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Forgoing fancy dinners and large billable rates, and keeping fastidious records, are all part and parcel of doing legal work for the federal government. But, at least for the past couple of years, working for government-subsidized train operator Amtrak hasn’t come with the usual requirements. Instead, the quasi-governmental entity has allowed law firms to enter into retainer agreements that operate outside of its own written guidelines. A recent probe into Amtrak’s legal department by the Department of Transportation’s inspector general and Amtrak’s inspector general at the request of Congress found more than $100 million in mismanaged legal fees from June 2002 to June 2005. According to the report, released on Oct. 25, Amtrak was billed more than $40 million by 10 law firms. The report found that those firms submitted bills with vague time sheets, inappropriately billed for secretarial or administrative work, and billed at rates that may not have adhered to typical government-discounted rates. While the investigation focused largely on Amtrak’s in-house legal team, outside counsel were not without fault. Samples of six of the 10 largest billing firms’ records were analyzed — those of DLA Piper; Pillsbury Winthrop Shaw Pittman; Vedder, Price, Kaufman & Kammholz; Morgan, Lewis & Bockius; Manatt, Phelps & Phillips; and Jackson Lewis. All violated Amtrak’s 1998 billing guidelines, according to an unredacted copy of legal audit expert John Toothman’s report that was obtained by Legal Times. (A redacted report was released by a congressional committee last month.) In at least one case, the link between Amtrak and a law firm is clear — California-based Manatt benefited from having a former partner on Amtrak’s legal team. “Certainly, you can see where some of [the law firms] have taken advantage of a very loose contractual relationship and that’s not how the legal profession should be operating, particularly when we have hard-earned taxpayer money not accounted for,” says Rep. John Mica (R-Fla.), a senior member of the House Committee on Transportation and Infrastructure, which called for the investigation. ON THE INSIDE TRACK Manatt didn’t have a track record of working with Amtrak, but that changed when it merged with New York-based Kalkines, Arky, Zall & Bernstein in 2003. In the merger, it picked up Steven Polan, who had been a government and regulatory partner at Kalkines, Arky. More importantly, Polan had long-standing ties with Amtrak, having worked as general counsel of New York’s Metropolitan Transportation Authority under then-MTA President David Gunn, who later led Amtrak. In April 2003, Polan sent an engagement letter to Alicia Serfaty, Amtrak’s general counsel, confirming the terms of Manatt’s relationship with Amtrak after the merger. Polan and his partners already were working on Amtrak’s high-speed train service and electrification projects, among others. After the merger, Polan and his partners charged Amtrak at a 15 percent discount, with rates ranging from $225 an hour to $396 an hour, according to the letter. Although Amtrak is not a government entity, it holds the status of a quasi-government corporation, like Fannie Mae or Freddie Mac, because Congress was instrumental in its establishment and continues to subsidize it. Amtrak also is subject to congressional oversight. Because of this status, Amtrak’s outside legal counsel should be discounting rates to the level it would with other government clients, according to the law department’s guidelines. Manatt’s Amtrak work increased after firm partner Marilyn Milner joined Amtrak as associate general counsel in January 2005. Milner, who spent most of her career as a litigator in Los Angeles, jumped to Manatt in 2000 from energy company Ultramar Diamond Shamrock, where she was associate general counsel and brokered a deal with Manatt to handle its litigation. After spending four years at Manatt, Milner moved to Amtrak. At that time, Manatt’s point of contact with Amtrak changed from Polan to Stephen Ryan, a government and regulatory partner in its D.C. office. Between March and July 2005, Ryan sent three letters of engagement to Milner for work on claims against R&R Visual, Private Label Travel, and Colonial Pipeline. But this time Manatt discounted its rates only 10 percent and charged Amtrak up to $590 an hour for Ryan’s legal work, according to copies of Manatt’s engagement letters in Toothman’s report. The firm disregarded many of the Amtrak law