December 2016 | Earn one hour of MCLE Credit in Legal Ethics
By Nick Migliaccio and Carole Buckner
SAMPLE TEST QUESTIONS
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If a client complains about your bills, and the dispute makes its way
into a statutorily required mandatory fee arbitration,
how is the arbitrator likely to view your bills?
Many common billing practices
will be scrutinized in the event of a fee dispute. According to a recent advisory from the State Bar of California's Committee on Mandatory Fee Arbitration, the arbitrator may examine the process you used to prepare
your bills and then review your bills to - among other things - compare the work
performed to what was billed, analyze the staffing on the matter and consider
the format and content of your bills.
If an engagement will cost
more than $1,000 in fees, costs or both, a client is entitled to obtain an
itemized bill within 10 days of the client's request. There is no exception for
task-based, flat-fee, or fixed-fee engagements. Bills rendered by a lawyer to a
client must "clearly state the basis thereof," including the amount, rate and
basis for calculation. Otherwise, the fee agreement is voidable at the option
of the client, and the lawyer is entitled to collect only a reasonable fee. See
Business and Professions Code Section 6148.
Most fee arbitrators interpret
the foregoing statutory language to require the bills to at least identify which
lawyer or paralegal performed the itemized services by date and the hourly
rate. See Arbitration Advisory 95-02, Standards for Attorney Fee
Billing Statements. Consequently, the
lack of specificity in the bills not only endangers the lawyer's ability to
collect the contractually agreed upon fee, but it may also significantly impair
their ability to subsequently demonstrate the reasonable value of the fees in a
Initially, fee arbitrators
may consider the manner in which the bills are prepared to ascertain the
timeliness and accuracy of the bills. Generally, bills are more accurate and
specific if the person who actually performed the task records it
contemporaneously, rather than waiting to do so at a later date or relying on a
billing clerk or secretary to record the task and create the bills. The
significance of the passage of time between when a task is performed and
actually recorded cannot be overstated. Arbitrators will closely scrutinize
bills if the lawyer waited days to prepare a bill.
Irrespective of the manner or
process a lawyer may use to bill the client, the arbitrator's focus will be on
determining the accuracy of the bills. For example, if a lawyer or firm uses a
pre-bill process in which time entries are edited and adjusted by a more senior
lawyer or staff member, the arbitrator might analyze whether that process actually
increases the accuracy of the bills. Arbitrators
may closely scrutinize any upward adjustments, as well as any failure to verify
the accuracy of the contents of the pre-bills or have them reviewed and
verified by the lawyers or other timekeepers that actually performed the tasks
before the bill is delivered to the client. See Arbitration Advisory 2016-02, Analysis of Potential
Bill Padding and Other Billing Issues.
Staffing is also an important
area in which the arbitrator's hindsight is applied to analyze bills in the
context of fee arbitration. Staffing issues resulting in reduction of bills by
an arbitrator can arise from billing time that is essentially training of less-experienced
lawyers or billing time by a more senior lawyer whose experience is not
necessary to the task. Revolving billers who join the case for a short time,
then are replaced, may result in duplication of effort for which the client should
not be billed.
Overstaffing can also result
in a significant reduction in the recovery of fees upon review by an
arbitrator. In Christian Research
Institute v. Alnor, 165 Cal.App.4th 1315 (2008), a prevailing defendant in
an anti-SLAPP suit sought recovery of his attorney's fees consisting of 638.6
hours on a motion to strike and appeal with 228.7 hours allocated to the motion
and approximately 410 hours allocated to the appeal, which the court reduced to
71 hours. Among other problems with the fee request, the court mentioned
overstaffing, indicating that, "the five attorneys Alnor deployed on the motion
appear to have expended more time telephoning, conferencing and emailing each
other than on identifiable legal research for the motion."
Comparison of the substance
and quality of the work created to the cost of each item is also an area to
which an arbitrator may direct his or her attention. For example, a motion to
dismiss may be drafted by a new lawyer, revised by a senior associate and
reviewed and signed by a partner. The arbitrator might consider whether part of
the new lawyer's time involved training and whether the senior associate should
have prepared the motion. Whether the motion necessitated an interim review or
partner-level review might also be questioned. Of course, everything depends on
the complexity of the matter, and such an approach might be perfectly
appropriate. In Christian Research
Institute, while counsel asserted that the motion was complex and novel,
the court said several issues were "settled as hornbook law" and that "a close
question based on the facts is not necessarily a complex or time consuming
one." The same court also noted that despite 400 hours spent on the appeal,
"counsel failed to uncover or cite the seminal cases applying the dispositive
standard." In addition, the court said there was no evidence extensive time was
devoted to investigation or discovery, nor did the legal research entries show
that the pertinent issues were difficult.
The format and contents of
the bills are also significant. Inaccuracy and overcharging can arise where
time is billed in high minimum increments such as a minimum .25 hour. However, overcharging
may result even when discrete tasks such as phone calls, emails or reviewing
correspondence taking only a minute or two each are separately billed at .10
hours each. Thus, even where clients have agreed in writing to the minimum
charge of .10 hours, recording such entries with "no charge" may be appropriate
on occasion in order to avoid overbilling.
