Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Category: Ethics & Professional Responsibility

Article: Ten Ways That Outside Counsel May Hide Overbilling

January 16, 2020

A recent Corporate Counsel article by Ryan Loro, “10 Ways That Outside Counsel Disguise Overbilling,” reports on overbilling from outside counsel.  This article was posted with permission.  The article reads:

Legal invoices can be overwhelming and nearly impossible to understand. The task of sifting through line after line of attorney time entries from outside counsel is time consuming, and more times than not, in-house legal and accounting teams may miss billing errors. Despite the complexity of legal invoices, there are ways to spot overbilling if you know what you are looking for.

According to recent industry research, large companies with big legal departments go over budget by about 37% every single year. Why do they go over budget? A big reason is overbilling from the outside law firms they hire to do work for them.

It’s become such an issue that entire companies have been formed to help businesses analyze and help organizations manage their legal spend. That’s right, lawyers sometimes pad their billable time—and there is now a growing industry to ensure that businesses pay a fair amount for their legal services.

Here are the top 10 ways law firms can hide overbilling:

Block Billing. Block billing is when a lawyer enters multiple tasks under one time period, without separating the time each task took. Here is an example from an actual time entry reviewed by SIB Legal Bill Review:

7.6 Hours: Telephone call with client regarding assignment of rents; review lease agreement of [company]; draft agreement; emails with opposing counsel; revise agreement accordingly.

Block billing obscures the value to the client and the reasonableness of the charges for a given task. If you don’t know how long it took to draft the contract (because drafting the contract is one of five tasks within a 7.6-hour block of time), you can’t tell if the charge for drafting the contract is reasonable. One study by the California Bar Association concluded that block billing increases the time charged by an average of 23%.

Intra-Office Communications. Intra-office communications is when multiple attorneys within the same firm discuss the client’s matter with each other or seek advice from a colleague about a legal issue. One of the major selling points for larger law firms is that they have a breadth of knowledge in specialized subjects. But when a lawyer seeks a colleague’s advice, the client should not have to pay for one attorney to educate another—just have the specialist handle that part of the matter.

Higher-Rate Staff Used Inappropriately. Sometimes lawyers will do work that is more appropriate for a lower-rate attorney or a paralegal. For example, if a partner’s rate is $900/hour and they perform a task that, more than likely is work that a second-year associate attorney who’s rate is $300/hour should be doing, the client will be paying an additional $600 per hour.

Excessive Time. This is the most common complaint of clients, yet has historically been the easiest for law firms to justify. Many clients have a “feeling” that a certain task took too long, but cannot explain why. SIB Legal Bill Review explains in detail the reasons a law firm should reconsider specific charges on an invoice. Here is an example:

The law firm charged 5.1 hours for work on a confidentiality agreement where opposing counsel had already provided a comprehensive draft agreement for comment and markup. This time is excessive. We propose the charge be revised to a total of 2.5 hours: 2.0 for analysis and markup of the draft agreement, and 0.5 for negotiation of points with opposing counsel.

Junior Lawyer Training. Law firms have been known to charge clients for a junior lawyer’s on-the-job training. We believe that the law firm carries the financial responsibility for training its lawyers; it is for the law firm’s long-term benefit. On an invoice we reviewed, one law firm actually charged $1,084 to the client for a junior lawyer’s time to “investigate how to file an appeal.” Of course, there is a point in the junior lawyer’s career when they need to learn how to file an appeal, but the client should not have been asked to pay for that training.

Inadequate Description. When a lawyer does not adequately describe his activity, there is no way for the client to determine if that activity added value for the client or if the charges for that activity are reasonable. Attorneys are paid to be precise in their language. It is not unreasonable to require lawyers to accurately describe how they spent their time and the client’s money. More problematic, inadequately described time can be camouflaging the fact that the attorney invented the time entry to fill his time card or increase the bill. Here is an example of a real time entry:

Attention to licensing files and review of licenses and leases; attention to pro-forma license transfer structure; additional review of proposed structure; attention to fees and timing relevant to pro-forma and non-pro forma assignment; address related licensing matter.

