Mediating Fee Disputes Gracefully
Sometimes clients fail to pay or dispute your bill because they are disappointed at the outcome of litigation. Sometimes they fail to pay because, although your work was properly performed, your billing methods are unfair or lack transparency, leaving your client unable to understand the bill, frustrated, and legitimately asking questions. In the worst situations, the work may have fallen below the client’s reasonable expectations or the standard of care and the fee was undeserved. Getting into a fee dispute with a client can be a bit like walking through a minefield. Stepping cautiously may maximize your ability to recover fees due and help you avoid a malpractice claim or State Bar complaint. Both the California State Bar and Contra Costa Mandatory Fee Arbitration Programs provide for mediation as well as arbitration of fee disputes. It may be in your best interests to offer to mediate a fee dispute with the client before resorting to either litigation or mandatory fee arbitration. This article provides a roadmap to mediating fee disputes gracefully.
Initial Response and the Long Range Picture
When a fee dispute arises, your initial response is critical to the outcome. So, think first; don’t just react! First, if you’re still working on one or more matters, you may be able to wait for the conclusion of the matter(s), unless the relationship has become so acrimonious that it has become “unreasonably difficult…to carry out employment effectively,” requiring you to withdraw from representation under California Rules of Professional Conduct, Rule 3-700(C)(1)(d). In a litigation matter, withdrawal may require a motion, which, depending how close the case is to a trial, might be denied if prejudice would result to the client.
Second, determine if you need to report a claim to your professional liability carrier. If you are coming up for your E&O policy renewal, you should report any claim of alleged malpractice before the policy expires. That can increase your premiums or impact coverage, even if your fees are ultimately adjudged fair.
Third, evaluate how the dispute will interfere with your ongoing practice. Fee disputes do not generate income, and instead, generate stress. Moreover, successful law practices depend on relationship building. An unhappy client is a pipeline to other clients, can damage relationships, and no longer is a source of income.
Do You Have a Valid Fee Agreement?
Fourth, determine if you have a valid fee agreement. With very limited exceptions, Business and Professions Code Section 6147, subsections (b) and (c) require you to have a written fee agreement, signed by and delivered to the client. Moreover, if a written agreement fails to comply with the statutory requirements, the agreement is voidable at the option of the client and you may be entitled to only a quantum meruit or “reasonable fee.”
Are your Fees Fair and Accurate?
Fifth, carefully check the bills for accuracy, content, frequency, and overall compliance with Business and Professions Code Sections 6147 and 6148. Areas of concern include charges reflecting associate training, multiple, unnecessary court appearances, “block billing,” vague entries for “research,” meetings or layered staffing. If bills don’t pass the “red face” test, consider writing time off or down, rather than having to explain, justify, or rationalize it.
Be Responsive to the Client’s Concerns
Sixth, respond to the client’s concerns promptly and fully by offering to meet with the client in your offices, making clear that there will be no charge for the meeting. Personally go through the bill with the client; don’t delegate this to staff or junior associates. Listening and watching the client’s “body language,” you will be able to size up the client’s attitude. At the meeting, try to resolve the dispute, but regardless, memorialize the conversation. If the meeting proves unsuccessful, immediately offer formal mediation, either with a private mediator, experienced in mediating fee disputes, or through the Contra Costa Bar Association’s Mandatory Fee Arbitration program, recognizing that if mediation fails, mandatory arbitration is still available, usually without an additional filing fee.
Preparing for the Mediation Session
Seventh, before attending the mediation session, prepare yourself just as you would prepare any client for mediation. Discuss the dispute with other members of the firm. Come up with a consensus about how much you’re willing to give up at the mediation, either as a write-off, or even by way of a refund, if that makes sense and will resolve the dispute, but remain flexible.
Eighth, show up on time. Don’t send a junior lawyer. The mediator, who works for both sides, won’t be impressed by what might look like disrespect to him or her and to the client.
Ninth, if there is a joint session, let the client get it all out. Hear the client politely…without a patronizing half-smile! For clients, “perception is reality.” Look the client in the eyes, whilst not rolling yours, and courteously respond to the client’s concerns, even if you disagree. In private caucus with the mediator, ask yourself if someone else might see the dispute differently. Did you or an associate, working at a lower rate, take an unusually long time on a given task? Can you justify what might appear as an associate’s “learning curve”? Clients don’t want to pay for training! Welcome the mediator’s guidance. You and a mediator experienced in this field, know that the “cost” of legal work is somewhat esoteric, and a write-down or write-off does not equal “lost money” to you, but may show understanding and good faith to a client. Don’t necessarily capitulate; just use common sense, courtesy and “business judgment,” always appreciating the risk of an adverse outcome to you and your firm.
Regardless of the outcome, a gracious attorney will look the client in the eye, shake hands, express regret over the fee dispute, and acknowledge it was an honor to have served as their attorney.