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Category: Billing Record / Entries

Why Law Firms Struggle with Outside Counsel Guidelines

December 4, 2019

A recent the American Lawyer article by Dan Packel, “Why Firms Struggle With Outside Counsel Guidelines – and Pay the Price,” reports on a new survey that draws a straight line between lower realization rates and law firms’ failure to communicate the substance of outside counsel guidelines to billing attorneys.  The article reads:

Law firms are struggling to comply with clients’ outside counsel guidelines, leading to slower rates of realization and increasing write-offs, according to a recent report from timekeeping technology company Bellefield and the Association of Legal Administrators.  In the groups’ inaugural survey of respondents from nearly 200 law firms, they found that firms’ failure to communicate the substance of these guidelines to the attorneys who actually bill leads to invoices that are rejected or reduced.

“They’ve got to make that business case to attorneys,” said Patricia Nagy, a director at Proxy PR who helped write the report.  “Attorneys are being overwhelmed with new tasks, in terms of compliance and information governance, but this one hits directly and immediately to their pocketbooks if they don’t comply.”

While corporate legal departments have been probing the consequences of these outside counsel guidelines for several years, this is the first effort to gauge their impact on law firms.  The survey received participation from 198 firms, over 20% of which have over 300 attorneys.  Almost 35% had between 51 and 299 attorneys, and nearly 30% had between 10 and 50.

Nagy said that she was surprised to discover that nearly one-quarter of firms surveyed made no effort at all to communicate these guidelines to billing attorneys.  Over 52% of firms share these guidelines with attorneys via email, and 24% simply post them on the firm’s intranet, with the hopes that lawyers look at them.  “We weren’t surprised there were a lot of process failures,” Nagy said.  “What was surprising was the degree of the failures, and that a lot of them were using ‘hope’ strategies.”  Indeed, even among the firms that communicate these guidelines to billing attorneys, 82% do not require acknowledgment of receipt, and attorneys are only monitored to ensure they are following guidelines 55% of the time.

As a consequence, when navigating clients’ e-billing systems, firms are finding that an increasing number of invoices are being rejected, even as firms have managed to keep rates robust.  The ALA and Bellefield survey shows that 70% of firms believe that e-billing has not improved billing and collections, with billing and collection cycles expanding, for the most part by 30 days, according to 41% of respondents, or 60 days, per 29%.

Rejections are also a growing problem. Nearly half the firms surveyed experience 5% to 10% of their e-bills rejected or reduced.  And 15% do not appeal rejections, either because of inadequate staffing or because they treat them as a cost of doing business.  Nagy noted that as clients increasingly use metrics to evaluate outside counsel, firms that make less friction during the invoicing process are more likely to receive repeat business.

Asked how they would like to improve the process, nearly 60% of respondents asked for more visibility into what corporate law departments actually want.  This tracks with a conclusion that these guidelines have actually made it harder for firms to communicate with clients, a sentiment shared with 40% of respondents, compared to 11% who point to improved communications.  And 45% of respondents hoped for a technological solution that would help them make sense of these guidelines.  With different guidelines coming in from each client, automation becomes a particularly challenging task.

Three Places Overbilling May Be Lurking

December 2, 2019

A recent Law 360 article by Andrew Strickler, “3 Places Overbilling May Be Lurking,” reports on overbilling.  The article reads:

By most accounts, the wild ol’ days of lawyer invoicing — rampant “block” entries, unauthorized billers, a stubborn dearth of detail — are a fading memory.  Over the last two decades or so, sophisticated buyers of legal services have tightened up billing standards, poured money and time into auditing, and routinely questioned what they’re getting for all those “0.2 hour” line items.

At the same time, courts and the bar have also become far more strict about what constitutes a “good” — and ethical — legal bill and helped cure the profession of at least some of its worst timekeeping habits.  But that doesn't mean overbilling doesn't happen or that the partners and managers responsible for reviewing bills can let down their guard.

“Law firms across the board have really improved their quality control, and if it keeps up like this, one day they’ll put me out of business,” said California legal fee auditor Jim Schratz.  “But I can also say they’re still far from perfect, and sometimes they just increase the chances their bill doesn’t get paid.”

Here are three overbilling trouble spots to watch for.

All Those Meetings

Any review of a legal bill, either before it goes to the client or an audit after the fact, should include a hard look at time billed for meetings, particularly repeat “update” meetings, experts say.  Professional auditors say “interoffice” get-togethers and conference calls are routinely scrutinized by cost-conscious clients for overbilling or inefficiencies.  But many firms still bill meeting time for people not clearly involved in the active issues in a case, or reflexively bill for the entire length of a meeting that might also cover nonbillable topics.

