How do you sue a client? Very carefully!

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Published on 4/14/08

Regular readers of this column know that I consider the client intake process to be the most important step in the collection process. An appropriate conversation and written agreement with your client about payment of fees in the beginning of your relationship will almost certainly assure payment.

Shared expectations, effective communication and dependable follow-through by lawyer and client all define the kind of good relationship that results in collecting a higher percentage of your billings.

Sometimes, however, problems occur. If the client owes money, and shows very little inclination to pay it, the relationship is clearly on the rocks.

If a fee-payment impasse develops, there are two worst-case actions a lawyer can take. The first is to walk away. A lawyer cannot ethically cease representation when the client will be prejudiced — for example, by withdrawing within 60 days of a court date. But the American Bar Association's Code of Professional Conduct, Rule 1.16, allows lawyers to withdraw if the client has not met an obligation to pay and the lawyer has given adequate warning that representation will end.

The second and even more drastic action is to sue a former client for non-payment. This should not be done lightly, and not without sufficient communication with the client about the client's obligation and records of the client's billing and payment performance.

Nonetheless, litigation is an option, and these are the things that you should consider before pursuing it:

First and foremost, review the file to make sure there are no legitimate potential claims of malpractice staring at you. Ask a colleague for a peer review to confirm your conclusion. If a client can prove that payment halted because your representation was negligent, the result may be "involuntary servitude" (or pro bono work) to fulfill your ethical obligations toward the client; in other words, your fee will be significantly discounted by the court, if paid at all. And, a state bar disciplinary action might be brought against you.

It is because of this potential scenario, even if only as a delaying and defensive maneuver by the client without expectation of winning, that insurance carriers urge their insureds to "walk away" and not sue clients for failure to pay what is legitimately owed.

Personally, I disagree with carriers who advise this. However, I do urge adequate intake procedures and frequent client communications; I do urge caution; and I do urge a complete peer review before taking any action.

Second, take a close look at your insurance situation. Realize that your malpractice insurance carrier has risk-management policies in place. You will want to know how these policies may affect you in the event of litigation.

For example, your policy coverage may exclude fee disputes, or your carrier may increase future deductibles or increase future annual premiums if you sue and lose. Perform due diligence to uncover the position of your carrier before you move.

When lawyers sue for payment of fees, they are often met with malpractice claims either as an offset (counter-claim) or direct attack (cross-complaint). Of all the suits filed by lawyers to collect their fees, 10 percent arise as a result of counterclaim; 30 to 40 percent of the malpractice claims come from cross-complaints. About half of all lawyers' suits to collect unpaid billings will result in an offsetting claim of malpractice and, I suspect, only a few of these prevail against the lawyer.

Evaluate the risk, know your carrier's risk-management policies and assess the likelihood of winning your unpaid billing before filing suit. Then, define your claim, file suit and move forward.

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