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Category: Fee Dispute

Law Firm Billing Tips For Good Client Relations

December 1, 2020

A recent Law 360 story by Aebra Coe, “Law Firm Billing Tips For Avoiding An Irate Client,” reports that a recent lawsuit filed against K&L Gates LLP by a client unhappy with a legal bill highlights some common pitfalls that law firms face when it comes to billing practices, but there are ways to avoid a similar situation, experts say.  The lawsuit against K&L Gates, which was filed in August by Chicora Life Center LC, accuses the firm of using several tactics to increase its bill for representing the bankrupt medical center in a Chapter 11 proceeding over a lease termination dispute.

Some of the alleged billing practices are not entirely uncommon among law firms, according to two experts who declined to comment directly on the lawsuit but provided their thoughts on client billing more generally.  The alleged practices include "block billing," where a lawyer "blocks" together a number of tasks over a set amount of hours; "hoarding," when an overqualified lawyer with a high billing rate retains work rather than passing it on to someone with a lower billing rate; and "multibilling," which occurs when multiple attorneys are tasked with performing the same work.

"All of those things mentioned have been going on for years and years.  This is not at all new," said James Wilbur, an expert on law firm billing at consulting firm Altman Weil Inc.  Regardless of how the K&L Gates suit shakes out in court, other law firms are likely looking for ways to avoid being in a similar position.  While such situations are not entirely preventable because clients can sometimes file bad-faith suits, there are steps firms can take to ensure clients are as happy as possible with a bill at the conclusion of a matter, Wilbur said.

He suggested firms rely on three things to accomplish this: technology, training and collaboration.  E-billing software can often catch double billing and block billing, he said, as well as phrases that might irk a client, like "reviewed phone notes," that may not indicate that the time spent added any value to the matter.

And that leads to training, which should be conducted at all levels on a regular basis so that any attorney or paralegal who puts together a bill is aware of best practices and is skilled in conveying the value brought to the client via the time the individual spent working, he said.  Senior attorneys billing for work that could be done by someone more junior is another beast, Wilbur said, and one that law firm management must work to dissuade by encouraging collaboration and the sharing of work.

Clients have many different rules when it comes to fees, but "no surprises" is a big one, said Toby Brown, chief practice management officer at Perkins Coie LLP.  "The bottom-line answer is more transparency.  And more real-time updates about what's going on," Brown said.  "The lawyers are uncomfortable talking about these things, and so they don't talk about them head-on."

He said lawyers and clients can often get wrapped up in the legal issues at hand, with fee issues taking a back seat.  For example, if the volume of discovery in a major case increases substantially, a conversation on cost might not always occur, but it should, he said.  Real-time sharing of information on the cost of a matter is vital, Brown said.  He said his firm has worked to incorporate the help of its project management team to flag when the scope of a matter has changed so that the attorney on the matter is aware a conversation is needed.

The firm has also implemented technology that goes beyond basic e-billing software to allow attorneys to better monitor their budget on a matter, he said.  Ultimately, according to Wilbur, having a strong relationship with a client to begin with will go a long way.

"Even in a firm that's highly ethical and has training around these issues, mistakes are going to happen. Something is going to creep through," he said.  "The first thing is you have to have a good enough relationship with the client so they know they can text or email you, pick up the phone and point out a problem in the bill, and you will deal with it without arguing."

When contacted by Law360 for comment about its case, K&L Gates described Chicora's claims as "a transparent attempt to re-litigate issues that were raised and rejected years ago through final orders in a concluded bankruptcy."  A third-party fee examiner, it said, expressly found that the fees requested by the firm were reasonable and should be recoverable, and then the bankruptcy court adopted that determination.  "We are confident the present claims also will be rejected," the firm said.

Judge Tosses Suit Seeking Coverage of Defense Fees

November 23, 2020

A recent Law 360 story by Rachel O’Brien, “Judge Nixes Suit For Crypto Co. Investor’s $728K Atty Fees,” reports that a New York federal judge tossed a lawsuit by an alleged pump-and-dump scheme mastermind asking for his attorney fees to be paid by a cryptocurrency company involved in the alleged scheme, ordering the man to pay the company's fees instead.  While Barry Honig and his business GRQ Consultants Inc. point to indemnification clauses in agreements with Riot Blockchain as proof that his legal fees should be paid, U.S. District Judge Naomi Reice Buchwald said the clauses say the opposite.

