Increasing Hourly Rates During the Course of A Representation

[Note: This is the time of year that many clients will be getting notices or requests from their attorneys that their hourly rates will be increasing. Thus, I thought it would be a good idea to re-post something I did four years ago on the subject of increasing hourly rates during the course of a representation.]

If you recently have had any of your attorneys ask for a 5% increase in their billing rates you might want to refer them to Judge Richard Posner’s recent decision in Prather v. Sun Life . In that case, he found a 5% increase in billing rate to be “excessive!”

Just for kicks, I encourage you to read Judge Posner’s entire opinion in the Prather case. The Judge is well known for his often thought provoking opinions and statements on a wide variety of subjects. He also sometimes has an entertaining tongue-in-cheek way of presenting his opinions and Prather is an example of this.

But back to the subject of increases in billing rates. I often come across this issue in reviewing legal bills in cases or other legal matters which drag on for years. So I thought it time to set out some basic facts on the subject.

To begin with (and we should begin at the beginning), lawyers are ethically obligated to set out how they intend to bill for their services including their billing rates at the outset of a representation. See ABA Model Rules of Prof. Conduct (RPC) 1.5(b).[i] This can be done by way of a unilateral letter from an attorney or by way of a signed fee agreement (required in some states). Almost always included in addition to a disclosure of the hourly rates for staff is a statement to the effect that the firm may increase its billing rates from time to time.

But merely advising a client that fee rates may increase in the future is not the same thing as notifying a client that fee rates will increase on a date certain and by a sum certain.

If billing rates do increase during the course of the representation, the attorney has an affirmative ethical duty to first notify the client before the increase goes into effect notwithstanding what a prior letter or a fee agreement may have stated. See ABA Opinion No. 11-458 (2011) Changing Fees During Representation citing Severson, Werson v. Bolinger, 235 Cal. App. 3d 1569 (1991)(written fee agreement in which law firm charges client “its regular hourly rates” does not permit firm to unilaterally raise its rates beyond those informally quoted to the client before the representation began).

Unfortunately for the attorney, the notice to the client of the increase does not end the matter. Rather, it just signals the beginning of the process the attorney must go through to raise billing rates.

The reason for the need for a process is that an increase in fees during the course of the representation beyond what was originally agreed to is considered to be a “modification” of the original fee agreement. And any unilateral “modification  of a fee agreement to a lawyer’s benefit during the course of a representation is generally unenforceable.” ABA Annotated Model RPC (7th ed. 2011) at p. 78 Modification of Agreements.

To make a modification of a fee agreement enforceable, the lawyer must follow a strict process. Of particular note in the process is that modifications to fee agreements are viewed as “business transactions” with a client. Business transactions with clients are governed RPC 1.8. See Annotated Model RPC, supra at p. 142 Modifications to Fee Agreements.  RPC 1.8 requires not just consent from the client for the transaction, but “informed consent.” And what is required for “informed consent” is governed by RPC 1.0(e).

If you mention to a lawyer that he must get “informed consent” from a client for any fee increase, you will usually get a glassed over look. You may even get a look of despair.  For “informed consent” to be valid, the lawyer must be careful to document that he has provided all the information necessary to a client to make an informed decision.

So merely stating that the client did not object to the rate increase after notice would never be enough. A lack of objection does not at all support a conclusion that the client made an “informed decision.” To the contrary, it may support a conclusion that the lawyer lulled the client into not objecting by failing to comply with the RPC. This is because the RPC make clear that the client must have all the information “reasonably necessary to make an informed decision.” See ABA Annotated RPC, supra, Informed Consent at p. 17.

Specifically, a lawyer is required to provide a communication that includes “a disclosure of the facts and circumstances giving rise to the situation.” Id. So, what then are the “facts and circumstances” that have given rise to the request for a fee rate increase? How about the statement that “we haven’t had an increase in rates in the past two years?” How would this possibly be considered a changed circumstance to justify a modification of a fee agreement?

Or how about the statement to the client that “our costs have increased this past year by 5%?” What documentation would the lawyer have to provide if asked to do so to support this statement in order for the client to be shown as giving “informed consent” to the intended rate increase?

