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Category: Unpaid Fees

One Law Firm’s Fee Collection Nightmare

January 1, 2020

A recent Law.com article by Jack Newsham, “The Dog Ate My Legal Bills: One Law Firm’s Collection Nightmare,” reports on one law firm effort to collect unpaid legal fees.  The article reads:

No one goes into the practice of law dreaming of chasing down clients for unpaid legal bills.  But that’s what dominated discussions in the past year between New York firm Kent, Beatty & Gordon and former client Theodore B. Owen, according to a lawsuit the firm filed Tuesday against Owen, seeking nearly $190,000 in legal fees.

While many law firms have sued clients for unpaid fees, the firm’s collection suit stands out for its lengthy documentation of all the excuses that Owen allegedly used.  Owen is an esports businessman whose legal tussles with his landlady landed on Page Six. 

“Owen … represented on various occasions that Owen (a) was selling bitcoin, (b) had received a large inheritance check, (c) sold ‘offshore assets’ and (d) sold a $5,000,000 investment so as to make all of his payables current,” said the firm’s suit, filed in Manhattan Supreme Court.

The firm went on to list a chronology of Owen’s alleged excuses that stretched on for two pages.  According to the firm, Owen or someone at his company, Dead Waltons LLC, gave the following excuses over the course of 2019:

On Jan. 16, “if the money is not already there, it should be tomorrow.”
On the morning of Jan. 29, “Your money should arrive today.”
On the evening of Jan. 29, “It should be there.”
On Saturday, Feb. 2, “Friday.”
On Thursday, Feb. 7, “I said Friday.”
On Feb. 11, “Jack, you get paid this week.”
On Feb. 23, “Listen I have money … no games just settle down.”
On Mar. 1, “Thanks it will be done.”
On Mar. 25, “Money … will go out tomorrow am.”
In response to an April 10 email, “Please be a little more patient.”
In an April 16 email, “destroying my reputation is not the way to go about getting this resolved. I am going to oay [sic] you.”
Upon being confronted with a $100,000 invoice May 1, “Tuesday I can make a dent … it won’t be all of it but a nice dent.”

“Notwithstanding these and many, many other promises made by Owen … each and every one of the above-referenced dates passed without even partial payment from defendants,” the suit said.  Jonathon Warner of the firm Warner & Scheuerman, who replaced Kent Beatty in one of Owen’s lawsuits, said Monday afternoon that he’d ask his client if he wanted to comment.  Nothing was heard as of press time Tuesday.

Jones Day Says Pharma Client Owes $5.3M in Legal Bills

December 30, 2019

A recent Law 360 story by Hailey Konnath, “Jones Day Says Pharma Client Owes $5.3M in Legal Bills,” reports that Jones Day sued a pharmaceutical company in New York state court, claiming the former client has refused to pay nearly $5.3 million in legal bills it racked up while the firm defended it in two patent disputes.  According to the complaint, Serenity Pharmaceuticals LLC researches and develops patented pharmaceuticals to address urinary conditions.  The company tapped Jones Day to represent it and several affiliated companies in a pair of patent lawsuits over antidiuretic products in 2017, the firm said.

Jones Day "zealously represented" the company in both suits, dedicating nearly a dozen attorneys and staff and spending more than 15,000 hours working the cases, the firm said.  And up until December 2018, Serenity paid its bills in full, it said.  But starting that month, the company stopped paying, and now it owes nearly $5.3 million in fees and costs, according to the complaint.

"Serenity has never disputed that it owes this sum in full," Jones Day said. "Because Serenity still has not paid what it owes, Serenity is in breach of the engagement agreement and Jones Day now brings this action."  Serenity confirmed Jones Day's billing arrangement, including its attorneys' hourly rates, in an engagement agreement dated July 2017, the firm said. 

Following the agreement, Jones Day represented Serenity through "complex fact and expert discovery and extensive motion practice," including the successful defense of two summary judgment motions, the filing of a motion to dismiss, a preliminary injunction hearing, a bench trial, post-trial briefings and appellate proceedings, the firm said.

"Defendants often praised Jones Day for its work related to the representation," the complaint said.  And throughout its representation, the firm regularly sent detailed billing statements to Serenity and its CEO, Dr. Samuel Herschkowitz, Jones Day said.  On top of not paying Jones Day, Serenity owes third-party service providers — including experts, a trial graphics vendor, a document management vendor and court reporters — almost $468,000, the firm said.

