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Fee Disputes Raise Thorny Questions About Charges

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Fee Disputes Raise Thorny Questions About Charges

Source: Daily Journal Extra
Date: May 27, 2003
You are a hardworking attorney. Suddenly you receive notice that you are in a fee dispute. A period of frustration and confusion is setting in. How are the fees going to be reviewed?

These are the issues an auditor, special master, arbitrator or reviewing court might consider when analyzing a fee dispute case.

The activities of an attorney, in order to justify a billing, should be authorized, appropriate and reasonable under Business & Professions Code Sections 6147 and 6148 or Rules of Professional Conduct 4-200.

Was the work authorized?
The retainer agreement, initial evaluation letter, subsequent client or status reports, and client emergencies authorize specific legal activities. In a litigated case, it is not unreasonable to assume that the client accepted the fact that work was being done if he did not reply to an authorization request, and he or she will be harmed by inaction.

Was the work reasonable?
Reasonableness is determined based upon the standards in Rule of Professional Conduct 4-200. Basically, the fees charged must not be unreasonable when measured against the benefits to the client.

In deciding reasonableness, the examiner will look at whether the questioned activities were necessary to bring about a resolution. In this regard, the examiner, in deciding whether specific activities were reasonably related to a resolution, will determine whether the case was of a nature likely to settle. If all parties have agreed that resolution will require trial, a more significant discovery-investigation expenditure may be anticipated.

Also, the examiner may look at whether the activity is reasonably related to the exposure of the case. For example, if a case has an adverse verdict potential of $15,000 and was of a nature that settlement was reasonably likely, fees that approach or exceed the verdict potential will result in increased scrutiny.

Other billing practices will invite questions as to whether the work done was reasonable. For example, where the file is frequently handed off to other attorneys for individual appearances, or to accommodate law firm vacation schedules, excessive charging patterns may result. The issue is whether the client should be charged the review time necessary for a second attorney to become familiar with the case.

Multiple-attorney activity frequently produces duplication, which will generally be disallowed in an audit or bill arbitration. An example occurs when the managing partner charges to open a file, only to have his work duplicated by the assigned attorney.

Similarly, many firms rotate files across the desk of a senior attorney or partner for review. The issue is whether there is value added by such reviews. Also, the presence of multiple-billing participants identified on the invoice will often raise an audit flag.

Excessive legal research can also raise flags regarding reasonableness. Extensive research should be authorized. Thereafter, an analysis of the fruits of the research should be provided to the client and the research documentation maintained in the file. An auditor will observe the research charges on the bill and will search for the documentation within the file.

Block billing also can be problematic. This occurs when the invoice contains a lengthy description into which are bundled multiple activities followed by a single time entry. This billing might violate Business & Professions Code Section 6148's requirement that all bills clearly state the basis of the bill. Block bills can make it difficult for the client to review the method of determining attorney fees and costs. When auditing a block bill, an auditor will examine the verifiable information, attempt to determine the reasonable time allocations as to each item and review the remaining time allotments.

Unit charging, whereby specific amounts of time are allocated to specific activities, are frequently used for standard discovery, pleading responses and correspondence. Because unit charges do not actually represent the time expended for the activity, the principal should authorize unit-charging practices.

Paralegal activities should be carefully documented. A well-trained and properly utilized paralegal is capable of reducing legal expenses. An untrained or improperly utilized paralegal, however, can drive up costs. Also, paralegals should not bill for duplication, secretarial and overhead-related activities, and unnecessary summarization of deposition transcripts.
Some firms utilize paralegals to order books or supplies, schedule discovery activity or locate telephone numbers and directions. Utilization of paralegals to complete overhead-related activities normally assigned to secretaries might be considered excessive and unreasonable.

Regarding indexes and summaries: It is a common practice for an attorney to create a deposition summary at the conclusion of discovery proceedings. Indexes are generally deferred until shortly before trial/arbitration because it is much more time-consuming and, thereby, costly to the principal. The routine, early indexing of transcripts, not authorized by the principal, raises red flags.

Miscellaneous charges and travel expenses also can get lawyers in trouble. Pay attention to the Business & Professions Code's requirement that clients be notified in advance when fees or costs are adjusted. And attorneys who utilize a photocopy area as a profit center should ensure that the principal has approved the charging amount.

A specific method of charging travel should be determined in advance. If an attorney is charging portal-to-portal on an hourly basis, an issue is created when the attorney works on another client's file during that travel and bills each client for the travel time.

Was the work appropriate?
Perhaps the key test could be enunciated in the "my money" rule: If it were my money, would I do the same at this time and in this manner?

Also, was it necessary for the activity to have been undertaken at the point in time elected by the attorney? And was discovery unnecessarily delayed or advanced so as to render the process more tedious and expensive? These questions will be important to the mediator or arbitrator.

In determining whether the work done was appropriate, the arbitrator or mediator could consider the method of execution. Could other less costly options have been utilized? For example, in an accident case with multiple witnesses all telling the same basic story, it might be asked whether it was necessary to depose all the witnesses rather than rely upon statements contained in a police report or use outside investigation sources.

Although use of formal discovery procedures may have been necessary to preserve testimony at trial, accelerated or redundant use of formal discovery techniques, particularly where less formal options exist, will be scrutinized.

Reviewers also will examine the number of billing participants when determining whether a method of execution was appropriate. An auditor will examine supporting documents to determine whether attendance at deposition by multiple-billing participants was authorized and appropriate under the circumstances. Such team handling should have prior authorization and be required by the specific incident. Problems can arise when multiple-billing participants participate in fairly routine activities or charge for conferences.

Alexander S. Polsky conducts mediations and arbitrations nationwide as a member of JAMS. He is an adjunct professor of law at USC and has written and lectured on attorney billing practice for the State Bar of California.

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