The Unworthy Client, The Problem Client, and Other Client Intake Considerations
It is a commonplace that these are difficult times for lawyers. In such times, lawyers and law firms, of every size, are understandably reluctant to turn down any opportunity to gain a new client, and so may tend to see every potential client as a good one. The reality, however, is that not every prospective client is a worthy client, and many will be problem clients. Moreover, professional liability insurers report that a substantial number of claims against law firms could have been avoided had the firms exercised more diligence before agreeing to certain client representations, either by refusing the engagement altogether or by insisting on certain safeguards in the engagement terms.
That is why every law firm, regardless of size, should have in place a set of screening protocols and intake procedures designed to identify “unworthy clients” and thereby minimize the risk of taking on a problem client. This article offers some suggestions on how to assess whether a potential client might be turn out to be a problem client.
Defining an “Unworthy Client”
Unworthy clients are those clients who fall into one or both of two broad categories. One category includes clients who will get you into trouble by way of disciplinary action, professional liability claims, or third party claims. This category includes the dishonest client, particularly where other people’s money is involved. The second category includes those clients who will not pay your firm’s bills for its services. A client’s ability to pay is a risk management issue because when a firm has to sue a former client to collect an unpaid bill, the result will almost certainly be a malpractice counterclaim. Defending a malpractice claim is a distraction no lawyer needs, and the costs of defense could ultimately cost more than the value of the firm’s collection claim.
Warning Signs of Trouble Ahead
A potential new client who comes to you after firing one or more law firms may be an unworthy client, especially if the client is changing lawyers in the middle of a transaction or litigation. The client who is unsatisfied with the services of one lawyer frequently will be unsatisfied with your services as well. Treat with great caution any prospective client who is unwilling to discuss the reason for changing lawyers or who refuses to give you permission to speak with the prior counsel. Along the same lines: evasive, incomplete, inconsistent or foot-dragging responses to routine information requests, or any other reluctance to answer basic background questions, should raise suspicion, as should a non-existent or dubious referral source. A potential client with a history of suing, or grieving, other lawyers is, as a rule, one to avoid.
Another common problem client is one with unrealistic expectations, especially in the litigation context. This is a client most likely to be disappointed in your services, unhappy with your bills, and/or ready to “blame the messenger” for any unfavorable outcome. Not surprisingly, this is the type of client most likely to file a grievance complaint and/or legal malpractice claim. In order to recognize this species of client, the lawyer must listen carefully in order to be able to assess the client’s expectations, including the client’s perception about the legal system, the courts and the lawyer’s role. At the same time, the lawyer must be careful to avoid offering any opinion or advice that the potential client might interpret as a confirmation of his or her unrealistic expectations. With all clients, and especially with unsophisticated clients, the initial intake should include discussion of both the scope of the anticipated representation – so that both lawyer and client understand exactly what it is that the lawyer undertakes to do for the client – and explanation of any limitations on what the client can expect from the representation.
Most important, you must memorialize any understanding about the scope of the representation in an engagement letter, preferably signed by the client as well as the lawyer.
Be wary of the prospective client who claims to understand the legal process, or who appears to take television lawyers as the model for what lawyers do, or the amount of time it takes to get things done. A client who seeks to use a law firm as an instrument of retribution or vengeance, or who wants to pursue litigation for no purpose other than crushing a competitor, is a client whose goals cannot be achieved except at great expense and therefore one likely to turn his or her animus against the lawyer.
Another type of problem client is the one who shows up when the limitations period on his or her claim is about to expire. The pressure of the ticking clock may leave you with insufficient time to investigate and undertake a comprehensive assessment of the merits of the claim your new client-in-a-hurry wants to pursue. With all new litigation matters, keep in mind that it is usually the lawyer, not the client, who will be the vexatious litigation defendant if proper investigation would have led a reasonable attorney to conclude that the prospective client’s claim lacked any merit. Remember that in any case in which you decline representation with a looming limitations deadline, you should warn the declined client, in writing, that because of a possible limitations issue, he or she should seek new counsel promptly.
