Case Study #2 – Do You Fire A Client To Save Your Practice (and Sanity)?

(UPDATE: I will publish have published the follow-up to this post Monday, November 1st.  Responses are still coming in so I’d like to give you more time to think on it!)

A while ago I started a new series called, ‘Case Studies’. (follow up links available at bottom of this hyperlink after comment box.) The goal was to present real world business/marketing problems while allowing others to express their opinions about solutions.  Then I would follow up with how the situation was actually handled.

Case Study #2 – Do You Fire A Client To Save Your Practice (and Sanity)?

I still work with a couple of consulting clients, ones who’ve been with me for years.  This particular client contacted me last week about whether or not to fire a big client.  Here’s a little background:

This lawyer is a solo with one paralegal.  She has a very good practice but two diverse areas, major personal injury cases and debt collection.  No matter how she tries to leave debt collection work her reputation is known even though she’s never really enjoyed it.  It was bread-and-butter business while she grew her practice.  And now the business just comes to her.  Last year she settled several major PI cases providing sizable cash flow.  Just as all her PI files closed the percentages of her practice shifted from fifty percent PI work and fifty percent debt collection to nearly 90% debt collection.  Here’s why.

A new client came to her with nearly 100 files and this was just the tip of the iceberg. She had just recently started representing the new client.  Within another week there were another 100 files on her desk.  The headaches and anxiety started because this was not the direction she wanted her practice to go in – top heavy with debt collection work she no longer enjoyed, especially the litigation, and primarily with only this major new client funneling work to her.  With this new major client she would be completely tied up in the sheer volume of their work making it virtually impossible for her to market any other practice area or work with any other clients within debt collection if she so chose.

However, the cash flow had dried up from the PI work and this new client represented quite a bit of money.  To make matters worse, her paralegal casually said, ‘if you don’t take these cases will we survive?’.  So she started working the cases for the new client, hesitant and concerned maybe she’d made the wrong decision in accepting this client. She wasn’t sleeping.

Then the red flags started.

RED FLAG #1: She and the client negotiated a detailed agreement for fees, a novel agreement as the new client wanted to present a non-traditional approach working on these cases and how to handle attorneys’ fees.  After the original agreement was signed, there needed to be an amendment which further protected the attorney fees.  Between the time of the signing of the original agreement and the signing of the amendment, the client had turned over the first 100 files for suit.  These operated under the old agreement.  When the lawyer asked the agreements for the 100 files be re-signed, the client balked saying it was too hard to get all the necessary paperwork done and time was of the essence. So the attorney reluctantly filed these suits under the old agreement due to cash flow concerns.

RED FLAG #2 Several files within the first 100 batch of files could have been closed almost immediately with the debtor paying $.75 – $.80 on the dollar. When the lawyer presented with a recommendation the client accept, the client took the position they were not going to settle on any files immediately.  This changed the profit per file and risks/benefits analysis of the work based upon the agreement entered into.

RED FLAG #3 Within a few weeks of the original 100 files being presented for suit, the client e-mailed the attorney on a Friday late afternoon saying he had 75 more files coming overnight to be prepared on Saturday.

RED FLAG#4 Within one week of this event the client e-mailed the attorney and said, ‘better get some extra help next week as I have 100 more files coming your way on Monday.’  This e-mail was also sent on a Friday.

The attorney then called me and said, ‘what should I do?’

Learn how this attorney handled this situation this coming Thursday Monday in a follow up blog post.

Now, you tell me.  What would you do in this situation? Let’s discuss possible solutions.

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5 comments on “Case Study #2 – Do You Fire A Client To Save Your Practice (and Sanity)?

  • I have found that every single time (yes, every single time) that I have fuzzy boundaries with a client, it goes badly. This attorney has had multiple chances to hold the line and set boundaries and they keep getting fuzzier. And the attorney is now letting the client dictate how the attorney does her work. This is very dangerous. (And tempting when cash is tight.)

    The attorney needs to either find a contract attorney to help her, or say to the client “No, I can’t take those files. Let me help you find someone who can handle that part of the work.” This attorney sounds like she’s headed towards having one client be her sole source of income. Not a good idea at all.

    She may want to schedule a day to sit with the paralegal and come up with a plan about how both of them can begin to market the practice, figure out what they want their practice to look like, brainstorm ways they can both work on business development.

  • Associate counsel that likes this work and split fees.
    Hire another paralegal or 2 that are experienced with these matters and have them do much of the work.
    Decline additional files, telling the client that the lawyer wants to offer quality representation on the ones she has.

  • Maintain diversity in her practice.

    Years ago when I was doing insurance defense work for essentially one insurance company they constantly sent us new cases that we were happy to work on. But, there was a price to be paid. The insurance company would slow pay us, constantly tell us to lower our rates, deal with adjusters who didn’t have a clue and they held it over our heads that they could pull all the cases at any moment. Ultimately, my former partner and I decided that we didn’t want to do insurance defense work anymore and stopped working for them. But, not until after transitioning into plaintiff’s work. I have never regretted it.

    My concern for your client is that these new cases will severely hamper her ability to work on her PI practice. If that is what she really wants to do than she should either phase out of the debt work or bring in help like Anthony suggested above.

  • I read this post this morning and it stuck with me all day. I mulled over my response weighing the options. My initial reaction was get rid of the client and the unsatisfying work. I’ve been there and know how draining it is to do work that brings you no joy. I also know the danger of having one client comprise more than a quarter of your income. But I did not post my initial response because this economy has us all wondering if we need to suck it up and do a few things that don’t exactly curl our hair with joy. So, I decided that I would first have a solid plan for marketing to get more of the work I love. I would then approach the client, get them on to the new agreement but put a stop to any new work. I would agree to complete what I’d started and turn the rest away with a referral to someone else. I would then rejoice in that incredible light feeling you get when you make a decision that is tough but right for you.

  • Anthony, Scott, Kim – as you’ve noticed there are several distinct issues here: cash flow, diversity of practice, questionable client behaviors, bringing on additional help, client’s interpretation of events and personality. All influence the outcome! We’ll see what happened :-)

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