The Client's Guide to Law Firm Overbilling
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Law firm overbilling - whether described as the euphemistic "bill padding" or simply "billing fraud" - is a serious problem that is seldom discussed and even less frequently addressed. But rare is the legal bill that does not include at least some "padding." In fact, according to the California State Bar, most bills are inflated at least 10-30 percent. This article describes three common ways legal bills are inflated and provides tips to help clients identify problematic billing practices.
Introduction to the Unkillable BillableIt seems that scarcely a week goes by without an article appearing in a newspaper, journal or blog that proclaims the death of the billable hour. And while pundits have been predicting its demise for several decades, the billable hour remains the currency of the legal profession and seems likely to continue in that role for the foreseeable future.
However, two-thirds of lawyers admit that "bill padding" occurs at their firms, one-third of lawyers openly double-bill clients, and more than half of all lawyers perform work not because the client or case demands it, but because the lawyer needs to bill more hours. See William G. Ross, Professor of Law, Samford University, Attorney Billing Ethics Survey (2006-2007). Clearly, clients must be proactive when it comes keeping billable hour inflation under control. This article summarizes some of the most common billing practices that lead to billable hour inflation.
One Block BillingApproximately 90 percent of law firm clients who are billed on an hourly basis are “block billed.” Block billing is an accounting technique whereby lawyers aggregate multiple smaller tasks into a single "block" entry, for which a single time value is assigned. In theory, the total time charged equals the sum of the duration of each discrete task. For example, after spending five minutes on a phone call, 35 minutes revising a junior associate’s draft motion and three minutes dashing off a brief e-mail to the client, the attorney should bill the client for seven-tenths of an hour. Unfortunately, in far too many cases, the final block-billed entry for these tasks will end up looking something like this:
- Phone call with plaintiff's counsel; e-mail to client; revise draft motion to dismiss. - 1.0 hours
In this example, the client has been billed for a full hour, rather than seven tenths of an hour, which is the actual amount of time spent on the client's behalf, so the client is essentially paying the lawyer a gratuity of three-tenths of an hour.
This sort of billable hour inflation is not necessarily the result of deliberate fraud, as lawyers are notoriously poor at keeping accurate and contemporaneous time records, and tend to overestimate the amount of time spent on a particular task. MacEwen and Stanton, "Billable Hours", Adam Smith Esq. (2012).
Regardless of why it happens, the fact remains that block billing is big business for law firms - and a massive expense for those clients who are block-billed. According to the California State Bar, block billing causes lawyers to inflate the total hours billed to the client by 10-30 percent. See California State Bar Committee on Mandatory Fee Arbitration, Detecting Attorney Bill Padding, Arbitration Advisory 2003-01 (Jan. 29, 2003); see also Darling Int'l., Inc. v. Baywood Partners, Inc., 2007 WL 4532233 at * 9 (N.D. Cal. 2007) (as a percentage penalty for block billing, most courts make a reduction ranging from 5% to 30%, consistent with the California State Bar committee's findings). In fact, many courts believe that block billing inflation is actually much worse, and will slash lawyers' block-billed time by more than half. See, e.g., Ceglia v. Zuckerberg & Facebook (W.D.N.Y. 2012) Case No. No. 10-CV-00569A(F); Kirsch v. Fleet Street, Ltd.,148 F.3d 149, 173 (2d Cir. 1998).
Simply adding the smallest unit of billable time (0.1 hour) onto a lawyer's daily timesheet results in an extra $10,000-25,000 in unearned fees in a single year, depending upon the lawyer's billing rate. Now consider that, at least according to the California State Bar and nearly every state and federal court in the country, most lawyers' daily time submissions contain anywhere from thirty minutes to three hours of time billed to clients that was not actually worked. For the average senior lawyer, that translates to more than a quarter million dollars per year in fees for work that never happened.
By design, block billing makes it nearly impossible for clients to determine whether they are being fairly billed, which prompted the United States Court of Appeals to express "a concern about the use of block billing..." since "billing practices that camouflage the work a lawyer does naturally and quite correctly raise suspicions about whether all of the work claimed was actually accomplished or whether it was necessary." Robinson v. City of Edmund, 160 F.3d 1275 (10th Cir. 1998).
Another court observed that block billing allows lawyers to "claim compensation for rather minor tasks which, if reported individually, would not be compensable" and precludes the client "from determining whether individual tasks were expeditiously performed within a reasonable period of time because it is impossible to separate into components the services which have been lumped together." In re Leonard Jed Company, 103 B.R. 706 (Bankr. D. Md. 1989).
