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Category: Billing Increments

Court Calls Out Attorneys For ‘Egregious’ Billing Practices

October 24, 2023

A recent Law 360 story by Chart Riggall, “Colo. Judge Calls Out Enviro Attys For ‘Egregious’ Billing”, reports that a Colorado federal judge chided a group of environmental attorneys who successfully sued a gold-mining company for polluting the South Platte River over their "egregious" billing practices, slashing their request for fees by nearly two-thirds.  U.S. District Judge William J. Martinez of the District of Colorado — who in a 2022 bench trial ordered the Wyoming-based High Mountain Mining Co. LLC to pay $500,000 in penalties for violations of the federal Clean Water Act — said spotty record-keeping produced a fee request the court "cannot condone."

"These issues make the court seriously doubt counsel's billing judgment," Judge Martinez wrote in an order.  The judge ultimately awarded over $295,000 in fees and $77,000 to the attorneys representing Park County residents Pamela Stone, Twyla Rusan and M. Jamie Morrow, along with a pair of nonprofit groups, the South Park Coalition Inc. and Be the Change USA.  The groups also sued James R. Murray, a managing member and part owner of High Mountain.

That fell far short of the plaintiffs' request of nearly $1 million, which Judge Martinez pinned not only on their billing records but also on their "unprecedented" request for attorney fees in two separate, earlier lawsuits that were dismissed.

Stone and the other plaintiffs had argued that those two earlier cases yielded information directly bearing on the ultimately victorious lawsuit, but Judge Martinez disagreed, saying they pointed to "no case law supporting the proposition that a court may award fees for work done in earlier, failed actions at the conclusion of a later, successful action."

Filed in 2019, the residents' lawsuit took aim at a High Mountain mine near Alma, Colorado — mere steps from a fork of the South Platte River — that was allegedly leaking pollutants into the waterway.  The source of the contamination, according to the lawsuit and expert witnesses, was a series of unlined settling ponds containing mine waste that allowed chemicals to leach into the groundwater and then the river.

Judge Martinez used the factors laid out in the U.S. Supreme Court's 2020 decision in County of Maui v. Hawaii Wildlife Fund to determine whether the company was required to obtain a permit for its discharges, which plaintiffs' attorneys said was one of the first applications of the Maui precedent.  The judge relied primarily on two factors: the distance the pollution has to travel to get to the river and the time it takes to get there.

The final $500,000 judgment was based on Judge Martinez's calculations of how much the company had saved by failing to line the ponds, as he declined to award an additional $500,000 sought by the plaintiffs absent evidence of serious environmental damage.

Because the plaintiffs didn't succeed on all their claims, High Mountain argued that the case was, in effect, only 25% successful and that the fee award should be slashed accordingly.  But Judge Martinez said he wanted to avoid having to disentangle the fee requests from the prior actions and elected to split the baby by cutting the fee request by 50%.

More problematic, he continued, were a number of billing line items where the work reportedly done wasn't fully documented, or the plaintiffs' attorneys had put apparently frivolous tasks down for billing.  In one such case, an attorney billed 0.02 hours for reading court transcripts, "rather than writing off 72 seconds of work during which he could not have possibly accomplished anything for his client," Judge Martinez said. 

High Mountain had also tried to argue that opposing counsel had charged exorbitantly high rates for their work, but that argument ultimately fell short.  "The court concludes that plaintiffs' requested hourly billing rates are very much on the high end, but ultimately accepts them as reasonable for environmental law attorneys of comparable skill and experience in the Denver area," Judge Martinez said.

Article: Twitter Fee Dispute Case Offers Crash Course in Billing Ethics

September 19, 2023

A recent Law 360 article by Lourdes Fuentes, “Twitter Legal Fees Suit Offers Crash Course in Billing Ethics”, reports on ethical lessons from the recent Twitter fee dispute litigation case.  This article was posted with permission.  The article reads:

Corp.'s case against law firm Wachtell Lipton Rosen & Katz, filed over Twitter's legal bill in connection with Elon Musk's $44 billion acquisition of the company, highlights the importance of following proper billing practices, which are governed not only by contract law but also by the higher standards imposed on lawyers by the rules of professional conduct.  The claims in X Corp. v. Wachtell Lipton Rosen & Katz, filed in early July in California's San Francisco County Superior Court, include restitution (unjust enrichment), breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and violation of California Business and Professions Code, Section 17200.

