Invoicing and Collecting for your Legal Services


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Thoughts and musings on how to get paid for your legal services. THIS IS NOT LEGAL ADVICE. I AM NOT YOUR LAWYER. I WILL NOT BE YOUR LAWYER if you read this. Use at your own risk.

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Invoicing and Collecting for your Legal Services

  1. 1. Invoicing March 23andCollectingfor Your 2011ServicesKai Hecker & Lindsay McNutt Campbell & Chadwick, PCThis is not legal advice. Reading or using this material does not createan attorney-client relationship with or between anyone. Really, I mean it-- we do not represent you.Likewise, we are not practicing law wherever you are – except if you arein Texas where we do a pretty good job. The previous statement is not asolicitation – just an opinion.Rely on this material, if at all, only after consulting with a lawyer.Preferably your lawyer. This material is random thoughts and musingsthat may or (most probably) may not be a good idea to follow. Thesethoughts are Texas specific. Use at your own risk.There are no warranties that this material is fit for anything nor was itdone in a good and workmanlike manner. There are no other Read Thiswarranties – in common law, under the UCC, under Texas law, underfederal law, or under the law of wherever you happen to be reading this.There are no representations either. Use at your own risk. This has notbeen injected into the stream of commerce, just dumped on the Internetfor personal use only. No animals were tested.Everything is disclaimed.We are not responsible.Kai Hecker
  2. 2. Kai Hecker khecker@cllegal.comLindsay McNutt lmcnutt@cllegal.comCAMPBELL & CHADWICK 4201 SPRING VALLEY ROAD  SUITE 1250  DALLAS, TEXAS 75244 972.277.8585
  3. 3. Most lawyers like getting paid for their services. The following hints, tips, and thoughts arepresented as a guide to help get the bills paid when the client does not want to cooperate.The first section – Setting the Stage – focuses on elements to include in your fee agreements. Italso identifies common terms that should be avoided because they violate the Texas DisciplinaryRules of Professional Conduct or precedent. Finally, there is a discussion of elements to include inyour invoices. Many of the suggested elements are designed to provide the evidentiary support toexpedite your subsequent collection efforts.The second section – Starting the Show – provides tactical advice to guide your collection efforts.This section includes a discussion of the various causes of action you can asset, should you elect toproceed to litigation.1) Setting the Stage a) Representation Agreements Called many things: retainer, fee, engagement… i) Lawyer’s agreements with clients are reviewed at a higher standard. When interpreting and enforcing attorney-client fee agreements, it is not enough to simply say that a contract is a contract. There are ethical considerations overlaying the contractual relationship. Hoover Slovachek LLP v. Walton, 206 S.W.3d 557, 561 (Tex.2006). Fees, expenses, and contract terms are always reviewed under the unconscionable standard; i.e., for reasonableness. See DR 1.04(a) and Hoover. ii) Contingent Fee Agreements The purpose of contingency fee contracts is to shift the risk of financial loss regarding the expenses of litigation to the lawyer in exchange for a share of any recovery. The typical contract grants the lawyer a graduated percentage of the client’s recovery as the lawyer’s fee plus repayment of the litigation’s expenses from the client’s portion of the recovery. Levine v. Bayne, Snell & Krause, Ltd., 40 S.W.3d 92, 94 (Tex.2001). (1) Permitted by DR 1.04(d): “A fee may be contingent on the outcome of the matter for which the service is rendered, except in criminal cases.” (2) Must be in writing (3) Must be signed by both parties (Tex. Gov’t Code 82.065(a)) Otherwise, voidable by the client before the contract is fully performed. Tiller v. Zurich Ins. Co., 54 S.W.3d 356 (Tex.App.—Dallas, pet. denied). Left with quantum meruit claimINVOICING & COLLECTING FOR YOUR SERVICES PAGE 1
  4. 4. (4) Must state how the fee is determined and what events, if any, trigger a fee increase. Be very specific – trial: what do you mean? When docketed, when called, at the pre- trial conference (all of the work getting exhibits ready, jury charge, witnesses prepared), at voir dire: clients often think “trial” means after a verdict. (a) Different method for appellate work? (b) Should include notice of assignment/lien: Lawyer retains a lien and a right to recover the contingent fee interest and the incurred expenses from any subsequent recovery received by client whether lawyer withdrew or was terminated. (i) In consideration of lawyer’s services, the client conveys and assigns to attorney and agrees to pay attorney and undivided interest in client’s claims in this representation to the extent of the percentage in paragraph __ that is in effect at the time lawyer is terminated or withdraws. (c) Attorney should provide notice that: (i) Client agrees to authorize any subsequent attorney hired for this matter to share with you any information necessary so that you and the subsequent lawyer can resolve your contingent fee interest. (ii) Upon termination or withdrawal, client agrees to provide you with the name and contact information for any subsequently hired lawyers so that you may inform them of your interest in any subsequent recovery. (5) Must state that litigation and other expenses are deducted from recovery. Must state if contingent fee is calculated before or after expenses are deducted. (a) Best practice: (i) Most lawyers do not provide an accounting of expenses until the settlement statement. Better practice is to periodically provide list of incurred expenses with note to call with questions or concerns. (ii) Even better practice is to proactively warn a client that you are about to incur a significant expense (expert fee), give an estimate of the expense, and provide reason for incurring the expense and the consequences of not incurring the expense. Call with questions. (iii) If the client does call – always create (good) memo to file or (better) letter to client noting date, time, content of conversation, and resolution of issue. Yes this is CYA, but: Almost every legal malpractice case and grievance involves the client being “shocked and outraged” at the expenses incurred. They “never would have continued the case” had they known. All the client sees is that the lawyerINVOICING & COLLECTING FOR YOUR SERVICES PAGE 2
  5. 5. and the fancy experts got paid in full, but they’re left with a $1.25 from the settlement. (b) Paper trail makes defending expenses easier otherwise left defending every expense. Client will always find a cheaper solution (why did you use FedEx when UPS next day is $2.00 cheaper) which looks like you put your convenience ahead of your client’s interest. May ultimately win with the Bar, but not having the paper trail makes it a much longer (=more expensive) proposition. (c) Notice of large upcoming expenses are a good idea for non-contingent fee lawyers too. Incurred expenses are usually reflected on monthly invoices. So periodic notice is not usually required. (6) Should state how statutory attorney’s fee awards and sanction awards affect fee calculation. Elect one of the options in (f) and put the appropriate language into your agreement. Occasionally, the contingency fee lawyer may face an opponent that engages in egregious abuses of the discovery process or otherwise engages in sanctionable conduct. Courts are given broad latitude to impose sanctions for this misconduct, including awarding the aggrieved party their attorney’s fees. Bodnow Corp. v. Cidy of Hondo, 721 S.W.2d 839, 840 (Tex.1986). These awards can be sizeable, if the egregious conduct took place over a long period. However, when awarding attorney’s fees for example as a discovery sanction, courts are not unbound in their discretion. (a) Due process Due process prohibits arbitrary sanction awards. Ford Motor Co. v. Tyson, 943 S.W.2d 527, 534 (Tex.App.—Dallas 1997, orig. proceeding). Arbitrary awards are unrelated to the actual fees and expenses incurred as a result of the prohibited conduct. Id., see also Hanley v. Hanley, 813 S.W.2d 511, 522 (Tex.App.—Dallas 1991, no writ). Awards that are solely punitive are arbitrary. Ford Motor, 943 S.W.2d at 533. Therefore, a sanction award must be compensatory or remedial in nature and it must be tied to an actual loss. Clone Component Distribs. v. State, 819 S.W.2d 593, 597 (Tex.App.—Dallas 1991, no writ). (b) Even plaintiff’s lawyers should keep time, every now and then. These due process requirements mean the contingency fee lawyer, when confronted with a possible recovery of a discovery sanction, should begin recording the time they spend addressing and responding to the misconduct.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 3
