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Category: Unpaid Fees

Article: Attorney Fee Collection Suits Bring Mixed Results

December 4, 2018

A recent New York Law Journal article by Christine Simmons, “Collection Lawsuits Bring Mixed Results in Law Firms; Quest for Fees,” reports on attorney fee collection lawsuits by law firms.  The article reads:

It’s the time of year when may law firm managers are fretting about collections—and maybe even thinking of taking clients to court over unpaid bills.  But while suing ex-clients to recover legal fees has become increasingly common, recent court decisions show that such lawsuits can be a gamble.

Take two recent cases, one brought by Arent Fox and another by Windels Marx Lane & Mittendorf.  In the Windels Marx case, a Manhattan judge wound up sanctioning the firm for its lawsuit—potentially a substantial penalty—prompting Windels Marx to file a notice of appeal.  Arent Fox, meanwhile, saw its breach of conflict claims dismissed against two of three defendants it targeted in a breach of contract suit over fees.  While law firms often do obtain judgments against former clients in collection suits, the rulings show that success is hardly guaranteed, even when the firms are sophisticated business litigators.

Windels Marx was seeking $380,833 in unpaid legal fees in its collection suit against several entities in Manhattan Supreme Court.  The midsize law firm in New York had defended a housing entity and a former officer in a civil lawsuit over control of several housing development fund corporations.  Those funds own and manage residential real estate in West Harlem that is rented out to low-income tenants, according to court papers.  Windels Marx, in court papers, said it was also retained to advise in multiple government investigations.

Windels Marx withdrew from the civil case and then sued its former client and the related housing development funds that it was adverse to in the underlying case, seeking unpaid fees.  Ultimately, Manhattan Supreme Court Justice Gerald Lebovits granted summary judgment to the four housing development fund entities sued by Windels Marx.

Knocking out the breach of contract claim against the four funds, the judge took issue with the fact that the officer who signed the firm’s retainer agreement, Joednee Copeland, was not authorized to retain the firm on behalf of the funds.  Copeland was previously president of the entity, formerly represented by Windels Marx, that had sought to control the four housing development funds.

The firm’s “billing records show that, at the time that plaintiff drafted the agreement, it knew that Copeland had been terminated from her position,” said Lebovits, in decision posted Nov. 7.  In denying Windels Marx’s other claims against the four housing development funds, Lebovits said the law firm’s invoices showed work adverse to the interests of the housing development funds.

Lebovits granted only a default judgment of $380,833 for Windels Max against the entity that retained the firm and did not respond to the suit.  It’s not clear whether that entity is still active or has assets to cover the judgment.  Copeland, the president of the entity who signed the firm’s retainer agreement, has been criminally charged in Manhattan Supreme Court under felony counts, according to court records.

In allowing the housing development funds to pursue fees against Windels Marx, the judge said the funds’ “request for sanctions, in the form of payment of their attorney fees, incurred in defending this action … is amply justified, not merely by the lack of merit in [Windel Marx’s] complaint, but by [the law firm’s] attempt to collect attorney fees for work directly adverse to defendants’ interests.”  The judge referred the decision on the amount of fees to a special referee.

William Fried, a Herrick Feinstein partner who represented the housing development funds pro bono, said his firm spent between $50,000 and $100,000 on the case.  “We’re going to be seeking every dime that we spent,” he said.  “We’re pleased with the judge’s decision. We thought the lawsuit never had any merit from day one,” Fried said.  Windels Marx filed a notice of appeal Thursday, stating in court documents that attorneys’ fees were not warranted because Herrick Feinstein worked on a pro bono basis.

In the Arent Fox matter, the law firm saw a mixed result in a recent court ruling, holding on to some claims against an ex-client.  The firm sued three car dealership entities, JDN AA, LLC; Subaru 46 LLC; and DCN Automotive LLC, seeking $278,128 in legal fees.  The firm had represented JDN AA in a lawsuit against Volkswagen Group of America, Inc. challenging the attempted termination of JDN AA’s Audi dealership, according to court documents.

