Bernstein-Burkley, P.C. Managing Partner, Robert S. Bernstein, discusses the different steps that attorneys take when reviewing a new commercial collections claim. Have they worked with or against the involved parties in the past? What will be the details of the fee agreement? What are the estimated chances of collecting on the claim? All these questions and more are answered when reviewing a new claim.
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Review of a New Commercial Collections Claim (5:15)
Welcome to the 5 Minute Legal Master series where expert legal attorneys help you master important legal topics. Today, board certified business rights and business bankruptcy attorney Robert S. Bernstein discusses review of the new claim.
When a collection commercial claim is offered to a lawyer, assuming it is on a contingent fee basis, there are a number of consideration that the lawyer goes through. First should be a conflicts check to see if the parties involved in the claim, the client and the adverse party have an prior relationship with the lawyer that would create a conflict of interest and has to be dealt with under the ethics rules. Assume for our purposes that there is no prior relationship that causes a conflict of interest. What would that prior relationship be? If the lawyer previously represented as a client the company that is now the debtor, that would be a potential conflict of interest. Of course, if the lawyer currently represents the debtor in any matter even if it is not related to this collection it would be a conflict of interest.
So let us assume there is no conflict of interest, the next question is does the lawyer have any prior experience with the debtor or the client that is relevant. Generally experience with the debtor is what is relevant, have there been other claims, collections, dos the lawyer know anything about the debtor that would help in the analysis of the potential collection of claim. Once pass that, I think the lawyer would then probably look at the fee arrangement on which the case is offered. That presents a number of issues, there are typical fee arrangements in the industry that are a maybe a sliding scale percentage of contingent collection commissions in the event the claim is collected after the lawyer begins his or her efforts, that is a percentage of the collection that is net to the lawyer. There is also the question of the suit fee that is treated in a separate addition of this series. However, that is a fee that is paid, often contingent on collection after a suit is filed, that is in addition to the collection commission.
The rate of the commission is certainly a concern for the lawyer making sure it is in the realm of his reasonable view of what a claim like that should pay. It is also then begins to dove tail with how much work is going to be involved in the case. Is it unusual in any way, does it involve a clear dispute which is known? Are there parties that will have to be sued in different jurisdictions in different states, where are the assets, are there assets? This is a consideration that the lawyer would go through and perhaps it is the next consideration but it dove tails closely with the fee issues and that is, what is the likelihood of recovery? If this is on a holy contingent basis then the lawyer is only going to get paid if he collects so he has to make some judgment as to whether or not he is likely to collect and how much work that will take.
Clearly, you cannot make those prediction totally accurately at the frontend unless you have had some real experience with this debtor and you can see what the result is going to be. But you make a judgment, that is what the lawyer does, makes a judgment as to whether or not he want to risk his time on this case. There are considerations that are covered in other editions of this series, the suit fee as I said, the fee arrangement in the event there is a contest of a trail, what expenses are going to be reimbursed, what sort of investment has to be made by the lawyer?
Finally there is the relationship with the client or the forwarder. Is this a good client, is this someone who the lawyer has received profitable business from in the past? Is this a 1 shot deal? Those are considerations the lawyer has to reveal in order to decide whether to accept the offered claim on the fee arrangement.
This has been another installment of the 5 minute Legal Master series where expert attorneys help you master important legal topics. For more information on this and other topics please visit 5minutelegalmaster.com