In the Business of Billing?
By David Segal
Executives at Sporicidin Co. figured they needed a few good lawyers back in 1991. Instead, they wound up with a few dozen.
Altogether, 53 attorneys and paralegals from the D.C. law offices of Baker & Hostetler logged time trying to convince federal regulators that the Rockville company's sterilizing solution should be allowed on the market. After spending about $830,000 in legal fees in less than a year and a half, Sporicidin's executives hired an auditor to examine its bills.
Among the auditor's findings: $24,053 for injunction papers that were never filed, $5,891 for seven people to research one statute and $177,251 for time spent by the army of staffers to update one another on progress in the case.
"They were just throwing lawyers at the problem and billed heavily from the word go," said John Toothman, an attorney for Sporicidin.
Lawyers representing Baker & Hostetler dispute some of these particulars, and say that the overall fee reflected the complexity of the case, which required negotiations with three government agencies. Further, they say, executives at Sporicidin greatly complicated the work by issuing contradictory instructions to the firm's lawyers.
Whatever the outcome of this case now part of a pending malpractice suit it comes at a moment when many corporate attorneys say their profession is being overwhelmed as never before by pressure to snare clients and bring money into their firms. Those pressures, according to academics and lawyers, are profoundly changing the culture of corporate law by giving rise to a bill-or-die ethos that many attorneys find utterly dispiriting, yet impossible to ignore.
Professors who study the business of law say associates and partners are billing hours that suggest superhuman concentration, outright fibbing or an eagerness to log time even if the expense isn't a worthwhile one for clients. And firms are less vigilant about making sure they don't represent anyone whose interests could collide with those of clients they already represent, according to the former head of the American Bar Association's Associates Ethics and Responsibility Committee.
Occasionally, clients get miffed and sue, but the public rarely hears much about lawyer misconduct because, unlike physicians, corporate attorneys nearly always resolve their problems in confidential, out-of-court settlements.
Still, one Harvard Law professor said that what is most eye-opening about the legal profession these days isn't outright fraud perpetrated by a few attorneys. Instead, it is the ways in which the ethical line has moved.
"In the 1980s, lawyers started saying to themselves, 'Okay, we're a business now, so all bets are off,'" said Mary Ann Glendon, a professor at Harvard University Law School. "Today, it's increasingly legitimate for lawyers to look out for their own interests ahead of the public's interest, and ahead of the client's."
Skepticism about the scruples of attorneys has dogged the profession for decades, of course. The hand-wringing among lawyers these days, however, is different it is a lamentation for an approach to lawyering that some law professors say is disappearing. The incursion of market forces, they contend, has caused many attorneys to forsake a key role, that of an adviser who dissuades clients from actions that push the ethical envelope.
"It's far less likely that a lawyer today will say: 'This is a bad idea' because they know corporations will easily find another lawyer with fewer compunctions," said Ron Gilson, a professor of law at Stanford University. "The lawyer as gatekeeper is gradually becoming a thing of the past."
Heightened competition is causing these changes. Half a century ago, there was about one lawyer for every 790 Americans; by 1995 there was one for every 290 Americans. In 1957, there were fewer than 40 firms with 50 or more lawyers; today there are more than 1,000.Many lawyers say this scramble to sign up clients and bill huge amounts of hours has led them to conduct that they consider inappropriate. In a national survey of attorneys, judges and law students by the Josephson Institute for Ethics in Marina del Rey, Calif., one-third of the respondents said lawyers are more likely to lie today than in earlier eras, three-quarters said lawyers are more "money-conscious" and nearly half said they are less civil. Some longtime members of the bar say they barely recognize their chosen calling.
"I see a lot more lying than I used to," said Pat O'Brien, a partner at Chicago's Mayer, Brown & Platt since 1953. "We had a guy recently that we canned because he lied about his background and lied about billing. That sort of thing just never happened a few decades ago when the firm was smaller and less oriented to making a buck."
Service vs. Salaries
It is naive, legal ethicists say, to think there was ever a time when attorneys were selflessly dedicated to the commonweal, or uninterested in making a buck, or were so chummy with one another that they preferred civility over victory. Lawyers have always needed to vie for clients and even Abraham Lincoln, to cite one well-known practitioner, never shied away from calling himself a businessman.
