Bar News - January 14, 2011
NHBA Ethics Opinion: Collecting Attorney’s Fees – Debt Forgiveness and Reporting to Regulating Agency
The following is an excerpt from NHBA Ethics Committee Opinion # 2010/2011 – 1, approved for publication by the NHBA Board of Governors at its Dec. 16, 2010 meeting. Read the entire opinion.
Attorney met with several members of the board of directors and agreed to provide legal services to an organization. She had a good faith belief that the Board had authority to retain her and obtained a signed fee agreement and retainer.
The work provided by the attorney exceeded the amount of the retainer paid by the organization. When the final bill was presented, an officer of the organization refused to pay the additional amount, stating that the work had not been properly authorized by the organization. Attorney believes this to be an incorrect legal argument. Also, the officer admitted that the work was properly completed, the result was what the members of the board had sought and the organization had benefitted from the work.
The attorney wishes to collect her fee without the need to file a suit. She is aware that filing a fee action often results in a counterclaim for malpractice. Also, she believes her malpractice insurance policy bars her from suing a client for unpaid fees.
In order to enhance her chance of getting paid for her work, she would like to inform the client of her intent to file a Form 1099, indicating a taxable debt forgiveness, with the IRS and also to provide information on the debt forgiveness to the governmental agency that regulates the organization, here the Charitable Trust Division of the Attorney General’s Office.
Questions Presented 1. Whether an attorney who is owed money by a client for services rendered and not paid pursuant to a written fee agreement may write off the account receivable and, without being compelled by federal law, issue a 1099 form to the former client and to the IRS showing forgiveness of the unpaid fees?
2. Whether an attorney who is owed money by a former client for services rendered and not paid for pursuant to a written fee agreement, without being compelled by state law, may report the non-payment of fees to a state agency that regulates the organizational client?
Short Answers 1. It is a violation of Rule 1.9 (Duties to Former Client) and Rule 1.6 (Confidentiality of Information) for an attorney to inform the Internal Revenue Service that the attorney has written off the account receivable and considers that the unpaid legal fees are a debt that has been forgiven.
2. It is a violation of Rule 1.9 (Duties to Former Client) and Rule 1.6 (Confidentiality of Information) for an attorney to inform a regulatory agency that a client owes unpaid fees to the attorney.
It is perhaps not surprising that attorneys are having greater difficulty in collecting on accounts receivable in this time of economic difficulty. Nonetheless, attorneys need to carefully consider the methods they employ in trying to collect these fees.
Members of the NHBA Ethics Committee are available to provide informal advice by phone or e-mail on interpretations of the NH Rules of Professional Conduct. To speak with an Ethics Committee member, contact Denice DeStefano or Rose Anocibar and they will direct you to the appropriate committee member.
It is the bedrock of the attorney-client relationship that the attorney will not reveal information provided during representation of a client, unless expressly or impliedly authorized to do so. The comments to the New Hampshire Rules of Professional Conduct describe the disclosure of client confidences as "an extreme and irrevocable act." Rule 1.6, New Hampshire Comments.
This fiduciary duty to the client continues after the attorney-client relationship has terminated. Rule 1.9. An attorney must maintain as confidential not only information provided by the client, but "…information relating to the representation…" from whatever source, including information generated by the attorney. Billing records, and the fact that the client owes money to the attorney, are confidential information relating to the representation of the client. In a prior opinion, this committee determined that it may be a violation of the attorney’s duty of confidentiality to reveal billing records to a third party auditor in an insurance defense case. See NH Ethics Opinion #2000-01/05….
Conclusion Not being paid by a client is always a frustrating experience. However, in attempting to collect fees from former clients, an attorney may not use or reveal information about a client or use information to the disadvantage of a client, unless permitted by the Rules. The lawyer may use other methods to guarantee payment for work, such as requiring a retainer. Also, should the lawyer seek to collect the fee or be required to defend a suit by the client, she may then use confidential client information as is reasonably necessary. See Rule 1.6, ABA Comment 14.