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Category: Staffing Issues

Courts Call Upon Fee Examiners in Large Chapter 11 Cases

May 6, 2024

A recent Law.com story by Dan Roe, “Nickel and Dimed: Fee Examiners More Common Amid Rise in Contentious”, reports that, within weeks of being ordered by the U.S. Court of Appeals for the Third Circuit to appoint an independent examiner to the bankruptcy of fraudulent cryptocurrency exchange FTX, U.S. Bankruptcy Judge John Dorsey of the District of Delaware issued a related order of his own.  Starting in early February, Dorsey ordered the appointment of fee examiners in all Chapter 11 cases before him where assets and/or liabilities exceeded $50 million—the threshold for “larger Chapter 11 cases,” according to the Office of the U.S. Trustee.

While the U.S. Trustee Program provides for the use of fee examiners in such cases, examiners aren’t required and frequently aren’t appointed in pre-packaged bankruptcies and cases that aren’t particularly contentious.  However, a rise in bankruptcies involving fraud and mass tort litigation is causing more bankruptcy lawyers to face scrutiny over their billing practices.  “Fee examiners have become more prevalent recently because of very significant bankruptcy cases seeking recompense for alleged abuses,” said J. Scott Bovitz, a Los Angeles attorney who represents fee examiner Nancy Rapoport in bankruptcy court.

For instance, fee examiners have lopped six- and seven-figure amounts off of recent cryptocurrency bankruptcies such as Celsius, Voyager and BlockFi as well as recent bankruptcies involving tort claims such as Boy Scouts of America, fire protection company Kidde-Fenwal and LTL Management, a company formed to divert Johnson & Johnson’s tort liability over cancer attributed to the company’s talcum powder.  In their assessments of Big Law bills, fee examiners look for duplicate and redundant tasks, block or “lumped” billing, vague time entries, staffing inefficiencies, excessive expenses and more.

“I always tell professionals that my goal is not to reduce anyone’s fees because everyone did everything perfectly,” said Robert Keach, a fee examiner and the co-chair of the bankruptcy practice at Maine law firm Bernstein Shur.  “I haven’t found that case yet.”  According to Keach, most fee examinations end up taking 5% to 7% off of a legal bill, although some recent cases have been higher. In July, Dorsey cut roughly $1 million in fees off Pillsbury Winthrop Shaw Pittman’s $6 million tab for its work restructuring a California luxury hotel owner.  “It is not the Court’s job to piece together entries and try to make sense of them.  Each entry must be capable of evaluation on its own.  Many of Pillsbury’s entries are not,” Dorsey wrote.

Fee examiners also come at a cost to the estate, although Keach noted that the costs of examining fees are almost always offset by the reduction of professional fees resulting from examiners’ work.  In a December fee application for the BlockFi bankruptcy, examiner Elise Frejka, a New York-based solo practitioner, requested a total of $168,500 for 269 hours of work billed at an hourly rate of $675.

The biggest reductions in recent fee examinations sometimes came from firms that billed smaller amounts than those of debtor’s counsel. Representing debtor Kidde-Fenwal, Sullivan & Cromwell agreed to roughly $100,000 in fee reductions for vague and repetitive time entries and potentially unnecessary attendance levels at board meetings and on calls.

However, while Sullivan & Cromwell billed roughly $9 million in the bankruptcy, Brown Rudnick lost even more money to the fee examiner despite billing less than $6 million representing the creditors committee.  The firm was docked for vague time entries, “certain junior associate time,” potential duplication and overlap of tasks, unnecessary attendance levels and other miscellaneous issues with time entries.

Rapoport, a fee examiner and a professor at the William S. Boyd School of Law at the University of Nevada, Las Vegas, said she doesn’t believe law firms are intentionally inflating their fees so much as not exercising adequate billing judgment.  “What I do see is a combination of two problems: bad billing hygiene, such as block-billing, vague entries, and rounded hours, which is often improved after a few conversations with a fee examiner, and the use of more senior billers to do more junior work than they should be doing,” Rapoport said.  “I also find that the weekly ‘all hands on deck’ meetings need to be able to justify why each professional is in the room.”

