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Category: Bar Rules / Advisories

Philadelphia Bar Clarifies Advancement of Attorney Fees

August 24, 2022

A recent Law 360 story by James Boyle, “Philly, Pa. Bar Clarify How Attys Can Handle Advance Fees” reports that Pennsylvania attorneys can deposit advance fees into their operating accounts as long as the client clearly consents, according to a new ethics opinion jointly released by the Pennsylvania and Philadelphia Bar associations.

The PBA's Legal Ethics and Professional Responsibility Committee issued the opinion with the Philadelphia Bar's Professional Guidance Committee.  The opinion was issued as a clarification to a PBA ethics opinion from 1995, which said nonrefundable retainers from a new client were permissible, but it must be accompanied by a clear written agreement or deposited into a client escrow account.

According to Sarah Sweeney, co-chair of the Philadelphia Bar's Professional Guidance Committee, attorneys were confused whether there was a difference between a retainer fee that is earned upon receipt and an advance payment for legal services.  The new opinion makes that distinction.

"The [two committees] worked together in an effort to provide some clarity on the proper handling of legal fees paid at the outset of an engagement," Sweeney said in a statement.  "Specifically, the Opinion distinguishes fees that are earned upon receipt from fees that are simply paid in advance, and concludes that the former may be deposited in the attorney's operating account."  In other words, fees that are not earned upon receipt are considered advance fees, which are typically placed into an escrow account and drawn upon by the attorney as they represent the client.

Under the newly issued opinion, if there is an informed, written consent from the client, that fee can be placed into the attorney's operating account.  Fees that are considered earned upon receipt can be deposited into the operating account, as long as the attorneys clearly inform clients of the fee agreements.

"Ethics opinions are one of the most valuable services that we provide as Philadelphia's premier trade association for attorneys," Philadelphia Bar Association Chancellor Wesley R. Payne IV said in a statement.  "We were happy to partner with the Pennsylvania Bar Association in providing valuable clarity for our community on a common practice management issue."

Article: A Lawyer’s Guide To Collecting Fees From Nonpaying Clients

August 12, 2022

A recent Law 360 article by Joshua Wurtzel, “A Lawyer’s Guide To Collecting Fees From Nonpaying Clients,” reports on collecting unpaid fees.  This article was posted with permission.  The article reads:

You've done the work and sent the bill, but haven't been paid. What do you do?  This is unfortunately a question that lawyers, from solo practitioners to BigLaw partners, confront all too often.  But most lawyers struggle with the answer.  And even worse, many end up doing nothing — leaving significant receivables on the table from clients who have the ability to pay.  Struggle no longer.  Here, I offer some recommendations on how to deal with a nonpaying client. The article focuses on the law on account stated in New York.  These principles and advice are generally applicable in most U.S. jurisdictions, though you should of course consult the specific law in your jurisdiction.

Make Sure Your Retainer Agreement Gives You Adequate Protection

Good collection starts with a good retainer agreement.  There are several important clauses any retainer agreement should have.

Thirty Days to Object

Your retainer agreement should include a clause stating that if a client has an objection to an invoice, the client must make a specific objection in writing within 30 days.  Courts have upheld these types of clauses, and have further held that a client that fails to make a specific, timely objection in accordance with this clause waives objections to the invoice.

Fee Shifting

Many lawyers avoid suing clients for unpaid fees because the time spent doing so can be better spent on other, billable tasks.  But if you include a fee-shifting clause in your retainer agreement, a nonpaying client could end up being responsible for fees you incur in bringing the suit.  Make sure, however, that the fee-shifting clauses run in favor of the client as well if he or she is the prevailing party, or else it will be unenforceable.

Choice of Forum and Acceptance of Service of Process

Your retainer agreement should also include a forum selection clause in the state in which you practice so you don't have to go out of state to sue a nonpaying client.  And it should also include a clause stating that the client agrees to accept service of process by mail or email, in case you have trouble serving the client personally.

Rely on the Retaining Lien and Charging Lien

New York law strongly favors attorneys who are stiffed by their clients.  So there are some tools you can use to try to collect without having to bring a lawsuit.