Fortunately for most lawyers, the clients never assert their rights and lawyers do not inform clients of their rights. Thus the client just accepts the rate increases without much in the way of resistance – at least until I am asked to review the legal bills.

Want to have some fun with your attorneys? Next time they call you up to ask for a rate increase, tell them that before you can give your “informed consent” to their requested rate increase, you must have them supply you with adequate documentation that would justify the requested rate increase. Then look closely into the phone, I am certain you will see either a glassed over look or a look of despair.

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[i] According to the ABA Center for Prof. Responsibility, all states with the exception of Calif. have adopted the latest version of the ABA Model Rules. Although Calif. has not officially adopted the ABA Model Rules, Calif. professional rules mirror the ABA Model Rules. Also, the ABA Model Rules are consulted in Calif. in fee billing disputes. See California State Bar Arbitration Advisory 98-03 (June 23, 1998) at p. 2.

The Importance of “Sufficiently Explained” Billing Entries

All attorneys have an ethical obligation to provide a “sufficient explanation” in their billing entries. See ABA Formal Op. 93-370 (1993) at p. 3 (attorney must provide a “sufficient explanation in the statement so that the client may reasonably be expected to understand what fees and other charges the client is actually being billed”). This ethical  obligation to provide sufficient explanations of billing entries is a part of an attorney’s ethical duty as found in RPC 1.4(b) (“A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”).

Without sufficiently explained entries, courts have held that it is impossible for any fee bill to be reviewed for reasonableness. See Daniel Orme v. Burlington Coat Factory of Oregon, LLC, 2010 WL 1838740 (D. Or. 2010)(attorney “must provide enough detail for the court to determine whether the time spent on a task was reasonable.”). As a result, courts are uniform in denying payment for legal work that is not sufficiently explained. See Grievson v. Rochester Psychiatric Center, 2010 WL 3894983 at *8 (W.D.N.Y. 2010)(“Individual entries that include only vague and generic descriptions of the work performed do not provide an adequate basis upon which to evaluate the reasonableness of the time spent.”).

Since the providing a sufficient explanation of billing entries may mean the difference in getting paid or not, an attorney rightly may ask what exactly constitutes a “sufficient explanation?” Or stated another way, how much detail should be provided in a billing entry?

[For a complete copy of this blog post, contact clientservices@legalbillaudit.com]

Avoiding Getting Caught Up in a Law Firm’s Protocols – II

In my last post entitled Avoiding Getting Caught Up in a Law Firm’s Protocols, I discussed how getting caught up in a law firm’s protocols on approaching even the smallest of matters often leads to overbilling and more importantly, overlooking any real opportunities to quickly and efficiently resolve a matter for a client. To avoid getting caught up in a law firm’s standard protocols on how they approach most all legal matters, I ended my prior post with three important steps to take. In this post I will discuss each one of those steps.

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How to Avoid Getting Caught Up in a Law Firm’s Protocol

Some time ago, I had a doctor come to me for help sorting out a large legal bill he had incurred with a large law firm.  He had a Medicare billing problem and had gotten into some trouble with the feds.  Although he incurred several hundred thousand in legal fees from this law firm, the firm did little to resolve his Medicare billing problems.  So the cardiologist went to an attorney at a small firm who was able to quickly and satisfactorily the Medicare billing issues.  The total bill from the new attorney at the small firm was less than $10,000.

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A Good Tip to Save on Legal Costs & Get Better Results

Here’s a tip for small to mid-sized insurers that will not only save on legal costs, but will lead to improved indemnity results as well. I say it’s a tip for small to mid-sized insurers because it’s a tip about something that large insurers already know. And the tip is to use coordinating counsel to oversee or coordinate like or similar litigation that occurs in different jurisdictions.

Coordinating counsel are often used by larger insurers to coordinate product liability cases in which the a manufacturer’s product has led to numerous suits on the same issues in different jurisdictions.  Of course, most small to mid-sized insurers do not ordinarily insure large manufacturers. But they do get sued for coverage (some on a more frequent basis than do larger insurers!). So whether it is product liability cases or coverage cases or just about any other types of cases that are similar, but occurring in different jurisdictions, consideration should be given to hiring coordinating counsel.