A good rule of thumb: Meetings attended by attorneys and support staff should represent 5% or less of all time billed over the course of a matter, professional fee auditors say.  Anything more reasonably invites questions about whether the client is paying to have billers “listen in” but not really push the client’s case forward.

“There are lots of things a lawyer can’t control, like how many depositions the other side calls,” Schratz said.  “But there are plenty of things you can, including staying away from these repeat entries saying something like ‘Conference with Joe’ when it’s not clear what Joe really contributed.”

Managing a Case vs. Managing the Business

Another flashpoint for overbilling comes at the intersection of partners working with junior lawyers doing billable work, and the more “supervisory” and firm-business kinds of tasks that aren’t.  While the agreed-to billing rules of engagements can vary, as a general rule, lawyers describing substantive legal work on time sheets should avoid "delegation" or administrative-sounding descriptors — training, assigning and proofing, to name a few examples.

Elise Frejka, a New York attorney and fee expert, said clients want to see "bang for their buck" language that doesn't imply that a biller is simply overseeing another biller's work.  "There is a trust factor here, and there is also good word choice," she said.  "And if I ever see the words 'ponder' or 'consider,' well, that sounds to me like something you should be doing in the shower."

John Trunko, legal audit director at fee audit firm Stuart Maue, agreed that practice leaders and managers can confuse client and supervisory duties, particularly when they’re overseeing lawyers and paralegals spending most of their time supporting the partner's matter.  “There is some gray area there, when you’re talking about billing for a specific discussion [with a junior person] related to an aspect of a case, or if it’s really about supervising and training someone more generally on their job or even just transmitting information to them,” Trunko said.  “At some point, that does become an administrative function rather than a billable piece of legal work," he added.

“Miniblocks"

The practice of block billing, in which lawyers include a long series of billable tasks in a single time entry, is widely understood to lead to client “upcharging” and has been rightly disparaged by many judges and bar ethics committees.  And in an era of increased scrutiny on outside legal budgets, many corporations explicitly prohibit law firms from using block billing in outside counsel guidelines.  But the practice persists, even if it’s not nearly as common as it was a decade ago.

Today, fee auditors say they often see firms grouping small numbers of billable tasks in single time entries.  And such “miniblock" billing isn’t necessarily a bad thing — as long as the client doesn’t object and the described tasks are obviously related, experts say.  Still, practice group leaders and supervising partners should double-check that block entries are used consistently and moderately.  That's particularly true in the last months of the year, as associates, and many partners, feel pressure to bill every hour possible.

Kay Holmen, a senior auditor at KPC Legal Audit Services in Glendale, California, cautions against grouping more than three tasks in one block, or block billing a client for more than a single hour per entry.  Lawyers can also avoid pushback by taking some extra care to describe each step covered by a block entry.  “Take the few extra seconds.  Come up with some words that describe what you really did. If you say you’re doing document review and writing a memo, what specific document did you look at?” Holmen said.  “Don’t put a copy-and-paste description on the time sheet.”

AIG Unit Can’t Repeal Attorney Fees in Yahoo Jury Win

November 25, 2019

A recent Law 360 story by Dave Simpson, “AIG Unit Can’t Overturn Atty Fees in Yahoo Jury Win,” reports that Yahoo Inc. presented enough evidence to back a jury finding that it can recover the $618,000 in attorney fees it spent trying to establish that an AIG subsidiary breached its policy by failing to cover its losses in underlying privacy class actions, a California federal judge said.

U.S. District Judge Edward J. Davila nixed AIG unit National Union Fire Insurance Co. of Pittsburgh, Pa.’s bid to deny Yahoo's attorney fees award or grant a new trial, finding that the federal jury had been presented with “substantial evidence” when it decided in May that the unit acted in bad faith by failing to cover Yahoo’s costs to defend the consolidated class action, which accused it of unlawfully scanning customers' emails.  Judge Davila also said that the AIG unit waited too long to claim that the attorney fees stemming from the breach of contract suit were too high or unnecessary.

“At trial, National Union chose not to cross-examine [Yahoo’s counsel] about the reasonableness or accuracy of the figures…” he said.  “National Union did not challenge any invoice entries as unwarranted or excessive.  National Union cannot now contend for the first time that Yahoo is entitled to only $9,500.”

In October 2018, Judge Davila found that the insurer largely failed to defend and indemnify Yahoo for $4 million in attorneys' fees from multiple class actions accusing it of scanning customers' emails, but said it was up to a jury to decide whether the insurer's failures to come to Yahoo's aid were coverage errors or evidence of bad faith.  In May, following a five-day trial, the jury said the tech giant  was entitled to attorney fees stemming from the breach suit but rejected Yahoo’s request for a bad faith award equal to the full $7 million it spent defending and settling the underlying action.  It also spurned the company’s bid for punitive damages after concluding that National Union didn’t act with “malice, oppression, or fraud.”