Retaining Lien

When a client has an outstanding balance with his or her former lawyer, the lawyer can assert a retaining lien over the client's file. This allows the lawyer to refuse to turn over the file to the client or his or her new counsel until the outstanding balance is paid or otherwise secured.  To lift the retaining lien, the former client must either pay the amount owed to the lawyer or post a bond for that amount.

Charging Lien

Under Section 475 of the New York Judiciary Law, "from the commencement of an action," the lawyer who "appears for a party has a lien upon his or her client's cause of action," which attaches to a verdict, settlement, judgment or final order in his or her client's favor.

This section gives the lawyer a lien on the proceeds of the former client's case to the extent of the amount owed to the lawyer, with the result that no proceeds can be distributed to the former client or his or her new counsel until the former lawyer is paid.

In 1995, the New York Court of Appeals in LMWT Realty Corp. v. Davis Agency Inc. held that this lien "does not merely give an attorney an enforceable right against the property of another," but instead "gives the attorney an equitable ownership interest in the client's cause of action."

Sue for Account Stated

If all else fails and you need to sue a nonpaying client, the account stated cause of action will be your best friend.  Indeed, in New York, this cause of action allows a professional services provider to sue a client for nonpayment of an invoice if the client has retained the invoice for at least a few months and has failed to make timely, specific, written objections.  This cause of action thus provides lawyers with a substantial tool to pursue a nonpaying client.

Invoice Requirement

To state a claim for account stated, you must show only that you sent the invoices to the client and the client retained them — usually for at least a few months — without making specific, written objections.  It is thus important to maintain a record of when invoices are sent and to whom — ideally by email to an email address the client gave to receive invoices.

Oral Objections

Generally, a client must make specific, written objections to an invoice; general or oral objections will not be enough to defeat a claim for account stated. Nor will general claims by a client that he or she is dissatisfied with a particular outcome suffice.

Reasonableness of Fees

Many nonpaying clients will defend against a nonpayment suit by claiming that they were overbilled or that the quality of the work was not to their liking.  But if these objections are not made in a timely way, with specificity and in writing, courts generally hold that they are waived.

This is significant for a lawyer pursuing a nonpaying client, as most clients will defend by claiming that there was something wrong with the work done by the lawyer.  And so if an account is stated by virtue of the client's retention of the invoices, the reasonableness of the fees and the quality of the work has no bearing on the merit of the account stated claim.

Underlying Agreement to Pay

While account stated is a powerful cause of action, it works only if there is an underlying agreement to pay for the services rendered.  So a person who randomly sends out invoices without having an underlying agreement with the recipients of the invoices can obviously not rely on account stated.

But if you have a retainer agreement that properly covers the scope of the work you will be doing, you shouldn't have a problem.  Nor is there a requirement that the client has agreed to pay for the specific invoices at issue, as long as the client has agreed to pay for your services generally.

The Dreaded Malpractice Claim

Most nonpaying clients faced with a lawsuit by their former lawyer will assert counterclaims for malpractice — even if the malpractice claim has no merit.  While the lawyer must, of course, still deal with the malpractice claim, courts generally go out of their way to sever a lawyer's account stated claim from a nonpaying client's malpractice counterclaim.  This is especially so if the alleged malpractice relates to different work from what is at issue on the unpaid invoices.

Further, as a strategic matter, unless the malpractice counterclaim has merit, most nonpaying clients will drop it after the lawyer obtains a quick judgment on summary judgment at the outset of the case.

Conclusion

Suing a former client is never pleasant, and is a last resort after the attorney-client relationship has broken down. But using efficient, streamlined ways to collect from nonpaying clients can allow a law firm to provide greater value to the rest of its clients.

Joshua Wurtzel is a partner at Schlam Stone & Dolan LLP in New York.

