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Five Tips for Handling Costly Fee Disputes

Michael LeBoff

Five Tips for Handling Costly Fee Disputes
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Law firms are businesses. It does not matter how great your work is—if your clients do not pay, your firm will not survive. As a result, firms must always be thinking about collections. While most clients timely pay bills and many fee disputes are resolved quickly and amicably, other fee disputes can grow into large-scale battles much larger than whatever matter the attorney was hired to handle in the first place. This practice point discusses five ways lawyers can improve collections and avoid costly fee disputes.

Tip 1: Know Your Fee Agreement

With some exceptions, fee agreements will be interpreted like an ordinary contract. Therefore, attorneys must know what is in their fee agreements and ensure that their billing practices are consistent with those contractual obligations. I recently represented a client in a fee dispute where the client’s former lawyer charged rates that significantly differed from what was in the fee agreement and charged for costs that the agreement did not allow. Uncaught, these errors would have cost the client hundreds of thousands of dollars in unauthorized fees and costs. This shows why attorneys must know what is in their fee agreement and follow it. If you have not read your fee agreement in a while, you should. And, if there is something in your fee agreement that is unclear, fix it. Ambiguities in a fee agreement will be interpreted against the attorney.

Tip 2: Avoid Surprises by Proper Budgeting and Communication

Clients do not like surprises. While it is impossible to completely avoid unanticipated costs and fees, for the most part, surprises are avoidable, particularly for experienced lawyers. One of the best ways to avoid surprises is to prepare a comprehensive budget early in the matter, laying out all of the potential fees and costs that the client is likely to incur. Budgets should be honest and realistic. Clients rely on budgets to make informed decisions about legal strategy. Budgets should be updated throughout the matter to ensure their accuracy. And before embarking on expensive projects, such as a writ of mandate or summary-judgment motions, discuss with the client the reasons for those tasks and the anticipated costs. If the client agrees, confirm it in writing.

Tip 3:  Do Not Overpromise or Underdeliver

In commercial litigation, there is often a winner and a loser. While attorneys influence the result, much depends on the law and facts, which the lawyers cannot change. Thus sometimes, through no fault of their own, good lawyers get bad results. A bad result should not come as a surprise to the client. Lawyers must manage expectations. Clients are far more likely to pay fees, even when there is an unfavorable result, if the attorney explained the risks and the clients willingly proceeded. Clients do not always want to hear the flaws in their case, but it is critical that the attorney carefully explains the flaws and risks in writing.

Tip 4:  Address Problems Early

It is much easier to resolve a $30,000 fee dispute than a $300,000 fee dispute. As soon a client starts to fall behind on its invoices, it is time to have “the talk.” Unfortunately, attorneys often avoid this uncomfortable conversation and continue to bill large fees, clinging to the hope the client will miraculously show up with a check to pay the bill in full. This is not a sound collection policy.

Tip 5:  Separate from Problem Clients

Some clients simply do not to pay for legal services. This is an unfortunate risk in our profession. Attorneys must identify payment risks early. Clients that are on their third or fourth set of lawyers are a major red flag. Clients that struggle or refuse to make retainer deposits are another. Clients that do not pay the first invoice are unlikely to pay the second, third, or fourth. It is not always easy to identify these payment risks prior to accepting representation, but their true colors are often revealed early. If you have one of these clients, end the representation quickly.