Stop and Assess
We’ve been here before. The risks are well-known, as are many of the loss prevention measures private practitioners must adopt to survive and prosper in tough times.
There are time-tested ways for lawyers to reorient their practices to survive, and perhaps thrive, when the economy has hit the skids. No matter what path through troubled times you chart, you need to be safe and sane in how you practice. That requires a different mindset in tough times. That’s our topic.
Why You Care
Claims against lawyers may or may not increase in an economic downturn. Even if they don’t, certain types of claims are more prevalent and certain sources of claims more frequent.
Here’s a thought to concentrate your mind. Widespread financial hardship leads clients to bankruptcy or other situations where someone other than the client controls possible claims. Some of the worst claims come from bankruptcy trustees or new owners of a client. Your warm and wonderful client relationship, nurtured over years, may mean nothing when someone new evaluates your conduct.
Still, fear of claims isn’t the only reason to change your practice mindset in tough times. Every bit of advice here to protect you against malpractice claims also works to preserve happier clients and finances, too.
New Business Intake
There is no better loss prevention, in good times and bad, than rigorous and careful new business intake. Every malpractice carrier agrees. It’s never more true than in a downturn, when saying “no” to a marginal client or matter can be so painful. What does that entail?
Second Partner Review
In any law firm with more than one lawyer, there is no substitute for a process that requires someone other than the originating lawyer to open a new file. None of us are objective about the new matter we want to work on. While it’s hard to convince the three-lawyer firm of this, at the very least, all law firms should periodically inform all lawyers of every new matter that comes in—maybe in a weekly new-matter email. You’ll be surprised how many hard-to-spot conflicts and other issues pop up—“Hey, Jane, is that new client the same guy whose widget company is still involved in that fraud litigation?”
Due Diligence on New Clients
Know your clients—both new and old.
Experienced carriers warn that “unworthy” clients are a constant source of bad claims and losses. These need not be dedicated fraudsters; they can be a real estate developer with a history of failed transactions or a successful entrepreneur facing new business challenges.
Don’t lower your guard because last month’s firm income was light. Why not task your paralegal to spend 15 minutes on a Google search on every new client?
Good Clients Gone Bad
The trajectory of some clients’ careers runs like bad country songs. Don’t make your firm a part of the last verse.
We all know that the best lawyers know their clients and their clients’ lives and businesses very well. In economic hard times, we need to use that knowledge to know when a client will never be able to catch up on what he owes his lawyer. Or to realize that your client is trading on your name to save a failing business. Or, most importantly, knowing when that good client has gone bad enough that you’re better off without him.
When your regular work is slack, there’s an enormous temptation to say yes to new business in unfamiliar areas. That is a classic loss prevention trap, especially in a downturn. Be alert to it, and resist.
That’s not to say that a plan to retool and venture into new areas is a bad plan, especially in a recession. But do make a plan. To start doing immigration work, associate with an established practitioner, go to good CLEs and read books. Learn the field the way you learned what you now do well. That’s not dabbling; that’s growth and professional development.
You know what it is.
Keep time daily on hourly matters.
Bill regularly. If you bill only at the end of the matter, make sure you do bill immediately at the end. Better yet, get the money upfront, in a flat fee or a retainer to be held in trust. And promptly ask for that retainer to be topped off.
Watch accounts receivable like a hawk, and follow up on a very regular basis.
Watch all your numbers, maybe weekly.
And find a way to ensure that your whole firm is engaging in good fiscal hygiene. A well-run, one-lawyer office almost always has someone other than the lawyer whose job is minding that lawyer’s fiscal hygiene. Bigger offices surely need a central fiscal hygienist.
And in case you think that good fiscal hygiene is all about making money, let me be clear: Clients who get regular bills (especially bills clear about what the lawyer is doing), and who get reminded to pay them, and who get dropped as clients if they don’t, are typically better clients in all respects. If they are not, then their unworthiness gets surfaced much earlier. Good fiscal hygiene may not make all clients worthier, but it does flush out the problematic ones sooner.
Watch Your Trust Accounts
Hard times make people do things they might not otherwise. Check to make sure that more than one person is involved in monitoring, balancing and reconciling your trust account monthly. Simple advice: Ask your CPA to confirm that you have good “internal controls” and “separation of functions” around your trust account.
Don't Sue Clients for Fees
Every malpractice carrier will confirm this. The sued client will just countersue you for malpractice. Yes, every rule has its exceptions; this one does, too. But at the very least, think at least three or four times before suing, and get someone else’s opinion—another lawyer in your firm or an outside lawyer you hire to sue—before you do so.
Conflicts of Interest
Do conflicts change or get worse during a downturn? We ethics and loss prevention lawyers aren’t sure. But they may matter more.
Legal malpractice defense lawyers can confirm that the ability of a claimant to get before a jury any type of alleged conflict of interest increases the seriousness and value of a claim. Who wants to have Matthew 6:24 (“No man can serve two masters”) quoted against them in an opening statement?
Be more vigilant about conflicts. Run new conflict searches whenever a new party surfaces in a deal or is added to a case, or when a new important witness appears in a case. And be wary of the possible “prior work” conflict when a client asks you to litigate a matter where your or your partner’s work—for example, in negotiating or drafting a contract—is at issue.
If we can all up our loss prevention game in these tough times, with luck we can remember something less traumatic than a bad claim we had in 2020.