Two the HoardersAnother problem clients aren't often aware of is billable hour "hoarding." When the economy slows down and billable hours are at a premium, work tends to be retained and billed by more expensive senior attorneys. This results in partners doing associate work, associates doing paralegal work, and paralegals doing secretarial work. The problem arises when hourly rates are not discounted to reflect that the senior person is actually doing lower-level work. But senior partners should not bill partner rates for associate-level tasks and lawyers should never bill for paralegal work. As one court eloquently phrased it, "Michelangelo should not charge Sistine Chapel rates for painting a farmer's barn." Urisic v Bethlehem Mines, 710 F2d 670 (3rd Cir.1983); see also Metro Data Systems, Inc. v Duranao Systems, Inc., 597 F.Supp. 244 (D.Ariz.1984) (court refused compensation for lawyers performing services that could have been performed by a paralegal). Thus, clients must not only be concerned with the amount of time spent on particular tasks, but need to be careful that those tasks are being handled and billed at the appropriate level.
Moreover, despite universal warnings from state and federal courts to end the practice, many law firms attempt to pass on the costs of firm overhead to clients by transforming secretarial or support work into billable work. But firms should never charge clients for secretarial work, clerical work or word processing. See American Booksellers Ass'n., Inc. v. Hudnut, 650 F.Supp. 324, 330 (S.D. Ind. 1986) (calendaring, docketing and word processing are firm overhead charges). This also means that clients must be especially attentive when scrutinizing billing entries from paralegals, who are often saddled with secretarial work that is then billed out to the client at hourly paralegal rates. Keith v. Volpe, 644 F.Supp. 1312, 1323 (C.D. Cal. 1986) (rejecting hourly time billed by attorneys and paralegals for secretarial and clerical work such as "pick-up copies", "tag exhibits", "organize files", "reproduce documents" and "distribute memo.") According to the U.S. Supreme Court, "purely clerical or secretarial tasks should not be billed at a paralegal rate regardless of who performs them." Missouri v. Jenkins, 491 U.S. 274 (1989).
Three Hour and Half-Hour Incremental BillingWhen lawyers bill by the hour, they should never use increments greater than one-tenth of an hour. Glover v. Heart of America Mgmt. Co., 1999 WL 540895 at *7, fn 8 (D. Kan 1999) (quarter hour billing... has been virtually extinct for some time"). Yet it appears that anywhere from five to ten percent of lawyers bill clients in unacceptably large chunks of time - usually in one hour or half-hour increments. This is neither honest nor reasonable, and constitutes outright billing fraud, as courts have held that “professional persons who charge their clients fees in excess of $80.00 per hour, based upon time spent, cannot, in all honesty and reasonableness, charge their clients for increments in excess of one tenth of an hour.” In re Tom Carter Enterprises, Inc., 55 B.R. 548, 549 (Bankr. C.D. Cal. 1985). By way of illustration, consider these billing entries from a $750 per hour partner:
- Day One: Reviewing client documents and interfacing with opposing counsel (1.0 hours)
- Day Two: Discussions with client and preparation of complaint (3.0 hours)
- Day Three: Review and complete outline (2.0 hours)
- Day Four: Met with associate regarding complaint (1.0 hours)
Each of these entries, which were charged to the client on consecutive days, are billed in precise sixty minute increments (as were around one hundred other time entries billed to the same client over a period of two years). While there's no way of knowing what this lawyer's other billing statements look like, it's a safe bet that each of his clients - or at least, those clients who fail to review their outside counsel's invoices - were also billed in one hour increments, no matter how minimal the work actually performed.
What's truly shocking is that the majority of these excessive billers are senior and managing partners, and presumably the "name" and relationship lawyers most trusted by clients. Yet these trusted advisors insist on gouging their clients by using excessive time increments, and they continue to get away with it year after year.
However, in-house counsel or other corporate officers must be especially cautious when dealing with "one hour" billers. Aside from the obvious impact on the company's bottom line, recent court decisions suggest that willful ignorance of blatant billing abuses by outside counsel - such as approving suspect time entries from a $750 per hour lawyer who bills exclusively in one hour increments - might actually implicate the corporate officer or in-house counsel in the law firm's billing fraud and expose the corporation to shareholder liability. Falanga v. Kirschner & Venker, PC, 286 Ga. App. 92, 648 S.E.2d 690 (2007) (a corporate client has “a duty to exercise ordinary care and diligence to discover [attorney billing] fraud, even though a confidential relationship exists” Thus, an overbillied client is not “excused... from exercising ordinary care by reviewing [the lawyer’s] bills.” Id.
In other words, it might be time for some uncomfortable - but necessary - discussions between clients and lawyers regarding billing practices.
SummaryIn order to minimize billable hour inflation, every client should implement outside counsel guidelines that prohibit block billing, billable "hoarding" and excessive incremental billing. However, these are just a few of the practices that lead to overbilling and should cause clients to carefully scrutinize their monthly statements. Please visit our website (www.litigationlimited.com) to learn more about these and other types of law firm overbilling, and the strategies clients can use to help outside counsel improve billing practices and rein in billable hour inflation.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.