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DLA Pipergate: A Story of Greed, Arrogance & Client Naiveté

April 8, 2013

richard_nixonSomeone’s not telling the truth.  And I don’t mean like-kinda-not-telling-the-truth, but really-not-telling-the-truth. It’s either me, or the boys over at DLA Piper.

Here’s my take, from my last post:

What is the realistic percentage of attorneys who can pull off a never-ending series of highly productive 14-hour days, year after year, and honestly bill around 1900 a year? I’m thinking the number is closer to a goose egg than even 5 or 10%.  Which means that closer to a 100% have fallen into the standard “churn that bill, baby!” mode.  

Here is DLA Piper’s public response (to the New York Law Journal):

We hold ourselves to the highest legal and ethical standards. The behavior as described is unacceptable to DLA Piper and our clients. The emails were in fact an offensive and inexcusable effort at humor, but in no way reflect actual excessive billing.

Hmmm.  Really?  What exactly is your definition of “actual excessive billing”?  Here’s one of those “humorous” emails:

“Now Vince has random people working full time on random research projects in standard ‘churn that bill, baby!’ mode,” Mr. Thomson wrote. “That bill shall know no limits.”

This doesn’t really sound like fair billing practices to me.  But what do I know, I’m just a Fee Arbitrator for the Los Angeles County Bar Association’s Mandatory Fee Arbitration Program.  Okay, well then let’s look to a higher authority, like say, the American Bar Association, for some guidance. Here are a couple of quotes from ABA Formal Opinion 93-379 on “Billing for Professional Fees, Disbursements and Other Expenses.”

“A lawyer should not exploit a fee arrangement based primarily on hourly charges by using wasteful procedures.”  (Comment to Model Rule 1.5 on Reasonable Fees)

Moreover, continuous toil on or overstaffing a project for the purpose of churning out hours is also not considered “earning” one’s fees.

I’d say “random people working full time on random research projects” is a safe bet to fall under “wasteful procedures” and “churning out hours.”

But none of this is a surprise to anyone who spends any time seriously studying BigLaw dynamics.  It is no secret that the modern top-heavy leverage model used by those firms has put clients at extraordinary risk for being overbilled.  Mark Harris of Axiom Law recently and succinctly summarized that dynamic in “Law Firms and Overcharging: The System Itself is Rotten“:

Law firms are run by partners who have worked for decades to reap the rewards at the top of the pyramid. Any client-friendly change or investment in efficiency during their brief tenure at the top is self-destructive.

The legal industry must rid itself of its vestigial attachment to hourly billing and pyramid incentives, and its aversion to technology investment.

Well said, Mr. Harris.  But surely DLA Piper is not built like one of those Ponzi schemes, is it?  Well, according to The Lawyer, DLA Piper now has 461 equity partners (who in 2011 averaged $1.23 million in PPP) and another 3,575 billing machines, uh, I mean, other associates and non-equity partners. Which might explain the pressure to overbill, since DLA Piper PPP is actually lower than the AmLaw 100 average of 1.4 million!  Come on Serfs, step it up, us Feudal Lords are suffering compared to our peers.

Lucky for me, the abused clients themselves are taking my side, right?  Well, uh, kinda-not-really, um, okay, no.  The only group apparently still in the dark when it comes to rampant BigLaw billing abuse are the victims themselves, the clients.  The New York Law Journal followed up on DLA Piper’s public denial of any wrongdoing with this doozy: “‘Flippant’ Emails Won’t Affect Relationships, In-house Lawyers Say.”  The level of naiveté of the GC responses was shocking to me.  One stated that “ethical obligations should prevent lawyers from abusing billing practices.”  Ya think?  I’d say the odds of even being lightly reprimanded by a state bar association for billing abuse is somewhere in the ballpark of 1/1000th of a percentage point.  Another minor point: firms aren’t subject to discipline, only individual attorneys, and the three involved in the DLA Piper emails are “surprise,” no longer with DLA Piper.  Another GC notes that his company is protected by its “automated billing system.” “If you break those rules, your whole bill gets rejected,” he said.  And then it gets resubmitted according to your “rules” and is paid in full.  See here for ways to get around “stock” billing guidelines.

Which all brings me back to the beginning of this diatribe.  Someone’s not telling the truth.  Is it DLA Piper?:

While we will make no effort to defend the foolish emails generated by the lawyers involved in this matter, we will defend vigorously the firm’s track record of delivering high-quality legal services at a fair price.

Or is it me?

