The Enforcers: Legal ethics and law firm business shouldn’t mix

Here’s a puzzle that shouldn’t really be much of a puzzle, but seems to be baffling both the Wisconsin Bar and the ABA:  What do you do if a lawyer with an outrageously high billable hours quota lies about his hours to his partners (to keep his job), but doesn’t actually overcharge his clients? Is it an ideal working relationship:  Probably not, although one could argue that the firm with the 1,800 billable hour quota started the madness.

To bill that much time, which is only for professional, reasonable services to clients, an honest lawyer would need to spent well over 50 hours on the job a week.  It doesn’t include, for example, lots of valuable work for the firm, including administrative or overhead items, professional training, supervising staff, pro bono services, getting new business, community services, and so on.  Firms that impose these quotas are just trying to wring every nickel out of their clients, regardless of whether the work is of good quality or actually needs to be done:  It’s just using the client and encourages billing fraud with inflated or faked entries.  Why isn’t the firm being investigated for actually abusing its clients?

There are lots of interesting perspectives on this “victimless crime,” which isn’t a crime at all.  But to me the oddest thing of all is why the Wisconsin Bar ever got involved in this purely internal business matter.  In theory, the Bar’s supposed to be protecting the public, not looking over every lawyer’s dealings with his employer.  If, for example, you went to the same bar and complained that your lawyer’s time appears to be padded — a hard thing to catch, but it can be done with certainty from time to time.  (Remember that my firm reviews bills for a living, so we catch this all the time.)  But if you take those complaints, no matter how detailed or large the problem, the bars will routinely turn you away (they don’t actually enforce the ethics rule on legal fees — not good for business) or divert you to their fee arbitration system, which typically favors the lawyer and doesn’t get into most bill padding either.

This has to do with the way some lawyers, especially bar bureaucrats, feel that their “ethics” or “professionalism” jurisdiction extends to every aspect of a lawyer’s existence, even if there’s no impact on any client at all.  Over the years, everything from the details of a lawyer’s divorce, minor traffic offenses, paying taxes, declaring bankruptcy, campaign statements, and so on have been turned into “ethics” complaints by confused and overzealous ethics bureaucrats who are way out of bounds.

We’ve talked many times about the dubious and conflicting roles played by the organized “bar” associations, which sometimes act as the trade association protecting lawyer’s economic interest, enforcers of ethics against lawyers supposedly to protect clients but often squelching criticism, etc., too, and police against “unauthorized practice of law,” which is really just competition for the lawyer monopoly.  In some jurisdictions some of these roles are nominally assigned to other entities, but they all track right back to lawyers policing themselves and having extraordinary power to alter competition, use the ethics system as a weapon, or otherwise abuse the public trust.

Here’s the story from the horse’s mouth:

The Wisconsin Supreme Court heard oral arguments last week on whether to suspend a lawyer accused of lying to his partners about achieving 1,800 billable hours while correctly billing his clients.

Matthew Siderits is accused of lying to partners about his billable hours at Otjen, Van Ert & Weir to qualify for a bonus in 2007 and 2008, according to the Office of Lawyer Regulation and the Milwaukee Journal Sentinel blog Proof and Hearsay. A referee has recommended a suspension of 18 months.

Siderits became a partner in 2004 and worked in the area of workers compensation defense.  [This kind of practice is different from most and not susceptible to hourly billing because it’s lots of little cases and you have to do them in large batches to bill the way other litigators bill.]  He was the firm’s treasurer and typically entered his time into the computer system. After obtaining a bonus, the OLR brief (PDF) says, he deleted some of his hours from the system. [That’s definitely a business problem, but not an ethics problem.]  He has since repaid the firm about $60,000.

Siderits maintains he was merely writing down or correcting client bills. [This is a common issue with all bills and should be encouraged as long as the time was real to begin with.  Firms may also give the lawyer credit even for written down time because write downs of real time can be reasonable for many reasons — firms use them for discounts all the time.]  …

The case is in the news after a New York Times article ran questioning inefficiencies in the billable hour system. The former partner who wrote the article, Robert Pozen, is now a Harvard business lecturer. He says his expertise worked against him when he worked at a Washington law firm. [A common problem with hourly billing is that it does not reward efficiency or skill — just time, even if the time is wasted, incompetent, etc.]

“For me, hourly billing was a raw deal,” Pozen wrote. “I ran the risk of being underpaid because I answered questions too quickly and billed a smaller number of hours.”

At one firm I worked at, there was a billable hours quota that applied to everyone, including lawyers not billing by the hour, like contingent fee litigators.  Around the firm the contingent litigators’ hours, which never had to be tested by submitting them to a paying client, were a common joke:  While they were some of the least busy lawyers in the firm (they never tried cases, just settled them after paralegals did most of the work normally done by lawyers, they always had more hours on paper).

Once again, the vices of hourly fees have unintended consequences.  While no lawyer should record inaccurate time in the first place, gaming the firm’s bonus system is more of a business matter and there are many ways to do that, many of which also harm the client with excessive bills.  In this instance, there was no harm to the public or client, so it’s not an ethics issue.  The firm’s recourse is with traditional employment options, which might include firing or perhaps litigation.

ABA Journal:  Wisconsin Supremes Mull Case of Lawyer Accused of Lying to Partners (But Not Clients) About Hours

About JWT

John Toothman founded The Devil's Advocate, the legal fee management and litigation consulting firm, in 1993. He graduated from Harvard Law School, with honors, in 1981. John has been a lawyer with large and small law firms and the US Dept. of Justice. He's tried over sixty cases. He has testified as an expert witness in over seventy more. ... He is the author of several books and dozens of articles about lawyers, law firms, legal fees, ethics, litigation and trial practice, and related issues. Books include: Trial Practice Checklists 2d (West), Legal Fees: Law & Management (Carolina Acad. Press), and the Civilian's Guide to Lawyers series. His pro bono activities include teaching and speaking at seminars. ... John is admitted to practice law in DC, Maryland, and Virginia. More information: http://www.DevilsAdvocate.com
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