Perhaps you’ve read the The New York Times article about Even Chesler, the Cravath partner who calls for lawyers to “get rid of the billable hour.” It focuses on why, in this new economy, corporate America will no longer pay outrageous prices for litigation services.
In the wake of that thrust are a few small references to the inefficiencies and, in some cases, outright frauds, invited by the billable hour system. Unfortunately, but not surprisingly, aside from the well-known practice of bill padding, few specifics are considered.
I’d like to remedy that here and offer some detailed examples of the more nuanced forms of chicanery engendered by our current billing model. Here are eight of the more insidious ways some of us separate clients from their wallets. The ones nobody ever catches.
1Fluffing the Exposure. Clients decide how much money to spend on their defense based on how much they stand to lose. The average case a decent billable hour firm handles is a basic breach of contract claim, limiting the plaintiff’s recovery to the amount of money it would have been entitled to under the contract. Plaintiff’s counsel will often fix this disadvantage by adding tort claims, like fraud or breach of good faith and fair dealing, which add the threat of additional damages. Technically.
A half-witted defense lawyer knows that most of these add-ons are naked leverage plays. Whether he tells the client that, however, is another issue. If the client thinks those claims have a chance, it’ll pay more in defense costs. The enhanced risk also provides “Success Insurance.” So if the actual exposure is $1 million, but the client thinks its $1.7 million, a $1 million settlement with $300,000.00 in attorneys’ fees looks like a win.
2“Wal-Mart” Document Review. One of the greatest revenue sources in law is a dirty warehouse of old, dingy paper. In any piece of large, complex litigation, there’s an archive of documents—in Rochester, St. Paul or Topeka—in which some bit of material one of the parties might need to make its case is scattered amongst 50,000 boxes of irrelevant pulp. Teams fly to the location and spend weeks searching through boxes, making spreadsheet indexes of documents no one will ever read and sending thousands of copies to the firm’s home office, where a team of techies (at another cost to the client) turn them into searchable databases. While they do that, associates and paralegals from the opponents’ firm watch, to make sure no documents are hidden or destroyed. Thousands of dollars per hour until every conceivably relevant piece of paper has been vetted.
And that’s just an example of actual firm employees reading the paper at issue. The new model, the “Wal-Mart” approach, is much more lucrative. All you need is a boiler room of temps or independent contractors (young, unemployed lawyers from lousy schools with no other job prospects) to read the material at $35.00-$50.00 per hour, while you bill the client a hefty markup on the labor. The St. Mary’s Upstairs College of Law graduates scanning those documents are technically lawyers. And that credential allows you to tell the client “attorneys” are reviewing the material.
If the firm’s new associates would be billed out at $250.00 per hour for that same work, a contract lawyer should at least warrant, say, $100.00-150.00 per hour. The client won’t complain. It thinks it’s getting a deal.
3Volunteering. Litigation’s a piecework business—no profit in having your opponent’s lawyer do something you can do yourself. We kill each other in open court, but when it comes time for one of us to prepare an order for the judge’s signature or a first draft of a settlement agreement, we’re suddenly doing an “Alphonse & Gaston” routine with one another.
“Oh, I’ll take the first crack at drafting the agreement.”
“No, allow me. I’ve done one in a similar case before.”
If your opponent crafts the initial version of anything, he gets the lion’s share of billable time out of the project. In the case of a settlement agreement, doing the first draft can be the better part of a day’s worth of billables.
And if a client asks why you didn’t let the other side create the first draft, the answer is always, “Because I wanted to control the process, to make sure you were protected.”
4Double Dipping. The quickest way to stack up billable hours is a traveling assignment. If your opponent demands you take deposition halfway across the country, don’t fight him. It’s an economic opportunity where you bill for every minute of the travel. Then stack on that all of the time you spend on other clients’ cases during the trip. Using this approach, a twelve-hour trip from Philadelphia to Detroit for a deposition can net a total of seventeen billable hours.
And nobody who’d care would ever find out you were billing two different clients at the same time. The overlapping entries appear on separate invoices, the laws of physics in the billable world applying on a client-by-client basis.
 5 hrs on plane (assuming a modest PHL delay) + 3 hrs in deposition + 4 hrs driving to/from airport, checking in and waiting for rental car/cab + 5 billable hrs working on other cases on plane/in airport/in cab = 17 hrs.
5Scorched Earth. The smallest case can turn into a billing bonanza, if you run it the right way and set a nasty tone:
These are just a few examples. If you used those tactics alone, you’d could add 20 hours to your bills. At $250 per hour, that’s $5,000.00, just for being an asshole.
6Pre-Fabs. It’s all derivative, and litigation’s no exception. Whatever brief a lawyer’s writing, it’s been written before—and it’s somewhere in the firm’s server. A decent lawyer can cut and paste together the guts of a legal argument in an hour or two.
The question then is how to bill for that work. A lot of litigators say you should bill them for the “value” of the work—approximating the hours it took to create the template you used, plus your case-specific modifications.
Sounds like a good deal, but I wonder: How do you do that? Look up the associate who wrote the original papers five years ago, call him at his new firm and ask him how long it took? Call accounting and see if they have his old time sheet handy?
7Blind Alleyways . The central issues in a contract dispute aren’t difficult to predict. The words of the agreement limit the universe of available arguments, and there are only so many credible interpretations of the parties’ duties. You tend to learn the two or three important facts, pieces of evidence and issues that will decide the dispute pretty early in the case.
Keep them to yourself. A lot of clients like to play attorney and discuss peripheral matters they think are relevant to a claim or defense. No harm in encouraging them to flex their inner Clarence Darrows. The more issues raised, the more work done:
To: Client, File
Re: The Napoleonic Code Does Not Apply in Indiana
The client won’t complain—it raised them.
8The Babel Effect. The best way to ensure a client doesn’t complain about a bill is to write it in language he can’t understand. Lawyers do the same thing bankers, insurance agents and every other category of middleman does: Blur the simplicity of the service they provide with silly industry language that makes it seem complex enough to justify the fee.
Who understands a 1.1-hour billing entry for “Analysis of North Carolina civil procedure rules to determine form of affidavit for submission of letters rogatory to serve subpoena duces tecum”?
Baffling bills are a win/win. If a client calls with questions about the charges, that’s a billing event. And the more confusing they are, the longer the call.
No one likes this shit. It’s offensive, backhanded and creepy. And what’s its root cause? The billable hour. A compensation system built to reward inefficiency, married to a profession providing endless pretexts for needless work and granting its abusers impenetrable deniability.
I’d say aggressive self-policing is the answer, but that’s as likely to succeed in the litigation business as it did in investment banking. The only solution is to completely align the client’s interests with those of its lawyers. Incentivize counsel to dispose of cases as fast and cheaply as possible, the way they would if they were paying the fees.
And the only way to do that is to get rid of the billable hour.