How to Avoid a Fee Dispute with Your Client
Fee disputes with clients are a litigation hotbed as well as a significant source of complaints to the Board of Bar Overseers. Unlike most business relationships, where contract principles govern the obligations of one party to pay another, lawyers – no matter what their contract says – can never charge a “clearly excessive” fee. See Mass. R. Prof. C. 1.5(a). Indeed, lawyers must always adhere to ethical responsibilities when charging a client for their services. To avoid fee disputes with clients, or to successfully defend against an excessive fee claim, lawyers and law firms should implement the following best practices:
1. Follow the Rules
Massachusetts Rules of Professional Conduct 1.5 and 1.15 govern the charging of fees and handling of client funds, respectively. Read them carefully and monitor them for any updates. Among other things, the rules list the factors the BBO will consider when determining whether a fee is “clearly excessive,” and describes the limits of contingency fee agreements. Notably, until 2013, Rule 1.5 did not require lawyers in non-contingency fee cases to communicate fee arrangements in writing. Now, however, lawyers must give written notice to their clients concerning the scope of their representation and the basis or rate of the fee and notify clients in writing of any change in either. The latter point is especially relevant to larger law firms, which often increase lawyer rates on a yearly basis.
2. Be Realistic
At the outset of any engagement, lawyers should have an honest conversation with their clients about the potential cost of a particular matter. While it is almost impossible for lawyers to provide a precise estimate of fees, especially in litigation matters, a client needs to know from the outset whether a transaction or a lawsuit could cost more in legal fees than its value or worth. There is little benefit in under-representing the costs of representation in order to get the work. A client who decided to hire you, in part based on the cost concerns, is going to be a very unhappy former client if the fees are substantially more than you projected.
3. Continue to Communicate About Fees Throughout the Case
Lawyers should continue to discuss fee issues throughout representation. In addition to providing monthly invoices, lawyers should discuss with clients any change in strategy or unexpected circumstance that could result in increased fees and should provide an increased budget for legal services at key junctures of the representation.
4. Provide Sufficient Detail in Bills
Time entries in legal bills should always contain enough information to demonstrate to a third party (e.g., a judge, Bar Counsel) that the task billed was reasonable and appropriate for the representation. For example, specify in your time entries the subject matter of meetings and phone calls and the purpose of a legal research project. Clients need to be able to understand the nature and value of the services they are receiving.
5. Consider Alternatives Before Suing a Client for a Fee
Clients who do not pay fees put lawyers in difficult predicaments: forego legal fees or sue and face the risk of a counterclaim for malpractice or a complaint to the BBO. Often, pursuing unpaid legal fees is not worth the potential cost of a malpractice suit or defending a BBO claim. Consider including a mandatory arbitration clause for fee disputes in your engagement letters. Organizations such as the Massachusetts Bar Association Legal Fee Arbitration Board offer an affordable arbitration option for lawyers and their clients to resolve fee disputes.
Upfront and open communication between lawyers and clients concerning fees is the best way to avoid, or, if necessary, prevail in fee disputes with clients. Lawyers deserve to be paid for their time, skill and hard work, but must be diligent in following the rules to do so.