Roundtable Discussion Part 1

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Wisconsin Law Journal: I’m assuming that, in ranking the things that you do as a lawyer, billing is probably not at the top of the list of the things that you enjoy… Think about the types of billing that you do and explain a little bit about how it differs given the different types of cases that your firm handles.

Erich C. Straub: Well, from a criminal defense standpoint, which is where my practice started, I did a lot of flat fees. About three or four years into the practice, I started to get away from that and went to an hourly rate. So for my criminal defense litigation, I normally do an hourly rate unless it’s something minor, like a traffic ticket, where you can really get a handle on the amount of time that it’s going to take.

I do handle, increasingly, immigration cases, and I’m starting to go back to flat fees because it’s kind of the accepted practice in that area of law. I also handle combination immigration/criminal defense cases, people who are in deportation proceedings. That’s kind of an exception where I do have an hourly rate for those type of cases because they are of the criminal defense nature. Sometimes you go in and you’re not really sure what’s going to happen until you’re in it.

You can lose your shirt if you quote a flat fee and you don’t do it appropriately. One of my partners does a lot of criminal defense and other litigation. He primarily is an hourly biller in the litigation area.

My other partner does a lot of commercial work. A large portion of his practice deals with a particular ethnic group in the community. He’s Palestinian, and he is also a Muslim by faith. We’ll represent a lot of Muslim clients. We find that for the clients that he represents from that community that we tend to use more flat fee than the hourly rate for cultural reasons. There are some issues there in terms of what they expect regarding how they’re going to be billed for things and the work that’s going to be put in, that someone who’s got more of a background in American jurisprudence, lawyers and the legal system here may expect to be done a little bit differently.

(L-R) Patrick W. Brennan, Pamela Pepper, Thad W. Jelinske, Erich C. Straub, Michael J. Lund, Richard J. Bliss

Richard J. Bliss: Well, I can tell you a bit about how we do it, although it’s sort of boring. Almost everything we do, at least at the outset, is based on the billable hours and billable rates.

We’re very explicit with the clients about the rates that we have and that sort of thing. We have some clients who are interested in blended-rate arrangements sometimes because it just makes it simpler for them to keep track of our billing enough than to worry about a bunch of different rates. Sometimes … they have a feeling that with a blended rate they can call the more senior attorney, the one whose rate may be higher than the blended rate, without feeling burdened by having to pay that higher rate.

We’re willing to work those kinds of arrangements out with people. Probably, the most important thing for us is to make sure that the clients understand that they need to perceive value from what we do or we aren’t going anywhere together. If we sit with a client that’s new to the firm … that new client will be told we think that we provide value; but we’re going to talk to you about what that value is before we send a bill to you. It doesn’t do us a whole lot of good to send them a bill that irritates them or that reflects a value that we perceive but they don’t.

We strongly encourage conversations about billing and about what we’re doing and why we’re doing it. We’re fortunate to some extent because most of our clients are business entities and they have expectations. They are, in most cases, capable of having good discussions with us about risk assessment and how far should you go in pursuing something before you find that the cost outweighs the likely benefit.

We do write down bills when the client doesn’t see that the value is there. We write up bills off of the billable rates when we think that there’s been a substantial value. We tell the client about that. I would say that 98 percent of the time bills go out they are just tied to billing rates and the number of hours put into a project.

Thad W. Jelinske: Ours is a bit of a different approach. We believe that billing is an art form. For a client to appreciate the nature of what you’re doing, you have to explain that in the content of the bill. The quality of the work that you do is reflected directly in the bill that you end up providing.

As a result, the bill itself needs to tell the story. Whatever you’ve done from the beginning of that particular billing period or cycle, you need to explain … by the time you get to the end. Although you’re going to have regular communication with the client … you still, in reflection of the bill, need to communicate exactly what you’ve done.

We take the approach that when our bill goes out we want our client to pay. We want them to receive it, look at it, and say, "Well, this makes sense. This is something that I’m comfortable paying. I think I’ve gotten the value." I agree with Rick — value is the key. But "value" in today’s legal society has taken a negative connotation because "value billing" is the hot phrase right now.

It’s not as wrong as it may appear from the standpoint that the client needs to know that what they’re getting has value. If they see that in the product that you’ve provided and in the bill as it goes out, then you’ve done your job. Then you’ve satisfied all needs on all fronts, and you won’t run into the billing morass that many people end up in.