The ex-clients sought to dismiss Arent Fox’s claim for breach of contract, claiming the firm did not allege there was an executed retainer agreement between the parties.  They argued that the March 2014 “engagement agreement” was with only one of the defendants, JDN AA, and was not signed, and that a 2015 “conflict waiver” letter did not involve all defendants and related to one specific engagement.

In a decision last month, Manhattan Supreme Court Justice Joel M. Cohen knocked out a breach of contract claim against two of the three defendants. Cohen said two defendants, Subaru 46 LLC and DCN Automotive LLC, are not referenced by name in any of the engagement documents submitted by Arent Fox.  Nor did Arent Fox submit any evidence that describes the terms of any alleged contract between Arent Fox and either of those entities, the judge said.  Cohen, in his November decision, called the firm’s allegations against the two entities “conclusory.”

Nevada High Court Upholds Gordon & Rees Win in Fee Dispute Case

November 2, 2018

A recent Law 360 story by Aebra Coe, “Nevada High Court Affirms Gordon & Rees Win in Fee Dispute” reports that the Nevada Supreme Court has upheld a jury verdict awarding Gordon & Rees LLP more than $250,000 in a fight with a former radio station client over thousands in unpaid legal fees.  The state's highest court affirmed a unanimous verdict in favor of Gordon & Rees in its battle to ward off a legal malpractice counterclaim and recoup $106,500 in unpaid legal fees as well as other litigation expenses totaling $251,600 from its former client, Edward Stolz, who owns several radio stations and other businesses.  It is believed to be the first time in Nevada a court has awarded fees and costs to a self-represented litigant. 

The court rejected Stolz’s assertion that the lower court should have applied California, not Nevada, law because the underlying lawsuit — in which Stolz was accused of not paying for the rights to the music his radio stations broadcasted — was filed in California and because Gordon & Rees is headquartered in the state.

Instead, the appeals court agreed with the law firm’s assertion that Nevada law applies because several of Stolz’s businesses are in the state, because his initial consultation was in the Las Vegas office of the firm with a Nevada bar-licensed attorney, and because it was in the state that the conduct Stolz takes issue with occurred.

The legal malpractice counterclaims stem from Stolz’s allegation that Gordon & Rees failed to disclose to him, in writing, that it represented his insurer and thus could not represent him in the lawsuit over his radio stations’ use of music if the insurer, Hartford, refused to assume his defense in the lawsuit, which it did.  Instead, that information was conveyed verbally, according to court documents.

“We conclude that the district court correctly applied Nevada law. The incident in question — whether Gordon & Rees should have disclosed the Hartford conflict in writing before representing Stolz — occurred in Nevada.  The fee agreement, in fact, was signed by the managing partner in Gordon & Rees's Las Vegas office,” the high court’s opinion said.  Additionally, the appeals court found that the lower court did the right thing when it awarded Gordon & Rees attorneys' fees and costs in the case, despite the fact that the law firm represented itself, something that is often a disqualifying factor for obtaining fees and costs in Nevada.

The reason the court came to that conclusion is because Stolz signed a contract with the firm stating outright that Gordon & Rees could collect fees and costs if litigation were to occur over its representation of the business owner.  “Here, the district court found that there was a contract between the Stolz companies and Gordon & Rees providing that Gordon & Rees could obtain attorney fees in the event there was a dispute to enforce the agreement.  Thus, the district court awarded fees because Stolz agreed to pay those fees, even if Gordon & Rees was representing itself," the opinion said.

The cases are Royce International Broadcasting Corp. et al. v. Gordon & Rees LLP, case numbers 72148 and 74272, in the Supreme Court of the State of Nevada.

Article: Deal with Billing Issues Mid-Year to Avoid Year-End Rush

August 29, 2018

A recent Daily Report article by Shari L. Klevens and Alanna Clair, “Yes, It’s Still Only August, But You Can Avoid the Year-End Rush on Billing Issues, reports on the fundamentals of effective fee collections.  This article was posted with permission.  The article reads:

Issuing bills and collecting fees can be a challenging task for many attorneys.  Some find it difficult to give billing issues the attention they need, given the demands of their law practice.  Often, attorneys may feel tempted to ignore billing issues until the year-end collections push.  However, by only focusing on billing at one time during the year, attorneys (and firms) may end up leaving earned fees on the table or could otherwise miss red flags that could indicate other problems with the representation.