The pleading contains a litany of facts but recounts a concise timeline. From when Wachtell was retained on June 21, 2022, to the Oct. 13 party held to celebrate the month-end closing of the deal at the original $44 billion price, only 114 days had elapsed.  In that time, Twitter received two invoices.  These invoices were included as exhibits to the complaint.  A review of the invoices reveals blank time entries, vague descriptions, irrelevant references and block billing, among other issues.  The invoices amount to close to $18 million.

To compound these perceived improprieties, the final fee statement then added an extra $72 million dollars to that tab.  This was a "success fee" that was referenced in the closing day letter agreement drafted by Wachtell and signed by Twitter's then-chief legal officer, Vijaya Gadde, allegedly hours before the closing sale of Twitter on Oct. 27.  Significantly, the success fee had not been outlined in the engagement letter.

While the validity of the claims will be decided in court, the suit spotlights vital legal billing practices and ethical considerations for attorneys and clients alike.  Even if Wachtell defeats X, the suit has put the reputation of the firm's billing practices at risk.  Moreover, the suit has put the reputation and ethics of individual attorneys at risk by disclosing the invoices at issue, tying timekeeper names to time entries.

Further, the answer to whether the $90 million is fair pay or windfall may not be based on the amount itself, but on whether the parties followed the rules of professional conduct governing attorney-client relationships.  By reexamining billing approaches in light of the Twitter fees case, law firms and clients can take away important lessons on proper billing practices.

The Relevant Rules

Client and lawyer can maintain a positive partnership that is founded on transparency and trust by following an ethical road map.

The claims in the complaint provide us with a good starting point.  They are based on common law tort, contract law and the American Bar Association's Model Rules of Professional Conduct, which have been similarly adopted to varying degrees in other states' jurisdictions.  These are:

    Section 6147 of the California Business and Professions Code, which addresses contingency fees;

    Rule 1.5 of both the California and New York Rules of Professional Conduct, which prohibit unreasonable or unconscionable fees;[6] and

    Rule 1.8 of both the California and New York Rules of Professional Conduct, which prohibit soliciting gifts from clients.

By keeping these rules — or their equivalent from your jurisdiction — top of mind, practitioners can avoid the appearance of impropriety. Though not mentioned in the complaint, I would also add ABA Rule 1.4, which deals with attorney-client communications, to this list.

8 Crucial Steps for Success Fees

Fees based on the outcome of a case, like the success fee in the Twitter case, are permissible, but they still need to be reasonable.  While the ABA rules do not specifically mention success fees, they state that a fee may be contingent on the outcome of the matter for which the service is rendered.  The rules do, however, state that:

A contingent fee agreement shall be in a writing signed by the client and shall state the method by which the fee is to be determined.  Success fees are common in transactional matters, but these are typically negotiated as part of an engagement letter.  They are structured to incentivize the law firm to achieve the best possible outcome for the client.  However, the exact nature and amount of these fees can vary and are a subject of negotiation between the parties.  As a result, it is crucial for both parties to follow these steps.

Transparency and Disclosure

All terms related to the success fee should be clearly stated in the engagement letter or contract.  This includes how the fee is calculated, when it is to be paid, and under what conditions it may be modified or waived.

Reasonableness of the Fee

All fees must be reasonable.  Look for guidance in ABA Rule 1.5 for factors that can be considered to determine reasonableness of a success fee. These can include:

    The novelty and difficulty of the case;

    The skill required to properly provide legal services;

    Comparable rates in your area for like services;

    The amount at issue and the results obtained;

    Time limitations imposed by the client or by the circumstances;

    The reputation, experience and ability of the lawyers performing the services; and

    Whether the fee is fixed or contingent.

Proportionality

The success fee should be proportional to the value provided by the law firm.  This could be in relation to the deal size, the complexity of the transaction or the level of risk involved.

