invoicing and collecting for your legal services

Invoicing and Collecting for Your Services

March 23

2011 Kai Hecker & Lindsay McNutt

Campbell & Chadwick, PC

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Kai Hecker [email protected] Lindsay McNutt [email protected] CAMPBELL & CHADWICK 4201 SPRING VALLEY ROAD SUITE 1250 DALLAS, TEXAS 75244 972.277.8585

INVOICING & COLLECTING FOR YOUR SERVICES PAGE 1

Most lawyers like getting paid for their services. The following hints, tips, and thoughts are

presented 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. It

also identifies common terms that should be avoided because they violate the Texas Disciplinary

Rules of Professional Conduct or precedent. Finally, there is a discussion of elements to include in

your invoices. Many of the suggested elements are designed to provide the evidentiary support to

expedite 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 to

proceed 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 claim


(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 lawyer


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.


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.


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 for a defending against violations of other Rules. But this point remains untested in Texas.


(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 a


“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.


(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.


(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.


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.


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.


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.


(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 settlement


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.


(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.


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.


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.


(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; or


(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.


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.


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.


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.


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. Gov't 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,


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 http://www.co.collin.tx.us/justices_peace/civil.jsp.

(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.

http://www.co.collin.tx.us/justices_peace/civil.jsp


(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:


(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.


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, 926


(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 plaintiff


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).


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;


(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,


thereby increasing the costs, expenses, and time spent attempting to recovery

unpaid past legal fees.

iv) Current Context:

In an article in Texas Lawyer on February 7, 2011, Pay Up: Factors Firms Should Consider

Before Suing Former Clients Over Unpaid Legal Fees, Texas Lawyer reported on pending

matters in which firms were collecting unpaid legal fees.

In Storm LLP v. Air Measurement Technologies, et.al., 160th District Court, Cause No. DC-

09-11285, Dallas County, Storm LLC is suing for $1M for work the firm did to help its

client win a $72M jury verdict. Paul Storm stated that the firm filed suit because “it was

really a combination of the amount of money, the quality of the result—which we were

a part of—and the lack of a justification for not paying.” After the firm filed suit, the

Defendants filed an answer, alleging that the case was “grossly overbilled.”

In Shamoun & Norman v. Hill, et. al. , 160th District Court, Cause No. DC-10-14714, Dallas

County, the law firm’s fee agreement had a “performance incentive bonus” included for

the firm if a global settlement was below a stated amount (in the fee agreement).

J. Allen Smith, the President of SettlePou stated that his firm “has never sued a client for

fees, in part because such a move could affect his firm’s legal malpractice insurance

premiums.”

invoicing and collecting for your legal services

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