Perverse Incentives: Law Firm Bills by the Hour — Court Cuts Its $1.8 Million Fee Down to $670,000 (Part 2 of 3)

The 54-page opinion in which U.S. Bankruptcy Court for the Central District of Illinois Judge Mary Gorman explained her reduction of a nationally prominent law firm’s $1.8 million fee down to $670,000 offers a case study of the billable hour’s perverse incentives.

Under “General Mistakes and Carelessness”, the Judge detailed important errors in the Law Firm’s fee statement.

Those errors show two consequences of using the billable hour to price lawyers’ services:

First, the “rack-em-up” focus on maximizing hours billed gives lawyers incentive to — knowingly or not — charge clients more than the work calls for.

Second, in the attempt to maximize those hours billed, attorneys can easily — intentionally or otherwise — obscure from the client’s view who-did-what-for-how-much.

Four points among several Judge Gorman made here:

1. She called out the Law Firm for charging $234,450.50 for work they’d, “either not included in the billing invoices or … never actually earned”. After specific cuts, the Judge reduced the remainder of the $1.8 million requested by 20%. 

“… $234,450.50 of the fees that [the Law Firm] requests were either not included in the billing invoices or were never actually earned.”

” … The attorneys from [the Law Firm] that were retained to represent the Debtor in this case are experienced bankruptcy professionals who should understand their burden in justifying their fees …. ”

” … the Court is, apparently, expected to assume — contrary to its duty under [applicable law] — that all charges were reasonable and necessary or to search through the entire record for justification of the fees — something the Court is not required or willing to do. The better alternative is to reduce the fees of [the Law Firm] that remain after all other reductions by 20%, a figure representative of any unaccounted for errors.

 

2. The Judge called out the Law Firm for “multiple mathematical errors throughout the applications” presented in support of the $1.8 million hourly bill. 

“Some errors were as simple as charging for time that, according to the time entry itself, was not to be billed. Others were purely arithmetic errors. In some of the more egregious examples, [the Law Firm’s] bad math resulted in double billing …. And even if the Court were willing to undertake … an investigation, it would be complicated by other problems that stem from [the Law Firm’s] sloppy timekeeping.”

 

3. The Judge called out the Law Firm for consistently making time entries in the wrong billing category — thereby preventing the Court (on behalf of the Debtor and the bankruptcy estate) from knowing whether charges for each category in a given invoice were accurate.

“In nearly every invoice, for example, time entries are included in the wrong billing category. And while it appears that [the Law Firm] endeavored to adjust its totals for each billing category and invoice to account for this, it did not ‘show its work’ in removing a charge from one category and adding it to another. As a result, the already tedious task of double-checking [the Law Firm’s] math would be further complicated by having to also account for charges wrongly included or excluded from a particular billing invoice. But without doing so, the Court has no way of knowing whether the charges for each category in every invoice are accurate.”

 

4. The Judge called out the Law Firm for repeatedly describing in vague terms the work for which the Law Firm was billing. 

” … Throughout its [invoices], [the Law Firm’s] professionals recorded time for work described in only generic terms. Common examples include “conferred with client team OOOOO,” “communication with First Midwest OOOOOO,” “reviewed emails with client OOOOO,” or the like. Entries such as these provide very little, if any, information about the service being provided and raise other concerns about what seems to be “incessant conferring.” …. When numerous entries, amounting to several hours of time over the course of months, bear the same description, questions arise. Still other entries, like an attorney’s “[a]ttention to defendant’s bankruptcy,” are blatantly insufficient. Based on the number of careless mistakes in [the Law Firm’s], the Court cannot assume that the work described in time entries like these is reasonable.”

In Part 3 I describe Judge Gorman’s analysis of multiple, unwise lawsuits that the Law Firm pursued — and her disallowance of $189,252 out of a total $270,000 in fees the Law Firm had sought for “unnecessary” work.

 

Part 1

Part 3