A recent Law 360 story by Kelcey Caulder, “Ga. Judge Asked To Reconsider Sanctions in Billing Row” reports that a Georgia state judge is considering what evidence should be allowed to go before the jury and whether to impose sanctions on Gebo Law LLC in a case in which the firm alleges one of itsrbusiness clients owes it about $600,000 in unpaid legal fees.

The firm's Carl Gebo, through his Atlanta-area practice, sued Cordial Endeavor Concessions of Atlanta LLC, which operates a travel spa in Hartsfield-Jackson Atlanta International Airport, last September seeking reasonable compensation for almost 2,000 hours of time he said he spent representing the Georgia company in various matters between April 2015 and May 2020.  Gebo, whose work for Cordial included litigation in New York, claimed his services were worth about $600,000.

But in a hearing before Judge William "Bill" G. Hamrick III, Carl E. Anderson of the Law Office of Carl E. Anderson, who represents Cordial, argued that there is no way to know whether Gebo's services were worth that much because the attorney threw away contemporaneous "scrap notes" and time records that detailed his work for the company and instead submitted one invoice to Cordial in June 2020 that purportedly outlined all work and charges owed.

Anderson argued that Gebo should be sanctioned for spoliation of evidence for getting rid of the notes, saying the attorney had reason to believe litigation would arise from the fee dispute and therefore had a duty to keep them.  This, he claimed, is supported by an "extensive" phone call Gebo had with Cordial's managing member Sheila Edwards before submitting the invoice, in which Anderson said Gebo threatened to sue Cordial for his legal fees and informed Edwards that he wouldn't perform any more work for the company until he received a "satisfactory" payment plan for them.

Gebo should've kept the notes as evidence following that conversation, Anderson said, arguing that Cordial is "clearly prejudiced" without them as it can neither use them to verify the invoice nor adequately cross-examine Gebo regarding its accuracy.  "No attorney can accurately record time months after the fact, much less after five years, without contemporaneous time entries," Anderson said.  "Unless based upon contemporaneous time records, the narratives in the invoices are unreliable at best."

Tyler Dillard of Andersen Tate & Carr PC, who represents Gebo, argued that the attorney hadn't foreseen the possibility of litigation prior to deleting the contemporaneous notes as he assumed that Cordial would pay the firm for its work.  There is no evidence suggesting otherwise, Dillard said, beyond what he called Cordial's "completely self-serving claim" that Gebo threatened litigation.  According to Dillard, Gebo's decision to get rid of the notes was nothing more than a matter of routine.

"What they're claiming is that Mr. Gebo needed to save his post-it notes or scrap legal pads for five years, where he may have written down a half hour call with someone or something like that," Dillard said.  "No lawyer I know keeps their post-it notes or scrap legal pad after putting it into an invoice.  No lawyer I know sends those things out with invoices to reiterate what is on the invoices.  It doesn't make any sense."

Dillard also noted that former Georgia State-wide Business Court Judge Walter W. Davis declined to sanction Gebo for this same issue in May.  While the judge at that time said he would've kept the notes if it were him, he'd also called the invoices "particularly detailed" and found that Gebo hadn't acted in bad faith, Dillard said.  All things considered, Dillard argued that the court should consider awarding Gebo fees for having to respond to another sanctions motion related to the same topic.

Donna L. Johnson of Donna L. Johnson PC, who also represents Gebo, further argued that the court should grant Gebo's limine motion asking that Cordial be prohibited from introducing argument or testimony related to the alleged spoliation of the scrap notes.  The court should do so, Johnson said, because of the previously denied motion for spoliation sanctions and because no new evidence has been presented showing that Gebo had any duty to preserve the notes.

Also before Judge Hamrick on Wednesday was Gebo's motion seeking to exclude the testimony of Matthew Martin, a rebuttal expert brought in by Cordial to testify about the factors that would go into determining an attorney's hourly rate and to help the jury determine what a reasonable fee would be for Gebo's work.  Martin's testimony is necessary, Anderson contended, because Gebo is requesting payment for a $600 hourly rate when his hourly rate had originally been $300 before being increased to more than $400 without Edwards' knowledge or approval in 2017.

