Avoiding Attorney Fee Claim Litigation
This article appeared in the April 14, 2014 New York Law Journal Special Section on Litigation.
There is one undeniable truth about the practice of law: If an attorney sues a client for a legal fee, the client will invariably assert a counterclaim for legal malpractice. Accordingly, the easiest way for an attorney to avoid a legal malpractice claim is to avoid fee claims against clients.
Avoiding Fee Suits
The easiest way for an attorney to avoid a fee suit is to eliminate nonpaying clients. When accepting a new client, an attorney should ensure that the client has the resources to pay his bills. He should also be very clear at the outset of the representation what fees will be charged and what expenses will be billed, and the client should be provided with an estimate of the anticipated costs of the representation. Such terms set forth in a clearly written and detailed engagement letter or retainer agreement can help prevent misunderstandings, false expectations, and later conflict between the attorney and client.
Clear terms of the anticipated cost of representation are not the only ways to avoid litigating a fee claim with a client. It is imperative that the attorney keep the client apprised of the status of the matter and what work is being done on the matter. Keeping a client informed can help prevent a client's bewilderment upon the receipt of a legal bill. A client that does not understand that for which she is being billed is more likely to question the bill, resulting in a conflict; whereas a client kept current with the status of her case is more likely to understand the work that was performed by the attorney, why the work was necessary, and is then more likely to willingly pay the bill. Providing clients with copies of letters, pleadings, and other significant documents can also help a client to understand the complexity of the work that was performed and to see the value received from the legal services rendered and the reason for the resulting fees that were charged. Additionally, legal bills should be provided to a client on a regular and frequent basis: Monthly billing is optimal. Regular monthly bills prevent the cost of any single bill from being unnecessarily high, which can surprise and frustrate a client and lead to a billing dispute with that client. Regular monthly billing also enables a well-informed client to understand that for which she is paying. Irregular bills, sent long after work is performed will often prevent a client from remembering why a task was done, why it was necessary, and what value was derived from the actions taken. These issues often lead to questions over the legal fees and fee disputes between the client and attorney.
In addition to keeping a client apprised of the matter and providing the client with regular, timely bills, fee claims can often be avoided by an attorney's simple act of requiring a retainer fee. Legal fees are deducted from the retainer amount as costs are incurred over the course of the representation. When the retainer is low, it is replenished in order to ensure that there are always funds available to pay for the work that is being performed on a client's case. If the client cannot or will not replenish the retainer with the necessary funds, an attorney then has the opportunity to remove himself from the representation before unpaid costs and fees are incurred and a fee dispute arises.
To the extent precautions are not taken or the precautions taken are not successful and a fee dispute arises between an attorney and client, it is often more prudent for an attorney to forgo the legal fee rather than to risk the time and money that will inevitably be spent pursuing the fee and defending the resulting legal malpractice counterclaim. In contemplating a legal fee claim against a client, an attorney should consider not only that a counterclaim will likely be asserted against him, but also that he may become liable for his insurance deductible; his future insurance premiums may increase; and he ultimately may lose more money than he recovers due to the time spent away from the practice to pursue the fee and to defend the counterclaim—time that could have better been spent generating income from paying clients.
Despite the risks associated with pursuing a fee claim, there may be times when an attorney is compelled to pursue legal action against the client to recover outstanding fees. However, rather than bringing a fee claim directly to suit, most fee claims are required to first be submitted to mandatory arbitration, if requested by the client.
Part 137 of the Uniform Rules was implemented in an effort to provide the informal and expeditious resolution of fee disputes between attorneys and clients. Part 137 requires mandatory arbitration for fee disputes arising from representation in civil matters when the amount in dispute is between $1,000 and $50,000, with limited exceptions.1 While Part 137 does not apply to disputes involving amounts less than $1,000 or more than $50,000, an arbitral body may hear such disputes upon the consent of both parties.2
If a fee dispute arises, and an attorney elects to proceed with a claim, the attorney is required to provide written notice to the client entitled "Notice of Client's Right to Arbitrate." The notice must be served by certified mail or personal service and must advise the client of her right to arbitrate and that she has 30 days from receipt of the notice to elect to pursue arbitration. Failure to serve the notice in accordance with the statute, such as service by regular mail, will result in a dismissal of a subsequent fee action.3
The notice must also be in the approved form, be accompanied by instructions to the client, and include a "Request for Arbitration Form."4 The required forms are available on the website of the New York State Unified Court System at www.courts.state.ny.us.
A client is permitted to seek arbitration, rather than litigation, where there is a "fee dispute" between the attorney and client.5 Attorneys have attempted to circumvent the mandatory arbitration requirements of Part 137 at times, by arguing that the client did not object to the bills, that there is an account stated, and that as a result, there is no "dispute" as to the amount of attorney's fees owed. Generally, this argument has been unavailing.6
The mandatory arbitration provision of Part 137 does not apply to claims involving substantial legal questions, including professional malpractice or misconduct.7 Generally, a finding that an attorney is entitled to a fee conclusively establishes that there was no legal malpractice in the representation.8 However, since the mandatory arbitration requirement of Part 137 specifically excludes redress of substantive claims, such as legal malpractice, an arbitrator's decision in a Part 137 arbitration has no such collateral estoppel or res judicata effect upon a subsequent legal malpractice action brought by the client against the attorney.9 As a result, the resolution of the attorney's fee claim at arbitration may not resolve the dispute between the attorney and client in its entirety and may even provoke the commencement of a legal malpractice action by the client.