  6. 6. Off-the-cuff guesses of the amount of time spent, offered at the sanction hearing, are subject to an arbitrariness challenge. Further, written time entries must be made at or near the time of the event to qualify as a business record. Therefore, a “rough stab” at listing the time spent on discovery abuses, drafted right before the hearing, will be subject to evidentiary challenge. (c) Failure to keep accurate records = lower award The contingency fee lawyer’s failure to keep accurate records could be the reason the court might have to reduce an otherwise significant attorney fee award. (i) Which makes malpractice lawyers happy. Happy malpractice lawyers are bad for you. Further, assuming that this lower award “evens out” in the end, because the lawyer gets a percentage of the total recovery anyway, potentially places the contingency fee lawyer’s financial interests ahead of the client’s, which exposes the lawyer to malpractice and disciplinary claims. (ii) See note about happy malpractice lawyers. (d) Federal courts provide some guidance. The Federal courts have developed a body of case law that addresses the interplay between contingency fee contracts and statutorily mandated attorney’s fee awards. See Johnson v. Georgia Highway Express, Inc., 488 F.2d 714(5th Cir. 1974)(advising the court to scrutinize the lawsuit’s effect on the law. For instance, if the decision corrects across the board discrimination affecting a large class of an employer’s employees the attorney’s fee award should reflect that positive factor in the relief granted). (e) Texas courts provide no guidance. In contrast, Texas state courts have limited guidance on similar positive factors. What guidance there is indicates that it is a contractual matter between the lawyer and the client. Where the issue of how to apportion a sanctions award has not been addressed by contract, the issues can become quite thorny. For example, according to the Restatement of the Law Governing Lawyers Section 125, which focuses on class actions, to the extent there are settlement negotiations with the opposing party the lawyer who is seeking a sanctions award should make a reasonable effort to separate settlement of the substantive claim from the determination of the amount of the attorneys fee sanction. Comment f.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 4
  7. 7. Unfortunately, most contingency fee agreements are silent on the issue of apportioning sanction awards. (f) Options when the contract is silent. The contingency fee lawyer has two options. First, the lawyer may regard the sanction award as part of the client’s total recovery and then take the contingency fee based on the recovery PLUS the sanction award. Second, the lawyer may regard the sanction as pre-payment of his contingency fee and credit the sanction award against his eventual fee recovery. (i) Yes Virginia, you can share these fees with your client. There is an important caveat to this discussion. Many lawyers believe that they are prohibited by the Texas Disciplinary Rules of Professional Conduct from sharing any court awarded fees with their client. On its face, Rule 5.04 states that “a lawyer or law firm shall not share or promise to share legal fees with a non-lawyer.” Basic lawyering tells us that “shall not” equals DO NOT DO. Advanced lawyering tells us that, in most instances, the client is a “non- lawyer.” A sanction order awards the party with a sum-certain for legal fees. Therefore, the obvious conclusion is that the legal fee sanction award must remain with the lawyer. Free money! Comment 3 to Rule 5.04 addresses this situation and it specifically permits the lawyer to share the legal fee sanction award with their client. Comment 3 reads “the division between lawyer and client of the proceeds of a settlement judgment or other award in which both damages and attorney fees have been included does not constitute an improper sharing of legal fees with a non-lawyer.”1 Therefore, the mistaken belief that a lawyer cannot share these fees with their client should not be the lawyer’s justification for keeping the sanction award.1 The caveat to the caveat is that lawyers are sanctioned for violating the disciplinary rules, not the comments. Arguably,comment 3 to Rule 5.04 provides the lawyer with a safe-harbor. Moreover, the comments have been used as the basis fora defending against violations of other Rules. But this point remains untested in Texas.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 5
  8. 8. (g) Consequences when the contract is silent. Electing the first, lump it in and take a higher fee, option arguably exposes the lawyer to a claim that he has taken actions that diminish the client’s recovery and that increases the portion going to the lawyer. If the lawyer pursues the second path – the option preferred by the Federal courts – the lawyer will offset the contingency fee calculated per the fee agreement by the amount of the previously received sanction award. The client will receive more because of the opposing party’s deleterious conduct, while the lawyer receives the contracted amount. Admittedly, this is a hard choice, especially after successfully resolving a highly contentious (significant sanctions were awarded) case. (i) Advice and consent If the lawyer wishes to pursue the first path, one approach is to have the client receive independent advice on and, possibly, provide approval for the allocation and division of the sanction award. If the division cannot be resolved based on advice of independent counsel, then it may be wise to request a decision by an independent third party such as a mediator or the court in which the award was given. See e.g. comment (3) to Rule 1.14 of the Texas Disciplinary Rules of Professional Conduct. (“a lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party”). (ii) Example: The mathematical way this issue can play out is as follows: a client recovers $100 and the court awards $20 in attorney fee sanctions. Under the first option, the lawyer will claim a 40% contingency fee on $120, or $48 in fees. The client will receive $72. Under the second option, the lawyer will claim a 40% contingency on $100, or $40 in fees. The client will receive $60. However, the lawyer has already received $20 in fees as a sanction award. Arguably, he should credit the client $20 for the previously awarded fees. The client would then receive $80. In the second option, the lawyer receives no more than they contracted with the client to receive and the client is compensated for the delay caused by the discovery abuse. (7) Penalty Provisions (a) Almost always unconscionable in a contingent fee agreement Contingent fees due “only when and to the extent the client receives payment.” Hoover at 563 When a penalty is due regardless of outcome it means that the lawyer has taken proprietary interest in client’s case in violation of Rule 1.08(h), which states aINVOICING & COLLECTING FOR YOUR SERVICES PAGE 6
  9. 9. “lawyer shall not acquire proprietary interest in the cause of action” except through a contingent fee under Rule 1.04 (b) Phrases to avoid: (i) Do not include provision that client must pay contingent fees and expenses incurred if the client terminates the representation. Hoover. Already protected by interest in outcome. Mandell & Wright v. Thomas, 441 S.W.2d 841 (Tex. 1969) (ii) Do not include provision that client must pay contingent fees and expenses incurred to the point the attorney is required to withdraw. Twist on Hoover facts – actual language in one of our client’s agreements. No fees earned until recovery, no right to expenses until recovery. Therefore, this provision defeats the reasons for contingent fee agreements and violates Rule 1.08. (iii) Do not charge interest on fees or expenses incurred. Again, this violates Rule 1.08 – you now have a financial stake in the litigation beyond the contingent fee. (iv) If you are going to borrow money to finance the litigation, you should disclose this in the fee agreement because it is a potential conflict between your interests and the clients. DR 1.06(b)(2), DR 1.06, comment 12, and DR 2.01 regarding compromised independence. (v) Likewise, if you are going to try and recover the interest payments as an expense, you should disclose this in the fee agreement. This is very risky and likely violates Rule 1.04, 1.06, 1.08 and 2.01. Technically, this is your cost of doing business, not a litigation expense. The better practice would be to bump up the contingency fee percentage to cover this internal cost. (vi) Do not include provision that client must pay fees and expenses incurred prosecuting the attorney’s withdrawal. Lee v. Daniels & Daniels, 264 S.W.3d 273 (Tex.App.—San Antonio 2008, pet. denied). iii) Fixed/Flat/Other Fee Agreements I’m going to need a retainer… (1) Retainer / Prepayment Provisions (a) Distinction between a retainer and prepayment. “A retainer is not a payment for services. It is an advance fee to secure a lawyer’s services, and remunerate him for the loss of opportunity to accept other employment.” Tex.Comm.on Prof’l Ethics, Op. 431 (1986). (i) Retainers are compensation for the lost opportunity to represent other people (in that community; likely most relevant to smaller legal markets) Opinion 431.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 7
