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How to Tell If Your Law Firm
Is Padding Its Bills

by Gregory C. Baumann
Warfield's Business Record
Copyright 1996 WBR


Businesses that suspect their law firms of padding time sheets are turning to a new breed of watchdog to guarantee an hour billed is an hour worked.

Small businesses, insurance companies and even corporations with in-house counsel are adopting this new "trust, but verify" approach to attorney-client relations by hiring specialized consultants who can determine if legal bills are too high.

And while it may strike some attorneys as an unwarranted impeachment of their professionalism, the sticker shock experienced by some clients justifies auditing legal bills, say practitioners of the trade.

"It's a growth industry," says Lisa G. Lerman, an associate professor of law at the Catholic University in Washington.

Questech, a government contractor with $50 million in revenue last year, spent up to $1 million annually on legal fees -- until an audit uncovered overbilling.

"The company had used the services of a large and prestigious law firm in Washington for over 20 years ... [but] the company came to the conclusion they were paying top dollar and not getting top quality," says Questech's in-house counsel, Christina Burkholder.

"I was hired as a result of that study," she adds.

Common practice

Now Questech, which is opening an Annapolis office this summer, is seeking "a very large six-figure number" through arbitration to compensate for overbilling by its former firm, Burkholder says.

Lerman cites a 1991 survey in which 51 percent of the lawyers who responded admitted occasionally padding bills.

Interestingly, the lawyers polled universally believed other attorneys committed the offense more often than they themselves did, Lerman says.

Pressure to bill

The long-entrenched system of quantifying a lawyer's worth by the sweep of the minute hand drives the overbilling problem.

And while the volume of legal work going to a firm may stagnate, the pressure on associates to bill up to 2,000 hours per year remains.

That tension increases the motivation to overbill.

"Most law firms have an annual target . . . in recent years many firms have been a little short on work to do and if you're a conservative biller, it can be tough to do," Lerman says.

She's careful to note, however, that the wide variation in firm cultures plays a strong part in whether overbilling takes place at a particular partnership.

"In some firms, padding would result in immediate termination, but there are others where the opposite is the case, and you might be terminated for not doing it," Lerman says.

Despite the rise of alternative billing systems such as prepaid legal plans, flat-fee contracts and blended-rate arrangements, the demand for legal auditors grows.

The new legal auditors complement a service that has been offered by the Maryland State Bar Association since 1968.

William G. Mitchell Jr., chair of the MSBA Committee on the Resolution of Fee Disputes, says the 92 volunteer attorneys in his service provide a forum for legal consumers who believe they've been overcharged.

The service received roughly 1,500 complaints last year.

"My feeling is as long as you have lawyers whose principal product is billable hours to a firm, you're going to have problems," says Elena S. Bosver who [is] a Silver Spring legal auditor.

Bosver attributes many unreasonably high fees to inefficiencies in time management, duplication of effort and inappropriate allocation of labor.

When lawyers do overbill, however, they often get away with it, says John Toothman, president of The Devil's Advocate in Alexandria, Va. His firm performed the audit for Questech.

"For every 10 businesses that have heard of legal bill reviewers, there are 90 that haven't," Toothman says.

Overbilling schemes can be attributed to three factors: the lack of accountability most lawyers take for granted, the fact that most legal jobs are "infinitely expandable," and the ingenuity of lawyers facing onerous billable hour requirements.

Evidence of a particularly bold over-billing program came to light in a malpractice case against the Baltimore law firm of Weinberg & Green.

In the ensuing trial, former Weinberg partner Stanford D. Hess admitted to creating a computer program that would automatically add 15 percent to every hour billed to client Fairfax Savings Bank.

The Attorney Grievance Commission will not comment on whether he faces disciplinary action over those misdeeds.

Lerman's study of overbilling techniques has unearthed similarly brazen ruses.

While some are difficult to discern, there have been lawyers caught billing more than 24 hours a day," she says. "That's just stupid and it's really obvious what's going on."

She tells of another instance in which a paralegal was told to total all time sheets and then figure in a multiplier as high as 160 percent.

"If the client asked for an itemized bill, the hourly rate was just revised upwards" to account for the discrepancy, Lerman says.

Bosver also recounts stories of inefficiencies that led to unreasonable bills.

"Sometimes you find associates and partners packing boxes at their [high] hourly rate," instead of having paralegals or temporary workers perform the drudgery.

She says assigning work to inadequately supervised associates often leads to abuses motivated by a belief that if they don't bill thousands of hours each year, they will never make partner.

While checking time slips against work product for one client, Bosver came across a memo that had been produced in 25 hours -- not an unreasonable billing for a complex issue.

"It was a beautiful memo," she says. "But we pulled the rough draft and the associate had

simply gone to the Corpus Juris Secundum [reference book] and photocopied whole sections."

The best cure to overbilling, academics and auditors agree, is prevention.

Lerman urges legal consumers to learn as much about their lawyers as possible before hiring them.

"Second, they should try to construct a lawyer-client contract in which as much as possible is disclosed about what fees will be charged and how they will be determined," she says.

By setting fees at the outset, Lerman observes, consumers of legal services can win important negotiating leverage should a billing dispute arise.

Bosver says that when a client challenges a bill after the fact, the only recourse is to examine the firm's time sheets and compare them with the work product tagged to a particular entry.

"One firm spent an incredible amount of time analyzing a series of transactions for a client, then prepared a summary on it," she recalls.

The time spent preparing a final report on the transactions rivaled the time spent on the analysis and summary.

The catch?

The final report to the client was comprised of nothing more than the summary, prefaced by an introduction and followed by a conclusion.

 

11 (28) Warfield’s Business Record (July 8-14, 1996).

Copyright 1996 WBR

 

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