Patrick W. Brennan: Rick and Thad have mentioned some things that we strive for in our firm as well. The billing statement is a communication tool in addition to being a method by which the firm gets fair payment for its services rendered.

The goal is to be fair to both the client and the firm. We, like others in this room, use associates and other staff when we bill. And we want to be sure that the time spent by those people is not only captured but that it fairly and accurately reflects the preconceived litigation plan that we arrange with our clients at the outset of a matter. So to the extent that we achieve success with our billing, it accomplishes those two goals.

Pamela Pepper: Like Erich, I originally started out doing flat fees. I stopped doing it for three reasons. The first reason was because for white-collar clients that’s sort of an alien concept… Most white-collar clients, when they deal with you, they’re billed hourly. So when they come to someone like me, why not.

Second of all, I thought it was a terrible client-relation tool. I think a lot of criminal defense lawyers say, "You come in my office; I’ll charge you X to do your case." The client has no idea where X came from except that they have talked to three or four other people who said X plus two or minus seven. They have no idea what you’re doing for X because they never see a bill.

I saw a lot of, "You haven’t done anything for me." Because they had no idea that it took me 37 phone calls to get ahold of opposing counsel. And they have no idea that it took me three hours to find the one case that was buried under 85 unpublished opinions.

The last reason I stopped was — like Erich — it’s impossible to estimate what a piece of litigation is going to take. Most criminal work is litigation. You could easily go in and have one conference with the other side and it’s over, or you could — 350 hours later — be far beyond what happened.

I find myself wondering why a lot of criminal litigators are so ill at ease with the concept of hourly billing. For me, it has been … a terrific client-relation tool. I can use it to show those 14 calls that I placed to the other side that never got answered. I don’t charge for those if I get the answering machine. But the client sees that for four days I was making two phone calls a day to try to get to Mr. Smith.

They see what happened in each conversation. They see what I was looking at when I was doing research. To me, that’s been tremendously helpful in that it is the rare client who says to me, I don’t agree with the bill. Usually that client is the person who for some reason or another I didn’t quite get around to doing the engagement letter for, which is the other thing. Every time I have forgotten to do an engagement letter, I have been so sorry.

Michael J. Lund: Our practice is much like what Rick’s practice is at Godfrey. It’s primarily hourly litigation, hourly commercial work.

We’ve found that there are certain circumstances where it is appropriate to go to the flat fee. In our practice, it’s primarily standardized estate planning documents. You know, you may be off an hour or so here or there. But for the most part, it’s reasonably predictable and you decide that it’s much easier just to quote a flat fee and perform the services. Another area is the more standardized real estate transactions, when we handle the sale of a business owner’s residence or his son or daughter’s residence purchase. You may make numerous phone calls trying to get other counsel or a title officer or bank to respond to you.

But it’s just easier in the long run to bill it at a flat fee. It’s very predictable… In the long run, I believe it comes out pretty much th
e same.

The vast majority of our work is done on an hourly basis. And I agree with the comments of Dan and Pat and — well, everyone said that it’s an important way of communicating with your client. You have to communicate clearly when you present an engagement letter. You let them know up front what to expect.

When you follow through with these billings on a monthly basis, even if they’re not going to pay on a monthly basis, they at least have a status report, which supplements the copies of correspondence and the phone calls and everything else you have sent to them. If you say it in a long narrative, then they know exactly what you’re doing for them. If you enter your time properly and the bill’s edited properly, and you have a nice little narrative there as well, people aren’t surprised.

WLJ: Mike and Pam, you both touched on the engagement letter. Is that a basic standard practice, to have some sort of written fee agreement? If not, why? If so, what are the elements that you try to include?

Pepper: I don’t know whether it’s basic standard practice for everybody. It’s become basic standard practice for me. Most importantly, it is the one single thing that avoids the: "I didn’t know I was going to get charged for every time I called you. I didn’t know I was going to get charged for the time it took you to drive to the courthouse in Madison. I didn’t know I was going to…"

All of that is taken care of through a fee agreement.

The only times that I have had an unhappy billing experience in terms of clients disagreeing with their bills were when they didn’t have that in hand. Mine probably has a lot more stuff in it than some people might argue it needs. But sometimes when my clients are in the midst of the difficulties they’re in, it’s probably better that they have more forewarning than less. So I include things that other people wouldn’t include.

