Every attorney has felt the concern over a growing receivable, and the frustration of a nonpaying client. Carl Mueller litigates these billing disputes and explains what attorneys should know to avoid them and to win them:
In the next episode, we will cover Carl’s top 10 tips for avoiding a fee dispute.
Carl I. S. Mueller’s biography, LinkedIn profile.
Appellate Specialist Jeff Lewis' biography, LinkedIn profile, and Twitter feed.
Appellate Specialist Tim Kowal's biography, LinkedIn profile, Twitter feed, and YouTube page.
Sign up for Not To Be Published, Tim Kowal’s weekly legal update, or view his blog of recent cases.
The California Appellate Law Podcast thanks Casetext for sponsoring the podcast. Listeners receive a discount on Casetext Basic Research at casetext.com/CALP. The co-hosts, Jeff and Tim, were also invited to try Casetext’s newest technology, CoCounsel, the world’s first AI legal assistant. You can discover CoCounsel for yourself with a demo and free trial at casetext.com/CoCounsel.
Announcer 0:03
Welcome to the California appellate podcast, a discussion of timely trial tips and the latest cases and news coming from the California Court of Appeal and the California Supreme Court. And now your hosts, Tim Kowal and Jeff Lewis,
Jeff Lewis 0:17
welcome everyone. I am Jeff Lewis
Tim Kowal 0:18
and I'm Tim kowal. Both Jeff and I are certified appellate specialists, and as uncertified podcast hosts, we try to bring our audience of trial and appellate attorneys some legal news and perspectives they can use in their practice as always. If you find this podcast useful, please recommend it to a colleague, and if you don't like it, please use it as an actual sleep remedy. All right, Jeff, today we have a great guest. We're going to be talking about billing disputes. You know, it's great, the practice law is great and everything, but sometimes you don't get paid, and sometimes your clients are upset about the fees that they have paid you, and what to do when that happens to you and how to prevent feed disputes with your clients. So today we have, we have attorney Carl Miller, who's going to be talking to us about what to do if you have fee disputes and how to avoid them. Carl is a trial attorney focusing his practice on business litigation and disputes between attorneys and accountants and their clients, including claims of malpractice, breach of fiduciary duty, and disputes over legal fees. He represents clients in state and federal courts across multiple industries, and he's licensed to practice in California and Oregon. Carl, please tell us a little bit more about your about your practice, beyond what I've just covered here, and welcome to the podcast.
Carl Mueller 1:27
Yeah, thanks for having me, guys. I appreciate you know the time, and in terms of you know my practice, so it's probably 5050, business lit, and you know this niche of professional disputes, and within the professional disputes by time, I'm spending half that time on malpractice and breach of fiduciary duty claims, and half that time fee disputes. By volume, the fee disputes are a much higher number of the claims, and that's just because once you know what you're doing in the feed dispute world, you can really just put your brain on autopilot and litigate these things up and until you get to the important issues and important you know, kind of points of the case, deposition, you know, trial, There's a summary judgment, motion, those types of things, because, and we'll talk about this a little later, the disputes are kind of always the same. It's always the same story in terms of how the relationship fell apart, what people are mad about. And so it's, you pay attention, you treat every case differently, but you know, it's the legal issues aren't terribly varied between them. The real thing you run into is the old cliche that attorney who represents himself has a pool for a client, and that's that's why I get involved usually. Yeah,
Tim Kowal 3:00
tell us you said that these fee disputes are really all the same. You know, having having blissfully avoided being personally involved in fee disputes. I know, you know, obviously, Carl, you litigate them. Jeff here, arbitrates them and mediates these, these disputes. I am the the ingenue in the room. So tell me, how do these what is the shape of these, these fee disputes, if they all basically look kind of the same, give us the template for them.
