The Bottom Line
January 2002 Vol. 23 No. 2
Statements or expressions of opinion or comments appearing herein are those of the editors or contributors, and not necessarily those of the association or section.
Contents
* Client fee agreements: it's time for a review
By Thomas J. Brannan, partner in the centennial law firm of McClure, Brannan & Hardwick, Beardstown
If you practice law--you know the feeling. At best, it is a monthly event, at worst, a daily event. Fifteen years ago, technology appeared to be the salvation or panacea for the legal profession--but just as with industry and commerce--technology has merely increased our clients' demands and the legal profession's ability to produce. Now, more than ever, effective law office management is critical.
But what exactly is law office management? In reality, it is a compendium of all facets of management as perceived. It is regard to the organization of the professional practice to deliver quality legal services, and that embodies the internal management of the law office. But law office management transcends the philosophical, it is managing resources, knowledge, finances, clients, all to achieve the bottom line. Historically, the bottom line was considered to be the income of the firm or the attorney. But today, this definition has to be expanded, most recently to the arena of quality of life. When we consider quality of life, we must consider the "trauma" of the daily practice of law. Ergo, it is no wonder then when we want the train to stop so we can get off ... or, at least, pause.
Is it possible to fit all of the pieces of the puzzle together? Maybe? Probably? It is hard to say. But I recall reading a quip that I thought was appropriate "disorganization is not inherited, it is a learned behavior." Therefore, maybe, just maybe, through organization, some semblance of order or balance can come to the law firm and the attorneys within so as to achieve a real Bottom Line, and this includes a modicum of quality of life.
Please, understand, I do not pretend to have the answers. I might be able to find the answers--if the train would stop. But the concepts are there, they are malleable, they just need to be shaped like clay in the hands of a sculptor.
Some pieces of the puzzle
Delivery of legal services to the clients
To whom are we delivering services? Do we have a niche, or are we the proverbial master of none? Though in recent years there has been a movement toward concentration in the legal profession, just as there has been in medicine, the fact remains that there remains a need for the general practitioner. The question each firm and attorney must first address is who do we choose to serve, and the answer must necessarily fairly assess our ability to meet the needs of our selection. Once determined, then how do we deliver?
To know we have delivered necessarily requires a measuring scale. Delivery of services is not merely a victory in court, it is communication with our clients, including educating our clients, it is using available resources, albeit, paralegals, computerized research, an internal brief bank --all designed to delivery quality of services at the most reasonable cost to the attorney and the client. The is very easy to say, difficult in application. This necessarily requires sound understanding of the firm or attorney's accounting and financial procedures, budgeting, and the methodology of client selection. And if these platitudes are not enough, it requires an internal organization that purrs like a well-tuned racecar, but is able to roar on command.
Client selection
First, as to the client, client selection shall forever remain the antithesis of the successful law practice. Agree to represent someone that does not understand the scope of the engagement, has unrealistic expectations of the attorney, or is the proverbial "I don't care what it costs" client (who invariably doesn't care because he or she does not have the means or intention to pay, regardless of the amount of the bill), and disaster and disappointment is fast approaching for the attorney and the client. Ergo, careful client selection, communication between counsel and the client that clearly defines the nature and extent of the representation, together with a clear and realistic understanding on the part of the client as to the services the attorney can provide, and a similarly clear expectation on the part of the client as to the compensation to be paid to the attorney, or firm, is crucial. As a part of the client and matter selection, if the attorney is to achieve any semblance of quality of life, the attorney must critically answer the question, does the attorney or the firm have the time to deliver the services without relinquishing all quality of life?
Resources
Resources may be technology, fellow attorneys, paralegals or staff. The more skilled the attorney is at managing all of these, the better the delivery of services and the better the bottom line. The "management" required of a firm obviously varies between a sole practice and one with many lawyers. Yet, even the sole practitioner has staff. Therefore, regardless of the legal entity, management requires a "style" in the manner the firm, its attorneys, and the staff are led. In order to lead, to manage, requires the manger to be an effective planner, so as to meet the needs of the entity as wells as the needs of the clients. Implicit with this, of course, is the authority and responsibility. Management embodies a master plan, a leader to guide and direct, the ability to motivate those within to achieve the goals, and the measuring stick or tool to then determine if the objective has been achieved. Any entity is necessarily a team, whether of lawyers, paralegals or staff. Good management dictates a discourse between and among all of these and this requires effective communication among all of the human resources.
