As requested, I have looked into the tendency to overbill in law firms and sole practitioner offices in the United States. I have looked into how these tendencies can endanger any prospective law firm, including our own. According to my findings, the legal profession requires many reforms in order to comply with Rule 1.5 of the Model Rules and to still be able to generate a viable profit through billable hours, fixed rates or contingency fees.
Analysis of Billing Issues Within the Legal Profession
In recent years, the legal industry within the United States has undergone a major transformation. In fact, since the economy crashed in 2008, lawyers have had a great deal of explaining to do regarding their billing rates to their clients who are now more bill conscious. Since 2008, the legal industry has greatly changed in that clients are now asking questions to lawyers as to why they are paying excessive fees when the majority of the time a paralegal or law clerk is conducting the majority of the research and even drafting the memos to the court? Granted that this is a fair question to ask, it has raised many ethical issues as well that lawyers are subject to when they swear in as attorneys. This investigative report will study the laws that attorneys are subject to regarding billing in order to ascertain why overbilling is such an issue in the legal industry and what lawyers and law firms can do to mitigate this issue in future dealings.
Contrary to popular belief, lawyers actually do have a code of ethics. In fact, lawyers have to pass an additional exam before the Bar called the MPRE, (“Rule 1.5: Fees,” 2016). What the MPRE stands for is the Model Professional Responsibility Exam, (“Rule 1.5: Fees,” 2016). Within this examination, the lawyer is tested on a variety of Model Rules that pertain to the attorney’s code of ethics that they must follow if they do not want to be disbarred and lose their law license, (“Rule 1.5: Fees,” 2016). One of the rules that is followed religiously is Rule 1.5, which pertains to billing, (“Rule 1.5: Fees,” 2016). Rule 1.5 stipulates that a lawyer may not under any circumstance charge an unreasonable fee for providing legal counsel, (“Rule 1.5: Fees,” 2016). The rule then goes further to explain how the standard of reasonableness is defined within the rule that attorneys are subject to follow in day-to-day practice, (“Rule 1.5: Fees,” 2016). Within this standard, a wide array of factors are taken into considering pertaining to the difficulty of the matter and what time was involved, (“Rule 1.5: Fees,” 2016). Additionally, the end result is also factored into the calculation in order to assess reasonableness, (“Rule 1.5: Fees,” 2016).
The reason that Model Rule 1.5 is one of the more serious rules taken under advisement by the American Board of Bar Examiners is that there has been a great deal of abuse with excessive legal fees. According to the American Bar Association, attorneys are required to be the highest legal standard within the community. If this is not observed, then the member must exit the community all together or be disciplined for their actions. What is fascinating about this standard is that there is still abuse within these guidelines in the world of law practice and part of the reason is that attorneys and law firms just don’t have the level of business that they once did.
While many may state that this inaccurate, there are reasons that the law field has become overly saturated. There are a surplus of law schools in the United States, which causes there to be more lawyers. What ends up happening as a result is that the plethora of lawyers in the market all need to get a piece of the earning pie. This creates lower starting salaries for junior associates that are fresh out of law school because the firms and sole practitioners just do not have the capital to pay them what they once did. This, combined with the economic downturn where clients are double checking their bills religiously does not help the situation because lawyers are then forced to be extra careful with what they bill. This is how the profession has reached the dilemma with the billable hour and how it has caused a great deal of income disparity within the legal profession.
The problem with billable hours, ironically, starts at the bottom of the food chain in the law firm. Under the model rules, a lawyer can “supervise” an employee that is not licensed, (Routunda, Ronald, 2014). Where this has become a system that is abused is that lawyers, in an effort to lower their overhead costs have fired many first year associate attorneys and have replaced them with law clerks and paralegals that are not licensed, (Routunda, Ronald, 2014). These professionals are then doing the primary research and drafting for the lawyer, which arguably is not entirely fair to the client because they are paying for the lawyer’s expertise, not a law student’s or a paralegal's. Many law firms pay these law clerks and paralegals based on billable hours and not on salary. While it is being debated as to whether this has the potential to violate employment law standards, it puts the professional at the low end of the food chain who is trying to get by while in school at a desperation to log their billable hours. This causes them to round up and bill the client unfairly.