Carl Mueller 3:32
So on the attorney side, when I'm representing the lawyers, the narrative will always be as we're talking about the case, we'll go through the intake process, and eventually, some point during the intake process, the attorney will say to me, and that was the first red flag every single time. And you know, that's the another cliche. Attorneys make the most money on the cases they don't take. Pay attention to those red flags, and we'll talk about this again later. If there's a red flag, you know, just don't take the case. But that is always, always in there, in the facts, and then the next thing is always on both sides. The client is surprised by something that's either going to be the amount that they're charged, it's going to be the what the case entailed, or they're going to be surprised by an outcome, and that is what's going to result in the dispute, because if a client goes into the case knowing they've got a very weak, weak case, don't have a good shot At winning, they're not going to be shocked and Sue when they lose. So it's always that surprise, and if it's a pretty big fee dispute where there's a lot of hurt feelings, usually that surprise comes in the form of something like a discovery ruling that's really bad that the lawyer. Didn't disclose was going to happen. But you know, even when the client just doesn't pay and there's no real reason, when you get into the client side of the narrative, usually there's a surprise, and those are probably the two most consistent things which make all of these cases the same. And then on the client side, the narrative is almost always, oh, the lawyer screwed up. I don't want to pay because the value of the case was this far below my expectation. And that whether or not that's true is, is the interesting variable?
Jeff Lewis 5:36
Yeah, any of the cases, let me just say, from a from an arbitrators perspective, because I do arbitrate these what we look for these cases are not legally complex issue. One, is there a valid fee agreement? Did the attorney cross all the t's and dot all the i's regarding signatures and everything else? If it is valid, are the fees so high that they're considered unconscionable? And if it's not valid, are the fees so high that they're not reasonable? That's the analysis and a big issue, or we spend a lot of time in on these arbitrations, is dealing with clients who want to raise issues with malpractice. My lawyer lost because he did a terrible job, which is not something really that arbitrators are supposed to take into account. They're really just supposed to say, did the lawyer do the work, and is the amount reasonable given the work that was done and the results obtained? Yeah,
Carl Mueller 6:25
and that's actually we can talk. I'm actually interested to get your input on this, Jeff, because the arbitrators are supposed to consider if the services were so negligent such that the fees are unreasonable, as in, I did something that was just absolutely unnecessary, or I screwed up so badly that I shouldn't be able to charge for it, and because I litigate more of these arbitrations than I arbitrate them, but I've arbitrated a bare handful, and rarely The arbitrators even consider that. And I do agree that most of the time, it's something that shouldn't be ruled in favor of the client on. But once in a while, I think it should be considered. And these lac bow, whatever state non binding hearings, usually arbitrators just don't even want to hear it. That's
Jeff Lewis 7:18
true, especially when they're non binding, when the parties elect to have a binding arbitration, sometimes they'll take it a little more seriously in terms of hearing that evidence. I will say, you know, there's extreme examples where, let's say a lawyer blows the statute of limitations, files a late complaint and bills the client 20 grand. The reasonable value of those services is zero. Okay, you could take that into account, but usually the the situation's not that stark, and the arbitrators have to decide, well, does this really bear on on the reasonableness of a fee, or is this really a malpractice allegation,
Carl Mueller 7:50
right? Right? No, I agree. And then you've got to also take into account you know the lawyers, you know the lawyers, the captain of the ship, so they get to make those strategic decisions. And just because they're not right doesn't mean it was malpractice.
Tim Kowal 8:03
Carl, what proportion of the cases these fee dispute cases are initiated by the by the attorney trying to get paid from the client, and what proportion are initiated by the client who's upset about the amount of fees that they've had to pay for for an unsatisfying amount of services. So
Carl Mueller 8:20
a fee dispute is almost always initiated by the firm in situations where you don't have a malpractice claim. If you've got a malpractice claim, you've got a different statute of limitations. Got a one year statute of limitations on malpractice. You got, if there's a signed agreement for your statute of limitations. So if there's a malpractice claim and an outstanding balance, then the client's probably going to initiate that, just because of the different statute limitations in that timeline. But then, as we were talking about, you've got this, this arbitration statutory framework that requires the lawyer to give notice of clients right to fee arbitration. And what that does is puts, if the client elects to pursue the non binary fee arbitration, puts the dispute into this fee arbitration setting. And once you get the outcome there both sides, if it's non binding, have effectively a month to deny or reject that arbitration outcome, and if they reject it, they have to file a new case as a superior court action in order to reject it. So essentially, the loser of the non binding VR has to file and loser is subjective, because usually it could just be whoever doesn't like the outcome. That's the loser has to file a lawsuit, and that could be either side, but in reality there that's the law firm initiating that. Because they've sent the notice to the client saying we're going to pursue Carl.
