How To Challenge Your Lawyer’s Bill
Most billing disputes between attorneys and their clients can be resolved quickly. And, as with many aspects of the relationship with their lawyer, clients have more leverage than they realize when it comes to complaining about or objecting to their lawyer's bill or invoice.
The most important thing a client can do is to object to the attorney's bill in a specific way as quickly as reasonably possible.
A timely and specific objection to your lawyer's invoice can be much more effective than a similar complaint to another service provider, such as a plumber. That's because lawyers and plumbers are subject to very different rules relating to how they handle money they receive from their clients. What do you think happens when you write your plumber (or most other service providers) a check at the beginning of a project? They deposit the check into their business bank account and are free to spend it right away. That's not true of lawyers.
In most states, lawyers are required to maintain at least two separate business accounts. One, which is generally called the Client Trust Account, is reserved for money that the lawyer is holding on behalf of clients and unearned fees. The second is a General Business Account, from which lawyers run their business and pay for expenses such as payroll. When a lawyer receives your check or other payment when you first hire them, the lawyer is generally required to deposit your money into the Client Trust Account. Moreover, lawyers generally may not withdraw money from the Client Trust Account until they have earned your fee. Once they earn the fee, however, lawyers must promptly withdraw the money from the Client Trust Account. This is because lawyers must keep your money separate from theirs. Thousands of lawyers have been disciplined and some have lost their law license because they didn't keep your money separate from yours. Lawyers who mix the two together are said to have commingled the money and that is a very bad thing for a lawyer to do.
So what happens when your lawyer sends you an invoice or bill? If you don't complain about it or object to it within a reasonable time, the lawyer is deemed to have earned that fee and must withdraw the earned fee from the Client Trust Account and deposit it into the General Business Account. But, and this is the critical part, the lawyer can't withdraw from the Client Trust Account funds that are disputed by the client. Thus, a written and specific objection to the bill can be much more effective than, for example, contesting the charge with a credit card company. Lawyers aren't happy when clients challenge credit card charges, but they are often even more interested in making sure that the State Bar or other disciplinary authority doesn't get involved in billing disputes. A rational lawyer will not want to mess around with any obligation relating to their duties to keep their money separate from their client's money. This does not mean they will necessary agree with your complaint or objection, but it does mean that your complaint is unlikley to be ignored.
Because lawyers are obligated to withdraw money from the Client Trust Account as soon as it is earned, it is important that you act quickly. Review the bill as soon as it arrives and if you have a specific question or objection, let the lawyer know as soon as possible. Better yet, put the objection or question it writing. Be specific. Let the lawyer know what aspect of the bill is confusing or potentially wrong. Don't just say that you have general questions about the bill without providing any details. Indicate the specific line items on the bill that you object to or don't understand. The more specific your complaint, the harder it will be for the lawyer to transfer the full amount of the invoice out of the Client Trust Account. The lawyer should, when receiving your objection, withdraw from the Client Trust Account an amount that is equivalent to the undisputed portion of the fee or invoice.
Nothing about this discussion means that you can't object to a bill, in part or in whole, after the lawyer has earned the fee and transferred the money into his or her General Busines Account. You can, and there are procedures in almost every state for resolving fee disputes between lawyers and their clients. Most lawyers will act reasonably when they receive your objection, whether or not they have already withdrawn the money from their Client Trust Account. You have more leverage, however, if you provide specific objections as soon as you reasonably can. It's the difference between preventing money from being withdrawn in the first place and trying to get it back later on.
Five Money Saving Tips When Reviewing Your Lawyer’s Bill
One of the things that might be less fun than paying your lawyer's bill is reviewing it. Who wants to read page after page of vague descriptions? It can be tempting just to write the check. Many clients do this because they don't know what to look for. How to review a lawyer's bill could be the subject of an entire book. There are lots of subtle things to review, but the basics are straightforward.
1. Understand the Why—Most clients don't know how to review a bill because they don't know why lawyers do what they do or how they spend their time.
When a lawyer charges you a flat fee or you are paying the lawyer on a percentage or contingent basis, it isn't critical to know everything the lawyer did, just as it isn't necessary for a patient to know everything a surgeon does during an operation. But when you are paying for a lawyer's time in 6 or 15 minute increments, it is essential to know how lawyers are spending their time and how that time is being spent to help you.
