DLA Piper Is Not Alone: Why Law Firms Overbill

, Law Technology News

   | 4 Comments

Confirmation of bias for D. Casey Flaherty, corporate counsel at Kia Motors America, is an underappreciated source of joy. Flaherty reviews four stories, that reinforce his preconceptions of lawyers' time and billing practices.

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What's being said

  • Larry Bridgesmith

    Excellent capture of the insanity of the "old normal". You inspired the following blog post: http://www.ermlegalsolutions.com/?p=2243

  • SouthHill

    A bit of history: The billable hour is just what the client asked for.

    Prior to the 60's, Biglaw often operated something like this: At the end of the case the lawyers would meet with a very senior partner who would say, "Tell me about this case." After half an hour he would pick up a piece of paper and write "For services rendered—$12,000" (which might be based in part on the good or bad result achieved, and in part because senior partner wanted to keep the client) and hand it to his secretary. The client (who knew and trusted the lawyers at the firm) paid the bill. And the client got good value for the money.

    But Bigcorp began to focus more on the bottom line and less on trust of their lawyers. ("This is business, you know.") They began to wonder if they were getting overcharged. Bigpres hadn't the slightest idea how much work was involved in litigation ("Hmm . . . how could it possibly cost this much?"). Instead of taking the time to find out, he demanded an hourly accounting. Because the lawyers hadn't kept timesheets, Biglaw couldn't tell the client, and they had to cut the bill.

    The battle had been lost, but the war? . . . The lawyers quickly learned that in their new relationship with the client they could make tons more money by taking endless (and sometimes needless) depositions and pouring over documents for days, and billing for every fraction of an hour—even a 30-second phone call, which, billed at 0.1 hour, counts up at the end of the case (and which wouldn't have entered into the mix at all under the old system). Hence the rise of the billable hour, and the total demise of the "great result" additur.

    Despite all the talk about alternative billing, Bigpres is still ignorant of how to prepare a case for a trial, and feels uncomfortable if he doesn't see something that tells him how many hours a lawyer spent on a specific task. This means that the billable hour is not likely to go away soon. Bigcorp's latest effort to reduce costs employs ex-insurance claims managers (they call them "auditors," and none of them have ever tried a case) to tell their outside lawyers that trial preparation should have taken 2141.2 hours instead of 2944.3 hours, and then they haggle about reducing the bill. If the lawyers (who now may be at Mediumlaw) want to continue to receive the client's business, they cut the bill. But what do you think they'll do with the next bill? More depositions. More document review. MORE HOURS! ("Okay, NOW let's haggle.")

    The lesson: Be careful what you ask for—Bigcorp is getting exactly what it asked for 50 years ago. And it costs them a lot more than the "alternative billing" methods used in 1960.

    And another thought . . . maybe trust (in both directions) is more important than we give it credit for.

  • PSL

    I recall a bankruptcy case where the creditors committee's firm decided to attend 4 associates and a partner to a 341 creditors meeting. One of the associates who happens to live 2 blocks away from the courthouse billed 1 hour to leave his house to travel to the courthouse, 3 hours to attend the 30 minute meeting, 1.5 hours to travel back to his firm (which is located 3 blocks away from the courthouse), and his final 4 hours were billed towards internal conferences and meetings with the other partner and associates who were in attendance. He managed to bill 8.5 hours that day. (Notwithstanding that those other associates and partner were only able to bill 3.5 hours on this matter that day.) Today, he is a partner at a major wall street firm.

  • Transaction7

    My personal all-time favorite example, in a case where I was asked, because of ethics and Disciplinary Rule experience, to review a bill, was the charge, in the late seventies before BigLaw as we know it today, of $500.00 for a single hour of the time of two expensive family law attorneys for, so help me,
    "Taking critical certified letter to Post Office for mailing." The retainer contract also called for a troubling contingent fee, not to mention a 50% contingent fee, in addition to the hourly charges. The fight arose only after the firm making that billing intervened and placed very sensitive personal, privileged and confidential, information about the parties' intimate relations in the public record, scuttling a reconciliation. None of the lawyers got disciplined.
    A judge told us of elementary debt collection cases in his court where green associates billed incredible numbers of hours for "drafting" identical pleadings and discovery documents he recognized as taken verbatim from a State Bar form manual, some of which were later held abusive by the appellate courts, at hourly rates his father, name partner at a major banking law firm, had never charged.

    A markup of the kind you report on contract attorneys' work also smells like mail fraud. Who reviewed these retainer and fee contracts, much less the bills?

    Now the marginal effort wringing the last measly $39 million out of a settlement with a scam artist might actually have required more time, effort, and skill and justified a higher rate, but some of these BigLaw rates reek of cronyism and overbilling.

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