Tim Kowal 10:04
How did it? How did you come to get into get involved in this practice area dealing with malpractice and billing disputes? Did you jump right into that? That strikes me as it's probably something that that you embarked on another path and had some of these cases land in your lap and eventually took you in that direction. How did it come to pass?
Carl Mueller 10:24
Yeah, I mean, I think it's pretty universal that lawyers careers are pathway dependent. You don't get a lot of lawyers who got into the thing they thought they were going to do, you know, when they were deciding to go to law school in law school, or even, you know, their first job. And so the second firm I worked for, I went there because it was business litigation, and that's what I thought I was getting into. And then it turns out that a big part of the practice was attorney client disputes. And frankly, they're fun, they're just interesting and intellectually stimulating. You're in a different area of law. In almost every single case, if it's a malpractice case against an am law 100 firm, you're probably drawing the same carrier, and probably, if you're in Los Angeles, the same litigation group, and for a long time, that was the folks at Gibson Dunn who are a great group of guys to litigate against. And you know, it makes you better. It's you're learning a new industry almost every single time. And I call it lawyer on lawyer crime. Like it's just, you know, it's not the business litigation pissing contests where it's, you know, two CEOs just trying to see who can be the bigger jerk. It's just, just straight up lawyers trying to out nerd each other, which is what I like,
Tim Kowal 11:58
yeah, yeah. As appellate attorneys, Jeff and I sometimes get suspicious looks from from trial attorneys. You know, we're like the hall monitors who we're going to grade their homework. Do you encounter that as an attorney who's working on these billing disputes and malpractice disputes? Do you get Do you feel like you're you're somehow outside the mainstream of other attorneys because of the cases that you take on.
Carl Mueller 12:23
Well, in certain cases, absolutely, especially if I find it happens more often in like the probate setting, when I'm brought in to handle just a piece of the litigation. Because, you know, there's this whole re review of all the fees that can happen, especially with trusts that may have to get approved. So everyone is looking under their shoulder because they're worried that part of the reason I was brought in is to, you know, try and claw things back after the fact. But you know, when you're actually in the legal malpractice or free dispute setting. You know, it's already happened. It's all in the past. So, yeah, I just try and work with people as professionally as possible. And people get that. It's just another part of litigation. And I think most lawyers who've done this enough, you assume you're going to get sued eventually, especially in California, right there's just way too many lawyers, way too much litigation for it to not happen.
Jeff Lewis 13:30
I heard a stat once that, on average, every lawyer in California gets sued at least twice for malpractice.
Carl Mueller 13:37
I wouldn't be shocked. And frankly, you know, I think there's, there's a couple folks out there that are carrying those numbers for the rest of but, you know, it's an interesting thing because, you know, there's certain situations where, as a business move, you almost have to bring in your lawyer's carrier to try and see what you can get.
Tim Kowal 14:04
Yeah, how do you perceive your role in the in the legal profession, as a as a malpractice attorney and as a attorney who litigates these business disputes? Do you see yourself as well? Well? Let me ask. Do you, do you typically represent the the client or the attorney, or some of both.
Carl Mueller 14:20
I do some of both. My prior firm was on the malpractice side. It was a lot more client side representation. And, you know, my my internal dialog monolog. If it's internal, it better be a monolog. Actually, my internal monolog. You know, at times I'm thinking, Yeah, I'm a consumer advocate. But then, you know, the reality is, is me now practice cases. It's a tough business in terms of making it work financially, because carriers don't give nuisance value offers. It's not like a It's not like a car dispute in a car. Gosh, where you're going to get numbers thrown at you by the carrier without having to do a lot of legwork. Usually, you got to go do most of the doc review and really have your theory of the case put together and have your experts put together before they're going to give you a decent settlement offer. So yeah, it's very much a business. You can't be taking cases just because your heart goes out to the person. So that I want to be an advocate for the consumer isn't there. On the flip side, you read stuff like the giraffe business and your blood boils and you want to go out and take on every guy you possibly can. But you know, you put yourself out of business doing that. Yeah,
Tim Kowal 15:46
