June 21, 2011

Ask Bill

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By K. William Gibson

Q. Bill, I've been advised to charge a standard fee in my hourly billing for routine activities such as phone calls (0.2 hours) and reading or writing short letters (0.3 hours), although that isn't always the amount of time I actually spend. Is this a good practice? Do I need to advise my clients about the minimums?

A. I know this is a standard practice, but it has the potential to cause some problems. One example comes immediately to mind. I was serving as an arbitrator in a fee dispute between a lawyer and his client, in which the client claimed that he was drastically overcharged on a divorce case. The lawyer's secretary testified that she met with the

lawyer every day when the mail arrived and he reviewed all the day's correspondence and dictated responses to her for an hour. In that one hour, using minimum time charges similar to those that you describe in your question, he regularly billed eight or ten hours of time, just on correspondence!

Now, with that story in mind, let's lay some groundwork before considering your question more directly.


The Practice of Rounding Up

The practice of minimum billings seems to be viewed differently than other billing transgressions committed by lawyers. For example, the ABA Journal reported earlier this year on the case of a Kansas lawyer who was censured for regularly "rounding up" his bills from three-quarters of an hour to one hour. (The full article is at www.abanet.org/journal/ereport/m10time.html.) The case in question was In the matter of Myers, No. 95, 132 (Feb. 3). The Journal article quotes a 1993 formal opinion by the ABA Commission on Ethics and Professional Responsibility that included the following language:

In matters where the client has agreed to have the fee determined with reference to the time expended by the lawyer, a lawyer may not bill more time than [he or she] actually spends on a matter, except to the extent that [the lawyer] rounds up to minimum time periods (such as one-quarter or one-tenth of an hour).

That prompted a response from law professor William G. Ross, of Samford University's Cumberland School of Law, that goes to the heart of your question. "If read literally," Professor Ross pointed out, "that ABA opinion would condone the highly questionable practice of attorneys who bill a quarter-hour for one-minute tasks such as phone conversations."

Your question, of course, assumes that the minimum charge of 0.2 hours for a phone conversation exceeds the time actually spent. (I have never had a question from a reader asking whether it was okay to round a bill down, but for the record, that would probably be fine.) The larger question, however, is whether it is ever proper to charge a client for more time than was actually spent—or, put differently, why a lawyer would think that it was acceptable to round up under any circumstances.

In the pre-technology era, the answer might have been that it just wasn't possible to capture actual time spent with any accuracy. Yet that cannot be the justification today, given all the tools available to accurately track time spent on multiple activities, including activities being performed simultaneously. So if the justification isn't related to a lawyer's inability to track time, then it must be something else.

To get some expert advice on it all, I consulted William Hornsby, staff counsel at the American Bar Association, as well as Sylvia Stevens, general counsel of the Oregon State Bar.


Seeing the Fee as a Matter of Contract

Will Hornsby's view is that the lawyer needs to disclose the fees and get the client to agree to minimum charges. "On the one hand," he says, "charging for time that was not really incurred would seem to be inappropriate unless it was clearly understood and agreed to by the client. On the other hand, setting a fee for a service is encouraged."

He goes on to pose a question that seems to get at the heart of the issue: "Why wouldn't a lawyer just drop the time fiction and charge a minimum of $X for a telephone call or $Y for a letter?" Will's view is that "as long as the client understands and agrees to it and the fee is reasonable, I see no violation with that."

For her part, Sylvia Stevens of the Oregon State Bar agrees that "this is a question of disclosure to and agreement by the client to the billing practice." Her view is that client billing is largely a matter of contract. "The ethical implications are secondary and focus on excessive charges. It is not ‘clearly excessive' for a lawyer to have a minimum billing increment or a flat rate for certain services. It becomes problematic only when the client is misled or doesn't understand the billing." As Sylvia adds, "Such things only rise to an ethical problem if the amount charged for a task is ‘clearly excessive,' such as having a minimum billing increment of a half-hour or charging one hour to read a ‘simple' letter."

She further points out that when she "was last in practice, the minimum billing increment was one-tenth of an hour (six minutes) and our clients were informed of that fact. When necessary, it was explained as the reasonable cost of a brief service and also covered the time to record the activity and bill for it. Most clients will accept that and agree to a minimum billing increment." She adds, though, that minimum charges are "more aptly called task-based billing, which is not calculated according to the actual amount of time spent, but by the act performed" (such as charging a flat fee to open a file).

The amount charged for a flat fee, Sylvia points out, "typically reflects the relative complexity (or simplicity) of the service. The difficulty with task-based billing of the kind suggested is identifying what is a ‘routine' phone call or a ‘short' letter. The lawyer may need to clarify that a routine call is one that doesn't exceed 12 minutes and a short letter review is one that doesn't take more than 18 minutes or something like that. All of which gets you back to time billing and makes a minimum billing increment more sensible."

I have spoken with a number of lawyers who bill by the hour, and none of them has said that they discuss minimum charges for phone calls or correspondence with clients or that they include those minimums in the fee agreement. It left me wondering how their clients would react if they knew in advance.