Oh, Great: 21% Of Lawyers Are Stealing From Their Clients.

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.

26 Comments

Filed under Business & Commercial, Character, Ethics Alarms Award Nominee, Law & Law Enforcement, Professions

26 responses to “Oh, Great: 21% Of Lawyers Are Stealing From Their Clients.

  1. Other Bill

    You lost me there, Jack. Is billing in tenths of an hour unethical?

    • Its not. Billing in tenths of the hour is the norm. What is unethical, and happens regularly, is when every tiny task is rounded up to six minutes. Leave a voice mail for somebody? Six minutes. Read a one-sentence e-mail? Six minutes. Random thought related to client in the shower? Six minutes. An ethical lawyer will either bundle those short increments so that the work at least approximates six minutes, and/or not bill for “work” that is extremely limited or fleeting in nature.

  2. An interesting associated question would be how many lawyers are up-to-date on their billing. It can end up being theoretical, as someone tries to reassemble what they were doing through the course of a week (or longer).

    • Other Bill

      That’s incompetence verging on unethical behavior. Computer billing is so easy. It’s so much better than written time sheets there’s no longer any excuse for entering your time almost simultaneously.

  3. Here’s my story. Criminal charges were brought against me by the DA for selling unregistered securities. My attorney brought in an expert witness who he said would charge $2,500 plus expenses, which included flying her up from Los Angeles and hotel/meals. The Judge would not allow her testimony as an “expert witness” since she’d never appeared in court before, among other things. In the end, I was acquitted on all charges, but my attorney sent me a bill from the “expert witness” (billed to him) that charged $32,000 for her fees, which included everything but the kitchen sink and had nothing to do with her testimony. I had to sell my business to pay all of their fees which were over $130,000. I took him to arbitration which was nothing more than 1 1/2hours of good-old-boys getting together and slapping each other on the back. I considered a civil suit against him but the general consensus of everyone I whine to is that I was acquitted so what’s the beef? I dropped it, but it still sticks in my craw!

    To make matters worse, I had Business Insurance that does not cover ( at least in California) anyone who has criminal charges brought against them by a D.A.or City Attorney. That’s the law – and no provision if the charges were unfounded and frivolous. And no provision for the insurance company to pay the attorneys fees if the defendant is acquitted. It’s impossible to try and change THAT law since you’d have to have more money than the insurance companies to fight it. Sour grapes? You bet!

  4. Wayne

    And who ultimately pays for these inflated corporate legal service costs? The consumer of course!!

  5. Here’s my story. Criminal charges were brought against me by the DA for selling unregistered securities. My attorney brought in an expert witness who he said would charge $2,500 plus expenses, which included flying her up from Los Angeles and hotel/meals. The Judge would not allow her testimony as an “expert witness” since she’d never appeared in court before, among other things. In the end, I was acquitted on all charges, but my attorney sent me a bill from the “expert witness” (billed to him) that charged $32,000 for her fees, which included everything but the kitchen sink and had nothing to do with her testimony. I had to sell my business to pay all of their expenses. I took him to arbitration which was a joke. It was 1 1/2 hours of good old boys slapping each other on the back.

    To make matters worse I had a business insurance policy that refused to pay since, at least in California, there’s a law that says they do not have to provide coverage for anyone who is brought up on criminal charges by a D.A. or City Attorney. And there’s no provision if the defendant is found not guilty on all charges to have to reimburse them. Bad law. And trying to change that means you have to have more money than the insurance companies do and good luck with that.

    Sour grapes? You bet!

    • I’m keeping both of Victoria’s comments up, though one was a re-write after spam ate her first. (She can tell me to pull one). I apologize for WordPress. Dedication deserves reward.

  6. I have to admit, I’ve always wondered about this, there have been precious few times I’ve personally been in circumstances serious enough that I didn’t represent myself, but in the cases I had, the bills came in and each time it left a bad taste in my mouth. A friend of mine who is also a lawyer, although in a feild wholly unrelated to what I do (family law, may god have mercy on his soul) assures me that this is normal, in fact he often tells me about what kind of bill to expect, and he’s usually close.

    I wonder though, how many of these several-hundred dollar hours are being put in by the $20 an hour paid clerk? How much “time” on the invoice is some kind of prescribed time to write something up from scratch, when they already have a template? I remember when I bought my first house, the lawyer who took care of it for me charged me $40 for stationary. NOTHING seemed to have value.

