Litigation Management & Attorney Fee Analysis Blog : Attorney Fee Analysis & Litigation Management Lawyer : Barger & Wolen Law Firm : Litigation Management, Legal Fees, Billing Guidelines

In Smith v. Workers’ Compensation Appeals Board, 2009 DJDAR 6715, May 11, 2009, the California Supreme Court decided a case concerning the contours of Labor Code §4607. That statute provides:

“Where a party to a proceeding institutes proceedings to terminate an award made by the appeals board to an applicant for continuing medical treatment and is unsuccessful in such proceedings, the appeals board may determine the amount of attorney’s fees reasonably incurred by the applicant in resisting the proceeding to terminate the medical treatment, and may assess such reasonable attorney’s fees as a cost upon the party instituting the proceedings to terminate the award of the appeals board.”

The Plaintiffs in the case sustained injuries while working for their respective employers. The Plaintiffs were awarded partial permanent disability and future medical treatment. After some passage of time, the Plaintiffs requested additional treatment. The State Compensation Insurance Fund (SCIF), the Plaintiffs’ employers’ insurance carrier, declined the demand for further treatment. The Plaintiffs instituted proceedings to obtain the treatment. The workers’ compensation judge found that treatment remained medically necessary and authorized the requested medical procedures. The Plaintiffs then moved for attorney fees under Labor Code Section 4607. The workers’ compensation judge denied the requests, asserting that SCIF did not institute proceedings to terminate the Plaintiffs’ awards for medical treatment. The Court of Appeal reversed the determination below.

The California Supreme Court reversed the appellate court. The Court stated that Section 4607 authorizes an award of attorney fees to an employee who has successfully defended against his employer’s attempt to terminate an award for medical treatment. The employee is entitled to attorney fees only if the employer challenged the continuing necessity for the original award. Attorney fee awards are not proper where the employer or insurer has denied a request for specific treatment. Here, each plaintiff made specific requests for treatment. SCIF disputed the specific requests and did not attack the plaintiffs’ initial awards of future treatment. The Court concluded that Section 4607 did not authorize an award of attorney fees to the Plaintiffs.

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In Fries v. Rite Aid Corp., 2009 DJDAR 5721 (April 24, 2009), the California Court of Appeal, First Appellate District clarified an issue concerning the procedure for properly filing a memorandum of costs where a plaintiff voluntarily dismisses an action. The court analyzed whether a party who seeks costs after a voluntary dismissal, is required to file a proposed judgment in addition to the memorandum of costs. The court concluded that there was no legal requirement that the party file a proposed judgment in addition to the cost memorandum.  The court clarified a procedural issue that has been pending for some time. The importance of this question from an attorney fee standpoint is that when any California statute refers to the award of “costs and attorneys fees,” the fees may be recoverable as a component of the costs to be awarded. Attorneys’ fees allowable as costs may be fixed upon noticed motion, at the time a statement of decision is rendered and/or, as in this case, on a cost memorandum supported by affidavit, made concurrently with a claim for other costs.

In Fries plaintiff filed a complaint against Rite Aid but soon thereafter filed a request for voluntary dismissal of the action. On the day that the plaintiff dismissed the case, Rite Aid filed a memorandum of costs. The plaintiff moved to strike or tax the costs arguing that the memorandum contained procedural defects because the defendant failed to file a proposed judgment or an order of dismissal simultaneously with the cost memorandum. The trial court disagreed with the plaintiff noting that the defendant complied with California rule of court 3.1700.

Under California rule of court 3.1700 a prevailing party who claims costs must serve and file a memorandum of costs within 15 days after the date of the mailing of the notice of entry of judgment or dismissal by the clerk under CCP § 664.5 or the date of service of written notice of entry of judgment or dismissal, or within 180 days after entry of judgment, whichever is first. A memorandum of costs must be verified by a statement of the party, attorney or agent that to the best of his or her knowledge the item of costs are correct and were necessarily incurred in the case.