Absent hooking a DLA Piper partner up to a polygraph, the only other way I can see to conclusively decide this conundrum, is to get my hands on an actual DLA Piper bill, preferably from a litigation matter (I know, beggars shouldn’t be that choosy).  I need just one client to provide me with a bill, and trust me, I will provide the world with some “actual excessive billing.”  And if the bill is clean?  Then I eat crow and need to change my blog title to “The Disgraced Lawyer.”  Full and complete confidentiality guaranteed, of course.  But, I’ll need the blogosphere’s help.  Please spread this challenge far and wide so we can get to the bottom of this little brouhaha, once and for all.

 

Other posts in the “DLA Pipergate Series” are:

The Big Lie: There Are Only a Few “Bad Apples” Committing Billing Abuse

Billing Abuse Scorecard: Clients 1 BigLaw 0 (DLA Piper Folds ‘Em)

DLA Piper Takes to the High Seas to Celebrate
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13 Comments leave one →
  1. April 9, 2013 9:35 am

    Very interesting article. the best way for lawyers to prosper in the future (and this I believe has probably always been true) is to align their services with the commercial interests of their clients – not the other way around. I was genuinely stunned when I read about these over-billing accusations. And some might wonder why I was stunned – shouldn’t I be aware of over-billing? The reason I was stunned is because I have for many years inhabited a world where lawyers I work with focus on advancing client commercial goals and pricing services in a completely customized manner. Litigation attorneys in particular? My knowledge of how they approach potential clients revolves around discussions of risk mitigation for those clients. Again – each and every time – advancing the commercial interests of clients. Litigation teams should be constituted in a manner so as to keep costs down. This will lead to a solid industry reputation for efficiency and cost-effectiveness. What is alleged in this matter is an example of short-sighted business planning by a law firm.

    [Originally posted in LinkedIn group “International Legal Business Development”]

  2. April 9, 2013 9:38 am

    The system only remains in place because clients don’t complain. Mike, you’ve hit the nail on the head (though if I were your editor, I’d make that the lede graf). It is a mystery why clients are in such deep denial, to the point of their being effectively complicit in the scheme. Even demands for AFAs aren’t enough — Richard Susskind makes a valid point in his latest book that AFAs don’t work because they are still predicated on billable hours.

    Maybe you’re right, Mike, maybe the industry needs a smoking gun, a line by line deconstruction of an actual sizable bill. Of course it would be dismissed as a one-off, either for that particular case or just limited to that firm.

    Perhaps as Axiom and other ABSs start having an effect, perhaps as the US market liberalizes and follows the UK’s lead, maybe then we’ll see meaningful change.

    [Originally posted in LinkedIn group “Managing Partner”]

    • April 9, 2013 9:40 am

      I think I definitely need your editorial services, as I had to look up the definition of “lede graf”. I’ve recently seen some very impressive analytical data on actual BigLaw billing that is hitting the market and the gig will soon be up for BigLaw’s magical mystery billing tour.

  3. April 10, 2013 11:16 am

    Great post, Mike. Richard, I think the Axioms of the world and the ABS movement are already making progress in forcing de facto changes to the system. Axiom has a substantial chunk of Fortune 500 legal work already, and has 1,000 lawyers at its disposal. Some say it’s not a real law firm, but clients don’t seem to mind, and they’re voting with their feet. Forward-thinking small and midsize law firms also have a great opportunity to lure large clients away from BigLaw firms, as more CEO’s are pushing their GC’s to reduce bloated outside counsel costs to reflect the true value of the legal services they’re receiving. But more certainly needs to be done, and it will be a very volatile transition as the legal industry absorbs these changes.

    [Originally posted in LinkedIn group “Managing Partner”]

    • April 11, 2013 10:25 am

      Colin – of course you’re right. I just meant we’re still waiting for the watershed moment that will make ABS and AFA the norm rather than the exception. We’re still a bit away from that, though I think it will change before the end of this decade.

      [Originally posted in LinkedIn group “Managing Partner”]

  4. April 11, 2013 10:27 am

    One of my clients described my firm’s fixed fee arrangement as “breath of fresh air”. I think the legal world has been focusing on just making money for too long. If a client is entering into a risky transaction, why shouldn’t the advisors bear some of the risk that it is unsuccessful?

    [Originally posted in LinkedIn group “Managing Partner”]

  5. April 11, 2013 10:32 am

    Go for it Mike.

    [Originally posted in LinkedIn group “Fixed Fee Professionals”]

  6. April 11, 2013 10:36 am

    Mike…I’ve always followed your postings with interest and respect…but on this one I would have to respectfully disagree. I’ve been teaching law students for 12 years at our local law school on a number of areas pertaining to legal technology…with one of those areas being time and billing. With specific focus on the ethical component of practicing this discipline with full regard that they are spending someone else’s money…the client.