Thus, many firms will encourage their attorneys to take a serious look at outstanding invoices, work in progress fees and overdue accounts prior to the year-end push.  Although December may be the appropriate time for the final push, summer can be the time to reinforce the fundamentals for effective fee collections.

Are Bills Being Paid?

Assuming that bills are sent regularly, if a client is not paying its invoices regularly or in full, this time of year can be a helpful time to investigate.  Waiting until December may leave the firm with fewer options and little time to deal with unpaid bills.  Clients have many options for how and when they pay bills.  Some clients review amounts or even appeal the invoices before paying.  Others may regularly let bills accumulate and pay them in full quarterly.  However, the failure of a client to pay over an extended period of time can indicate a problem, either with the client’s ability to pay, or, in some circumstances, with the relationship.

If bills are remaining unpaid, many attorneys will investigate to try to identify the source of the delay.  For example, the bills might have been sent to the wrong person or, it could be that the firm or the invoices are not in the client’s system.  On the other hand, it could be that a client is receiving the bills, but nonetheless is refusing to pay some or all of them.  When this happens, there are several potential explanations.

Some clients refuse to pay because they dispute the amount of the bill.  In such a circumstance, the attorney may choose to engage in some frank discussions regarding the work performed and anticipated future work and billings.  Getting everyone on the same page about both the amount of work a matter requires and the cost of that work is important to avoid even bigger disputes down the road.  The attorney may choose to discount or write-off amounts—as a client service issue—if the amounts exceed what was expected.

However, if the client is refusing to pay because the client is dissatisfied with the quality of work, then additional steps may be helpful.  Typically, ignoring such dissatisfaction does not make the issue go away and can get worse with time.  Most firms in this situation will confront the issues directly to determine whether the client is unfairly refusing to pay or if there is a more serious quality issue.

Most often, fee disputes reflect misunderstanding about what work the attorneys are doing and what costs are associated with that work.  If a client does not understand a bill or thinks they are being overcharged, it might be because the bill does not provide enough detail or because it is hard to read.  The solution could be as simple as revising billing entries so they provide more information.  Unfortunately, sometimes nonpayment means the client simply does not have the financial resources to pay.  It is always better to find that out sooner rather than later.

Are Bills Being Sent?

In taking inventory of accounts receivable and work in progress fees, law practices can also review whether their invoices are being sent on a regular basis.  Whether fees are being paid can be directly impacted by whether attorneys are getting their bills out with regularity.

Failing to send bills regularly can have direct and practical impact on the attorney-client relationship.  If bills are not sent regularly, sending an invoice that encompasses several months of work can come as an unpleasant surprise to a client.  A client may even begin to question the work that has already been completed if irregular bills suggest that the representation is unusually expensive.  Typically, an effective way to avoid that surprise is to ensure invoicing is timely.  Monthly, digestible bills reduce the risk of a fee dispute and increase the chances of prompt payment.  Regular invoices also help educate and confirm for clients what tasks are being completed in the matter.

In addition to ensuring good client relations, regular bills avoid the risk that the firm or practice has a substantial amount of fees invested before learning that it has a client problem or an objection to payment.  With frequent, regular bills, nonpayment or fee disputes typically involve a much smaller amount than disputes resulting from a single bill covering six months or a year of legal fees and expenses.  Issuing bills in regular (and therefore smaller) amounts reduce the risk of a dramatic hit to the bottom line if there is a dispute.

With all that said, one of the most important reasons for monthly or regular billing is to address one of the most common reasons why clients do not pay: they never received an invoice.  Systematic billing in regular intervals ensures that crucial step for getting paid by ensuring that bills are sent.

Billing is one way of informing the client of the work being done and the time being spent on their case.  By assessing billing issues at mid-year, attorneys can reduce the stress of the year-end collections crunch.

Article by Shari Klevens and Alanna Clair of Dentons US LLP, reprinted with permission of ALM Media Properties, LLC.  Shari L. Klevens is a partner at Dentons US in Atlanta and Washington and serves on the firm’s U.S. board of directors.  She represents and advises lawyers and insurers on complex claims and is co-chair of Dentons’ global insurance sector team.