  10. 10. (ii) “If the lawyer can substantiate that other employment will probably be lost by obligating himself to represent the client, then the retainer fee should be deemed earned at the moment it was received.” Opinion 431. (iii) “If a fee is not paid to secure the lawyer’s availability and to compensate him for lost opportunities, then it is a prepayment for services and not a true retainer.” Opinion 431 (b) Most of what we think of as retainers are really prepayment for legal services. Even if labeled non-refundable, these fees are prepayments and not retainers. Cluck v. Commission for Lawyer Discipline, 214 S.W.3d 736 (Tex.App.—Austin 2007, no pet.). (i) They must be deposited into trust account. (ii) They must be refunded at the end of the representation – even if labeled un- refundable. 1. Upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect the client’s interests, such as … refunding any advance payments of fee that has not been earned.” DR 1.15(d) 2. Money that constitutes the prepayment of a fee belongs to the client until the legal services are rendered and must be held in trust. DR 1.14, comment 2. (c) Fees must not be unconscionable, so the retainer must be reasonable. (i) To have a retainer: include in the fee agreement that the payment of X dollars is to compensate the attorney for the lost opportunity to represent [the opposing party] and other persons or entities that have been or that will be involved in litigation with client. (ii) DO NOT use the retainer to offset the client’s future legal fees – this transforms the retainer into a prepayment, that must be refunded if not used. (2) Fee Provisions The agreement should state the lawyer’s fee schedule for time and expenses and the lawyer’s minimum timekeeping unit. (a) A fee agreement should include the charges (e.g. attorney’s rates, paralegal rates, etc.), listed as terms of the agreement to be considered reasonable and just under a suit on sworn account claim. (b) A fee agreement should also include how time is charged, (e.g., in increments of six minutes), listed as a term of the agreement to be considered reasonable and just under a suit on sworn account claim.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 8
  11. 11. (c) A fee agreement should include a due date for paying an invoice. Minimum should be 10 days after receipt. This is keyed to Theft Liability Act. (3) Statutory & Sanction Recovery Provisions To the extent you are not insurance defense counsel, the fee agreement should incorporate similar terms as for the contingency fee agreement: credit or bonus? (a) The Not so Greener Grass for the Insurance Defense Lawyer The insurance defense lawyer has a different ethical quandary when they win a discovery sanction award: who gets the money? The client or the insurance company? What happens when both tell the lawyer to pay up? Further, does the client get his deductible refunded from the sanction award? Curiously, although we have looked for cases throughout Texas which specifically address the issue of who is to recover the sanctions award we have found no case that directly deals with this issue. Similarly, there is very little that we have found in other jurisdictions that is helpful in addressing this question. iv) Common to both (1) The fee agreement should have: (a) Correct name of the client with correct spelling. Necessary for Theft Liability Act notice provision. It is incredibly important to list all persons and individuals who you represent and in a fee agreement. If an individual is guaranteeing services for an entity, the individual needs to sign the fee agreement in his individual capacity and as an authorized representative for the entity. Failure to complete this step may result in problems later if the former client challenges capacity to be sued under the fee agreement. (b) Correct address for client Again, necessary for Theft Liability Act - notice must be sent to address listed in agreement. Include provision for unilaterally updating addresses by modifying an appendix. 1. The address for the client listed in paragraph __ above is true and correct at the time the client signed the agreement. The address of the lawyer listed in this agreement is true and correct at the time this agreement was signed. Client and lawyer acknowledge that these addresses may change during the course of this representation. Therefore, 2. The client shall promptly inform the lawyer of any change in address. 3. The lawyer shall promptly inform the client of any change in address.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 9
  12. 12. 4. Client and lawyer mutually agree that, upon receipt of information indicating a change in address for the client or for the lawyer, the lawyer can update Appendix A to this agreement with the new address. 5. Client agrees that the addresses listed in Appendix A, as periodically revised and updated by lawyer, shall be automatically incorporate into the agreement without the need for further approval and shall fully replace, as appropriate, the client’s address listed in Paragraph __ or the lawyer’s address. The agreement should also contain a notice that the client consents to be contacted at that address, and agrees to accept service at that address unless he notifies the attorney in writing to contact him at another address. 1. Please note that an e-mail address is not sufficient for all contact information, even though many clients now wish to receive invoices by email, because the lawyer may need to send notice by certified mail, return receipt requested under the Texas Theft Liability Act (c) Plan for it all to fall apart… (i) More plaintiff related, but relevant to defense too. Representing multiple parties, mom, dad, kid. 2 years into lawsuit, mom and dad get divorced Mom thinks she’s getting lots of money from lawsuit, so does dad. Mom thinks dad is paying for expenses, dad thinks they’re splitting expenses. Guess who’s fee is held up while this gets worked out? Guess who gets sued when mom learns that her consortium claim is only worth 7% of the total settlement – she was expecting at least 50%? (ii) Therefore: 1. Have separate agreements with each party. a. Almost universal practice to have case signed up as: mom, dad, next friend of kids regarding auto accident. 2. Note the likely basis of recovery for that party in the agreement. a. Dad and kid, injured in accident might recover economic, non-economic, and possibly exemplary damages from this litigation. b. Mom, not present at accident might recovery loss of consortium damages.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 10
  13. 13. 3. Provide assessment of relative value of the claims in each agreement (relative to the other joint clients) a. Based upon my experience, if there is a recovery in this litigation, [the majority, a vast majority, a substantial portion, more than 80%, less than 10%, a small fraction, none] 4. Then have joint representation agreement. It is required that you include a conflict of interest provision if you are representing multiple individuals. You should include a conflict of interest provision in each fee agreement, along with a separate letter agreement with all parties outlining the possible disagreements that may arise and that all parties will sign. Texas Disciplinary Rule 1.07(a) states that a lawyer shall not act as an intermediary between clients unless: a. the lawyer consults with each client concerning the implications of the common representation, including the advantages and the risks involved, and the effect on the attorney-client privileges, and obtains each client’s written consent to the common representation; b. the lawyer reasonably believes that the matter can be resolved without the necessity of contested litigation on terms compatible with the clients’ best interests, that each client will be able to make adequately informed decisions in the matter and that there is little risk of material prejudice to the interests of any of the clients if the contemplated resolution is unsuccessful; and c. the lawyer reasonably believes that the common representation can be undertaken impartially and without improper effect on other responsibilities the lawyer has to any of the clients. 5. If possible, apportion fees and expenses between the clients in writing. (d) Detailed statement of the scope of representation. Be specific. Too often lawyers go broad and generic with their scope of representation: All claims resulting from the accident on 12/1. (i) Really? 1. Even the divorce action that’s predicated upon the financial and emotional stress resulting from the accident? 2. Even the probate action after one of your client’s dies as a result of the injuries sustained in the accident? 3. The SEC investigation and law suit resulting from your agreement to undertake all matters relating to client’s IPO.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 11
