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Does Legal Auditing Software Miss the Forest for the Trees?

Posted by Judie Bronsther | Nov 04, 2014 | 0 Comments

Some companies have turned to billing software or outside legal auditing firms to review their law firm invoices, verify compliance with established guidelines and evaluate the legal bills for appropriateness and reasonableness.

Software (and auditors relying solely on software) can easily check for objective rule compliance but nevertheless miss evidence of inefficiency and even waste.  Compliance with objective rules is simple to check, such as:

1)     Billing in six-minute (.1) increments increments,

2)     Block billing and failing to assign individual time increments to each task,

3)     Non-specific time journals , that prevent an assessment of reasonableness,

4)     Billing for secretarial and administrative services that should be built into the fee, such as scanning, data entry and storage, file opening and closing activities, file organization and maintenance, indexing pleadings, discovery and correspondence, proofreading documents, routine scheduling of depositions and meetings and word processing,

5)     Billing for internal law firm meetings,

6)     Multiple timekeepers billing for attending depositions, and

7)     Legal fees keyed to long distance travel time paid at discounted rates.

But, if a reviewer stops there with no further analysis, there is a good chance that patterns and practices that are artificially inflating legal invoices will be missed.  During a recent audit I found the audited law firm to have been in complete compliance with its client's billing guidelines.  Nevertheless, the firm engaged in other billing practices that inflated its fees by more than 50%.

Although the law firm complied with its client's billing guidelines and separately stated each communication (i.e., telephone calls, emails, internal meetings and routine correspondence) as a separate billing entry, billing each entry at the minimum six (6) minute interval, the firm managed to allocate more than 40% of its total fees to those entries. The firm took advantage of opportunities to characterize many short-duration activities as taking six minutes of time – the minimum billing increment.  A friend related the story of an attorney who came into his office on a weekend just to slice open his mail, charging six (6) minutes for each letter he sliced open and then bragging how he was able to charge several hours to the matters for which he had spent but a few minutes slicing open the mail.

A study of the University of Brighton Information Services revealed that the average time to write a message is about four (4) minutes and the average time to read a message is about half a minute.  Consistent with that study, Magistrate Judge Debra Freeman in Lee v. Santiago found that even billing six (6) minutes for each email was excessive and reduced the amount of time for emails by 50%.  The problem with the length of time recorded by the law firm for emails was exacerbated by the fact that multiple timekeepers were reviewing the same emails, something that could only have been picked up by careful line-by-line review of the legal bills.

Interestingly, telephone company rates are based upon the assumption that most telephone calls terminate within three minutes and, as the court in In re Pettibone Corp. noted, “if telephone calls comprise a large portion of the total fee petition, time entries of .1 hour might also be subject to discount.”  The law firm also complied with its client's rule of having only one attorney attend each deposition and hearing.  However, the law firm ping-ponged the drafting and review of documents back and forth among three (3) senior timekeepers, regardless of the complexity of the document.  For example, two (2) partners and a 15-year senior associate drafted a letter to opposing counsel, two (2) partners and a 15-year senior attorney drafted the settlement agreement and two (2) partners, a senior associate and a paralegal worked on an agenda for a one-hour meeting with opposing counsel, resulting in more than 10 hours being billed for that agenda.

So, a word of caution to those companies are relying on software to review their legal bills.  You may be missing the forest for the trees.  An effective cost control program should not rely solely on a software solution.  If lawyer's can figure their way around the tax code, be assured they can find a way around your billing guidelines.

About the Author

Judie Bronsther

Ms. Bronsther began her career in 1979 as an associate with Finley, Kumble, Wagner, Heine, Manley & Underberg specializing in corporate finance. In 1984, she joined forces with a client, Empire Securities, a brokerage house specializing in oil and gas transactions, and became Executive Vice President and General Counsel. In 1989, she joined Kaye, Scholer, Fierman, Hayes and Handler. Ms. Bronsther graduated from University of Rochester, magna cum laude, and New York University School of Law. Ms. Bronsther has written extensively on the subject of legal cost control and lectures frequently on this subject.

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