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DLA Piper Is Not Alone: Why Law Firms Overbill
Law Technology News
Some mornings are just nice to wake up to. Confirmation of bias is an underappreciated source of joy. I relish any piece of information that reinforces my preconceptions. Four stories making the rounds have reminded me how right I am that:
The most delicious story, of course, is the suit against DLA Piper for overbilling. The well-crafted emails produced by DLA include some choice quotes:
The foregoing probably rings familiar to any veteran of Big Law. Equally familiar to us gadflies will be the Captain Renaults who come forward to express their "shock" at the discovery that there is intentional overbilling going on at that establishment.
The DLA story provides so much fodder. Beyond the cartoonish breaches of fiduciary duty, there is the comedy of a major law firm being brought low by e-discovery. And there is the related wonderment of witnessing a $2.44 billion legal behemoth self-inflict substantial brand damage in the voluntary pursuit of less than $700,000 in unpaid bills from a bankrupt client from whose case it was disqualified due to conflicts. Early case assessment anyone?
Less salacious, but every bit as poignant, is the ongoing saga over legal fees in the wake of the Madoff disaster. The government used 6,000 hours of attorney time to procure a $140 million settlement offer (more than $23,000 delivered per hour spent). By contrast, plaintiffs law firms expended 118,000 additional attorney hours on the same matter to deliver the final version of that settlement at $219 million (about $1,900 delivered per hour spent if you credit them for the whole settlement; about $330 per hour if you just accord them the incremental amount net fees). The plaintiffs lawyers now seek $40 million in fees (average of $339 per hour) for delivering $39 million in incremental value (net the $40 million in fees, final settlement fund is $179 million, or $39 million more than offer secured by the Attorney General).
Judge Colleen McMahon of the Southern District of New York wants to know how it is that the plaintiffs lawyers deserve $40 million for spending 20 times the time of the attorney general's office (118,000 hours versus 6,000 hours) to deliver less than one-third the value ($140 million v. $39 million). Specifically, she wants to know how those 118,000 hours were spent, by whom, and at what rate. It appears that most of the 110 lawyers are contract attorneys performing basic document review; the plaintiffs firms are just marking them up at many, many multiples of their actual cost.
Such a markup of contract attorney fees appears to be precisely what occurred in the Citigroup derivatives class action settlement. There, plaintiffs firms reached a $590 million settlement from which they now seek almost $100 million in fees for 87,000 hours of billable time (average, $1,150 per hour). The bulk of the hours were spent on low-level document review work for. The contract attorneys were paid $40 to $60 per hour. The plaintiffs firms are seeking $550 to $1,000-plus per hour for those services.
Most fascinating, however, is that one of these much maligned contract attorneys has actually filed a class action suit against Quinn Emanuel. The suit's premise is that document review isn't "real" legal work. The actual tasks are so "routine" that they do not require the advanced knowledge assumed of professional work. It is therefore unlawful to treat contract attorneys as exempt employees under the Fair Labor Standards Act. Thus, the suit alleges, contract attorneys are entitled to overtime pay.
The FLSA class action resonates because it is so pedestrian. Outlandish behavior is easy to dismiss as an aberration. The spectacle and the stupidity of it all distracts from the underlying dynamics. But the FLSA class action about as straightforward a complaint as you'll ever read asks simply: What are we really doing here?
It is sad that the question has to be asked by an under-employed contract attorney. DLA Piper decided to sue an individual over a pittance. The New York State Attorney General is challenging the fees in the Madoff settlement. The Center for Class Action Fairness is sounding the alarm in the Citigroup settlement. Major corporations appear only as defendants, eager to settle and uninterested in how those spoils are divided.
The problem with incentives is that they work. It is large, institutional clients who have the most control over the incentives that drive the legal market. We are the ones who will need to change those incentives. Unless, of course, we expect law firms to self-police out of a sense of professional duty.
D. Casey Flaherty is corporate counsel at Kia Motors America Inc. He developed and administers an in-person, technology competency audit for his outside counsel. The opinions expressed herein are his own.
This article originally appeared in Law Technology News.