If you receive a bill and can't tell why the lawyer did what he or she describes in the bill, call the attorney and find out. Better yet, ask the lawyer to include in the bill and the specific time entries a description of the purpose or goal that is associated with the time entry. Thus, for example, if a lawyer's bill says they spend an hour on the phone with a potential witness, and you don't know why that witness is relevant, ask the lawyer (and the lawyer's staff) to include such explanations in their future time entries.
2. Focus on the Big Ticket Items—When I was a lawyer I primarily represented large corporations. The bills were almost always huge—regularly exceeding $1 million a month. I was surprised that the clients would disproportionately focus on relatively small items--the $50 spent to overnight a document rather than the $100,000 spent on a particular project. This behavior is understandable; the client often understood messenger fees and Fedex expenses better than how lawyers spent their time.
It's easy to feel nickel and dimed when you see small, seemingly unnecessary charges. There's nothing wrong in questioning such charges, but it's better to focus on big ticket items. And when you are being charged by the hour, focus on those projects and tasks that collectively take up most of your lawyer's time.
3. Be Suspicious of Block Billing—Block billing refers to the practice of describing a lawyer's time in large blocks of time. For example, lawyers block bill when they write that they spent 3.5 hours researching a particular issue or drafting a particular document. The larger the block of time, the more questionable it is likely to be. Thus, you should generally ask lawyers to provide more detailed descriptions about how they are spending their time.
Block billing sometimes makes sense, especially if a more detailed description would not provide additional information to the client. For example, a bill showing that a lawyer spent 9.0 hours in court at trial is probably sufficiently descriptive, especially if, as is usually the case, the client or client's representative also attended the trial. In general, however, it is better if the lawyer describes what they do in smaller chunks of time. Be especially suspicious if you see the same generic description used day after day.
4. Look For Duplicate and Inconsistent Items—Most lawyers hate to record their time; it's annoying to keep track of one times in small increments. It's also time consuming to generate and review detailed bills.
You should therefore expect that your bill will sometimes include mistakes. The most common ones are duplicate time entries, where for example the same telephone call or meeting is billed to you more than once.
A related error involves inconsistent time entries. For example: two people attend a meeting, and one lists that it lasted 45 minutes whereas the other bills you for an hour. Most of the time, these errors are inadvertent. You should bring them to the lawyer's attention. My experience is that most lawyers will fix these errors. I am also aware of cases in which seemingly minor errors on the bill lead to the discovery of much more serious problems.
For example, one lawyer billed the hour for a phone call on a day in which the client was on a plane. A closer review of the bill revealed that it was full of many questionable if not fraudulent time entries. The client got a complete refund, but only after threatening to file a disciplinary complaint against the lawyer.
5. Don't Pay for Lawyers to Prepare or Explain Their Bill—Beware of lawyers who charge you for the time it took them to prepare your bill. This is an overhead charge that the lawyer should pay for. Likewise, the lawyer shouldn't charge you for the time it takes to explain the bill or respond to reasonable questions.
They key concept is reasonable. If you are polite and raise billing questions in a non-accusatory way, a vast majority of lawyers will be responsive. You won't necessarily get everything you want, but most lawyers want to keep their paying clients happy.
What To Do In A Fee Dispute With Your Lawyer
Many aspects of the relationship between lawyers and their clients are counterintuitive. Nowhere is more true than when a client and a lawyer have a disagreement about the lawyer's bill. The conventional wisdom is that lawyers must have a huge advanatge in these disputes. But the truth is much more nuanced; clients have much more leverage and power in these disputes than most of them realize.
Much of the power that clients have stems from specific laws that have been enacted to address fee disputes between lawyers and clients. Most of these laws are intended to protect clients. Some of these rules are so specific that few lawyers know about them. Thus, the first thing you should do when you get into a fee dispute with your lawyer is to find out which specific rules apply in your state. Some states are more protective of clients than others, but almost states provide more protections to the client than appear on the face of the contract between the attroney and the client. In this respect, the contract between the lawyer and client is like the lease agreement between a residential landlord and tenant. The lease may contain specific language, but the law overrides what's in the lease even if both parties have signed it. For example, in many states a landlord may not unreasonably deny a tenant the right to find a sublettor even if the contract says that the tennat is not allowed to sublease the property.