For years, attorneys have struggled to balance their civic obligations to serve as the public's liaison to the court system with their desire to pocket a hefty salary. "Lawyers have long been sensitive to the charge that their services are simply for sale," said Geoffrey Hazard, a professor at the University of Pennsylvania. "We've always wanted to consider ourselves an elevated profession which exercises self-restraint."
Over the past decade, however, the chase for clients has become more palpably desperate. Today most large corporate firms require employees to log a minimum number hours a year, and many provide monthly update sheets to associates showing where they stand in the race to outbill their colleagues. Underachievers rarely win the eight-year sprint for partnership.
Such pressure helps explain why many legal auditors say that business has never been more brisk, or more entertaining. "I don't get shocked any more," said Harry J. Maue, chairman of Stuart, Maue, Mitchell & James, a legal auditing firm based in St. Louis.
Maue won't mention names, citing confidentiality agreements, but in recent years he says he has found a score of attorneys billing more than 24 hours of their time in a single day. (The most intrepid soul billed for 62 hours in one day.) One firm charged $37,000 in air travel and restaurant expenses and could not produce a single receipt for the expenses. For three months, a firm had billed 12 hours a day for an attorney hospitalized in a coma induced by a car accident.
Every once in a while, litigation or press leaks pull back the curtain at a corporate law firm and reveal its billing practices. Some of the more telling glimpses:
Wall Street lawyer Harvey Myerson was found guilty of fraud in 1992 after a client, Shearson Lehman Hutton, approached federal authorities with suspicions that the company had been overcharged for years by Myerson's firm, the now-defunct Myerson & Kuhn. During the trial, which ended with a two-year jail term for Myerson, there was testimony that he had threatened to fire associates who refused to inflate their hours. One attorney billed 10 hours for 12 minutes of work. There was also evidence that Myerson billed for personal expenses, including dry cleaning for his toupee.
As part of a $9.1 million bill, an attorney at D.C.'s Wilmer, Cutler & Pickering working on the Haft family dispute charged $320 for "thinking about loan closing issues." Another charged $72 to review newspaper clippings about the Hafts. The clients did not complain about the bills, copies of which were obtained by The Washington Post in 1994. Michael Helfer, Wilmer Cutler's managing partner, defended the charges, pointing out that attorneys frequently charge for time spent thinking about a case, but typically bill for something more tangible, such as "preparing a memo."
A partner at Chicago's Chapman & Cutler, James Spiotto, charged clients for more than 5,471 hours in a single year about 15 hours a day, every day. Called "possibly the hardest-working lawyer in America" by his colleagues, Spiotto claimed to have pulled 52 all-nighters in a row in 1993, working on bankruptcy matters.
Spiotto is still a partner in good standing at Chapman & Cutler. Firm managing partner John M. Dixon would not explain how Spiotto could have spent virtually every waking hour of his life doing billable work, adding that "No clients were hurt and no clients complained."
How Pervasive Is Padding?
No one knows how many lawyers pad bills or overcharge their clients, but polls suggest that the numbers are large. A 1994-1995 survey of hundreds of lawyers by researchers at the Cumberland School of Law in Birmingham, Ala., found that 23 percent of respondents had billed two clients for the same hour of work and two thirds knew of specific instances of bill padding. Two of five respondents acknowledged that the prospect of billing more time caused them to perform work that they otherwise would not have done.
Law firms accustomed to a steady flow of income from regular clients have learned how to scrap for billable hours or have folded. "Talk to a lawyer at just about any firm in the country and they've got a story about how in the past five years the old guard was ousted in favor of a group usually referred to as 'the money boys,'" said Harvard's Glendon. "Most lawyers these days are perfectly decent people who feel like they're trapped in a system that they don't really like, but a system that they don't feel safe trying to buck."
The rules of the new system, Glendon said, are simple: Keep your head down, don't ask questions and bill as much as you can.
Jonathan Kay, a graduate of Yale Law School, figured out those rules fast during a stint as a summer associate in 1996. Within a few weeks of arriving at a D.C. firm he would not identify, Kay got a fairly typical assignment: Write a brief on behalf of a corporation seeking an exemption from a federal worker safety regulation. For a few days, he buried himself in the library and drafted some compelling arguments.
