The Wisconsin Court of Appeals held on Dec. 22 that, although merchants may be able to simply add a clause providing for 18 percent interest to their invoices, Supreme Court Rules prohibit attorneys from doing the same.
In 2004, Great Lakes Dart Manufacturing, Inc., retained Ziolkowski Patent Solutions Group to prosecute and draft patent applications. The engagement letter did not include any provision for interest on late payments.
The Ziolkowski firm later sued Great Lakes for unpaid fees and sought 18 percent interest, pursuant to a clause at the bottom of its invoices stating, “A finance charge of 1.5 percent per month will be assessed on all accounts past due 30 days.”
The circuit court granted summary judgment to the Ziolkowski firm, but denied the claim for interest.
Great Lakes then made an offer of judgment to the Ziolkowski firm, offering to pay the unpaid fees, plus interest of 5 percent, the statutory rate provided by sec. 138.04 for interest on liquidated claims.
The Ziolkowski firm rejected the offer and failed to appear at a court hearing, thinking the summary judgment ended the case. At the hearing, the circuit court entered judgment as proposed by Great Lakes, and awarded Great Lakes costs pursuant to sec. 807.01(1).
The Ziolkowski firm appealed. In an opinion by Judge Paul F. Reilly, the Court of Appeals affirmed the denial of 18 percent interest, but reversed the award of costs.
The court held that the Ziolkowski firm was not entitled to 18 percent interest on its unpaid fees.
The court cited SCR 20:1.5(b)(1), which provides, that the “scope of the representation and basis or rate of the fee and expenses for which the client will be responsible shall be communicated to the client in writing.”
The court concluded that the Ziolkowski firm could not unilaterally add an interest charge on its invoices.
The court acknowledged that it has previously held that invoices including identical interest clauses constituted a valid additional term to a contract. Mid-State Contracting, Inc. v. Superior Floor Co., 2002 WI App 257, 258 Wis. 2d 139, 655 N.W.2d 142.
But the court distinguished Mid-State because it involved a contract for goods between merchants, governed by the Uniform Commercial Code, rather than one for legal services.
But the court reversed the award of costs to Great Lakes, because of an omission in the statutory offer.
Great Lakes’ rejected offer had provided, in relevant part, for the amount of the unpaid legal bills, plus 5 percent interest to date, plus “5% annual simple interest on the total amount of $7.43, from the date hereof until the date of acceptance of this offer.”
The circuit court’s judgment, however, awarded $7.43 per day from the date of the offer until the date of entry of judgment.
Great Lakes acknowledged that its offer failed to include the words “per diem” after the amount of $7.43. Read literally, the offer provided for only 5 percent of $7.43, or 37 cents.
As a result, the circuit court’s award exceeded what Great Lakes had offered to pay.
Under sec. 807.01(1), where a judgment award exceeds a rejected offer of judgment, the party that made the offer is not entitled to costs. Accordingly, the court reversed that part of the judgment.
Before concluding, the court questioned whether the circuit court had authority to award any interest.
The court said that, at the circuit court level, Great Lakes’ attorney told the court it was debatable whether it could be required to pay any interest on the unpaid bills, but that it included the rate of 5 percent in its offer, because it wanted the matter resolved.
The court wrote, “Left undetermined is whether the circuit court’s award of 5% interest was appropriate.” However, neither party objected to it, so the court declined to determine the issue.
The opinion provides no reason why the 5 percent provided in sec. 138.04 would not apply. However, it may be that the court believes that, if an attorney intends to charge any interest on unpaid legal fees, it must be set forth in the retainer agreement.
What the Court Held
Issue: Can a law firm charge interest on unpaid fees based on a clause in its invoices that interest will be charged?
Holding: No. A law firm’s interest rate must be set forth in the retainer agreement.
Attorneys: For Plaintiff: Joseph Cincotta, Milwaukee; For Defendant: Christopher T. Kolb, Milwaukee
David Ziemer can be reached at email@example.com.