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Category: Legal Spend

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.”

NALFA Announces The Nation’s Top Attorney Fee Experts of 2019

August 20, 2019

NALFA, a non-profit group, has a network of attorney fee expertise. Our network includes members, faculty, and fellows with expertise on the reasonableness of attorney fees.  We help organize and recognize qualified attorney fee experts from across the U.S. and around the globe.  Our attorney fee experts include court adjuncts such as bankruptcy fee examiners, special fee masters, and fee dispute neutrals.

Every year, we announce the nation's top attorney fee experts.  Attorney fee experts are retained by fee-seeking or fee-challenging parties in litigation to independently prove reasonable attorney fees and expenses.  The following NALFA profile quotes are based on bio, CV, case summaries and case materials submitted to and verified by us.  Here are the nation's top attorney fee experts of 2019:

"The Nation's Top Attorney Fee Expert"
John D. O'Connor
O'Connor & Associates
San Francisco, CA
 
"Over 30 Years of Legal Fee Audit Expertise"
Andre E. Jardini
KPC Legal Audit Services, Inc.
Glendale, CA
 
"Outstanding Skills Assessing Reasonable Attorney Fees in Class Actions"
Stephen J. Herman
Herman Herman & Katz LLC
New Orleans, LA

"The Nation's Top Bankruptcy Fee Examiner"
Robert M. Fishman
Fox Rothschild LLP
Chicago, IL

"Widely Respected as an Attorney Fee Expert"
Elise S. Frejka
Frejka PLLC
New York, NY
 
"Experienced on Analyzing Fees, Billing Entries for Fee Awards"
Robert L. Kaufman
Woodruff Spradlin & Smart
Costa Mesa, CA

"Highly Skilled on a Range of Fee and Billing Issues"
Daniel M. White
White Amundson APC
San Diego, CA
 
"Extensive Expertise on Attorney Fee Matters in Common Fund Litigation"
Craig W. Smith
Robbins Arroyo LLP
San Diego, CA
 
"Highly Experienced in Dealing with Fee Issues Arising in Complex Litigation"
Marc M. Seltzer
Susman Godfrey LLP
Los Angeles, CA

"Total Mastery in Resolving Complex Attorney Fee Disputes"
Peter K. Rosen
JAMS
Los Angeles, CA
 
"Understands Fees, Funding, and Billing Issues in Cross Border Matters"
Glenn Newberry
Eversheds Sutherland
London, UK
 
"Solid Expertise with Fee and Billing Matters in Complex Litigation"
Bruce C. Fox
Obermayer Rebmann LLP
Pittsburgh, PA
 
"Excellent on Attorney Fee Issues in Florida"
Debra L. Feit
Stratford Law Group LLC
Fort Lauderdale, FL
 
"Nation's Top Scholar on Attorney Fees in Class Actions"
Brian T. Fitzpatrick
Vanderbilt Law School
Nashville, TN
 
"Great Leader in Analyzing Legal Bills for Insurers"
Richard Zujac
Liberty Mutual Insurance
Philadelphia, PA

Article: How the Contingency Fee Provides Access to Justice

May 20, 2019

A recent article in Legal Intelligencer by Samuel H. Pond, “The ‘Great Equalizer—How the Contingent Fee Provides Access to Justice” reports on the benefits of the contingency fee model in civil litigation.  This article was posted with permission.  The article reads:

The core principle of our legal system is that all people, no matter their station in life, can bring their disputes to be heard in a court of law.  That’s in theory, in practice, however, justice is not always so available to those with limited means.  However, one innovation has somewhat evened the playing field—the contingent fee agreement.

Leveling the Playing Field

The pursuit of justice can be expensive, with litigation costs and attorney fees piling up quickly.  The average billing rate in 2018 for Pennsylvania attorneys was $262 per hour, according to Clio, a Canadian research firm tracking legal industry metrics.  Corporations and insurance companies often have unlimited resources at their disposal during litigation, putting the average person at a great disadvantage.

