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The Art of Getting Paid

What Happens When Joint Clients Have a Dispute Over the Fees?

Tips on how to resolve conflicts between joint clients about their payment obligations.

By Frederick Hertz  |  February 11, 2016

Assuming you have figured out who is your client—and when you are going to lawfully have more than one person or entity as your client—you will need to move on to the next task: determining which of your clients are obligated to pay the fees.

Fee Arrangements With Joint Clients

Typically there will be joint and several liability, which means each person is responsible for paying the entirety of the fees, and it’s up to them to sort out who pays what portion of the fees. You maintain the right to withdraw from the entire matter if the fees are not paid in full, and you have the right to pursue any of them if you get stiffed.

This is the arrangement that makes most sense when there is a group of clients involved, all of whom have the same interests in the matter. It’s what I arrange when a group of friends are buying real estate together, or when three or four partners in a business are all named as defendants in a lawsuit.

The other approach is where there is an express agreement between joint clients for an allocation of fee obligation and it is made an explicit part of the agreement. In this variant, one client would only be responsible for a certain slice of the obligation, and the others for the rest of the fees. In theory this is allowed, but it can cause all sorts of problems if one party doesn’t meet their obligations. Do you continue representing the others even if you are only paid in part, and do the responsible parties have to increase their share of the fees to cover for their deadbeat partner? If you are considering an arrangement like this, you will want to be sure to spell out these options at the outset.

Then, there are situations when one client is completely absolved of having to pay fees. This may be the case where an insurance company is covering the costs, or when one partner or investor states from the outset that he or she will pay 100% of the fees. Again, this arrangement needs to be made clear in the fee agreement.

Fee Disputes Between Joint Clients

What happens, then, if there’s a dispute between your joint clients about paying for the fees? This can happen when there’s a legitimate dispute about how the matter is being handled, and also can happen simply because one client has run out of funds. The problem for you is that as an attorney for all of these clients, you can’t take an advocacy position of one client over the other. As their shared lawyer you can try to collect the fees that they jointly owe you, but technically speaking you can’t go to bat for one of them, in opposition to another client, as much as you would love to do so.

Art: Joint Clients Fee Dispute

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There are two ways to approach this sticky situation. The first one, and the most common tactic, is to simply engage in an informal conversation with your clients, as their joint attorney.  You shouldn’t take sides, or give any opinions as to who is right from a legal perspective, as that would violate your duties as joint counsel. But so long as you have your clients’ permission, there is nothing wrong in your discussing an issue that is of importance to everyone. Just be careful, as technically you may be straying close to the line (or even a bit over the line) that regulates what you are ethically allowed to do as joint attorney.

The other approach, and for really messy situations it’s my preferred plan, is to have the clients expressly engage you as a mediator for the purpose of resolving the fee allocation dispute. If you’ve gained their respect and are truly feeling neutral, and if you can genuinely put aside your own self-interest and anxiety about not getting paid, you could serve as their mediator for this limited purpose. If this is the path you are going to choose, you must have the clients’ consent to this arrangement in writing. In my experience it is rarely prudent to engage in this sort of discussion if the underlying matter is still ongoing, as your statements in this process can seriously alienate one of more of the clients. But if the primary matter is resolved and payment issue is the only remaining piece to be resolved, you may be uniquely positioned to work with your clients to iron out these difficulties.

One final note here: if the amounts are not great and most of the fees have already been paid, you should always be prepared to walk away from the unpaid portion of your fees. Delving into the murky realms of client disputes about allocation of fees is a very messy business, and even a minor mishandling of the dynamics can result in a nasty complaint against you. So, keep your ears perked to stay alert to potential malpractice or disciplinary complaints, and be prepared to call it quits when big-league trouble looms.

 


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

The art of getting paid

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