Incentive Alignment

Make sure that the fee structure selected aligns the firm's incentives with the client's goals.  Otherwise, it could be considered a conflict of interest, among other ethical pitfalls.

Regulatory Compliance

Understand your state-specific rules or regulations that might apply.  For example, California's Section 6147 speaks to contingency fee agreements.  Research your jurisdiction's rules and regulations.  Remember, as well, that some jurisdictions may cap or ban certain types of fees.

Dispute Resolution

Include a clause specifying how any disputes over the success fee will be resolved, whether through arbitration, mediation or court proceedings.

Periodic Review

It may be prudent to include provisions for reviewing the success fee arrangement at various stages of the transaction.

Client Consent

Explicit, informed consent from the client is crucial, especially if the success fee arrangement is unconventional or complex.  It is important to note that all fees must not only be reasonable but also adequately explained to clients.  Circumventing clear documentation enables end-runs around billing safeguards in violation of ABA Rule 1.5 and violates Rule 1.4.

While a lawyer and client may renegotiate a fee agreement during an ongoing relationship, the lawyer typically carries the burden of establishing fairness of the new arrangement if it is ever challenged.  Fee agreements entered during the attorney-client relationship will get heightened scrutiny to avoid the appearance of undue influence or impropriety.

In the case of Twitter, the success fee was agreed upon allegedly hours before the closing of the deal.  Although Twitter's old board agreed to the fees, the circumstances in which this transpired could be perceived as unethical and improper because of the lateness of the agreement made by the parties to include a success fee.  Hence, in addition to challenging the fee as unreasonable, the lawsuit claims that, based on the facts leading to the closing day letter agreement, the success fee should be considered a gift, and hence a violation of ABA Rule 1.8.

10 Proper Billing Practices

The controversy highlighted in the Twitter fee case provides a valuable reminder of the heightened scrutiny in attorney-client relationships due to its fiduciary nature and the rules of professional conduct.  In addition to the steps specific to success fees outlined above, it is important to keep these broader billing best practices in mind.

Engagement

Always formalize the fee arrangement in a written agreement.  This holds true whether you are dealing with an hourly rate, a contingency fee or some other type of fee structure.  Any modifications to the engagement terms or fee structure should also be put in writing.

Transparency

Clearly outline how legal fees will be calculated, any percentages that may accrue in the case of a contingency fee and any other expenses that will be deducted from the recovery.

Client Communication

Keep the client informed about any developments.

Alternative Fee Arrangements

There is nothing wrong with exploring creative billing options that can benefit both parties, but ensure they are in line with ethical guidelines and are clearly outlined in the agreement.

Data-Driven Metrics

Consider using data-driven methods to establish fees, especially for alternative fee arrangements.  This adds an element of fairness and can help align incentives between client and lawyer.  Notably, today we have the benefit of using artificial intelligence to come up with creative data-based alternative fee arrangements.

Review and Oversight

Periodically review the billing practices to ensure compliance with your client guidelines.  Train your timekeepers in proper billing practices and client-specific billing guidelines.  This training should be done annually and while onboarding new personnel.

Regulations

Understand the rules governing fees and conflicts of interest.  Train your lawyers in the rules of professional conduct.  This training should be done annually and while onboarding new personnel.

Fiduciary Duty

Always act in the best interest of the client, keeping in mind the fiduciary nature of the attorney-client relationship.

Avoid Surprises

Be proactive to avoid sticker shock.  Discuss potential scenarios and outcomes openly with the client, so they know what to expect in terms of fees.

For example, one fact alleged in the complaint is that:

[I]n the middle of the board's final October 27 meeting, former Twitter general counsel Sean Edgett sent the chart of fees that the Twitter board was meeting to approve.  Upon seeing the magnitude of the fees being presented for the board's approval, one former Twitter director immediately exclaimed in an email reply to Edgett: "O My Freaking God."

Regular Invoicing

Provide detailed invoices that outline the work done, the time spent and the costs incurred.  This not only aids transparency but will also help in resolving any disputes that may arise.  Also remember, your time entries should be treated with as much care as any work product; they should be clear, concise, descriptive and grammatically correct.

By following this ethical road map, the parties will reduce the likelihood of disputes and misunderstandings and, also, maintain a good working relationship.