Honig, at one time the largest shareholder in Riot Blockchain, spearheaded a $27 million pump-and-dump scheme involving 10 individuals and 10 associated corporate entities, the U.S. Securities and Exchange Commission alleged in September 2018.  Honig and others, including former Teva Pharmaceutical Industries Ltd. chairman Phillip Frost and Riot Blockchain CEO John O'Rourke, manipulated stock prices in three microcap companies and left investors holding "virtually worthless shares," the SEC said.

In July 2019, Honig settled the SEC claims without admitted any wrongdoing, submitting to an injunction barring him from future violations of federal securities laws, a penny stock ban and further restrictions.  Honig was named in several other suits, including in five shareholder derivative actions which alleged Riot, its directors and officers and Honig violated securities laws, and that Honig bought stock from Riot to gain "control" over the company so he could violate the securities laws.

A February 2018 class action from shareholder Creighton Takata in New Jersey federal court alleged that Honig's purchase of securities was part of a "fraudulent scheme consisting of misrepresentations, omissions, and actions that deceived the investing public in violation of securities laws."  He called those allegations "a house of cards" in his October 2019 motion to dismiss, which was granted in April because the shareholders didn't show how the defendants violated anti-fraud provisions of federal securities law, the judge said then.

In the case tossed, Honig had argued that the security purchase agreements he entered into with Riot in 2017 to buy convertible promissory notes and common stock purchase warrants guaranteed that if Honig was a defendant in a lawsuit, Riot would pay his legal fees.  The indemnification clauses in the agreements, Honig argued in the April suit, meant Riot must pay the $728,000 attorney fees he incurred fighting securities fraud allegations by the SEC and in class actions.

Riot argued that Honig's claim fails because Riot isn't obligated to pay when the litigation is connected with actions "based upon ... any violations by [Honig] of securities laws or any conduct by [Honig] which constitutes fraud, gross negligence, willful misconduct or malfeasance by [Honig]."  But Honig said the carveout in the indemnification clause only applies to actual securities violations, and since some of the lawsuits are ongoing, he's entitled to advancement of legal costs.

Judge Reice Buchwald agreed with Riot that "the allegations of the underlying action — not the merits of the action — govern Riot's obligations."  Since it's the nature of the allegations that trigger the obligation to indemnify, the clauses clearly side with Riot, Judge Reice Buchwald said.  "If there were any ambiguity, which there is not, about when the obligation to indemnify is determined (and thus whether allegations or merits control), the next sentence of Section 4.8 confirms the court's conclusion," she said.  She pointed to the section that states if an action is brought wherein the indemnity clause might be implemented, Honig must notify Riot in writing and Riot "shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to [Honig]."

"The logic of Section 4.8's structure is apparent," the judge said.  "The first sentence informs the parties as to whether indemnification is required.  If and when those conditions are satisfied, Honig would notify Riot, which then has the option to assume the defense.  The provision presupposes that the parties can determine, prior to that notice, whether an obligation to indemnify exists."

Judge Reice Buchwald also granted Riot's motion that Honig pay its reasonable attorney fees for this action.  Scott Carlton of Paul Hastings LLP, counsel for Riot Blockchain, told Law360 in a statement, "We are pleased with the court's careful consideration in this matter, including the awarding of attorneys' fees for Riot Blockchain as the prevailing party."

Insurers Refuse to Pay $18M in Defense Fees in Experian Class Actions

November 19, 2020

A recent Law 360 story by Joanne Faulkner, “Insurers Deny Liability in Experian’s $18M Legal Fees Suit,” reports that two insurers have told a London judge they are entitled to refuse to pay Experian's $18 million claim for coverage of its U.S. legal fees in a pair of class actions over errant credit reporting because the litigation stems from deliberate data erasure by staff at the company.  Zurich Insurance PLC and a subsidiary of SCOR said Experian's policy excludes "deliberate acts" such as those that allegedly form the basis of two major class action suits in the U.S., a newly public Nov. 13 defense said, after the company sued to claw back litigation fees.

The claims made against Experian — which said it has racked up millions of dollars in liabilities and legal costs defending the suits — were for statutory damages according to the U.S. Fair Credit Reporting Act.  If Experian is liable, it is the result of a "wilful (or reckless) failure on the part of an employee or employees … to comply with the FCRA," the defense said. 

