Don’t underestimate the value of a second opinion, particularly a legal one. In this document, John Beringer offers an example of billing practices that seem questionable at best.
A few months ago a client asked me if I could help a friend who was having a problem with a law firm. When I asked about the nature of the problem, he said that although he didn’t really understand the matter, the firm had billed my friend $496,935, including various 'costs' of $52,340, over a four-month period.
I called his friend to discuss the matter. In the initial interview, the client and I arranged to review the file and billing with his attorney, who wanted to learn my opinion of his billing before I reviewed the bills of the other law firm.
What the billing, and the file, revealed was interesting.
The firm had the client sign a lengthy contract that outlined the billing procedure. The contract included several provisions outside of those customary for defense counsel, some of them incompatible with the Business and Professions Code. When I asked the client why he signed the agreement, he said he had nothing to compare it with, and assumed that his attorney would look after his interests.
During the billing review, I discovered that most of the fees had accrued within the first 60 days, before the client received his first bill. The billing included research by an associate on the doctrine of unclean hands, laches, the statute of limitations on corporate actions, and the Corporate Code on the rights of shareholders (all of which are first-year law school issues). The research associate alone cost $68,683, with another $30,363 billed for computer time to perform the research (online computer time costs anywhere from zero to $125 a month).
What’s more, the assigned senior partner handling the case spent less than 35 hours on it. The assigned associate, billed at $330 an hour, gave himself an $85 per hour increase, and worked on the case for 530 hours. In one period, during which this associate worked three 18-hour days in a row, the firm billed 181 hours to the client (the associate was also handling cases for other clients).
From the billings I expected to see a case involving serious issues of fact and law — perhaps, an innovative legal theory that would shift the dynamics of the case in the favor of their client. What I found was a simple dispute about ownership rights of the majority shareholder in a family corporation. The law firm basically filed a demurrer to the complaint, which they lost on every issue, and made a final bilateral temporary restraining order that was no more than a restatement of the Corporation Code.
When asked to justify the fees, the firm refused to provide any support documentation. They argued that because they’d done their work as counsel, they should receive the compensation they sought. They honestly didn’t understand why the client and I were questioning the fees.
They couldn’t justify their fees with internal accounting. The firm had no records or billing slips, and had no idea why I questioned billing that included nondocumented phone charges, more than 5,000 photocopied pages (at $.50 per page), messengers for all correspondence, faxes, and postage costs. They later revealed that they’d arrived at these figures by taking the total hours for the firm and allocating them to each client based on hours worked.
When we went to arbitration, the firm told the arbitrator that my argument on the need for billing to reflect actual work didn’t apply because they had a client who could pay, and that the function of the billing was to ensure payment, not explain services rendered to the client. They also dismissed my contention that a reasonable hourly fee should be based on the knowledge level of the attorney handling the case. Their position was that, as professionals, they could charge any fee the market would bear.
This case spotlights two key issues: conflicts of interests between the parties in defense litigation, and the need for professional advice to control legal defense costs before lawsuits arise.
The primary purpose of defending a client in civil litigation is to protect the client’s assets from losses due to: 1) compensation to a third party for damages allegedly caused by the defendant; and 2) legal costs of defending the client against this potential liability.
These two exposures can easily lead to conflicts between the interests of counsel (both defense and plaintiff), the payer of the fees (an insurance carrier, corporation, or individual) and the client/defendant in the action. This clash of interests has spurred the development of professional claims management and Litigation Management.
Litigation Management professionals define the issues that led to the litigation, evaluate the probable financial consequences, and attempt to create a fair resolution for all parties (including defense counsel). It’s their responsibility to balance the counsel’s duty of providing the best possible defense for their client with the obligation to conserve the client’s assets. In other words, they create profit for the client by reducing their total cost of litigation.
This is the antithesis of defense counsel, whose job is to provide the best defense for their client, period — not the most balanced, the most economical, nor even the one most likely to be in the client’s long-term interests. The canons of the legal profession don’t include a duty to preserve the client’s assets with an economic defense or to extend an early offer to resolve litigation.
In the case discussed earlier, the challenge to the legal fees came after the fees had been incurred. The question wasn’t ifhow much less money counsel would accept for the work. This is a little like repairing a fire extinguisher during a blaze. You might fix the extinguisher, but while you’re in the process, the fire’s still burning and consuming your assets. the client owed money for questionable services, but rather
An alternative approach is to anticipate the fire by making sure that fire prevention and abatement tools are already in place. I’d suggest these guidelines:
1. Create an internal litigation management profile that outlines which costs you’ll pay and which you won’t, the rate you’re willing to pay, and how it will be paid.
2. Create a contract for hiring counsel, have a professional Litigation Manager review it and then use it to administer to counsel.
3. Create a panel of counsel before you need them.
4. When you face litigation, have a single individual with background in handling cases as the contact for counsel.
5. Have a professional Litigation Manager monitor the case monthly.
In most lawsuits, legal fees outweigh the cost of the indemnity. This doesn’t mean you should concede a case based on anticipated defense costs. It does mean that you need an effective strategy to foresee these costs and prepare for litigation before it occurs.
One other issue. The size of counsel’s fees doesn’t necessarily reflect the value they provide. Good and excellent counsel offers far better value than just expensive counsel.