Jones Day said it spent six months meeting, emailing and speaking on the phone with the company, trying to reach an agreement regarding payment.  But over the course of those meetings, emails and phone calls, "Serenity declined to provide payment for the overdue Jones Day legal fees," it said.  The firm said it asked to withdraw from one of the cases, but was told such a move would be impractical given a trial that began in July.  Since then, the firm continued its "uninterrupted representation," though it informed the company it would not be representing it in an upcoming appeal, per the complaint.

Dentons Preps for $10M Attorney Fee Dispute Trial

October 28, 2019

A recent NLJ story by C. Ryan Barber, “Dentons Preps for Trial in $10M Fee Suit Against Republic of Guinea, reports that, more than five years after the law firm Dentons sued the Republic of Guinea, claiming the West African country had failed to pay more than $10 million in legal fees, a federal judge pressed the two sides to prepare for a trial in early 2020—and to consider the “pure economics” of a settlement.

At a hearing in Washington, U.S. District Judge Randolph Moss of the District of Columbia appeared eager to bring the fee dispute to a conclusion, suggesting that a bench trial begin early next year.  When a defense lawyer for Guinea, Schertler & Onorato partner David Dickieson, said complications with taking depositions in Europe could push the trial to the summer, Moss balked at the suggestion.  “That’s pretty far out,” Moss said.  “It seems we ought to be able to get that done in less than nine months,” he added.  Moss set an Oct. 16 deadline for Dickieson and Dentons’ lawyer, Williams & Connolly partner Ana Reyes, to propose a schedule for pretrial proceedings.

In the years-long dispute, Guinea has argued it should be protected against the lawsuit under the Foreign Sovereign Immunities Act, a federal law that establishes the circumstances under which foreign governments are shielded from litigation in U.S. courts.  The hearing came a month after Moss rejected Guinea’s latest bid to get the law firm’s claims dismissed.

In August 2017, Dickieson argued Guinea’s engagement letters with Dentons were invalid because they were signed by the country’s minister of mines, who lacked authority to approve public contracts. Under Guinean procurement law, only the minister of finance at the time, Kerfalla Yansané, would have had authority to approve the contract. (Yansane is now Guinea’s ambassador to the U.S.)

Dickieson said Dentons could not use the engagement letters to claim that its work for Guinea fell under the Foreign Sovereign Immunity Act’s exception for commercial activity.  In September, Moss denied Guinea’s request for summary judgment, ruling that there is “no dispute that Guinea requested and accepted extensive legal services from Dentons.”

The fee dispute stems from Guinea’s plans to develop large iron ore mines in the southeastern region of the country.  As part of that effort, known as the Simandou Project, Dentons was hired in 2012 to provide legal services in connection with the mining project and negotiations with one of its investors, Rio Tinto.  In its 2014 complaint, Dentons said its invoices totaled more than $12 million, but Guinea had only paid the firm $2 million.  Guinea has argued in a counterclaim against Dentons that the law firm charged “outrageously inflated” fees and failed to live up to its promise to obtain outside funding for its legal work.

Dickieson said Dentons had tucked language into the “fineprint” of its retainer agreements allowing it to seek payment from Guinea if it could not secure that third-party funding.  At one point, Moss urged the two sides to consider a settlement and the “pure economics” of avoiding further costs in a dispute over legal fees.  Dickieson said that attempts at a settlement have been complicated by the financial condition of Guinea, an impoverished country that was ravaged by the Ebola epidemic.

Nine Rules for Billing Ethically and Getting Paid on Time

May 28, 2019

An article on the ABA website by Todd C. Scott, “Nine Rules for Billing Ethically and Getting Paid on Time,” reports on the ethical rules on legal billing.  This article was posted with permission.  The article reads:

Henry Ferro (an Ocala, Florida, attorney) was very frustrated with his client, Ron Butler, for refusing to pay his legal fees from a criminal matter where Ferro represented Butler’s son Nick.  But all chances of Ferro recovering the $14,000 he says Butler owes him were probably lost for good when Ferro ran into his client at a Lowe’s checkout line and, according to a complaint filed against him, the attorney began yelling that Butler was “a deadbeat who does not want to pay his debts.”

As a result, Ferro became the subject of a harassment complaint by his client Butler, and Butler’s new lawyer argued that not only does his client not owe the fee (because there was no written fee agreement) but also that any amount in excess of the $3,500 Butler already paid to Ferro for his son’s burglary matter would be excessive and unreasonable.

Ferro’s personal attempt to recover his unpaid fee at a Lowe’s store were not any more successful than his other attempts, which are also coming back to haunt him.  According to the complaint, when Ferro’s phone calls to the client to inquire about the fees were unsuccessful, he attempted to discuss the fee issue with his client’s sister-in-law after phoning her about the matter.  Butler’s harassment claim sought a temporary restraining order enjoining the lawyer from having any further contact with Butler or any member of his family about the fee matter.