The billable hour’s dilemma is a major hindrance to the legal profession because it used to be that the lawyer could use billable hours and block it off relating to something such as “drafting memorandum regarding legalities to judge;” however, now, the client wants to know why they are being billed such a premium for a three or four-page document, for example, (“The Litigation Limited Guide to Law Firm Overbilling, 2012). Granted, that the client usually has a reason to be suspicious when they are inquiring about such matters, it puts the paralegal, lawyer, and law clerk in the position to be unethical and overcharge in order to make their bottom line, (“The Litigation Limited Guide to Law Firm Overbilling.”).
It is a very complicated debate regarding how the law firm is going to overcome their prospective ethical issue with client hourly billing. What many firms have done is to implement a policy of a fixed rate billing per transaction, (“The Litigation Limited Guide to Law Firm Overbilling.”). This has become exceedingly common in Immigration cases because a lawyer can say, “I will charge $500 for your Green Card Application,” for example. This way, the lawyer can pay the staff that works on the application salary or hourly, but not subscribe to billable hours. Granted, this causes issues of being able to make bottom line expenses, but it does keep the American Bar Association Disciplinary Board off of the lawyer’s shoulders regarding the ethical nature of his or her billing.
This fixed fee method should be applied also to litigation because the lawyer can truly compartmentalize the various aspects of litigation with a certain price tag. Since litigation can be unpredictable, the lawyer could prospectively structure the fee schedule to be a step-by-step process of the case for billing in order to be able to bill the client more if the case does go to trial or they do conduct a costly deposition. These are viable ways that the lawyer can be overly descriptive in their billing methods while simultaneously keeping the client happy and still maintaining a viable profit for their respected expertise.
Another area of billing for lawyers in civil cases is the idea of contingent fees. Contingent fees transpire when a plaintiff for a tort action, for example, cannot afford to sue the person who broke their back at work. By charging a contingent fee, a lawyer is agreeing to take a percentage of the settlement if they feel that the client has a case that is strong enough, (“The Litigation Limited Guide to Law Firm Overbilling.”). This method of billing has some guidelines by the Model Rules given that even if a lawyer is taking a contingent fee, the lawyer has the duty to still charge a reasonable contingent fee, (“The Litigation Limited Guide to Law Firm Overbilling.”). For example, a lawyer cannot take one million dollars from a client who wins two million dollars, (“The Litigation Limited Guide to Law Firm Overbilling.”). The lawyer has to utilize the perspective when agreeing with the client about the contingency fee of what a reasonable attorney in his or her field would charge for the representation, (“The Litigation Limited Guide to Law Firm Overbilling.”). Anything above or below this threshold is against the code prescribed in the Model Rules and if reported, the attorney could have a disciplinary hearing and consequently, lose their law license.
Conclusions and Recommendations
In the coming years, it is going to be fascinating to see how the legal profession tries to combat the Model Rules while still trying to return a profit on their legal services. What makes this debate complicated as well is that many of these lawyers come out of law school with hundreds of thousands of dollars in student debt, thus, the temptation to overbill to get ahead in the short run is obviously an intriguing option to the recent graduate. That being said, the clients are not willing to accept unreasonable fees from lawyers who do not spend the proper time on the case to warrant those fees. This is a turning point in both the legal and accounting profession in this respect in that clients are now looking at bills and asking questions. Additionally, clients are also finding Internet sites that provide the same services for far less money. It is because of this that lawyers are going to have an uphill battle to find a way to bill fairly, but to also remain profitable in the years to come.
References
Routunda, Ronald. “The Problem of Inflating Billing Hours.” Verdict. 17 November 2014. Web. 30 April 2016.
“Rule 1.5: Fees.” American Bar Association. 2016. Web. 30 April 2016.
“The Litigation Limited Guide to Law Firm Overbilling.” Litigation Limited. 2012. Web. 30 April 2016.
