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REVENUE STREAMS: LAWYERS AND MONEY

In recent years, law firm billing practices have come under close scrutiny (Koppel, 2006).

In addition to the amount, there are legal and ethical questions concerning billing practices. Such practices include “using a heavy pen,” which means rounding up to the next time unit in measuring fractions of hours worked on a client’s case. There is also “late time,” adding to the bill extra hours that lawyers did not work. Another questionable practice is the “smell test,” a crude way lawyers can tell whether a padded bill will seem exorbitant to the client. Then there are fictitious narratives using such phrases as “review of key documents” and “analyze defense strategy” to describe work never performed. The central character of Jeremy Blachman’s (2006:56) novel, Anonymous Lawyer, captures, in a lighter vein, some of these billing practices. In his sardonic words,

I bill the time I think about these sorts of things. I call it "research." The clients never question it. "Research" is code for surfing the Internet, "drafting" is code for eating in your office, "misc. legal forms" is code for ordering gifts online, and "preparing for meeting" is code for taking a crap. Everyone knows. It's no big deal.

No clear line exists between aggressive billing practices and fraud. Ideally, legal billing should be as simple as paying for a house call by a plumber or electrician. Lawyers, plumbers, and electricians all charge by the hour, and they expect to be reimbursed for expenses incurred. However, this process for lawyers is not as simple as it sounds. Because lawyers may charge hundreds of dollars per hour and incur thousands in expenses, any imprecision can be costly to the client. Large-firm associates, for example, who are expected as many as 2,400 or 2,500 hours per year, often introduce a modest multiplier in the charges. Most lawyers have timers on their phones and round off their phone calls, so that a 1-minute call costs the client a full-time unit of 6 or 15 minutes on the bill. Other lawyers may charge a full hour for an hour of work that includes lunch and a visit to the bathroom (Moses and Schmitt, 1992).

In another example, through a process of legal alchemy known as double billing, lawyers can make two into four: Take 2 hours of research spent on client A’s legal problem, which turns out to be the same as client B’s problem, and charge each client for 2 hours, or 4 hours altogether. Although the ABA condemns double billing, its rulings do not bind lawyers, who are thus free to bill both clients for the same work. In yet another example, associates are even told that any time spent thinking about a client’s legal woes, even while eating or jogging, should be billed (Stracher, 2001).

In the United States, legal expenses can be as devastating as medical expenses. To most Americans, legal fees for justice seem almost criminal—about $5,000 for misdemeanors; $4,000 to $12,000 for nontrial felonies; and $25,000 and above for felony trials. Even the simplest traffic violation starts with a $1,000 retainer. Similarly, the legal fees in estate and probate provide the opportunity for large profits from legal work. Few people understand why a lawyer who fills out mostly standard forms for 2 hours at the closing of a $600,000 house deserves 1%, or $6,000, for his or her effort (which is the same for a $100,000 house or for a $10,000,000 house—still 1%). In probate, legal fees are determined usually as a percentage of the worth of the transaction—in this case, the value of the estate. Typical charges are 7% for the first $7,000 of the estate, 5% for the next $4,000, 4% for the next $10,000, 3% for the next $60,000, and 2.5% for the remainder. Once again, the amount of the fee is not necessarily related to the amount of work expended by lawyers, especially in cases where the value of an estate exceeds several million dollars. Nowadays, it is not unusual to hear of lawyers receiving multimillion-dollar fees, especially in large class-action suits against large corporations.

Lawyers also take cases on a contingency-fee basis (Cotterman, 2016). This is an arrangement whereby a lawyer receives a percentage of any damages collected. This practice is limited to a great extent to the American legal system, and most countries emulate England, which refuses to allow lawyers to work for contingency fees. Such fees in the United States are used primarily in medical malpractice, personal injury, and some product liability and wrongful death cases. If the plaintiff loses, there is no payment required for legal services; if he or she wins, the lawyer takes his or her expenses off the top, then gets a percentage (up to 35%) of the remainder of any money the plaintiff wins in damages.

This contingency system has its merits. It allows individuals who could not otherwise afford it to retain the services of an attorney. It encourages lawyers to screen out weak cases because they share the risk of litigation—if they do not win, they do not collect. At the same time, the contingency-fee arrangement provides a motivation to seek high damages. Lawyers make substantial investments by hiring investigators, expert witnesses, and consultants to augment their chances of winning. Often, they invest a considerable amount of their time in cases that can drag on for years. Not surprisingly, contingency-fee law made more overnight millionaires than just about any legal business one could name. An extensive survey of the richest lawyers in America found that their big fortunes were made predominantly in contingency-fee work, not the corporate law and transaction planning that have always represented the height of lucrative law practice (Olson, 1991a:45).

Lawyers defend the contingency fee as the victim’s key to the courthouse. It allows the poor to obtain the same high-caliber legal services as the rich. Many cases require much expense and preparation. If the suit is lost, the lawyer gets nothing; therefore, the one-third contingency fee is most reasonable.

 
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