A recent law.com story, “Factors to Consider Before Law Firms Sue Ex-Clients Over Unpaid Fees” reports that the common logic with many law firms was that it wasn’t worth it to sue a client over unpaid legal fees because it was bad for business. The professional liability lawyers say fee dispute cases against former clients inevitably lead those former clients to file legal malpractice counterclaims against the firms; sometimes the fee dispute cost more money to litigate than the fees owed; and such litigation may lead to higher legal malpractice insurance premiums.
Tobey, who represents plaintiffs in legal malpractice cases, says he is seeing more lawyers and firms willing to litigate legal fee disputes. “My sense is you’re seeing a lot more suits for fees by both big firms and small firms, all of whom seem to know the likelihood that they will face a counterclaim for malpractice. And I think if the old statistic was that there is an 80 percent chance that a suit for fees will get a counterclaim for malpractice, I would say that percentage is reaching nearly 100 percent,” Tobey says. “And you’re seeing even more claims for malpractice but also breach of fiduciary duty in fee claims.”
Houston firm consultant Bill Cobb says there are ways firms can avoid suing former clients for fees. For starters, firms always should have a strong engagement letter with a new client that explains the firm’s rate structure, Cobb says. Firms also need an internal screening process to examine new clients—especially clients who may not be long-term customers of the firm. “Look at it as a venture capital investment: Are you going to get a return on that investment?” Cobb says.
It all else fails and a firm decides to sue a client, make sure the lawyer’s work for that cannot be challenged in court for alleged overbilling. “If they think the client may have been overbilled…then you might be a little more concerned about doing it,” Cobb says of suing a client. “But if you’ve got a partner that has never had a problem, ever, and you really don’t think there is going to be a problem, you can sue the guy.”