  14. 14. 4. The bankruptcy predicated by the loss in all matters relating to the XYZ contract. You won’t know that you were supposed to be representing your client in these other matters until the malpractice case is filed. 1. There is no magic language, sorry. Nothing preventing you from acknowledging that the scope of a case is fuzzy at the beginning and having the client agree to periodically revise the scope of representation as the case matures. 1. Client and lawyer acknowledge that at this early stage of the representation it is difficult to define a detailed scope of representation. Therefore, while client has hired lawyer to handle [claims against individuals or companies that caused or contributed to cause the accident between client and defendants on 12/1/2010] [drafting and filing with the appropriate exchanges and regulatory agencies the paperwork necessary to complete client’s IPO] [enforce a provision of the contract between client and defendant], lawyer will periodically provide in writing for the client’s approval a more detailed scope of representation, which is incorporated into this agreement when signed by client and lawyer. (e) Settlement provisions (i) Do not include language that even hints at trying to limit the client’s authority to accept or deny a settlement offer. DR 1.02(a)(2) “a lawyer shall abide by a client’s decisions whether to accept an offer of settlement of a matter.” (ii) A lawyer may not limit representation in such a way that the client surrenders the right to settle or continue the litigation that the lawyer might otherwise wish to handle differently. DR 1.02, comment 5. (iii) Likewise do not lock in a client’s settlement options. 1. Structured settlements – the attorney must inform the client of the pros and cons of a structured settlement a. “A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.” DR 1.03(b) 2. Do not have language in your agreement that it is “the attorney’s prerogative to pursue cash or structured settlements.” This violates DR 1.06(b)(2) Conflict of Interests, because it places the attorney’s financial interests ahead of the clients.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 12
  15. 15. (iv) The lawyer can include the following: 1. No settlement will be made without the client’s approval, but the client will not unreasonably withhold approval of a settlement. 2. Make sure you explain the pros and cons of the settlement and the possible outcomes of agreeing to it or not agreeing to it. Put this in writing and send it to the client! (f) Outcomes The fee agreement should state: (i) The lawyer does not warrant or guarantee any particular outcome from the representation. (g) Tax notice provisions Unless you are a tax lawyer, the fee agreement should state: (i) The lawyer is not providing the client with tax advice; that the lawyer has made no warranties or guarantees as to tax advice; and that the lawyer is not qualified to provide and has not provided the client with tax or investment advice regarding any recovery by the client related to this representation. The client is encouraged to seek advice from a Certified Public Accountant or a tax attorney regarding any tax matters. (h) Expenses Discussed above, but many clients do not understand the distinction between fees and expenses. It is beneficial to take time to explain the distinction. It is more beneficial to reinforce that discussion with a letter to the client on the same topic. (i) Secondary payer provision Revised Medicare Secondary Payer Act (MSPA) requires notice and reporting to a central database of any claim that involves an individual who received Medicare benefits for their injury. (i) Medicare is entitled to the first dollar of any settlement or recovery to satisfy its lien. You can still negotiate with Medicare over the value of the lien, but they get paid first. (ii) Defense and Plaintiff’s counsel are personally liable to Medicare for double the amount of the lien if the lien is not satisfied as required. Therefore, prudent to include notice in the fee agreement: 1. To the extent that client has incurred medical expenses related to this representation that were paid by Medicare, client acknowledges that the lawyer must resolve any Medicare liens with the client’s settlementINVOICING & COLLECTING FOR YOUR SERVICES PAGE 13
  16. 16. proceeds before disbursing funds to the client. Unless specifically denominated as a litigation expense, the client is responsible for satisfying the liens from their share of the recovery. [if necessary: The presence or absence of a Medicare lien does not alter how contingent fees and expenses are calculated.] (j) Communications From most client’s perspective: only a call from the attorney counts as communication. “The lawyer only talked to me three times.” But the client had 50 conversations with the associate and paralegal…. Therefore, it is prudent to include a statement that (i) The lawyer will communicate with the client using various methods and through various members of the lawyer’s staff. The client acknowledges that they may receive most of their communications from the lawyer’s staff, who is acting on the lawyer’s behalf. (k) Work Performed From most client’s perspective: only the lawyer’s work on the case counts. “The lawyer never worked on the case. He had his associate and paralegal do everything.” Therefore, it is prudent to include a statement that (i) The lawyer may assign work related to this representation to other lawyers and paralegals within the lawyer’s firm as the lawyer deems appropriate. (l) Merger & Severability clauses (i) The agreement should include a merger clause: 1. This agreement constitutes the sole and only agreement of the parties and supersedes any prior understandings or written or oral agreements between the parties regarding this representation. (ii) The agreement should include a severability clause: 1. Invalidity or unenforceability of one or more provisions of this agreement shall not affect any other provision of this agreement. (m) Arbitration clauses A fee agreement can contain an arbitration provision. Personal preference of the lawyer after weighing the pros and cons. However, if the lawyer wishes to include an arbitration provision in his fee agreement, he must verify that the arbitration company exists and is locally available.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 14
  17. 17. (i) Remember that courts evaluate the contractual provisions of a lawyer’s fee agreement using Hoover’s ethical considerations. Is the provision unconscionable / reasonable? 1. Consider the following provision from a fee agreement between a lawyer and his former client: “The parties to this agreement agree that any claim or dispute arising from or related to this agreement shall be settled by Biblically based mediation and, if necessary, legally binding arbitration in accordance with the Rules of Procedure for Christian Conciliation of the Association of Christian Conciliation Services. The parties agree that these methods shall be the sole remedy for any controversy or claim arising out of this agreement and expressly waive their right to file a lawsuit in any civil court against one another for such disputes, except to enforce an arbitration decision.” 2. The problem with this provision is that the Association of Christian Conciliation Services is not available in our local area, nor is it an established program with arbitrators who need special skills or training. The effect of this provision was that the arbitration provision was not enforceable. (ii) Arbitration provisions are not the place to get creative. (iii) Likewise, designate a neutral arbitrator, not your golf buddy. Host of ethical issues with this and it may mean the loss of your license. b) Invoices Relatively straightforward compared to fee agreements. i) Client name must be on the invoice somewhere If you have a joint representation, all of the client’s names should appear somewhere on the invoice. Avoids the situation where one client argues that “they’re not listed on the invoice; therefore, they are not responsible for it.” ii) The invoice should include a reference to the representation This should be in English, not the firm’s matter number. iii) The invoice should include a request that the client pay. Thank you for allowing us to provide you with the indicated legal services for the referenced matter. Please pay this invoice within [whatever number of days you set in the fee agreement]. Linked to Theft Liability Act. Invoice becomes a notice under the Act when sent CM/RRR.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 15
  18. 18. iv) The invoice should include a description of the legal services rendered, the amount of time spent, the billing rate charged, the extended amount, and the amount for any expenses. “For legal services rendered” is not sufficiently detailed to support a rapid recovery in a subsequent collections lawsuit. If this is all that your invoice states, don’t bother trying to collect on it. You will spend far more time and money arguing over what this means than the case is worth.2) Starting the Show a) You’re not getting paid, now what? Most lawyers have been confronted with the situation where a client is not able to or just chooses not to pay their attorney for the legal services rendered. It’s fairly safe to assume that most lawyers expect to get paid for the work they perform for their clients. It’s also fairly safe to assume that most lawyers would rather focus on helping their clients than having to perform work without being paid, have to demand a client work on paying their bill down, or withdraw from representation of the client. The remainder of the presentation focuses on ethical and practical considerations to help lawyers collect unpaid fees from their clients. b) Current client or former client? The first issue is whether or not the lawyer is currently representing the client or seeking payment from a former client. In the first situation, the attorney needs to withdraw from representation once the fee dispute becomes an issue—based on a conflict of interest between the lawyer and client. See Tex. R. Prof’l Conduct 1.06(b)(2)(a lawyer shall not represent a person if the representation of that person reasonably appears to be or become materially adversely limited by the lawyer’s or law firm’s own interests). Disciplinary Rule 1.15 allows a lawyer to withdraw if “the client fails substantially to fulfill an obligation to the lawyer regarding the lawyer’s services, including an obligation to pay the lawyer’s fee as agreed, and has been given reasonable warning that the lawyer will withdraw unless the obligation is fulfilled,” or if “the representation will result in an unreasonable financial burden on the lawyer.” Tex. Disc. R. Prof’l Conduct 1.15(5),(6). In every instance of withdrawal, the lawyer must take all reasonable steps to mitigate the consequences to the client, and the lawyer may retain papers as security for a fee only to the extent permitted by law. Id., cmt. 9.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 16
