There are many considerations law firms need to evaluate when faced with high stakes fee petition or law firm litigation.
By Judge Gene D. Cohen (Ret.)
During my two terms as a judge on the Philadelphia Court of Common Pleas, I would often hear the plaintive cries of the lawyers, “Judge, it is not about the money.” I would invariably respond, “It is always about the money.”
There are many considerations law firms need to evaluate when faced with high stakes fee petition or law firm litigation. Law firm litigation almost always brings unwanted public attention to the issues involved. Law firm fee disputes are among the most hotly contested areas of litigation. The reasons are obvious. It is usually about money, with a nod toward reputation, the loss of which, costs money. The differences are primarily in the form the disputes take. However, each dispute comes with its own set of issues. Each dispute presents unique considerations for the attorneys involved and challenges for a mediator to successfully resolve the dispute.
The most common form of these battles follows:
- Referral fee arguments and client poaching arguments among law firms;
- Intra law firm controversies involving departing associates or partners;
- Partner breakups and firm dissolutions;
- Solvent clients and termination of retainer agreements; and
- Resolution of fee petitions after court award of counsel fees.
At the outset, I recommend mediation for the above items one through four before any complaint is even filed. Attempts to resolve a dispute, before involving the court, permits the parties to parse the dispute and offers an opportunity to pursue settlement without the pressure of a case management order. The threat of going public with a lawsuit should be enough impetus to push good faith participants toward resolution. Only when the mediator declares an “impasse” should the parties unleash the dogs of war.
A common thread in all the disputes listed above is a revelation of firm information, which, prior to the dispute, remained private and undisclosed. Firms need to evaluate the impact of public disclosure of sensitive information such as a firm’s billing and operating procedures. The confines of confidentiality in mediation are key to resolving these types disputes with minimal collateral damage. Should the details of the controversy become publicized, clients and potential clients are alerted, potentially damaging law firm brands.
The Inter-Law Firm Fee Dispute Two-Step
Disputes between law firms are largely grievances about referral fee issues. Inter-law firm claims are usually the more civilized category of fee disputes in that they can be resolved in a shorter time period. They require a serious investigation of the dollar division after it is decided a referral fee is due. These are two phase discussions. Phase one decides the question of whether a fee is due; and Phase two, decides how much is due.
When Clients Leave
The less civilized disputes between law firms revolve around clients moving from one firm to another. This problem may be the result of actions of a departing firm employee, or the result of an alleged interference with the lawyer-client relationship of the complaining firm. In many cases, these disputes start with an injunction. With the marked increase in specialized media focused on the legal industry, once an injunction is filed, it is only a matter of time before it is covered by reporters on the “the business of law” beat. Unfortunately, the only way to really resolve these cases is through a mediated settlement, not through the courts. Law firms need to consider the serious risk of filing an injunction to stop alleged bad conduct. Even if you are granted an injunction, the judge hearing the underlying matter will always put the clients’ legal interest first. The best interest of the client should also be your paramount consideration. Keep in mind, no clients are interested in being the subject of news stories about feuding law firms. Chances of avoiding litigation against you from a departing client are increased when you turn to the courts to stop them.
Corporate clients usually have the unfettered right to terminate a retainer with, or without, cause and choose another firm. It is the outstanding account receivable that requires attention. A mediation of these disputes usually revolves around the necessary and reasonable legal services rendered prior to the termination. Allegations of overcharging, and even malpractice sometimes arise in these discussions. Rightly, law firms are reluctant to sue clients for fees because of the probable blow back from either a malpractice or overcharging claim. Client departure lawsuits are undertaken as an absolute last resort. In many of these cases, the amount of fees at issue is such that the law firm cannot easily absorb, or forgive, the outstanding fee and must move to recover it—or face a serious, perhaps, debilitating lost. Here, law firms need to be careful in identifying the right mediator who has a mix of private practice experience as well as a thorough understanding of business of law practice.
When Lawyers Leave
Intra-law firm disputes dealing with a departing partner, or an associate acting in a manner contrary to the protocols of the law firm, are dependent on the law firm’s organizing documents. Employment agreements and the partnership agreements must be thoroughly studied. These disputes also present complicated ethical issues. What can the departing member or associate take in terms of clients? What is owed to the firm or to the departing person? What happens to outstanding accounts receivable from clients who decide to leave? Has the departing person acted ethically? Are bonuses or percentage of recoveries due?
It has been my experience that partnership breakups and dissolutions are the worst issues to litigate and the most difficult to resolve. While partnership agreements dictate the terms of separation, these instruments cannot resolve the sense of betrayal and failure that accompanies the breakup. The successful mediation of these disputes requires a neutral who understands the emotional overlay. In the end, the focus of these disputes should always be returned to the most important dispassionate aspect, the money.
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