A No-Nonsense Approach to
Monitoring Those Legal Bills by John W. Toothman, Esq.
12(31) Washington Business Journal (Dec. 1993)
In a Wall Street Journal article entitled "You Think You have Lawyer Problems,?" the Federal Deposit Insurance Corp.'s former general counsel, Alfred J.T. Byrne, gave clients five pieces of advice about managing lawyers and legal fees:
"Do more legal work-in house, enhance competition for your legal business and negotiate better deals, set limits on your legal expenses and monitor your bills, reduce your costs of legal research," and "ask non-lawyers in your company for assistance."
This advice is sound, even common sense, but what was striking was that the examples Byrne gave of billing excesses uncovered by the FDIC were trivial -- none exceeded $10,000 and all but one were less than $5,000. The National Law Journal recently noted that the FDIC's 1991 legal bills were $374.2 million and 1992 legal bills were $272.9 million (which does not include the $865 million spent in the same two years by the RTC).
According to Byrne, the FDIC has retained 1,400 different outside law firms. Either lawyers are much more cost-effective than the public imagines or on the other hand, their bills are questionable, leaving clients to pick nits, even clients as sophisticated as the FDIC.
The infractions Byrne described are examples of the usual litany of obvious problems that many clients have observed. His examples included 25-hour days, personal or phantom expenses charged to the FDIC and heavy markups for phone, fax, and computer charges. Lawyers pass many expenses through to clients, with or without the markup, even though clients often consider them to be overhead that should be included within the generous hourly rate paid for the lawyers services.
Nit-picking of expenses is usually a sign that the client is unhappy, but cannot attack the meat of the bill, which is contained in the lawyers hours. While clients may not know how many hours a lawyer should spend drafting a brief, they can easily second-guess charges with which they have everyday experience like 25 cents a page for photocopying.
American Lawyer devoted an article to the billing excesses of major firms, particularly New York's Skadden, Arps, Slate, Meagher & Flom, which charged one client $33.80 for coffee and danish. The danish was the story's lead, even though the legal bill exceeded $1.5 million.
But attacking expenses is nit-picking that will not solve a client's underlying problem because expenses normally account for a small percentage for the bill compared with the legal fee itself, which typically costs $125 to $350 or more an hour.
Attacking fees requires something, however, that most clients lack: Knowledge of how firms and litigation work to provide a frame of reference against which to compare the bills. Clients are not alone -- even judges and accountants cannot penetrate a bill's facade to discriminate between legitimate charges and well-disguised pork.
American Lawyer called challenging fees the "hardest, often impossible" question, but not if one knows what to look for. Here are some warning signs to look for in legal bills, along with suggestions on what to do about them:
Musical attorneys. Just when a client learns the names of the attorneys assigned to the case, they change again. Clients should request prior clearance for all staffing changes, with an explanation and a discount to cover the new attorneys learning curve.
Conference mania. A certain amount of intramural communication is necessary, but conferences should not constitute a substantial portion of total time billed nor be so frequent that nothing of substance could have happened in the interim.
Rampant bureaucracy. How many layers of attorneys does it take to complete a case? Find one conscientious, competent attorney who will actually do the work and perhaps one experienced person to supervise, although no more than one attorney should be paid to attend routine court hearings, depositions, and meetings. Even large cases can be staffed this way, with additional workers assigned to discreet issues and reporting to the central strategist.
Inertial guidance. Filing the usual motions, taking the deposition of every sentient being in sight, propounding scores of incomprehensibly worded interrogatories, fighting over every wad of paper -- such are predictable actions of hack litigators. If an attorney cannot articulate a satisfactory reason why each step is cost-effective, then they should skip it.
Discovery. According to former Vice President Quayle's Council on Competitiveness, "80 percent of the time and cost of a typical lawsuit involves . . . discovery." Before giving an attorney a green light for extensive discovery, clients should conduct a little discovery of their own by asking their attorney: "What do you hope to discover that you dont already know or cant get from me?," "How will it have a direct effect on the trial or settlement value of the case?," and "How much will it cost to get this information and, therefore, is it cost effective?"
External/internal work. If the vast majority of attorney time is spent on internal work product (such as research, conferences, letters to the client, preparation for discovery, or memo writing), with little interchange with the outside world of opposing counsel and the court, then chances are that the internal work is of little value and could be the result of over-staffing, case churning, or the lack of a coherent strategy.
Chunky entries. Time entries for individual attorneys that show six to 10 hours a day (or more), day in and day out, are "chunky entries." Perhaps all that time is really valuable, but most likely it is the result of inadequate supervision, the lack of an efficient trial preparation plan, or pressure on attorneys to bill lots of hours.
Quality time. Seeing too little quality time in a bill is a problem. Time spent with the client formulating strategy, discussing alternatives and their cost-effectiveness, considering settlement options, discussing what the client wants or needs this is quality time that should not be eliminated.
According to a Harris poll (commissioned by Aetna and analyzed by Professor Deborah Hensler of the University of Southern California), "two-thirds of in-house counsel said that, on balance, outside counsel do not pay enough attention to determining how much they are willing to pay to achieve a given outcome on a legal matter."
Clients should not be shy about challenging their attorneys. The same Harris poll also revealed that senior partners in major law firms overwhelmingly see "heightened scrutiny of bills" as having either a positive effect on the lawyer-client relationship (35 percent) or, at least, no effect either negative or positive (35 percent). My guess is that this was just lip-service for the benefit of the pollsters, but call their bluff anyway.
Early in the relationship, clients should watch their attorneys especially carefully before bad patterns have a chance to emerge and take root. Because there is a lag between when work is done and the client sees the bill, problems emerging in one bill should be addressed promptly.
Too often clients who are upset or concerned about their bills close down the lines of communications, feeling that they are trapped into the relationship for the duration of the case, but vowing to go elsewhere when it is over.
Before going away mad, clients should try at least once to voice their concerns. Most lawyers are surprisingly willing to negotiate fees. Clients can take heart from the American Lawyers account of what happened to the $33-danish billed by Skadden, Arps: Not only did Skadden "eat" the danish, but $1.1 million of the $1.6 million in which it was wrapped.
Copyright © 1993, 1998 John W. Toothman
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