If appropriate, establish a payment plan (and get it in writing)
If no payment is received, follow-up with a letter
If the account remains unpaid, call again and send a second letter
Consider further collection options
This is a good start. Read the full post here. It includes good tips on setting up a payment plan and a nice discussion on realization rates (how much you actually collect vs. what you bill).
More Steps to Improve Collections
In addition to the recommendations above, follow this 7-step “do” list:
Use written fee agreements. Going without just isn’t an option. A fee agreement offers another claim for relief if you decide to sue (breach of contract), and it’s practically impossible to prevail in fee arbitration without one.
Be consistent – both in the terms of your fee agreement and in your billing practices. It is far easier to stay on top of who owes you what when you follow a consistent pattern. For example – all invoices are payable within 30 days and you reliably bill on the 25th of each month. If you take billing seriously, clients will take billing seriously. Sporadic invoices send a message, but it isn’t a good one, and clients don’t appreciate the sticker shock that comes with pushing March’s billing cycle into April.
Communicate! The onus is on you to ensure that clients truly understand what, when, where, how, and why you bill. Devote time to discussing fees, costs, and billing procedures during the initial client interview.
Carefully monitor accounts receivable (A/R). Run reports each month so you know who is paying on time and who isn’t.
Create a collection procedure you can automatically step into when an account becomes overdue. Follow the list offered by NW Sidebar or create your own. For example, you may prefer to send a reminder billing as your first step. This would consist of rebilling your original invoice – now overdue – and including a reminder note. If payment is not received within 10 days after the reminder is sent, then call the client.
Last week the Oregon State Bar issued OSB Formal Opinion 2017-192, which supersedes OSB Formal Opinion 2005-125. This is the second opinion in the last six months to address the subject of client files.
Opinion 192 provides answers to the following questions:
What is the “client file?”
Is the client entitled to everything? Are there any exceptions?
Do lawyers have the right to retain their own copy of the file?
Is it ethical to charge clients for the cost of duplicating file material?
In what form may the file be produced?
When may a lawyer charge for the cost of locating and segregating file documents?
May a lawyer charge for extracting data from law firm software?
Interesting questions, some of which present issues of first impression. Let’s break it down.
What is the “client file?”
A client file is “the sum total of all documents, records, or information (either in paper or electronic form) that the lawyer maintained in the exercise of professional judgment for use in representing the client.” OSB Formal Opinion 2017-192.
All items that the lawyer obtained from others, including expert opinions, medical or business records, and witness statements
All electronic documents, records, and information that the lawyer maintained for use in the specific client matter, including email, word processing documents on a server, audio files, digital photographs, and text messages
Lawyer’s notes (see below)
Internal memoranda that may constitute “attorney work product.”
This sounds like everything, but it isn’t.
There are seven identified exceptions to producing the entire client file. These are discussed below.
What may a lawyer withhold and when?
Exception 1 – Withholding the entire file – attorney fee liens
A lawyer may have the right to withhold the client file in its entirety if she has a valid attorney fee lien. See Helen Hierschbiel, Difficult Paradigm: Are lien rights absolute? (Whether this is ever a good idea would require another blog post. Suffice to say, if you stand on your statutory right to assert a lien, don’t be surprised when your client files an ethics complaint.)
Exception 2 – confidential information belonging to another client
Lawyers are not obliged to release documents or information to which the client is not entitled. For example, a legal memo or document from a prior case used for reference in the current client file. In fact, releasing such information would be a breach of the former client’s confidentiality.
However, if the lawyer’s reliance on the memo or document is “relevant to a dispute between current lawyer and client,” the lawyer may be obliged to produce a redacted version of the memo or document.
Practice Tip: Pulling memos, documents, or pleadings from one file to use in another is a very common practice, but do yourself a favor. Save this content as non client-specific legal research, templates, or forms to the extent possible. Sanitize and redact once, then save the content to reuse whenever needed.
Exception 3 – lawyer notes or communications relating to the lawyer-client relationship (discipline and malpractice)
Emails and documents showing that the lawyer consulted counsel to explore his exposure to discipline or malpractice liability are “not part of the client file and need not be produced to the client or provided during a change in representation.”
Practice Tip: Always keep a separate file for documents or communications that fit within this exception.