In other recent bankruptcies, law firms escaped with 100% of their fees intact, although such firms had already offered discounts for time spent preparing fee applications and “transitory” timekeepers who billed less than five hours in a given month.  In the BlockFi bankruptcy, Kirkland & Ellis made out with 99.9% of its fees intact, while the examiner granted the full requested amounts to Cole Schotz and Haynes and Boone.

Duane Morris Legal Bill Called ‘Seriously Inflated’

March 7, 2024

A recent Law.com story by Amanda O’Brien, “’Seriously Inflated’ Duane Morris Bill Highlights Risk When Big Law and Public Clients Lack Alignment”, reports that, as Duane Morris faces scrutiny over publicly obtained emails alleging that the firm delivered “seriously inflated” bills to a suburban Philadelphia school district following its investigation into allegations of rampant bullying against LGBTQ+ students, the dustup underlines how law firms’ work on behalf of public-sector clients demands a heightened level of communication.

The firm landed in the spotlight in the aftermath of a 151-page internal investigation report for the Central Bucks School District put together in April 2023 by a team led by partners Bill McSwain, the former U.S. attorney for the Eastern District of Pennsylvania, and Michael Rinaldi.  The report ultimately refuted allegations made by the American Civil Liberties Union in 2022 claiming that the school district created a hostile environment for queer students.

The investigation leading to the report took approximately six months, with the district bringing on McSwain and the firm in November 2022.  The bills referenced in the memo span from November 2022 to the end of October 2023, and outside reporting by The Philadelphia Inquirer indicates the bills, totaling around $1.1 million, were paid in December 2023. 

“One could spend countless hours picking apart this bill,” the email, authored by Edward Diasio, a partner at Montgomery County-based Wisler Pearlstine, said.  “The bottom line, from my standpoint, is that it is seriously inflated, and should be reduced considerably.”

Among the issues highlighted in the email were complaints of inefficient time management, vague time entries for hundreds of thousands of dollars of work, and an excessive number of attorneys engaged in repetitive tasks.   “The issue is that the Engagement Letter indicated two attorneys would lead the matter, and rely on help (where appropriate) at lower hourly rates,” the email raids.  “This was a good strategy in theory, but it was poorly implemented by Duane Morris.  The District should have benefitted from the efficiencies such a structure should have generated…”

“What happened, though, was that an army of attorneys was brought in and any efficiencies that could have been achieved were dramatically outweighed by the inefficiencies associated with managing such a large team and all of the internal communication and coordination that come along with that,” the memo’s introduction concludes.

Keeping the Client in Mind

According to several consultants, establishing client expectations around billing practices is a weak point, even a “lost opportunity,” for law firms. At the center of the issue, consultants said, is keeping in mind the client’s expertise when it comes to litigation or other legal matters.

“With corporate clients, often the client is an in-house lawyer. With public sector clients, you’re frequently dealing with people who aren’t lawyers,” Mantra Partner founder and CEO Marci Taylor explained.  “It’s more of an incentive to be as descriptive as possible about the nature and complexity of the task.  You’re writing knowing that there’s a high likelihood that your invoices will be made public.”

Law firm consultant Tim Corcoran also acknowledged that billing isn’t a one-size-fits all practice.  “There is quite a bit of forethought that goes into billing strategies because different circumstances call for different approaches,” Corcoran observed, contrasting in-house lawyer clients to government and public sector clients, and these also to third-party bill reviewers used by many corporate clients. 

Corcoran and consultant Stephen Ruben indicated that billing strategies and professional responsibilities change slightly according to the type of client.   “Normally if you’re dealing with a large corporation or corporations that have a lot of legal matters, they’re [used to] dealing with legal matters over time and have a greater ability to manage the relationship … they know what to ask for, they know what to expect,” Ruben explained.  “The firm has a different obligation when a law firm is dealing with people who are less experienced and sophisticated in dealing with lawyers and litigation.  Litigation is messy by nature.  One would think that when you are dealing with people who are not as experienced in litigation, you have a greater obligation to take them through the process step by step.”

And as for third-party billing reviewers, Corcoran noted that some firms take into account that reviewers might shave off some of the bill.  “It’s like the shopping trick.  Some firms will bill accordingly knowing that clients who put them through this review process will shave off some eventually,” Corcoran said.  “They may also take the exact opposite approach by only billing for the specific things enumerated … in the outside counsel guidelines, because they don’t want to risk the relationship knowing anything outside of that scope will have to be justified or defended.”