According to Anderson, Martin is more than qualified to speak about Gebo's billing practices because he has four decades of experience in commercial litigation and has served as an administrative partner of Jones Day's Atlanta office and was vice chair and client finance partner of Paul Hastings' Atlanta office, among other management roles.

But Dillard argued that Martin's testimony must be excluded because he doesn't offer an opinion of what he believes to be the reasonable value of Gebo's services to Cordial, which is the sole remaining issue to be determined by the jury.  And even if he did offer such an opinion, Dillard contended, he doesn't have the necessary knowledge and experience as a government procurement and contracting attorney to assist the jury in actually determining the value of those services.

Dillard further contended that Martin's testimony must be excluded because he didn't take into consideration the rates of other attorneys that typically do work similar to the work Gebo performed or look into surveys of attorneys' hourly rates.  "Any expert in this case who is going to offer an opinion has to be able to help the jury decide on the single issue of quantum meruit damages for Gebo's legal services in whatever amount," Dillard said.  "If the expert can't provide them with their expertise in answering that question, then they aren't offering anything that's relevant."

Judge Hamrick asked Anderson to clarify what, exactly, Martin's testimony focused on, to which the attorney responded that it would be about the "appropriate way" of reaching an opinion on the reasonableness of fees.  "He is assisting the jury in understanding how you establish a reasonable rate for services under the facts of this case," Anderson said.  Dillard responded, saying that Cordial could question Gebo's own expert about the methodology he used to find a reasonable rate during cross-examination.

Six additional limine motions were presented during the hearing, including one in which Gebo argued that any argument or evidence concerning Cordial's finances and ability to pay a large award to Gebo should be excluded.  Johnson said that, in Georgia, a party's financial status isn't relevant or admissible in determining whether they can or should pay a judgment.

"What we're concerned about is clearly an improper argument," Dillard said.  "Which would be them telling the jury that even if they agree with us about the fair value of the services, Cordial isn't able to pay that and would be bankrupt if they had to.  That, clearly, based on Georgia case law, is improper.  You can't appeal to the jury's sympathy by saying they can't afford it and so an award shouldn't be entered."

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.

Every year, NALFA conducts an hourly rate survey of civil litigation in the U.S.   Today, NALFA released the results from its 2021 hourly rate survey.  The survey results, published in The 2021 Litigation Hourly Rate Survey & Report, shows billing rate data on the very factors that correlate directly to hourly rates in litigation:

City / Geography
Years of Litigation Experience / Seniority
Position / Title
Practice Area / Complexity of Case
Law Firm / Law Office Size

This empirical survey and report provides micro and macro data of current hourly rate ranges for both defense and plaintiffs’ litigators, at various experience levels, from large law firms to solo shops, in regular and complex litigation, and in the nation’s largest markets.  This data-intensive survey contains hundreds of data sets and thousands of data points covering all relevant billing rate categories and variables.  This is the nation’s largest and most comprehensive survey or study on hourly billing rates in litigation.

This is the second year NALFA has conducted this survey on billing rates.  The 2021 Litigation Hourly Rate Survey & Report contains new cities, additional categories, and more accurate variables.  These updated features allow us to capture new and more precise billing rate data.  Through our propriety email database, NALFA surveyed thousands of litigators from across the U.S.  Over 8,400 qualified litigators fully participated in this hourly rate survey.  This data-rich survey was designed to aid litigators in proving their lodestar rates in court and comparing their rates to their litigation peers.

The 2021 Litigation Hourly Rate Survey & Report is now available for purchase.  For more on this survey, email NALFA Executive Director Terry Jesse at terry@thenalfa.org or call us at (312) 907-7275.