  19. 19. c) Send a demand letter. The first issue is do you send a homemade demand letter or a government issued letter? i) Are you a debt collector? There are federal and state statutes that apply. (1) Federal Fair Debt Collection Practices Act (a) Who is a debt collector? (i) A debt collector is any person or organization who either: 1. Uses any instrumentality of interstate commerce or the mails in any business whose principal purpose is the collection of any debts; or 2. Regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. 3. 15 U.S.C. §§1602(d), 1692a(6). (b) Who isn’t a debt collector? (i) Those who are not debt collectors include: 1. “any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity concerns a debt originated by the person or organization.” 2. 15 U.S.C. §1692(a)(6) (c) What about lawyers? (i) No longer expressly excluded under the FDCPA. (ii) Helpful guidance: 1. An attorney who engages in collection activities “more than a few times per year” is a debt collector. Crossley v. Lieberman, 868 F.2d 566, 569 (3rd Cir.1989). 2. It is the volume of the attorney’s debt collection efforts that is dispositive, not the percentage of those efforts in the attorney’s practice. See Garrett v. Derbes, 110 F.3d 317, 318 (5th Cir.1997). (iii) Once a debt collector, always a debt collector? 1. No guidance.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 17
  20. 20. (d) What does it mean? Don’t threaten to file suit unless you actually mean it. (i) A debt collector cannot threaten to take action unless the action is lawful and the debt collector intends to take that action. (ii) 15 U.S.C. §1692(e)(4) (2) Texas Debt Collection Practices Act (a) Broader than the federal act. (i) Who is a debt collector? Texas Finance Code Sec. 392.001. DEFINITIONS. In this chapter: (1) "Consumer" means an individual who has a consumer debt. (2) "Consumer debt" means an obligation, or an alleged obligation, primarily for personal, family, or household purposes and arising from a transaction or alleged transaction. (3) "Creditor" means a party, other than a consumer, to a transaction or alleged transaction involving one or more consumers. (5) "Debt collection" means an action, conduct, or practice in collecting, or in soliciting for collection, consumer debts that are due or alleged to be due a creditor. (6) "Debt collector" means a person who directly or indirectly engages in debt collection and includes a person who sells or offers to sell forms represented to be a collection system, device, or scheme intended to be used to collect consumer debts. (7) "Third-party debt collector" means a debt collector, as defined by 15 U.S.C. Section 1692a(6), but does not include an attorney collecting a debt as an attorney on behalf of and in the name of a client unless the attorney has nonattorney employees who: (A) are regularly engaged to solicit debts for collection; orINVOICING & COLLECTING FOR YOUR SERVICES PAGE 18
  21. 21. (B) regularly make contact with debtors for the purpose of collection or adjustment of debts. (b) What did we learn? (i) Creditors collecting on their own consumer debts are debt collectors. This would include attorney’s collecting on their unpaid fees if client is an individual. (ii) Only applies to consumer debts not commercial – if your client is a business, home free. (iii) Attorney’s collecting on a client’s debts are generally not debt collectors unless they have staff focused on debt collection. (c) What does it mean? Don’t threaten to file suit unless you actually mean it. Sec. 392.301. THREATS OR COERCION. (a) In debt collection, a debt collector may not use threats, coercion, or attempts to coerce that employ any of the following practices: [none applicable] (b) Subsection (a) does not prevent a debt collector from: (2) threatening to institute civil lawsuits or other judicial proceedings to collect a consumer debt; or You will be held liable under the Act. Sec. 392.304. FRAUDULENT, DECEPTIVE, OR MISLEADING REPRESENTATIONS. (a) Except as otherwise provided by this section, in debt collection or obtaining information concerning a consumer, a debt collector may not use a fraudulent, deceptive, or misleading representation that employs the following practices: … (19) using any other false representation or deceptive means to collect a debt or obtain information concerning a consumer.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 19
  22. 22. ii) What should your demand letter include? It is fairly easy to comply with federal and state requirements. Therefore, comply. (1) Even if you are not technically a debt collector, complying demonstrates that you “playing by the rules”. Being able to tell the Bar that you’ve been playing by the rules is very helpful in defending any subsequent grievance. (2) Content of a federal demand letter: This law firm is attempting to collect the debt described above. As of [date], the amount owed is [past due amount]. This amount consists of [amount] in principle, [amount] in interest accrued through [date], and [itemize other charges]. The total amount owed this firm is [total amount due, including attorney’s fees referenced below]. Pre-judgment interest continues to accrue on the past-due amount at the maximum rate permitted by Texas law. Demand is now made for payment of the debt. Because of the necessity of having firm lawyers become involved to collect this debt, payment in the additional amount of [amount] as attorney’s fees must also be tendered at this time. Direct your payments to my attention. Additional interest or other charges may accrue on this debt. To obtain a current payoff figure, call [phone number] between [time] and [time], except for weekends or holidays. This letter is my one final demand for payment. Please call me to discuss an amicable resolution to this matter. If your payment is not forthcoming and if no arrangements are made to satisfy the debt within thirty (30) days, I will evaluate and may implement appropriate legal remedies, including but not limited to proceeding with a suit to recover this debt. If suit is filed, I will seek to recover the principal of the debt, additional attorney’s fees and court costs, pre-and post- judgment interest, and any other lawful remedy. I trust, however, that this will not be necessary. Unless, within thirty days after receipt of this letter, you dispute the validity of the debt or any portion of it, I will assume the debt to be valid. If, within thirty days of your receipt of this letter, you notify me in writing that the debt or any portion of it is disputed, I will obtain a verification of the debt or, if the debt is founded on a judgment, a copy of the judgment, and I will mail you a copy of the verification or judgment. You must deal with this situation now. I am attempting to collect a debt and any information obtained will be used for that purpose. Please call me immediately on receipt of this letter so we can discuss an amicable resolution of this matter. Send certified mail, return receipt to address listed in fee agreement.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 20