Exception 4 – Documents created for internal use by the lawyer or law firm
Documents “created for internal use primarily for the lawyer’s own purpose” need not be produced to the client. These include:
Internal work assignments
Routine conflicts review
Time and expense records
Practice Tip: Before you whoop and holler over your ability to withhold “time and expense records,” be aware you still have an obligation to provide clients with an accounting of their funds under Oregon PRC 1.15-1(d).
Also, while they may not be part of the “client file” under this opinion that doesn’t mean that you are scot-free. Picture a fee dispute where the time and expense records differ signifcantly or relevantly from your client accounting. Or a legal malpractice claim where the only proof of a key client conversation appears in a time entry, not in your client billings. In either circumstance, it is conceivable that your time and expense records would be discoverable. See Footnote 3 of the opinion which discusses the broader standards that apply under ORCP 36 or FRCP 26.
Exception 5 – Metadata and information contained in law firm software
Electronic documents or information “that could be construed as computer metadata, or which would otherwise be too burdensome and expensive to identify, locate, and produce in a readable or accessible format” need not be produced as part of the client file.
What kind of documents or information could be “too burdensome and expensive to identify, locate and produce” besides metadata? Client data contained in proprietary software, such as a docketing program. Discussion aside, the opinion suggests that “to the extent a summary or report can be created by the software, the lawyer should include that as part of the client file.” Could a client be charged for the cost of extracting or converting data from such a program? No, unless the fee agreement provided differently. See the discussion below.
Practice Tip: Be careful if you rely upon this exception for anything other than metadata or client information contained in proprietary software.
Remember that email and text messages are expressly part of the client file under this opinion. If you don’t have a good system for capturing this type of communication, you should make it your number one priority. I’ve written many times about capturing email as part of the client file. See Part 1 and Part 2 of this article.
If you text frequently with clients, take a long, hard look at Zipwhip. This service enables text messages to be received and sent using your law office’s existing landline or toll-free number. Text conversations can be saved as a PDF document in the client’s folder, which ensures compliance with OSB Formal Opinion 2017-192.
Exception 6 – Substantive prohibitions against delivering legal documents to clients
If substantive law or court order prohibits delivery of documents in whole or in part to a client, the law or order must be obeyed.
Exception 7 – disclosure and lack of objection
The final stated grounds for producing less than the entire client file is based on “appropriate disclosure” and lack of client objection. This makes perfect sense. If the client agrees to accept less than the entire file, it should be the client’s choice.
Practice Tip: If you’re going to rely on “appropriate disclosure” and the lack of an objection on the client’s part to producing the entire file – document it and create a clear trail of what you did provide. This may be important later if the client misremembers what you did or did not produce. (See Footnote 6 to the opinion.)
Could there be other classes of documents or information that may be withheld? Yes. Anything is possible, and the opinion acknowledges this with the following admonition:
“As a general proposition, however, unless there is a valid reason for not providing documents as discussed above, all documents from the client file should be provided.”
Do lawyers have the right to retain their own copy of the file?
“A lawyer has a right to retain a copy of the client file,” no ifs, ands, or buts.
Practice Tip: Occasionally business or corporate clients may pressure lawyers to surrender or destroy their copy of the client file. Point these clients to this opinion. Better yet: address this subject up front in your written engagement letter/fee agreement to avoid hassles later.
Can lawyers charge clients for duplication expenses?
Lawyers cannot charge clients for:
Copies of original documents given to the lawyer by the client
Copies of original documents prepared by the lawyer for the client and held by the lawyer at the client’s request (for example: original wills or trust agreements)
These copies must be made at the lawyer’s expense. This is in keeping with former opinion 125. As to other documents which lawyers may scan or photocopy, presence of a fee agreement is key:
Fee agreement provides for duplication charges
If you were smart enough to cover this ground in your fee agreement, you can bill the client for photocopy and scanning costs. The original document exceptions discussed above still apply. (Mini tip: if you withdraw or the client fires you mid-matter, read Footnote 8. Your right to enforce payment of the cost of duplicating the file may have to yield, temporarily, to the client’s need to have the file for an ongoing legal matter.)
No fee agreement or fee agreement provides client is entitled to copies without separate charge
If you did not reserve the right to separately charge for duplication expenses in your fee agreement, then the client is entitled to one copy, without charge, of any documents not previously provided.
Duplicate copies of documents or information previously sent
In either case, if a client wants duplicate copies of documents or information previously provided, “the lawyer is entitled to charge for those costs.”
