How Can a Business Prevent Their Lawyers from Inflating Legal Bills?

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Advice from Carlsbad, California Business Attorney, Sean Dunn, on how businesses can reduce the potential for legal bill padding and gain control of legal costs.

You are the boss, not the lawyers.

How can a business or individual gain control of their legal costs and reduce the potential for legal bill padding? This article provides some advice from Sean R. Dunn, Director of the Law Office of Sean R. Dunn, APC, a business law firm in Carlsbad, California.

Last week an Op-Ed piece appeared in the New York Times about allegations of legal bill inflating and bill "churning" at one of the largest law firms in the world.

No one wants to need a lawyer. However, in the business world lawyers are a necessity. As corporations and businesses large and small look to cut costs during challenging economic times, many businesses are scrutinizing their legal costs. Many smaller businesses take a risk and do not retain counsel. They try addressing many legal issues on their own to avoid the uncertainty of unscrupulous hourly billing by law firms and attorneys.

What can a business do? Sean Dunn, Director of the Carlsbad, California business law fim, the Law Office of Sean R. Dunn, APC gives businesses this advice:

1) Virtually every business needs legal representation and advice. Any business is going to have legal issues during formation, operation and dissolution of the business. Doing it yourself can result in unintended financial consequences such as tax penalties or greater legal costs to fix a problem that could have been avoided by proper and timely legal advice. Therefore, get the right advice from the right team of professional advisers such as a business attorney and a Certified Public Accountant.

2) Do the homework, research and find the right attorney or law firm. Given the cost of legal representation, do the research, look the attorney up in their state bar website. See if they have been subject to discipline previously. Seek references from the attorney and check those references.

3) Negotiate the fees and costs. In most cases the business law client has the ability to negotiate prices with lawyers. People negotiate the price when they buy a car. People compare prices when hiring a plumber. Do the same thing when hiring a business lawyer. One law firm will charge you $400 per hour; another may charge you $150 per hour. Look for the best price the company can afford for quality business law representation, not the cheapest price for the lowest quality representation.

4) Have a written contract with the business lawyer or business law firm. Most states require written legal fee agreements. In California any fee over $1000.00 requires a written agreement. The Legal Fee Agreement should detail exactly what work will be performed, what the legal fee will be, and how expenses are calculated. Also consider including provisions in the contract requiring client approval before costs or fees over a certain amount are expended. Also include a provision requiring client approval before additional attorneys can work the case. These provisions drastically limit the ability of the law firm to “Churn” the file with unnecessary work by too many lawyers increasing your fee.

5) Consider using an alternate fee arrangement instead of hourly fees. Many business law firms are moving away from the billable hour. Many business law firms are using alternate fee arrangements such as flat-fees, fixed-fees or fees with incentives for good performance and penalties for bad performance. Using an hourly rate can be daunting to a small business. The business cannot predict the total cost they will face. Moreover, as the New York Times article points out, the lawyers can be tempted to “pad” the bill.

Flat-fees can set the total cost up front. This provides the business the ability to forecast and budget for their legal fees. Additionally, flat-fees provide the incentive to the law firm to work efficiently and effectively, and provide a specific disincentive to not “pad” the bill. To provide an incentive for the law firm to not push the work on a flat-fee case to the most junior attorneys, the fee agreement can be set up to provide the firm a share of the risk of the outcome through bonus for positive results and reduced payment for a negative result. Flat-fees may not work for every legal matter; however, from the client’s perspective they should be considered and discussed. For more information on flat-fee arrangements, see this American Bar Association Journal Article.

6) Review, scrutinize and audit legal bills. Don’t just pay the bill. Review the bill. Compare legal bills to the company’s records. If something is not right, challenge the charge. “A prudent company audits bills and does not let suppliers over charge. So, don’t let your lawyer,” said Sean Dunn, a Carlsbad, California based business lawyer.

Mr. Dunn said to watch out for these possible signs of bill padding in legal bills: Charging 30-minutes for a five minute phone call. Charging 1-hour for a short e-mail or letter that should have taken the lawyer 5-10 minutes. Charging for work not approved by the client. Charging for work performed by multiple lawyers for the same task. Multiple attorneys working the file without the client’s approval. One lawyer charging for more hours than they can reasonably work in a single day.    

“Lawyers don’t want their bills challenged. They do not want their ethics challenged and they definitely do not want their reputations tarnished by a claim of unethical billing.” Said Mr. Dunn. “If you think something isn’t right talk to your lawyer and have the problem on the bill corrected. If you do not receive satisfaction, you have the right to legally challenge the bill. Check with your state bar association on how to challenge a bill you feel is inappropriate. For example, in California there is mandatory Legal Fee Arbitration through the state bar association.” Said Mr. Dunn.

7) “You are the boss, not the lawyers,” said Mr. Dunn. “Always remember the lawyers work for the client, the client does not work for the lawyers. If you do not want to pay for something the lawyer wants to do, tell them. If you don’t agree with an expense, tell them before they run up your costs. Insurance companies do this with Insurance Defense Counsel all the time. Always remember, if necessary, you can fire your lawyer and get someone else to serve your business law needs, “ Mr. Dunn said.

When a business needs legal representation, the business should research and find the right lawyer or legal team at the best price to support the business. The business should negotiate the fees and costs with the business lawyer and then use detailed written fee agreements. The business law client should always consider alternate fee arrangements. They should review every bill and if a charge does not seem appropriate, challenge the charge. If the business lawyer does not amend the bill to the client’s satisfaction, the client can go to the applicable state bar association for help. Finally, always remember the client is the boss, not the lawyer.

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