American Bar Association
General Practice, Solo, and Small Firm Division
The Compleat Lawyer
Winter 1998
© American Bar Association. All rights reserved.

Financial Arrangements

BY PHIL J. SHUEY

Nothing can cause more hard feelings than disputes about money. The first management procedure that should never be violated is to discuss the fees at initial meeting. The client is concerned about the cost of the representation and the firm is concerned about being paid. Everyone will be relieved to know what costs and fees will be involved in the matter.

Request and obtain a retainer before any representation commences. While there are some exceptions to the need for a retainer, they are very few. Not only will the firm benefit from the cash flow but also a retainer assures a commitment and "buy-in" from the client in the matter.

All fee agreements should be in writing and every matter should have a fee agreement or a letter of engagement. For representation of existing clients on new matters, a simple letter that confirms the billing arrangement is adequate.

Avoid future misunderstandings or conflicting recollections by assuring that both client and firm understand what financial arrangements exist in the matter. If there is a need to deviate from that agreement at any point, discuss the change with the client, and provide a written amendment to the agreement or representation letter. Regularly review the firm's fee procedures to consider other billing arrangements, such as value or task-based billing, which may be preferable for the client and the firm.

Settlement negotiations must always be discussed with and approved by the client. Include language delineating firm settlement authority and requiring client cooperation within any fee agreement. Remember that many jurisdictions obligate the lawyer to provide for payment of third-party costs, such as medical treatment, from settlement proceeds. Failure to recognize such obligations can have both a financial and malpractice component for the firm.

Fee disputes are one of the leading causes of malpractice actions. Prompt and regular billing will avoid some disputes about the value of the services provided. The perception of value diminishes on a daily basis after the matter has been concluded. Delay in providing a final billing reduces the likelihood of being paid and increases the chances of an ugly fee dispute. Obtaining retainers and requiring regular payments on the account will minimize the amount at risk in any final billings.

Sue a client over fees only in extremely rare instances. It is almost guaranteed that a collection action on fees will result in a counterclaim for malpractice, which will often offset any value in asserting the fees claim in the first place. If a fee dispute reaches that point, walk away from the "lost" fees and learn by the experience.

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