Experian says in its October High Court suit that it paid a class of more than 100,000 payday loan customers $24 million to settle a lawsuit in January brought by lead plaintiff Demeta Reyes.  A $5 million deal was reached with consumers in the so-called Smith action.  The customers said they were harmed by inaccurate reporting of their credit history.  The insurers said that Experian's alleged liability in the Reyes action arises out of the deleting of loan records —  particularly those held by an entity called Delbert Services Corp.  In the Smith action, it is connected to the re-reporting of records relating to loans held by CashCall Inc.  Experian directors were involved in the decision-making in both incidents, the insurers said.

From April 2015 through April 2016, Experian held a complex multitiered insurance "tower" consisting of a primary policy from XL Specialty Insurance Co. and several layers of excess coverage, Experian says.  Zurich and SCOR unit General Security Indemnity Co. of Arizona are each liable for half of a $20 million excess policy, which kicked in once the underlying coverage was depleted, Experian says.  So far the insurers have only paid out a slice of the $20 million excess that Experian says it is entitled to, the company alleges.

Experian is also seeking a declaration from the court that the insurers will cover financial penalties that Experian may have to pay as a result of investigations into a 2015 cyberattack.  The two insurers said that coverage is provided for regulatory fines and penalties, but Experian must prove that any sanction is "lawfully insurable."

Experian says it has run up costs of more than $32 million defending two major related class suits.  Thousands of consumers successfully argued that Experian's failure to delete certain negative information in their consumer credit reports caused them harm.

Experian says it should be able to recover $18 million in legal costs from the insurers under its third-party liability and first-party insurance policies.  The suit also name-checks an action brought by Carolyn Clark alleging the company violated the FCRA, which ended up costing Experian more than $21 million. The company says it could be entitled to an indemnity of $14.3 million from the insurers to cover the costs from that case.

Quinn Emanuel Seeks to Collect $15M in Unpaid Fees

November 18, 2020

A recent Law 360 story by Diamond Naga Siu, “Quinn Emanuel Looks to Collect $15M in Unpaid Fees,” reports that Quinn Emanuel Urquhart & Sullivan LLP urged a D.C. federal judge to confirm and enforce a $15 million arbitration award for unpaid legal fees after the Indian textile manufacturer it previously represented ignored documents to confirm the amount for more than a year.  CLC Industries Limited — formerly known as Spentex Industries Limited — used the law firm when it initiated a failed cotton investment claim against Uzbekistan in 2013 for bankrupting three cotton processing plants it invested in.

After the case was tossed, CLC Industries allegedly did not pay Quinn Emanuel its legal fees, and the firm initiated arbitration in the United States with the Judicial Arbitration and Mediation Services, Inc., or JAMS, against the textile company to receive payment.  JAMS awarded the fees in 2018, according to Quinn Emanuel's affidavit, ruling that the law firm could collect them as described under a letter of engagement the law firm and company entered ahead of the arbitration against Uzbekistan.

"More than 500 days elapsed since Respondents were served with the Petition," Quinn Emanuel wrote in its filing, referring to how long the firm's petition to confirm the award amount has been ignored.  "Petitioner respectfully requests the entry of a default against Respondents."  "Petitioner served the Petition and accompanying exhibits on Respondents by Federal Express on July 3, 2019, pursuant to Respondents' consent to service of process 'by regular mail or courier' in the Engagement Agreement," the firm added.

Quinn Emanuel said that CLC Industries received and signed for the documents at its New Delhi, India, office within the week the petition was sent.

CLC Industries opened a case in the Delhi High Court in India, asking Judge Jayant Nath to dismiss certain fees in its letter of engagement with Quinn Emanuel.  CLC and the law firm had signed the original agreement in 2013 but amended it in 2015 after they realized the case would be complex and expensive to fight, according to Judge Nath's opinion.

He ruled in favor of the law firm in May, saying that the textile company was responsible for paying Quinn Emanuel's contingency fees, which aren't permitted in India.  The judge ruled that since the letter of engagement was governed by U.S. laws, the fee arrangement was allowed.  "They have chosen to abstain themselves from the arbitration proceedings and the award has already been passed," Judge Nath wrote, referring to the award of legal fees.  "They are free to take appropriate steps as per law against the award."

Article: Five Cost-Cutting Strategies for Corporate Legal Departments

October 22, 2020

A recent Law.com article by Nathan Wenzel of SimpleLegal Inc., “5 Cost-Cutting Strategies For Corporate Legal Department,” reports on legal cost measures for corporate legal departments.  This article was posted with permission.  The article reads:

Corporate legal departments have long been focused on reducing legal spending.  The emphasis on cost-cutting has only increased in 2020 as the economic uncertainties of the pandemic have caused companies to scrutinize expenses across the board.