department’s guidelines for dealing with outside counsel and essentially set its own rules, says the report. For example, Manatt set aggressive billing schedules requiring payment no more than 20 days after Amtrak received the bills, or Manatt would add a 12 percent late charge, according to the firm’s engagement letters. Also, the firm’s billing discounts did not apply to paralegals, and Manatt didn’t have to check with Amtrak before increasing its rates, according to Toothman’s report. Toothman’s report notes that Amtrak’s billing guidelines expressly prohibit block billing, which allows law firms to put several tasks under one line item on a bill. Manatt used block billing in 68 percent of the firm’s hours and in 71 percent of the firm’s fees. From June 2002 to June 2005, Manatt billed Amtrak $7.3 million. Toothman’s report found that Manatt’s billing was “overall, the worst observed, with heavy staffing, attempts to pass off clerical/overhead as billable, failure to follow basic guidelines, and heavy expenses.” The report also noted that the firm had a “disproportionate number of small entries (low) and large entries (high), which can be indicative of improper or padded billing.” Milner left Amtrak in May 2006, just as the inspectors general’s probe was finished and is now general counsel of petroleum company Gilbarco Veeder-Root. She did not return calls. Milner left of her own accord, Amtrak says. Manatt continues to provide legal counsel to Amtrak, and Paul Irving, managing partner of the firm, defends its Amtrak work. “We value our relationship with Amtrak. It’s an important relationship to us,” says Irving. He directed all questions regarding the firm’s work to Amtrak. According to Amtrak’s ethical-conduct and conflict-of-interest rules, employees “must conduct the business and operation of Amtrak and their affairs in a manner that complies with applicable law and high moral and ethical standards and avoids any possible conflict of interest or appearance of a conflict of interest.” In an e-mail, Amtrak spokesman Cliff Black said there were no issues with Milner overseeing the work of her former firm. “We were aware she had worked at Manatt, Phelps & Phillips, but she had no financial relationship to the law firm and therefore supervising their work was not a conflict of interest under Amtrak’s policies or any ethical bar requirements,” Black said. “Hiring a talented attorney from a law firm to, among many things, ride herd over her old law firm is smart corporate business,” Black added. “For us, her knowing the ins and outs of her old firm wasn’t a liability. It was an asset.” But Manatt’s relationship with Amtrak is deeper than Milner. For one, John Ray, who heads the firm’s Washington office and is a former D.C. Council member, is married to Sarah Ray, a human resources manager at Amtrak. And both have donated money to Rep. Juanita Millender-McDonald (D-Calif.) and D.C. Delegate Eleanor Holmes Norton (D), according to Federal Election Commission records. Both House members sit on the Infrastructure and Transportation Committee, which has oversight of Amtrak. FEC records indicate that John Ray also gave $1,000 to Rep. Elijah Cummings (D-Md.), who is a member of the Railroads Subcommittee. John Ray and Sarah Ray declined to comment. Since 2002, Manatt’s political action committee has donated $8,500 to members of the Transportation Committee, according to the Center for Responsive Politics. INVESTIGATING AMTRAK Amtrak’s law department, comprising 160 people, handles all insurance claims and litigation for the company. The department, headed by general counsel Serfaty since 2002, has 12 lawyers dedicated to managing litigation with outside counsel. Toothman, who makes a living analyzing legal bills as founder of the Devil’s Advocate, an accounting firm in Alexandria, Va., was hired by Amtrak in July 2005 to go through the retainer agreements and samples of billing records for the 10 law firms that handled the bulk of Amtrak’s legal work for the preceding three years. The Transportation Committee probe found that Amtrak’s legal department did not follow its billing guidelines by allowing side-engagement agreements. The department also did not create or enforce budgets for law firms. There were no billing reviews or audits and no verification of discounts. In response to the inspectors general’s audit, Amtrak put out a two-page paper noting that it had already made improvements, including a new electronic system to deal with law firm invoices, case-management software