Under a contingent fee agreement, a client in a civil matter does not need to pay an attorney unless the case is successful.  Often, attorneys will also front all litigation costs.  Thus, the client does not have to pay anything out of their pocket.  Thus, all fees and costs are paid out of the recovery.

‘Not Going to Get Bullied’

This arrangement has greatly expanded access to the justice system and allowed those with modest means obtain the justice they deserve.  It’s the only way an injured worker can go up against a big insurance company and feel comfortable and confident. You’re not going to get bullied.  It’s a great equalizer.

The contingent fee has allowed ordinary people to sue large corporations and influential entities and receive monetary compensation.  In addition, the contingent fee has given credence to the idea all should be held accountable for their actions and no one is above the law.

Incentivizing Success

In addition, the contingent fee ensures that a lawyer’s interests are fundamentally linked to those of the client.  It incentivizes lawyers to provide the best quality service to clients because if they fail, they will not get paid.

The contingent fee agreement also discourages the filing of frivolous matters.  It is highly unlikely that an attorney on a contingent fee agreement will take on a case that lacks merit because doing so would mean investing thousands of dollars on a case with no hope of recovery.

Contingent fees restore some fairness to the system.  A powerful corporation with its economic clout and high-priced attorneys cannot simply steamroll over a litigant of modest means.  The average person can still get a fair shake by hiring a worthy champion to take up their cause.

Samuel H. Pond is the managing partner at Pond Lehocky Stern Giordano, the a workers’ compensation firm.  For more than 30 years, he has been representing workers injured on the job.  He is also the host of the Legal Eagles radio show, which aims to educate the public on the law.

Texas Companies Spend Record Legal Fees in 2017

May 4, 2018

A recent Texas Lawbook story by Mark Curriden, “Texas Companies Paid Record Legal Fees in 2017,” reports that Texas companies paid law firms that represent them a record-setting amount of money in 2017 and an increasing percentage of those legal fees are going to national law firms that have recently opened offices in Houston, Dallas and Austin.

Exclusive new financial data collected by The Texas Lawbook shows that the 50 largest corporate law firms operating in Texas – nearly all of them with offices in Houston – employed essentially the same number of lawyers in 2017 as they did in 2016 and 2015, but those law firms are charging higher rates and making considerably more money.

Nearly two-dozen law firms in Texas, led by Houston-based Vinson & Elkins and national firms Kirkland & Ellis and Winston & Strawn, generated record high revenues last year as a result of them routinely charging corporate clients $1,000 an hour or more.

At the same time, several large Texas legacy law firms are struggling for survival or at least seek stability.  "The Texas corporate legal market is experiencing dramatic changes and these changes are expensive," said Chicago law firm consultant Kent Zimmerman. "The numbers confirm that the rich law firms are getting richer and some long-time Texas law firms are getting left behind."

Legal industry analysts say the most important statistic in The Texas Lawbook data is the fact that revenue per lawyer at 14 law firms operating in Houston now exceed $1 million a year – an amount previously achieved by the most elite and expensive national firms. Only two of the 14 firms – V&E and Baker Botts – are headquartered in Texas.

"The formula for success is simple," Zimmerman said. "The law firms that pay the most get the best lawyers. The best lawyers get the best clients and the best work. The best clients pay the highest rates and generate the best revenues. And then you can use those revenues to pay the best lawyers and the cycle starts over again."

The 50 largest legal practices in the state generated $5.65 billion in revenues from their lawyers who office in the state – a 2.4 percent increase from 2016.

But the data also shows that elite national law firms that have opened offices in Houston and Dallas during the past few years are growing considerably faster than law firms headquartered in Texas and that growth is mostly at the expense of locally based firms.

Two excellent examples are Chicago-based Kirkland & Ellis and New York-based Simpson Thacher & Bartlett.