  23. 23. d) No payment? Arbitrate or Litigate? If your (now) former client does not respond to the demand letter, it is time fish or cut bait. Once the litigation or arbitration process begins, it is very hard to stop. i) Invoke the fee agreement’s arbitration provision. If the lawyer has included an arbitration provision in his fee agreement with the client, the lawyer can begin the arbitration process. ii) Use the local bar’s fee dispute committee (if you have one). Another option if for the lawyer to send the former client information suggesting the client and lawyer settle their dispute through local bar association’s arbitration fee dispute committee. The client will have to file the form to begin the arbitration procedure, but the lawyer could send the client the form and suggest the two engage in arbitration to settle their issues. (1) Collin County Collin County does not have a fee arbitration dispute procedure available at this time. (2) Dallas County The Dallas Bar Association offers a voluntary Fee Arbitration for disputes between clients and lawyers over $500. The arbitration procedure is completely voluntary, and both sides must agree in writing to the arbitration and agree to be bound by the panel’s decision. A panel consists of lawyers licensed for at least five years, and non- lawyers. A party may not withdraw from the panel’s binding decision unless both sides agree to withdraw from the decision. The fee arbitration panel cannot have jurisdiction over the matter if the client has filed a legal malpractice claim or grievance complaint with the State Bar against the former lawyer. (3) Denton County The Denton Bar Association offers a similar program. Information on both bar association’s fee arbitration procedures are available on their bar associations websites. (4) Pros of the bar committee (Per the Dallas Bar Association’s procedures): The advantage of contacting a bar association’s fee arbitration committee is that the cost time and cost to the lawyer is minimal. The parties cannot even engage in discovery before the arbitration committee unless the amount in dispute is greater than $50,000, and then the amount of discovery allowed is “limited.” The client’s petition is forwarded to the lawyer within 5 days, and the lawyer must file a response within 20 days of receiving the arbitration provision. The committee will then set a hearing date, where both sides may present evidence and testimony. The lawyer can expect a decision within 30 days of the hearing. Further, the appeal rights to the panel are quite limited.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 21
  24. 24. The fee arbitration dispute process is also completely confidential, and because of this, the lawyer is ethically allowed to use confidential and privileged attorney/client information in recovery of his unpaid fees. Comment 19 to Texas Disciplinary Rule 1.04 advises that: “[i]f a procedure has been established for resolution of fee disputes, such as arbitration or mediation procedure established by a bar association, the lawyer should conscientiously consider submitting to it.” Tex. R. Disc’l Proc. 1.04, cmt. 19. (5) Cons of the bar committee: A disadvantage of contacting a bar association is that the panel may reduce the fees owed to the lawyer as “unreasonable,” based on a list of factors which mirror the requirement that fees be reasonable under Disciplinary Rule 1.04(b). These factors include: (1) Time and labor required, novelty and difficutly of the questions involved and the skill required to perform the legal service properly; (2) The likelihood … that the acceptance of the particular employment will preclude other employment by the lawyer; (3) The fee customarily charged in the locality for similar legal services; (4) The amount involved and the results obtained; (5) The time limitations imposed by the client or by the circumstances; (6) The nature and length of the professional relationship with the client; (7) The experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) Whether the fee is fixed or contingent on results obtained or uncertainty of collection before the legal services have been rendered. Another disadvantage is that the lawyer will not be entitled to recover any of the time and fees he spends attempting to recover the unpaid legal fees before the arbitration panel. Further, the arbitration panel is not required to fully follow the Texas Rules of Civil Procedure and Texas Rules of Evidence when hearing evidence and testimony from the parties. The bar association also provides the former client information on how to contact the Client Attorney Assistance Program and how to file a grievance against the lawyer with the State Bar. Although a former client is entitled to this information, and it is available on the State Bar’s website, a lawyer with an angry or upset former client may not wish to knowingly just provide this information to the client.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 22
  25. 25. Oftentimes, a client will file a grievance if he is unhappy with the bar association’s result. iii) Pull the litigation trigger. The third option for a lawyer, instead of agreeing to arbitration, is to file suit against his former client to recover the unpaid legal fees. (1) Significant downside: If the lawsuit does not move fast enough, the former client is likely to retain counsel. Texas Rule of Civil Procedure 97a states that “a pleading shall state as a counterclaim any claim within the jurisdiction of the court … which at the time of filing the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party’s claim …” It will not take long for an angry client to ask “can’t I sue the lawyer for something.” It is not that hard to frame a legal malpractice claim that will grind your debt case to a halt with discovery. However, the “within the jurisdiction” is an important requirement that, as discussed below, may transform the malpractice claim into a permissive claim – thereby delaying it (if the client decides to file a malpractice claim at all). (2) Speed is essential. However, if a lawyer could file suit and obtain a judgment for recovery of unpaid fees faster, it may cut off the time under which a former client could file or pursue a counterclaim. (a) Justice/Small Claims Courts One method a lawyer may use to obtain a judgment is to file an action in a justice court. A justice court has subject matter jurisdiction if the amount in controversy is between $200 and $10,000. Tex. Govt Code Ann. § 27.031(a) (Vernon Supp. 2008). If you do decide to file suit in a justice court, please be mindful that there is a difference between justice courts and small claims courts. In a small claims court, the court does not follow the Texas Rules of Civil Procedure and Texas Rules of Evidence, whereas a justice court does. If a lawyer’s unpaid legal fees are less than $10,000, and he files suit in a justice court, the citation will order the defendant to answer suit on or before 10 a.m. the Monday following the expiration of ten days from the receipt of the citation. The difference of ten days to file an answer, versus twenty days to file an answer in district court, means filing in justice court is a faster procedure. The cost to file in a justice court in Collin County is $31.00, plus service costs. If the defendant fails to file an answer timely, the plaintiff can move for a default judgment up until the time an answer is filed. If the defendant answers the suit,INVOICING & COLLECTING FOR YOUR SERVICES PAGE 23
  26. 26. this court will notify both parties by mail of the trial date, and a justice court in Collin County openly declares that it discourages motions for continuance. The procedure in a justice court is different than a district court. If a party has witnesses who will not come to court voluntarily, the party may request, one week prior to trial, that a subpoena be prepared to secure their presence; the cost of a subpoena in Collin County is $60 per subpoena. The legal rules of evidence and rules of civil procedure all apply in justice court lawsuits. Although a justice court formerly required corporations to be represented by counsel, that requirement was eliminated in the last legislative session. See Tex. Gov’t Code Ann. § 27.031. A justice court does issue abstracts of judgment, writs of execution and writs of garnishment to aid in collection of judgments. For information regarding the justice courts in Collin County, please see (i) Pros The benefit in filing in a justice court is that the filing fees are lower, the procedure moves much more quickly, and the court still follows the rules of civil procedure and rules of evidence. Further, justice court decisions are appealable to the county courts at law. (ii) Cons The disadvantage of filing suit in a justice court is that the amount in controversy is limited to $10,000, and a client who is a corporation is required to hire counsel. If a lawyer believes his former client is likely to file a counterclaim for legal malpractice, one argument is that it would be wasteful to first file suit in a justice court, because once the claims in dispute went over $10,000, the court would no longer have jurisdiction and the case would need to be transferred or filed in another court. The counter-argument is that the former client would have more procedural hurdles to jump through, by having to file suit in district court (and pay the filing fee), then arguably move to have the justice court action abated and transferred to the district court. The client could decide not to consolidate the two actions, but would risk not having the malpractice action used as a tool to encourage settlement with his former lawyer. (b) District Court Assuming the lawyer decides to file suit first in district court, the lawyer must then consider the ethical implications of revealing confidential client information and privileged attorney/client communications in the Petition filed with the court, in furtherance of his own interests and adverse to his former client’s interests.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 24