For example, I frequently have situations where people come to me and they say, "My family or my spouse’s family is helping to pay my bills." So I have to make clear in my fee agreement, that regardless of who’s paying me the money, the client is the client. Because I don’t want to have a situation where later the spouse comes to me and says, "I can’t believe you’re letting him do…" or "I can’t believe you’re letting her…" and "I’m the one who’s paying the bill here."

It happens a lot with parents and kids. So I probably have more in there. I lay out exactly the rate I’m billing, what I’m going to be charging them for, how I’m going to be calculating the time, the time period that I’m going to be billing them on.

I give them 10 days after receipt of the bill to tell me if they have problems. If they don’t, the money goes from the trust to the business account. That gives them time to let me know if they have any issues with the bill. All of that is laid out in the agreement as well as, their right to fire me and when and how they can fire me. My right to fire them and when and how I can fire them. It’s just pretty much the kitchen sink.

Bliss: At our firm, an attorney knows that he or she can’t open a file without a written engagement letter. It just doesn’t happen. And it’s for all the reasons that Pam suggested. Beyond that, in many cases it’s important to define the scope of the project. With business clients in particular, there are oftentimes pieces of the project that they’re going to do in-house or that they’re going to do with investment bankers or whatever. It’s very important for us to define the scope of the project as well as setting out the items that they’re going to be charged for, the rationale for their bill, and that sort of thing.

Brennan: It sounds like it’s also very important to understanding exactly who the client is … and whether someone other than the client is paying the bill, which is not an uncommon situation. Occasionally, it arises in noncompete litigation. Certainly, in the insurance context it comes up and I’m sure in other practices as well.

Jelinske: We do not regularly use engagement letters except for litigation that comes from new clients. In our estate planning division, we will provide verbal information in the client consultation that lets the client know. The bill then will reflect exactly what was done. The multiple drafts, if they are necessary, will reflect what was done. And the price, surprisingly, comes up to the number that we said it would.

In the litigation field, there’s no doubt in many instances we accept certain risks by not fulfilling what most would deem a prudent step of getting an engagement letter. But we believe that our clients who have been with us and are with us consistently for a long period of time deserve the respect of our standard billing practice. They understand how we bill and how the issues get handled.

We communicate to a ridiculous degree in all of our files, both by written letter, status letters.

Lund: We may not send an engagement letter out for every new matter that comes in, but we always send an engagement letter whenever we obtain a new client. It just lays o
ut the range of rates for the professionals at our firm. It describes the project that we’re being brought in for. It will identify what the rates are for the particular lawyers who will be principally responsible. And it tells them we’ll be billing them on a monthly basis; we’ll bill them for disbursements. We expect payment within 10 days of receipt of the bill. And we will discuss — they have a right to contact us at any time if there’s any question they have about our representation.

When there are major expenditures, we will always agree to confer with them before they’re incurred. But it’s fairly short. It’s usually a page or a page and a half long. Once they have that understanding, we can take a subsequent matter in pretty much on the existing agreement.

Straub: I would agree. I use strict fee agreements in every case. The only situations where I don’t are very small traffic matters that I’m not charging a fee for. And that’s really the only time.

WLJ: Thad, I think that you had made a point of talking about trying to show clients the value of the bill. And Rick, you talked about it as well. What if the client doesn’t see the value in the bill?

Jelinske: We handle it a little different, I would think, than most. We do not believe in suing our clients. Whether it was a relationship that went sour or whether it was an existing client, we just don’t do it.

There have been many instances when we will look at a client and say, "All right, what do you think is fair? What did you get your value on?" At that point, we will probably terminate the relationship. We’re not foolish about it. If the client firmly believes that the value hasn’t been received, we’ve got a communication problem. … So if we’ve gotten to the point where the client isn’t seeing eye-to-eye with where we’re at, a long-term relationship isn’t possible.

Pepper: That’s a big issue… It’s not just a philosophical question about suing clients who don’t pay. It’s the cost and aggravation to you whether you’re a solo or a large organization. Then it’s the inevitable option that the client has to turn around and say, "Well, the reason I’m not paying you is because… and here’s the phone number for OLR."

Regardless of what a wonderful job you’ve done and how you know you have not done anything unethical, having OLR call you up on the phone is not anything that any lawyer wants to have to deal with even if it’s only a five-minute phone call. So there’s an awful lot you have to think about in terms of sort of a knee-jerk "if you don’t pay, we’ll come after you" attitude. It’s risky from a lot of different standpoints.

