When should you sue a client for fees?

 In Legal Malpractice

You work really hard for a client and then the client stops paying or refuses to pay an outstanding bill. Generally, it’s been said that a lawyer should never sue a client for unpaid fees. However, there may be some circumstances where it’s OK, if not advisable. How can you decide?

What happens when you sue a client over unpaid legal fees

In Georgia, legal malpractice claims are compulsory. So if you sue a client over unpaid legal fees, there’s a good chance you’ll receive a counterclaim saying that you committed legal malpractice while you were representing the client. You may also receive counterclaims for breach of fiduciary or other duties. And the client will probably assert claims for their own attorney’s fees in defending the action.

In contingency cases, if the case settles but the client complains about the attorneys’ fees, an interpleader action may become necessary. Here too, expect to a counterclaim of some nature. If you have a lawyer’s professional liability (malpractice) insurance policy in place, you will need to place your carrier on notice of the counterclaims. Your legal malpractice insurance carrier will then retain (or allow you to select) counsel to assist with litigating the counterclaims in your defense. This may have an unintended helpful effect, in terms of providing additional litigation pressure on the defendant-client.

Of course, the usual litigation activities happen as well, and may last for months or years. The client will answer, may file motions, and discovery will proceed for documents and witnesses. After that, dispositive motions are likely. Assuming the case continues, you’ll proceed to trial. At trial, assuming the counterclaims survive, expert witnesses will tell the jury whether they think you committed malpractice or breached one or more fiduciary duties. And then the jury will decide whether to award you your fees, or award fees and damages to the client.

Needless to say, if the client is awarded damages, you will have lost essentially twice. If the jury awards fees to the client, then it is likely that your insurance carrier will not make any indemnity payment for that fee award amount. Why? Because most policy exclude making indemnity payments for legal fees.

When does it make sense to sue a client

Because of the known risk, it may not make economic sense to sue a client. However, if the fees at issue are large enough, and depending upon what happened in the representation, suing the client becomes a more attractive proposition. Sometimes there may be value in establishing a precedent to deter nonpaying conduct from other clients. How large do the unpaid fees have to be in order to justify suing the client? Certainly the fees should be larger than your insurance deductible, and probably much larger. Alternatively, they could be so small that a counterclaim would be prohibitively expensive for the client.

Aside from the fees themselves, the question of malpractice is important. Did you do anything that could arguably have prejudiced the client’s case? Or, did you not do something that arguably would have helped the client’s cause? Have an honest assessment done by a neutral, objective lawyer. Just tell them the facts, and see what they think. If it’s arguable that some malpractice was committed, then suing the client will invite the claim, of course. If the client doesn’t go on the offensive, then you have a sort of tacit settlement for the amount of the fees.

But what if you did nothing wrong, and the fees are large or small enough to make it attractive? First, talk with your insurance carrier. Get their buy-in. Then, carefully craft your complaint, and be careful about prejudicing your client’s ongoing matters, if any. In the end, lawyers work hard for their fees, and should not be scared to try to collect them. Clearly, there are some clients who will file abusive and frivolous counterclaims in order to assert leverage. If you have given an honest assessment of the representation, obtained an objective opinion regarding the representation, and carefully performed a cost/benefit analysis, then you should make the best decision possible—even if that decision is to sue the client.

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