Billing Statements: An Essential Client Relations Tool

One of the first cases that I handled after entering private practice was a fee dispute between an attorney and a client (I represented the client).  The attorney had represented the client in a business dispute on an hourly fee basis, a typical fee arrangement.  The fee agreement recited that the attorney would send the client statements for fees and costs incurred on “a periodic basis.”  It also had an “evergreen” retainer provision, a clause that required the client to refresh that advanced fee on request of the attorney.  Despite the language in the fee agreement, the attorney had never sent the client a statement, although he had asked and received advanced fees from the client as provided in the “evergreen” clause.  The matter went to three day jury trial.  They lost.  A few days after the trial, the attorney sent the client the first and only statement generated in the course of representation, asking the client to pay $85,000 in fees and costs incurred for taking the case to trial.

This example leaves most attorneys shaking their heads; what was this attorney thinking?  And while it probably represents the worst of worst case scenarios, similar behavior is not uncommon.  Far too many attorneys, mostly solo practitioners and small firm lawyers treat billing statements as some kind of luxury that they and their clients can’t afford.

The excuses are rampant: “I hated doing timekeeping, it’s a chore.”  “It’s time I could be spending on client matters.”  “The client knew what I was doing, we talk almost every day.”  “I gave the client an oral accounting, isn’t that good enough?”  “We had a flat fee agreement and I didn’t think that I had to provide a statement.”  And on and on.

Lawyers’ hatred of timekeeping is one of the factors in the rush to alternative billing arrangements, such as flat fees or “value billing.”  Yet even in these alternative billing scenarios, the essential ethical duties that lawyers have to communicate and to account to their clients still exist.

California Rule of Professional conduct 4-100(b)(3) provides that an attorney has a duty to “[m]aintain complete records of all funds, securities, and other properties of a client coming into the possession of the member or law firm and render appropriate accounts to the client regarding them.”  Unlike other parts of rule 4-100, this section has been explicitly held by the State Bar Court to apply to a fee paid in advance.  (In the Matter of Fonte (Review Dept. 1994) 2 Cal. State Bar Ct. Rptr. 752, 754.)

Fonte held that the parameters of that accounting are found in Business and Professions Code section 6148(b) which requires that “all bills rendered by an attorney to a client shall clearly state the basis thereof.  Bills for the fee portion of the bill shall include the amount, rate, basis for calculation, or other method of determination of the attorney’s fees and costs,  Bills for the cost and expense portion of the bill shall clearly identify the costs and expenses incurred and the amount of the costs and expenses.”  Strangely, section 6148(c) does not itself impose a duty on an attorney to furnish a billing at any particular time except when requested by the client and then the bill must be furnished within 10 days.  While the statute seems to have been written with hourly fee arrangements in mind, there is no exception for alternative feel arrangements such as flat fees.  The remedy for failing to comply with such a client demand is that the fee agreement is voidable at the option of the client and the attorney is thereafter only entitled to a reasonable fee.  While time spent is not the only factor considered to determine the reasonableness of the fee, it is one of the most important.  (See Cazares v. Saenz (1989) 208 Cal.App.3d 279, 287-89;  see also State Bar Mandatory Fee Arbitration Advisory 1998-03.) 1

The duty to account is also part of the more general duty of an attorney to communicate with the client found both in California Rule of Professional Conduct 3-500 and the Business and Professions Code section 6068(m).  The number one complaint to the State Bar of California is failure to communicate.

Rules of Professional Conduct are floors, not ceilings.  Regular billing statements are an essential tool to let your clients know what you are doing and to manage client expectations.  There is a cost to generating regular billing statements but the cost pales in comparison with the cost of unhappy and surprised clients, the type of clients who are prone to complain to the State Bar.  Bills should be seen as a means of communicating the value of the attorney time to the client and one of the tools an attorney has to avoid client surprises.  Detailed and periodic bills go a long way to securing payment.

– David Cameron Carr

**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**