    We speak to the “slippery slope” of accidentally adding 5 minutes to every actual hour worked…and how easy that could become 10, 15 minutes and soon you find yourself billing 2 hours for every one hour worked. This has to be an absolute in their lives and careers. A solid, detailed time-reported hour for a client will never be questioned because the detail will clearly represent how you respect the relationship.

    It is not 99.9% of lawyers billing in an unethical way…it is the .01% that are doing it that are giving the rest of the industry the perception that this is rampant. In the 30-some odd years I have been involved in the legal industry, it has been my experience that the vast majority of lawyers respect the relationship with the client “long term” too much to ever jeopardize it with bad, disrespectful billing practices.

    This conversation needs to move to how we can improve the technology of billing and build in the value metrics to the hours and time spent by our legal professionals.

    [Originally posted in LinkedIn group “Legal Enterprise Collaboration”]

    • April 12, 2013 7:56 am

      Tom, are you aware of any data to support your assertion that it’s only .01% that are billing phantom time? I have never seen data to support that modest level of phantom billing. Surveys, which obviously have limitations, tend to suggest a much higher level, and anecdotal evidence, which also has limitations, also is not consistent with your claim.

      What we do know for sure is this: timekeepers at many law firms are under unimaginable pressure to hit their billing targets or face income deprivation or job loss. In the face of that pressure, it is equally unimaginable to me that many would not succumb to that pressure. Human nature is what it is.

      Beyond the phantom time, though, is the time actually spent but not in any way needed. The extra research (“let’s look at a few more states”), the extra draft (‘this motion [for an extension of time agreed to by the other side] needs to be perfect-what a 13th edit?”) and so forth. The timekeeping process forces people to focus on the wrong things–and not the client’s best interest.

      It is hard to imagine that the debate about the legitimacy of hourly billing is still going on at this point.

      [Originally posted in LinkedIn group “Legal Enterprise Collaboration”]

    • April 12, 2013 11:05 am

      I’m with Pat and Mike on this one. My anecdotal experience diverges sharply from yours. Plus, I think we can both agree that the plural of anecdote is not data. I am sure we could construct a survey that would confirm your intuition. But we would have to trust that people are being honest about their dishonesty. I lack that kind of faith in humanity- and also in those human-like creatures known as lawyers.

      [Originally posted in LinkedIn group “Legal Enterprise Collaboration”]

    • April 12, 2013 1:11 pm

      We appear to be rather far apart on this one, Tom. Pat summed up much of how I would respond. I agree that ethical requirements *require* that attorneys bill reasonably, and that coming out of law school, the majority of new attorneys have absolutely no intention of overbilling. The reality of the ever-increasing minimum billable hour pressure, however, results in good people billing badly. There is simply no way to honestly meet these numbers over any period of time. Further, overbilling is not only tolerated, but encouraged, if not mandated by supervising partners.

      My article didn’t even get to other realities faced when trying to meet quotas, such as lack of enough actual work, which allows for Parkinson’s Law to rear its head: that work expands to fill the time available for its completion. Thus, if I only have 3 cases to bill on and need 9 hours a day, those cases will get 9 hours, regardless of whether that work is needed. My blog is filled with examples of how this is done, so I won’t repeat them here, but this happens, law’s version of bill, or perish.

      Finally, wouldn’t most of the good work you are doing be unnecessary, if 99.99% of attorneys are billing fairly?

      Regardless, thanks for your comment, even where we clearly disagree.

  7. April 15, 2013 9:56 am

    Ok guys…I appreciate the dialogue…and I will concede the system is ripe for error. I suspect I tend to believe in the honesty of human nature. But the point is the system allows the opportunity for this to take place. Not sure I believe it is the fault of hourly billing…but of a system that does not allow for a check and balance. Why are we surprised by anything here?

    If you get a contractor to put a add an addition to your house, you don’t hand them a blank check and say do your very best. You negotiate a budget down to where each light switch will be placed…no surprises. Perhaps that is what is missing here and maybe one way to eliminate the opportunity for churning?

    Let’s call it “billing mindshare” between the teams…control, communicate, collaborate!!!

    [Originally posted in LinkedIn group “Legal Enterprise Collaboration”]

    • April 15, 2013 10:13 am

      Tom:

      I think we all agree that open communication and scoping results in the right kind of predictability. It is appropriate scoping that allows firms like Pat’s to provide up-front value pricing and traditional firms to deliver on budget. When scoped right, Pat’s price and the traditional hourly billing firms price will be very similar.

      What you do with effective scoping and LPM is bring transparency to the equation and allow both the client and attorney to assess what level of risk/reward they are comfortable with. Adding success bonuses can further align the interests of the client and firm.

      And last I checked, contractors give a fixed price up front, with any change orders needing client approval.

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