before you take the case. You must have a thorough discussion about the fee. It’s not enough to simply state that your hourly rate is $175, because that figure is meaningless without an estimate of the number of hours involved. Once you start representing a client, it is hard to be excused from your duty to represent that client. Far too often the lack of thorough client communication on fees and estimates causes the lawyer to become torn between working the required number of hours and minimizing costs. Learn to identify and say no to prospective clients who do not have the ability to pay.
Have a written fee agreement for all new clients and all new matters. The fee agreement need not always be a three-page contract. For repeat work, a simple "thanks for stopping by" letter may sufficiently establish that your client understands the fee agreement. Your fee agreement should clarify the scope of representation and your fee structure. Scope restrictions should be detailed. Where appropriate, be specific regarding the types of out-of-pocket expenses for which the client will be responsible – such as filing fees, court costs, expert witness fees, photocopy charges, computer research, long distance calls, etc. If possible, estimate what those expenses might be. Clients often are astonished by the amount of out-of-pocket expenses incurred on their behalf.
Never let anyone record a time entry or expense for any person or entity before accepting that person as a client, and accepting that person’s issues or needs as a new matter. This step helps prevent unintentional creation of attorney/client relationships and the inadvertent creation of conflicts.
Always bill monthly unless the client has specified otherwise. Avoid billing the client at the project’s completion unless the total cost of the representation has been agreed in advance. The key to billing is to send bills and collect fees on a regular basis in order to avoid large, unexpected bills.
It is never a good idea to make your firm’s new fee structure apply to an existing matter that was opened under a prior fee structure. If you undervalue your work, that is your responsibility. We often find that fee disputes follow shortly behind the conclusion of a matter in which a firm tries to make its fee increases retroactive to existing open matters. Such fee disputes are not a guaranteed win for the attorney.
Provide detail in your billing statements. The billing statements should describe the work performed on a daily basis, who performed it and how long it took. An entry such as 20 hours for "research" is unacceptable. Rather, the entry should read something like, "research state case law on piercing the corporate veil."
The attorney responsible for the case or matter should review each bill for errors before mailing that bill to the client.
Copy the client on all correspondence and other materials relating to the client’s matter. These blind copies not only show your client that you want to keep him informed, they also serve indirectly as informal status reports. Ask yourself which client is more likely to pay the monthly bill: the client who hasn’t received a single sheet of paper from the attorney in three months, or the one who regularly receives informational copies from his attorney?
If you have typically have difficulty collecting fees, try collecting a retainer at the start of a new matter. If the retainer causes the prospective client to takes his business elsewhere, he probably is not a client worth having. Remember that a retainer usually is considered an advance payment, and thus is fully refundable (minus what may have been earned for work started or costs advanced) if the client decides to take his business elsewhere. Non-refundable retainers usually work only if the retainer’s purpose truly is to have you available "on call" for legal services.
Take prompt action on accounts in arrears. This is the single biggest mistake that attorneys make with respect to fee disputes. Often the client who can’t pay your fee today isn’t likely to pay it tomorrow, and the bill doesn’t get smaller or easier to collect over time. In addition, many attorneys are surprised to learn that there are resources that discuss ways for a client to reduce the cost of legal services. One of the advised cost saving techniques tells individuals to delay paying their legal bills for as long as possible, because it’s almost standard practice for an attorney to discount delinquent bills – and that advice usually is accurate! So, you should be aware that some clients intentionally withhold payment in order to force a fee discount. Require timely bill payment, and withdraw if necessary. You deserve to be paid for your services.
If a delinquency is brewing, the attorney must act by speaking personally to the client within the first ninety days. You will have far more success with personal phone calls asking for payment than you will with letters from the accounting department, or with collection calls made by members of your staff. At the very least you will have made a good faith effort to collect the fee, and you might even learn about the client’s dissatisfaction (if any) with your work.

These rules are not meant to be the final word in effective collection practices. Nor will following them guarantee that you never will have a fee dispute. However, if you simply ignore these rules, you can give a disgruntled or unscrupulous client the opportunity to take a shot at your malpractice insurance coverage (via countersuit) once you have filed a fee collection suit. Be smart – don’t give them that opportunity.

Previous ALPS Risk Management Articles:

ALPS Application for Professional Liability Insurance

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