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Category: Unpaid Fees

Article: How to Avoid Attorney Fees Disputes in California

May 25, 2020

A recent Daily Journal article by Heather L. Rosing and David M. Majchrzak, “The Evolution of Fee Disputes: How To Protect Yourself in a New Day & Age” reports on avoiding attorney fee disputes in California.  This article was posted with permission.  The article reads:

While attorneys and clients have always disputed over fees, the number and severity of clashes appear to have risen in recent years, with notable consequences.  We are a service industry, and what we are selling is our skill and our time, with only so many hours in the day.  If an attorney is not paid, especially if that person is in a small firm or in solo practice, the situation can have a significant impact on the ability to continue operations and meet expenses.  It is therefore critical for every practitioner to carefully examine ways of avoiding these disputes, which can also sometimes lead to counterclaims for legal malpractice.

The #1 best way for an attorney to achieve protection is to pay close attention in the case intake process.  Many attorneys embroiled in fee disputes have bemoaned accepting the client in the first place.  “Why didn’t I see the red flags?  If I did anything wrong, it was accepting this client despite my gut feeling that it was a bad idea!”

When considering accepting a new client, the attorney should ask why the client needs legal services and what the goal is.  Understanding what your client hopes to get out of the representation will allow you to assess what it will cost to provide the services.  In turn, this allows you to formulate a rough budget, and discuss with the potential client whether that person has ability to fund the representation.  A large number of fee disputes occur simply because the client is surprised by the cost of legal services and is not financially prepared for the situation.

Another critical inquiry is whether the client has had other attorneys assist with the same matter.  Who came before you?  Were they terminated?  Does the client owe them money?  Maybe there were several attorneys before you.  What does this mean?  Is it a red flag?  If the potential client’s history of representation makes you uncomfortable, this may not be the right client for you.

Once you have decided to accept the representation, it is time to fashion the fee agreement, which requires a careful examination of Business and Professions Code Section 6147 for contingency fee matters and Business and Professions Code Section 6148 for hourly matters. Among other requirements, these statutes mandate that fee agreements must be signed by both the attorney and the client.  The client must be provided with a copy.  Critically, the failure to ensure that your fee agreement conforms to the statutory requirements of the Business and Professions Code could give the client having the option of voiding your fee agreement, leaving you with a quantum meruit claim, which is less preferable than a fee claim based on a contract.

But complying with the Business and Professions Code is not enough.  The agreement should clearly state the scope of the representation, and, in certain circumstances, discuss what is not included.  If neither you nor the client are clear on exactly what you are doing for the client, a fee dispute may ensue.  The 1993 case of Nichols v. Keller, 15 Cal. App. 4th 1672, further describes the potential malpractice-related consequences of failing to clarify the scope of engagement and make referrals on issues related to your representation.

For hourly engagements, it is also important to determine whether an advance retainer is necessary and whether the client has the ability to make that payment.  If, for example, you are going to represent someone in a business litigation matter, and you request a $10,000 retainer, and they balk, this is a good indicator that they will not be able to sustain your fees.  Prudent practitioners often times require that the retainer be regularly replenished and that the client provide a special pretrial retainer in an amount necessary to try the case 60-90 days before trial.

While a properly drafted contingency fee agreement provides the attorney with a lien on the recovery, hourly arrangements do not automatically include a lien.  If an hourly attorney is interested in securing a lien through the initial fee agreement, Rule of Professional Conduct 1.8.1 (Business Transactions with a Client and Pecuniary Interests Averse to the Client) and the 2004 case of Fletcher v. Davis, 33 Cal. 4th 61 should be studied.  It is possible to obtain a valid charging lien in an hourly case with the proper documentation, and it is oftentimes prudent to get one if there is an expected recovery from a third party.

Another consideration is whether your arrangement is for a flat fee.  Rule of Professional Conduct 1.5 not only discusses the concept of an unconscionable or illegal fee, but also, in subsection (e), sets forth the circumstances in which a flat fee is allowable.  This must be read in conjunction with Rule of Professional Conduct 1.15(b), which describes the special language that must be included in the fee agreement in order to place a flat fee in your operating account.  It is also important for an attorney to clearly differentiate between an advance retainer and a flat fee for the client, as unsophisticated consumers of legal services may not readily understand the difference.

The fee agreement should also discuss the issue of fee disputes up front.  For example, you can include language that says that the client should bring any problems with any bill to your attention within 30 days of receipt, so that you can proactively address them.  The agreement can also let the client know that, in the event of a fee dispute, the client has the option of participating in mandatory fee arbitration through the local bar association, pursuant to Business and Professions Code Section 6200 et seq.  In the event that the dispute cannot be resolved through Bar Association arbitration, the fee agreement can mandate private arbitration, if that is your preference.

