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Billing Methodologies Don’t Act Unethically. Lawyers Do.

by Carolyn Elefant on October 5, 2010 · 1 comment

in Ethics & Malpractice Issues, Mistakes/What NOT To Do, Setting and Collecting Fees

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Look,  I’m no friend of the billable hour.   As others have emphasized far more eloquently, the billable hour measures time, not results and as such, breeds inefficiency.  Worst, for at least two decades, the billable hour fed biglaw’s associate leverage schemes which have since buckled under the weight of bloated fees and left countless young lawyers out on the streets.

But that’s where my judgment of the billable hour ends.  When it comes to ethics, the billable hour isn’t inherently more unethical than any other scheme, even though cases like this one involving lawyers over-billing sure make it seem that way.  What we forget, however, in the rush to embrace alternative billing schemes like flat fees is that these too, carry the potential for misconduct.

Take a look at the latest news in the foreclosure crisis.  Banks are putting foreclosures on hold now that it turns out that many of those who signed off on the procedures never bothered to check the paperwork for accuracy.  And that includes the lawyers at foreclosure-mill type practices who carried out the banks’ marching orders without review or question. Granted, foreclosure cases aren’t criminal matters, and the banks’ lawyers don’t owe an obligation to defendants to point out errors.  But as lawyers, the foreclosure mills at a minimum, owed a duty to the court to ensure that their filings were accurate.  They didn’t.

And no wonder.   Take a look at Fannie Mae’s fee schedule for foreclosure matters:  fees range from $300 to $600 for non-judicial foreclosure and top out at $1500 for judicial foreclosures.   Those fees were intended to pay for a list of tasks enumerated by Fannie Mae in its documents, including filing the complaint, motions for summary judgment and securing necessary paperwork.  The lawyers who accepted these fee contracts should have recognized that in most cases, the flat fees offered were woefully inadequate, but they took the money anyway, and tried to make it up in volume or by cutting corners.

What these lawyers did was unacceptable.  Maybe Fannie Mae was a cheap client, but the law firms didn’t have to sign on.  And once involved in the case, the firms should have eaten the cost, doing everything possible to handle these cases in accordance with applicable professional standards.

Even beyond the ethics issues, the fall out from these cases reaches even farther.  Some of these mills are making young associates take the blame for mishandling these cases, even though the partners who took the cases should have known better (apparently, blame-the-associate is a common defense.)  Some commenters are even predicting that all of this foreclosure fraud may cause another banking crisis.  It’s Enron all over again.

So is the flat fee to blame for the gigantic foreclosure mess, just as many have tried to blame the billable hour for unethical overcharges and the demise of biglaw? Of course not.  True, the flat fee tempts lawyers to cut corners to keep costs down, just as the billable hour gives lawyers incentive to do unnecessary work to push bills up.  But at the end of the day, the problem isn’t the chosen billing methodology, but rather, with the lawyers implementing it.  Billing methodologies don’t behave unethically.  Sadly, though, many lawyers do.

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