Client Drops Attorney Fee Dispute Against Law Firm

May 16, 2022

A recent Law 360 story by Caroline Simson, “Taiwanese Co. Says It Won’t Arbitrate Fisch Sigler Fee Dispute” reports that a Taiwanese manufacturer of smartphone camera lenses is pressing a DC federal court to quash arbitration initiated by intellectual property boutique Fisch Sigler LLP seeking millions in additional fees for its work on a "meandering, inconclusive" and expensive patent lawsuit that settled last year.  Largan Precision Co. Ltd. told the court in the lawsuit filed May 10 that it never gave its informed consent to arbitrate the dispute with Fisch Sigler, which is set to be heard by the DC Bar Attorney/Client Arbitration Board, or the ACAB.

The company noted that while the DC Court of Appeals requires any attorney who is a DC Bar member to submit to arbitration before the ACAB if a client chooses that venue to pursue a fee dispute in matters with some connection to DC, there has never been any such rule for clients.  Largan argued that since it intends to challenge the validity of an arbitration agreement that was "quietly added" to its engagement agreement with the firm near the end of their negotiations, that question should be left to the court.

"[G]overning precedent makes plain that only a court, and not an arbitration panel, can decide the threshold issue of whether a valid agreement to arbitrate exists, unless there is clear and unmistakable evidence that the parties agreed to have that question decided by the arbitrators," the company wrote.  "There is nothing here to suggest that the parties ever discussed, let alone agreed to, the ACAB deciding the specific issue of arbitrability."

Largan alleges in the litigation that the firm has already gotten $4.5 million in "fixed fee" payments.  It's now seeking an additional $5.6 million in success fees — despite the fact that Largan agreed to settle the litigation in Texas due to the outcome of parallel litigation in Taiwan that Fisch Sigler had not worked on, according to the brief.  The underlying dispute for which Largan engaged Fisch Sigler involved another Taiwanese company called Ability Opto-Electronics Technology Co. Ltd., which Largan accused of misappropriating its trade secrets in 2013.

While litigation was ongoing in Taiwan, Largan hired Fisch Sigler to file a patent infringement lawsuit in the U.S. against Ability Opto-Electronics Technology and two other entities in Texas.  Largan alleges that while the lawsuit was ongoing, Fisch Sigler charged a fixed fee despite not doing all the work that was supposed to be included under that fee.  That included depositions and a hearing in mid-2020 that Largan says never took place.

Largan won some $50 million in the Taiwanese litigation in early 2021, and it subsequently approached Fisch Sigler about settling the Texas litigation.  The company claims that the litigation had gone poorly, and that there was no reason to continue with it at that point.  It was then that the firm attempted to collect the success fee "based on the resolution of a litigation in Taiwan in which it had no role — and despite achieving nothing resembling success from the meandering, inconclusive, yet very expensive litigation it had pursued for Largan against [Ability Opto-Electronics Technology] and others in Texas and, later, California," according to the suit.

Article: Do We Really Need An Attorney Fee Expert?

April 18, 2022

A recent article by William F. Cobb, “Do We Really Need An Attorney Fee Expert?” discusses the need to hire an attorney fee expert.  This article was posted with permission.  The article reads:

In 2002, the Fourth District Court of Appeal issued a decision in Island Hoppers Ltd. v. Keith 820 So. 2d 967 (Fla. 4th DCA 2002) discussing whether or not expert testimony should be required to support an award of attorney’s fees to a prevailing party.  The decision questioned the necessity and wisdom of the longstanding judicially-created requirement.

Justice Polen, who authored the opinion in Island Hoppers, recognized that an award of attorneys’ fees must be supported by competent substantial evidence and Florida courts have required testimony by the attorney performing the services, together with testimony by an expert fees witness as to the time and value of those services.  The expert in that case spent a scant three hours in preparation of his opinion in this wrongful death case and is accused of lacking a sufficient factual predicate to form an opinion.  Although Justice Polen and the court allowed the testimony, claiming the testimony went to the weight of the evidence and not its admissibility, the opinion questions whether the longstanding rule requiring the corroborative testimony of an expert fees witness is always the best or most judicious practice. 