Setting Expectations Early

Law firms often fail to set client expectations on billing, Corcoran noted.  As a result, Corcoran said, it is often on clients to take the initiative and set expectations on billing for law firms.  And while some corporate clients may have the sophistication and resources to take charge here, public sector clients—with a shorter history in turning to Big Law for complex engagements—don’t have the same knowhow.  That can be a recipe for frustrations, as the Central Bucks School District’s review demonstrates.

“Failure to set or manage client expectations … is probably the greatest missed opportunity [at law firms],” said Corcoran.  “What lawyers believe is that because they cannot predict with absolute certainty how long something will take, the outcome, and what it will cost, they view it as binary, so few will provide a budget or cashflow guidance to help a client squirrel away funds.”

“It’s up to the client then to impose restrictions or guidelines or checkpoints to say ‘you need to let us know what your work in progress is, we need to be ahead of the pace of your billing,’” Corcoran continued.  “As a former CEO myself who’s managed the law department, I cared about the total amount we’ve got to budget for this … [I’d ask to] get me in the ballpark [of how much something would cost], even on a quarterly basis.”

“Few law firms do that because clients don’t ask for it,” Corcoran added.  The risk, of course, of avoiding early billing discussions is an unhappy client when the bill comes due.  “Not giving a heads-up is zero risk unless the client is unhappy … [then] the risk is that [clients] will subject the invoices to deeper scrutiny,” Corcoran said.  “The risk is you will expect one income stream and get something less than that … [and that] repeated behaviors like that can cause clients to go elsewhere.”

“Client defections are based on dissatisfaction not with the legal work but how the client is treated by the firm almost as an afterthought,” Corcoran continued. “They’re missing out on the ability to retain the client.”  Ruben suggested that firms address billing expectations early on in the relationship with a client, noting that “in generally, a good law firm will state expectations.  That’s what the retainer agreement is about.”

“It should include terms about how [the client] is going to be billed, and there should be conversations about that,” Ruben said.  “You’re dealing with people and when people are involved in a transaction, there’s often going to be a miscalculation of expectations on either side … when you have a monthly bill, issues that need to be managed more quickly come to the attention of both parties.”

Article: Seven Key Metrics to Evaluate Spend on Outside Counsel

January 8, 2024

A recent Law.com article by Rosemarie Griffin, “Seven Key Metrics to Evaluate Spend on Outside Counsel”, reports on metrics to monitor outside legal spend.  This article was posted with permission.  The article reads:

Gartner research shows that external spend comprises approximately 45% of overall spend for the median legal department, yet legal leaders often have trouble understanding where much of that spend originates.  Legal leaders continue to invest in spend management solutions to improve their insights into external spend data.  However, many of these same leaders find it difficult to translate that data into insights to inform decision making, even when spend data is accessible in dashboards or reports. 

When it comes to improving how external spend is evaluated, legal leaders should first determine the goals they want to achieve (e.g., reducing costs or improving quality) and then identify and track data to inform strategic decisions.

Gartner experts have prepared seven example metrics that legal leaders can use to inform their external provider management and align it with their organization’s overall strategy.  The following examples provide a framework for assessing needs and working with vendors and/or internal teams to build similar reports.

1. Total Spend Over Time Comparison

Comparing spend over time, especially in a visual dashboard, enables legal leaders to quickly spot trends or instances that could lead to overspending  This type of comparison also provides a holistic picture of historic spend in given periods, allowing for better budgeting.  One of the most valuable means of displaying comparative spend is with total spend per month, compared year over year.

Better historical spending data allows for more accurate budgeting, enabling legal departments to base projected future spending data on similar spending during that period in previous years   Historical spending trends can also help determine potential upticks in seasonal work and how much spending might be expected to fluctuate.  Comparing this information makes it easier to spot outliers when reviewing spend reports.  When legal leaders notice outliers from previous periods, they can analyze individual matter budgets from that period to see if a unique event explains that spending and, if not, adjust future spending, renegotiate with law firms and/or adjust the quantity and type of work sent to external providers.