  27. 27. (3) What can you reveal in the litigation process? Disciplinary Rule 1.05 states that a lawyer may reveal confidential information “to the extent reasonably necessary to enforce a claim or establish a defense on behalf of the lawyer in a controversy between the lawyer and the client” and “to establish a defense to a criminal charge, civil claim or disciplinary complaint against the lawyer or the lawyer’s associates based upon conduct involving the client or the representation to the client.” Tex. R. Prof. Conduct 1.05(c),(d). A lawyer may reveal unprivileged client information “when the lawyer reasonably believes it is necessary to do so in order to: […], (ii) defend the lawyer or the lawyers employees or associates against a claim of wrongful conduct, (iii) respond to allegations in any proceeding concerning the lawyer’s representation of the client, or (iv) prove the services rendered to the client, or the reasonable value thereof, or both, in an action against another person or organization responsible for the payment of the fee for the services rendered to the client. Tex. R. Prof. Conduct 1.05(d)(2)(ii)-(iv). This means that a lawyer may state that he represented the former client, may allege facts necessary to support the elements of the claims asserted, and may attach copies of fee agreements and invoices to the petition, if so required. This also means that a lawyer may not allege any and all confidential information learned from his former client to support a claim for unpaid legal fees, because the information must be reasonably necessary to establish a claim to justify disclosure. A lawyer must also be careful to redact privileged attorney client communications reflected in invoices, pursuant to disciplinary rule 1.05(d)(2). (4) Which theories of liability can you or should you assert against your former client? As discussed below, suggests that claims filed under the Texas Theft Liability Act for theft of professional services rendered and for suit on sworn account based on the monthly invoices sent to the former client, can be more easily and quickly resolved at summary judgment because there are fewer and more limited defenses which the former client can assert to avoid payment. Filing claims which fast track a judgment helps prevent defendants from gathering headway on a malpractice claim. A lawyer could even have a traditional motion for summary judgment ready or near ready to file when the suit was filed, to minimize the time for the former client to file a counterclaim. Four theories of liability to assert against a former client for recovery of unpaid legal fees include:INVOICING & COLLECTING FOR YOUR SERVICES PAGE 25
  28. 28. (a) Texas Theft Liability Act (TLA) The Theft Liability Act (TLA), codified in Tex. Civ. Prac. & Rem. Code §§ 134.001- 134.005, imposes civil liability for the crime of theft, when property or services are unlawfully appropriated under the Texas Penal Code. The legislative history shows the statute was passed in 1989 to provide retailers a civil remedy against shoplifters, although the statute’s language is so broad it has been applied in various other circumstances over the years. To prove a TLA claim for theft of legal services, a plaintiff must prove that: (1) the plaintiff was the provider of services; (2) the defendant unlawfully appropriated, secured, or stole the plaintiff’s service under Texas Penal Code § 31.04; (3) the unlawful taking was made with the intent to avoid payment for services; and (4) the plaintiff sustained damages as a result of the theft. Tex. Civ. Prac. & Rem. Code §§ 134.002(2), 134.003, 134.005; See Tex. Pen. Code § 31.04(a). The TLA provides that suit must be brought in the county where the theft occurred, or the county in which the defendant resides. Tex. Civ. Prac. & Rem. Code § 134.004. The plaintiff can be an individual, a partnership, a corporation or professional association created under a statute, an association, or any other group, however organized. The plaintiff must prove that it provided the defendant a service for compensation and that the defendant knew the service was provided only for compensation. Tex. Penal Code § 31.01(6)(C). The plaintiff also must establish that the defendant intended to avoid paying for the service, which can be shown that the defendant intentionally or knowingly secured the performance of a service by agreeing to provide compensation and, after the service was rendered, failed to make payment after receiving notice demanding payment. Tex. Penal Code § 31.04(a)(4). The intent to avoid payment is presumed if the defendant did not make payment under a service agreement within ten days after receiving notice demanding payment. Tex. Penal Code § 31.04(b)(2). The notice must be sent by registered or certified mail with return receipt (or by telegram with report of delivery requested) and addressed to the defendant at the address shown on the service agreement (ie: retainer agreement/engagement letter). Tex. Penal Code § 31.04(c). When proper notice is given, it is presumed the defendant received the notice no later than five days after it was sent. Tex. Penal Code § 31.04(c)-(d). The plaintiff should remember to allege in his petition that all conditions precedent have been performed or occurred.INVOICING & COLLECTING FOR YOUR SERVICES PAGE 26
  29. 29. As damages, a plaintiff may recover his actual damages, statutory damages not to exceed $1,000, and reasonable and necessary attorney’s fees to prosecute a claim under the TLA. The defense to a TLA claim for theft of services is limited to the defendant filing a verified denial in his answer that notice demanding payment was not sent as required under the penal code. (b) Suit on Sworn Account Another option is to file a suit on sworn account, based on the invoices mailed to the client. A suit on sworn account is a claim made under Texas Rule of Civil Procedure 185, and requires the plaintiff to prove: (1) the plaintiff furnished services to the defendant; (2) the prices charged were reasonable and just because they were according to the terms of the contract; (3) the petition contains a systematic record of the transaction; (4) all lawful offsets, payments, and credits have been applied to the account; (5) the account remains unpaid; (6) the damages are liquidated; and (7) the plaintiff filed the petition under oath. Tex. R. Civ. P. 185; see also Whiteside v. Ford Motor Credit Co., 220 S.W.3d 191, 193-94 (Tex.App.—Dallas 2007, no pet.). As noted in element 7, the plaintiff must file an affidavit that the facts in the affidavit are true, that the claim is within the affiant’s personal knowledge, that the claim is just and true, that the account is due, that all just and lawful offsets, payments, and credits have been allowed, and the exact amount that is due. Tex. R. Civ. P. 185; Whiteside v. Ford Motor Credit Co., 220 S.W.3d 191, 193-94 (Tex.App.—Dallas 2007, no pet.). The affidavit should also include a business records affidavit to prove-up the invoices mailed to the client as a sworn account statement maintained by the lawyer. Legal services have been recognized as a type of service to form the basis for a suit on sworn account claim. See Panditi v. Apostle, 180 S.W.3d 924, 925 (Tex.App.—Dallas 2006, no pet.); see Walton v. Cannon, Short & Gaston, P.C., 23 S.W.3d 143, 147 (Tex.App.—El Paso 2000, no pet.). The petition must include an allegation that the charges were just a true, and if a contract governed the transaction, the petition must allege that the charges are according to the terms of the contract. Tex. R. Civ. P. 185; Panditi v. Apostle, 180 S.W.3d 924, 926INVOICING & COLLECTING FOR YOUR SERVICES PAGE 27
  30. 30. (Tex.App.—Dallas 2006, no pet.); Livingston Ford Mercury, Inc. v. Haley, 997 S.W.2d 425, 430 (Tex.App.—Beaumont 1999, no pet.). A suit on sworn account must be brought by and against the parties to the transaction. Tully v. Citibank, 173 S.W.3d 212, 216 (Tex.App.—Texarkana 2005, no pet.). This is an important issue regarding how invoices are created by a lawyer. If the client and or all of the clients are not listed on the invoice, properly, the client can argue it was not a named party to the transaction or sworn account, thereby thwarting the lawyer’s desire to resolve the suit expeditiously. A plaintiff is a suit on sworn account may recover actual damages, pre-judgment and post-judgment interest, and reasonable and necessary attorney’s fees. Tex. Civ. Prac. & Rem. Code § 38.001(7); Walton v. Canon, Short & Gaston, P.C., 23 S.W.3d 143, 152 (Tex.App.—El Paso 2000, no pet.). If, however, the sworn account is based on a contract that provides for liquidated attorney fees, the amount of attorney fees can be established on the pleadings if the file contains proper sworn proof (i.e., if the fee agreement contains a liquidated damages provision, discussed further below, the attorney’s fees may be pled and recovered as part of the petition). A defendant does not need to file a sworn denial to his answer if the plaintiff did not properly plead a suit on sworn account (so attention to detail will be very important when asserting this claim). See Panditi v. Apostle, 180 S.W.3d 924, 927 (Tex.App.—Dallas 2006, no pet.). If the plaintiff properly files a suit on sworn account, the defendant must file a sworn denial that meets the requirements of Texas Rules of Civil Procedure 93(10) and 185, meaning it must include specific denials, or it will be considered a general denial even if it is sworn. Otherwise, a prima facie case will have been established in the plaintiff’s favor. Id. If the defendant does not file a denial in the required form, he cannot dispute the receipt of services or the correctness of the state charges. Vance v. Holloway, 689 S.W.2d 403, 404 (Tex. 1985). Note, however, that if a defendant does not initially file a proper Rule 185 denial, he may amend his answer under Texas Rules of Civil Procedure 63 and 66. See Chaplin v. Chaplin, Inc. v. Texas Sand & Gravel Co., 844 S.W.2d 664, 665 (Tex. 1992). A defendant’s answer can specifically deny that the account is not just and true, the account is not due, or that the offsets, payments and credits have not been properly applied to the account. If the plaintiff files a proper Rule 185 petition and the defendant does not file a sworn account, the plaintiff’s petition establishes his prima facie right to recovery, which is generally resolved by a motion for summary judgment. See Panditi v. Apostle, 180 S.W.3d 924, 927 (Tex.App.—Dallas 2006, no pet.)(court granted summary judgment for plaintiff because defendant did not file a sworn denial). If however, the defendant files a proper Rule 185 answer, the plaintiffINVOICING & COLLECTING FOR YOUR SERVICES PAGE 28
