The $75 Disaster

75Mistakes piled up one after another as soon as Donna Shelton walked through the door.  In 2011, Shelton had signed a promissory note for a $40,000 loan.  She stopped making payments after one year and was promptly sued by the lender.  She came to attorney Marshall Austin’s office in 2012 with a copy of the complaint and no good options.

Austin reviewed the lawsuit and considered the likely outcome of the case.  There was no question that Shelton had borrowed the money and failed to make the payments owed.  In Austin’s opinion, there was no defense to the claim.  At best, it might be possible to muddy the waters and convince the bank to adjust Shelton’s interest rate.  Austin explained this to the potential client.  He also explained that his fee to defend the lawsuit would be $200 per hour (which would quickly add up) and that he would require a $2,500 retainer.

Shelton immediately declined to retain Austin to defend the case.  She felt that she would be better off negotiating with the bank directly or trying to find a buyer for some rental property she owned.

Austin advised Shelton that an answer to the complaint had to be filed within 30 days of service but that an extension could be obtained to give her 60 days.  Shelton asked the attorney to handle the motion for extension of time, and it was agreed that she would pay Austin $75 to prepare the motion.

At this point, Austin made his first big mistake.  He did not prepare an engagement letter describing and confirming the very limited nature of his representation.  Formalities did not seem necessary for such a small matter, so he simply filed a motion for extension of time with the local superior court.  The signature block of the motion listed Marshall Austin as “Attorney for Defendant.”  This was the attorney’s second mistake.  He could have noted that he was making a limited appearance just for purposes of the extension motion.  He also could have drafted the motion and given it to the client to be signed and filed pro se.  Instead, he went on record as counsel for Shelton.

After the motion was filed and the extension granted, Austin began to receive pleadings and correspondence related to the case.  He received an affidavit and application for entry of default.  He received a notice from the court that a mediator had been appointed.  He received a motion for default judgment.  He received a letter from the mediator inquiring about potential mediation dates.  In response to these materials, Austin did absolutely nothing.  In his mind, he had completed his responsibilities by filing the extension motion and the matter was concluded.  He had not been paid to do anything else, so there was no reason for him to give the case another thought.  He did not forward the documents on to the client (mistake #3).  He did not call opposing counsel to explain that he did not represent Shelton (mistake #4).  He ignored the letter from the mediator (mistake #5).

Eventually, the bank obtained a default judgment against Shelton.  More than a year after the judgment was entered, the bank initiated proceedings to execute on the judgment and Shelton received a Notice of Right to Designate Exemptions.  She filed a pro se Reply of Judgment seeking to have the default judgment set aside, and when that was unsuccessful, Shelton filed a malpractice claim against Austin.

Conveniently forgetting their prior conversations about rates, retainers, and trying to negotiate with the bank herself, Shelton insisted that she had hired Austin to defend the case.  When she did not hear anything further after the initial meeting, she assumed the lawyer had taken care of everything and the case was over.  Since nothing had been documented in writing, it was the word of the client against the word of the lawyer.

There were defenses to the malpractice claim, including that Shelton had never paid a dime towards the judgment and a judgment likely would have been entered against her even if the case had been vigorously defended.  However, because of the fact-specific nature of the dispute, the litigation continued for a year and a half with multiple rounds of written discovery, motions, and depositions.  A matter that earned Austin $75 ended up costing him hours upon hours away from his practice, a significant amount of stress, and his full policy deductible.

Formalities are essential even in the smallest matters.  An engagement letter, or even an email confirming a conversation, can prevent a messy claim down the road.  While it is important to state what you will be doing for the client, it can be even more important to spell out what you will not be doing.  It takes only a few minutes to draft a limited engagement letter, and this is time well-spent to avoid a claim.  If the matter doesn’t seem to be worth the effort of preparing a letter, you should decline the representation.

*Names, locations, and other identifying details in this post have been changed to maintain confidentiality.

All opinions, advice, and experiences of guest bloggers/columnists are those of the author and do not necessarily reflect the opinions, practices or experiences of Solo Practice University®.

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2 comments on “The $75 Disaster

  • Unfortunately the solution is quite simple. Don’t represent clients unless they are willing to retain and pay you for handling the entire matter. You are asking for a malpractice suit no matter how you handle the matter and no matter how many letters you send clarifying the scope of your services. $75 is not worth the problems that could potentially unfold when you are performing limited services and the client is performing the remainder. Guess who gets blamed when something goes wrong?

    • Robert, I agree that this is the safest way to go. However, at this point I think it will be very difficult to turn the tide of unbundled legal services. Clients believe they can save money by handling some aspects of a matter themselves. In some cases, this may be totally inappropriate; in others, it may be more reasonable. It is crucial for the lawyer to think through the risks and, if the arrangement makes sense, to document the terms in detail. Especially with younger clients who are used to finding everything online and have a DIY mentality, I believe this trend will continue.

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