[For a complete copy of this blog post, contact clientservices@legalbillaudit.com]

Why Use of “Blended Rates” May Actually Increase Legal Costs

For the non-business readers of this blog, “blended rates” are negotiated rates with a law firm that involve blending or averaging partner and associate hourly billing rates of a law firm.  Insurance companies are big users of blended rates.

The way blended rats work is simple. If the partner’s hourly rate is $400 an hour and the associate’s hourly rate is $300, a blended rate might be $350. But whether you can save by using blended rates in a particular case actually will depend on the type of case.  For example, if the case is complex and heavy partner involvement is anticipated, you can save on legal costs. Continue reading

COVID-19 Insurance Coverage Update

In a prior post, I predicted that “if history is any guide, policyholders may win most of the coverage cases” for COVID-19 related claims. I stated that my “prediction is based on the insurance industry’s experience in litigating various policy issues for environmental claims coverage 30 years ago.”

Apparently, I was prescient in my likening the COVID coverage claims wars to the environmental coverage claims wars. For in reading news accounts, it appears that policyholder coverage attorneys are doing their best to link COIV-19 claims to environmental claims by likening COVID-19 clean-up or property damage claims to pollution clean-up or property damage claims or COVID-19 exposure claims to exposures to asbestos fibers or exposure to toxic vapors or fumes. Continue reading

Whether a $1,000 an Hour for a Lawyer is Reasonable Depends on Whether You Need a Cadillac Escalade or a Honda Civic

“[T]he Court’s review of Sheppard Mullin’s bills suggests that the Beastie Boys opted to pay for, and received, the Cadillac Escalade, not the Honda Civic.” Beastie Boys v. Monster Energy Co., 112 F. Supp. 3d 31  (Dist. Court, SD New York 2015).

A D.C. lawyer recently asked me if I thought $1,000 an hour for a lawyer was reasonable. Being a lawyer myself, I gave him a lawyerly answer that “it depends.”

I’ve written posts before in this blog about $1,000 and even $2,000 an hour lawyers.  As I stated in one of those prior posts, an “expert” who consults on litigation management issues with corporations (who are the ones who mainly hire the $1,000 and $2,000 an hour lawyers) told me that lower rates are actually viewed as a negative by large corporations. Apparently very good $500 an hour lawyers are not looked at in the same favorable way that mediocre $1,000 lawyers are simply based upon their hourly billing rates. Continue reading

Why Insureds May Win COVID-19 Claims Coverage Cases.

Media reports are that many businesses and non-profits are looking to their insurers for “business interruption” and other coverages due to the COVID-19 pandemic. At first blush, it would appear that these claims for coverage face an uphill battle based upon what might be termed clear policy language (specially manuscripted policies notwithstanding).

But it would be premature for the insurance industry to declare victory on the coverage issues. For if history is any guide, policyholders may win most of the coverage cases.

Mr prediction is based on the insurance industry’s experience in litigating various policy issues for environmental claims coverage 30 years ago. As a former Director of Environmental Claim for two insurers during the environmental claims coverage wars, I witnessed first hand how clear and otherwise unambiguous policy language did not save the insurance industry by and large from having to provide coverage for environmental claims and their massive clean-up costs. Continue reading

It’s Deja Vu All Over Again As COVID-19 Presents Law Firms With Same Financial Issues Faced During The Great Recession

With almost daily report of law firm layoffs and/or reductions in compensation, it looks like the COVIS-19 pandemic is going to have the same effect on the financial health of the legal industry as did the Great Recession in 2007-2009.  And if what happened in the Great Recession is any indicator, law firm clients will need to scrutinize more closely their legal bills.

One reason for closer scrutiny is because of what happened in the Great Recession with regards to staffing cuts. In the Great Recession, the support staff rather than attorneys bore the brunt of law firm cutbacks. This was because law firms were reluctant to let go of the attorney talent they worked so hard to attract and invested so much to develop. So the only other place to turn for savings in a labor intensive business is to support staff.

As I have blogged about before, cutting back support staff and increasing the ratio of attorneys to support staff will save law firms money. But, it also almost invariably means increased costs for law firm clients. Continue reading