We have all been there—the client you spent an extraordinary amount of time, attention and devotion to, and then fails to pay the final bill. You can keep sending the invoice or making phone calls, but it becomes apparent they are not going to pay. Do you start a suit?
We have been involved in numerous suits representing attorneys collecting their fees, and clients being sued for fees. Here are a few tips:
- Wait until two years after the very last activity, and then wait one month more before starting suit. To determine the date of last activity, we use either the final order (Withdrawing as counsel, or Final order of the case) OR the very last billed date. Whichever is later–It is imperative to wait this period.
The Statute of Limitations for Breach of Contract (see the second point below) is six years. The Statute of Limitations for Malpractice is two years. If you start a suit for collection within that two-year period, the client will counter-sue for malpractice. We have heard countless times, “But I didn’t do anything wrong” or “They would never counter-sue for malpractice.”
Doesn’t matter—the counter-suit alone will be sufficient to chill your collection activities. Additionally, you will have to report it to your Malpractice Insurance Carrier, and they may step in to take over the matter!
Recently, the Court of Appeals addressed this issue in Bishop & Heintz, PC v Finch, where the Law Firm initiated collection after the two years, and the client counter-sued (for $3 Million Dollars!) alleging malpractice. The Court threw out the counter-suit, as it was filed more than 2 years after the last activity, and the Statute of Limitations barred the action.
Wait the two years. The client will be barred from filing a counter-complaint for malpractice.
- Always have a signed written engagement letter. Always. While oral contracts are enforceable, they only create problems and will make collection much more difficult. Within the agreement include at least:
- What are you doing, and more importantly, what you aren’t If filing a suit for damages, does the representation include collection, or just getting the judgment? What if a counter-complaint is filed? If a criminal matter, does representation include a bond hearing (should the client violate bond), or probation violation hearing, or subsequent appeal? What if the other side files bankruptcy, or an Estate is needed? It is more important to list what legal actions are not covered by the retainer, as compared to what is.
- Is the agreement a contingency, hourly or fixed fee? If contingent, include an hourly rate in the event the client discharges you. If a fixed fee, again it is very important to clarify what is not included, in the event additional legal matters arise. List out the hourly rates of the persons working on the file.
- When will the client be billed?
- Is there interest on the outstanding amount? If so, limit it to the 7% per annum allowed by statute.
- Are costs extra, and what do costs include?
- How will you communicate? Will it include E-mail?
- What is the policy for destroying the file?
This way the collection activity becomes a simple breach of contact action on a written agreement.
- Continue to send the invoices for two (2) years. Don’t stop, simply because the payments stopped. There are two reasons for this–one legal, one practical. As you continue to send the invoices, it becomes an Action on Account Stated. The client has not objected to the bills and it is presumed they have no objection to it. Further, in the (unlikely) event the matter goes to trial, we have found it a very effective and powerful point of persuasion to bring out the invoices, one-by-one, and point out how the client never objected to them month, after month, after month.
- If you do start suit, start it in the venue where the Defendant resides. Many lawyers think it is appropriate to initiate suit in the same venue where the action “occurred” (either the court action, or the lawyer’s office), however the correct venue is actually where the Defendant resides. (Interestingly enough, if you initiate a Small Claim, then you can start it in your local District Court and it will remain there if removed to the General Court.)
- Start suit as an Action on Account Stated with the appropriate affidavit.
However, before you even start suit, or pursue this course of action, there are a few things to consider.
- Is your client collectible? If not, what good will a Judgment do?
- Will this person retain you in the future? While not likely, it is always possible.
- Will they write a bad review if you start an action? (The bad review may cost you more in new clientele than you could gain on the fee itself.)
- Your malpractice insurance application may ask if you have started suit against clients. If the carrier sees too many suits for collection, this can raise concerns and cause your rates to increase.
In short, you must weigh the benefits and the detriments before considering whether to start suit to collect an outstanding fee. Taking a few careful steps will reduce the aggravation and ease the litigation process.