To pressure a client to pay an unpaid bill, can a New Hampshire lawyer report the debt to the IRS as forgiven, or report the nonpayment to an agency that regulates the client?

Plain-English summary

A lawyer represented an organization, did the work, and was not paid the full bill. Wanting to avoid a fee suit (and a likely malpractice counterclaim), she asked whether she could file a Form 1099 reporting the unpaid fees to the IRS as forgiven debt, and report the nonpayment to the Charitable Trust Division of the Attorney General's Office, which regulates the organization, to pressure payment.

The opinion says no to both. It treats billing records and the fact that the client owes money as confidential information relating to the representation under Rule 1.6, a duty that continues after the representation ends under Rule 1.9. Reporting forgiven debt to the IRS would expose the former client to tax liability and is a disclosure of confidential information whether or not it disadvantages the client.

The opinion works through the Rule 1.6 disclosure exceptions and finds none applies. The self-defense exception in Rule 1.6(b)(3) does not fit, because the lawyer's purpose is to encourage payment, not to establish a claim or defense in a controversy with the client. The opinion assumes no IRS rule or statute compels reporting a write-off of legal fees, so the "comply with other law" exception in Rule 1.6(b)(4) does not apply either. The same reasoning bars reporting the debt to the client's regulator. The opinion notes the lawyer may instead use means like requiring a current retainer and a thorough fee agreement under Rule 1.5, and it cautions that creative collection tactics can implicate New Hampshire's extortion statute, citing State v. Hynes.

In practice

The opinion holds that, under the New Hampshire Rules as they stood when it issued, a lawyer collecting fees may not reveal or use a client's confidential information, including the existence of the debt, except as the Rule 1.6 exceptions allow. It concludes neither the self-defense exception nor the "other law" exception covers reporting forgiven debt to the IRS or reporting nonpayment to the client's regulator. It points to a thorough fee agreement and a current retainer under Rule 1.5 as permissible alternatives, and notes that if the lawyer sues for the fee or must defend a client suit, she may then use confidential information as reasonably necessary.

Common questions

Q: Can a lawyer file a 1099 with the IRS reporting unpaid fees as forgiven debt to pressure a client to pay?

A: No. The opinion concludes that doing so discloses confidential information in violation of Rules 1.6 and 1.9, where no law requires the reporting and the purpose is to encourage payment rather than to establish a claim or defense.

Q: Can a lawyer report a client's nonpayment to a government agency that regulates the client?

A: No. The opinion finds no exception in the rules that allows revealing the client's debt to a regulator; the lawyer is limited to seeking payment or establishing a claim against the client.

Q: Are billing records and the fact that a client owes money confidential?

A: Yes. The opinion treats billing records and the fact of the debt as information relating to the representation protected by Rule 1.6, and notes the duty continues after the representation under Rule 1.9.

Q: When can a lawyer use confidential information to collect a fee?

A: The opinion explains that if the lawyer actually sues to collect the fee, or must defend a suit brought by the client, the lawyer may then use confidential client information as reasonably necessary under the self-defense exception.

Background and rules framework

The opinion interprets New Hampshire Rule 1.6 (confidentiality of information), including the self-defense exception in Rule 1.6(b)(3) and the "comply with other law" exception in Rule 1.6(b)(4), and Rule 1.9 (duties to former clients), which extends the confidentiality duty past the end of the representation. It points to Rule 1.5 (fees) for the alternative of a thorough fee agreement and current retainer. The opinion also warns that aggressive collection tactics can implicate New Hampshire's extortion statute, RSA 637:5.

