How Do the Courts Weigh in on Questionable Legal Billing Practices?
The billing process is frequently a chief source of conflict between lawyers and their clients. Law firm billing – or in some cases overbilling – is a serious problem that is not discussed often enough and is rarely addressed. However, many legal bills include at least some "padding." According to the California State Bar, most bills are inflated at least 10-30 percent, and, clients must be proactive when it comes keeping billable hour inflation under control.
Most attorneys don’t intentionally participate in unethical billing practices. Instead, they bill their time honestly but eventually yield to the common pitfalls of legal billing, which include:
Nonspecific billing descriptions
Block billing
Time padding
Vague or duplicative billing descriptions
The use of minimum or standard time increments
Excessive research
Billing for clerical work performed by administrative staff
In 1993, the American Bar Association (ABA) Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 93-379 Billing for Professional Fees, Disbursements and Other Expenses (1979), to address a number of legal billing related issues, including double billing, bill padding, adding surcharges to out of pocket expenses for services purchased on behalf of clients, and the reasonableness of fees and expenses in general.
Courts generally recognize the shortcoming of legal billing methods, and because of a distrust surrounding the accuracy and completeness of prior methods, some have endorsed computer-assisted or predictive analytics systems and legal bill review services because they can help keep costs down and allow attorneys to focus on case strategy and client communication, not billing errors and discrepancies.
Court Opinions on Improper Law Firm Billing Practices
“If a task could have been performed by secretarial staff, or if two attorneys billed for tasks that only required one, the court may wholly deduct those hours.” - Buzzanga v. Life Ins. Co. of N. Am.
It is imperative that courts and judges can gather enough information from legal invoice narratives to determine who did the work, what was done, how long it took, and what fees are owed. For these reasons, legal invoices need to be clear and detailed so that someone who does not have intimate knowledge of the matter can determine whether the charges were necessary and appropriate. Here are three examples of how courts have handled law firm billing practices:
Buzzanga v. Life Ins. Co. of N. Am. In this ERISA case, the U.S. District Court for the Eastern District of Missouri reduced an attorney fee award of $159,352.82 to $89,663.95, citing unreasonable hourly rates and hours worked. The court reduced the hourly rates of the two attorneys who represented the plaintiff from $350 to $275 and $450 to $375. It also disallowed some of the hours expended because they were for administrative tasks such as “filing documents in the court’s electronic filing system and reviewing non-substantive orders.” This ruling followed the principle that courts will not reimburse for attorney’s fees that are administrative or duplicative in nature: “If a task could have been performed by secretarial staff, or if two attorneys billed for tasks that only required one, the court may wholly deduct those hours.”
Jacobs v. Memphis Convention and Visitors Bureau. The court in this Tennessee copyright infringement lawsuit reduced a prevailing party’s fee petition by $30,000 due to objectional billing practices including having multiple attorneys prepare for and attend depositions, hearings, and mediations. The judge in the case deducted numerous hours billed for unsuccessful claims to encourage attorneys to avoid frivolous lawsuits and “dedicate the bulk of their time to claims more likely to be meritorious,” and used the Lodestar method to calculate reasonable attorney fees. The Lodestar method multiplies “the proven number of hours reasonably expended on the case by an attorney, multiplied by a reasonable hourly rate.” The reasonableness is determined by looking at twelve factors including the skill, time, and labor needed to litigate the claim, as well as other relevant factors such as the outcome of the case, awards in similar suits, and the attorney’s reputation.
Cappello Capital Corp. v. AmericanWest Bank (In re AmericanWest Bancorporation). In this case, a bankruptcy court addressed the reasonableness of attorneys’ fees outside the ordinary course of bankruptcy representations. Because the attorneys seeking payment were not requesting payment from a bankruptcy estate, but instead from the non-prevailing party, the court did not look to the patterns and practices inherent in bankruptcy cases, but rather, to the contractually and statutorily permissible “reasonableness” standard for such reimbursement of the prevailing party’s attorneys’ fees. The court ruled that the plaintiff had no duty to pay the prevailing party’s legal fees until the district court enters a judgment awarding those fees.
Avoiding Costly Billing Disputes
Billing disputes between legal teams and outside counsel are unpleasant, time-consuming, and expensive since they do not constitute billable hours. However, a well-informed client equipped with a legal spend management process and a system for legal bill review is the right formula for avoiding billing disputes. Here are some mistakes outside counsel should avoid or an unpleasant and costly billing dispute might ensure:
Poor record-keeping. It can be tempting to focus on legal work and do the billing later. However, if time isn’t logged as tasks are completed, errors will be made. When attorneys are billing in standard six-minute increments, those mistakes can add up quickly.
Block billing. Even though an attorney spent four hours working on a matter, what were they doing? When several unrelated tasks are lumped together on an invoice, clients have no idea how much time was spent on each individual task, raising suspicion, and making billing adjustments much more likely.
Vague entries. Just like block bills make it hard to determine the reasonableness of legal fees, vague entries make clients uncomfortable. At a minimum, each time entry requires a task and a brief description – anything less will likely prompt further discussion and a potential dispute.
Clerical work. Small and medium-sized law firms that don’t have a large staff of administrative assistants are often the most affected by the rules prohibiting attorney billing for clerical tasks. However, the rules are the rules and if they are not followed, firms will have to be ready to justify them if challenged by clients or in court.
Don’t Leave Your Legal Bills Up to Court Interpretation
Professional legal bill review services eliminate the burden of reviewing bills from in-house legal teams, reduces outside counsel spend, and helps avoid leaving inflated bills up to court interpretation. The experienced, U.S. based attorneys at LegalBillReview.com will review every charge on every bill to correct billing errors and excessive charges. Call 484-430-4000 or complete this form to learn more about our “people and process” service today.
