You Get What You Pay For

Jeff runs a restaurant that has  fallen on hard times as the result of the COVID-19 pandemic, leaving him shy of revenues, and full of legal issues to manage, including whether and how he should reopen his restaurant, how he should manage employees returning to work, how he should renegotiate his commercial lease, and how  he should respond to the  mounting claims of his vendors and suppliers.

Because Jeff has limited resources, and has long sought to avoid paying lawyers (whom he believes charge way too much for their services) he decides to consult with his friend Victor, a general practice lawyer, who seems to know a lot about how Jeff should manage his legal affairs. Victor is happy to help Jeff because he is a friend, but because Jeff does not expect to pay Victor for his services, Victor suggests that Jeff negotiate with the creditors directly with Victor behind the scenes.

Victor does not ask Jeff to execute an engagement letter and, to keep his time working on Jeff’s matters to a minimum, makes sure that telephone conversations with his friend are as short as possible. Victor is sympathetic to Jeff’s plight as a struggling business owner, but Victor must make a living too, and he is swamped by the needs of paying clients.  The result is that Victor works sporadically on Jeff’s matters and then for only a few minutes right before their phone calls. Jeff is very appreciative of Victor’s time, and Victor, for his part, is sincere in his desire to help Jeff, but things quickly get complicated.

Victor’s advice to Jeff on how to manage his commercial landlord is unsuccessful and Jeff receives a three-day eviction notice. On top of this, Jeff is wallowing in personal debt to banks, vendors, and suppliers. He calls Victor who advises that Jeff should consider filing for personal bankruptcy and sets him up with another friend, a bankruptcy attorney, who files a Chapter 7 (liquidation) bankruptcy on Jeff’s behalf. During the bankruptcy, Jeff is forced to part with many of his personal assets, including his home. At the end of the day, believing that he is finished with his creditors, Jeff concludes that the aggravation of his bankruptcy was worth it. But unfolding events prove otherwise.

Six months after discharge, Jeff starts getting notices from his state’s Department of Finance, seeking tens of thousands of dollars in unpaid sales taxes. Upon receiving the Demand Notice, he calls Victor for an explanation. Jeff tells Victor that he thought that by filing for personal bankruptcy he was now free and clear of his creditors’ claims. After listening to Jeff, Victor tells him that he recalls a conversation in which he warned Jeff that he was not a bankruptcy attorney, and that bankruptcy was not a fool proof method of clearing away all debts.

Jeff does not recall this conversation and calls the bankruptcy attorney, who explains to Jeff that he thought that Victor had explained that sales taxes in his state were not dischargeable in bankruptcy and that when the financial schedules of the company were presented to him for evaluation, the obligation to pay state sales taxes was not listed.

Jeff is beside himself, belatedly discovering that he still has huge financial obligations.  Victor is angry with Jeff for not being forthcoming on the tax obligations he had, believing that Jeff had some responsibility for making sure that he was accurately apprised concerning the finances of Jeff’s company.  Their friendship is now on life support.

The moral of the story is this: In these tumultuous times, formally engaging an attorney with expertise in the problem at hand is not a waste of resources, but an investment in a business’s future.  Consulting with friends and relatives, who happen to be lawyers, rather than formally retaining legal counsel, can be tempting, but is, generally, a  bad idea and can lead to all sorts of unintended consequences, including, lawsuits, financial ruin and, all too frequently, the fraying of close friendships.

By formally taking on a representation, lawyers are forced to recognize that that they are assuming responsibility for their client’s legal matters and are obligated to work diligently and competently on their client’s behalf. The problem with informal relationships between lawyers and clients is that the lawyer is less likely to dedicate the same amount of time and care to considering a non-paying friend’s legal issues as he or she would those of a paying client. The result of this is that the lawyer may overlook the nuances of a situation that could have significant impact on the case, or be reluctant to engage in an in-depth investigation that could require the client to divulge uncomfortable, maybe even embarrassing, information that could become critical in determining a legal strategy. Finally, to keep time dedicated to the friend’s case to a minimum, the lawyer might not educate the client concerning the full range of risks of a given action.

Well informed legal advice is critical to managing the legal minefields of the future. As the old saying goes, you get what you pay for.  Free legal advice, even from a well-intentioned friend or relative, can end up being very costly indeed.

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Robert Goodman
Robert Goodmanhttp://rigoodmanlaw.com/
Robert Ian Goodman, Esq. represents clients worldwide in the areas of complex commercial immigration and international and domestic commercial law. Mr. Goodman also provides general counsel services to entrepreneurs and start-up businesses and counsels foreign businesses interested in establishing a presence in the U.S. marketplace and U.S. businesses interested in expanding abroad. He also counsels law firms on Immigration and Commercial Law matters. Mr. Goodman is principal of Goodman Law and Goodman Immigration. He is also Special Counsel to Lawtelier LLP, based in New York City and Milan, Italy.

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