Resources not utilized are wasted assets. Whether it is a fellow attorney, a paralegal, a secretary or even a receptionist, without delegation, these resources do not add to the bottom line and obviously the corollary is true, to the extent they are integrated, the bottom line is more easily achieved, including a quality of life.
My impression is that that many attorneys have difficulty delegating. We (I am certainly one) have a sense that we want it done our way, and that probably means we think it is a better way. But reflect, back to the age or time that you felt you had the idea or ability to do something, and your parent, spouse, or senior partner did not give you the opportunity to accomplish. True, the opportunity to achieve provides the opportunity also to fail, but human nature is such that we learn from our failures as well as our successes. Utilization of the talents and skills of all members of a law offices develops confidence in the personnel, self esteem in the individual, and a sense of teamwork and commitment. These factors, properly applied, will result in a better delivery of legal services and a better quality of life for all within the firm.
Technology
Technology today is so pervasive in the modern law office--rare is the firm or office that fully understands the tools at hand. To garner the power of technology is to enhance all that an office presents and delivers. But, it must be understood, technology is not static. It seems technology is still growing geometrically. Therefore, it is incumbent to the modern delivery of legal services to be mindful that technology is change, that the computers and software that we acquired at such a great expense, both in terms of money and human devotion, only several years ago, is now probably obsolete. To retain any position within technology means constant upgrading of hardware and software, but of equal, if not more important value, is the need for further training. Computers, software and all that they embody, still require skilled manipulators or users, and this means continuing education and training. Most professions require continuing education. A law office, and the management within it, is remiss if it does not recognize that those using "technology" must also continue their professional education, otherwise, the offices' technology will soon be as antiquated as the use of carbon paper.
I mentioned before, I might have answers to a lot of the issues raised, if only the train would stop, so that I could devote the time necessary to find the answers and put the concepts to work. Good management requires that the manager be given not only the authority and responsibility of management, but also the time to manage. Regrettably, this puts further demand on the time available to practice. Clearly, we enjoy a better quality of life, if our office, our staff and our professional lives are well organized.
Now, how do we stop the train?
Epilogue: I started this article on the evening of September 10, 2001. The title had been in mind for several weeks. After the events of the next morning at the World Trade Center, I gave pause--we should indeed strive to improve, yet take time, too, to give thanks each day, even if our practice and lives still remain somewhat disorganized.
Client fee agreements: it's time for a review
By Carl Draper
The past twelve months have seen three decisions from the appellate court that have provoked alarm, concern, and a review of law office practices concerning fee agreements with clients. Every lawyer in Illinois would benefit from a review of these important decisions coupled with a review of fee agreements currently in use at the law office.
The first decision to catch the attention of the organized bar associations and law office managers was Lustig v. Horn, 315 Ill.App.3d 319 (1st Dist. 2000). This case has been much discussed in seminars, newsletter and bar journal articles throughout the state since it was first announced. Without reviewing the facts of this decision or the other cases of interest that will be touched on, it is important to note that the attorney in that case entered into a written fee agreement after beginning work for the client. As a consequence, the entire decision is colored by the starting point that the fiduciary relationship between the attorney and client had already arisen by the time that the fee agreement had been executed. In that case, very little work had been done, and probably many law firms may find themselves in similar circumstances of having reviewed documents, done preliminary investigation or some very early research work prior to a formalization of the fee arrangement. The appellate court found provisions in the fee agreement that authorized interest charges on unpaid statement balances and attorney fees for any collection on the fee agreement troublesome. It is tempting to say that the court found these provisions unenforceable because of the existence of the fiduciary relationship. Some attorneys commenting on this case, however, read the decision to indicate a strong likelihood that the court found the attorney fees provision and interest on unpaid balances an unfair practice that violates the rules of professional conduct. The suggestion from this decision is that disciplinary charges might be raised against law firms, or fees might be denied when collection problems arise at least for interest and attorney fee provisions in a contract.
The second decision meriting some review, and also coming from the first district appellate court was Wildman, Harrold, Allen & Dickson v. Gaylord, 317 Ill.App.3d, 590 (1st Dist. 2000). This case arises from the law firms attempt to collect over $56,000 in fees charged for work that was done on behalf of a client who expressed some urgency in getting immediate assistance on business and personal estate planning needs. Significant financial issues were presented to the law firm who, unfortunately, had a practice of not reducing fee agreements to writing. The refreshing thing from this decision is the court's analysis of fee agreements as being business relationships that should be tested like any other contract. The court found nothing special about attorney fee agreements that are the subject of collection actions other than the requirements that most lawyers would gladly accept that fees must be fair and reasonable and the fee agreement must comport with the rules of professional conduct.
