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Category: Fee Agreements

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.”

Eleventh Circuit: Arbitration Fee Clause Violates FLSA

November 26, 2019

A recent Law 360 story by Adam Lidgett, “11th Circ. Says Arbitration Fee Clause Violates FLSA,” reports that a clause in a Florida pest-control company’s employment agreement requiring each side to cover their own attorney fees in arbitration can’t be enforced because it conflicts with a Fair Labor Standards Act (FLSA) provision that allows workers who win suits to recoup legal costs, the Eleventh Circuit ruled.

A three-judge panel agreed with a lower court’s finding that the attorney fee and cost provisions in the arbitration pact contained in employee commission agreements allegedly signed by a trio of PIP Inc. technicians weren’t enforceable.  The panel said that under the FLSA, workers are allowed to collect attorney fees and expenses as part of a possible award.  “A mandatory ‘pay your own’ fees and costs clause removes the arbitrator’s ability to award a plaintiff what is provided by statute if the plaintiff is successful,” the panel wrote.

The lower court had found that the attorney fee and cost provision’s inclusion had doomed the entirety of the arbitration clause.  But the appellate panel said that the lower court needs to take another look at whether Florida law allows for the offending language to be severed from the rest of the arbitration provision.  “Our law does not support that an arbitration provision is unenforceable in its entirety if it contains an offending clause and lacks a severability provision,” the appellate panel wrote.  “The district court did not go on to the next step to address whether the unenforceable clauses were severable as a matter of Florida law.”

According to a single-count, third amended complaint from the former PIP service technicians, the company improperly didn’t pay them time-and-a-half when they worked more than 40 hours a week.  They sought damages and also interest, and attorney fees and costs, according to court documents.  The company pushed for arbitration in January, citing the arbitration clause in the employee commission agreements it said the workers signed.

But U.S. Magistrate Judge Barry S. Seltzer found in February that the arbitration provision couldn’t be enforced because it denies plaintiffs their right under the FLSA to collect fees and costs and because there wasn’t any severability provision, according to court documents.  About a month later U.S. District Judge Federico A. Moreno adopted the magistrate judge’s recommendation in the case and denied the company’s bid to compel arbitration.

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.

Florida Court: Exception to Attorney Fee Rule Misapplied

November 15, 2019

A recent Law 360 story by Nathan Hale, “Exception to Attys’ Rule Misapplied, Fla. Court Says,” reports that a Florida state appeals court ruled that a lower court erred when it applied an exception to a general rule against awarding attorneys' fees incurred litigating the amount of a fees award and made such an award to a homeowner who prevailed in a mortgage foreclosure suit.

Florida's Fifth District said in its opinion that language in three attorneys' fees provisions in the note and mortgage at issue in the case between Bayview Loan Servicing LLC and homeowner Jason Cross lacked the kind of “broad and undefined language” that two other state appeals courts found warranted exceptions to the general rule against “fees for fees” awards.  But the appeals panel sided with Cross on his cross-appeal and found that the trial court erred in finding he was not entitled to collect prejudgment interest for the period when Bayview was contesting the amount of attorneys' fees to be awarded.

The panel ordered that the Orange County Circuit Judge Kevin B. Weiss should award Cross prejudgment interest for the period from Dec. 27, 2016 — when he orally pronounced that Cross entitled to attorneys' fees — through the entry of a new final judgment in the case.  “We find untenable the suggestion that a party against whom attorney’s fees are assessed may avoid the opposing party’s entitlement to the award from being fixed by merely continuing to dispute entitlement,” the Fifth District said.

Bayview's and Cross' appeals arose from a final judgment that awarded Cross contractual attorneys' fees after the Fifth District affirmed the involuntary dismissal of Bayview's mortgage foreclosure action against Cross, according to the opinion.  The Fifth District said in its opinion that it was affirming without discussion several other issues raised by the parties on appeal.  On the “fees for fees” issue, the appeals court said that as a general rule, attorneys' fees incurred while litigating the amount of an attorneys' fees award in a case are not recoverable, but exceptions have been found in two rulings by its sister district courts.

