Screening Out "Problem Clients": Client Evaluation
by Kirsten Christophe
(County Bar Update, August 2001, Vol. 21, No. 7)

 

Screening Out "Problem Clients":
Client Evaluation

By Kirsten Christophe, Esq.
(c) 2000 Christophe Consulting

Beyond basic issues such as evaluating potential conflicts and agreeing on fees, firms should use other factors for evaluating clients. Although these "red flags" won't be determinative in every situation, each should be considered. A few examples illustrate the importance of these factors:

Reasons Why They Selected You -- Most clients either have used other attorneys in the past or at least knew other attorneys they could have gone to with a new matter. It is therefore important to determine why the client chose a particular firm and a particular attorney.

Red Flag -- For example, in a personal injury case, the client may have gone to another attorney who refused to undertake the representation because the attorney believed that the client was faking the injury. In a securities matter, the client may not have been cooperative in the disclosure process in a previous offering. A prior fee dispute is another reason for selecting a new attorney.

Relationship and Experience with Prior or Current Attorneys -- Firms should consider discussing with new clients their relationships with other attorneys, explaining why contact with those attorneys can be beneficial. For example, the client may save money by allowing the new attorney to learn about prior transactions handled by former attorneys.

Red Flag -- A client who appears too defensive about such proposed contact with the former attorneys may have something to hide that the prospective attorney should know.

Relationship with Other Professionals -- Just as a client's history of short-term relationships with other attorneys (even if no reason can be identified) may be a red flag, the same is true of relationships with other professionals.

Red Flag -- Although there are many reasons to change attorneys, accountants, doctors and dentists, a pattern of short-term professional relationships could reflect a problem.

Red Flag -- The prospective client or its management may be personally unstable. This may become evident whenever a result isn't perfect or doesn't meet the client's expectations. It also could reflect that the client is unable to deal with the fees charged by professionals, such as attorneys and accountants, when the client cannot observe the effort being made.

Personality Traits and Demeanor at Initial Interview -- There are common characteristics that suggest that a client will sue, or cause others to sue, even if the attorney doesn't make an error.

Red Flag -- Areas to probe with caution include:

  • the motivation for using legal services,
  • the expectations regarding results,
  • the degree of patience and
  • the degree of insistence on controlling the details of the representation.

A new client who wants to sue primarily for revenge rather than economic gain poses a threat. Similarly, clients who assert that a matter can be easily handled and at very little expense may be upset if the result doesn't meet their expectations.

Background and Behavior Patterns Noted Directly or Through Investigation -- One area of concern is use of alcohol and drugs. Clients who are dependent on these substances are likely to cause a problem. Especially for transactional attorneys, clients who excessively use alcohol or illegal drugs present a higher risk than those who don't.

Red Flag -- Behavioral and background issues to consider include:

  • references;
  • excessive use of alcohol;
  • use of illegal drugs;
  • excessive gambling;
  • financial problems, indicated by outstanding judgments, bankruptcy filings, credit rating;
  • history of personal legal problems.

Business Background of Prospective Individual Client or Key Individuals of Client Organization -- To the extent that the prospective client doesn't have the skills necessary to engage in a business, economic failure is a distinct possibility. When that occurs, the client may search for an excuse, and the first one may be allegedly poor advice from the attorney.

For an individual or key persons of an organization, employment history can be important. While frequent changes in employment don't predict an unstable attorney-client relationship, the reason for those changes and any patterns should be evaluated.

Red Flag -- Inexperience or patterns of instability may be noted from general employment history, the specific business involved in the underlying matter and individual's experience with similar businesses.

Multiple Roles of Prospective Individual Clients or Key Persons in Client Organization -- When an individual client wears more than one hat in a transaction, it's often difficult for the lawyer and the client to discern the role in which the lawyer is representing the client. Often, competing goals may cause a conflict of interest that may leave the lawyer vulnerable to a malpractice claim.

Similarly, where several key persons in an organization seek representation in their distinct roles, a conflict of interest may arise.

Red Flag -- Multiple roles of which to be wary and to inquire include:

  • director, officer or partner;
  • broker or other intermediary;
  • relationship with a lawyer in the firm or a relative of the lawyer.

"Gut Reaction" or "Smell" Factor -- Often, when speaking of a malpractice claimant, an attorney will say, "I knew that guy was trouble from the moment he walked in the door." Learning to trust your initial "gut reaction", even when you cannot identify a concrete reason why you think a client may bring problems later, is often a skill learned the hard way. You may find that a staff member with good instincts can assist in this role as well. By routinely considering your "gut reaction" as a formal part of your client intake process, you lend credence to this important risk management tool.

Red Flag -- For each prospective client, ask yourself the following questions:

  • Are you comfortable with the prospective client or the key persons of the client organization?
  • What is the "gut reaction" of a staff member to this prospective client?
  • Do you believe the prospective client will follow your advice?
  • Do you believe representation of the prospective client will enhance your firm's reputation?

Although related to many other factors, firms should examine the likelihood that prospective clients may disregard an attorney's instructions. This is critical in transactions that involve disclosures or warranties, such as franchise agreements, real estate contracts, private placement memoranda and documents filed with the Securities and Exchange Commission. If the client disregards advice in such transactions, the firm can face exposure.

All of the factors and "red flags" that are noted in this article should be included routinely in a new client review form or process. If possible, it is helpful to have someone other than the originating attorney evaluate these factors. Often a savvy or long-term staff member will have valuable insights and may have noted factors the lawyer did not. Each area reviewed should be identified as positive, negative or neutral.

Ultimately, a judgment call will be made but only after a routine thorough "reality check". Sometimes a new matter may be accepted despite several negative factors, because they are only marginally negative. Or despite some strong negative indicators, the positive indicators nonetheless could predominate. Both the firm and the client may be well-served by the firm going forward in that instance. The routine review of these factors will help the lawyer maintain objectivity in evaluating a prospective client, particularly those that may otherwise appear lucrative or highly desirable.

 

This article, which originally appeared in the Aon Attorneys' Advantage Risk Management Newsletter, "The Quarter Hour", is reprinted with permission of the copyright holder through Aon Attorneys' Advantage. This article is intended to inform the reader of potential liability exposures for attorneys. These exposures and their management vary among attorneys and over time. This article reflects general principles only and does not render legal advice. This article does not establish or recommend specific guidelines or standards for legal practice or its management, or for attorney liability exposures or their management. Readers should consult legal, financial, insurance and other advisors if they have specific concerns. Neither the Los Angeles County Bar Association, Aon and its affiliates, nor "The Quarter Hour" assumes any responsibility for how the information in this article is applied in practice or for the accuracy and completeness of this information. Reproduction without written permission is prohibited.
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