In July, National Union argued that Yahoo presented no evidence to support a finding that it had acted in bad faith.  And because Yahoo failed to prove National Union withheld policy benefits in bad faith, it cannot recover any fees, it said.  “Finally, even if the court believes the record supports an award of … fees in some amount, the jury’s $618,000 award is plainly excessive,” National Union said in July.

That award includes fees for services unrelated to the case, such as “communications with excess carriers,” “fees incurred to establish bad faith” — which are not recoverable — and “fees for ‘mixed’ services that require allocation,” National Union said.  The insurer asked the court to deny the fees as a matter of law or grant a new trial limited to the issue of fees.  Judge Davila declined, noted that the jury saw enough evidence to determine bad faith and also that Yahoo presented enough evidence to support the fee award.

Law Firms Awarded $10M in Fees After More Detailed Billing Entries

November 21, 2019

A recent Law 360 story by Hannah Albarazi, “Hagens Berman, Cohen Milstein Get $10M Fees on 2nd Try,” reports that a California federal judge approved $10 million in attorney fees sought by Hagens Berman Sobol Shapiro LLP and Cohen Milstein Sellers & Toll PLLC for securing a $50 million settlement over electronics industry price-fixing, saying they'd resolved concerns about "insufficient" billing explanations he'd raised earlier.  "Round two," U.S. District Judge James Donato said at the beginning of the hearing, referring to his fiery September order in which he ripped into the plaintiffs' attorneys, saying that no paying client would stand for their failure to explain their billing in a $10 million fee bid.

Compare with the first round, the second round went much more smoothly for counsel representing the direct purchasers.  Judge Donato said they had fixed the issues with their previous bid, which he had described as "a disservice to the class and the court."  Judge Donato granted final approval of the $50 million deal, the $10 million in attorney fees as well as $1.8 million in expenses, settling direct purchasers' allegations that Panasonic and three other electronics companies colluded for over a decade to artificially inflate prices of linear resistors.

In his September order, Judge Donato wrote that the firms' billing charts provided only an attorney's name and an associated billing amount, leaving out any explanation on how the billed time helped the proposed class members.  "The court will not award millions of dollars based on counsel's and the named plaintiff's say-so, especially when that money will be taken directly out of the hands of class members," Judge Donato said in September.  Judge Donato also tore into a proposed order submitted by the firms, in which they described their results as "exceptional."  The judge called the proposed order's "self-congratulatory" language "unwarranted and unhelpful."

"Statements like these are better suited for firm marketing materials than they are for orders proposed for the court's issuance," he said.  The firms initially requested a $25,000 bonus for the sole named plaintiff, Schuten Electronics, but Judge Donato blasted the bonus in September, saying it "equates to an eye-watering hourly rate of $455 for Schuten, which vastly exceeds anything the court has ever been asked to consider for a named plaintiff."

Determining Who Should Serve as the Billing Partner

November 19, 2019

A recent Law.com article by Joel A. Rose, “Determining Who Should Serve as the Billing Partner,” reports that on the law firm’s management of billing partners.  This article was posted with permission.  The article reads:

Due to a law firm’s team-oriented approach to business development and client service efforts, it is not always clear who should logically and most efficiently serve as the billing partner for a client or a particular client matter.  A person should only be a billing partner if he or she is or will be performing the functions outline herein.

Typically, a partner who “gets the call” on a new matter for an existing client should, as a partner courtesy, confer with the person who has primarily served as billing partner before opening the matter.  If the person who has historically served as billing partner is continuing to fulfill the billing partner responsibilities (see below), he or she should usually be the billing partner for the new matter, absent any other circumstances which might dictate otherwise.  “Getting the call,” by itself, does not mean that the person should be the billing partner on the new matter.  It may be that the historical billing partner has done an outstanding job of cross-selling, is continuing to fulfill billing partner responsibilities (including those for the new matters), and should continue to be the billing partner for the new matter.  Similar considerations apply for new clients.

On the other hand, because a person was the billing partner on the first matter ever opened does not necessarily mean that he or she should be the billing partner on all subsequent matters.  Such would be the case if the billing partner has not been performing the functions outlined herein and has had no role in developing the new matter.  By way of illustration, Partner A gets a call from a mid-level manager to perform a small project for a client.  Partner A performs the work, closes the file and has no further contact with client or with client decision makers.  Later, after independent marketing efforts by Partner B to other decision makers in the organization, client retains the firm to perform a major project.  Partner A has had no role, or even knowledge, that the marketing effort has taken place.  In fact, the client does not even know that Partner A had done a project previously.  Partner A should not reasonably expect to be the billing partner on the new matter.