Another Red Flag: Dubious Business Management Practices
A client may fall into the unworthy client category if one or more of these descriptions is applicable: a company with unexpected and unexplained resignations of key executives; a company or individual making frequent or dramatic changes in a business model or line of work, or undertaking new business strategies or business activities beyond the present level of experience or expertise (beware the grandiose business plan); a company or individual undertaking a transaction that has no apparent business purpose.
In any matter in which the prospective client will be engaging in a business that involves other people’s money – including, but certainly not limited to, raising start-up money; offering investments; or managing investments – you should not undertake the representation without thoroughly investigating the reputation and background of your prospective client. If the underlying deal turns sour because of the client’s bad conduct, those third parties – the ones whose money is gone – will come after the lawyer, either instead of, or in addition to, the client, with a claim that the lawyer should have recognized that the client was not trustworthy and/or that the lawyer aided and abetted the client’s dishonesty.
Insurance carriers consistently report that among the most catastrophic losses for large and sophisticated firms are those involving firms tagged with “aiding and abetting” liability for having associated with a dishonest client who used the lawyer’s services in furtherance of a dishonest investment scheme.
Not only should you refuse a request that you or your firm vouch for a client’s credit-worthiness or financial wherewithal, you should be reluctant to undertake representation of a potential client who makes such a request. The same is true for any request to use the law firm’s trustee account to park or transfer the prospective client’s money.
Clients Likely to Be Collection Problems
At the very beginning of an attorney-client relationship there may already be signals that the lawyer will have problems collecting the fee from the client. As a general rule, the payment of a retainer deposit, to be applied against the firm’s monthly billing statements, should be a condition of any agreement to undertake a new representation. Indeed, negotiation of the deposit payment can sometimes provide insight into a client’s expectations, or a preview of a future billing dispute. For example, in situations where the initial few months of the representation are likely to incur a heavy investment of law firm time, such as when litigation is under contemplation, the initial retainer deposit payment should be substantial enough to cover the fees and costs of at least the first few months of the representation. A client who balks at such a commitment, or who claims not to be able to afford it, may have unrealistic ideas about the costs of the legal undertaking, or may be signaling that the financial resources to undertake the litigation are lacking.
It always is a wise move to educate a potential client about the cost – in time and money – of the anticipated representation. A client who haggles over the amount of the requested retainer deposit – either because of lack of funds or unwillingness to meet the request – is one who will likely have difficulty keeping current on the law firm’s bills once the retainer deposit is exhausted.
Be careful, however, to note in your engagement letter both: (1) that the firm reserves the right to request additional deposit payments in the future; and (2) that any requested deposit amount is neither the total amount of the client’s payment obligation nor an estimate of the total amount the firm will charge the client for its services.
As noted, one warning sign of a problem client is a history of changing firms. If that history includes leaving any prior firm with an unpaid bill, that client is likely to leave you with an unpaid bill as well. Similarly, in taking on a new matter for an existing client, it is a good practice to assess the client’s payment history with your firm. Where an existing client has a significant unpaid account for an older matter, the law firm should insist that the client pay the outstanding balance in addition to the retainer deposit payment for the new matter.
Finally, a substantial outstanding and overdue receivable can be a sign of a good client who has turned into a problem client. A client who does not pay your firm’s bills, or one consistently delinquent in paying, may be unhappy with the firm’s services. In some situations, the client may have a legitimate concern, and it may be one that the firm can address or remedy with timely action. In others, the unpaid bill will be a reflection of the client’s financial situation, and the best course may be to negotiate a payment plan with the client. Whatever the reason for the unpaid bill, good management practices dictate that the law firm investigate the underlying circumstances, rather than simply hope for the best and risk letting the situation develop into one that cannot be resolved.