According to a recent report from the Corporate Legal Operations Consortium, 61 cents of every dollar spent on legal costs in 2020 goes to external legal costs — a 15-cent increase from 2018.  This uptick, combined with the year's novel challenges, has many legal departments looking for new ways to control legal expenses beyond reviewing line items, which has proven to be ineffective for many companies.

While there's been a lot of chatter in the industry about the need to switch to fixed fees or alternative fee arrangements to reduce costs, these shifts have been slow to take hold.  They're also difficult to measure if we retain a focus on the billable hour.

When clients ask firms for fixed fees but also request the hours worked so they "know that the fixed fee was the right price," then we haven't really made the change to fixed fees.  It is a difficult transition and one that will take time.  We should always push toward better alignment of price and value, but we need to balance near-term realities with long-term goals.

In the near term, we need to control costs — even if that only means focusing on hourly rates.  In the long term, we need to align the work to the right types of providers at the right price, where price has very little connection to hourly rates.  No one wants to buy time.  We want outcomes, not hours.

To solve for both the short-term and long-term goals, we start with data.  Analyzing and reducing your legal spending start with asking yourself the following questions:

What am I spending now, on what and with which providers?
How does my current spending compare to past spending?
How am I allocating my legal work?
What metrics am I using to measure cost control?
Are there other cost considerations I'm overlooking?

1.  Understand where you are now.

The first step of implementing a change is to understand the current state. Reducing legal spending first requires knowing where you are right now.  This means not only keeping up with the total dollar figure of your spending, but how much you're spending in each practice area and with which law firms or providers.

Don't forget to also investigate the work you currently perform in-house.  With an understanding of outside legal spend and in-house legal work, you will have the current picture of how you allocate the demand for legal services from the business to the supply of legal services you have available.  With this deeper insight, you'll start to see where you can actually have an impact on spending.

Without this data, you risk investing time into an area that looks compelling but won't create real savings.  For example, reducing money spent on compliance may seem like a good idea because the partners at your primary firm have very high billing rates.  But if only 5% of your annual spending goes toward compliance work or if the primary compliance firm effectively leverages associates and paralegals, your efforts won't translate into real savings for the business.

When you track data and analyze legal spending details from your e-billing system, you'll be better equipped to start a real conversation about reductions.  You can identify the practice areas and firms where your efforts will create real returns.

2.  Compare now to where you used to be.

Your business is not static.  It's important to understand where you are today, but it is even more important to understand how things change over time. After you determine where you're spending your money today, you need to compare those numbers to what you were doing last year or the last time you negotiated rates and pricing.

You may have a reliable history of sending work to a single attorney or team at a firm. You may have increased the amount of work sent to a particular firm or in a particular practice area.  If you used to send $2 million worth of business to a firm and now spend $5 million with that firm, that's a powerful position for starting rate and price negotiations.

Additionally, if your team uses multiple firms for similar work, you may benefit from consolidating that work with fewer preferred firms.  Larger companies may go through a formal panel selection process annually or every few years.  A preferred panel is a great tool to provide the best legal services to the business at the best price if you have the team and time to implement this type of program.  But you can still achieve the benefits of allocating work to fewer firms without a full preferred panel program.

You don't always know what the demand for legal services will be from year to year.  But if your data shows that you have a history of allocating work among several firms, ask those firms what they would be willing to do to earn a greater share of that work.

3. Understand how you're allocating work.

After you have an understanding of the dollar value of your legal spending, you need to know how you're allocating different types of work, to whom and why. How you're assigning your legal work certainly depends on finding the provider with the right expertise but should be equally dependent on its business impact and complexity.

Your high-impact, high-complexity work probably belongs with the more expensive firms.  An example of a high-impact matter could be a large litigation that threatens the balance sheet of the company.  Or it might be a patent for the core technology driving your business.  In either case, you might choose to work with the very best money can buy.

Every year the legal press makes a big deal about high billable rates for eye-catching headlines.  But for your highest-impact and highest-complexity work, those firms and lawyers are probably a bargain at twice the price.  You're buying outcomes, not hours.

Too many companies simply send the rest of their work along with their high-impact work without stopping to see if smaller matters would be better handled by a lower-cost provider.  There are a variety of suppliers beyond the Am Law 100, such as specialty firms, alternative legal service providers, nonlegal consultants and your in-house team.

