Legal Practice Advice

What Can Law Firms Do About the Trump Approach to Paying Legal Bills?

The Trump Approach to Paying Legal Bills
(Photo of Donald Trump speaking at CPAC 2011 courtesy Gage Skidmore.)

Among the copious amounts of news that Donald Trump has generated in the past year are a series of accounts about his pattern of not paying his vendors for services rendered. (I steer clear of hot button topics like politics in my blog posts, but this post isn’t really about politics.) The pattern seems to be that his organization will make initial payments but then withhold the last one, claiming some perceived mistake by the vendor as the rationale. Many of the stiffed Trump vendors are the law firms that he engages.

For people who don’t often hire attorneys (and for people who do but pay their bills), it might be a surprise to learn that it’s common for clients not to pay their firms, and attorneys are reluctant to go after them aggressively to collect. You’d think that lawyers of all people understand the system and legal recourse, but the risk that they run by bringing suit against their clients is that the clients can respond by counterclaiming that the law firm committed malpractice in its representation, whether or not there’s much validity to that claim. Accordingly, law firms’ liability insurers discourage firms from bringing suits for fees.

This doesn’t mean that law firms are powerless to deal with deadbeat clients. Some measures to counteract this include:

  • Requiring advance payment for services rendered. In some situations, however, there is a chicken and egg problem if the law firm is representing the client in connection with a financing transaction that, if completed, will generate the funds that can pay for things like lawyers. Even in this situation, the attorney should ensure that a significant amount is paid in advance as a show of seriousness by the client, and the attorney can assume the risk of non-payment on just a portion of the full fee.
  • Be willing to allow clients to pay in small installments over time. Most firms I’m aware of do not charge interest, but in this low-interest rate environment, they’re not giving up much by allowing for gradual payment. Although most corporate law invoices are not paid by credit card in my experience, it may be worthwhile to have these installments paid by automatic charges to the credit card, if the client is willing, so you are less reliant on the client remembering to pay.
  • Coming up with other creative arrangements that defer or reduce the cash owed by the client, like accepting partial payment in the client’s equity. Of course, this depends on the attorney’s view of the client’s prospects.

Why Do Corporate Lawyers Want to Move to the Business Side?

Use of Debt Financing by Law FirmsIt has long been a common career path for corporate and securities attorneys to move to in-house legal positions after some training at a large firm. Many of those who do so eventually make another transition within their corporate employer: from attorney to non-attorney, assuming some sort of business role within the company. These ex-lawyers often justify the move by saying that the business work is more central to what the corporation does and more interesting than legal work. I’ve always been skeptical of these claims, however, hopefully not just because I’m trying to justify to myself my decision to remain an attorney.

Managing Expectations on Transaction Timelines

Managing Expectations in Transaction TimelineMore often than not, transactions that I’m involved in end up closing later than the date that the client initially targeted at the beginning of the process. Many clients that do a lot of deals are understanding about this and mentally build in extra time, just like homeowners don’t expect renovations to happen precisely when contemplated. However, many of those who are less experienced at deal-making can be disappointed and express displeasure to their attorney.

Lawyers Getting to Know Their Clients’ Business

When I was a young, large-firm attorney, the general consensus among my colleagues was that the most interesting corporate law work involved deals – big dollar M&A, public securities offerings, etc. – and that routine transactional work – supply agreements, non-disclosure agreements, etc. – was dull and undesirable. (I realize that my non-attorney readers will be surprised to learn that some corporate law work is even arguably non-dull.) The only reason to devote one’s career to the routine work (many would say) is that it tends to be less stressful and more conducive to seeing one’s family from time to time than is the case with big deal work.

A Trend of Not Involving Attorneys in Routine Contract Negotiations

I had lunch recently with two law school classmates, each of whom works in-house at different large companies, each overseeing a team that negotiates routine contracts.  Both of them agreed that there is a recent trend among large companies with in-house legal departments to deemphasize the resources devoted to attorney review of routine contracts, though at the same time there is a greater emphasis on hiring regulatory attorneys.  With fewer attorneys available to review contracts, there is greater reliance on non-attorney negotiators.  The calculation is that the risk involved in these contracts is more theoretical than practical, so it is not worth the cost and process delays that result from involving attorneys. …

The Transactional Lawyer’s Filtering Role

The main functions of a transactional attorney working on a deal are fairly obvious: to draft (or review) agreements that accurately reflect the deal struck between the parties, to advise the client about whether the actions contemplated by the agreement pose any legal or business risks, etc. Another less obvious but still important role that the attorney can play is to communicate the client’s positions to the other side’s attorney, rather than having the client be forced to communicate those positions directly to the other side’s principal.  It can be awkward for the principals to speak directly on certain matters, and the attorneys play a useful filtering role. …

Use of Debt Financing by Law Firms

The Wall Street Journal recently focused on the decreasing reliance on bank debt by large law firms to finance their operations, with capital contributions by partners being used in its place.  The rationale cited by those quoted in the piece relates to the perceived risk of debt, i.e., the desire for the partners to “sleep at night.”  I would submit, however, that risk is created by the business decisions made by the firms, and not the means by which they finance their operations. …

The “Gig” Economy and Of Counsel Relationships

One of the most-discussed trends in the workplace in recent years is the growing number of people who make a career out of accepting a series of freelance assignments, rather than simply taking on a full-time job as an employee.   A prominent example is the Uber car driver, who takes on jobs at times as determined by the driver, rather than agreeing to work particular shifts in advance. There are significant concerns with the development of the “gig” economy, since freelancers don’t have many of the legal protections available to employees, and these concerns will need to be addressed.  However, the flexibility that these arrangements give to those to participate is undeniably appealing.

A Few Etiquette Tips for Corporate Attorneys in Dealing with Other Attorneys

Over my almost 18 years of practicing transactional law, I’ve often been mildly (or sometimes not so mildly) exasperated by common inconsiderate behaviors by opposing counsel on my deals. Of course, our primary job as attorneys is to represent our clients, but unnecessarily agitating other attorneys does not, in the long run, serve our clients’ interests.  The following are some frequently-occurring examples of bad corporate attorney etiquette to avoid:

Sending Uneditable Drafts.  Often I will receive initial drafts of an agreement in PDF or read-only form. In other words, I can’t easily get into the document to provide edits. Of course, I can provide the comments in other ways, but the point is that you’ve made it harder for me to do my job. The signal you’re sending by doing this is the opposite of transparency, and if anything, it predisposes me to think you’re trying to hide something. The time to create PDF versions is when both sides are in agreement and ready to execute the agreement.