Law firms don't often go into a client representation expecting a fee dispute. But with clients scrutinizing their legal spend more than ever, it's worth thinking about at the start.

Take Bill Cosby. Even as he just hired new lawyers to fight his criminal assault conviction, Cosby's former counsel, Philadelphia-based law firm Schnader Harrison Segal & Lewis, has sued him over $282,000 in unpaid legal fees. (Cosby's lawyers and Schnader Harrison did not respond to requests for comment.)

The root of cases like these is often simple, said Dawn Sheiker, director of client relations at Morris James, a midsize firm in Delaware. “It most often happens when [there is] some misalignment of expectations,” she said.

It's become more of an issue post-recession, Sheiker said, especially with business clients as they started to watch their legal spend more carefully. Roles like hers, which have become more common at law firms, focus in part on managing those expectations from the outset, she said.

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Setting the Stage

Client intake policies vary based on the firm, said Philadelphia-area legal recruiter Frank D'Amore. Some will require a retainer, the size and terms of which can vary greatly.

“You can do things like that to protect the firm from really getting burned,” he said.

That could be a traditional retainer fee, which goes toward the client's bills as the case proceeds. Or for further assurance, a firm could ask for an “evergreen deposit,” which remains in place while the client continues to pay fees on a regular basis, said Marcy Tench Stovall, a professional liability lawyer at Pullman & Comley in Connecticut. That's analogous to a landlord requiring first- and last-month's rent to enter a lease, she said.

According to Schnader Harrison's complaint, the firm proposed a $300,000 retainer to Cosby. While he paid some fees early on, it appears that retainer fee did not come to fruition.

Law firms may also take time at the start of a representation to evaluate a case before jumping into litigation, Sheiker said. Sometimes, that results in telling a client early that settlement is the best option.

In turn, that can make for a lower bill in total, she noted. “But it's our ethical obligation to the client … and it's good business.”

It can also make for some difficult conversations at the start of an engagement, Sheiker said, if the evaluation leads to an estimate of high-cost litigation. But that's preferable to the alternative, she suggested.

“It's better to have clients at the front end be a little sticker-shocked and think through how they want to proceed … than to get down the road, do a lot of work on the case … then get stuck with fees out there,” she said.

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Looking for Red Flags

There's a due diligence side of it too, D'Amore said, assessing not just conflicts, but a potential client's ability to pay. It's smart to check that a client has not been sued before for failing to pay legal bills, he said.

Stovall said it can also be a warning sign if a client is on their second or third lawyer in a matter, and still owes money to its former counsel.

“If you have a new client from the very beginning of the representation that resists paying the requested retainer amount … that may be a sign that getting payment may be difficult,” she added.

All of that can be a bit trickier when dealing with an individual client rather than a business, D'Amore noted. It's more difficult to probe their financial standing—though with famous or high-profile individuals, some assumptions can be made based on public or reported information.  

Still, not all clients who are unable to pay the regular rate should be turned away, D'Amore said. For instance, a startup company seeking discount representation may be able to pay more once its business is established. Or a well-known client and high-profile representation could make for good publicity.

“Sometimes you'll take a client on because it's a loss leader,” D'Amore said. “That can be the case with celebrity representations.”

But it's better to decide early on that the firm will represent the client pro bono, if that's the case, he noted.

Stovall also recommended checking in with the client regularly throughout litigation about fees.

“People become resistant to paying their bills because it turns out to be a lot more expensive than they anticipated,” she said. ”At every point at which the law firm sees a milestone in the litigation … it's very important to always make sure the client has realistic expectations and a realistic understanding of what the costs are going forward.”

And well before trial is set to begin, perhaps six months out, she suggested, a law firm should advise its client that unless invoices are up to date, the firm will have to move to withdraw.

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Best to Think Ahead

Still, with a litigation client, particularly in criminal defense, firms may be unable to withdraw representation, particularly if trial is near. And that can lead to a situation where the law firm can't recover its fees until after the fact.

“It used to be that firms were loathe to sue clients,” D'Amore said. “Firms still are very careful in that regard, but I think if you look at the number of times firm will sue for fees, I think it's gone up. Firms are being run more like businesses.”

But the risk there is that the client will file a counterclaim, he noted, and that can bring even greater financial risk than an unpaid receivable.

Stovall agreed. Unless a firm is owed “an astronomical amount of money,” and knows for sure there's no basis for a malpractice claim, she said, “I generally think it's a mistake to sue the client.”

“The best way to get your clients to pay is to not get into a situation where they have a large receivable,” she said.

Still, D'Amore noted, “sometimes it's just a roll of the dice.”

“There are a fair number of times you do a number of things right,” he said, “and you still get burned.”

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