Practice Tip: Address the topics of copying documents and charging for duplicates in your fee agreement.
In what form may the file be produced?
OSB Formal Opinion 2017-192 briefly revisits the ground covered by its predecessor: OSB Formal Opinion 2016-191. You’ll recall that opinion 191 spoke to a lawyer’s ethical obligations in keeping or producing an electronic-only copy of a file. To bottom-line it for purposes of Opinion 192, providing clients with an electronic copy of their client file is fine, if they can access it. If they can’t, you are obliged to provide the file in a format “that can be accessed or read by the client.” For some, this may mean producing a paper file. See this post for a complete discussion.
When may a lawyer charge for the cost of locating and segregating file documents?
A lawyer may not charge:
For the cost of locating or segregating documents the lawyer chooses not to produce
A “clearly excessive” or “unreasonable” amount for producing the client file.
A lawyer may charge for the cost of:
Locating and segregating documents the lawyer is prohibited from producing (see the discussion above regarding exception 6).
Locating and segregating documents when the client has requested only certain portions of the file
Reproducing documents or information already made available to the client
Costs associated with production of a file “to the extent the lawyer could have charged the client for the same work if the request had been made during the lawyer-client relationship.” In other words, did you allow for billing the client for such costs as part of your original fee agreement? If yes, and so long as you aren’t passing on the cost of segregating documents you don’t want to produce, you’re golden.
What about the cost of extracting or converting data from law firm software, like a docketing program?
As mentioned above, extracting or converting client data contained in proprietary software may fit the “too burdensome” exception. However, if produced, a lawyer cannot require the client to bear this cost “absent an agreement to the contrary.” Translation: like so many other points, you need to cover this in your fee agreement.
How does all of this square in the event of a legal malpractice action?
That, my friends, is a good question! Up to this point, we’ve only discussed a lawyer’s ethical obligations, not the standard that might apply in discovery should a legal malpractice action occur. If you have concerns about file production in conjunction with a claim or suit brought by a client, contact the Professional Liability Fund.
OSB Formal Opinion 2017-192 is a lot to chew. And as noted above, it is one of two opinions issued in the last six months governing client files. I hope this post has helped, at least a bit. I am planning a CLE in June to address the issues raised by this opinion and its predecessor. Watch my blog for an announcement.
Inform clients of your digital storage practices. Explain how you will provide documents to current clients in the regular course of business and in the event a former client requests a complete copy of his or her file.
Update your fee agreement and engagement letters to reflect your file policies and procedures.
Be prepared to provide clients with a copy of their digital file in a format they can access. [This may mean physically printing the file.]
Establish a retention policy for your digital files.
Use security measures to protect client records.
Take steps to ensure that documents stored electronically cannot be inadvertently modified or destroyed.
Backup, backup, backup!
Review the Professional Liability Fund (PLF) practice aid, Checklist for Imaging Client Files and Disposing of Original Documents. This checklist has since been renamed Checklist for Scanning Client Files. It points out that certain papers should not be discarded after scanning. Examples include any document whose authenticity could be disputed, those with particular legal importance, or documents that only have value or enforceability as a piece of paper. It also admonishes that original client property cannot be destroyed without consent.
See Beverly Michaelis, “Is It Time to Go Paper-Less?” PLF In Brief (February 2009), available on the PLF website.
Did you miss Ethical Trust Accounting in October? Do you have burning IOLTA questions? In desperate need of ethics credits before year-end? I’ve got you covered.
Order the video/audio recordings of Ethical Trust Accounting and download the program materials, polls, and resources. Approved for 2.0 MCLE ethics credits. Watch/listen by year-end to satisfy your MCLE compliance. Order here.
On November 1 you meet with Jane Client. You have a good feeling about Jane and her case. She is definitely someone you want to represent. After the meeting, you send Jane a standard fee agreement/engagement letter. You tell Jane that you will need documents and additional information to proceed. You also explain that Jane must establish a retainer of $2500 before you begin work on her case. On November 3, Jane sends you an email with the required documents. Four days later, she provides the additional information you requested. On November 8 you and Jane speak over the phone. On November 10 Jane sends you a check for $2500.