Citations and references

Rules of Professional Conduct:

• MR 1.6 / NH Rule 1.6 (confidentiality of information; exceptions in 1.6(b)(3) and (b)(4))
• MR 1.9 / NH Rule 1.9 (duties to former clients)
• MR 1.5 / NH Rule 1.5 (fees)

Statutes:

• RSA 637:5 (New Hampshire extortion statute)

Cases:

• State v. Hynes, 159 N.H. 187 (2009), attorney convicted under the extortion statute's catch-all provision

Other opinions cited:

• NH Ethics Op. #2000-01/05: confidentiality of billing records disclosed to a third-party auditor

See also

• ABA Formal Op. 476: Confidentiality and Withdrawal for Nonpayment of Fees
• ABA Formal Op. 519: Disclosure of Information in a Motion to Withdraw
• Alabama Bar Op. 2005-02: Billing Client for Attorney's Fees, Costs, and Expenses

Source

• Landing page: https://www.nhbar.org/ethics/opinion-2010-11-01
• Original PDF: https://nhba.s3.amazonaws.com/wp-content/uploads/2020/01/14111509/2010-11-01-REFORMATTED-Collecting-Attorney%E2%80%99s-Fees-%E2%80%93-Debt-Forgiveness-and-Reporting-to-Regulating-Agency-.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.
NEW HAMPSHIRE BAR ASSOCIATION

Collecting Attorney’s Fees – Debt Forgiveness and Reporting to Regulating Agency

                   Ethics Committee Advisory Opinion 2010/11-01

ABSTRACT:

    In an attempt to collect an unpaid bill, an attorney may not (a) threaten to or actually

inform the Internal Revenue Service that the attorney has written off the account receivable and
considers the unpaid legal fees a debt that has been forgiven, or (b) inform a regulatory agency
that a client owes unpaid fees to the attorney.

ANNOTATIONS:

   An attorney violates Rules 1.9 (Duties to Former Client) and 1.6 (Confidentiality of

Information) by informing the Internal Revenue Service the attorney has written off an account
receivable and considers that the unpaid legal fees are a debt that has been forgiven.

   An attorney violates Rules 1.9 (Duties to Former Client) and 1.6 (Confidentiality of

Information) by informing a regulatory agency that a client owes unpaid fees to the attorney.

OPINION:

   UNDERLYING FACTS:

   Attorney met with several members of the board of directors and agreed to provide legal

services to an organization. She had a good faith belief that the Board had authority to retain her
and obtained a signed fee agreement and retainer.

   The work provided by the attorney exceeded the amount of the retainer paid by the

organization. When the final bill was presented, an officer of the organization refused to pay the
additional amount, stating that the work had not been properly authorized by the organization.
Attorney believes this to be an incorrect legal argument. Also, the officer admitted that the work
was properly completed, the result was what the members of the board had sought and the
organization had benefitted from the work.

     The attorney wishes to collect her fee without the need to file a suit. She is aware that

filing a fee action often results in a counterclaim for malpractice. Also, she believes her
malpractice insurance policy bars her from suing a client for unpaid fees.
In order to enhance her chance of getting paid for her work, she would like to inform the client of
her intent to file a Form 1099, indicating a taxable debt forgiveness, with the IRS and also to
provide information on the debt forgiveness to the governmental agency that regulates the
organization, here the Charitable Trust Division of the Attorney General’s Office.

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QUESTIONS PRESENTED:

   1.      Whether an attorney who is owed money by a client for services rendered and not

paid pursuant to a written fee agreement may write off the account receivable and, without being
compelled by federal law, issue a 1099 form to the former client and to the IRS showing
forgiveness of the unpaid fees?

    2.     Whether an attorney who is owed money by a former client for services rendered

and not paid for pursuant to a written fee agreement, without being compelled by state law, may
report the non-payment of fees to a state agency that regulates the organizational client?

   ANALYSIS:

   It is perhaps not surprising that attorneys are having greater difficulty in collecting on

accounts receivable in this time of economic difficulty. Nonetheless, attorneys need to carefully
consider the methods they employ in trying to collect these fees.

    It is the bedrock of the attorney-client relationship that the attorney will not reveal

information provided during representation of a client, unless expressly or impliedly authorized
to do so. The comments to the New Hampshire Rules of Professional Conduct describe the
disclosure of client confidences as “an extreme and irrevocable act.” Rule 1.6, New Hampshire
Comments.