yeah. I like to, I mean, as an appellate attorney, I like to see myself as, as bringing, you know, some, some independence into the into the system that you know, if there was not a right of appeal, then, you know, we can like to think that that judges are always trying to get the right result, but you know that, I think that's not always the case. And sometimes they like one party, they kind of, you know, just get a gut reaction at the beginning and they get to an outcome. And that's why the right of appeal is so important, is to bring some accountability and to bring that transparency, so that, so that the public has a sense that, okay, well, judges, no matter how cynical a person might be, they know that judges can't just run amok because there's a right to appeal. I wonder if you you see yourself as it's playing a similar role in you know that that cynics in the public might think, Oh, these, these attorneys, there's always just overcharging. But if there are advocates like like you, who will represent clients who are disgruntled, you know, that brings some sense of transparency into the process that, yeah, there is accountability, because there are attorneys out there who will make sure that attorneys are billing honestly and fairly,
Carl Mueller 17:02
so that I agree with, I mean, my, one of my personal goals is to try and, you know, raise the level of practice just by dealing with people being a part of the right organizations and how I litigate, especially in malpractice B dispute cases. In addition, we are a self regulated industry. And you know, I'm licensed in two states, one of which Oregon, they take that very seriously in that, you know, their state bar has representatives elected by the members, and so they are very much self governing, whereas here we have appointees on the State Bar deciding who trial counsel, Chief trial counsel is going to be and how things are going to be disciplined. So the State Bar discipline system does not reflect, I think, in any way, the values that we as lawyers have, I think they just fall far short of protecting consumers. And so, you know, to the extent it overlaps, I do take pride in the ability to protect some consumers and hope that it makes people think twice, but I'm also just really pragmatic with the fact that I'm a drop in a C,
Tim Kowal 18:22
yeah. Yeah. Well, I wanted to tease our audience a little bit in the in our next session, we're going to be talking about some of your top tips to for attorneys to avoid billing disputes. But, but before we get to that next session, we want to make sure we understand some of the basics. And so I wanted to cover the this case that you brought to my attention. That's a two 2021 case, Peck versus Morgan. That's important to these issues involved underlying these billing disputes. Can you tell us what is Peck about? Why do attorneys need to be aware of the of the standards and factors that that judges and arbitrators will will use to evaluate attorney claimed fees. So
Carl Mueller 19:06
I think it's Pesh, by the way. I think I talked to one of the lawyers who actually litigated the underlying case, and they talked, he seems like, so Pesh, Okay, gotta trust the guy who was there. But so the headline from Pesh is, for the first time, the appellate court decided on a standard for the evaluation of legal fees in a dispute where there was a binding contract in place and that created a two part two part test. One is there a binding contract? Then, if so, are those fees unconscionable? And Jeff already kind of talked about that. The unconscionability standard is set out in rules professional conduct. It's in a hourly fee agreement, which is what Pash is talking about. Pretty hard to be unconscious. Actionable in this day and age. So if
Tim Kowal 20:02
they're if they're not unconscionable, are they recoverable? Well,
Carl Mueller 20:06
then that gets us to the next part of the test, which is, if not unconscionable, are they reasonable under the terms of the contract? And that's what's important, because it's not an objective reasonableness standard, which is what the the standard, if there's no fee agreement, is so that that's that's what distinguishes this situation from that of a reasonableness standard, you know, for quantum merit clinic,
Tim Kowal 20:37
is, help me understand a subjective reasonableness standard. If it's not objective, then I don't know how it how it can be reasonable, reasonable according to who
Carl Mueller 20:49
well. So the first thing is that the hourly rates right, so we've already decided they're not unconscionable. So because it's reasonable under the terms of the contract, those hourly rates hold, as opposed to, if there was no contract and it was an objective reasonableness standard, we'd have to be looking at expert analysis as to what is the reasonable hourly rate for that market. And then we'd be doing a lodestar mathematical model to, you know, evaluate what the lawyer can collect. We avoid that entire test when we have this subjective reasonableness, because we already know the contract says this is the reasonable rate, right? So that's, that's the first thing
Tim Kowal 21:38
is that all that's meant by subjective reasonableness, is that if the parties agree to the rate, then that's the rate. That's
Carl Mueller 21:44