Likewise, some aspects of the contract between lawyers and clients may be overrdden by a state's laws. The most common example of this relates to fee arbitrations. In most states, a separate arbitration process exists to address fee disputes between attorneys and clients. Thus, a client may have the right to force a fee dispute to be decided by an arbitrator even if the contract with the lawyer says that all disputes relating to the contract will be decided by a lawsuit filed in a particular court. Some states also have specific laws that govern how attorneys' fees are paid in fee disputes. In California, for example, if a case goes to a fee arbitration and the lawyer wins that arbitration, the lawyer is not entitled to receive attorney's fees even if the contract between the attorney and client provides that the prevailing party in a fee dispute is entitled to collect reasonbale attorney's fees. The California provision about the collection of attorneys fees is both narrow and rare. It doesn't apply to every fee dispute in California and very few states have enacted a similar law. It is, however, a good example of why you need to find out the specific rules apply to attorney-client fee disputes in your state.
In addition to the laws that may override specific provisons in the fee agreement, clients may raise numerous arguments and objections that can reduce or in some cases eliminate their obligation to pay a fee to their lawyer. These arguments include:
- The lawyer didnt provide the client with a required written fee agreement; the client is therefore entitled to void (i.e. walk away from) the contract;
- The lawyer raised the fees above and beyond what the client agreed to in writing without obtaining the client's prior written agreement to the higher fees;
- The lawyer charged a late fee that exceeded the late fees permitted by law;
- The lawyer wasn't entitled to charge a late fee because the fee agreement doesn't allow for such charges and the client never agreed in writing to pay such fees;
- The lawyer can't collect his or her fees because the fee agreemnt between the lawyer and client wasn't translated into a language that is understood by the client;
- The lawyer charged a kind of fee that is not permitted for the kind of work performed by the lawyer (e.g., you generally can't collect a contingency fee in family law cases);
- The lawyer collected a fee that the lawyer called "a non-refundable retainer," even though the law doesn't recognize the validity of many non-refundable retainers charged by lawyers.
- The amount of the fee charged by the lawyer was unconscionable, and the lawyer should be disciplined for doing so;
- The lawyer double billed certain aspects of the work performed by the lawyer;
- The bill sent to the client contains computational errors;
- The lawyer charges an hourly rate and then bills in quarter-hour increments, even though some judges have ruled that this practice is unfair to clients.
These arguments won't work in every state. In fact, some of these arguments aren't likely to work in most states. Moreover, most lawyers are sufficiently compettent not to make basic mistakes that might impact the validity of the fees they charge. I am, however, regularly surprised by how often lawyers mess up and break some rule regarding their fees. In light of how complex this area of law is, don't assume that your common sense will lead you to the right conclusion when you have a fee dispute with your lawyer. At a minimum, review your fee agreement and contact your state bar to find out what laws govern your fee dispute. You will often find out that you have more rights than you initially realized.
Image courtesy of juli shannon flickr gallery under this creative commons license.
Happy New Year We’ve Raised Our Rates
This time of year is associated with so many warm and fuzzy moments--opening presents on Christmas morning, gathering with friends and family to light Hannukah candles, or eating too much food as we sit in front of the TV watching football games. Whatever your background, this is the time of year where we are most likley to return to familiar tranditions and habits.
Too many lawyers indulge in a decidedly less friendly tradition this time or year. The beginning of the new year is the most comon time for lawyers to raise their hourly billing rates. And nothing says happy new year more loudly and clearly than a higher bill.
This is one of the most annoying and unjustifiable billing practices that I encounter. It's a tradition that should go the way of the 8-track tape.
In many states, attorneys are prohibited from raising their fees unilaterally. The rates in the fee agreement therefore generally can't be changed unless the client agrees to the higher rates. Some attorneys send notices of the higher rates before the new year starts. In my experience, however, most simply raise the fees and include them in the monthly invoice for January of the new year.
Thus, as the client, you should review the January invoice especially carefully and object to the new rate. At a minimum discuss the new rate with your lawyer. I firmly believe that many lawyers don't value their services appropriately and charge too little. But hiding the new higher fees in the January bill is not the right way to inform clients of proposed fee increases. In many situations, there is no justification to raise the fee simply because a new year has begun. For example, if a lawyer is representing a client in a lawsuit that involves depositions, why should a depostion that takes place on December 28th have a different hourly rate than a deposition that take splace the following week? Fee increases should be tied to increased value provided by the lawyer, not an arbitrary change in the calendar.
So remember, you as the client generally need to agree to any fee increases. Don't just automatically pay the increased rates. Even if you have no problem paying the higher rates, it's better to discuss the new rates before simply paying them. And if you object to the new proposed rates, communicate that fact to your lawyer, and don't simply pay the new invoice. While lawyers and clients may want to avoid what they perceive as a confrontational discussion, this is exactly the kind of conversation that needs to take place for clients and lawyers to work together more effectively.
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