There are many resources for crafting the best fee agreement.  The State Bar of California has form fee agreements at www.calbar.org, and some legal malpractice insurers provide sample language. It is important, though, to take the time to customize every fee agreement to the specific situation, so both the attorney and the client are clear on the terms of engagement from the outset.

The next step in avoiding fee disputes is to do upfront budgeting combined with the issuance of regular bills.  There is no downside to letting the client know early and often what the matter will cost. In litigation, because the cost can vary significantly based on how the dispute evolves, it may be necessary to update the budget at regular intervals.  Disputes are far less likely if the client is not surprised by a bill.

Business and Professions Code Section 6148 discusses certain requirements for billing fees: “All bills rendered by an attorney to a client shall clearly state the basis thereof.  Bills for the fee portion of the bill shall include the amount, rate, basis for calculation, or other method of determination of the attorney’s fees and costs.”  For costs, the statute requires that “[b]ills for the cost and expense portion of the bill shall clearly identify the costs and expenses incurred and the amount of the costs and expenses.”  There also certain requirements about responding to a client request for a bill.

The State Bar of California also provides use full guidance to attorneys in the form of fee arbitration advisories, which can be found at http://www.calbar.ca.gov/Attorneys/Attorney-Regulation/Mandatory-Fee-Arbitration/Arbitration-AdvisoriesThese advisories deal with a variety of common issues, such as bill padding, nonrefundable retainer provisions, determination of a reasonable fee, the form of proper billing, and much more.  Knowing upfront what can cause a fee dispute puts you way ahead of the game.

Another key to avoiding fee disputes is clear communication.  The Rules of Professional Conduct require that attorneys keep clients updated on significant developments.  The proactive practitioner, however, will go far beyond this, frequently talking and emailing with the client about case status, strategy, goals, and budgeting.

Sometimes, however, despite clear and frequent communication about the matter and regular bills, the client simply lacks the cash flow to fund the continued representation.  In that instance, the attorney should have a candid conversation with the client as soon as possible.  It may be that the client is desirous of settlement in light of the situation.  The client may choose to liquidate investments or seek the help of friends and family members to fund the representation.  It may be that a payment plan is appropriate.  It may be that the attorney is comfortable continuing with representation because the attorney has a valid lien that complies with the Rules of Professional Conduct.  A failure to proactively address nonpayment, however, exacerbates the situation and increases the likelihood of a disintegration of the attorney-client relationship.

The consequences of allowing a full-blown fee dispute to emerge can be severe.  Not only can the fee dispute affect the ability of the attorney to run his or her law firm, but fee disputes can lead to counter allegations of malpractice, true or not.  It is well-known that lawsuits for fees invite cross-claims for malpractice.  Then, the attorney has to fund an insurance deductible and faces the prospect of increased premiums (and potentially insurability issues) in the future.  If the attorney is uninsured, this means that he or she must raise or reserve a substantial sum for the defense of the claim.  Litigation over the malpractice issues also interrupts the attorney’s normal operations and can cause high levels of stress and anxiety.  Finally, even an attorney goes through the whole process to secure a judgment for his or her fees, there may be issues with collectibility and bankruptcy.  Most fee awards are dischargeable in a Chapter 7 proceeding.

The solution is straightforward and commonsensical — a thoughtful case intake procedure, a tightly crafted fee agreement, proactive budgeting, and regular billing and communications.  These four steps will help you maximize your revenues, best serve the clients, and avoid unpleasant proceedings with client you once served.

Heather L. Rosing and David M. Majchrzak practice in the areas of legal ethics, risk management, and litigation of professional liability claims at Klinedinst PC in San Diego.

Law Firms Clash Over Pelvic Mesh Attorney Fees

April 10, 2020

A recent Law 360 story by Emma Cueto, “Blake Rome, Andrus Wagstaff Clash Over Pelvic Mesh Fees,” reports that Blank Rome LLP and Andrus Wagstaff PC are bashing each other's attempts to secure an early win in a suit claiming that Andrus Wagstaff stiffed Blank Rome out of nearly half a million dollars in fees related to multidistrict litigation concerning allegedly defective pelvic mesh implants.  Andrus Wagstaff argued in its response that under the contract Blank Rome, which was hired to secure a greater fee award for the Colorado-headquartered firm in the underlying pelvic mesh suit, was not entitled to a 10% cut of all the fees it secured, but rather only entitled to a series of tiered percentages, with the 10% rate only applying to the fees above $4 million.

