Trap for the Uninformed Law Firm Client: The Account Stated Doctrine
Posted on July 30th, 2015 by Legal Fee Advisors
Few law firm clients today are aware of the historical doctrine of account stated. Despite this fact, in states where the rule of account stated is applied to the attorney-client relationship, law firms regularly take advantage of the legal tool, often to the surprise and detriment of unsuspecting clients.
The doctrine, which has its roots in English mercantile law, requires legal service consumers to pay the amounts identified on billed statements, even in cases where there is uncertainty as to the reasonableness of the fees charged. Although the client may not have agreed explicitly or in writing to pay the billed charges, states such as New York and Florida have created an implied account stated whereby clients have assented through actions, or merely inaction, as explained below.
Law firm clients should be aware that there are exceptions and limitations that may, under certain circumstances, prevent a law firm from succeeding on such a claim. Most importantly, familiarity with these exceptions, and anticipatory action on the part of the client, may prevent a firm from later claiming that the client waived any defense.
The rule of account stated first appeared in 18th century England, where it was applied by merchants to settle debts in an informal accounting.[1] At the end of the 19th century, it underwent a period of expansion in America, as courts allowed recovery in other, non-mercantile relationships.[2] Curiously, it completely fell out of use during the 20th century, but has seen a marked resurgence since 2000; in the ten years following there were an estimated 1900 reported cases mentioning account stated.[3]
New York has led the pack in the application of the rule to the legal services context, and thus has the most developed case law in this area. However, other states have applied account stated doctrine to the attorney-client relationship, in varying degrees, including Florida, California, Illinois, Georgia, as well as others.
There are a number of defenses or exceptions, recognized by most courts, that limit the application of the doctrine. Perhaps the defense most useful to the seasoned law firm client, is a clear objection to a received bill or bills. When a debtor client explicitly and specifically objects to a statement of account, courts have found that such an objection rebuts an inference of implied agreement.[4] Nevertheless, this defense does not hold in a variety of circumstances, for example, where clients contest bills only orally,[5] or where the objection is too generally phrased.[6] Consumers of legal services are thus advised to put their specific objections in writing to the firm to avoid waiving their defense down the road.
In addition, non-payment of an invoice may support evidence of an objection by the client. Even partial payment on an account will be interpreted to imply agreement. Thus, clients should be careful to refuse any payment, where they believe contestable issues exist. Part of the inquiry also examines how long the client has held on to the bills, as receipt and acceptance of invoices for a “reasonable period of time” will imply assent.[7] Accordingly, to defeat a claim for account stated it is imperative that the client object as soon as possible upon notification of the account.
Other defenses useful to the client include violations of the retainer agreement by the firm, or invalidity of the retainer agreement itself. With regard to the former, courts have found that infrequent billing (in contravention of the firm’s retainer) or increased billing rates (above those provided in the agreement) defeat the inference of client consent.[8] In general, evidence that the firm did not render monthly statements will rebut implied agreement,[9] as will any question as to a regular office mailing procedure utilized by the firm.[10]
Issues with the invoices sent by the firm may also be of advantage to the law firm client. Vague invoices lacking “hourly rate, the billable hours expended, or the particular services rendered” are insufficient, and have in certain circumstances prevented firms from stating a prime facie case of account stated.[11] And of course invoices with errors, unintentional or otherwise, will prevent a successful claim.[12]
There is also some case law suggesting that special defenses may be available based on the attorney-client relationship- one judge stated that a client is always entitled to prove that charges are excessive or unreasonable.[13] However, this defense may only hold up in particular cases, such as when there is already a trial set on the issue of the reasonableness of attorney’s fees and the firm only then proffers an account stated claim.[14] Under most circumstances the reasonableness of fees is assumed if the client fails to object for a considerable period of time.[15]
By David Paige and Erika Bibelnieks
[1] Emanuel J. Turnbull, Account Stated Resurrected: The Fiction of Implied Assent in Consumer Debt Collection, 38 Vt. L. Rev. 339, 346-347 (2013).
[2] Id. at 348.
[3] Id. at 353.
[4] Darby & Darby, P.C. v. VSI Int’l, Inc., 178 Misc.2d 113, 678 N.Y.S.2d 482, 485 (N.Y.Sup.Ct.1998).
[5] Berkman Bottger & Rodd, LLP v. Moriarty, 58 A.D.3d 539, 871 N.Y.S.2d 135 (2009).
[6] LePatner & Associates, LLP v. Horowitz, 81 A.D.3d 472, 916 N.Y.S.2d 105, 106 (2011).
[7] The period of time has been interpreted as generally more than five months, and in no case less than three. Zhuhai Winners M&E Ltd. v. Hudson Valley Umbrella Co., 660 F. Supp. 2d 551, 555 (S.D.N.Y. 2009), DiMare Homestead, Inc. v. Alphas Co. of New York, No. 09 CIV. 6644 PKC, 2012 WL 1155133, at *23 (S.D.N.Y. Apr. 5, 2012) aff’d, 547 F. App’x 68 (2d Cir. 2013).
[8] Morrison Cohen Singer & Weinstein, LLP v. Brophy, 19 A.D.3d 161, 798 N.Y.S.2d 379 (2005).
[9] Wells Fargo Bank, N.A. v. Economical Realty, LLC, No. 25597/08, 2010 N.Y. Misc. LEXIS 4035, at *6 (Sup. Ct. July 29, 2010), Roth Law Firm, PLLC v. Sands, 82 A.D.3d 675, 676, 920 N.Y.S.2d 72, 73 (2011).
[10] Morrison Cohen Singer & Weinstein, LLP v. Brophy, 19 A.D.3d 161, 798 N.Y.S.2d 379 (2005).
[11] Ween v. Dow, 35 A.D.3d 58, 62, 822 N.Y.S.2d 257 (1st Dept.2006), Litman, Asche & Gioiella, LLP v. Hasting, 39 Misc. 3d 1203(A), 969 N.Y.S.2d 804 (Sup. Ct. 2012)
[12] Showing fraud is always a valid defense. Home Health Servs. of Sarasota, Inc. v. McQuay-Garrett, Sullivan & Co., 462 So. 2d 605, 606 (Fla. Dist. Ct. App. 1985)
[13] In re Marriage of Angiuli, 134 Ill. App. 3d 417, 422, 480 N.E.2d 513, 518 (1985).
[14] Collier, Halpern, Newberg, Nolletti & Bock, LLP v. Andrew Carothers, M.D., P.C., 28 Misc. 3d 1223(A), 958 N.Y.S.2d 306 (Sup. Ct. 2010).
[15] Cohen Tauber Spievak & Wagner, LLP v. Alnwick, 33 A.D.3d 562, 563, 825 N.Y.S.2d 439 (2006), Hinkle, Cox, Eaton, Coffield & Hensley v. Cadle Co. of Ohio, Inc., 115 N.M. 152, 848 P.2d 1079 (1993), Mast, Mast, Johnson, Wells & Trimyer, P.A. v. Lane, 745 S.E.2d 56, 60 (N.C. Ct. App.) cert. denied, 367 N.C. 243, 749 S.E.2d 65 (2013)