A judge’s ruling last week* illustrates which of the above two alternatives is better for the client company.
The court, after reviewing a law firm’s bill in a bankruptcy case, found that AmLaw 100 firm Pillsbury Winthrop Shaw Pittman LLP** had overcharged its debtor client by about $1 million. On a $6.3 million bill†.
Lessons for a client company engaging a law firm:
1. Define the task and sub-tasks before work begins, to maximize the likelihood that the lawyers will understand exactly what you want — and that you will be able to make them accountable for following your wishes.
2. Identify by name or by experience-level which attorney will do what part of the task, to assure promised quality of representation, and to avoid paying partners and other senior attorneys for simple tasks.
3. Make your legal costs predictable by agreeing on the total fee in advance rather than agreeing to pay by the hour (perhaps with a bonus formula based on results).
This Matters to Your Business
From the court’s findings:
1. Define the task and sub-tasks before work begins.
“‘Activity descriptions shall not be ‘lumped’ — each activity shall have a separate description and time allotment’ … A reviewer cannot determine the reasonableness of a task shown in an invoice when it is aggregated with other tasks, as the time spent on a task is of paramount consideration in determining reasonableness ….
“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 ….”
“For example, entries that describe the task simply as ‘attention to diligence,’ include no additional information in surrounding entries to indicate what this task might entail.”
2. Identify by name or experience-level which attorney will do what part of the task.
“It is clear from the invoices that there was little effort by Pillsbury to staff the case efficiently or ensure that work was delegated appropriately. Each task often had an excessive number of attorneys involved, particularly senior-level attorneys.
“Instead of breaking up the work by topic or into teams with one or two people overseeing everything, Pillsbury often had a large group of people with their hands in everything … Many tasks have far more attorneys involved than is typically necessary.
“The invoices are also replete with instances of very senior attorneys (partners with more than 20 years’ experience) performing tasks that would be more appropriately assigned to first year associates … Pillsbury’s senior attorneys routinely performed tasks far below their paygrade ….”
3. Make your legal costs predictable by agreeing on the total fee in advance.
The charges at issue here were straight hourly billing.
The status quo? Corporate legal spending is out of control:
- Average legal spending among companies rose 29% year-over-year. June, 2023 Association of Corporate Counsel Benchmarking Report.
- Fewer than 30% of companies make their law firms set a budget for tasks assigned to them (let alone manage to that budget afterward). 2023 Thompson Hine survey.
- Last year a mere 12.4% of matters assigned to law firms used alternative fee arrangements (fixed fees with a success premium), which are the chief antidote to soaring hourly bills. LexisNexis CounselLink® 2023 Trends Report.
Micromanaging later on doesn’t work.
No outside counsel guidelines, however cleverly worded, or after-the-fact billing audits, however relentlessly pursued, or complaints from the client company, made once the bill comes — can overcome the billable hour business model’s structural impediments and disincentives to truly fiduciary client service.
* In Re: SC SJ Holdings LLC, et al, U.S. Bankruptcy Court for the District of Delaware, filed July 11, 2023. No opinion posted on internet at time of this article’s publication. Official federal source available at time of publication at https: //pacer.uscourts.gov. Also available at time of publication: Pillsbury’s Fees Docked by Bankruptcy Judge for “Over-Lawyering”, Bloomberg Law, July 12, 2023 (subscription required); Pillsbury’s Fee Slashed for “Over-Lawyering”, Law 360, July 12, 2023 (subscription required).
** Rated number 65 among the 100 highest grossing law firms in the United States.
† In a Chapter 11 reorganization, the debtor’s legal bills must be submitted to the court for review before payment, in order to assure their reasonableness, so as to distribute the bankruptcy estate fairly according to the law.