Qualitative Legal Audit: What We Do in a Typical Analysis of Fees
David McMahon & Jeevan Subbiah
INTRODUCTION
I was recently speaking at a litigation management seminar and I was asked some questions regarding our method and protocol utilized in a qualitative legal audit or legal fee analysis.
The following is a basic outline of tips on how we conduct our analysis:
- A Fee Analysis Can Result in Substantial Savings – A typical analysis where we recommend the client undertake a full blown review saves our clients an average of 25% to 30% although results can vary.
- Were the Attorney’s Fees Reasonable and Necessary? - Our firm can provide an independent analysis, review, and evaluation of the reasonableness and necessity of attorneys’ fees billed by various law firms retained by the insured to represent the company in litigation or on complex transactional matters.
- Were the Non Attorney Vendor Invoices Reasonable and Necessary? - In addition to the attorney fees invoices, we also review invoices submitted by non attorney vendors and other professionals and render an opinion on the reasonableness and necessity of those charges. We also frequently review the work product of the firm and its consultants/experts so that we have the appropriate context to review the fees.
- Did the Insured Manage the Legal Fees? - We also analyze the reasonableness of steps taken or not taken by the insured to institute cost effective measures to manage legal fees and related costs generated by their counsel and consultants.
- A Fee Analysis Can Aid In Negotiation – We recommend that a fee analysis be undertaken prior to mediation in a contested fee case. It can be a powerful settlement tool.
OUR METHOD OF REVIEW
During a fee analysis, we review the individualized legal and factual billing situation in detail and prepare supporting reports and charts (varying from one page summaries to detailed reports) to document our findings. We generally focus on the following key areas:
- Billing Guidelines - Did Billing Guidelines exist and were they followed?
- Redacted and Non Original Invoices/Multiple Submissions of Invoices - The bills may have been redacted or otherwise do not appear to be the original invoices. There may be multiple submissions of individual invoices. For these reasons, the reliability of many of the entries may be subject to question.
- Erroneous Recast Bills - Bills recast by counsel may contain inconsistencies, errors and mistakes.
- Incorrect Sums of Fees Submitted - The total sum of fees the applicant seeks to recover may not add up to the totals of the invoices which we independently calculate and verify.
- Improper Billing Entries - Billing entries may not comply with generally accepted billing practices and applicable case law for the following reasons:
- Block Billing - Entries couched in the highly disfavored block billed format contain two or more tasks in one billing entry. We typically recommend a 25% deduction for block billed entries.
- Vague Billing - Billing entries are unreliable when they are extremely vague in nature and fail to describe the work being performed with any specificity whatsoever. We often recommend a 25% deduction for vague entries.
- Clerical and Administrative Work - Time billed at professional rates for clerical and administrative work which is arguably in violation of ABA Formal Opinion 93-379. We usually recommend a 100% deduction for administrative entries.
- Combination Block Bills - Time included in a combination block entry (along with another improper format such as Block/Administrative) should be deducted. We recommend a 35% deduction for these entries.
- Unusual Hourly and Billing Rate Increments - Billing entries should be recorded accurately by one tenth of an hour increments and not rounded up to quarter hour or full hour increments. In addition, billing rates should be in full hour increments. Calculating an hourly or rate adjustment may be necessary where this is the case.
- Non Covered or Non Defense Related Work – We also focus on billing entries for work that is not recoverable under the insurance policy, billing guidelines or generally accepted billing practices, such as the following:
- Non Covered Lobbying Work
- Non Covered Internal Work/ Billing for the Business of the Insured
- Non Covered Insurance Coverage Work
- White Paper Work
- Excessive IT Work and Computer-Related Charges
- Erroneous Matters on the Bills
- Burden of Proof on Fee Applicant - When numerous anomalies exist, the fee applicant may not have met its burden of proof in establishing the right to recover fees requested, either in whole or in part.
- Cost/Expense Backup - The applicant may have failed to provide any cost backup for significant expenditures or copies of receipts and backup over $100 in amount (to determine whether the firm has complied with ABA Ethical Opinion 93‑379 as to the billing of costs and disbursements). For this reason the applicant may not have met its burden of proof establishing the right to recover those significant costs and disbursements.
- Haphazard Fee Allocations by Applicant – In cases where the applicant allocated the fees in order to seek reimbursement for selected claims, the fee allocations may be haphazard and the protocol and/or methodology for making the allocations may be subject to question.
- Transient Billers - The bills may include time billed at professional rates for a large number of transient billers who billed small amounts of time that did little to move the case forward. Due to the apparent lack of utility of the work performed by the transient billers, their fees could be deducted entirely.
- Work on Motions Lost by Fee Applicant - There may be significant time incurred on motions that were lost by the fee applicant. These fees may be subject to scrutiny.
- Research Projects - The work done on selected research projects may be excessive, unreasonable and unnecessary.
- Conclusion: Deduction Due to Unreasonable Fees - For the various reasons outlined above, the fees you have incurred may not reasonable or necessary. Therefore, taking a deduction may be warranted.