2. Spend Compared to Budget

Once legal teams create a budget, they can also leverage data to manage that budget by tracking law firms’ spend.  While budgets with law firms are not always accurate, legal leaders should still track budget overages and use any overages to save money by renegotiating the amount billed and increasing scrutiny in future bills with that firm.

If a law firm is consistently over budget on matters, legal leaders should take a deeper look into the matters being billed by that firm.  It may be possible that one matter is significantly over budget, for known and expected reasons, but all matters coming in consistently over budget indicates a larger issue.  This might mean the in-house team member responsible for managing firm spend is not effectively managing a firm, or it could mean the firm is consistently ignoring budgets when making staffing and billing decisions.  Monitoring this data at the macro level can allow teams to proactively address any budget issues without waiting until large matters are completed.

Once a potential issue is spotted, legal leaders should speak with the matter owner(s) in the department working with a firm to see if there is an adequate explanation for the deviation.  From there, they should work with the firm to create a plan to readjust spend or rework the budget if necessary. It is important to track these overage conversations and any improvements on budget compliance to use in vendor evaluations.  Having conversations with vendors about their budget compliance legitimizes the budget and ensures a firm will monitor the available budget when making staffing and billing decisions in the future.

3. Blended Rate

Another helpful tool for monitoring law firm billing is the blended rate.  A blended rate, the average rate of all roles by hours billed, helps clear any confusion and identifies the true hourly cost the firm is billing, instead of just the rates billed by each role at the firm.  An effective report might visualize the average blended rate for top vendors as ranked by their total fees billed.

Understanding the blended rates first helps identify which firms are charging more, on average, per hour.  Using a blended rate ensures firms cannot hide costs by overusing staff with high billing rates.  Legal leaders can then take a closer look at potential over billers to see whether the matters billed by that provider justify the higher billing rate, or if they may be using high-cost attorneys unnecessarily.  Leaders can then negotiate rates or staffing or take advantage of alternative fee arrangements (AFAs).

4. Matter Staffing

To complement the data from blended rates (or provide a proxy, if the department cannot access that data), legal leaders benefit from a breakdown of the percentage of roles (paralegal, attorney, partner, etc.) billing the department from each firm.  If staffing is too senior, the department is paying higher rates than required for a task.  If the staffing is too junior, the work may not be adequate for the quality expected by the firm.  One way to visualize this data in a report is by displaying staffing allocation, by vendor, for vendors that bill the most fees, or a selected list of vendors.

Understanding what type of role executes the work will allow legal leaders to quickly see if a firm may be over- or underusing expensive law firm partners or attorneys for the work billed.  For some workstreams, such as major litigation, extensive use of experienced attorneys may be required.  For these cases, legal leaders may look to ensure partners and high-value attorneys have devoted considerable time to that work.  Blended rates alone cannot provide this information.

However, if a firm is generally used for low-complexity work, significant partner use could be unjustified, leading to unnecessarily high rates.  Visualizing this information is especially useful when combined with data on blended rates and billing guidelines, as blended rates will support an overbilling hypothesis and guidelines allow the legal department to clearly lay out what roles should be executing each type of work managed by a firm.

5. Turnaround Time

Aside from direct costs, another important outcome to report is the turnaround time for individual matters.  Slow turnaround time can delay matters and increase costs. However, if turnaround time, for similar matters, decreases significantly without explanation, it could be an indicator of lower work quality.  Turnaround time alone cannot adequately explain cost overruns or outcome quality, but it can be used as an indicator to take a closer look at a firm’s work.  Legal teams can visualize turnaround time by sorting matters by priority and plotting median turnaround time for matters at each priority level. 

Legal leaders can monitor firms’ work speed and compare them to the previous year to check in when turnaround times are longer than average, meet with firms to diagnose the issue (if times are unjustified), and create a plan to improve performance and maximize value.  This approach can also reduce cost if additional time is leading to more billed hours.  Any significant slowdowns could be from the complexities of a major individual matter or other factors, but it is an indicator that legal leaders should take a closer look at that individual firms’ work to evaluate whether the slowdown is justified.  Turnaround time metrics can be valuable, but they rely on legal staff to close out matters properly for accurate data.  This metric is only effective alongside established expectations for closing matters.

