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Shades of Rashomon II: Client billing
By Peter Geraghty, director, ETHICSearch
Susan J. Michmerhuizen, ETHICSearch Counsel
This article originally appeared as the ETHICSearch Tip of the Month in October of 2013. To view more ETHICSearch “tips,” visit the ETHICSearch website.
You are a lawyer with one partner in a midsize city. You represent several small businesses. One of these clients comes to you with an employment matter; a disgruntled ex-employee has filed complaints with state and city agencies charging the client with discrimination. The client adamantly denies the allegations and wants to fight the charges full on. He also tells you that his business is running on a shoestring, and he is anxious about the potential legal fees involved and wants you to keep close tabs on your time and expenses.
You accept the case and tell the client that the matter can be handled for $10,000.
You contact the lawyers representing the employee and find that the ex-employee has obtained legal counsel from a prominent civil rights firm in the city and that they are throwing the full weight of the resources of their organization into this claim. Depositions are scheduled and hearings put on the calendar. You meet with the client to discuss settlement options and to craft a strategy. You are kept busy moving on this, keeping in constant contact with the opposing party’s lawyers and your client, although no resolution is pending.
When reviewing your work to send out bills, you go over the file and find that you have accumulated $5,000 in billable hours. Short on time and on money to support the firm’s day-to-day operation expenses, you are glad to see this source of revenue and are sure that the client will appreciate how hard you have worked on the matter and will not object to paying it. You quickly put together a bill that says:
Researched discrimination claim
Prepared memorandum re. hearing
Telephone calls with opposing counsel
Review/ Organize file
20 hours @ $250/hr
For services rendered: $5,000
The client receives the bill and is confused and irritated. He is unable to tell exactly how much time you spent on each matter and wonders if the total amount of time you spent really added up to 20 hours. He is upset that you didn’t provide him with the detail he asked for and wonders just how carefully you are watching your time.
The art of billing is not addressed clearly by the rules of professional conduct. Rule 1.5, Fees, speaks about reasonableness and the desirability of a written fee agreement, but not about how to bill. Paragraph  of the Comment to Rule 1.5 states:
 When the lawyer has regularly represented a client, they ordinarily will have evolved an understanding concerning the basis or rate of the fee and the expenses for which the client will be responsible. In a new client-lawyer relationship, however, an understanding as to fees and expenses must be promptly established. Generally, it is desirable to furnish the client with at least a simple memorandum or copy of the lawyer’s customary fee arrangements that states the general nature of the legal services to be provided, the basis, rate or total amount of the fee and whether and to what extent the client will be responsible for any costs, expenses or disbursements in the course of the representation. A written statement concerning the terms of the engagement reduces the possibility of misunderstanding.
In this instance, the lawyer thought that he was providing the client with a bill that was brief and easy to understand. However, from the client’s point of view, the bill was unclear and did not provide the attention to detail that he had requested.
It is important to bear in mind that a bill is a form of communication, and in many cases, it may be a central aspect of the contact between the lawyer and the client. To the extent that the bill is unclear or lacking in sufficient detail, this can lead to trouble, misunderstandings, an elevated critical view of the legal work performed and a negative assessment of the lawyer’s services. At an extreme, it can also implicate the black letter of Rule 1.4, Communication. Subpart (b) of the rule states:
(b) A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.
In 1996, the ABA Section of Business Law Task Force on Lawyer Business Ethics published the Statement of Principles, 51 Buslaw 1303 (1996), an excerpt from which states as follows:
… LAWYER’S RESPONSIBILITY IN PREPARATION OF INVOICES
The lawyer’s invoice for legal services rendered to the client should be consistent with what has been disclosed and agreed to by the client. The *1314 lawyer and law firm should make every reasonable effort to provide clients with complete and accurate invoices describing the legal services provided and the amounts charged for same. The lawyer responsible for billing should review each invoice to confirm that the invoice has been prepared in accordance with the billing arrangement reached with the client at the beginning of the engagement and should also take steps as necessary to ensure, prior to sending an invoice to a client, that the invoice is reviewed for accuracy. Each invoice should clearly identify the legal services provided in such specificity as the client requests, the fees charged for such services, and the disbursements and other charges relating to the period being billed. If the lawyer or law firm is handling more than one matter for a particular client, the lawyer responsible for billing should confirm that the invoice clearly references the specific matter(s) covered by the bill. The lawyer should also provide the client with the name of a specific individual to contact in case the client has questions about the invoice or needs additional information.
The billing format used in the above hypothetical is sometimes referred to as block billing, which has been the subject of discussion and criticism in law review articles and in some case law.
…“Block billing” is a “time-keeping method by which each lawyer and legal assistant enter the total daily time spent working on a case, rather than itemizing the time expended on specific tasks.”[FN24] Federal courts disfavor the practice of block billing because “[w]hen time records are blocked billed, the court cannot accurately determine the number of hours spent on any particular task, and the court is thus hindered in determining whether the hours billed are reasonable.”[FN25] Most federal courts when considering block-billing have performed a percentage reduction in either the number of hours or in the lodestar figure. — Joseph F. Cleveland Jr., Alex Harrell, Is Texas Becoming the Lodestar State? 75 Tex. B.J. 700 (2012)
See also, e.g., Mallen, 1 Legal Malpractice § 2:33 West Pub. Co., 2013 ed.
Law firms use a wide variety of billing formats, even when dealing with the same matter or case. The goal should be to create billing formats that are clear and convey as much information as is reasonable. Not only are clarity and detail desirable for the client’s benefit, but also for the law firm. Lack of detail, particularly the use of “block” billing and lack of clarity, can present difficulties in seeking to recover legal fees based on contract or quantum meruit.
In her article entitled “Ethical Billing Practices,” RSUJ14 ALI-ABA 1 (2012) Lynda Shely also recommends against the use of block billing, but in the event that the lawyer wants to use it, she suggests consulting with the client and also explaining its use in the billing agreement.
When preparing bills for clients, see it as a communication opportunity — a chance to give the client a clear picture of what was involved in a matter. Also, at the outset of the representation, take the time to explain to the client your particular billing methods so that there is no misunderstanding or confusion when the client receives his bill.
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