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'Flippant' DLA Emails Won't Affect Client Relationships
New York Law Journal
The disclosure of internal DLA Piper emails that referred to churning a client's bill drew the attention of the legal world last week, but several in-house counsel said that while the emails were disturbing, their release would not likely affect client/firm relationships or the billing review process because clients are already demanding more transparency from firms.
"The flippant tone of the emails at issue is certainly surprising," said David Brill, the president of the Association of Corporate Counsel's Greater New York Chapter. "But the underlying issue [of bills reflecting work performed] has been front and center for in-house lawyers for some time."
"It's safe to say that we have grown a great deal more concerned and vigilant when it comes to billing practices," Brill said in an email.
The biggest effect, in-house lawyers said, is that law firms will be more cautious about what they say in emails.
Alex Simpson, general counsel at Reis, a New York-based commercial real estate information firm and a member of the board of directors of the Greater New York Chapter of the ACC, said one law firm partner told him last week that the firm sent an internal memo citing the DLA situation "as a cautionary tale" and reminding attorneys to be careful about what they put in emails, even if joking.
In the DLA emails, attorneys appear to discuss overbilling a matter, with one writing, "That bill shall know no limits." The emails emerged in discovery in a case initiated by DLA as a collection law suit against former client Adam Victor, while Victor in counterclaims is alleging the firm overbilled him.
"This is not a DLA Piper issue," said Michael Caplan, the chief operating officer in the general counsel's office at Marsh & McLennan Companies who monitors legal bills. "This is the issue that all of us are facing as legal chief operating officers. It's about the industry."
He and others said they have observed bills that charge for too many lawyers and too many hours spent on one project.
"I get bills…where I see multiple partners, multiple associates, people working past 12 hour days, multiple people working on conference calls," Caplan said.
Nearly every firm his company works with requests annual rate increases, he said. But it's irrelevant, he noted, because law firms need to find the right staffing model to complete the case.
In-house lawyers also point to the billable hour quotas as incentives for unnecessary legal work.
"Anytime you have a business where people are judged on the amount of hours they bill, there will always be a concern that the focus is on labor and not value," said Brill, who is executive vice president and general counsel of American Stock Transfer & Trust Co. "It's an inherent problem in the business model," he said.
Brill said legal departments can avoid this dilemma by using alternative fee arrangements when possible and working collaboratively with outside law firms by communicating on fee expectations and creating a budget for projects.
Caplan is a proponent of using fixed fees and other alternatives, such as blended rates and caps. Billing wouldn't be an issue, Caplan said, if firms avoided the use of billable hours and annual rate hikes.
"I'm assuming this is a widespread common issue that we're seeing, which is why people like me are very focused on alternative fee arrangements and fixed fee pricing," Caplan said.
While a lot of law firms say they "get it," Caplan added, they do not act. "Why don't the law firms recommend this? Why is it always the corporate legal departments have to recommend fixed fees?" he asked.
As for being affected by the DLA emails, Caplan said legal bills already go through an automated billing system at his company. "If you break those rules, your whole bill gets rejected," he said.
Brill said he has observed bills that showed tasks taking longer than he expected, but that he did not think it was intentional.
"I believe most firms engage in billing practices with integrity and earnestness. If there is a systemic issue, I think it has more to do with conventional billing models and not weak ethics," he said.
In the wake of the DLA email disclosures, Brill said he does not predict a dramatic change in dynamics between in-house attorneys and law firms. But he said the news underscores "the importance of the ongoing dialogue between firms and legal departments over fees."
Corporate legal departments have long been asking for enhanced transparency and reasonableness in fee structures, whether through RFP process, billing guidelines or other means, and they are expressing displeasure over charging high rates for paralegal time and first year associates, car service, meals or other overhead costs, he said.
"Bills are being scrutinized by in-house lawyers," Brill said. "Fundamentally, this is a business relationship between a company and its client."
Simpson, the general counsel at Reis, said the DLA emails were "kind of ugly," but "I don't see this drastically changing the current dynamics."
"Clients are scrutinizing bills carefully, and this will only reinforce that," Simpson said.
In his more than 11 years of law firm practice, including nine at Davis Polk & Wardwell and more than two years as a partner at King & Spalding, Simpson said he had never seen communications like those in the DLA email.
He said ethical obligations should prevent lawyers from abusing billing practices. "However, with the amount of lateral movement at firms these days, it is true that you are going to have lots of different takes on appropriate practices. It's not just billing. There are a lot more culture clashes than there used to be, when most lawyers started at and grew up at their firms," Simpson said.
Pressure to Bill
In a 2006-2007 survey of about 250 attorneys by William Ross, a Samford University law professor, 54.6 percent admitted that the prospect of billable hours had at least sometimes influenced their decision to do work they otherwise would not have performed, according to his online published results.
Lisa Lerman, a Catholic University of America law professor who has extensively written on legal fee ethics, noted that an ABA opinion in 1993, Formal Opinion 93-379, makes clear that practices such as working more hours than needed or assigning more lawyers on a matter to boost billings are unethical.
In her own research over the last 20 years, Lerman said her interviews with law firm lawyers reveal that nearly all had concerns about improper billing practices, such as attorneys increasing hours on a matter because they are criticized for not billing enough, or reporting a minimum of .4 or .6 hours on a task even if it only took five minutes.
Lerman said she also heard stories about "cowboys" within firms, or senior revenue-generating partners who bill clients based on what they believe their time was worth rather than actual time spent on the matter.
Disciplinary agencies may investigate lawyers tied to direct evidence of overbilling, but it often depends on the resources of the agency, she said.
Lerman speculated that "right now a lot of law firm risk management people are writing memos to not write anything too chatty" in an email.
This article originally appeared in the New York Law Journal.