A recent Law360 story by Jessica Corso, “Houston Attorneys Sued for $5M Over Altered Fee Agreement,” reports that three Houston-based attorneys are being sued for around $5 million by a former client who claims that they deceived her into changing their fee agreement during a legal fight over her late father's will.  Caroline Allison sued Jorge Borunda, Nicholas Abaza and Michael Trevino in Harris County District Court on Nov. 9, arguing that the attorneys should return most of the money she paid them to represent her in a probate dispute involving the will of her father, who died in 2017.

Allison claims that she agreed in 2019 to hire the lawyers on an hourly basis but, a year later, they asked for a change to a contingency fee agreement whereby they would get 35% of any money or assets she collected from her father's estate.  According to the lawsuit, the lawyers made Allison believe that the case would go to trial and end up costing a lot of money.  In reality, they knew that her father's second wife, with whom Allison was fighting over the estate, was close to a settlement at the time they asked for the 35% fee, according to the lawsuit.

"By October of 2020, the lawyers determined that the estate was worth more than $18 million," according to the complaint. "Unsatisfied with their current arrangement with Caroline, and with dollar signs in their eyes, the lawyers set upon a course of conduct to fraudulently induce Caroline to change her agreement from an hourly rate to a contingency fee."  Six months after signing the new contingency agreement, the case settled, with Allison and her brother, who had also hired Borunda and Abaza, together receiving around $9.5 million, according to the lawsuit.

Allison claims that she ended up paying the lawyers $1.65 million more than she would have had she stuck to an hourly rate.  She is suing for that money back, plus treble damages she said she was owed under the Texas Deceptive Trade Practices Act.  She is alleging violations of the Texas law, as well as negligence, breach of fiduciary duty and fraud.

A recent Law360 story by Emily Lever, “Ill. Bar Insurer Can’t Ditch Law Firm Defense in Fees Fight,” reports that the Illinois State Bar Association Mutual Insurance Company can't avoid defending a law firm accused of wrongfully pocketing attorney fees for its handling of an estate case, an Illinois appellate court ruled, saying the suit is covered by the firm's malpractice insurance.  The insurer has a duty to cover lawyer Alan E. Sohn and his firm in a dispute with Randy Sly, the executor of an estate Sohn represented in probate court, over $280,000 in legal fees, according to a three-judge panel of the First Judicial District of the Appellate Court of Illinois.  The court held that the money at issue is not just for fees — it's also a loss incurred by Sohn's alleged malpractice, meaning it can be understood as damages.

"Sly's injury is not a consequence of the fees charged, but a consequence of Sohn's allegedly negligent advice," Justice Mary Ellen Coghlan wrote on behalf of the panel.  Justices Aurelia Pucinski and Carl A. Walker concurred.  The court rejected ISBA Mutual's 2019 appeal, which argued that the suit against Sohn seeks repayment of attorney fees rather than damages, and therefore the issue is a billing dispute and not about the practice of law, so Sohn's insurance shouldn't have to foot the bill.

Sly is suing Sohn, claiming his former attorney gave him faulty legal advice on executing the estate of Linda Loessy, who died in 2012.  The Circuit Court of Cook County ruled that Sohn's work "resulted in little benefit" to Loessy's estate, which was "not a complicated estate to administer."  The court ruled that he should have been paid no more than $135,000 for his services and should return the excess, which amounted to $185,000, plus more than $95,000 in court fees incurred by a court-appointed guardian for Loessy's children in his action against Sohn.

Sohn's insurance, which was active throughout the course of case, covers "wrongful acts" related to the "rendering of or failure to render professional services," but excludes attorney fees, which ISBA Mutual argued let it off the hook for the $280,000.  A straightforward billing dispute would be "purely ministerial" and not sufficiently related to the practice of law to qualify for coverage, according to the panel, but this dispute is both about the fees billing and about the alleged misbehavior by which Sohn obtained the fees, the panel held, noting that the court-appointed guardian's filings say the payouts to Sohn "substantially reduced" the estate.

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