The Problem of Inflating Billable Hours

There is the old joke about a lawyer who dies and goes to the Pearly Gates. St. Peter says to him, “you only look about 45 years old.” “Yes,” says the lawyer, “I just turned 45.” “But our records say that you are 94 years old.” “Oh,” responded the lawyer, “you must have been looking at my billing records.” Another joke tells of the client who questioned the lawyer about part of his bill. “What is this $100 charge for?” asked the client. The lawyer replied, “That’s when I was walking downtown. I saw you on the other side of the street, crossed over to say hello, and found out that it wasn’t you.”

News reports over the years have detailed astonishing stories of lawyers overbilling their clients. Consider the case of a very reputable lawyer from a very reputable law firm, Winston & Strawn. He was padding his expense account since shortly after becoming managing partner. When the law firm investigated, it discovered that his padding did not stop there. It then promptly demanded and received the partner’s resignation. It was not easy for the law firm to uncover the problem because the partner in charge of monitoring the law firm’s internal accounting was the lawyer, who was earning (until his resignation) over $500,000 per year. The wolf guarded the chicken coop.

His wife was a lawyer at Chapman & Cutler, and she had her own problems. Among other things, her firm discovered that she had billed many hours when she was on vacation with her boyfriend and not working at all. The court sentenced her to a year and a day in prison.

Michael Romansky, a senior partner of a major, national law firm, reviewed a bill prepared for a client, and decided to add three hours to the 2.5 hours that the associate had billed. The firm, like many major law firms, typically bill by the hour. The firm had told the client it would bill based on the number of hours that lawyers worked on the matter, this lawyer added hours that no one worked. By mistake, the firm sent the time records to the client, which led to the discovery. Further investigation led to other problems involving other clients. The court ended up suspending Mr. Romansky for thirty days, although the Bar Counsel recommended a six-month suspension. In re Romansky, 938 A.2d 733, 743 (D.C. Cir. 2007). The Disciplinary Board agreed with the Hearing Committee that Mr. Romansky “deliberately increased the hours billed in order to charge a premium that he was not entitled to,” but the court (over one dissent) concluded that his actions amounted to negligent conduct, not reckless conduct.

It typically takes a lawyer at least 10 hours of time to work eight billable hours. For example, the lawyer cannot charge for time spent on law firm administrative matters. The partner cannot bill a client for the time he discusses with his partners what should be the bonus for each of several associates. This partner will also spend time on continuing legal education, a bar meeting, or client development. That is not billable either. While the lawyer is eating lunch, taking a coffee break, looking at the newspaper, chatting with a colleague about last night’s baseball game, or using the restroom, that is not work that one would expect that he can bill to any client.

One partner in a major Chicago law firm claimed that he billed, on average, 5,941 billable hours per year for four years in a row. There are only 8760 hours in an entire year. To bill 5,941 hours per year, you must bill over 16 hours per day, every day, for 365 days. That lawyer is claiming to work more than sixteen hours every weekday, and every Sunday, and every Saturday. That means he must be in the office working on client matters on Christmas Day, Independence Day, New Year’s Eve, and New Year’s Day. If he takes even one day off, he has to bill over sixteen hours on some other days, but on each of those other days he was already working over sixteen hours. On average, he has to spend less than eight hours a day to sleep. Then, there must be some time spent commuting to and from work.

When a lawyer claims to work that many hours, on the one hand, one would think that his partners would conclude that something must be amiss. On the other hand, one might guess that his colleagues did not mind the increased income that the law firm earned. One wonders if lawyers who overbill are moving up in the firm pecking order at an above-average rate. The more senior lawyers may close their eyes to what they do not want to see. Junior associates may conclude that they should exaggerate their hours if they also wish to climb the partnership ladder. Of course, this house of cards falls down if the client later discovers billing fraud.

Often clients do not discover the problem. If a lawyer says that she spent two hours reading a case and she spent only one, it is almost impossible to catch that, unless she brags about it to her colleagues or on her Facebook page. Other lawyers may not overbill, but engage in unnecessary work, known as churning the bill. In an email to other lawyers at the firm, one lawyer wrote, “Now Vince has random people working full time on random research projects in standard ‘churn that bill, baby!’ mode.” The email came to light after a fee dispute. The three lawyers on these emails have since left the firm, which settled the fee dispute.

However, sometimes clients do discover it by auditing the lawyers’ bills. Auditing of legal business has become a growth industry. One such firm calls itself The Devil’s Advocate: Legal Fee Management & Litigation Consulting. It advises that its “clients include major corporations, government agencies, law firms, insurance companies, and anyone else who pays substantial legal fees, needs to examine the reasonableness of legal fees, or wishes to analyze litigation.” In one case, legal auditors found that the law firm charged the corporate client $24,053 for drafting injunction papers that the firm never filed. The law firm charged the client over $177,000 when the people the law firm used to staff the case met to talk to each other about how the case was going.

One lawyer recounts an incident when a partner cancelled his presentation to the law firm’s associates when the partner learned that the lawyer planned to speak against inflating billable hours:

I was asked to speak to the associates at a regional office of a major Midwestern law firm about billing practices. I was invited to speak by a partner and a staff member who were organizing an associate-training program. When the firm’s managing attorney (a partner in his fifties) learned of my intended presentation, he angrily canceled it. Why? He apparently felt threatened when he learned that I planned to tell the associates that they should record their telephone time accurately: to use the timing feature on their telephones when possible and to remind them that most telephone calls probably should be billed at one-tenth (0.1) of an hour. This partner claimed that he never had a telephone call that lasts less than three-tenths (0.3) of an hour. How can this be? He reasons that telephone calls are a distraction and that by the time he stops what he is doing to answer the telephone, talks to the caller, and then returns to what he was doing, even the shortest telephone call takes at least three-tenths of an hour. In other words, the person calling should have to pay for his lawyer’s inability to switch intellectual gears.

Those who rationalize fraudulent billing often think that there is no problem as long as no one uncovers the problems. The partner who cancelled the lawyer’s presentation is a member of that group. In contrast, the lawyer whose talk was cancelled—a partner from another law firm—is representative of the other group. That second group includes the great majority of lawyers, from my own experience. Most lawyers are honest. Most people are honest. That is why the blind newsman, tending his newsstand on the sidewalk, makes a living and is not robbed.

What to do? There are no simple answers. We do know that when law firms discover the problem, they usually ask (or require) the offending lawyer to resign. One would think that these firms would prefer that they never had the problem in the first place. One alternative is for the law firm to routinely audit its own billing to nip problems in the bud. The principle is simple enough. Red flags should go up when the in-house auditors see one lawyer charging 300 or more hours in one month. Perhaps the hours are real, because of travel time and waiting around the courthouse. The auditors will have a more objective perspective of that matter than the lawyer who routinely bills that amount. In addition, the firm can tout its internal controls when dealing with clients. Some firms are now doing that. More firms should probably start.