    • Eternal optometrist

      Ht, I can tell you if it was me, and I suspect most lawyers, the answer would be 0. I’m under billing most of my clients and over billing none. This is standard practice from what I’ve seen.

      And yes, I’m thinking about your case in the shower or in the middle of the night and that’s when I’ve had some of my best ideas. I really should Bill for that but I don’t.

      • Some lawyers do bill for “thinking time,” though, and some firms urge associates to bill for showers and, uh, other bathroom use.

        • Eternal Optometrist

          I really don’t have a problem with that if it’s really thinking. Sometimes someone will come in my office and see my staring at the wall and think I’m daydreaming. Sometimes I am, but sometimes I really am trying to think something out.

          As Joshua Reynolds said, there is no expedient to which a man will not resort to avoid the real labor of thinking.

          So true.

  7. Neil Dorr

    Jack,
    “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.”

    This is a genuine question: Why is that unethical?

    • It’s unethical when a 30 second task is billed at 6 minutes. that means 6 separate 30 second tasks are billed as 26 minutes, rather than just three. You can see where this leads. (I bill in 10 minute increments, but only when there is really 10 minutes of work.)

      • JutGory

        I would bill 36 minutes for that.
        -Jut

        • Eternal optometrist

          Some clients won’t let you bill tasks together. In a way, they force you to bill that at 36 minutes unless you want to work for free.

          It all depends on the arrangement with the clients. In my opinion, if the clients agrees to 2 hour minimums at 1,000 an hour, go forth and bill.

      • I wonder how many lawyers have billed 30 hours in the same day using practises like that.

  8. E2 (nee Elizabeth I)

    The other thing I learned from “The Firm” is not just that overbilling is against the law and the professional rules of conduct, but that once those bills are mailed it also becomes mail fraud — a Federal offense — and each and every case is punishable by fines or jail time or both. Forget about disbarring these crooks: make them pay, in dollars and time in jail. Is it any wonder lawyers have such horrible reputations?

    I know proving it is the problem. But with more conversation about it, and more questioning of bills, and more Jack Marshall — a lawyer himself — ranting about it, we might get something done.

  9. Other Bill

    Jack, what do you make of “value billing” and the old alleged (doubtless apochryphal) Edward Bennett Williams story about how he answered a client’s question with a one word letter (“No.”) and enclosed a bill for something like $25,000.00 and, when the client wrote back asking why, he responded with another letter saying “Because.” and enclosed another bill for $25,000.00.

    • I have no problem with it, and neither does the bar, as long as one can objectively prove that the charge is “reasonable.” I don’t always charge by the hour. The VA Rule 1.5 is typical:

      The factors to be considered in determining the reasonableness of a fee include the following:

      (1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
      (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
      (3) the fee customarily charged in the locality for similar legal services;
      (4) the amount involved and the results obtained;
      (5) the time limitations imposed by the client or by the circumstances;
      (6) the nature and length of the professional relationship with the client;
      (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and
      (8) whether the fee is fixed or contingent.

      (b) The lawyer’s fee shall be adequately explained to the client.

      • Other Bill

        Glad to hear it. My first experience with this sort of thing was at a closing on a bunch of apartment complexes, five of which had loans issued by a Manhattan bank. The bank required the buyer to assume the loans and I think there were some points paid and the interest rate may have been increased, but they might have just been assigned and assumed. Single document. The Wall Street firm charged, and recieved, $80K per loan at the closing. No questions asked. This was in the early ’80s. I just thought it was outrageous but no one complained. I guess Wall Street firms bill on essentially a points basis as if they’re investment bankers or brokers. Struck me as highway robbery and still does.

        • Other Bill

          I suppose in so far as the firm’s client, the lender, didn’t object, it was okay. Still seemed like a rip off but i suppose it was just a cost of doing business.

  10. John Billingsley

    Sorry Jack, but as a non-lawyer my first thought was only 21% you got to be kidding me. But I also have to admit, the one occasion I was getting billed by an attorney, after I had called her a few times to see how things were going, she told me to quit running up the time calling her and wait for her to call. I still worried about what was happening but it was cheaper worrying.

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