Collection Proceedings against Clients Often = Malpractice

Ever hear the cruel joke about a thankless client who achieves a wonderful settlement through her attorney’s legal prowess only to terminate the lawyer before the settlement ink is dry? Well, for some unfortunate attorneys it’s a reality. Attorneys in this pickle face the unenviable decision of whether to initiate a collection action against the former client to collect on unpaid legal bills or to sue under a quantum meruit theory. Reportedly, however, fee disputes are at the heart of a significant percentage of all legal malpractice claims. In other words, you may face a malpractice suit if you have the “nerve” to push your former client for payment. What to do? A recent decision from last week provides good news for attorneys in this conundrum.

The Sixth Circuit Court of Appeals recently held that an attorney was entitled to $1.4 million in fees for his role in reaching a $4 million settlement for a former client. The underlying dispute arose from a software-licensing battle. The attorney brokered the workings of a settlement for his client only to be fired shortly before the documents were executed. The attorney placed a lien on the settlement proceeds in an effort to preserve that portion of the resolution representing his agreed upon fee. In turn, the former client sued for legal malpractice. The court dismissed the legal malpractice claim and held that the attorney was entitled to the $1.4 million fee in quantum meruit relief. The decision was upheld on appeal.

This holding is a victory for attorneys, and all professionals, caught between allegiance to former clients, potential malpractice risk, and the right to recover a fee for services rendered. As always, bear in mind the importance of a clear engagement letter that includes a clause defining the obligations of the parties in the event of a termination. Although there is no way to entirely eliminate the risk of non-payment, a strong engagement letter is a great start.