There are numerous ways for an attorney to overcharge a client.
A. CONTINGENCY FEE CASES
In personal injury cases, attorneys usually agree to represent the client in exchange for one-third (33.33%) of the gross recovery. This is known as a contingency fee. For the attorney’s contingency fee agreement to be enforceable, it must reasonable at the time the attorney was retained in relationship to the expected difficulty of the case. In other words, it would be unreasonable for an attorney to charge a client in excess of one-third, unless there are extraordinary circumstances. An excessive contingency fee agreement is not enforceable.
One Court explained why: “[A] fee agreement between lawyer and client is not an ordinary business contract. The profession has both an obligation of public service and duties to clients which transcend ordinary business relationships and prohibit the lawyer from taking advantage of the client. Thus, in fixing and collecting fees the profession must remember that it is a branch of the administration of justice and not a mere money getting trade”. Matter of Swartz 686 P.2d 1236, 1243 (Ariz. 1984)
The reasonableness of the contingency fee must also be determined after the case is resolved. For example, a one-third contingency fee may become unreasonable if the attorney spent only a few dozen hours in obtaining a settlement. In such situations, the attorney should voluntarily agree to reduce his or her fees so that the attorney does not receive an unwarranted windfall.
In Maryland, a contingency fee agreement of 50% or more is both unethical and unenforceable, because an attorney is not allowed to have too great an interest in the client’s case. If the attorney’s fee agreement is unenforceable due to excessiveness, the attorney is only allowed to recover the reasonable value of the legal services rendered. The reasonable value of the attorney’s services is usually substantially less than the contingency fee.
B. HOURLY RATE CASES
There are at least 10 ways for an attorney to overcharge a client who is paying an hourly rate for legal services.
- Phantom Billing
“Phantom billing” occurs when an attorney invoices a client for work that was never performed. An audit of the client’s file is necessary to detect phantom billing.
- Unnecessary Work
An attorney should not be compensated for performing work that was not reasonably necessary. An audit of the client’s file is necessary to determine whether the legal services were reasonably necessary.
- Block Billing
“Block billing” is when an attorney provides no description or an inadequate description of the work performed. For example, the attorney might have an entry on the invoice that states “case work” or “reviewed email”. Such billing entries are insufficient, because they do not inform the client of either the nature of the legal services performed, the source and nature of the communication, nor why the work was reasonably necessary. When an attorney block bills, the attorney may face difficulties in seeking to recover legal fees based on either contract or quantum meruit.A proper invoice from an attorney should be in a format that is clear and should be reasonably particular regarding the nature and the necessity of the legal services performed. Diamond Point v. Wells Fargo 400 Md. 718, 760 (2007) (“It goes without saying that attorneys who bill on a time basis should make their billings as detailed as reasonably possible, so that the client, and any other person who might be called upon to pay the bill, will know with some precision what services have been performed”).
- Lack of Contemporaneous Time Records
It is the responsibility of the attorney to maintain accurate billing records. This is accomplished by making contemporaneous billing entries. When a client does not receive a monthly bill, it may mean that the attorney is not maintaining contemporaneous time records. Without contemporaneous time records, an attorney will often resort to reconstructing the time records or backdating bills. The inherent inaccuracies of such reconstructed invoices should be resolved against the attorney.
- Large Billing Increments
Most attorneys bill in 0.1 hour (6 minutes) increments. When an attorney bills in 0.2 (12 minutes) or 0.25 hour (15 minute) increments, the amount billed does not reflect the actual work performed by the attorney. Such inflated bills are unacceptable and should be discounted.
- Duplication of Effort
Duplication of effort is not compensable. For example, when a firm has 2 attorneys attend a court hearing, the client should be billed only for the appearance of the senior attorney.
- Excessive Conferencing
At large law firms, junior attorneys report to senior attorneys. Unfortunately, this means that both attorneys bill the client for their meetings. While occasional conferences are often necessary, constant meetings are usually unproductive and wasteful.
- Billing Rate Increases
A law firm may not unilaterally increase its billing rate. Nevertheless, many firms increase their hourly on an annual basis without their clients’ permission.
- Change in Personnel
A client should not be charged for a new staff member or an newly assigned attorney to review the client’s file to get up to speed, because such effort does not advance the client’s cause. When the law firm assigns new staff, the additional costs associated with the change in personnel should be charged to overhead, not to the client.
- Excessive Supervising and Training
Law firms are always training new staff and attorneys. The law firm should reduce its hourly rate for the on-the-job training of its staff.