that allows the general counsel to obtain quarterly reports on active cases, and revisions to its law department guidelines. Amtrak has yet to make the new guidelines public. Rep. Mica’s office says that the congressional probe of Amtrak’s law department is ongoing. Hamilton Peterson, deputy counsel of Amtrak’s Inspector General’s Office, declined comment. Manatt was just one of six law firms that Toothman reviewed in detail. Although Toothman reports that he found “no direct evidence of billing fraud, I found ample evidence that Amtrak is vulnerable to fraud” and also reports that many of the firms’ billing records were in direct contradiction to the billing guideline specifications. “The message for other clients would be, besides �Oops, the government got taken again,’ is that these are firms that may do this to other clients,” Toothman told Legal Times. Officials at DLA Piper and Jackson Lewis did not return calls. Vedder, Price; Morgan, Lewis; and Pillsbury Winthrop declined to comment. Toothman reported that Pillsbury Winthrop used block billing in 61 percent of its hours, which made up 67 percent of its fees. During the time period investigated, the firm was headed by Paul Mickey Jr., a former executive vice president for law and public affairs at Amtrak. The firm’s billing receipts included block billing descriptions like “Meet with Expresstrak counsel on electronic discovery issues; review ExpressTralCs [sic] documents for hot documents; discuss inadvertent production issues with J. McKay and T. Allen” for a total of 6.3 hours. Toothman also found that Pillsbury Winthrop billed a “significant amount” of time for internal conferences — noting it accounted for 14 percent of total hours and 15 percent of overall fees. None of the other firms except Vedder, Price (at 8 percent) billed for internal conferences. Three of the firms also billed a large amount of “cryptic time” — time recorded for administrative tasks that are not supposed to be included in hourly fees — according to the Toothman report. Pillsbury Winthrop billed 41 percent, Manatt Phelps billed 30 percent, and Jackson Lewis billed 55 percent of its time with cryptic bills. Examples of Pillsbury Winthrop’s cryptic time entries include several billing tasks with only “Review documents from ExpressTrak.” (ExpressTrak refers to Amtrak’s refrigerated rail cars that ship perishables across the country.) Toothman also found that Pillsbury Winthrop and Morgan Lewis billed 23 percent and 24 percent respectively of their total hours to clerical staff. Normally, such administrative work is part of the firm’s overhead and not billed to the client, according to Toothman. (None of the other firms’ billing records were used as examples in the Toothman report). Manatt and Vedder Price came forward with billing irregularities of $30,000 each over the course of the inspectors general’s investigation, says Toothman. Amtrak’s Black declined to name the firms, but in an e-mail explained: “In one case, the firm reimbursed Amtrak for the full amount. In the other case, the firm was able to demonstrate that the errors in overpayments were more than offset by errors they made in undercharges and no repayment was owed.” A RECORD OF MISMANAGEMENT Amtrak, which receives more than $1 billion in government subsidies annually, has long been criticized for mismanagement. Formed by Congress in 1971, Amtrak — as the National Railroad Passenger Corp. is more commonly known — has struggled most recently with executive turnover, including the firing of Gunn in 2005, and defending itself against the delays in Acela and other high-speed trains in the Northeast Corridor, its most heavily travelled route. The most recent investigation, spurred by the House Transportation Committee, came after the Government Accountability Office found mismanagement in Amtrak overall. The committee also has investigated two other areas — Amtrak’s food and beverage service and mechanical department. The committee’s review found that Amtrak is losing more than $600 million annually in long-distance routes. Amtrak is also losing $83 million a year in food and beverage costs, with Amtrak spending $2 for every $1 it makes, according to Mica. “If this was just one isolated instance where administration of public money [was mismanaged] that would be one thing,” says Mica. “Almost every area we look into you see a record of poor management and operations.”
Anna Palmer can be contacted at [email protected].

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