Nothing is more frustrating for a lawyer who has worked diligently on legal matters than the realization that clients do not intend to pay their bills.  Complicating matters is the fact that, given current economic difficulties, unpaid legal fees are on the rise, and lawyers are looking for ways to recover lost fees more than ever before.

From a malpractice carrier’s point of view, suing your client for unpaid legal fees rarely results in a good outcome.  Savvy clients who know that the legal fee is owed will often turn the tables on a lawyer, filing a counterclaim alleging that the fee the lawyer seeks to collect is unreasonable or cannot be justified because the lawyer did substandard work.  The client’s counterclaim may be a simple tactic to leverage a bill, but because it is a suit against a lawyer, it must be reported to the lawyer’s malpractice carrier, creating an added headache for a lawyer who just wants to be paid.

So what should a lawyer do to recover a legal fee in a matter that he or she is rightfully owed?  Most practice management experts agree that the key to successfully recovering the firm’s net receivables is to take certain steps up front, at the start of the attorney-client relationship, that will put the lawyer in control of the matter if the client falls behind in paying.  Also, what you do after the first time a client falls behind with a payment can determine whether you will ever recover anything for your legal services.

ABA Model Rule 1.5, Fees, is the primary regulatory guideline outlining proper fee arrangements and billing practices.  The rule addresses several aspects of fee setting, including contingency fees, prohibited fee arrangements, fee sharing, and whether a fee is reasonable.  Many states are now considering changes to Rule 1.5 to reflect some of the changing ways lawyers and clients are contracting for legal services.  Changes to the rule include provisions on flat fees, availability fees, nonrefundable fees, and unearned fees.  In Minnesota, changes to Model Rule 1.5 were adopted by the Supreme Court in late 2010 and became effective on July, 1, 2011.

Throughout Rule 1.5, a few themes are prevalent.  Legal fees, whether they are fixed, contingent, or shared with lawyers outside the firm, need to be reasonable.  Changes in the rule addressing availability fees and nonrefundable fees are also based on what’s considered to be reasonable billing practices.  Although determining whether a bill is reasonable can sometimes be difficult, the rule does provide some factors to be considered when determining the reasonableness of a fee including: the difficulty of the matter, the fee that is customarily charged, whether the work precluded you from working on other legal matters, the results obtained, and the experience of the lawyer performing the service.

Another theme throughout Rule 1.5 centers on consumer protection and has to do with putting the fee agreement in writing.  Although the rule stops just short of requiring that a fixed fee agreement be in writing, the authors of the rule state that the “preferable” method for communicating a fee arrangement to a client is in writing, and a written fee agreement is required for legal services involving contingent fees, nonrefundable fees, flat fees, and fee sharing.

So why do some clients choose to not pay their legal bills?  When asked, most clients involved in legal fee disputes will tell you the primary motivator for not paying their lawyer was their sense that the amount they were being billed was unfair.  Even one small item that affects the client’s sense of fairness in an otherwise large legal bill can sometimes be enough to delay payment and jeopardize the good will that the lawyer previously established.  By closely following the tenants of 1.5, lawyers stand a better chance of having clients who understand the billing process and pay the legal bill on time.

The following nine rules for billing and collecting fees from clients that will help you stay on firm ethical grounds, and avoid spending a lot of time on legal work for which you will never be compensated.

1. Communicate the fee arrangement before you start the case.

Getting your client to pay your bill starts with making sure he or she fully understands what you will charge for your services. It may not be a requirement in your jurisdiction, but putting the fee agreement in writing is a good idea, and it allows both you and the client to refer to the document if there are ever any misunderstandings about the bill.  Any lawyer that works for several hours on a legal matter and then discusses with the client the fee arrangement risks losing the billable time already devoted to the matter.   Clients may not like what they are being charged, but if they feel they understand why they have received the charge and it conforms to what they previously agreed to, they are more likely to pay their legal bill in full.

2. Your fee better be reasonable.

The factors for determining reasonableness of a legal fee in Rule 1.5 are a good guideline for fee setting, and they should be considered on the whole.  For example, your hourly fee may be appropriate for the type of work that you are doing, but if your lack of legal experience requires you to spend an inordinate amount of time performing a routine legal task, the amount you bill might be out of line with what’s considered to be reasonable.  It is a good idea to take a close look at the factors for determining whether a legal fee is reasonable because they are likely to be referred to by both the lawyer and the client when parties find themselves arbitrating a legal fee dispute.

3. “Nonrefundable” does not mean that you can be paid for doing nothing.