Conclusion

Whether you are the client or the lawyer, beware falling asleep at the wheel when it comes to new engagements, modifications to billing and billing practices generally.  To do so may risk legal action and your reputation.

Lourdes Fuentes is a seasoned litigator, Founder & Chair of Karta Legal LLC, law firm partner and CEO.  She has a law degree from the University of Pennsylvania and is also a certified Legal Project Manager and Lean Six Sigma Black Belt.  With decades in the field, her expertise lies in optimizing legal operations and promoting ethical billing.  Lourdes founded Karta Legal to tackle these specific challenges, offering tailored solutions that include innovative technology adoption and process improvement.  Her firm caters to a diverse range of clients—from Fortune 100 companies to specialized boutique law firms—ensuring they adhere to transparent and ethical billing practices.

NJ Law Firm Wins Billing Increments Challenge

May 25, 2023

A recent Law 360 by George Woolston, “NJ Firm Keeps Victory In Retainer Fee Billing Challenge,” reports that the New Jersey state appeals court has backed Arbus Maybruch & Goode LLC's win in an ex-client's suit alleging it failed to disclose the incremental billing structure of its retainer fee, reasoning in a published decision that the firm's bimonthly invoices showed the terms were spelled out.  A three-judge panel affirmed a Monmouth County trial judge's decision to award summary judgment to the firm on breach of contract claims against Daniel Cohen and his company Cohen Capital Management over $142,000 in unpaid attorney fees and costs.

Cohen challenged the lower court's decision, claiming that the New Jersey firm's fee and retainer agreements were illegal and unethical under the state's rules of professional conduct for attorneys, according to the opinion. Cohen argued that attorneys are required to include language defining what unit of incremental billing the attorneys planned to use in retainer agreements, despite hourly rates and initial deposits being otherwise clearly defined.  The firm had been billing Cohen in increments of one-tenth of an hour, according to the opinion.

In its review of two retainer agreements between the firm and Cohen and the relevant rules and case law, the panel found "no rule as rigorous as the one defendants urge us to adopt" and reached the same conclusion as the trial court — the firm's legal fees were reasonably presented and agreed to by the parties.

"The fees awarded here were based upon a reasonable hourly rate, as determined by the trial judge, who made detailed findings regarding the type of matter involved, the rates charged by other New Jersey attorneys possessing similar experience in like matters, and regional considerations regarding the amount billed," Judge Maritza Berdote Byrne wrote for the panel.  The panel also found Cohen's argument that he was not aware of the firm's incremental billing was not supported by the record in the case.

"Further, based upon the parties' course of dealing, where defendants availed themselves of AMG's legal services for more than two years without objecting to any invoices or raising the incremental billing issue, defendants' claim suggests an improper motive," Judge Berdote Byrne wrote.

Arbus Maybruch & Goode represented Cohen and his company for more than two years, starting in 2018, in a negligent construction suit as well as in a separate lawsuit against Cohen by a law firm seeking unpaid attorney fees, according to the appellate opinion.  In July 2020, the firm ended its representation of Cohen and a month later filed its breach of contract suit over the unpaid attorney fees.  According to the opinion, the first time Cohen argued that the agreements did not permit billing on an "incremental" basis was in its answer to the lawsuit, filed in Oct. 2020.

Judge Rips Class Counsel’s ‘Overstated’ Fee Request

May 8, 2023

A recent Law 360 by Gina Kim, “Joint Juice Maker Rips Class Attys’ ‘Overstated’ $8.3M Fee Bid,” reports that Premier Nutrition asked a California federal judge to cut $2.4 million from class counsel's "bloated and unreasonable" $8.3 million fee request in litigation over allegedly misleading advertising claims about its Joint Juice, citing block billing, overstaffing, lavish hotel stays and fringe expenses for "boba and coffee runs dating back to 2013."  In a 33-page opposition, Premier Nutrition's attorney Steven E. Swaney of Venable LLP accused class counsel, except for Iredale & Yoo, of presenting to the court "a bloated and unreasonable application asking this court to award $8,274,516" in combined fees, expenses and costs.

