This should be a shock, but it isn’t. When the screenwriters for the film adaptation of “The Firm” changed the ending to focus on the fact that the mob’s law firm was over-billing clients, lots of lawyers and legal ethics specialists squirmed. Widespread over-billing in the legal profession has been a scandal waiting to break for decades.
The ABA journal reveals that a recent study by CEB Inc. and Wolters Kluwer NV’s ELM Solutions, companies that work with corporate legal departments to manage their budgets, examined legal invoices from about 100 companies, and found that 21% of lawyers “upbilled” for their time in 2015. Upbilling is the practice of rounding up legal hours hours worked to the next hour or half hour. This could raise the annual legal bill for a partner billing 2,000 hours a year by about $29,000. Spread over all the clients and all the lawyers charging by the hour, the 21% figure translates into millions of dollars taken by fraud, and maybe billions, every year. You can read summaries of the reports here and here.
This is a bright line violation of ABA Rule 1.5, which makes an unreasonable fee for legal services a serious legal ethics violation. Charging for time not expended obviously constitutes an unreasonable fee. Every jurisdiction has a version of this rule, and every lawyer knows it. The problem is that when law firms are caught charging unethical, inflated fees, they are usually fined at worst, and no bar sanctions follow. Earlier this month, three large law firms, Labaton Sucharow; Lieff Cabraser Heimann & Bernstein; and Thornton Law Firm, admitted that they double counted hours in a securities class action suit against State Street Bank, allowing the firms to get an extra $75 million. The firms agreed to pay up to $2 million to cover the cost of an investigation into the overcharging, which calls into question their court-approved $75,000,000 in attorneys’ fees for the lawsuit. The firms say it was all a mistake.
Two other unethical billing billing practices were also flagged in the report. About 40% of lawyers had submitted block bills for multiple types of work, making it difficult or impossible to track what time was expended on what tasks. This hides bill-padding, as well as work performed by associates and paralegals charged with the partner’s rate. 51% of lawyers billed for six-minute time periods, which allows them to charge for quick tasks such as an short email or a quick phone call.
A hopeful note was that the report found that some corporate legal departments are using technology to detect upbilling and other unethical billing practices. Still, most in-house legal departments don’t. One reason the over-billing practice has thoroughly corrupted the profession is that big corporations are not sufficiently sensitive to cost when it comes to top law firms.