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Category: Legal Bills / Legal Costs

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.”

PA Appeals Court: No ‘Fees for Fees’ in Trust’s $2.9M Fee Request

November 27, 2019

A recent Law 360 story by Matthew Santoni, “Pa. Appeals Court Snuffs Trust’s $2.9M Bid for ‘Fees on Fees’,” reports that a trust that sought $4 million in legal fees over a $9,000 property condemnation was not entitled to another $2.85 million in "fees on fees" to cover the cost of fighting for the first fee award, a Pennsylvania appellate court ruled.  A Pennsylvania Commonwealth Court panel said an Erie County judge was right to slash the Angela Cres Trust's request for fees by 90% because the trust had not sufficiently justified its 2015 request for the $2.85 million, and state law said property owners were not guaranteed to have their legal bills paid in condemnation proceedings if they were not justified.

"The Eminent Domain Code does not require that a condemnee be made whole, as the trust seems to presume," wrote President Judge Mary Hannah Leavitt for the unanimous panel.  "It was the trust's burden to prove that its fees and costs in litigating the fee petition were reasonable, and it did not do so."

The panel upheld the Erie County Court of Common Pleas' award of $285,000 in costs and fees, agreeing that winning just $682,000 of the underlying $4 million request for fees and costs was a "limited success" for the trust, and ruling that there had been no error in the judge's findings that the large request for fees-on-fees had not been fully supported.

Millcreek, Pennsylvania, had sought to condemn a piece of trust-owned property valued at $9,000 in 2005, but after four years the court sustained the trust's preliminary objections on the grounds that the township lacked authority to condemn the land for a water channel.  Appeals and an amended declaration of taking kept the underlying dispute going through 2012, and by 2014, the trust sought to make the township pay $3.4 million in attorney fees and costs and another $650,000 for its experts' testimony and reports.  The trial court awarded only $682,000 in total, which the Commonwealth Court affirmed in 2016.  While that appeal had been pending, the trust made its request for the fees-on-fees in 2015, according to the opinion.

After a three-day hearing on the trust's petition for the additional fees, the court awarded just $285,000, citing work that was allegedly duplicated or done by expensive partners when it could have been handled by less expensive attorneys; hourly rates for attorneys and paralegals that were higher than the market rate for Erie County; and vague "block billing" where a single time entry on the record covered multiple tasks.  The trust had claimed the trial court's award of 10% of its request was arbitrary and capricious, but the appellate court disagreed.

"Simply, the award of 10 percent of the actual fee incurred was the best the trial court could do given the block billing practice of the trust's attorneys and its inability to provide the court with the expected 'amplification,'" the court said, referring to a term used by the township's expert in the trial phase.  "Because the trust's witnesses did not provide a clarification of each task and the time spent, the trial court lacked the evidence needed to conclude that the fees and costs paid by the trust were reasonable."

The trial court had also found that the trust was billed for a "speculative" motion for reconsideration, a "superfluous" post-trial motion and a mediation process that dealt with stormwater problems, not the underlying condemnation or fee dispute, so the Commonwealth Court deferred to the lower court's judgment on those proceedings being unnecessary and ineligible to be charged to the township.

"We agree with the trust that the Eminent Domain Code should be given a broad reading when determining whether a particular legal task was caused by the condemnor's action," the appellate court said.  "However, causation is a matter for the trial court to decide. It decides whether certain tasks constitute a reasonable legal response to a condemnor's action or have an attenuated relation to the condemnation."

The Commonwealth Court also said the Erie County judge made no error in giving more credit to the township's expert on legal billing than the trust's expert and had properly considered the factors for whether a fee request is reasonable as set forth by the Supreme Court of Pennsylvania's 1968 ruling In re: LaRocca's Trust Estate.

The trust complained that the court improperly weighed the trustee's wealth as part of the "client's ability to pay," one of the 11 LaRocca factors that also include the amount of work done, the complexity of the task and the amount of money or property value in question.  The Commonwealth Court said that factor was ultimately irrelevant to the finding that the fee request was not adequately supported.

"In the end, it was not the trustee's wealth that caused the trial court to reduce the trust's request ... it was the trial court's holding that the trust did not prove that any specific part of that $2.85 million was reasonable," according to the opinion.  "The real point is that not every LaRocca factor is relevant and required to be considered by the court."

The appellate court noted that while the township claimed the trust wasn't entitled to any fees at all for litigating its earlier fee petition, the trial court disagreed and gave the trust its 10% award.  "The trust was entitled to pursue all means and any cost to save its land and recover its attorney fees.  It does not follow, however, that all those fees, costs and expenses were reasonable, as required by the Eminent Domain Code before the condemnor must reimburse the condemnee for fees and costs," the court said.

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.

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.”