When It Comes to Paying Fees, Who Is the Client?
The client is the one who is legally liable for the fees, but that's not the only reason to pay attention to this issue.
“Who is the client?” Much to the surprise—and dismay—of many lawyers, it’s easy to get the answer to this deceptively straightforward question wrong. Challenges on this issue most typically arise when more than one person is involved in the representation, or when multiple legal entities are seeking representation. But it is very important to get clear on this issue:
- it will become critical if there is ever a dispute later on about getting paid;
- it determines who makes the decisions as the matter unfolds; and
- in a broader sense, answering this question is a threshold opportunity for you to demonstrate your skills when it comes to identifying and resolving critical legal issues.
Whenever more than one person is involved in a matter—be it a family business dispute, estate or probate matter, or a real estate partnership—you need to pay close attention to who is actually your client. The client is the one who is legally liable for the fees, and that’s the first reason to pay attention to this issue. But it’s not just a collection issue, as it also determines who should be making the strategic decisions and who is protected by the attorney-client confidentiality rules—and who is not.
Given these ramifications, it’s essential that you clear up any confusion on this matter early on, during the intake process, rather than waiting until the client (or the non-client) comes to your office. Spouses going through divorce often want to bring their new partner or a family member to the meeting, to help them remember what is said and to enable them to make better decisions. That is usually fine with me, though I have to tell the client that if there’s something confidential that needs to be aired, the non-client has to leave the room.
So, who is the client? The basic rules aren’t hard to master. It’s the person who is going to be directly impacted by the outcome of your representation. The client is the one who signs the fee agreement, makes the strategic decisions, and is primarily responsible for paying the bill. This is the person to whom you owe your fiduciary duty, and who has the right to complain if the representation goes awry. If it’s a property or business matter, the client is the one who owns the asset in dispute.
Everyone else is a colleague, friend, or advisor—but not a client. Granted, some degree of flexibility is sometimes called for, especially if there are multiple people involved in a transaction or if there are particular concerns for maintaining the attorney-client confidentiality protection. In these situations, occasionally I include the second person as an additional client, with a written waiver of the potential conflict of interest if appropriate. But I never lose track of who is the primary client. I never agree to deal exclusively with a non-client, even when the actual client asks for this sort of arrangement. So long as the client is competent, he or she needs to be involved.
Complex Legal Entities
But who is the client when you’re dealing with complex legal entities? Dealing with them is often convoluted, especially when less sophisticated clients are involved. Whenever you are working for a trust, corporation, or partnership, you want to be clear about the legal nature of the entity, and take into account that you may want to include the owners as clients as well. Getting the basic information is not always so simple, as your client may not even be clear on how they have structured their business.
If your client is a family trust, find out who the authorized trustee is, and be sure to evaluate whether more than one trustee is involved. If it’s a corporation or partnership, you need to know who is the responsible individual who has the authority to make decisions and incur fees. Sorting this stuff out clearly has ramifications when it comes to decision-making, especially as the individual actors may change places within the partnership or corporation, and there may be conflicts within the organization that put into question who is really in charge. If a lawyer takes direction from someone who doesn’t really have legal authority to make decisions, there can be serious problems down the line.
In routine legal matters, these nuanced aspects of client authority probably won’t cause any problems. But in every multi-entity representation, the issue is going to emerge when it comes to getting paid, especially if the entity ends up going broke.
Ask Questions Early On and Often
Solving these problems isn’t that difficult, so long as you pay attention to the questions early on in the representation. Take the time to ask the key questions about who is who and who are the authorized legal representatives. Get clarity about the legal format of the entity, and be prepared to ask follow-up questions or ask to see the underlying formation documents if your clients are uncertain about the legal arrangements. And then, discuss these details with your client and be sure that the fee agreement sets forth the proper identities.
One last detail: make sure the signature blocks in your fee agreement cover all the identities. If the same person is signing on behalf of the corporate entity and as an individual, she should sign twice, once for each role.
Frederick Hertz, an attorney and mediator based in Oakland, has managed his practice for more than 25 years.
"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.