In 2012's Waverly at Las Olas Condo Association v. Waverly Las Olas LLC, the Fourth District found that a provision authorizing the award of prevailing party fees “[i]n the event of any litigation between the parties under [the agreement],” was broad enough “to encompass fees incurred in litigating the amount of fees,” according to the opinion.

The Second District reached a similar conclusion in 2017 in the case Trial Practices Inc. v. Hahn Loeser & Parks LLP, where a contractual fees provision said: “prevailing party in any action arising from or relating to this agreement will be entitled to recover all expenses of any nature incurred in any way in connection with the matter ... including, but not limited to, attorneys’ and experts’ fees.”  The Second District found the language permitting recovery of “all expenses of any nature incurred in any way” was “broad enough to encompass fees incurred in litigating the amount of the fees,” according to the opinion.

In contrast, the contractual language in the mortgage and note in this case contained more limited authorization for recovery of attorneys' fees, including those incurred “in enforcing th[e] note” and “to the extent not prohibited by applicable law,” and in connection with acceleration or foreclosure of the note and appeal and bankruptcy proceedings, according to the opinion.

A representative for Cross praised the Fifth District's consideration of the case, if not all its findings.  “We believe the court carefully considered the matter and correctly ruled on many of the issues raised on appeal and cross-appeal.  We, however, respectfully disagree with the court’s decision to limit our client’s right to recover certain fees and costs,” said attorney Michelle Branch of Ghantous & Branch PLLC, which represented Cross.

Insurer: Attorney Fees Aren’t Covered in School’s Trademark Case

November 11, 2019

A recent Law 360 story by Jack Queen, “Insurer Says NJ School’s $147K McCarter Fee Isn’t Covered,” reports that an insurer told a New Jersey state court it shouldn’t be on the hook for most of a $147,000 McCarter & English bill because the special-needs school it covers left the insurer in the dark when it hired the powerhouse firm to defend it in a routine trademark dispute.

Philadelphia Indemnity Insurance Co., or PIIC, told the court that The Lewis School of Princeton waited months to tell the insurer it was being sued by a competitor over a trademarked slogan and neglected to tell PIIC when it retained one of the state’s priciest law firms to fend off the routine dispute, which was settled in a few months without damages.

The fight over who will pay the bill has been more protracted, stretching back to The Lewis School’s April lawsuit drawing a clutch of law firms and PIIC into the scrum over who should pay.  PIIC said it had already met its obligations under the policy by paying $13,500 for fees The Lewis School racked up in the weeks after the insurer had been noticed, arguing that this was all the school was entitled to under the terms of the policy and New Jersey law.  The insurer said it would have defended the trademark suit at lower cost if it had been informed of it before the school retained McCarter.

The fees are at the heart of the school’s legal malpractice claim against McCarter, which it said charged an unreasonably high $147,189 fee for defending it in a lawsuit brought by the Cambridge School and negligently failed to give timely notice of the suit to PIIC.

McCarter countered that the engagement letter it signed with the school explicitly stated the firm would not advise on insurance-related matters.  The firm claimed another Lewis School attorney, Patricia Lawrence-Kolaras, had been responsible for noticing PIIC but dropped the ball, bringing her into the suit as a third-party defendant.  Lawrence-Kolaras denied that claim, submitting a certification from The Lewis School’s founder and director indicating the school never expected her to advise on insurance matters.

The Lewis School told the court earlier this month that PIIC couldn’t avoid paying the full tab by citing the timely notice provision in the school’s policy, arguing that the late notice was immaterial to the insurer’s ability to defend the case, which was resolved without litigation anyway.

PIIC said this argument was irrelevant because the insurer wasn’t entitled to pay pre-notice costs under the terms of the policy, regardless of the impact of the late notice.  The insurer said the arguments advanced by the school would only apply if PIIC had denied coverage outright, which the insurer said is not the case.

“PIIC has never asserted that The Lewis [School] forfeited coverage under the PIIC policy,” the insurer said.  “This is a red herring designed to create confusion.  The fact that PIIC never denied coverage or asserted forfeiture of the policy is underscored by the fact that PIIC has already paid the Lewis [School] for its reasonable, pre-tender defense costs.”