The court reminded practitioners that the analysis in fee shifting cases differs from those for fee collection. In fee collection, reasonableness is the standard. Under fee shifting provisions (such as statutory fee shifting cases and family law decisions) awards of fees are discretionary. However, when the parties have reached a clear agreement concerning attorney fees, ordinary contract principles should apply. In that decision, the court considered the "meeting of the minds" due to the fact that no written fee agreement had been reached. The court also reviewed arguments concerning the billing practice that included one time entry for an entire day's work rather than breaking tasks into discrete billing units. These were criticized, but did not significantly affect the court's willingness to enforce the client obligation to pay the attorney fees. Ultimately, the court found questions about the meeting of the minds on some of the fees incurred, and awarded only $43,000 out of the $56,000 that were billed.
More recently, the appellate court reviewed an attempt by attorneys limiting their practice to worker's compensation and personal injury to limit the scope of work to be performed. Keef v. Widuch, 321 Ill.App.3d 571(1st Dist. 2001). Unfortunately, for this law firm, the appellate court held that an attorney has a duty to alert the client to potential legal issues even if the attorney is otherwise limiting the scope of representation. Because of that, the law firm in this case was held responsible to alert a client to statutes of limitations for areas of law where the firm did not otherwise practice.
What can be learned from these recent decisions on attorney client fee agreements? Several obvious lessons were learned by the attorneys in each of these cases. In each case, the lost fees, or the liability, may have been avoided by a more careful review of the firm's standard fee agreement. This article is devoted to suggestions for a careful review of the fee agreements we each use in our daily encounters with new clients rather than an analysis or criticism of the decisions noted at the beginning of the article. The review of the written fee agreements themselves should include the circumstances and discussions that go on with clients even while dealing with the fee agreements. For example, the client in the Wildman decision claimed that he was given an estimate that the total fees for the work would not exceed $2,500. Obviously, there is a significant discrepancy between that figure and the $56,000 actually billed. Likewise, the lesson from the Keef decision relates more to the obligation of the firm to watch for collateral legal issues on behalf of the client and not rely strictly on the fee agreement to protect against malpractice claims. From these decisions, six important principles can be considered in reviewing law firm fee agreement practices.
1. The first and most obvious consideration is to get the fee agreement executed in writing and to do it first before commencing work. There is a great temptation when a client calls on the telephone to commence work on the client's file so that early progress is made for the client's benefits, and hopefully, early collection is made on the fee. It is tempting, whenever the precise course of conduct is uncertain, the engage in some early research in order to be able to better guide the client at the outset of representation. For example, with a little research an attorney might find a way to utilize a statutory cause of action that allows for an award of enhanced damages or attorney fees to the client's advantage. It is helpful to be able to explain that to a client when arriving at a fee agreement and to take such a matter into consideration when deciding whether to offer a contingent fee, fixed fee, or something other than a standard hourly fee agreement. The danger, however, is that upon commencement of services, the attorney client relationship is already established, and now the attorney owes a fiduciary duty to the client to not engage in anything that could be arguably overreaching. Perhaps the attorney's practices in the Lustig decision are not common to most lawyers and the issue may not arise. Nevertheless, getting a fee agreement executed early is a wise precaution.
2. A related issue arises especially for clients who bring repeat business. It is important to differentiate between new clients and existing ones. With a new client, the court may be willing to apply ordinary contract principles where the fee arrangement is arrived at in advance of any representation. Hopefully, however, our clients return to us after the successful prosecution of some work on the client's behalf for additional legal needs. What can be done with these clients? The best suggestion from a review of these cases is to make sure that any new fee agreement be explained carefully to the client and that the fee agreement be examined carefully to avoid any terms that could be considered overreaching or raise a question of ethical conduct. Because of the broad language in the Lustig decision, firms should very carefully review the benefit of having any significant interest charges or attorney fee collection clauses in fee agreements. This is especially the case for existing clients who return for new work. If those clients have paid their accounts in full, it may be wise to consider the risk of non payment much lower, and thereby justify a different treatment. If the clients have not paid their past account, why is the client being given additional services in the first place? Every attorney should know that time is money and allowing the clients to borrow attorney fees from the law firm by paying slowly should be addressed in a professional and businesslike manner. Interest charges make some sense, but as will be discussed below, it may be more prudent to shed clients in cases that are not keeping current with the outstanding fees.
