A Message from the Executive Committee

There Has To Be a Better Way

As 2013 drew to a close, one of our senior shareholders notified me of his intention to retire. This attorney was very successful, both within the firm and outside the firm. He had served on the firm’s Board of Directors for six years; he had chaired a very successful practice group; he had recently been identified in one legal publication as being one of the 100 Best Attorneys in the state of Pennsylvania; and he was not yet 65 years of age.

When I asked him why he wanted to retire at that time in his career when, by all traditional standards, he was performing so well, he replied that he “couldn’t take it anymore.” When I asked him what he meant, he said that the increasing trend of insurance carriers to challenge billing entries, to contest the necessity of certain work and to redefine work as associate work, paralegal work or administrative work, and the need to challenge those fee write offs had “sucked the pleasure and professionalism” out of defense lawyering.

He said he was spending entirely too much time trying to figure out how to get paid for the time he expended on his work and spending too much time addressing challenges to the fees that he billed. He found the process demeaning and wasteful.

I have been hearing similar complaints from other lawyers both within our firm and outside our firm for over ten years. Thus, I thought I might address this topic in an issue of Defense Digest. Initially, I asked my fellow shareholders to provide with me examples of what they viewed as egregious examples of fee write offs taken by clients for work that had been performed. Within 24 hours of sending that solicitation, I had received well in excess of 100 responses from shareholders providing examples of what they viewed as fees that had been inappropriately written off by fee auditors. Some of my fellow shareholders provided multiple examples of what they viewed as inappropriate write offs.

When I first sent my request out to the shareholders at this firm for examples of egregious write offs, I thought I might cite some in this article. However, the sheer volume of responses that I received suggested that the problem is greater than any small sampling of examples could demonstrate.

I think I can safely say that the single greatest source of frustration among defense lawyers is the compromising of legal fees by auditors who are unfamiliar with the attorneys, the facts and the legal issues involved in a given case. Those who audit legal bills too often use a “one-size-fits-all” approach to their work, despite the fact that they audit cases being prosecuted by different plaintiffs attorneys, before different judges, in different states in different court systems and involving very different types of litigation, i.e. trade mark infringement vs. asbestos litigation vs. class action litigation vs. motor vehicle litigation. What is also apparent to me is that many of the best, most efficient and most experienced trial lawyers—those who obtain the best results for their clients—are often the ones least able to navigate what has become the “minefield” of time entry.

If the purpose of billing guidelines and legal audits is simply to reduce the amount of legal fees, then perhaps I am wasting my time in addressing it. However, if the purpose of these guidelines and audits is to better align the goals of insurance carriers, insureds and panel firms, then there has to be a better way.

As a large law firm, we have been audited by most of our major clients for over 25 years. In fact, most of our major clients have audited us on multiple occasions. We have cooperated in every audit that has been performed at our firm. I cannot think of a single document that we have refused to produce when requested by a client. To some extent, undergoing an audit—whether it is by a client or the IRS—can be as much fun as going to the dentist. However, we generally find that the end result of an onsite audit is that our clients are pleased with the overall quality of the work that they see being performed on their legal matters and by the results that are obtained.

As a firm, we walk away from those audits with the belief that our work is appreciated. We have a better understanding of what our clients want, and we have a better understanding of how to best align our work and work practices with the interests of our clients. However, these on-site audits differ in one very specific way from the routine bill audits that are done by some of our clients. The people performing an on-site audit are able to review the physical legal file that reflects the work that was performed. The on-site audits do seem to concentrate on the quality of the legal work being performed, on the quality of the representation provided, on the outcome obtained and on the overall fairness of the fees charged. The efficiencies that we bring to the file can be seen when the actual file is reviewed.

The “one-size-fits-all” approach to auditing legal fees does not reward attorneys for their efficiencies and, in fact, may punish attorneys for their efficiencies. One quick example that I can give is with fee descriptions using the word “docket.” Our firm does a substantial amount of asbestos work. In many asbestos cases there are 15 to 20 defendants. Cases are managed in bulk by court systems throughout the country. Those cases are managed by the courts in Philadelphia differently than they are managed in Pittsburgh or in Wilmington. Our lawyers have learned from experience that the most efficient way to track developments in those cases is by reviewing the court docket. However, most clients have “guidelines” that stipulate that reviewing a docket is an administrative function. Therefore, if our lawyers or paralegals use the dockets to minimize the time spent to review those cases which are managed in bulk, thus reducing the fees charged, the auditors typically write the time off as administrative since “docket review” is categorized as an administrative function.

On the other hand, if our lawyers or paralegals update each case by reviewing the numerous pleadings and motions that have been filed by each defendant in the case, the fees billed would be paid. That work would be “guideline compliant,” even though doing the work in that manner would be much less efficient in tracking developments in those cases and much more expensive.

There has to be a better way to align the interest of the carriers in controlling costs, the insureds in receiving adequate representation and the law firms in realizing fair compensation while utilizing their resources appropriately. The current system of utilizing auditors to review bills and write off certain fees by challenging the necessity of the work or whether the work could have been done by someone other than a lawyer or paralegal is counterproductive.

At this time, almost every insurance carrier should have enough data to know what approximate fair fees are for certain kinds of cases. To me, the best way to align the interests of the insureds, the carriers and the law firms is through large alternative fee arrangements. While there may be a need to exclude certain types of cases from alternative fee agreements, the larger the alternative fee arrangement is, the more likely it is that the high fees required to litigate certain cases would be offset by the lower fees required to litigate other less significant cases. Law firms would be motivated to maximize their efficiencies and would not be punished for exercising independent judgment as to how its resources should be utilized. Additionally, the time spent by fee auditors in challenging fees would be reduced, or perhaps even eliminated. Periodic on-site audits, the Code of Professional Responsibility and the threat of legal malpractice would ensure that adequate representation is provided to insureds. The data available to carriers and clients of law firms makes the determination of such alternative fee agreements possible and logical.

Within the legal profession in the last 20 years, we have seen a gradual movement to more alternative fee agreements. We have a number of such agreements in place. We stand ready to enter into more such agreements, which would lower the transactional costs for both carriers and law firms and would not compromise the quality of the legal representation. Additionally, such alternative fee arrangements would restore the professionalism and pride that lawyers take in representing their clients, a professionalism that is surely being challenged by the current state of affairs, and which is a significant and growing source of frustration. As I said, “THERE HAS TO BE A BETTER WAY.” I believe there is.

Defense Digest, Vol. 21, No. 1, March 2015

Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2015 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. This article may not be reprinted without the express written permission of our firm.