Kirkland opened its Houston office in April 2014, but it now has more than 130 lawyers and generated an estimated $187 million in revenues in 2017, making it the 11th largest legal operation in Texas.

Simpson Thacher, which debuted in Houston in 2011, has witnessed significant growth the past three years – from $25.6 million in revenues in 2015 to $47 million in 2017, an 83.6 percent jump.

The Texas Lawbook analysis of the exclusive data involving the 50 largest corporate law firms operating in Texas shows that:

  • Nearly 40 percent of the 7,000 corporate lawyers in Texas are now employed by law firms headquartered outside of the state;
  • The Texas offices of national law firms generated $2.57 billion in 2017 – a 38 percent increase from just two years ago;
  • By contrast, lawyers for Texas-based law firms brought in $3.1 billion in revenue in 2017, which is the same amount as the previous two years; and
  • Thirty-three of the top 50 law firms by revenue generated from their Texas offices were based outside of the state – up from three of the top 50 just seven years ago.

To be sure, large Texas legacy law firms – V&E, Baker Botts, Bracewell and Locke Lord, for example – still generate billions of dollars in combined revenues, employ thousands of lawyers and still do a huge majority of the legal work for businesses in Texas. Many of them are experiencing tremendous financial success.

The Texas Lawbook obtained the financial data from interviews with law firm leaders, law partners who recently departed the firms and legal industry analysts. Only one law firm – Houston-based Susman Godfrey – refused to provide any kind of statistics to The Texas Lawbook.

The 2017 data shows that Houston-based V&E is now the largest legal operation in Texas by revenue. V&E lawyers in Austin, Dallas and Houston brought in an estimated $484 million – a 6.6 percent increase over 2016 and a 15.5 percent jump from 2015.

"We had a truly fabulous year – a record year," said V&E Chairman Mark Kelly. "Demand was up, which was good. We have 112 summer associates coming in. So, we are ramping up for another great year and for expansion."

While national law firms have raided V&E for scores of lawyers during the past seven years, legal industry analysts say that V&E has also benefited from the national invasion in one simple way: the elite national law firms with dramatically higher rates provided cover to V&E to significantly increase the rates it charges clients.

Most Texas-based law firms decided to use their lower hourly rates as a marketing tool to retain business. But V&E, according to legal consultants, took the opposite approach.

"The challenge for law firms is attracting and keeping the best legal talent," Kelly said. "For law firms with revenues less than $1 million per lawyer, it will be tough for them to compete. We want the high-end work and that means we need the top talent."

Lawyers in the Texas offices of Baker Botts had $378 million in 2017 revenues for its Texas offices.

Haynes and Boone and Jackson Walker are two Texas-based law firms that increased their lawyer head count and their revenues at their Texas offices.

Haynes and Boone increased its Texas revenues to $272 million, which is 15.3 percent higher than in 2015. Jackson Walker's revenues hit $249 million in 2017, which is a 12.6 percent jump from two years earlier.

"2017 was our best year ever," said Haynes and Boone managing partner Tim Powers. "We saw strong performances across the board and we benefited from our clients doing some really great things.

"We are cautiously optimistic about 2018," Powers said. "The tax reform law will hopefully drive significant investment in Texas and infrastructure legislation could mean good work in the next year. But a trade war could have a devastating impact."

Thirteen law firms have seen their revenues in Texas grow by 20 percent or more from 2015 to 2017. All but one – Houston-based Gray Reed – is headquartered outside the state.

Gray Reed, which has 140 lawyers in Houston and Dallas, has seen its revenues grow from $50.4 million in 2015 to $65.7 million last year – a 30.5 percent jump.

"We've had three consecutive years of record revenues," said Gray Reed managing partner J. Cary Gray, who added that the firm has no interest in growing outside of Texas or merging with another firm. "There are certain legal services that people and businesses need handled by high quality lawyers, but they don't want to pay $1,000 an hour for it. That is our sweet spot."