Obviously, no single rule or guideline will dictate the answer to this question in every instance.  Rather, billing responsibility should be considered and determined on a case-by-case basis.  If more than one partner has assisted in the origination of the new client or client matter, or is actively involved in providing services to that client, the partners should determine among themselves who will have the responsibility of serving as the billing partner for the client or client matter.  If the partners are for any reason unable to make this determination, after good faith efforts to do so, the billing responsibility will be determined by the firm’s managing partner and/or executive committee.  In any event, all partners who significantly assisted in the origination of the new client or client matter should be listed as “originating partners” on any New Business Memo.

In making the determination regarding who should serve as the billing partner, partners (and ultimately, if necessary, the firm’s managing partner), should consider the following factors:

1.  Which partner has (or will have) primary responsibility for client management, overall supervision and administration of client services and is (or will be) the primary point of contact for the client?  In short, who does (or will) the client look to for the overall care and maintenance of its interests within the firm?

2.  Who was primarily responsible for the origination of the client or new client matter and what level of assistance did they provide?

3.  Has the client stated a preference for receiving consolidated billing for various matters of for receiving its bills from a particular partner within the firm?

4.  Which partner has the primary or strongest relationship with the client?

5.  Which partner is in the best position to address and resolve any issues or problems which may arise with the client?

6.  Which partner has traditionally served as the billing partner on most or all other matters for the particular client and does that partner continue to have strong relationships and active involvement with the client and the client’s legal matters?

7.  Who, in reality, is bearing the bulk of the billing partner responsibilities for the client?

Billing Partner Responsibilities

The individual who serves as the billing partner for a client or client matter is responsible for more than just reviewing bills for accuracy and forwarding them to clients on a timely basis.  In fact, that is but a small part of the responsibility.  Rather, billing partners must also assume responsibility for managing and making efforts to expand the client relationship.  If a billing partner is neglecting, unable or unwilling to accept and fulfill this responsibility, the executive committee or the managing partner may, in their discretion, determine that another partner within the firm is best suited to serve in this role.  Among other things, billing partners have the following responsibilities with respect to clients and client matters:

1.  The billing partner has the primary responsibility within the firm for maintaining, nurturing, and expanding the firm’s overall relationships with the client.

2.  While the billing partner may not be the individual who is actually performing the legal work on behalf of the client, the billing partner is expected to maintain an understanding of the status of all legal matters being handled by the firm for that client so that he or she can effectively communicate with the client regarding the matter(s) as needed.

3.  The billing partner is expected to communicate regularly with the client, to proactively participate in expanding and nurturing the client relationship and take affirmative steps to “institutionalize” the client by cross-selling the firm’s services and organizing and implementing off-the-clock meetings, as appropriate.

4.  The billing partner is particularly responsible for introducing and involving other firm partners in significant roles with the client.  The billing partner has responsibility for assuring that the client is receiving the highest quality service and attention from the firm.  If and when problems or concerns arise, the billing partner is expected to take primary responsibility for addressing and resolving any such problems or concerns.

5.  The billing partner must carefully review all invoices to assure that time entries are accurate, complete and appropriate.  He or she should, as necessary, discuss time entries with other partners who have performed services for the client.

6.  The billing partner is required to timely send out all invoices.

7. The billing partner is responsible for following up with clients who are delinquent in the payment of their invoices and working with the firm’s accounting department and the executive committee to collect these delinquent accounts.

8.  The billing partner is expected to confer with clients regarding any billing questions and timely notify the executive committee of any requested write-offs or problems with client invoices.

9.  The billing partner is expected to initiate opportunities to entertain the client’s representatives and introduce other firm members to the client in social settings.

Guidelines for Transferring Billing Responsibilities

From time-to-time circumstances will arise where it will be appropriate and/or necessary to transfer billing responsibility from one partner to another.  These circumstances include, but are not limited to, the following:

1.  Where the managing partner or executive committee determines that circumstances exist which indicate that the interests of the firm are best served by transferring billing partner responsibilities.

2.  When the billing partner is engaged in a transition plan towards retirement.

3.  When the roles and responsibilities outlined herein are not being fulfilled by the current billing partner as to some or all matters for a client.

Conclusion

Who should serve as billing partner is not always a clear or black and white determination.  We hope that partners will keep the best interests of the firm and a spirit of teamwork and support of each other at the forefront in making these decisions.  Any questions concerning these guidelines should be directed to the Executive Committee.

Joel A. Rose is President of Joel A. Rose & Associates, Inc., a firm of management consultants based in Cherry Hill, NJ.  A member of the Board of Editors of Accounting and Financial Planning for Law Firms.