It is also important for the practicing attorney to understand that fee claims can also give rise to grievances against the attorney. For example, under Part 137, an attorney who, without good cause, fails to participate in the arbitration process must be referred to the appropriate grievance committee for appropriate action to be taken.10 Furthermore, if the arbitrator becomes aware of evidence of professional misconduct in the course of the arbitration process, that arbitrator must refer such evidence to the appropriate grievance committee.11
If the client does not file a Request for Arbitration within 30 days of receipt of the Notice of Client's Right to Arbitrate, the attorney may then commence a fee action.12 The complaint for such an action must state that the client received notice of the right to arbitrate or that the dispute is not covered by Part 137.13
Not only can a court action be commenced upon a client's waiver of the right of arbitrate, but the party aggrieved by an arbitrator's award may seek de novo review on the merits within 30 days of the arbitration award being mailed. However, an aggrieved party is not entitled to a trial de novo if the language of the written retainer agreement specifically states that the final determination of the arbitrator shall be binding upon both parties.14 If a trial de novo is pursued, the non-final and non-binding arbitration award is inadmissible as evidence at the trial.15 If no action is commenced within 30 days of the mailing, the arbitrator's award becomes final and binding16 and the court does not have discretion to excuse the late commencement of an action for de novo review.17
Avoiding Legal Malpractice Counterclaims
Part 137 specifically excludes from mandatory arbitration cases where no legal services have been rendered to the client for more than two years.18 For example, if an attorney ceased representation of a client on Jan. 1, 2014, he would not need to offer arbitration to his client under Part 137 if he commences his fee action on Jan. 2, 2016, whereas if he commenced the fee action two days earlier on Dec. 31, 2015, the offer of mandatory arbitration to his client under Part 137 would be a condition precedent to the suit. While waiting two years after the termination of legal representation to commence a fee action may avoid mandatory arbitration, waiting a little longer may help an attorney avoid a legal malpractice counterclaim in the context of that fee action.
Regardless of when the action is commenced, the fee claim will almost invariably result in a legal malpractice counterclaim. For this reason, if an attorney insists on pursuing a fee claim against a client, the passage of time can favor the attorney. It is often suggested that an attorney wait at least three years (and a day) after the representation ends before commencing a fee claim against a client. Under CPLR 213(2), an attorney has six years to pursue a fee claim against a client, as such an action is founded upon a breach of contract. However, pursuant to CPLR 214(6), a client has only three years to commence a legal malpractice action against an attorney after the termination of the attorney's representation. Although the client can offer the alleged legal malpractice as an affirmative defense in the fee action in an effort to demonstrate why fees were not paid and to offset the attorney's recovery, the client cannot obtain an affirmative recovery against the attorney since such a claim is time barred against the attorney after three years.19 Of course, this approach will not work in every situation, such as a client that may become bankrupt or go out of business within three years, but a three-year delay in the pursuit of a legal fee claim after a clearly delineated termination of representation can often favor an attorney and avoid a client's likely retaliatory legal malpractice counterclaim.
"Patience is the companion of wisdom." —St. Augustine
1. 22 NYCRR 137.1.
2. 22 NYCRR 137.1(b)(2); see also Yahudaii v. Baroukhian, 936 N.Y.S.2d 537 (1st Dep't 2011).
3. Peter Axelrod & Associates, P.C. v. Berk, 19 Misc. 3d 1134(A) (Civ. Ct. N.Y. County 2008).
4. 22 NYCRR 137.6(a)(1).
5. 22 NYCRR 137.2.
6. See Paikin v. Tsirelman, 699 N.Y.S.2d 32 (1st Dep't 1999); Messenger v. Deem, 893 N.Y.S.2d 434 (Sup. Ct. Westchester County 2009).
7. 22 NYCRR 137.1(b)(3); Wenig Saltiel v. Secord, 966 N.Y.S.2d 809 (App. Term 2013).
8. See Zito v. Fischbein Badillo Wagner Harding, 915 N.Y.S.2d 260 (1st Dep't 2011).
9. Soni v. Pryor, 958 N.Y.S.2d 721 (2d Dep't 2013); Mahler v. Campagna, 876 N.Y.S.2d 143 (2d Dep't 2009).
10. 22 NYCRR 137.11; Spina v. Michael J. DeFilippo P.C., 27 Misc.3d 1225(A) (Civ. Ct. N.Y. County 2010).
11. 22 NYCRR 137.7(g); Lorin v. 501 Second Street, 769 N.Y.S.2d 361 (Civ. Ct. N.Y. County 2003).
12. Rotker v. Rotker, 761 N.Y.S.2d 787 (Sup. Ct. Westchester County 2003).
13. 22 NYCRR 137.6(b).
14. Jewell v. Iyer, 26 Misc.3d 131(A) (App. Term 1st Dept. 2010).
15. 22 NYCRR 137.8(c); Landa v. Dratch, 846 N.Y.S.2d 256 (2d Dep't 2007).
16. 22 NYCRR 137.8(a); see also Goldweber v. Fox, 22 Misc.3d 141(A) (App. Term. 2009).
17. Gold, Stewart, Kravitz, Benes v. Crippen, 971 N.Y.S.2d 457 (2d Dep't 2013).
18. 22 NYCRR 137.1(b)(6); Borah, Goldstein, Altschuler, Schwartz & Nahins v. Lubnitzki, 822 N.Y.S.2d 425 (Civ. Ct. N.Y. County 2006).
19. See Debevoise & Plimpton v. Candlewood Timber Group, 959 N.Y.S.2d 43 (1st Dep't 2013); Stephanie R. Cooper v. Robert, 950 N.Y.S.2d 494 (Sup. Ct. NY County 2010).
Reprinted with permission from the April 14, 2014 edition of the New York Law Journal © 2014 ALM Media Properties, LLC. All rights reserved.
William T. McCaffery is a partner at L'Abbate, Balkan, Colavita & Contini where he practices legal malpractice defense.
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