Accuracy is an important
issue in billing. Round or large numbers on bills, such as 5.0 or 8.0 hours,
may draw scrutiny, especially where a lawyer is not engaged in trial or other verifiable
lengthy task. See Arbitration Advisory 2016-02 and In re Tom
Carter Enterprises Inc., 55 B.R. 548, 550 (C.D. Cal. 1985). Irrespective of
the task, such entries may be viewed more as an estimate than the actual time
expended, particularly when the lawyer uses generalized descriptions like
"research issues," "conduct discovery," "trial prep" or "review file." Ultimately,
an arbitrator may require the lawyer to demonstrate the propriety of large
whole number entries and generalized descriptions as well as the accuracy of
the resulting claimed fee.
Another issue that regularly
surfaces in fee arbitrations is the propriety and effect of "block billing." Block
billing is the practice of assigning a one-time charge to multiple separate
tasks. Many judges and arbitrators believe that block billing hides
accountability and prevents a client and the fact finder from discerning which
of the listed tasks may not be compensable. Where
a lawyer handles several disparate tasks in the same day and bills one block of
time to all of them, some cases indicate that this disguises non-compensable
tasks. See, e.g., Bell v. Vista Unified School Dist., 82 Cal.App.4th 672, 687-689 (2000).
Other judges and arbitrators consider the use of block billing a patent violation
of the requirement that the bills "clearly
state the basis thereof," enabling the client to void the fee agreement and put
the burden of proving the reasonableness of the fees on the attorney months, if
not years, after the tasks were performed.
Some case law indicates that
a penalty is appropriate at the discretion of the trial court assigning a
reasonable percentage to block-billed entries. See Heritage Park Financial v. Monroy, 215
Cal.App.4th 972 (2014). Billing multiple tasks with one entry may be appropriate
"when those services are rendered in one time frame without interruption, but
it is preferable when counsel interrupts research to make or receive a phone
call, that the time spent on that phone call should be separately stated for
the reasons set forth above." Different functions performed at different times
of day should result in separate entries. See In re Tom Carter Enterprises Inc., 55 B.R. 548
(C.D. Cal. 1985).
Block billing, the practice
of "assigning one time charge to multiple tasks," can also result in reduction
of fees recoverable because it can inflate the actual time the lawyer takes to
complete the tasks. See Arbitration Advisory 2016-02.
Accordingly, both courts and arbitrators can scrutinize
block-billed entries, place the burden on the lawyer regarding such entries, or
even disregard them entirely. In Christian
Research Institute, the court found that block billing, "while not
objectionable per se in our view, exacerbated the vagueness of counsel's fee
Arbitrators also recognize
that many lawyers simultaneously perform administrative, ministerial and
secretarial tasks while representing a client. "Operating a law
practice requires substantial efforts on the part of the lawyers wholly
unrelated to representing clients. This includes dozens of administrative,
managerial and ministerial tasks lawyers must perform every day. In the vast majority
of cases, it is inappropriate to seek to charge a client for such non-legal
tasks." See Arbitration Advisory 2016-02.
A lawyer may charge a client
only for work actually done by the lawyer. Therefore, if a lawyer utilizes a recycled
or standardized document, unless the client has consented to the contrary in
writing in the fee agreement, the client may only be charged for the lawyer's
revision of such documents. See ABA Formal Opinion 93-379.
Similarly, if a lawyer
intends to bill multiple clients for the same tasks or time, the lawyer must
first disclose the billing arrangement to each and every affected client, and
obtain their consent in their corresponding written fee agreements. The billing
arrangement must also be fair to each client and not constitute an unconscionable
Issues concerning the use of contract
attorneys are also adjudicated in fee disputes. Generally, whether contract
attorneys may be utilized should be disclosed and explained in the written fee
agreement. Also, and most importantly, absent a written
agreement to the contrary, the client should only be charged the out-of-pocket
cost of the contract attorney. Similarly, the use of a non-licensed paralegal
or legal assistant should be disclosed in the written fee agreement. More importantly,
the client should not be charged for any task performed by a paralegal or legal
assistant that does not constitute substantial legal work under the direction
and supervision of a lawyer, including case planning and management, legal
research, interviewing clients, fact gathering, drafting and analyzing legal
documents and similar activities. See Business and
Professions Code Section 6450(a).
Careful management of billing
will assure that attorneys' fees are collectible should your client pursue
Carole Buckner is the dean of St. Francis School of
Law in Newport Beach and member of the State Bar of California's Committee on
Mandatory Fee Arbitration.
Nick Migliaccio practices in Southern California. He
is the chairman of the State Bar of California's Committee on Mandatory Fee
Arbitration, the bar's assistant presiding arbitrator, the co-chair of the Long
Beach Bar Association's Mandatory Fee Arbitration program, as well as a fee
arbitrator and mediator.
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