The question framed by the Court of Appeal was whether as the plaintiff maintained, that the defendant was also required to file a proposed judgment along with their memorandum of costs. The court concluded that California Rules of Court 3.1700 does not require a party to do so. The plaintiff relied on a passage in a frequently relied on California practice guide for the proposition that “a prevailing party who claims costs shall serve and file a memorandum of costs after service of written notice of entry of judgment or dismissal.” The appellate court disagreed noting that the language in the practice guide referred to involuntary rather than voluntary dismissal because of the reference to CCP § 664.5.

Counsel should be guided by the clarification when filing a memorandum of costs seeking to recover either costs, attorneys’ fees or both in a voluntary dismissal scenario.

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A client should regularly review the bills of counsel to determine whether attorneys and other billers have complied with generally accepted billing practices and established billing guidelines. The regular review of bills often results in the identification of questions and possible deductions for invoice entries that fail to comply with guidelines or industry norms. Certain types of activity included in the bills, as well as the format of billing entries, can give rise to concerns. Categories of entries a client should review include: block billing, vague and ambiguous entries, administrative and clerical tasks, excessive conferencing and unnecessary travel.

The practice of pervasive “block billing,” also known as “bulk billing” or “aggregate billing,” has been discouraged by courts and prohibited by most billing guidelines. “Block billing” is the practice of lumping two or more tasks into a single billing entry. Time is not allocated between the tasks and a single total amount of time is stated for all tasks contained in the blocks. Where this billing style is utilized, the client may have difficulty in determining whether the time spent on each task was reasonable.

An attorney’s or paralegal’s time entries should also be recorded in sufficient detail so that the work performed is clearly described and precisely communicated in a meaningful way. Courts require such precision in evaluating the reasonableness of fees billed by counsel. Accordingly, clients often take an estimated percentage deduction for “vague” entries, where through no fault of its own, a client is unable to determine the nature and/or scope of services claimed. Entries such as “Work on documents” “Review documents” “Telephone conference” and “Research” should not be paid without more of an explanation. Where attorneys report various communications, it is appropriate to require the names of both parties involved and the subject of the exchange. Thus, a client is within its rights to question reporting “Call with Joe Smith” or “Meeting re: depositions.”

Billing by attorneys and paralegals for the performance of “clerical” or “secretarial” tasks is also inappropriate without prior approval. These activities are generally considered part of a law firm’s overhead expenses, which are factored into the firm’s hourly rates for professional services. Clerical activities are those that do not require legal acumen. Secretaries, file clerks, messengers and other nonprofessional staff can perform these tasks effectively. Similarly, computer-related charges should not appear on an invoice for legal services without prior approval from the client.

In addition, the client should review questionable staffing decisions that may result in unnecessary fees and costs. “Multiple attendance,” means attendance at events by several attorneys where one could reasonably get the job done. It may be appropriate to take deductions where a firm sends more than one partner to a routine motion hearing without prior approval. A related category is “unnecessary travel.” An attorney should not travel (at a client’s expense) if he or she could perform the same work via email, fax machine, and/or teleconferencing.

A close review of bills should also include the fronted costs and expenses for which the law firms seek reimbursement. At a minimum, attorneys should always provide backup documentation for the underlying invoices to support the costs they incur. As with attorneys’ fees, the test for evaluating disbursements is one of reasonableness. The expenditure must be necessary and the amount reasonable. General overhead expenses are not appropriate disbursements because the law firm should factor them into the attorneys’ hourly billing rates. 

A monthly bill review should also look at quality control items that might include unapproved billing rate increases, billing entries for incorrect matters, and math errors.  All of the foregoing are typically helpful in reducing client costs as well as increasing attorney accountability. Before starting the analysis however, the reviewer must determine the criteria to be utilized in analyzing the invoices and strive for consistency. We also recommend meeting with the law firm regularly to ensure the law firm billers understand the guidelines and the client’s expectations. The most favorable result is always to educate the parties and to foster a trusting, transparent relationship between the attorney and client.

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Several issues should be considered by counsel prior to beginning the task of drafting a petition seeking an award of attorneys’ fees. Obviously, the applicant must be entitled to a fee award. Most frequently, entitlement to an award arises under a contract, a statute or case law granting the right to attorneys’ fees. Regardless of the authority for an award, it is critical for the applicant to understand that the burden of proof will lie with the petitioner in establishing the amount, necessity and reasonableness of the fees incurred. Under the Supreme Court authority of Hensley v. Eckerhart, 461 U.S. 424 (1983) the fee claimant has the burden of proving that the fees requested were both reasonable and necessarily incurred.