Straub: I would agree. I think in my practice that it’s not particularly successful. I don’t sue clients.

I try very hard on the front end to assess a retainer agreement that I think is going to cover the litigation in question. I get that money up front and give myself a reasonable period of time, if it’s a situation where the retainer’s being exhausted, to where I can hopefully extract myself from the case if necessary.

The instances that I’ve seen where people have resorted to litigation, whether it’s small claims or otherwise… have just not been particularly successful. And you do incur the additional risk that the client’s going to retaliate by going to OLR or in some other way.

Bliss: I’ve been to some national conferences where the malpractice carriers have really leaned hard on the firms not to sue their clients for exactly the reasons that Pam described. They just do not think that it’s worth the risk.

Jelinske: Percentage-wise, it’s the largest reason for malpractice claims. The second is lack of communication. They seem to overlap.

Pepper: The obvious explanation from a client for why they didn’t pay is because you screwed up. That’s just the easiest thing for them to say.

Brennan: Another way of looking at it is that, if there’s a misunderstanding or a surprise or a different perception about a bill, it’s not necessarily just the bill itself that’s at issue. It’s an understanding or lack of understanding that was reached or should have been reached earlier about either the scope of the work or the extent of the work or the detail that would have been required on a particular matter. There’s a learning experience for different clients with different levels of expertise on a matter. And that should be recognized, if not at the outset of the relationship, certainly at some significant point before the bill is sent.

Pepper: You do occasionally run across a client who at some point simply makes a decision they don’t want to pay, not because of anything they can identify that you’ve done. They just don’t want to pay. They just don’t want to have to spend money anymore. They just say, "I’m tired of spending money. I don’t want to spend money anymore. I’m not going to do it." But I think those are rare… at least in my experience.

Bliss: That may have something to do with Milwaukee as well. I mean,
I suspect you might see more of that in other parts of the country than we’re likely to see here.

WLJ: Are there ways of constructing bills or elements to include in the bills that help to keep from getting to this point where clients are unhappy?

Jelinske: Some would say that the more you include, the better. So to provide every hour and provide every dollar amount per entry, to extrapolate the extent of the conversation I had with Attorney John about this particular strategy all of it needs to be included within the bill.

	Related Article Roundtable Discussion Part 2

I don’t believe that. We don’t do that. One reason may be the necessity to save paper, and the other more practical approach is probably the fact that you need to provide your clients with sufficient information as you go along. You don’t need to incorporate that into a bill.

Second, in our bill we don’t — as it used to be done — write, "For services rendered — $25,000." We certainly don’t go in that direction. However, we do believe billing is an art form. So you create the story. You put the story in. You’ll see at the end of that month … a dollar amount, then you’ll see expenses, and they’ll be itemized.

When a client calls us up and says, "You didn’t include the exact specification for the number of hours that you worked in this given month," we explain that the watch is but a mere tool used in measuring what’s involved with your project or your litigation or whatever it may be for the client. As a result, if you need to know how many hours, you should take that dollar amount and divide it by my billing rate, which you know is X. That will tell you how many hours.

Pepper: I’ve had clients before that I’ve just said, "Take a month off." I didn’t bill that much in a month. And to me it may not be a huge deal. To the client … they get a bill that has an X across it or at the bottom it says "courtesy discount" or whatever. It’s like going to the grocery store and getting a free sample.

I think this goes to the engagement letter, and it goes to the bill, and it goes to letting clients ask you questions about the bill. I think it goes to letting a client feel like they have a little bit of control over this. That hiring an attorney is not a runaway train that you’ve just gotten on and $500,000 later you’re blinking, stupefied, with no clue as to how you got there.

Jelinske: You used the term and it made the hair stand up on the back of my neck — the "courtesy discount." I think in the ’60s and somewhat in the ’70s, you could use the term "courtesy discount" and clients would see that it really meant that you were trying to give them some benefit. I don’t believe that’s the way it is today.

Today’s society, in looking at the value of attorneys, they expect to be billed only what their value is and what their time was. If you put down "courtesy discount," then it means you overbilled them. That’s my impression and I think it’s been reflected in a number of clients I’ve talked to. No matter how nice we try to be, without proper communication, our good deeds will go unrewarded.

Tony Anderson can be reached by email.