Premier argued the lodestar calculation of the two other class counsel firms, Blood Hurst & O'Reardon and Lynch Carpenter "betray a lack of 'billing judgment,'" as they propose a fee award that doesn't approximate what a paying client is willing to approve.  Their lodestar calculation is "massively overstated" since it includes time spent for other related Joint Juice class actions, Premier argued, pointing out the plaintiffs only prevailed in one of 11 related cases but are now submitting a fee bid as if they prevailed on all of them.

Excluding Eugene Iredale and Grace June of Iredale & Yoo, Premier complained that Blood Hurst and Lynch Carpenter's billing records are riddled with inefficiencies, including "top-heavy administration of work," block billing, billing in quarter-hour increments, overstaffing, nontravel work billing and other things.  Examples include Blood Hurst lawyers billing 24 or more hours per day and submitting several duplicative entries on a single day, staffing six lawyers on the trial, "two of whom sat passively in the gallery of the courtroom" and charging $575 per hour for a contract attorney, Craig Straub, doing document review, the opposition states.

"As explained in the declaration of Premier's fee expert Steven Tasher, a 40% across-the-board percentage reduction to BHO's and Lynch Carpenter's lodestar is warranted to account for these inefficiencies," Premier said.  "The total lodestar for class counsel should be reduced to $2,406,809.  This constitutes approximately 29% of the judgment amount, which aligns with the Ninth Circuit's 25% benchmark for reasonable fees."

Premier balked at class counsel's suggestion for the court to apply a multiplier to pump their fee award if their lodestar is reduced, and also took issue with their "extravagant expenses" that it said warrants an across-the-board cut in their claimed charges.

"Class counsel also seek reimbursement from Premier for every sundry or fringe expense they encountered over this decade-long litigation, including boba and coffee runs dating back to 2013," the opposition states. "Class counsel even tries to bill Premier for hundreds of dollars in laundry expenses incurred during trial — even though they apparently traveled back home to San Diego that same day."

The opposition references defense's expert, Tasher, who reviewed the billing entries and opined the class counsel's requests costs also reveal "a 'spare no expense' approach" to the case along with double billing and "phantom charges."  "In my opinion, while the dollar value for many of these items may seem small, they reflect a big attitude of no cost being too great to throw onto the bill and eat, drink and be merry on someone else's dime," Tasher wrote.  "No paying client would tolerate class counsel's lifestyle expenses or lavishness."

Premier said that Blood Hurst and Lynch Carpenter's proposed lodestar figure was grossly inflated and warrants dramatic cuts across the board, arguing that the firms can't include time spent on class representative depositions in other related actions in their calculation.  Blood Hurst's proposed lodestar also includes nearly 1,000 hours for trial prep spent in Mullins, which Premier said should be removed since the Mullins trial never occurred.  It's inappropriate for Blood Hurst to get 100% of the fees for work common to the related cases based on the successful outcome of just one case, the opposition states.

Premier also sought a 40% cut to Blood Hurst's remaining lodestar account for several deficiencies in their billing practices, noting that  the firm's Timothy Blood and Thomas Joseph O'Reardon billed for work done in 2013 at their current hourly rate, which is significantly higher.

While Blood, partner Paula Brown and Straub billed 1,000 hours for trial prep, Blood was the only one who had an active role at trial, and O'Reardon and Straub "sat passively in the gallery," Premier alleged.  Premier also accused Straub and O'Reardon of billing extra hours after trial each day and erroneously adding entries that exceed 24 hours a day "or are obvious duplicates," totaling $62,207.50.

Premier also attacked Lynch Carpenter's fee bid of $392,392.50, arguing the billed work was entirely spent on Mullins.  The fee should be apportioned among the related cases and then cut by 40% due to excessive time and top-heavy administration work, Premier said.  That should leave Lynch Carpenter with $20,842.77.  "As an initial matter, in what can only be described as a shocking act of chutzpah, Mr. Carpenter — who has not worked on these cases since 2020 — includes in his fee petition 13.7 hours to fly to San Francisco to observe one day of trial on May 25, 2022," the opposition states.

Nor should class counsel recover fees and deposition costs for experts that weren't used in the Montera suit, Premier said.  Furthermore, several charges from the two firms weren't only lavish and extravagant, but also "purely wasteful," Tasher said.