The fee petition is typically set up via a written motion. The motion should set forth the legal and factual basis for the award, including declarations establishing the foundational facts supporting the claim.

A successful fee petition is based on in part on a determination that the fees sought are reasonable. This is frequently referred to as the lodestar. The lodestar is described as the number of hours reasonably expended in the litigation multiplied by a reasonable hourly rate. This calculation provides the foundation for establishing the reasonableness of the lawyer’s services. The applicant must be aware that various factors will justify moving the award up or down depending on the success achieved and the capability of counsel handling the case. Particular attention should also be paid to the rates sought and whether they are in compliance for the type of case in the relevant community. 

The declarations submitted in support of the fee award will be scrutinized by the court and opposing counsel, particularly where numerous lawyers and paralegals participated in the case. In some cases it may also be prudent to retain an expert to provide testimony via declaration supporting the application. Where a fee request is not significant, retaining an expert may be hard to justify from an economic standpoint. However, where the fees are substantial an expert is particularly necessary to justify the award, particularly if the underlying record is not well developed.

Counsel should also expect that opposing counsel will retain their own expert to scrutinize the fee petition and the supporting declarations. Extra care should be made to establish, in the first instance, that the fees were necessary and reasonable. 

As a starting point to the entire process, it is fundamental that all of the billers keep accurate and contemporaneous time records of the fees incurred. In our experience, courts will either disallow or substantially reduce the fees sought where adequate and contemporaneous time records have not been maintained. The bills should demonstrate that time was recorded in specific detail, describing the work performed and tasks accomplished usually in one tenth of an hour increments.

The fee applicant should also keep in mind that a significant application for fees can often lead to a totally new round of litigation including writing discovery and depositions. The cost and potential recovery associated with the petition must be considered at the outset. 

A successful fee application begins at the outset of the representation. The manner in which time is recorded and the format and style of the bills will play a significant role in the outcome of the petition. It is extremely important that accurate and meaningful time entries be entered on a contemporaneous basis from the beginning to end of the litigation. This greatly enhances the possibility of obtaining a successful result.

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A client hired an attorney to represent him in a case.  The client signed an engagement letter to pay the attorney $200.00 per hour and further agreed to hourly billing rates for the attorney's staff.  The attorney and client negotiated a $10,000 retainer, later reduced the retainer, by agreement, to $5,000.   At the case's conclusion, attorney billed client for $35,304 after crediting the client the $5,000 retainer paid.   Client paid only $5,000 on the outstanding balance.

After failing to collect all of his fees, the attorney sued the client for nonpayment.  The client argued that because the written contract did not explicitly state whether the parties had agreed to an open account or a flat, maximum fee, the contract was ambiguous and therefore, a fact issue existed regarding the contract terms.  The trial court disagreed and granted summary judgment for the attorney, but a Texas Court of Appeals held that the parole evidence could be admitted to raise a fact issue and reversed the trial court's decision. 

Recently, the Supreme Court of Texas in Sacks v. Haden ___ S.W.3d ___ (Tex. July 11, 2008), a per curium decision, reversed the appellate court and reinstated the trial court's judgment.  

The issue was framed by the Court at the outset of the opinion:

The question in this case is whether a written attorney’s fee agreement that specifies only hourly fee rates may be modified by evidence of an oral capping agreement. We hold that it may not because parol evidence cannot modify a written agreement absent ambiguity. Accordingly, we reverse the court of appeals’ judgment and reinstate the trial court’s judgment.

Here is the critical passage in the court's opinion:

The plain language of the engagement letter demonstrates that Haden agreed to pay Sacks an hourly fee, and that no cap on fees was set. Haden argues that a fee agreement must specifically state that hourly fees will accrue without limit in order for the agreement to be unambiguous and enforceable. But the lack of such explicit language is irrelevant if the agreement can be reasonably interpreted only one way.  We have never held that an open-ended hourly fee agreement will be enforced only if it expressly states there is no cap on fees, and we decline to do so now. If a contract is unambiguous, the parole evidence rule precludes consideration of evidence of prior or contemporaneous agreements unless an exception to the parole evidence rule applies.