The opinion recognizes that expert witnesses are presented to assist with guidance to the trier of fact and fails to see what “guidance” if any a fees expert provides to judges who see various levels of skill and experience in the courtroom on a regular basis.  The opinion does recognize the expert may provide some assistance to the court in terms of a multiplier determination in the market, but distinguished the more fundamental issues of determining appropriate hours expended and rates charged and states the trial judge has greater insight and understanding regarding what is reasonable.   The Island Hoppers decision prompted a Florida Bar Journal article, authored by Robert J. Hauser, Raymond E. Kramer III and Patricia A. Leonard, of Beasley & Hauser, P.A., in January 2003 regarding the same topic, (Vol. 77, No. 1, page 38) essentially agreeing the requirement should be revisited and perhaps eliminated.  In virtually every case decided by the Florida Supreme Court, both before and subsequent to the Island Hoppers decision, the Court has found, or at least commented upon, the requirement for an expert to testify regarding the reasonableness of the time and amount of attorney’s fees being sought, together with a multiplier determination in the relevant market area, especially where there was a fee-shifting provision involved. 

In Roshkind v. Machiela, decided in 2010, the Fourth District Court of appeal again addressed the long-standing requirement of independent expert witness testimony to support a claim for attorney’s fees.  The Court recognized generally “where a party seeks to have the opposing party in a lawsuit pay for attorney’s fees incurred . . . independent expert testimony is required” and “case law throughout this state has adhered to the requirement of an independent expert witness to establish the reasonableness of fees, regardless of whether a first or third party is responsible for payment.”  Although the opinion recognizes Island Hoppers and the previously questioned judicially-created requirement of independent expert testimony to establish the reasonableness of attorney’s fees, it ruled the judicially-created requirement “remains etched in our case law.”  The Fourth District certified a question to the Florida Supreme Court regarding whether or not an expert witness is required to testify to establish attorney’s fees, seeking a final determination of the issue.  The Florida Supreme Court initially accepted jurisdiction but later issued an opinion “upon further consideration, we have determined to deny review and discharge jurisdiction” thereby denying a review and ruling on the issue.

In 2007, In re Amendments to Florida Rules of Civil Procedure, The Florida Bar Civil Procedure Rules Committee recommended adding Rule 1.526 to The Florida Rules of Civil Procedure.  The proposed rule was entitled “Expert Opinion Testimony on Costs and Attorneys’ Fees” and included “[e]xpert opinion is not required to support or oppose a claim or an award of costs, attorneys’ fees, or both, unless by prior order of the court.”  Essentially, the proposed rule would leave it to the trial judge to determine whether or not he or she would require “guidance” in the form of an expert’s opinion regarding the determination of attorneys’ fees.  In rejecting the proposed rule, the Florida Supreme Court opined “that the issue of whether expert opinion testimony is required in this context is not one that is appropriately addressed in a rule of procedure” and declined to adopt the proposed rule.

From a review of the foregoing, although at least one District Court of Appeal has questioned the judicially-created requirement for and independent attorneys’ fee expert to testify in a fee determination hearing, it is clear the Florida Supreme Court consistently has supported and recognized the longstanding requirement and has further refused to adopt a rule of procedure that would allow the trial court to determine the need for expert testimony.  In order to support an award of attorney’s fees, the attorney for the party seeking the fees, whether first or third party obligation for payment is present, is required to retain the services of an expert to offer testimony regarding the reasonableness of the hours expended and amount being sought in recovery in order to prevail.

William F. Cobb is a Partner at Cobb Gonzalez in Jacksonville, FL.

Article: The Holder Rule and Attorneys’ Fees

February 24, 2022

A recent article by Alan D. Wingfield, David Anthony, Timothy St. George, Ethan Ostroff, Scott Kelly, and Sarah Siu of Troutman Pepper LLP, “The Holder Rule and Attorneys’ Fees: The FTC Speaks” reports on attorney fees and the FTC’s Holder Rule.  This article was posted with permission.  The article reads:

On January 20, the Federal Trade Commission (FTC) issued an advisory opinion on the impact of the Trade Regulation Rule Concerning Preservation of Consumers’ Claims and Defenses (Holder Rule) on the recovery of attorneys’ fees and costs above the amount paid on a consumer receivable arising out of a financed sale of goods or services.  Siding with consumers and rejecting the reading put forward by loan holders, the FTC declared that the Holder Rule does not prevent a plaintiff from recovering attorneys’ fees and costs against a “loan holder” where another state, local, or federal law permits the recovery.

