You have heard it many times before but it is worth repeating because we are still receiving claims from attorneys who first sued their clients for fees and a malpractice counterclaim was asserted. I have been handling claims for attorneys for about 18 years now and I can honestly tell you that once the matter arrives on my desk, the attorney has never come out ahead. Not once has the attorney actually received the fees. In all of these types of claims, even if the claim is eventually dismissed, the attorney ends up on the losing side. The attorney will face adverse repercussions from the underwriter who now views the attorney as a higher risk and increases the premium to account for the increased risk. The underwriter may also remove policy enhancements such as the First Dollar Defense option. You will remember that the ALPS First Dollar Defense option means that your deductible does not apply to defense expenses and only applies to indemnity payments. It is a very popular feature, particularly if you get sued in a frivolous action, it means that you will not pay out of pocket to get it dismissed. Once the underwriter removes this provision, it is difficult to convince the underwriter to again offer it.
The best way to avoid having to sue for fees is of course to collect them in the first place. I know, easier said than done. However, our Risk Manager, Mark B., has written a very handy article on how to get in front of this issue. Another thing to keep in mind is that if the client only wants his or her fees returned, your ALPS policy (or any other professional liability policy for that matter) is not going to assist you with returning those fees. You will have to pay back those fees out of your own pocket. Therefore, depending on the allegations, you may not have any coverage. For a rather extreme example of what can happen when suing a client for fees, check out this article.
One thing I have noticed when dealing with claims stemming from fee disputes is that sometimes the client really had no idea how much the legal services were going to cost. Before the retainer agreement is even signed, it is a good idea to meet with the client and provide a realistic explanation of how much the representation is going to cost to achieve the client’s goals and why. Clients are shocked at how easily the costs of representation grow. If the client is shocked by the anticipated costs and you are worried that you may lose business, consider that it is better for them to understand that reality before you have done all that work and not been paid. The American Bar Association has a nice article on ethical obligations and fee agreements.
It is imperative the client understand the real costs of the representation so the client can make an informed decision. As the case progresses and strategy decisions need to be made, make sure the client is involved in these decisions and understands the cost ramifications. This requires you to provide the client a budget and then to stick to the budget. If something unexpected happens, immediately tell the client and explain why the budget has increased. Many times in claims handling we find that although the attorney had excellent reasons for proceeding as he or she did, he or she forgot to keep the client up to speed, assuming that as long as the result was good the client would be happy. Instead, they find themselves in fee dispute litigation.
Another thing that we see sometimes is that when the attorney withdraws for non-payment, the attorney will sometimes refuse to provide the file to the client. We shouldn’t have to explain why this is a bad idea even though some states do have attorney lien statutes allowing this practice. Not only have you not been paid, you may now be creating a claim against you if the client can’t proceed with the case because you failed to timely provide the file.
Finally, if you do end up in a fee dispute with your client, many state bars have fee dispute resolution programs that can be helpful. We strongly suggest that it is better to compromise and work out a solution than to sue the client for fees.