Expenses Case Analysis

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As an appeal from a small claims action decided by one judge, the decision cannot be published and is of no precedential value. Inasmuch as it concerns an issue as important as attorneys getting reimbursed for their expenses, however, it is obviously noteworthy.

If there is any client in the world worse than one who won’t pay his attorney’s fees, it is one who balks at reimbursing his attorney’s expenses.

At least in this case, the client’s pique is understandable, having been presented with a bill of almost $3,000 for services she reasonably expected to run between only $1,000 and $1,400.

One question for attorneys is what to do if the hypothetical that the court discusses arises — the client does not sever the agency relationship, but instead tells the attorney to fight the small claims action on the client’s behalf.

The court states that, if the attorney were to refuse to do so and instead paid the money, the client would have an arguable claim against the attorney for damages — presumably the difference between the amount paid and the actual value of the services.

Such a claim should never be tenable, however, absent some collusion and kickbacks between the attorney and service provider.

In Theuerkauf v. Sutton, 102 Wis.2d 176, 306 N.W.2d 651 (1981), the Wisconsin Supreme Court held that, when an attorney engages services in aid of litigation, the normal rules of agency do not apply, and the attorney is the principal.

It is the attorney who is liable for the bill; the attorney’s credit is on the line; the attorney may well have an ongoing course of dealing with the service provider that is threatened by a client who says he won’t pay the amount demanded. As such, the attorney should not have to follow the instructions of the client.

The court’s suggestion to the contrary places attorneys in an unconscionable position between Scylla and Charybdis, and is contrary to the law of Theuerkauf. Absent bad faith, such as collusion and kickbacks between the service provider and the attorney, the attorney should have the absolute right to pay the bill, rather than contest it, and bill the client in full, the client’s protestations notwithstanding.

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In the final sentence, the court stated that, if Knuth wished to contest the bill, she should have moved to intervene in the initial lawsuit.

However, this is of little help to an attorney attempting to extricate himself from such a dispute without litigation. Worse, by implying that the client forfeited the right to contest the bill by not intervening, it necessarily implies that the client has a right that can be forfeited in the first place — to contest the attorney’s decision to pay.

However, attorneys need a rule that says they can pay the bill prior to being sued, without any fear of losing the right to reimbursement.

Attorneys should not have to wait to be sued, and then see if the client intervenes in the action, before paying the bill. Instead, a client who wishes to contest an expense should have the burden to bring an action for declaratory judgment prior to suit.

– David Ziemer

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David Ziemer can be reached by email.