  31. 31. will be forced to proves his claim in a trial before a judge or jury. See Rizk v. Financial Guardian Ins. Agency, Inc., 584 S.W.2d 860, 862 (Tex. 1979). Realistically, though, if a defendant files a proper answer, the plaintiff can engage in requests for admissions and interrogatory requests in an attempt to limit the facts and issues in dispute. These written discovery requests will likely be much less time consuming, and the plaintiff/lawyer may still be able to move for summary judgment based on the defendant’s written responses and admissions. (c) Breach of Contract Claim To file suit against a former client for breach of contract, a plaintiff must prove that: (1) there is an enforceable contract (including an offer, an acceptance, mutual assent, execution and delivery of the contract with the intent that it be mutual and binding, and consideration supporting the contract); (2) the plaintiff is a proper party to sue for breach of the contract (e.g., the plaintiff was a party to the contract); (3) the plaintiff fully or substantially performed; (4) the defendant breached the contract; and (5) the defendant’s breach caused the plaintiff’s injury. See Hackberry Creek Country Club, Inc. v. Hackberry Creek Homes Owners Ass’n, 205 S.W.3d 46, 55 (Tex.App.—Dallas 2006, pet. denied); Zuniga v. Wooster Ladder Co., 119 S.W.3d 856, 862 (Tex.App.—San Antonio 2003, no pet.). A “breach” means the failure, without legal excuse, to perform a promise that forms all or part of an agreement, the refusal to recognize the existence of an agreement, or the doing of something inconsistent with its existence. DeSantis v. Wackenhut Corp. 732 S.W.2d 29, 34 (Tex.App.—Houston [14th Dist.] 1987), rev’d in part on other grounds, 793 S.W.2d 670 (Tex. 1990). Under a breach of contract action, the plaintiff is entitled to recover actual damages, liquidated damages (set out in the contract prior to a breach), interest, court costs and reasonable and necessary attorney’s fees available under Texas Civil Practice & Remedies Code § 38.01 or attorney’s fees under the terms of the contract. A contract for professional services creates a duty that the professional exercise the degree of care, skill and competence that reasonably competent members of the profession would exercise under similar circumstances, and the scope of the professional’s duty is determined by the contract. Dukes v. Philip Johnson/Alan Ritchie Architects, P.C., 252 S.W.3d 586, 594-95 (Tex.App.—Fort Worth, 2008, pet. denied).INVOICING & COLLECTING FOR YOUR SERVICES PAGE 29
  32. 32. The defenses available to a defendant include, among other things, the affirmative defense of fraud, and the affirmative defense that the fees and expenses charged by the attorney are not reasonable and just. See Tex. R. Civ. P. 94; see Texas Farmers Inc. Co. v. Murphy, 996 S.W.2d 873, 879 (Tex. 1999). The former client can also assert that it cannot be liable in the capacity charged if the fee agreement does not state the business and individual, not only whom the lawyer represented, but also who guaranteed the payment. The former client can assert that it was not listed as the named person or entity on the invoices it received, and therefore the person or individual not named is not obligated to pay the attorney for attorney’s fees and costs incurred. Many former clients will also allege that a former attorney violated a disciplinary rule (such as loyalty, conflict of interest, etc.) to allege that the contract cannot be enforced as a matter of public policy. This claim was not listed to relive your contract course in law school, but to show that a breach of contract claim has many fact issues which can be easily disputed by a former client to avoid a traditional motion for summary judgment early on in a lawsuit (e.g., that the contract was enforceable, that the lawyer performed, that the client was not excused from performance, etc.). The result is that the lawyer will have to engage in discovery to have the former client not only admit he signed the fee agreement, but the lawyer will also have to “defend” his representation to refute the client’s alleged affirmative defenses. As lawyers know, engaging in prolonged litigation is costly, time consuming, and personally taxing on the lawyer and his firm. (d) Quantum Meruit Claim A claim for quantum meruit is similar to a breach of contract claim, and usually pled in the alternative. Quantum meruit is an equitable theory of recovery intended to prevent unjust enrichment when there is an implied agreement to pay for benefits received. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 740 (Tex. 2005). Quantum meruit does not arise from a contract, but is independent of it; a claim for quantum meruit cannot be brought when an express contract covers the services provided. Vortt Expl. Co. v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944 (Tex. 1990); In re Kellogg Brown & Root, 166 S.W.3d at 740. In a claim for quantum meruit, a plaintiff must prove: (1) the plaintiff provided valuable services (e.g. legal services and representation); (2) the services were provided for the defendant;INVOICING & COLLECTING FOR YOUR SERVICES PAGE 30
  33. 33. (3) the defendant accepted the services; and (4) the defendant had reasonable notice that the plaintiff expected compensation for the services. Excess Underwriters at Lloyd’s v. Frank’s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42, 49 (Tex. 2008); Heldenfels Bros. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992). In an action for quantum meruit, the plaintiff is entitled to recover actual damages, pre-judgment and post-judgment interest, court costs and attorney’s fees. LTS Group v. Woodcrest Capital, L.L.C., 222 S.W.3d 918, 920- 21 (Tex.App.—Dalas 2007, no pet.); Black Lake Pipe Line Co. v. Union Constr. Co., 538 S.W.2d 80, 96 (Tex. 1976), overruled on other grounds, Sterner v. Marathon Oil Co., 767 S.W.2d 686 (Tex. 1989); Tex. Fin. Code § 304.001; Tex. Civ. & Prac. Rem. Code § 38.001. The disadvantage of a claim for quantum meruit, as in a claim for breach of contract, is that it requires the lawyer to engage in discovery to prove his claim and refute the former client’s affirmative defenses before establishing there is no issue of undisputed fact to be granted a traditional motion for summary judgment. To avoid a claim for quantum meruit, a defendant may plead there was a valid express contract with the defendant covering the services provided. Truly v. Austin, 744 S.W.2d 934, 936 (Tex. 1988)(when there is a valid express contract covering the subject matter, there can be no implied contract). However, a plaintiff can recover in quantum meruit despite an express contract if the plaintiff has partially performed some, but not all, of the essential elements under the contract (e.g., provided legal services but could not perform in full due to the defendant’s actions). Truly, 722 S.W.2d at 936-37. A defendant can also assert the affirmative defense of unclean hands, which typically is asserted as a breach of a duty to the client in violation of a disciplinary rule (e.g. conflict of interest, breach of loyalty to a client, the lawyer was more concerned with recovering fees, all fees asserted were not reasonable and just). See Breaux v. Allied Bank, 669 S.W.2d 599, 604 (Tex.App.—Houston [14th Dist.] 1985, writ ref’d n.r.e.)(attorney could not recover fees from incapacitated client because she knew client was under guardianship). The defendant can also assert the defense of offset, by pleading that the services provided were defective and the defendant is entitled to offset any recovery by the amount necessary to correct the defects. See Beeman v. Worrell, 612 S.W.2d 953, 956 (Tex.App.—Dallas, 1981, no writ.). All of these defenses will make it incredibly difficult for a lawyer to file and be granted summary judgment, because the issues and amounts in dispute will create a fact issue for the court to deny summary judgment for the lawyer,INVOICING & COLLECTING FOR YOUR SERVICES PAGE 31