The Billable Hour Debate
by: Richard E. Shevitz, Attorney
The recent revelations that DLA Piper, one of the world’s largest and most prestigious law firms, has apparently intentionally padded its bills to a client who had the audacity to challenge them are, sadly, not shocking to anyone in the legal world. Not that it was specifically, DLA Piper, of course, but that large, silk stocking law firms regularly overbill their clients is the dirty, little not-so-secret that seems to be an acceptable norm to corporate America. Of course, many law firms resist that pressure, but the simple reality is that an hourly billing arrangement can sometimes put a law firm and its client at odds. Clients desire a prompt and inexpensive resolution and law firms that primarily rely on hourly billing may be inclined to bill for more services than necessary. An alternative billing arrangement can be a great way for the two parties to meet in the middle.
To be sure, there are many lawyers in prominent institutional and defense oriented firms who are models of integrity and should not be tarred by those who are less scrupulous. But if you examine the system, the temptation to overbill is almost inescapable. Indeed, one of the nefarious emails from the DLA Piper lawyer read: “Now Vince has random people working full time on random research projects in standard ‘churn that bill, baby!’ mode…”
DLA Piper now insists that the email was written in jest – as was the email stating “I hear we are already 200k over our estimate–that’s Team DLA Piper!” But most firms who live and die by the hourly rate have an inherent conflict with their client. The longer a case drags out, the more time invested and the higher the fees. Indeed, it is common for lawyers in such firms to have minimum annual hour requirements; some even give bonuses for exceeding those minimums. Thus, the financial interest of the client – to resolve each dispute as efficiently as possible – flies in the face of the financial interest of the law firm.
Plaintiff contingent fee firms traditionally approach their representation very differently. Although most plaintiffs firms which use best business practices maintain hourly records for a multitude of purposes (quantum meruit divisions, profitability analysis, production metrics, etc.), the fee itself is result driven. The fortunes of the client are parallel to the interests of the law firm. And while certain clients of a plaintiffs firm may chose to be billed hourly, the firm itself is not leveraged on the hourly billing rates of its lawyers to generate most of its profits.
Because of their familiarity with result-driven fees, where the client and lawyer share a common interest in securing the best result possible in the shortest possible time, Plaintiffs contingent fee firms are also open to a variety of other alternative fee arrangements. Those arrangements can include flat fees or reduced hourly rates coupled with an agreed bonus if successful result is achieved for the client.
Surprisingly, many large corporations as well as many small businesses remain mired in the billable hour approach, often for no reason other than their traditional law firm is not willing to give up that lucrative billing model. Following the disclosure of the DLA Piper emails, more is being said publicly about the benefits of non-hourly fee arrangements, including contingent fees, flat fees, and various blended approaches. Those concepts, however, have yet to gain significant traction.
Cohen & Malad, LLP has been involved in alternative billing arrangements for years, often servicing clients of other firms in cases where the recovery may be speculative or simply too expensive for the client to fund year after year – all without undermining the other firm’s existing relationship with the client on other matters. Such cases have resulted in multimillion dollar recoveries, without the client ever expending a dollar from its own pocket before the matter was concluded.
Prior results do not guarantee future outcomes. Case results vary dramatically depending on specific facts and circumstances.