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Two recent cases illustrate the fact that very often, the most important asset available to an attorney seeking her fees is her personal credibility. 

For example, in the Anti-SLAPP suit context (Strategic Lawsuit Against Public Participation), the California Court of Appeal recently reduced an attorney fee award requesting 600 hours down to only 71 hours.  The appellate court, in Christian Research Institute v. Alnor, 165 Cal. App. 4th 1315 (2008) stated that the billing entries were padded and vague, and therefore the request for compensation was not credible.  Some of the appellate court’s comments are instructive for counsel submitting a fee request, not only under the SLAPP statute, but at any other time:

“An attorney’s chief asset in submitting a fee request is his/her credibility, and where vague, blocked billed time entries inflated with non compensable hours destroy an attorney’s credibility with the trial court, we have no power on appeal to restore it.” Alnor at 1326. 

Another example was published just yesterday, when Federal Judge Susan Illston of the Northern District of California sanctioned plaintiff's counsel $25,000 for submitting false fee application information in certain civil rights cases.  According to Dan Levine of Cal Law (www.callaw.com), Judge Illston felt the fee applications raised too many questions; they may not have been based upon contemporaneous time records, and certain time records may not have been produced.

The observations by these two courts highlight the need for counsel to submit scrupulous bills in support of fee applications.  If the court feels that the billing entries are sloppy or are not reflective of actual work performed, this will work to the submitting parties’ disadvantage.  If the fee application raises enough concern that the court begins to question counsel's credibility, the court may slash the fees down to a minimun, may deny any fees whatsoever, and may even sanction the attorney for submitting questionable information.  

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Under California Law numerous exceptions exist to the traditional “American Rule” wherein each party is required to pay their own attorneys’ fees in litigation. The exceptions exist in three general categories.

• Provisions provided by contract authorizing the award of fees
• State statutes which authorize fee awards in particular actions including but not limited to CCP § 1021.5. The statute is known as the Private Attorney General Rule
• Theories rooted in equity and fee awards for wrongful conduct

The potential for a fee award is a critical consideration for a party to consider when initiating or defending litigation. Obviously, the cost of litigation including a fee award, can become a substantial factor in developing litigation strategy. Therefore, in the initial planning for litigation, it is important to determine whether a statute, a common law theory, or a contractual provision might provide for some form of fee shifting. 

There are literally hundreds of California statues which provide for fee shifting in numerous areas including but not limited to the Government Code, civil rights, consumer protection, employment, general civil procedure, immigration and real property.

An important consideration on the topic of fee shifting is that such awards are constrained by ethical considerations. For example, California Rule of Professional Conduct 4-200 provides as follows:

A.     A member should not enter into an agreement for, charge, or collect an illegal or unconscionable fee.

B.      Unconscionability of a fee shall be determined on the basis of all the facts and circumstances existing at the time the agreement is entered into . . . The following factors are considered:

1.        The amount of the fee in proportion to the value of the services performed.

2.        The relevant sophistication of the member and the client.

3.        The novelty and difficulty of the question involved and the skill required to perform the legal services properly.

4.        The likelihood, if apparent to the client, that the acceptance of a particular employment will preclude other employment by the member.

5.        The amount involved and the results obtained.

6.        The time limitations imposed by the client or by the circumstances.

7.        The nature and length of the professional relationship with the client

8.        The experience, reputation, and the ability of the attorneys performing the services.

9.        Whether the fee is fixed or contingent.

10.     The time and labor required.

11.     The informed consent of the client to the fee.

All of the factors noted here are important in calculating the amount of fee award. Counsel should also use care to avoid conflicts of interest when an attorney is settling the merits of a case and the fee award simultaneously. That scenario can create a situation creating adversity between the lawyer and the client.

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A litigation management audit can reveal several different categories of information, depending upon the type of inquiry undertaken. The audit inquiry most typically utilized by insurance carriers is the quantitative audit, which examines the amount and breakdown of time that attorneys have invoiced. The goal of this type of audit is to determine whether the law firm has substantially complied with the billing guidelines imposed by the carrier. Such an approach identifies permissible payment deductions for invoice entries that deviate from the carrier’s guidelines, or from generally accepted billing practices. This approach can fairly be characterized as a “procedural” review of the billings involved. 