6. Strategy Versus Complexity

Another way for legal leaders to monitor their use of outside counsel is through the distribution of external matters by complexity and strategic value.  While this requires legal staff to accurately gauge and input the information, it can be extremely useful to evaluate the mix of work sent to external providers.  Some departments and external spend management solutions provide legal leaders with the tools to rate matters by qualitative metrics (including strategic value and complexity) when opening a matter and presenting these matters in a grid.

One of the most effective ways of reducing outside counsel costs and increasing the value received by in-house resources is to consider the strategic value and complexity of a matter when deciding whether to send something outside.  Legal leaders should aim to keep matters of high strategic value (other than major litigation) in-house as much as possible, where they have the best knowledge of the business.

Any matters of high complexity and low strategic value are good candidates for outsourcing to law firms, while low complexity, low strategic value matters are good candidates for alternative legal service providers (ALSPs.)  If legal departments see a large percentage of high strategic value matters sent outside, they may reduce outcome quality for the business and reduce the strategic benefit of in-house resources.  At the same time, if low complexity matters are being sent to law firms, then legal departments have an opportunity to insource those matters or shift that work to lower-cost ALSPs.

7. Grid Summary Report

To better compare spend across firms and practice areas, legal leaders can use a grid summary report that displays spending in a grid with the top 10 to 20 practices as rows, and the top 10 or 20 firms as columns.  Ideally, this report would classify rows into tiers of firms.

A grid report typically visualizes the gaps and overlaps and can help inform opportunities for consolidating spend.  At minimum, seeing this grid should allow the department to ask, “Are we making the right allocations?” If the report indicates a law firm is not often used, or is used for only one stream of work, then it may be a suitable candidate for consolidation.  Often, legal leaders report they are unaware that a single attorney is engaging with a firm until they get a complete spend report.  Tiering by practice area allows the department to notice this behavior more easily.

Strong relationships with law firms are valuable, as they will have better knowledge of the business and can provide better opportunities, including bulk discount on fees, secondments, and additional services, such as those provided by a captive ALSP.  These benefits can often be increased (particularly for organizations with smaller overall legal spend) by consolidating work to a smaller number of firms.  If a firm is being underused across practice areas but provides good value for work in other practice areas, legal leaders can also instruct their teams to shift work away from other firms to that firm.  This shift increases the value provided in a practice area while minimizing the loss of relationships that may occur by bringing on new firms for a practice area.

Other Metrics to Consider

The list of metrics above is not comprehensive of all metrics available from spend management platform vendors, or all metrics that may be useful when making strategic decisions on outside counsel.  Other recommended metrics (that may or may not be available from vendors) include spend by firm tier, average vendor rating (from after-action reviews at matter close), and top matter owners by spend.

External spend management platforms can provide some options for reporting, and legal teams can build on these systems to create their own reports to ensure they have the data required to make effective external spend decisions.  These reports can also help legal show the value it provides to the business, by showing how it has increased the efficiency of theory spend or reallocated work to better outcomes.

Rosemarie Griffin is a Senior Research Principal at Gartner.

Holland & Knight Faces Overbilling Suit

December 13, 2023

A recent Law 360 story, “Holland & Knight Faces Overbilling Suit From Ex-Bank CEO”, reports that Republic First Bancorp's former CEO has accused Holland & Knight LLP of padding its bills as the firm looked to charge him some $7 million for what he said was ultimately "ineffective and unsatisfactory" legal work last year in a dispute over his ouster.

Vernon Hill II said in a complaint filed in Pennsylvania state court that Holland & Knight had engaged in "duplicative … and excessive billing" as it represented him in four separate matters against Republic First last year, including a federal lawsuit alleging that the bank improperly misappropriated the business model and brand equity that Hill had developed during his 13-year tenure.  And despite assigning multiple partners to work on Hill's matters at high hourly rates, the complaint said that the Holland & Knight team repeatedly failed to deliver the kind of results Hill expected.

"What occurred was an unnecessary and inefficient use of a large number of timekeepers, led by a score of partners, who billed Hill excessively and unreasonably, particularly in light of the results they achieved – or, more often, failed to achieve," Hill said in his complaint in the Philadelphia County Court of Common Pleas.  Hill said he formally retained Holland & Knight in March 2022 as he looked to press back on what he said was an "improper corporate coup" by a faction of Republic First board members aimed at ousting him as CEO and board president.