Alanna Clair is a partner at Dentons US in Washington and focuses on professional liability and insurance defense.  Shari and Alanna are co-authors of “The Lawyer’s Handbook: Ethics Compliance and Claim Avoidance” and the upcoming 2019 edition of “Georgia Legal Malpractice Law.”

Davis Wright Tremaine Files Action Against Former Client for Unpaid Legal Fees

August 8, 2018

A recent The Recorder story by Ross Todd, “Cheesy Dispute: Davis Wright Tremaine Sues Mac & Cheese Restaurant Claiming $37K in Back Fees,” reports that Davis Wright Tremaine has sued the company behind popular Oakland macaroni and cheese restaurant Homeroom, claiming that the eatery owes more than $40,000 in unpaid legal fees and interest.  The lawsuit, filed late last month in San Francisco Superior Court, claims that Little Mac LLC, which does business as Homeroom, hired the firm in September 2016, but has refused to pay its bills for work done from May through June 2017.

“Excluding interest, Little Mac still owes DWT $37,690.23 for services rendered,” wrote firm partner Sanjay Nangia in the July 26 complaint.  This balance is now more that six (6) months past due.”  The firm claims that interest has accrued at the rate of $12.44 per day and is asking for $41,421.58 in fees and interest.

Just why the fee dispute is playing out in public wasn’t immediately clear.  The engagement agreement between the firm and the restaurant, which was included as an attachment to the complaint, includes a provision that each side has the right to request arbitration under the California Business & Professions Code in the case of a “fee dispute.”

In response to an email sent to Nangia and Davis Wright’s Don Buder, the partner who signed off on the engagement letter with the restaurant, a firm spokesman declined to comment beyond the court papers.

According to the September 2016 engagement letter, Buder charged Homeroom $675 per hour for work on “pending business and real estate matters.”  Buder’s firm bio says that he serves as “a strategic legal advisor and corporate counsel to food and beverage, food tech, and ag tech innovators, entrepreneurs, and investors.”  The engagement letter also said that then-associate Vipul Kumar charged $435 per hour and associate Drew Patterson charged $420 per hour, although the firm reserved the right to change rates and assign other lawyers to work for Homeroom.

Update: Kasowitz Wins in Fee Dispute Matter

February 8, 2018

A recent New York Law Journal story by Christine Simmons, “Law Firm Legal Battles That Slipped from the Headlines in 2017,” reports on an update of the Kasowitz Benson Torres unpaid legal fees case.  The story reads:

While law firms have a mixed record of beating back legal malpractice and discrimination cases, they often are successful in obtaining judgments against ex-clients for unpaid legal fees on a quantum meruit basis.  For instance, Kasowitz Benson Torres, which has a history of going to court to get such fees, sued Patriot National Inc. in late May 2017 in Manhattan Supreme Court, seeking $1.097 million in legal fees.

The company, which provided back-office functions to insurance companies, then filed suit against the firm the Florida state court, alleging it engaged in fraudulent billing, malpractice and other misconduct that cost the company millions of dollars. The former CEO of Patriot also sued Kasowitz as well as Simpson Thacher & Bartlett in Florida state court.

Despite the malpractice litigation in Florida, Kasowitz prevailed in its New York collection fee suit: it obtained a $1.185 million judgment against Patriot National in December 2017, after a ruling from Manhattan Supreme Court Justice Gerald Lebovits.

Yet any immediate opportunity to collect the judgment is in doubt. Patriot National filed for Chapter 11 bankruptcy papers in late January in Delaware.

Kathryn Coleman, a partner at Hughes Hubbard & Reed representing Patriot in its bankruptcy, did not return a call for comment, neither did Kasowitz’s attorney in the collection matter, partner Joshua Siegel.

Five Tips for Fee Agreement ADR Clauses

April 4, 2017

A recent The Recorder article by Randy Evans and Shari Klevens, “5 Tips for Fee Agreement ADR Clauses,” address ADR clauses in fee agreements.  This article was posted with permission.  The...

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