A different audit approach, one that perhaps is ultimately even more meaningful, entails a qualitative assessment of the actual work reflected in the bills. This inquiry seeks to determine whether the bills incurred in the litigation and submitted for payment were in fact both reasonable and necessary,  which is the dual standard required of legal billings articulated by the U.S. Supreme Court. This audit approach can fairly be characterized as a “substantive” review of the billings involved.

The ultimate goal of the qualitative litigation management audit is to ensure that attorneys hired to conduct litigation and other legal activities do so in a goal-directed, streamlined, and thus cost-effective manner. Through poor planning or neglect, attorneys can inadvertently bill for activities which increase litigation costs while doing little to resolve the litigation. A comprehensive qualitative audit is designed to analyze the strategy, staffing and overall approach utilized in the case. When we conduct a qualitative audit, we typically review the available work product, including the pleadings, motions, discovery requests and correspondence to identify wasteful practices and opportunities to increase efficiency. 

The qualitative and quantitative audits are not mutually exclusive, but are complementary to each other. While it makes sense to compare and contrast the two approaches individually, a combined approach is perhaps the best way to achieve a fully comprehensive audit. We often start with a quantitative examination of a law firm’s invoices, while keeping an eye out for anomalies or troubling entries that raise more qualitative concerns. Such a holistic process can result in significant cost savings to the client, although it is more time intensive than relying on only a single approach.  The combined approach accordingly must be justified under the particular case circumstances, both practically and economically.

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Winterrowd v. American General Annuity Insurance Company, 2009 DJDAR 2241 (2009).

Plaintiff's May Recover Fees Generated By Non-Admitted Attorney
Who Assists California Attorney in California-Based Litigation

In a divided opinion, the Ninth Circuit recently held that a lawyer who was not admitted to practice law in California was still eligible to recover fees generated in the case, under limited circumstances. A member of the Oregon Bar, assisted a California lawyer in a breach of a contract action against an insurance company. The insurance company ultimately agreed to settle the matter, and the plaintiff sought to recover its attorneys’ fee including the fee incurred by its Oregon Counsel. The District Court concluded that the Oregon counsel could not recover attorneys’ fees for work performed while the case was pending before the California District Court. The plaintiffs appealed to the Ninth Circuit and the court reversed in part and remanded for further proceedings. 

The Ninth Circuit stated that an attorney may not recover counsel fees for engaging in the “unauthorized law practice” in California. The Ninth Circuit noted however that the Oregon lawyer was retained by a member of the California State Bar to provide assistance in prosecuting the action. The attorney performed services entirely in Oregon under an arrangement that was analogous to a “partnership.” The Court stated that counsel did not appear before the District Court but played only a supporting role. For these reasons the Ninth Circuit held that the lawyer was entitled to recover reasonable fees for the work. The case was thus remanded to determine the amount due to the plaintiff, for the work performed by the Oregon lawyer.

In a sharply worded dissent, Justice Pamela Rymer disagreed with the majority’s conclusion. She disagreed that fees were properly awarded to the non-admitted counsel as in her view, the work constituted the practice of law. In her view, without being admitted to practice, the applicant’s petition for fees was properly rejected.

The ruling by the Ninth Circuit may provide some guidance when, and under what circumstances, an out of state lawyer may recover attorneys’ fees for work conducted in California litigation. We note however, that as pointed out by the dissent, this issue may be further scrutinized by other courts and the outcome is far from certain.

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Christian Research Institute v. Alnor 165 Cal. App. 4th 2008; 1315 (2008)

California Court of Appeal Reduces An Attorney Fee Award In A Strategic Lawsuit Against Public Participation Case.

The California Court of Appeal recently provided important guidance concerning the submission of an award to recover attorneys’ fees under the anti‑SLAPP (Strategic Lawsuit Against Public Participation) Statute.  In Alnor, the Defendant moved to recover costs and attorneys’ fees reflecting over 600 hours of compensable time.  The Superior Court granted the motion for attorneys’ fees and costs but reduced the compensable time to 71 hours.  The Defendant appealed.  On appeal the court held that the trial court adequately examined the attorneys’ billing entries and supporting evidence.  The court stated that the trial court reasonably concluded that the billing entries were padded and vague, and therefore the request for compensation was not credible.  For this reason the trial court reduced the number of compensable hours to 71 and properly declined to apply a fee multiplier.