The Holder Rule is a regulation issued by the FTC that allows consumers to bring any legal claims against the “holder” of a retail installment sales contract or other credit contract that it could assert against the original seller of the good or service, even if the claim springs from the seller’s misconduct alone.  This situation frequently arises in auto finance litigation or litigation under state deceptive acts and practices laws — for example, where a consumer sues both the car dealer as the seller and the bank as the loan provider and “holder” of the retail installment sales contract, for the seller’s failure to disclose a defect or repair the vehicle.  The Holder Rule, however, states that a plaintiff’s recovery from the holder for those claims “shall not exceed amounts paid by the debtor” under the sales contract.

Multiple courts nationwide have ruled that the Holder Rule’s recovery cap prevented courts from requiring holders to pay a plaintiff’s attorneys’ fees and costs over and above the plaintiff’s previous payments to the seller.  See, e.g., Reyes v. Beneficial State Bank, No. BCV-17-100082 (Cal. Sup. Ct., Kern Co., Dec. 5, 2019), appeal docketed, No. F080827 (Cal. Ct. App. Feb. 13, 2020); State ex rel. Stenberg v. Consumer’s Choice Foods, Inc., 276 Neb. 481, 495–96 (2008).  But other courts have disagreed.  See In re Stewart, 93 B.R. 878 (Bankr. E.D. Pa. 1988); Home Sav. Ass’n v. Guerra, 733 S.W.2d 134 (Tex. 1987).  The California Supreme Court is currently considering an appeal of one recent decision that rejected a Holder Rule cap in Pulliam v. HNL Automotive, Inc., No. S267576 (Cal. 2021).

The FTC’s new opinion sides with courts that have refused to automatically cap attorneys’ fees and costs, stating that applying the Holder Rule to preempt state laws and limit recovery of fees and costs “misconstrues” the FTC’s prior statements.  The FTC previously voted 5-0 to issue a confirmation of the Holder Rule in 2019, which noted that several commenters had asked whether the Holder Rule’s limitation on recovery to “amounts paid by the debtor” allows consumers to recover attorneys’ fees above that cap.  The rule confirmation stated, “The Commission does not believe that the record supports modifying the Rule to authorize recovery of attorneys’ fees from the holder, based on the seller’s conduct, if that recovery exceeds the amount paid by the consumer.”  Three of those five commissioners are still serving on the FTC.

Now, in a 180 degree turn, the FTC has voted 4-0 (including aye votes from the three commissioners who were already serving in 2019) to adopt this opinion that if the applicable state or federal law allows an attorneys’ fee award against any defendant, whether holder or seller, then the Holder Rule places no limit on the amount of fees and costs the plaintiff may recover from a holder.  For example, if the law allows the prevailing party to recover fees from any party that opposes its claims, and the holder opposed the prevailing plaintiff’s claims, the Holder Rule would not cap a plaintiff’s recovery of attorneys’ fees and costs.  Additionally, even if the law in question allows attorneys’ fee awards against the seller exclusively and expressly, the Holder Rule allows the plaintiff to recover those fees from the holder instead, though that award would be subject to the Holder Rule cap and limited to the amounts the consumer had previously paid.

In other words, litigants will have to narrowly examine the language and framing of the various state and federal statutes allowing recovery of attorneys’ fees to determine whether the Holder Rule’s cap will apply to fees and costs under the applicable statute, and courts may interpret broader fee recovery statutes that do not expressly apply only to sellers to allow unlimited fee recovery from holders as well.  This advisory opinion thus raises holders’ risk exposure and potential costs in litigation where the dealer has not indemnified the holder or the dealer is judgment proof.  It also will likely impact the California Supreme Court’s forthcoming decision on this question in Pulliam.