§ 2.07 BILLING, COLLECTION, AND ATTORNEY LIENS
Lawyers are often better at advising businesses than running them. Fee agreements, billing, and collecting fees are often an afterthought. Once initiated, billing practices and fee agreements are seldom reviewed or updated. The RPCs regarding fee agreements have changed substantially over the years. Many lawyers get into trouble using old agreements that violate current rules. Because a lawyer's business practices involve the fiduciary attorney-client relationship and are subject to ethics rules, the consequences of using outdated or unconsidered practices can go far beyond just not getting paid.
Practice Tip: Make sure your fee agreements comply with current rules. Keep an eye on the adoption of amendments to the RPCs and review them when adopted to determine if they apply to your practice.
[1] Billing Practices
The lawyer's billing practices should be communicated to the client in the initial fee agreement or engagement letter. It is important that those practices then be carried out, for a common element of many discipline cases is a failure of the lawyer to keep the client informed about services and fees via regular billing statements.
A lawyer has a duty to bill accurately and must not misrepresent who performed the work, the length of the work, or the nature of the work. Misrepresentations regarding billing can violate RPC 8.4(c) as misconduct "involving dishonesty, fraud, deceit, or misrepresentation." In re Disciplinary Proceedings Against Dann, 136 Wn.2d 67, 960 P.2d 416 (1998) (lawyer suspended for switching lawyer's initials on bills); see also In re Disciplinary Proceeding Against Dynan, 152 Wn.2d 601, 98 P.3d 444 (2004) (lawyer suspended for submitting declaration for an award of fees at a hourly rate higher than he was billing the client without informing the court); In re Disciplinary Proceeding Against Haskell, 136 Wn.2d 300, 962 P.2d 813 (1998) (essentially same conduct as Dann). The lawyer must not pad the bill or bill two clients for the same time. ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 93-379 (1993).
A lawyer should bill at least as often as provided in the fee agreement. The bill should show a breakdown of time if based on an hourly amount. A lawyer should not bill work as lawyer time that is better performed by staff. In re Estate of Larson, 103 Wn.2d 517, 531, 694 P.2d 1051 (1985). Although detailed billing is encouraged, if the bill is sent to a nonclient, the client's confidences and secrets must be protected under RPC 1.6. See WSBA Advisory Op. 195 (1999) (billings sent to an insurer must omit confidences of insured unless the client provides informed consent).
A lawyer must not bill more for costs than the lawyer expended—i.e., a lawyer must not add a "surcharge" or profit unless agreed to in advance by the client:
Any reasonable calculation of direct costs as well as any reasonable allocation of related overhead should pass ethical muster. On the other hand, in the absence of an agreement to the contrary, it is impermissible for a lawyer to create an additional source of profit for the law firm beyond that which is contained in the provision of professional services themselves. The lawyer's stock in trade is the sale of legal services, not photocopy paper, tuna fish sandwiches, computer time or messenger services.
ABA Comm. on Ethics & Prof'l Responsibility, Formal Op. 93-379 (1993).
[2] Necessary Time Records
Timekeeping may be one of the least favorite functions of law practice, but it is one of the most essential to getting paid. Lawyers disagree about whether, and to what extent, it is necessary to maintain contemporaneous time and billing records in contingent fee cases. Well-respected law firms come down on both sides of the question. However, failure to keep detailed contemporaneous billing records can raise both ethical and practical obstacles to getting paid.
Often, lawyers operating under contingent or flat fee agreements assume that keeping contemporaneous time records is unnecessary. This assumption is wrong and dangerous. Keeping contemporaneous time records helps determine the fees earned if the lawyer-client relationship is terminated early. For contingency fees, as pointed out in § 2.05[2], above, if an attorney is discharged before substantial completion of the contingency, the attorney is entitled to quantum meruit recovery of attorney fees. Determining a reasonable quantum meruit amount starts with a lodestar calculation—a reasonable amount of time spent times a reasonable hourly rate. The lawyer has the burden of proof. Without time records, it would be necessary for a lawyer to reconstruct those records. Reconstructed records are subject to challenge. "[A]ny reconstructed hours 'should be credited only if reasonable under the circumstances and supported by other evidence such as testimony or secondary documentation.'" Johnson v. State Dep't of Transp., 177 Wn. App. 684, 699, 313 P.3d 1197, 1205 (2013). Overstating time in reconstructed time records was one of a lawyer's actions found to justify disbarment in In re Disciplinary Proceeding Against Van Camp, 171 Wn.2d 781, 257 P.3d 599 (2011).
A similar need for time records exists upon completion of a contingency fee matter when a client exercises the statutory right to request a review of the reasonableness of the fees under RCW 4.24.005.
Time records are also necessary to seek an award of fees as a prevailing party when those fees are authorized by contract, statute, or common-law right. That is often the case with de novo trials under mandatory arbitration rules or in cases such as civil rights actions where fee-shifting is authorized.
Also, contemporaneous time records are necessary, or at least beneficial, in seeking approval of fees when court approval is required, such as approval of a settlement of a minor's or incompetent's personal injury claim.
As with fee agreements, billing and fee collection practices are subject to the RPCs. Simburg, Ketter, Sheppard & Purdy, LLP v. Olshan, 109 Wn. App. 436, 33 P.3d 742, review granted, 141 Wn.2d 1001 (2000). In Simburg, the law firm had an outstanding balance owed to it for fees. The attorney offered a reduction in the amount owed if the client would sign a promissory note. The client agreed. The firm sued on the note and was granted summary judgment. The Court of Appeals reversed because questions of fact existed concerning whether the attorney sufficiently communicated to the client the basis or rate of attorney fees as required by RPC 1.5(b). The firm's bills contained "no breakdown of attorney charges whatsoever." Id. at 445. As a consequence, the client had no reasonable way to evaluate the billing statements to determine if the fees and note were reasonable. Id. Without detailed billing records, how could the firm comply with the requirement for a breakdown of attorneys' charges?
Query: How much detail is enough? The more detail, the better.
Practice Tip: Keep contemporaneous time records. The time has passed for not doing so to be an acceptable practice.
Many lawyers creating contemporaneous time records engage in "block billing." Block billing is the practice of entering a total charge for multiple tasks performed on the same date in a single time entry without breaking down the time devoted to each task. One approach to avoiding block billing is to follow each task in the description of services with the time spent on the task with a total time for the date used to compute the charge. As an alternative to combining tasks under a single date, some attorneys create a time entry for each separate task.
Block billing has been disapproved by federal courts, including the Western District of Washington and the Ninth Circuit. The U.S. Court of Appeals for the Ninth Circuit has held that block billing "practices are legitimate grounds for reducing or eliminating certain claimed hours, but not for denying all fees." Mendez v. County of San Bernardino, 540 F.3d 1109, 1129 (9th Cir. 2008). Washington courts have...
