CLcom run of site - run of site

The Art of Getting Paid

What To Do When the Retainer Is Depleted

Making the right decision requires balancing uncertain risks and benefits.

By Frederick Hertz  |  January 12, 2016

I’ve been sending out bills to clients for more than 25 years, and my nonpayment rate is well below 1%. That’s the good news. But it shouldn’t be a surprise to any of you that some of my most distressing encounters with nonpaying clients involved depleted retainers.

Art: Retainer Depleted

MCarper/Shutterstock

You probably have experienced something quite similar: the client commences the professional relationship with you with enthusiasm and confidence, and for a while, the two of you are marching forward with a shared goal and a synchronized strategy. Then, over time, the path gets a bit thorny. Maybe it’s because the facts of your case don’t play out the way your client led you to believe they would. Maybe it’s because a lengthy negotiation process unravels due to unreasonable conduct of the other party. Or maybe it’s a result of completely extraneous events, such as your client’s loss of a job, a nasty romantic breakup, or a serious medical challenge faced by your client or someone in his or her family. In any event, you’re still working for your client but you aren’t getting paid.

Slippery Slope of Unpaid Bills

Even getting a credit card number with your client’s authorization for payment won’t help if the card is maxed out or it’s a debit card with nothing in the account to fund it. The slippery slope begins with a short delay in payment, usually accompanied by a genuine promise to pay in full “very, very soon.” Then, the resolution of the matter gets delayed, your client’s temporary problems turn out to be not so temporary, and the unpaid bills mount. What started out as $1,000 in arrears grows to $5,000 and then $10,000.

Every day you wonder, should you stay on the job despite the financial uncertainties or should you cut the cord and minimize your losses? These are some of the most difficult judgment calls you will be asked to make in the management of your legal business. Making the right decision after a retainer is depleted is not a matter of scientific or mathematical discernment, but rather, a balancing of uncertain risks and benefits.

Ask the Tough Questions

The first component in your decision-making should be whether you think there is going to be payment later on, or even a partial payment. That requires some honest discussion with your clients. There’s no benefit in getting incorrect information from your client, so make sure you create an open atmosphere that allows for the truth to emerge from the thickets of their anxiety. Then, you want to realistically evaluate the projection of the legal tasks yet to be done, so that you know how much legal time is involved in going forward—and how much in additional fees you are likely going to eat.

Next, you need to engage in a bit of self-reflection: is this matter something you are willing to devote more time to, even though you might not get paid in the long run? This client’s matter is probably not what you had in mind for a pro bono case, but now that you are in the muck of this unpleasant experience, you need to consider whether it might make sense to adopt it in that framework. If you are the attorney of record in ongoing litigation, you also need to analyze whether (and when) the judge is going to let you out of the case, if the client refuses to substitute you out and proceed in pro per.

Get Creative With Solutions

Usually it’s not a simple matter of yes or no, in or out. Rather, you may need to customize your strategy and come up with some new plans, using a combination of actions that minimize the risk and maximize the chance of a positive outcome. This is something I faced early on in my solo litigation practice. As I came to the conclusion that a client was not being honest with me in several crucial aspects of her case, she revealed to me that she could no longer afford to pay for the ongoing litigation—the supposed “replenishing retainer” she had sent to me had gone dry and wasn’t going to be “watered” anytime soon. It was one of my darkest professional moments.

I suggested that we meet for a “big picture” discussion, and I tried to gently explain to her some of the problems we were having with her case in a respectful but realistic tone. I also explained that I could not afford to continue on without receiving some payment from her, and thus I was not willing to represent her going forward. At the same time, I was seriously worried that the judge might not let me out of the litigation if she challenged a motion for me to be relieved as counsel, given the close proximity to a trial date.

Luckily, I came up with a solution that worked for both of us. I suggested that she continue on with the case as her own advocate, which was a viable option given her intelligence and tenacity, but at the same time, I offered to remain available to her as a consultant at no cost to her. She immediately embraced the suggestion, signed the substitution form, proceeded to trial—and lost. She called me from time to time to ask some procedural questions, which I was happy to answer, knowing how much better this was than spending a week without payment, representing her in what seemed to me to be a futile trial. In the end, I capped my losses at about $3,500, and brought the representation to a conclusion with respect and cordiality.

Learn From Your Mistakes

Not every such situation will be resolved with such an elegant outcome. But what counts is that you stay attentive to the situation openly, face the complex dynamics in a realistic manner, and make the best decision you can in an admittedly difficult situation. And, along the way, pay close attention to what went wrong and what warning signals you missed earlier on.

You might not ever get paid on the outstanding bills for this one particular client, but if you stay attuned to the bleak realities and learn some lessons in how to avoid a repeat of this negative experience with your next challenging client, your financial loss will be an educational gain that will have lasting benefits for you.

 


Frederick Hertz, an attorney and mediator based in Oakland, has managed his practice for more than 25 years.

The art of getting paid

"The Art of Getting Paid" is a one-year series of blog posts that provides a comprehensive training to lawyers on how to get paid.

We welcome your questions and comments – and of course, your suggestions on how to master this insufficiently respected aspect of practicing law.

Next:
When It Comes to Paying Fees, Who Is the Client?

Previous:
Retainer Deposit and Use: Addressing State Bar Concerns

View the full series »

Reader Comments

We welcome your comments!

Your name and email address are required (your email address will not be published)

Back to Top   ↑
© 2017 Daily Journal Corporation