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Legal malpractice suit puts focus on billing practices

By Correy Stephenson and David Frank
Dolan Media Newswires

A national law firm is facing a legal malpractice claim that offers a cautionary tale for lawyers who might not be following best billing practices.

Boston-based Goodwin Procter has been accused of malpractice in a suit filed derivatively by a shareholder on behalf of a company the firm represented in a potential sale.

When the deal went south, the shareholder challenged the seven-figure tab amassed by 34 lawyers billing at rates of up to $825 an hour.

The total $1.2 million legal bill was “excessive and unjustifiable,” according to plaintiff’s counsel Stephen Gordon of Boston.

What made matters even worse, the suit claims, were billing entries so bare-bones that it was impossible to determine whether the lawyers’ time was necessary or reasonable.

In a May invoice, an attorney billing at nearly $800 an hour allegedly provided no other description than “telephone conference.” In another instance, in November 2007 a partner reportedly billed $825 an hour for work that was entered as “attention to deal” and “telephone calls regarding deal.”

Charles Kazarian, a sole practitioner in Boston who represents plaintiffs in legal malpractice actions, said the lack of transparency in the firm’s billing was “stunning.”

The complaint contains numerous instances in which the firm’s billing entries contain woefully vague descriptions, he added.

“It’s just completely cavalier to submit that kind of a bill. You’d think a firm that is devoting so many resources to a case would also devote some resources to making sure the billing was transparent,” he said.

But such billing practices are not uncommon.

“Attorneys think of bills as ‘x amount of time at so much per hour equals how much the client owes,’” said Ellen Freedman, law practice management coordinator for the Pennsylvania Bar Association and president of Freedman Consulting in Montgomery County, Pa. “But the reality is that clients could care less about time — they care about value.”

If an attorney makes a billing entry as “telephone call,” that tells a client nothing about value, she said. But if the entry instead read, “‘Telephone call to Mr. Smith to discuss the strategic approach to the transaction,’ that’s value.”

Communication problem

The Massachusetts case stemmed from the potential sale of Framingham, Mass.-based Cumberland Farms, a convenience store chain.

To handle the transaction, the company turned to Goodwin Procter, the firm it had used for decades. But according to the complaint filed by George Haseotes, the company’s largest shareholder, the firm racked up $1.2 million in legal bills before an investment banker advised Cumberland Farms not to make the deal.

What makes this case unusual is that Cumberland Farms is not a party to the suit and in fact paid its bill without challenging it. Given that, the firm will likely respond with a motion to dismiss challenging the shareholder’s standing to bring the complaint, several analysts said.

But in most fee disputes, the client is the plaintiff and the problem is lack of communication between the parties.

Joseph Berman of Boston’s Looney & Grossman, who lectures and writes in the area of professional liability, advises law firms to bill clients on a monthly basis and to include a detailed explanation of who is doing the work and what services are being provided.

Freedman noted that both the American Bar Association and most state bars mandate ongoing communications with clients, which includes keeping them informed about fees.

“You do not want a client to open the bill and gasp for air,” she said. “If that happens, you have not kept the client in the loop.”

If a case takes an unexpected and potentially more expensive turn, the attorney’s first call should be to the client, Freedman said, and the lawyer should provide an estimate of the additional expense.

For example, the lawyer might say, “‘We are going to have to go down a new avenue and it will likely increase the bill 10 or 15 percent from what we originally spoke about,’” she said.

Best practices

Fortunately, vague or general billing entries are easy to fix, Freedman said.

“All attorneys should be taught from baby-lawyerhood how to properly put a narrative on the time entry so that the client understands the value of their time,” she said.

As a general rule, that means providing greater detail.

William Ross, a professor at Cumberland School of Law at Samford University in Birmingham, Ala., who has authored two books on attorney billing issues, said lawyers should provide “enough information about the billed activity to enable the client to know what questions to ask” about the entry.

In statutory fee-shifting cases, where the majority of case law on legal billing can be found, courts have generally ruled that a bill for a telephone call should include the parties involved in the call and at least a brief description of the reason for the call and what transpired, Ross said.

Ross, who testifies as an expert witness in billing cases, said that while general entries are a common cause of billing disputes, “block billing” and minimum increments can also lead to problems.

Block billing occurs when an attorney lumps together a number of different activities in one billing entry, such as time for research, conferencing and telephone calls.

“Each discrete activity should be a separate billing entry,” Ross advised.

Minimum increments often result in repeated entries for things like calls to opposing counsel, said Freedman. That’s problematic, she said, because if a series of “0.2 for telephone call” appears on a client’s bill, “it’s hard for a client to tell what was real and what was not.”

Ross said the best practice is to address the issue of what the minimum increment for billing purposes is in the fee or retainer agreement, to reduce the likelihood of a dispute about it down the road.

Freedman recommended reviewing the final bill from the client’s perspective before submitting it.

The idea is to ensure that the bill is not just a laundry list of telephone calls and research memos but instead explains “here is what I did that contributed to the matter you brought to me and how I added value,” she said.

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