[Updated May 2019] We rarely write posts on legal malpractice. But when the ABA Journal published an article suggesting that 21% of lawyers engage in bill padding and overcharge their hourly clients, we couldn’t resist.
CEB Inc. and Wolters Kluwer NV’s ELM Solutions are two companies that help larger businesses manage their legal bills. Both companies partnered on a study to analyze legal billings. According to their joint report, 2016 Real Rate Report (c), 21% of lawyers overcharge their clients.
The most common form of bill padding noted in the study involves “rounding up” bills to the nearest hour or half hour. In our experience, most law firms with hourly clients bill in 6 minute increment. That means a 5 minute call would be billed as .1 hours. By rounding up, however, a 6 minute call gets rounded up to the nearest half hour meaning it is billed as .5 hours.
The study revealed that these overcharges cost clients tens of thousands each year and that is per lawyer!
In what amounts to a double whammy for law firm clients, hourly rates at large firms increased 10% in 2015. (2016 data is not yet available.) That means the lender liability lawyer that cost $600 in the January of 2015 now costs $660 per hour. The average partner rate in New York City is now $779 per hour!
Lawyers can certainly charge what the market will bear. Increasing billing rates and simultaneously engaging in bill padding is simply too much, however. Lawyers in big cities will soon price themselves out of a job.
Layer on things like bill padding and the billing practices become illegal. Unless the fee agreement permits lawyers to round up to the nearest half hour, overcharging one’s time is fraud and a breach of the lawyer’s fiduciary duty to the client.
Lawyers that pad their bills are nothing new. Even we were surprised, however, to learn that more than one in five lawyers overcharge their clients.
Examples of Bill Padding
Sometimes the behavior reaches extreme levels. Several years ago, 69-year-old Lawrence Reich found himself in hot water after his legal bills suggested he worked 1200 days in a single year! Reich, who practiced in New York, claimed more hours and days then existed. Even if he worked 24 hours per day, 7 days a week, the hours were impossible.
Last year a giant law firm got some nasty (but well deserved) press when the firm’s billing policy was leaked. According to that document, “Any short break… of up to six minutes should still be recorded to the matter you are working on, on the basis that you would still be thinking about.” Yes, that means if you are taking a bathroom break but “still thinking about” the client, you can add that time to the bill.
In yet another example, one client reported that after every telephone call or email from a paralegal, the paralegal would bill the actual time spent on the call or email. No problems so far.
Things went south when lawyer in charge of the file would then bill 30 minutes to review the call or email. Even if the call was just a few seconds, the lawyer would bill for a 30 minute “review.” (That same lawyer also billed an hour each week to “review the file.”)
Bill padding? Absolutely.
The extreme cases are motivated by pure greed. But that is not the only reason why lawyers engage in bill padding. In January 2019, an associate working at a huge law firm was charged by the Illinois Attorney Registration and Disciplinary Commission with padding bills. No motive was offered but we think it was simply the pressure placed on associate attorneys at big law firms to bill a certain number of hours.
The associate at the center of the controversy, Christopher Anderson, “thought [if] he had not spent a sufficient amount of time on client matters, he slightly increased the time billed based partly on his assessment of the likelihood that the client would object.”
Anderson was never caught but instead turned himself in! He says, “This is just an attempt by me to make my life right. It’s not been easy for me along the way, but I feel like I’ve done the right thing.”
Whether greed or pressure to bill, we suspect that the percentages of bill padding are so high because many lawyers think bill padding is a victimless crime. Depending on who the client is may also effect bill padding. Does a merger and acquisitions lawyer worry in a multi billion dollar deal if the client can afford a bit of padding? Would that same lawyer feel the same way if representing widows and orphans?
There is another for writing this post on lawyers overcharging. Last month a federal judge in Kansas slashed most of a fee request after finding massive fraud. To understand what happened, some brief facts are necessary.
In 2005, Sprint merged with Nextel. That merger spawned an anti-trust case. When the dust settled and the litigation was over, the plaintiffs’ lawyers submitted a fee application of $4.25 million. Ultimately, the court slashed that request by almost 90%. The lawyers only received $450,000.
Why? Bill padding! U.S. District Court Judge James Vano found that a single contract lawyer, Alexander Silow, billed 1500 hours and was therefore responsible for claimed fees of $1.5 million. There was only one problem, Alexander Silow was really James Silow, a disbarred lawyer from Pennsylvania and out of the practice of law for decades.
Most recently, the NRA has questioned whether its legal bills are being padded. Rolling Stone reports that the gun rights advocacy group is questioning whether its legal bills have been padded. The group says it is being billed 0ver $97,000 per day.
Earlier this month a federal judge chastised both sides in a case over bill padding by filing excessive and unnecessary motions.
How to Address Bill Padding
If you believe that your lawyer has overcharged you, first see if you can resolve the issue amicably. People make mistakes. While lawyers owe a very high duty to clients, they are human and billing mistakes happen.
If the issue can’t be resolved and the amount isn’t large, the lawyer probably won’t sue you for the disputed balance.
Legal malpractice carriers don’t like insuring lawyers who sue clients for unpaid fees. Often that leads to a counterclaim for legal malpractice.
In one case, DLA Piper, one of the largest law firms in the United States, sued a gas company for an unpaid $675,000 legal bill. That prompted a counterclaim from the client, no surprise there.
The client claimed it was the victim of overbilling. As the case unfolded several internal emails were found.
One email said, “I hear we are already 200k over our estimate — that’s Team DLA Piper!”
Another DLA Piper lawyer, Christopher Thomson, replied, noting that a third colleague, Vincent J. Roldan, had been enlisted to work on the matter. “Now Vince has random people working full time on random research projects in standard ‘churn that bill, baby!’ mode,” Mr. Thomson wrote. “That bill shall know no limits.”
The damage from the public leaks of those memos was far more harmful than the unpaid bill. DLA Piper surely rues the decision to sue.
Law firms clearly don’t like or need the bad publicity. We recently reviewed legal bills for a New England aviation company. One partner at the law firm had billed for a meeting in Washington DC that never took place. It turns out, the lawyer wanted to take his girlfriend on a trip. He apparently hoped the tab for his DC tryst would be paid by his unsuspecting client. Even though all the other bills appeared correct, the firm deeply discounted the invoice and fired the partner. No one wants that publicity.
If the amounts are small but the dispute won’t resolve, you can also consider fee arbitration. Most states offer a quick, low cost arbitration system for legal fee disputes. Surprisingly, the arbitration panels are often consumer friendly.
If the amount disputed is large and the matter can’t be reasonably resolved, consider calling a firm that handles legal malpractice matters*. Finding someone local to sue another lawyer can be difficult so don’t be surprised if you have to find a far away lawyer to take the case.
*Technically a billing suit is not malpractice but for this post, assume they are the same.
MahanyLaw – America’s Fraud and Legal Malpractice Lawyers
Claims that lawyers overcharge are unfortunately occur all too often. If the loss is $1 million or more, we will gladly review your potential legal malpractice claim. Because we are national boutique fraud recovery law firm, suing lawyers wherever they may be doesn’t worry us.
For a complimentary and confidential review of your legal malpractice claim, give us a call. We also invite you to our legal malpractice website. For more information, contact attorney Brian Mahany online, at or by telephone at (414) 704-6731 (direct). Most cases can be handled on an hourly or contingent fee basis. We take cases anywhere in the United States.