Nonrefundable retainer agreements have caused an increase in attorney-client fee disputes; especially when a lawyer accepts a large retainer fee at the outset of a matter and the matter is soon settled or the lawyer is discharged after having done little or no work.  The sense of “reasonableness” that permeates the rules on legal fees extends to nonrefundable fee arrangements, so even if your state has not yet adopted changes prohibiting nonrefundable fee arrangements, you should be ready to refund any unearned portion of your fee unless you can show the amount retained is not disproportionate to the amount of work you committed to the legal matter.

4. Verbal flat fee arrangements are as good as the paper they’re written on.

Some states have adopted changes to the professional fee rules to reflect the growing trend towards flat fee arrangements.  A flat fee represents a complete payment for specified legal services and is typically paid in full in advance of the lawyer providing the services.  Unless both the lawyer and the client have a clear understanding what the client will be receiving in exchange for the fee, flat fee arrangements can be fraught with misunderstandings and disappointed parties.  Therefore, make sure your flat fee agreement is in writing, signed by the client, and notifies the client with specificity the nature and scope of the services to be provided, the total amount of the fee and other terms of payment, that the fee will not be held in trust until it is earned, and that the client has the right to terminate the lawyer-client relationship.

5. Availability fees are separate and distinct from legal services fee.

An availability fee is a charge that ensures the lawyer may be available to the client during a specified period of time or on a specified matter.  Because the fee is only for reserving your time that could be used working on other legal matters, your writing to the client should state the fee is for availability only and that fees for legal services will be charged separately.

6. If the fee is shared with someone outside the firm, the client should know exactly where it is going.

It is never a good idea to surprise a client at the end of a legal matter by revealing to them in a remittance statement that an attorney who is not a member of the firm will be sharing in some of the fee.  Clients will sometimes assume that if an outside legal expert was involved, then the lawyer they’ve been talking to all along didn’t really do anything to earn the portion of the fee that is going to them.  Fee sharing between lawyers of different firms is permitted under Rule 1.5 so long as the division is in proportion to the services performed by each lawyer, the client agrees to the arrangement in writing (including the share each lawyer will receive), and the total fee is reasonable.

7. Three keys for effective invoicing: detail, detail, detail.

Clients may not always like getting a legal bill from you, but if they have sufficient information in the invoice about the legal services you performed, they are more likely to consider the bill to be reasonable and compensate you for your work.  The description area for each time entry in the invoice is a prime spot to inform the client with specificity what tasks the lawyer or the staff has performed on their behalf.  Even if you’ve handled tasks for which you have no intention of charging the client, let the client know about the work, how much time you spent on the task, and the fact they are getting the service for no charge.

8. When the payment is late, be direct. Clients like direct.

For individual clients that are on a tight budget, when deciding whether to pay the lawyer’s bill or the bill of the person who may have just completed shingling their garage, they think that the lawyer is sufficiently wealthy and won’t mind accepting a late payment.  Maybe you don’t mind, but if you do, contact the client after the first missed payment and be direct about your expectations.  Often, if you let them know that it is important, they will pay you on time.  They may need to be reminded to adhere to the payment schedule in order to continue receiving legal services.

9. Foonberg’s rule: If you’re going to get burned, get burned cheap.

It is much easier to resolve fee problems with clients early on in the legal matter then later when there may be much more at stake.  One question lawyers often reflect on when fee disputes arise is, “Why did I let the bill get so high?” If you have to part ways with a client who won’t pay, it is a lot easier to do if they don’t already owe you a lot of money.  Jay Foonberg, author of the best selling ABA publication “How to Start and Build a Law Practice,” sums up his advice for lawyers in these situations: if you’re going to get burned, get burned cheap.

Todd C. Scott is VP of Risk Management at Minnesota Lawyers Mutual and specializes in helping lawyers understand legal ethics, risk management techniques, and legal technology systems.  Todd blogs at www.attorneysatrisk.com and can be reached at tscott@mlmins.com.

Texas Justices Clarify Evidence Needed to Prove Attorney Fees

April 26, 2019

A recent Law 360 story by Michelle Casady, “Texas Justices Clarify Evidence Needed for Atty Fees,” reports that the Texas Supreme Court clarified what evidence lawyers must present to support their claims for attorney fees and costs, saying an $800,000 fee request in a dialysis center lease dispute was "too general."  A private dialysis center affiliated with the University of Texas Southwestern Medical School, UTSW DVA Healthcare LP, didn’t present specific-enough evidence to support its attorney fee request after the clinic won a lease dispute with landlord Rohrmoos Venture, the court said.