According to court records, Hill was ultimately booted from his position with Republic First in July 2022.  As part of his engagement letter with Holland & Knight, Hill said that the firm promised to keep its bills as low as possible by assigning "lawyers having the lowest hourly rates consistent with the skills, time demands, and other factors … involved in each matter."

By the time Hill eventually terminated his relationship with the firm in July 2023, however, he said that Holland & Knight had charged him some $7 million in fees, about $4.1 million of which he had paid.  When Holland & Knight sent him a demand letter seeking the remaining $2.8 million, Hill said he refused to pay and instead pointed out what he claimed was "the wasteful, inefficient, and unreasonable nature of H&K's bills and billing practices."  Hill said he later offered to try and resolve the fee dispute, but that when Holland & Knight failed to respond, he opted to file the lawsuit in Philadelphia.

In support of his claims, Hill pointed to Holland & Knight's work over the first half of last year to stop the First Republic board faction's efforts to remove him.  That work, Hill said, went on to involve 68 different timekeepers, 19 of whom were firm partners who billed at higher rates.  "Despite deploying a literal phalanx of timekeepers led by a bloated cadre of 19 partners, H&K failed to stop the … faction from driving Hill from the chairmanship of RFB," Hill said.

Companies Question Legal Bill in Pension Debt Suit

December 6, 2023

A recent Law 360 story by Emily Brill, “Cos. Question Union’s $123K Atty Bill in Pension Debt Suit”, reports that two cruise ship contractors questioned a union pension fund's request for $123,000 in attorney fees and costs in Louisiana federal court after the fund won a $2.8 million debt fight with the companies, calling "excessive" the hours the fund said its attorneys spent on the lawsuit.  United Stevedoring of America Inc. and American Guard Services Inc. said that they "believe that 529 hours is excessive for what (to union counsel, at least) is a routine and oft-repeated litigation."

The companies are challenging a request for about $123,000 filed by the New Orleans Employers International Longshoremen's Association Pension Fund after it won a withdrawal liability dispute with USA and AGS this month.  U.S. District Judge Ivan Lemelle ruled that USA incurred $2.8 million in withdrawal liability debt to the fund after ceasing pension contributions on behalf of union-represented longshoremen two years ago. USA withdrew from the fund after losing its cargo-loading contract with Carnival Cruise Lines in March 2021, according to the fund's lawsuit.

Judge Lemelle also ruled that AGS must pay the debt if USA cannot, as the companies were jointly owned as of March 2021.  Judge Lemelle issued his decision in early November, and the fund filed its request for attorney fees and costs Nov. 17.  USA and AGS said that they saw a few areas where the number of billable hours charged by the fund's attorneys could be trimmed, including time spent responding to discovery requests.

"Plaintiffs' counsel recorded some 25 hours over a 4–5-month period beginning in January 2023, for responding to defendants' discovery," USA and AGS said.  "Defendants acknowledge that the discovery process can be time-consuming, but plaintiffs produced nothing in discovery that was not previously produced in the initial disclosures or as exhibits to the complaint."

The companies said they are also concerned about the fund's failure to identify the timekeeper it used to tally up billable hours, saying it "prevents defendants or the court from evaluating the timekeeper's skill and experience to determine the reasonableness of the rate charged."  "No less problematic is plaintiffs' counsels' use of 'block-billing' throughout the application," the companies continued, referring to a "disfavored" timekeeping practice in which attorneys do not list how much time they spent on specific tasks.

"The failure to itemize the time by task precludes defendants (or the court) from evaluating the reasonableness of the time committed to each enumerated task and thus prevents defendants from effectively challenging the amount of time committed by counsel to the matter," USA and AGS said.  The fund claimed it owes about $115,000 to its attorneys and $8,400 to its actuary for their work on the withdrawal liability dispute.  The attorneys litigated the suit, while the actuary supplied an expert witness, the fund said.  In its complaint, filed Aug. 8, 2022, the fund requested that AGS and USA foot the bill for its attorney fees and costs if the fund won the suit.