3. Disclosure may become a new and important feature of fee agreements. Lawyers have a bad habit of writing verbose pros and briefs, business agreement and other legal documents. Writing in plain English will better serve the lawyer if a question arises concerning the representation agreement. There is no direct ruling from any of these decisions, but arguably work performed prior to execution of the fee agreement is appropriate and can appropriately be charged as long as the client is advised of those charges in advance of execution of the agreement itself. A simple disclosure of the amount of time and charges already incurred have already become necessary in the realm of family law with the new requirement that all fee agreements contain a two-page disclosure of the attorney's obligations to the client. (For the text of the required disclosure see, 750 ILCS 5/508.) It may be appropriate to review that in some other article for its wisdom and the effect that it has on our profession. Nevertheless, family law practitioners must include the disclosure in their fee agreements, and the disclosures are all worth consideration for any other matter. What law firm, for example, would object to the language in the disclosure that requires fees to be reasonable for the attorney conduct to be ethical? Additional disclosure may have helped both of the fee collection cases noted above to assure that there was a meeting of the minds and to eliminate the argument that the attorney was overreaching in his relationship with his client.
4. Stay ahead of the game to stay out of trouble. All law office management publications remind lawyers that the business side of the law office benefits from regular billing with a detailed accounting for clients. The days are long gone when an attorney may send a statement to a client describing "for services rendered: $3,000." Law office practice statistics regularly show that accounts that remain outstanding beyond 90 days have a low probability of being collected at all with significant reductions for accounts that are even 60 days in arrears. Detailed and specific billing may assist with questions about the reasonableness of the work performed. If there is any possibility of a fee shifting issue in litigation, such detailed accounts are absolutely required by the courts. The lesson learned in the Wildman decision is that the courts should apply regular contract principles, and so law firms should not dispar over some of the increased burdens placed on the business relationship between the lawyer and client.
5. Finally, stay ahead of the curve. Clients who don't pay their bills on time become problematic. Every insurance carrier offering errors and omissions coverage for attorneys preach repeatedly on the sin of suing clients. There is no real explanation for the difficulty lawyers have in collecting their fees in court. After all, the judges deciding these cases should have some experience or at least an understanding of the difficulties of collecting reasonable fees with any regularity. It is difficult to ask attorneys to stop working on files and withdraw from representation every time a client falls 30 or 60 days behind the billing. However, the risk of collection is low, and the risk of a complaint to the ARDC, or even the threat of malpractice litigation rises with each collection case filed. It may be better, where legally and ethically permissible, to stop work on unproductive files even knowing that there is some hope of collection in the future than to weather the storm of an ARDC investigation or worse. Finally, don't place all of your trust in the written fee agreement. While a written fee agreement should be considered a mandatory part of any client representation, it cannot be used as a shield against an attorney's obligations to his client. Disclosure and a careful definition of the scope of representation may protect an attorney against a claim that either too much work was done or not enough. These questions were raised in the Wildman decision. However, there are fundamental obligations an attorney owes to his client. One of these is to determine whether or not the client needs services that the attorney cannot provide. For all of those, a letter or other written disclosure to the client about those matters becomes important for the client's protection.
Fee collection is one of the most perplexing problems to every attorney responsible for business operations at his or her firm. The general wisdom may be that it is easier for an attorney to sue on a contract for a client against a different person or business than it is to sue a client for his own fee obligation. It is even more perplexing when an attorney obtains a good result for a client, but still has difficulty being paid. New and innovative ways of addressing these concerns merit attention as well. Arbitration clauses and arbitration services might be one mechanism to more efficiently resolve questions without entertaining a risk of a lawsuit. Client satisfaction surveys have been used by some firms to detect billing problems at an early stage where they represent an irritation to the client and not a cancer for the account itself. These may be appropriately discussed in other articles. For now, every attorney has an obligation to review billing practices and fee agreements immediately before accepting one new case for the benefit of the client, and the firm's own financial success.
Oh where, oh where has my back up gone?
By Maximilian M. Prusak
Have you ever sung the Back Up Blues? If you haven't, you will be probably feel quite content and a bit overconfident. Do I hear you saying: "How often does one use a back up anyway?" "It takes too much time." "It takes away from a lawyer's productivity."