At first glance, it appears that this associate has done a lot of work for the client. But notice that the task descriptions are all nebulous: “attention to … ; analysis of … ;” and so on. In this particular time entry, no actual work product was produced. The client has no way of knowing what value was delivered because of this inadequate description.

Over-staffing a Given Task. Many times, a law firm will over-staff a task, using three attorneys for something that should have only taken one. More often than not, the time for all three attorneys is billed to the client. Defending a deposition and arguing a discovery motion are usually one-lawyer tasks and should be billed as such.

Duplicative Work. Duplicative work is an issue that occurs when one attorney will charge for the same task in more than one billing period, or two attorneys will charge for the same task in the same billing period. Here is our response to an instance of duplicative work:

Junior lawyer charged 25.1 hours ($6,149.50) to draft motion for summary judgment. Senior lawyer charged 14.6 hours ($4,844) to draft the same motion at a later date.

In this particular case, the client did not receive 39.7 hours of work. If the law firm decided to push a motion for summary judgment draft onto a junior lawyer, only to have it rewritten by a senior lawyer, this is not the responsibility of the client.

In fact, according to a study conducted by Samford University Law School in 2007, 48.2% of lawyers believed double billing was ethical, which was up nearly 13% from 10 years prior. It would not be surprising to learn that 12 years removed from the study that the percentage of lawyers who believe double billing is ethical and acceptable has exceeded the 50% mark.

Administrative Tasks. Sometimes law firms will charge attorney or paralegal rates for tasks that could and should be done by administrative staff. The client should not pay $300 an hour for filing a court document. That type of task should be done by a legal secretary at no charge, as part of the firm’s overhead costs.

Discrepancies Between Time Entries. A simple mistake that happens more often than you would think is when two lawyers attend the same meeting but charge different amounts of time for doing so. Another example in discrepancies between time entries occurs when one lawyer charges for an in-office task when another time entry shows she was not in the office that day. The variations of discrepant time entries are many, but the conclusion is singular: one of the time entries is probably inaccurate.

Analyzing the line item charges on legal bills is no small task. The analysis itself is 60% experience in legal practice, 30% psychology, and 10% mechanics and mathematics. Unfortunately for many businesses, computers can only assist in the last and smallest category. Then, when the analysis is done, someone has to negotiate with the billing attorney to convince him that certain charges are unreasonable and should be removed from the bill.

All of this is a daunting task. There is hope for businesses who fear they are being overcharged. Even if you don’t have the resources inside your organization, these functions can be outsourced. Legal bill review services help to increase efficiency and take the burden away from in-house teams and businesses so that they can focus on their work. Finding a legal bill review service that analyzes every line item of all of your invoice every single month is an important and efficient way to help reduce your organization’s legal spend with outside counsel.

Ryan Loro is the president of SIB Legal Bill Review.

Third Party Access to Attorney Fees at Issue in PayPal Case

December 11, 2019

A recent The Recorder story by Alaina Lancaster, “Suit Claims PayPal Tramples Attorney-Client Privilege With 3rd-Party Access to Attorney Fees,” reports that a California legal professional has sued payment platform PayPal Inc. for violating attorney-client privilege by allowing credit card companies to reverse attorney fee transactions.

Todd White, a paralegal based in San Diego, has brought claims of breach of contract, fraud and unlawful business practices against the company after a client asked a credit card company to cancel the payment of attorney fees to White on PayPal, according to the complaint in the U.S. District Court for the Northern District of California.  The purchaser asked to rescind the charge, reporting “problems with the payment.”

White, who is representing himself in the litigation, said the canceled payment has strapped him with a $20 “chargeback fee” from PayPal and a negative balance of $116.73 in his account.  He alleges it is PayPal’s “customary business practice to provide another financial institution with unrestricted access on demand to funds already on deposit in the PayPal account which then grants them with ultimate authority for granting refunds of attorney’s fees.”

According to the complaint, PayPal does not provide the same financial protections to providers of services and digital goods as sellers of physical goods on the platform.  After reviewing White’s internal complaint, PayPal reviewed the situation again and “found no errors” in how the transaction was handled, White wrote.

The paralegal claims the San Jose, California-based company fraudulently asserted its user agreement complied with state laws while violating California’s mandates around unfair business practices.  White is asking for $75,000 in damages, as well as punitive damages.

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.

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.