A few weeks after he completed the task, Kay had a pang of conscience. He had not considered the potential of his work on the company's employees, he belatedly realized, who could have ended up somewhat less safe if his brief was ultimately persuasive. Associates at the firm, he said, understood that grabbing the increasingly elusive prize of partnership meant grinding out the hours without asking hard questions.
"When it came to questionable projects, you tended to hear a lot of sloganeering about the client's needs, about how terrible it would be to let the client down," Kay said. "It was cast in humanitarian terms about providing customer satisfaction."
The rise of competition in the legal world has had implications on other fronts, most notably in firms' diminished eagerness to spot potential conflicts of interest. The profession's canon of ethics dictates that attorneys are prohibited from accepting a client whose interests could bump against another's unless the client is alerted and grants the firm permission.
Larry Fox, former chair of the ABA's Standing Committee on Ethics and Professional Responsibility, thinks concern about avoiding such problems is at a historic low. Meanwhile, as law firms grow and the conglomerates they represent acquire more subsidiaries each with their own legal needs the potential for conflicts grows too.
In May, for instance, it emerged that Cravath, Swaine & Moore, an influential New York firm, was representing both Yankees owner George Steinbrenner and Time Warner Inc., parent company of the Atlanta Braves. Steinbrenner has brought a suit against Major League Baseball, which effectively meant that Time Warner was being sued by its own lawyers. Cravath's managing partner said it was an oversight that the conflict wasn't noticed earlier; the matter was resolved when Steinbrenner's attorney left Cravath.
Simple economics is often part of this equation. With competition stiffening, it's more painful than ever to turn away dollars after they come knocking. Meanwhile, evidence suggests that pressure to bill ever longer days in corporate firms continues unabated.
In the early 1980s, attorneys who clocked 1,600 billable hours a year about six billable hours a day, five days a week were considered dedicated performers. Now, many firms routinely expect their attorneys to log 2,000 hours and many clock more, say experts. Factor in time for chitchat, lunch and administrative matters and a lawyer juggling a few cases must toil about 10 hours a day, six days a week to bill 2,000 hours with a straight face, according to law firm consultants. Chief Justice William H. Rehnquist observed that a firm requiring associates to log 2,000 hours annually "is treating the associate very much as a manufacturer would treat a purchaser of 100 tons of scrap metal."
Spending additional time on a case doesn't necessarily translate to better results for clients. Consider what happened to Daniel C. Petrillo, a former Georgetown University student who was arrested after landing a punch in a barroom brawl in December 1994. Ordinarily, simple assault charges in D.C. end with the defendant entering a pretrial diversion program and agreeing to perform some community service, after which the episode is wiped from the record, say lawyers who handle such cases. Total fees typically run to $3,000, they say.
Petrillo followed the advice of a friend and retained a corporate law firm, Manatt, Phelps & Phillips. His lawyer there persuaded him to fight the charges, he said, and by March he owed his firm $24,000 for 127 hours of work by three lawyers and a paralegal.
"I was shocked," Petrillo said. "It was my assumption that all I would pay is a $2,500 retainer fee. The first time I was told that costs were mounting, my lawyer said the fee was up to $6,000, though the first bill I ever saw was for $21,000."
In March, with his lawyer's meter still running at close to $200 an hour, Petrillo decided to enter the pretrial diversion program, abandoning the idea of taking the case to trial.
Officials at D.C.'s Manatt, Phelps & Phillips said they gave Petrillo regular cost updates and were only following their client's instructions. Petrillo denies that. "My family and I can't afford anything close to that kind of money." In May, a fee arbitration board reduced Petrillo's bill to $15,000.
The case is rare students don't often hire white-shoe firms but revealing. Lawyers sometimes cost prohibitive sums, and in other instances they charge more for their services than the prize they were hired to win.
Few, it seems, find the gradual transition of the law from profession to business to be more depressing than lawyers themselves. A poll published in May by the National Law Journal found that 82 percent of partners in large firms said their practice has "changed for the worse," a shift driven by the Darwinian struggle to lure business and bill to the max.
"We've become commercialized," said Howard Fineman, a senior partner at Loeb & Loeb in Los Angeles. "The only question that counts now is whether a client will bring money into the firm."
Researcher Richard Drezen contributed to this report.
© Copyright 1998 The Washington Post Company