Your low-impact, low-complexity work probably doesn't need to go to the premier firms.  Specialty firms, alternative legal service providers, consultants and solo practitioners may not have massive staff and unlimited support resources, but they can still provide high-quality work at a fraction of the price.

You may also have high-impact but routine work where speed and a deep understanding of business issues are important.  The most common example here is commercial contracts.

For customer contracts, any delay in reviewing costs the company revenue. An extensive back-and-forth over mundane legal minutiae could cause your company to miss a quarter's revenue target.  In-house teams will have a better understanding of business priorities and can better deliver the right kind of legal work with speed at the right price.

When you satisfy your demand with the right mix of supply, the potential for savings is much greater than through rate discounts alone.  Allocating work based on impact and complexity provides far greater cost savings than a 10% rate reduction when the right provider is already half the price.

4. Use the right metrics.

You can't manage what you can't measure.  You get what you incentivize.  These two classic business statements tell us that we need to measure savings with the right metrics.

How are you measuring cost savings today?  Is it through average hourly rates?  Adjustments to bills based on guidelines?  If you measure discounts on rates to determine savings, you're going to focus on high hourly rate firms that discount their hour rates.  But is that really saving your company any money?

Achieving savings by reallocating work rather than by negotiating rate discounts definitely makes sense.  But with the wrong metrics it is harder for the C-suite to understand what you've accomplished.  If you measure and report savings only as the discount on standard rates, the reallocation effort appears to have achieved nothing.  In fact, if the work was moved in-house or to a provider with a lower but not discounted rate, it may appear that you have lost savings because you won't have a discount to report.

In fact, with the wrong metrics, if you were to implement a routing tool for automated nondisclosure agreement review, it might appear to be a driver of cost even if it created hard dollar savings from external counsel and soft dollar savings — i.e., efficiencies — from allowing in-house counsel to spend time on high-impact, high-complexity work.  With the right metrics, you can show the true return on these investments.

To demonstrate the full value of the savings and quality initiatives, you might need to use new metrics.  I am certainly not advocating for cherry-picking data or choosing vanity metrics.  To the contrary, the right metrics will actually make more sense to the business, the CEO and the board.

Legal expense as a percentage of revenue has been promoted in Association of Corporate Counsel benchmarking studies and Altman Weil Inc. surveys. It is well understood and trusted by chief financial officers and CEOs.

Whichever metrics are used to measure legal cost controls, just remember that you get what you incentivize.  If you're going to achieve cost savings, you need to use the right metrics to incentivize your team and showcase results.

5. Monitor compliance with your billing guidelines, consider automation of certain legal tasks and standardize workflows.

The preceding four steps are the critical actions that build on each other to significantly trim legal spending.  It's a journey.  You don't need to take all the steps all at once to achieve results.  Alongside those major considerations, there are a couple other things to keep in mind to run alongside those longer-term initiatives.

The first is billing guidelines.  Your billing guidelines let your firms know what it means to be a good legal partner to your department and a good business partner to your company.

Guidelines often devolve into rules about copy charges and not billing excessively for underqualified people — things your firms probably already do on their own to better serve their clients.  You should always be monitoring compliance with your billing guidelines and enforcing timekeeper rates, but it is important to remember that ensuring that your firms only bill for work in accordance with your guidelines isn't actual savings — it only prevents overcharging.

Another way to reduce legal costs and improve response time is to automate low-complexity, low-impact legal tasks and standardize workflows.  Automation of basic document review by artificially intelligent contract review tools can be a big time and money saver.  As an example, nondisclosure agreements are high-volume but typically low-impact documents that can be reviewed with the help of AI-enabled tools.

In addition to automation, standardized playbooks designed by the legal team to give other departments a checklist of items to review can also help improve turnaround time and reduce costs.  For example, a sourcing manager in a procurement department could be given a checklist of five or six specific business and legal terms to review before sending to the legal team.

Automation and standardization improve speed of delivery and reduce cost of delivery for the business.

The Path to Lower Legal Spending

It's time to shift the perspective on cost reduction beyond hourly rates and copy charges.  As legal departments, you need to look at where you are now, how that compares to the past, how you're allocating your work and whether you're using the right legal spending metrics to achieve real savings.  These steps with effective legal billing guidelines, automation and standardization provide the foundation to match your company's demand for legal services to the right legal service providers to trim your spending while improving delivery.

Nathan Wenzel is co-founder at SimpleLegal Inc.