Disputes over Legal Fees and Claims by Third Parties

Fee disputes are increasingly common between clients and lawyers.  Many such disputes are resolved informally by the lawyer “writing off” hourly time, reducing a contingent percentage, or absorbing some or all expenses.  And some clients can be unreasonable in refusing to pay a lawyer for legitimate legal services and/or reimbursing the lawyer for legitimate expenses—even where the client insisted on the time and effort expended by the lawyer over the lawyer’s objection that the client’s imprudent demands would drive up costs and fees.  Some fee disputes are not really about the fees, but are actually about the client’s dissatisfaction—reasonable or not—with the outcome, the client’s perceived treatment by the lawyer or the lawyer’s staff, or other factors that may not be within the lawyer’s control or influence.

1. Avoiding Fee Disputes

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While it is not possible to avoid every possible client dispute over fees and expenses (unless the lawyer plans to surrender completely to unreasonable clients), there are some positive steps that can help lawyers and clients avoid the misunderstandings that lead to fee disputes, grievances, and litigation:

  1. Have a written fee agreement that clearly spells out the scope of representation (what is—and in some cases, isn’t--within the legal services to be provided) and the fees to be charged.  If the method of how the fees will be calculated or triggered is unconventional or may be misunderstood by a less sophisticated client (i.e., something other than straight hourly rates), then try to be as clear as possible under the circumstances and provide an example or examples about how a fee would be calculated hypothetically under the arrangement.
  2. Provide reasonably descriptive invoices for hourly billings that provide sufficient—though not necessarily excessive or tedious detail—information about the services provided.
  3. Be prompt and patient in responding to client questions about the fees and expenses charged.  Responding in writing to client question is preferable to having a phone conversation or undocumented meeting in many instances so that the client better understands your explanation and you have a decent record of what you told the client and when.
  4. Communicate regularly throughout a representation so that the client knows generally that you are still engaged, understands the current status and new material developments, and doesn’t jump to an unwarranted conclusion that the lawyer is doing nothing or has abandoned the client.
  5. Provide a written settlement statement at the conclusion of a contingent fee representation so that the client can see how his or her net recovery was calculated after the deduction of expenses and legal fees.
  6. Revisit an existing fee arrangement if it appears that the fee arrangement is not fair to the client, but be careful about proposing any changes that benefit the lawyer at the expense of the client.  For example, changing a fee agreement from hourly fees to a contingent fee might be interpreted as the lawyer trying to make more money from a contingent fee contract once the lawyer realizes that the outcome might be better than originally anticipated.  Alternatively, a client who can no longer afford to pay a lawyer by the hour may prefer a change to a contingent fee arrangement so that the lawyer assumes more risk of potentially not getting paid and the client is relieved of the obligation to pay on an ongoing basis (some allowance may need to be made for hourly fees already paid to make a new fee agreement work ethically—or the contingent fee percentage may need to be relatively modest to offset the other fees already paid).  Recall that changes in an existing fee arrangement places the burden on the lawyer to establish that the change was fair to the client under the circumstances and not simply to improve the lawyer’s financial position at the client’s expense.
  7. Be vigilant about incurring expenses that might not pass the “sniff test” if scrutinized later—this can include even legitimate expenses that may be difficult to explain.  For example, travel expenses can be a legitimate expense, but are also subject to abuse or perceived abuse if the lawyer unnecessarily flies first class, eats at the best restaurants, buys alcohol (a potentially tricky issue anyway, but can be especially sensitive with clients who might have religious objections), buys clothing or other personal items, stays at high-priced hotels, etc.  Some of these expenses may be unavoidable at times or can be justified by the peculiar circumstances of a case or certain events; however, the better part of valor is often for the lawyer to either discount the expense down to a more reasonable level or absorb the expense entirely.  That allegedly extravagant expense may be in the eye of the beholder (i.e., the client who doesn’t typically spend money that way), but appearances can matter a great deal, even if the expense itself was relatively trivial in the context of the overall expenses or even a very favorable outcome.
  8. Don’t pick needless fights over minor fee or expense disputes.  If the amount in dispute doesn’t materially change the lawyer’s compensation, it can be better to give some ground to avoid creating a bigger fight over something more material.  At the same time, some clients seem to specialize in second-guessing everything on an invoice and can be relentlessly unfair about trying to cheat their lawyer at every turn.  A client who regularly wants to renegotiate the fee agreement or questions every bill may be the wrong kind of client to keep.
  9. In an intractable fee dispute with a client that isn’t easily resolved, get an independent lawyer to review your situation and advise you about whether to compromise or fight. 
  10. Recall that suing a client for unpaid fees and expenses was, historically, just not done for practical reasons (e.g., it often invited a counterclaim for legal malpractice, a grievance, or both).  Today, more lawyers are willing to sue a client, even with the risk of getting into a bigger fight than just a fee dispute.  Make sure that suing a client is worth the money and is not just a mostly emotional reaction to an unreasonable, even dishonest, client, who, fairly or not, will happily make your collections lawsuit into a legal malpractice suit that you won’t be able to discontinue on a whim.
  11. If the client disputes legal fees that are to be paid to the lawyer out of money that is presently in the lawyer’s trust account, the disputed share must stay in trust until the dispute is resolved by agreement or a court order.
  12. Similarly, if non-client third parties have claims on money held in trust to which the lawyer also has a claim, the disputed portion must remain in trust until the dispute is resolved by agreement or a court order.