    This fiduciary duty to the client continues after the attorney-client relationship has

terminated. Rule 1.9. An attorney must maintain as confidential not only information provided
by the client, but “…information relating to the representation…” from whatever source,
including information generated by the attorney. Billing records, and the fact that the client owes
money to the attorney, are confidential information relating to the representation of the client. In
a prior opinion, this committee determined that it may be a violation of the attorney’s duty of
confidentiality to reveal billing records to a third-party auditor in an insurance defense
case. See NH Ethics Opinion #2000-01/05.

    There are limited exceptions that permit an attorney to disclose confidential information

without obtaining the informed consent of the client. Of particular relevance to this inquiry is
Rule 1.6 (b)(3) which permits a lawyer to disclose information necessary “to establish a claim or
defense on behalf of the lawyer in controversy between the lawyer and the client, to establish a
defense to a criminal charge or civil claim against the lawyer based upon conduct in which the
client was involved, or to respond to allegations in any proceeding concerning the lawyer’s
representation of the client;” and Rule 1.6(b)(4), which allows disclosure “to comply with other
law or a court order.”

   For the attorney to file a Form1099 with the Internal Revenue Service showing debt

forgiveness would potentially subject the former client to liability for payment of income tax for
the amount of debt that was written off by the attorney. This would be disclosing confidential
information, whether or not the disclosure is to the disadvantage of the former client. The

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attorney’s intention in providing information to the IRS or to the Attorney General’s office is to
encourage the client to pay the attorney’s bill; it is not to establish a claim or defense in a
controversy between the lawyer and client; and it is not information that would be generally
known.

    In reaching this conclusion, the committee assumes that revealing this information is not

required by IRS rules or statutes and thus not necessary to comply with any law or court order.
The committee understands that, for example, forgiveness of a mortgage loan by an institution in
the business of making secured loans generally must be reported to the Internal Revenue Service,
but the committee is unaware of any Internal Revenue Code provision requiring that writing off
an amount owed for unpaid legal services be reported to the IRS. Thus, there is no exception to
the Rules that would allow the attorney to provide information about the client’s unpaid bill to
the Internal Revenue Service.

    Likewise, there is no exception in the Rules that allows the attorney to reveal the client’s

debt to a governmental agency that regulates the client. Pursuant to the Rules, the attorney is
limited to seeking payment from a client or establishing a claim against a client.

   The committee recommends that the attorney consider drafting a more thorough fee

agreement prior to representation of the client and perhaps seeking to insure that her retainer
payment is current. The attorney should consider including, at a minimum, the scope of
representation, rate of fees and expenses, and a statement that the individuals executing the
agreement are authorized to do so by the client. See Rule 1.5.

    The committee further recommends that, when considering creative collection

techniques, attorneys should be mindful of extortion law. See State v Hynes 159 N.H. 187 (2009)
(Catch-all provision of extortion law under which defendant, an attorney, was convicted states
that extortion occurs when a person threatens to “[d]o any other act which would not in itself
substantially benefit him but which would harm substantially any other person.” RSA 637:5.
(Defendant threatened to sue hair salon for alleged gender-based price discrimination unless
salon agreed to pay him $1,000.).

   CONCLUSION:

    Not being paid by a client is always a frustrating experience. However, in attempting to

collect fees from former clients, an attorney may not use or reveal information about a client or
use information to the disadvantage of a client, unless permitted by the Rules. The lawyer may
use other methods to guarantee payment for work, such as requiring a retainer. Also, should the
lawyer seek to collect the fee or be required to defend a suit by the client, she may then use
confidential client information as is reasonably necessary. See Rule 1.6, ABA Comment 14.

NH RULES OF PROFESSIONAL CONDUCT:
Rule 1.5
Rule 1.6
Rule 1.9

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SUBJECTS:
Duties to Former Clients
Confidentiality of Information
Fee Agreements

• By the NHBA Ethics Committee
This opinion was submitted for publication to the NHBA Board of Governors at its
December 16, 2010 meeting.

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