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Report Shows Law Firms' Railroad Ties

Legal Times
November 6, 2006; Page 1

By Anna Palmer

© Copyright 2006 Legal Times


Forgoing fancy dinners and large billable rates, and keeping fastidious records, are all part and parcel of doing legal work for the federal government.

But, at least for the past couple of years, working for government-subsidized train operator Amtrak hasn’t come with the usual requirements. Instead, the quasi-governmental entity has allowed law firms to enter into retainer agreements that operate outside of its own written guidelines.

A recent probe into Amtrak’s legal department by the Department of Transportation’s inspector general and Amtrak’s inspector general at the request of Congress found more than $100 million in mismanaged legal fees from June 2002 to June 2005. According to the report, released on Oct. 25, Amtrak was billed more than $40 million by 10 law firms. The report found that those firms submitted bills with vague time sheets, inappropriately billed for secretarial or administrative work, and billed at rates that may not have adhered to typical government-discounted rates.

While the investigation focused largely on Amtrak’s in-house legal team, outside counsel were not without fault. Samples of six of the 10 largest billing firms’ records were analyzed — those of DLA Piper; Pillsbury Winthrop Shaw Pittman; Vedder, Price, Kaufman & Kammholz; Morgan, Lewis & Bockius; Manatt, Phelps & Phillips; and Jackson Lewis. All violated Amtrak’s 1998 billing guidelines, according to an unredacted copy of legal audit expert John Toothman’s report that was obtained by Legal Times. (A redacted report was released by a congressional committee last month.)

In at least one case, the link between Amtrak and a law firm is clear — California-based Manatt benefited from having a former partner on Amtrak’s legal team.

“Certainly, you can see where some of [the law firms] have taken advantage of a very loose contractual relationship and that’s not how the legal profession should be operating, particularly when we have hard-earned taxpayer money not accounted for,” says Rep. John Mica (R-Fla.), a senior member of the House Committee on Transportation and Infrastructure, which called for the investigation.

****

At that time, Manatt’s point of contact with Amtrak changed from Polan to Stephen Ryan, a government and regulatory partner in its D.C. office. Between March and July 2005, Ryan sent three letters of engagement to Milner for work on claims against R&R Visual, Private Label Travel, and Colonial Pipeline. But this time Manatt discounted its rates only 10 percent and charged Amtrak up to $590 an hour for Ryan’s legal work, according to copies of Manatt’s engagement letters in Toothman’s report.

The firm disregarded many of the Amtrak law department’s guidelines for dealing with outside counsel and essentially set its own rules, says the report. For example, Manatt set aggressive billing schedules requiring payment no more than 20 days after Amtrak received the bills, or Manatt would add a 12 percent late charge, according to the firm’s engagement letters. Also, the firm’s billing discounts did not apply to paralegals, and Manatt didn’t have to check with Amtrak before increasing its rates, according to Toothman’s report.

Toothman’s report notes that Amtrak’s billing guidelines expressly prohibit block billing, which allows law firms to put several tasks under one line item on a bill. Manatt used block billing in 68 percent of the firm’s hours and in 71 percent of the firm’s fees.

****

Toothman’s report found that Manatt’s billing was “overall, the worst observed, with heavy staffing, attempts to pass off clerical/overhead as billable, failure to follow basic guidelines, and heavy expenses.” The report also noted that the firm had a “disproportionate number of small entries (low) and large entries (high), which can be indicative of improper or padded billing.”

****

Toothman, who makes a living analyzing legal bills as founder of the Devil’s Advocate, an accounting firm [sic] in Alexandria, Va., was hired by Amtrak in July 2005 to go through the retainer agreements and samples of billing records for the 10 law firms that handled the bulk of Amtrak’s legal work for the preceding three years.

****

Manatt was just one of six law firms that Toothman reviewed in detail. Although Toothman reports that he found “no direct evidence of billing fraud, I found ample evidence that Amtrak is vulnerable to fraud” and also reports that many of the firms’ billing records were in direct contradiction to the billing guideline specifications.

“The message for other clients would be, besides ‘Oops, the government got taken again,’ is that these are firms that may do this to other clients,” Toothman told Legal Times.

****

Toothman reported that Pillsbury Winthrop used block billing in 61 percent of its hours, which made up 67 percent of its fees. During the time period investigated, the firm was headed by Paul Mickey Jr., a former executive vice president for law and public affairs at Amtrak.

***


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