not all that's meant. But the upshot, in terms of fee dispute litigation, that's a big piece of it. Okay, so then you from there. Right now, we're starting to get the nitty gritty of what is Pesh. The real when you get into the analysis of Pesh, what the court did was adopt a an arbitration advisory opinion, and the standard from the reasonable the subjective reasonableness standard from that arbitration advisory opinion. When you go back and read that arbitration advisory opinion, it lists a series of factors to consider that need to be taken in the context of the contract to determine what is and is not reasonable. And this is where I don't love Pesh, because how Pesh breaks this down is, it says it's one paragraph. It says, you know, we agree that this should be the standard, the reasonableness standard, quoting the advisory opinion language, and then it goes on to quote the factors. What it doesn't say is that these are factors. It just says this is the standard reasonableness standard, and you have to consider and then there's the list. The advisory opinion makes it clear that this is including, but not limited to Pesh. Says this is the list. And for instance, I just did a jury trial on this exact issue, and so we had to figure out how to make Pesh into a jury instruction, and in the context of a jury trial, what factors you're going to consider largely is derived from what's at issue and What evidence is presented to the jury, for example, one of the factors is non duplicative time, right? So that means you're not billing to do and redo the same task over and over. So if there is no evidence being presented to the jury that that occurred, probably doesn't need to be in the jury instruction. However you know that that's up, really to the parties and the court to work out as part of the process, our judge went back and actually pulled the jury instruction that the Pesh trial court used after Pesh got sent back down after the appeal, and that's where we started working off of, you know, my bone to pick, really though, is if you list this whole thing as one standard, not saying that these are factors, it kind of destroys the subjective reasonableness of it. Because in my mind, when I read Pesh, and I go back and then look at the advisory opinion. The whole point is the contract is supposed to govern. So that means, if there are quirks in the contract, like, for instance, in situations where you take something to trial because you want to challenge the law, right, you know that the law is what it is. You know that means you're going to lose on a trial, but want to challenge it. Does that mean that the standard of non negligent services because you're telling someone to go do something that they're going to lose on? Does that mean Pesh is allowing the client to challenge that if, even in the contract, it says we know that we're going to lose, but we're going to do it anyway, right? I I think that language in Pesh needs to be clarified, and I think it's, you know, probably going to happen sometime in the future on appeal. And, you know, this sort of thing happens, and there's a lot of things you can contract for that, as Pesh has written now, makes it seem like you could challenge that time. And I don't think that's, I don't think that's what was meant to the advisory opinion, and I don't think that's what the court think that's what the court meant either, but I think it'll, it'll get ironed out.
Tim Kowal 25:46
Usually, when I when you're describing the the Pesh standard, and it relies on consideration of various factors, usually, whenever there's a factor based test, I'm thinking a discretionary call by the judge rather than a jury finding. Are there other examples of of jury questions that are based on a multi factor test, like the one articulated in Pesh is, I guess, what I'm asking is, is this an unusual kind of task to give a jury to not only make a finding, but make sure that you consider you know, all of these various factors, and how do you make sure that the jury is considering those factors? Um,
Carl Mueller 26:26
so this is, this is another very litigation in this area, specific question, yeah, um, really, what it comes down to is having an expert package this for the jury to say this time is duplicative, this time is negligent, and then the jury has to make that call if there isn't an expert on the client side to say those things, this question probably doesn't get to A jury, because how right what evidence is there other than an expert telling them that this time is duplicative.
Tim Kowal 27:06
You need an expert to kind of pre package that factor based, yeah.
Carl Mueller 27:11
And on top of that, if it's if the lawyer is my client, there's going to be motions in lemonade that exclude the, you know, the challenging client from offering any evidence as to the reasonableness of the fees, because that is an expert question.
Tim Kowal 27:32
Yeah. Okay. All right, so Carl, is there anything else in Pesh or or generally in this area of law that our listeners need to be aware of before we talk about your top 10 tips to avoid billing disputes in our next session,
Carl Mueller 27:48
just read the rules. I know we're lawyers and you to just Yeah. Think it's taken for granted, but Business and Professions Code, 6146 6147 6148 and the relevant Rules of Professional Conduct, on conscience, ability and your trust account and engagement agreements. Just, just read those rules, especially, you know, as you know what you're going to do. If you're never going to do a contingency fee agreement, you don't need to read it. You're never going to do a flat fee. You don't need to worry about that part. But you know, know the rules for what you do, okay, biggest thing,
Tim Kowal 28:21
okay, then with that teaser, we're gonna we're gonna leave the discussion there, and then we're gonna pick up next time. So for now, if you have suggestions about future for future episodes and guests and topics we should include, please email us at [email protected], in our upcoming episode, you will find Carl's top 10 tips to avoid billing disputes. Jeff, anything else? All right, see you next time
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