"Each of these issues is exacerbated by the level of staffing," Tasher wrote. "Had the trial been staffed with attorneys Iredale, Jun and Blood, (the three attorneys who actually appeared on the record to try the case), the expenses would also have been much more modest.  However, given the excessive staffing (and related trial expenses) of attorneys [Todd] Carpenter, O'Reardon and Straub, the costs grew exponentially, considering the additional flights, Uber/taxi charges, meals/alcohol, and snacks brought about by these three additional timekeepers (essentially double the trial team.)"

Article: What is a Legal Fee Audit?

October 7, 2021

A recent article by Jacqueline Vinaccia of Vanst Law LLP in San Diego “What is a Legal Fee Audit?,” reports on legal fee audits.  This article was posted with permission.  The article reads:

Attorneys usually bill clients by the hour, in six minute increments (because those six minutes equal one tenth of an hour: 0.1).  Those hours are multiplied by the attorney’s hourly rate to determine the attorney’s fee.  There is another aspect of attorney billing that is not as well known, but equally important — legal fee auditing.  During an audit, a legal fee auditor reviews billing records to determine if hourly billing errors or inefficiencies occurred, and deducts unreasonable or unnecessary fees and costs.

Both the law and legal ethics restrict attorneys from billing clients fees that are unreasonable or unnecessary to the advancement of the client’s legal objectives.  This can include analysis of the reasonableness of the billing rate charged by attorneys.  Legal fee audits are used by consumers of legal services, including businesses, large insurance companies, cities, public and governmental agencies, and individual clients.  Legal fee audits can be necessary when there is a dispute between an attorney and client; when the losing party in a lawsuit is required to pay all or part of the prevailing party’s legal fees in litigation; when an insurance company is required to pay a portion of legal fees, or when some issues in a lawsuit allow recovery of  attorneys’ fees and when other issues do not (an allocation of fees). 

In an audit, the auditor interviews the client, and reviews invoices sent to the client in conjunction with legal case materials to identify all fees and costs reasonable and necessary to the advancement of the client’s legal objectives, and potentially deduct those that are not.  The auditor also reviews all invoices to identify any potential accounting errors and assure that time and expenses are billed accurately.  The auditor may also be asked to determine if the rate charged by the attorney is appropriate.

The legal fee auditor can be an invaluable asset to parties in deciding whether to file or settle a lawsuit, and to the courts charged with issuing attorneys’ fee awards.  The court is unlikely to take the time to review individual invoice entries to perform a proper allocation of recoverable and non-recoverable fees leaving the parties with the court’s “best approximation” of what the allocation should be.  The fee audit provides the court and the parties with the basis for which to allocate and appropriately award reasonable and necessary fees. 

Audits are considered a litigation best practice and a risk management tool and can save clients substantial amounts of money in unnecessary fees.  It has been my experience, over the past two decades of fee auditing, that early fee auditing can identify and correct areas of concern in billing practices and avoid larger disputes in litigation later.  In many cases, I have assisted clients and counsel in reaching agreement on proper billing practices and setting litigation cost expectations. 

In other cases, I have been asked by both plaintiffs and defendants to review attorneys’ fees and costs incurred and provide the parties and the court with my expert opinion regarding the total attorneys’ fees and costs were reasonably and necessarily incurred to pursue the client's legal objectives.  While the court does not always agree with my analysis of fees and costs incurred, it is usually assisted in its decision by the presentation of the audit report and presentation of expert testimony on the issues.

Jacqueline Vinaccia is a San Diego trial attorney, litigator, and national fee auditor expert, and a partner at Vanst Law LLP.  Her practice focuses on business and real estate litigation, general tort liability, insurance litigation and coverage, construction disputes, toxic torts, and municipal litigation.  Her attorney fee analyses have been cited by the U.S. District Court for Northern California and Western Washington, several California Superior Courts, as well as various other state courts and arbitrators throughout the United States.  She has published and presented extensively on the topic of attorney fee invoicing, including presentations to the National Association of Legal Fee Association (NALFA), and is considered one of the nation’s top fee experts by NALFA.