Slower Collections Test Boundaries of Attorney-Client Relationships
March 1, 2024
Law.com
Types : In the News
Prominent law firms are finding themselves adverse to former clients in unpaid fee litigation as collection cycles lengthen, but not every dispute is worth litigating.
If there’s one quality law firms tout above all others, it’s dedication to clients. During a time of financial hardship, this dedication can apply to flexibility around client payments.
Yet, there’s financial risk in dedicating significant resources to a matter without the guarantee of compensation, as lawyers at New York-based litigation firm Kasowitz Benson Torres will tell you.
In New York Supreme Court, Kasowitz has sued clients for more than $4.5 million in allegedly unpaid fees since the beginning of 2023, according to Law.com’s review of court records.
In one case, Philadelphia-based firm Montgomery McCracken Walker & Rhoads sued Michael Handley, CEO of Statera Biopharma Inc., for allegedly failing to pay $143,083.30 for the firm’s successful defense against a shareholder suit alleging RICO and securities fraud. Filed Feb. 1, the case is playing out in the Eastern District of Pennsylvania.
Exhibits in the case suggest Handley paid the firm some but not all of the money owed. A $2,849 retainer balance from another matter was applied to a total amount of $145,932.30, according to emails disclosed in exhibits.
Handley did not respond to a request for comment. David Dormont, the Montgomery McCracken lawyer prosecuting the case on his firm’s behalf, did not return a request for comment on the case.
There’s reputational risk to a firm of being seen as litigious by prospective clients, which should be weighed against the recoverable amount, said Steven Pachman, managing partner of Montgomery McCracken. (Pachman declined to comment on the Handley case.)
“I would apply a balancing test, including what the strength of the case would be,” Pachman said. “If the strength of the case is high and the dollars are substantial enough, you might have no choice but to pursue litigation. When you apply the balancing test I apply as a manager, you have to focus on the amount of time expenditure of a litigation.”
When engaging a new client with no prior track record at the firm, Pachman said he asks for an upfront fee based on how long the engagement is expected to last and cost, though he added it can be awkward to ask for a significant retainer.