Clients Like Jane are Tempting…
Jane is a very appealing client. You have good rapport and confidence in her case. She is cooperative, responsive, and paid your retainer. So what’s not to like? If you proceed to represent Jane (or let’s be honest: if you continue representingJane), you do so under substantial risk. How can that be? Let’s explore some of the issues that come to mind:
The Perils of Unsigned Fee Agreements and Engagement Letters
No enforceable written contract. I wouldn’t want to be without one. I’m not saying all hope is lost collection-wise, but you certainly have a far tougher row to hoe without the client’s signature on a written agreement. Fee agreements should always be in writing, countersigned by the client, regardless of the practice area.
No proof of scope of representation. This could lead to several problems: demands by the client that you provide additional, unintended services; liability exposure for unanticipated (but arguably related) services; or inability to withdraw as attorney of record before an agency or tribunal.
Voidable fees in contingent cases. ORS 20.340(1)(a) provides that all contingent fee agreements “shall be written in plain and simple language reasonably believed to be understandable by the plaintiff.” In addition, a model explanation of the contingent fee agreement is required. ORS 20.340(1)(b). “Any contingent fee agreement entered into on or after September 26, 1987, that does not comply with the requirements of subsection (1) of this section is voidable. [Formerly 9.400]”
Ethics complaints related to flat or fixed fees paid in advance. Oregon RPC 1.15 and 1.5, together with Oregon Formal Opinion 2005-151, describe a specific set of conditions for “earned upon receipt fees,” the most basic of which is that such arrangements must be in writing. No exceptions.
Fixing the Problem
Since Jane is otherwise an ideal client it should be easy to pick the phone and have a conversation about the necessity of signing and returning your fee agreement and engagement letter. It is possible she simply overlooked your paperwork. You may also learn that your fee agreement or engagement letter is too long or too complicated.
If you are asking the client to sign an “earned upon receipt” fee agreement after the fact, consult with private ethics counsel or contact OSB General Counsel before proceeding: “Without a clear written agreement between a lawyer and a client that fees paid in advance are earned on receipt, such funds must be considered client property and are, therefore, afforded the protections imposed by Oregon RPC 1.15-1. In re Biggs, 318 Or at 293 (discussing former DR 9-101). If there is a written agreement with the client that complies with the requirements of Oregon RPC 1.5(c)(3), the funds belong to the lawyer and may not be put in the lawyer’s client trust account. If no such agreement exists, the funds must be placed into the trust account and can only be withdrawn as earned. See, e.g., In re Hedges, 313 Or at 623–24; OSB Formal Ethics Op No 2005-149.” OSB Formal Opinion 2005-151.
Going forward, streamline your engagement/fee agreement procedure.
Give the client a heads-up about the importance of signing and returning your agreement/engagement letter during the client meeting. Let the client know to expect the letter, what it will say, and why it must be signed before you can proceed. Encourage clients to call with any questions or concerns.
Consider presenting the fee agreement or engagement letter to the client as part of the client meeting [not my personal favorite, but it is an option] – or – experiment with eSigning. Services like DocuSign are simple, easy, and secure. Another option? A click-wrap agreement.
If you use surface mail, consider enclosing a stamped, self-addressed return envelope). Be sure to include an extra copy of the agreement for the client’s records.
Set a date to follow-up with the client about returning your agreement and enter the follow-up date in your calendaring system. If the agreement is not returned by the date specified, contact the client.
Solicit client feedback about other changes you can make to improve return of signed fee agreements and engagement letters.
Make it Easier for You and the Client
Clients want agreements that are short, simple, and understandable. This presents a challenge because we are tempted to cover every contingency in great detail. Odds are your fee agreement has room for improvement when it comes to use of Plain English, and room to spare when it comes to verbosity.
Consider this option: Instead of devoting a page of your fee agreement to the subject of billing, enclose a separate one page bullet list of “Billing Practices” describing when/where/how you bill. While technically a “cheat” (you just added another page), it will shorten the actual agreement while giving the client the information they need in a more understandable format.
Or if you prefer not to add another physical page, send the client a link to the billing practices section of your website. (Which can be a stand-alone page not visible in your navigation menu.)
This concept – enclosing a bullet list or providing a link to content on your website – can be applied to other issues covered in a typical fee agreement/engagement letter. Using this approach should not jeopardize the viability of your contract or collection of accounts if you use language that incorporates the referenced practices as part of your agreement. Be sure to use effective dates on any enclosures or web pages and retain links to archived firm policies or procedures. If you choose to transition content in this manner, do you own research on enforceability/viability.