I don't know about the rest of you, but my sense of things is that the credit crunch is starting to have a real and tangible impact on the ability of ordinary American to pay for legal services. My sense is that the next year will be more difficult than ever. My fear is that the bar is not ready.
Before the real estate balloon popped and the banks withdrew easy credit from the reach of most folks, the decision to hire a lawyer, though painful, was not impossible. For high-end needs, clients could turn to an equity line. Those with less expensive woes could resort to a credit card. These days most folks have little or no credit, leaving them in the lurch when a loved one is arrested or they need representation in a civil suit.
Most lawyers do not like to talk about the market for legal services. To state that clients are slow to pay, or cannot pay, is seen as a weakness. We all want to project strength and invulnerability no matter what the prevailing economic winds. But I am hearing a lot of chatter in the courthouses around the state about clients and the lack of money. I am also seeing firsthand the impact of the credit crunch on folks who turn to me for services.
It wasn't always this tight. For years, I was proud of my ability to ignore the bottom line on a case-by-case basis. If one client could not complete payment of his fee, the loss was written off. This is a profession, after all. We are obliged to give our services to those in need. So long as most folks can pay, there's no harm in losing money on a case. That's simply the way of the world.
But what do you do when most of your clients cannot pay their bills? What do lawyers do when their creditors refuse to take a forgiving view of debt? Plenty of lawyers around the state are finding out: A firm under stress reduces expenses, resorts to layoffs, runs through such credit as it has. Some firms fail.
We have a client security fund in the state to protect the interest of clients when a firm fails. But why isn't their a law firm security fund? Lawyers are on the front line of providing legal services. There ought to be a lifeline to which they can turn in distress. When lawyers fail clients suffer.
Instead, it seems that bar regulators have turned on lawyers in the name of informed consent, the current rage among those making rules the rest of us must live by. The informed consent regime requires that a client be consulted on all manner of things that used to be a lawyer's prerogative. Pity the poor lawyer who exercises too much independent judgment.
I was reminded of this the other day reading a disciplinary decision by the District of Columbia Court of Appeals. The case involve flat fees charged in a criminal case by a small firm lawyer. He charges $7,500 for preliminary work in a criminal case. The client's father got impatient and fired the lawyer. The lawyer was slow to make a refund of the unearned portion of the fee because he had spent the money when it walked in the door. The client's father filed a grievance.
The D.C. Court of Appeals ruled, among other things, that the unearned portion of a fee must be held in escrow until it is earned. This ruling is a departure from the practice of almost every small firm engaged in the practice of criminal law.
The ruling is intended to protect the interests of the client, assuring that refund money is readily available when requested. But the ruling troubles me in that its sense of equity runs one way and one way only: When a lawyer accepts a flat fee for unlimited work, the lawyer commits, in some cases, to working at McDonald's wages should the client's case become complex. Who protects the lawyer in those cases? Certainly not bar regulators.
Times are tough out there. Rules multiply making it harder for small firms to survive. The wolf howls. Have you seen him?
Reprinted courtesy of the Connecticut Law Tribune.