The court also remanded a second fee dispute case, Barnett v. Schiro, to a lower court for reconsideration under its Rohrmoos ruling.  In the decision, the court sought to dispel what it said was confusion on the part of lawyers and courts about two methods of calculating fees — the “Arthur Andersen method” and the lodestar method.  It said the lodestar method of calculating attorney fees was “never intended to be a separate test or method” from eight factors the court set forth in its 1997 ruling in Arthur Andersen & Co. v. Perry Equip. Corp.

Instead, lodestar was developed as a shorthand version of the Andersen factors, the court explained.  The starting point for calculating fees is determining the reasonable hours worked, multiplied by a reasonable hourly rate, and it's the burden of the party seeking those fees to prove up the request, the court said.  The lodestar method arrives at the fee amount by multiplying the number of hours spent working on the case by a reasonable hourly rate.  The Arthur Andersen method requires a court to consider eight factors in awarding fees, including time and labor, how difficult a case is, what a customary rate is, the results obtained and the skill of the attorney.

In the Rohrmoos case, UTSW attorney Wade Howard of Liskow & Lewis, sought about $800,000 in fees, plus conditional fees for any appeal.  Howard testified that his hourly rate is $430, and that the number of hours spent on this case was between 750 and 1,000.  While that would mean his fees were between $300,000 and $400,000, he said his fees were closer to or exceeded $800,000 in this case because the discovery and deposition process was so intensive.

The Texas Supreme Court wrote it understood Howard's argument that the actions of opposing counsel caused the cost of litigation to increase.  “However true this may be, Howard’s justification for why his fees should be $800,000 — searching through 'millions' of emails and reviewing 'hundreds of thousands' of papers in discovery, more than forty depositions taken, and a forty-page motion for summary judgment — is too general to establish that the requested fees were reasonable and necessary,” the high court wrote.  “Without detail about the work done, how much time was spent on the tasks, and how he arrived at the $800,000 sum, Howard’s testimony lacks the substance required to uphold a fee award.”

Howard told Law360 that during oral arguments before the court he tried to stress that putting hundreds of pages of detailed billing records before the jury would “do nothing” to help them determine what costs are reasonable and necessary.  But he said the ruling was “about as painless as possible” because he kept detailed, contemporaneous billing records and now will just have to present those — which were already produced in discovery to the other side — to the trial court.  “The reality is this is a conservative court and they don't like the award of attorneys fees with limited proof,” he said.  “We had a strong suspicion that the court was going to start requiring more than the Arthur Andersen factors ... but for anyone who keeps billing records, it's not an issue.”

Citing the Rohrmoos ruling, the court also decided another case.  In that dispute, attorney Richard Schiro represented Daniel Barnett in a lawsuit brought by Kirtland Realty Group in 2011 that ended in a settlement agreement.  Schiro then sued to recover from Barnett $183,673 in unpaid legal fees, which the jury awarded him.  Schiro also sought “reasonable attorneys' fees and costs” in the suit, and the jury awarded him $131,786.

Barnett appealed, arguing there was insufficient evidence to support that award of fees and costs, and the lower appellate court affirmed the ruling.  But the Texas Supreme Court reversed that ruling and sent the case back to the trial court to redetermine what fees should be awarded in light of its holding in Rohrmoos.  Charles W. McGarry of Law Office of Charles McGarry, who represents Barnett, told Law360 he'll likely ask the Texas Supreme Court for rehearing because part of his argument was that the court should have rendered judgment in his favor rather than send it back to the trial court.

According to court documents, in the lease dispute between Rohrmoos and UTSW a jury found both parties breached the lease, but that Rohrmoos had breached first.  As the prevailing party, a jury awarded UTSW $800,000 in fees, and a conditional $150,000 for representation in the court of appeals, and $75,000 for representation in the Texas Supreme Court, totaling a little more than $1 million.  On appeal, Rohrmoos argued the evidence wasn't enough to support that total, but the lower appellate court disagreed and upheld the award.  On appeal to the Texas Supreme Court Rohrmoos again challenged the sufficiency of the evidence and argued that UTSW wasn't actually a prevailing party since the jury found both parties breached the lease, and therefore wasn't entitled to fees.

In its opinion, the Texas Supreme Court held that UTSW was a prevailing party in the lawsuit because it successfully defended against a counterclaim from Rohrmoos seeking $250,000 in unpaid rent.  The cases are Rohrmoos Venture et al. v. UTSW DVA Healthcare LLP, case number 16-0006, and Daniel S. Barnett et al. v. Richard B. Schiro, case number 18-0278, in the Supreme Court of Texas.