Some of the appellate court’s comments are instructive for counsel submitting a fee request under the SLAPP statute.  The court noted:  “an attorney’s chief asset in submitting a fee request is his/her credibility, and where vague, blocked billed time entries inflated with non compensable hours destroy an attorney’s credibility with the trial court, we have no power on appeal to restore it.”  Alnor at 1326.

The appellate court’s observations highlight the need for counsel to submit scrupulous bills in support of a fee application.  If the court feels that the billing entries are sloppy or are not reflective of actual work performed, this will work to the submitting parties’ disadvantage.

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A month ago I reported on Scott Turow's article, the "Billable Hour Must Die."  Well, apparently, the New York Times now agrees.  In "The Billable Hour Giving Ground at Law Firms," Jonathan Glater reports how the tough economic times are creating a shift away from the old standby billable hour.  Examples given of alternative fee arrangements include:

• flat fees for business transactions,
• success fees for positive results,
• flat fees for mortgage closings,
• contingency fees, 
• monthly retainers for litigation clients, and even 
• fixed fees for each stage of a particular piece of litigation.

The discussion is certainly a healthy one, particularly for attorneys who may be trying to compete for clients by creating a real difference between them and their competitors.  I do not believe the billable hour will go by way of the dinosaurs, but perhaps we will see a changing competitive landscape, where firms may be forced to alter their way of thinking in order to compete in the marketplace.

Have you proposed any alternative billing arrangements recently? 

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"Flat Fee" Arrangements and "Non-Refundable" Legal Fees:    With the billable hour coming under closer scrutiny, flat fee arrangements are again being explored by corporate general counsel.  Currently the ethics of such arrangements are being questioned.   A review of a 1999 Arizona State Bar Ethics Opinion allowing flat and non-refundable fees may provide some insight into the answers to those ethical questions.  [See Arizona Ethics Opinion #99-02: Fees; Retainer Fees; Fee Agreements; Retainer Agreements]

The opinion is significant in that it contains an historical review of similar such fees and principles which also might be applicable to an analysis or today's more popular "fixed fee" arrangements.  It also explores the basis of a disapproval of these fees by  state courts in other jurisdictions starting with the New York case of In Re Cooperman  83 N.Y.2d at 476, 633 N.E.2d at 1079 in which the New York Court of Appeals imposed an absolute ban on such arrangements.

       The arguments set forth in this Arizona ethical opinion also provide a persuasive legal analysis of why the Fixed or Flat fee arraignments might also be prohibited by an outright ban on non-refundable legal fees. 

       More frequently, today's sophisticated clients are demanding that their attorneys consider fixed or flat fee arrangements.   Because of the popularity with such fixed fee arrangements with more institutional clients, it would be problematic to ban such fixed fee arrangements. As noted in the opinion, many states and the federal courts allow non-refundable fees, so long as they are not either "unconscionable" or "excessive".

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Scott Turow, famous novelist and one-time full time lawyer, wrote an article for the American Bar Journal, "The Billable Hour Must Die."  Catchy title.  Mr. Turow asks the burning question, if associates were required to bill 1,750 to 1,800 hours in 1986, but are now being pressured to bill 2,000 to 2,200 hours, "how can anyone balance these hours against other aspects of life?"   

This debate is nothing new, of course.  Professor William Roth commented on this issue as long ago as 1996 in his book, "The Honest Hour: The Ethics of Time Based Billing by Attorneys."

Like many things in life, it's easy to criticize the current way of doing things.  It's much more difficult to come up with an alternative solution. 

• How do you use a flat fee agreement when your client is involved in litigation, and the opposing party is objecting to every discovery request that you propound?  
• How do you use the concepts of a contingency fee agreement when you represent the defendant?
• What are the ethical pitfalls to avoid in using alternative billing arrangements?

The billable hour is not an easy concept for the legal profession to scrap, or even minimize, but it will remain an interesting topic, particularly during the economic times in which we currently find ourselves. 

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