"As a matter of law, the contract is not clear and unambiguous in a way that supports Blank Rome's reading," Andrus Wagstaff said in its response to Blank Rome's motion for summary judgment.  Blank Rome, however, said in its response to Andrus Wagstaff's own summary judgment bid that this was a "tortured interpretation" of the contract between the two firms and was not supported by the text of the document.  Under the contract, Blank Rome argued, it was clearly entitled to a 10% cut if it was able to raise the Colorado firm's award by over $4 million.

"In order to interpret the incentive fee provision in the manner suggested by AW, this court would have to insert new, additional language into the agreement and disregard the actual language to which the parties agreed," Blank Rome said.  Blank Rome filed suit against Andrus Wagstaff in December, saying it was hired to help increase the amount of attorney fees the firm was awarded for its work on the MDL that accused Boston Scientific Corp. of making defective pelvic mesh implants.

According to the lawsuit, a court-appointed committee had initially recommended setting aside $8,715,000 in attorney fees for Andrus Wagstaff. Blank Rome claims its work helped raise Andrus Wagstaff's take to a total of $13 million.  Blank Rome said it therefore boosted Andrus Wagstaff's fees by $4,895,000, which should entitle Blank Rome to a $489,500 incentive fee pursuant to the agreement.  But according to the suit, Andrus Wagstaff hasn't lived up to its promise.  Andrus Wagstaff, meanwhile, has argued that Blank Rome is misinterpreting the contract, and that it is actually owed only $269,500.

Client Says Law Firm Can’t Collect Attorney Fee ‘Windfall’

March 31, 2020

A recent Law 360 story by Lauraann Wood, “Gaming Co. Says Jackson Lewis Can’t Collect Fee ‘Windfall’,” reports that a now-closed gaming terminal company has said that an Illinois state judge should vacate a $328,000 judgment against it and prevent Jackson Lewis PC from collecting a "windfall" of attorney fees based on a legally unenforceable engagement letter and unsupported charges.

LZ Entertainment LLC said on that the judgment entered against it in an underlying malpractice suit requires it to pay the New York-based firm $134,000 in purportedly unpaid attorney fees and $194,000 in service charges it was never legally entitled to seek or recover.  The entertainment company says the court should vacate the judgment and let it fight the charges, arguing that the order is rooted in a "self-serving" engagement letter it never received and charges the firm can't support with invoice documentation.  LZ Entertainment also claims it didn't know its prior counsel hadn't responded to the underlying summary judgment request that resulted in the judgment's entry.

LZ claims that after Jane McFetridge, now the firm's Chicago office principal, told company manager Stefen Lippitz that Jackson Lewis' work could cost "as much as $80,000," it agreed to let the firm defend it in a June 2014 lawsuit over an employee who worked for a rival.  The company says Jackson Lewis began performing legal work on its behalf that June, but the firm never sent it an engagement letter and didn't send out its first invoice until two months later.

Lippitz received a copy of the engagement letter in December 2014, "well after" the firm's engagement and litigation in the rival's lawsuit had ended, according to the petition.  The firm purportedly sent the letter through physical mail, even though all of the parties' correspondence had been through email, according to the petition.  "Critically and surprisingly," LZ claims, the firm's engagement letter included a provision stating that the firm would assume its terms were acceptable unless the company responded in writing to the contrary.

"Attempting to bind a client to the terms of an engagement letter without the client executing the letter is unusual and problematic, to say the very least," the company said.  LZ also said Jackson Lewis had already billed it for more than $130,000 by the time it received its first invoice in August 2014.  That invoice reflected a purported prior balance of more than $61,000, but "it would make no sense for there to be a prior balance" if that was the firm's first invoice since its June 2014 engagement, LZ said.

Jackson Lewis produced a copy of its July 2014 invoice in February, while responding to an investigation that LZ launched after receiving the firm's citation to discover assets, according to the petition. That invoice reflected a $61,000 balance for attorney fees and disbursements incurred for the month of June 2014, but the firm "could not provide any evidence whatsoever demonstrating that Jackson Lewis ever sent the July 2014 Invoice to LZ," the company claimed.  "Indeed, LZ never received the July 2014 invoice from Jackson Lewis," the company said.

The company said the invoices for its June 2014 and July 2014 fees also "raise more questions about what actual services were performed, as there are multiple entries by the same attorneys for the same days on both invoices."  And because Jackson Lewis never sent LZ its July invoice, the company never got the opportunity to "pump the brakes" on the fees the firm was assessing, the petition argued.

Jackson Lewis sought payment of the fees LZ allegedly owed as a counterclaim in a malpractice suit relating to a revenue share agreement it helped the company enter with its rival, Accel Entertainment Gaming LLC.  The firm didn't attach the July 2014 invoice to a summary judgment bid it renewed on that claim in March 2019, submitting only its August 2014 bill and various other invoices reflecting "service charges," according to the petition.

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.