Ethics Tip: Hey! Those are MY Billable Hours!

By Vicki Voisin, ACP

I receive lots of mail from paralegals. One recent message really deserves some attention. ‘Anonymous’ writes:

Dear Vicki: 

I am a Paralegal Strategies subscriber, as well as a paralegal in XXX, USA. I wonder if you would offer some advice on a problem I have at the small firm where I work. My boss, the owner of firm, has developed a habit of having me draft letters or short pleadings and then bill it to the attorney’s time, at the attorney’s rate, which is, of course, significantly higher than the paralegal rate. The other day I was also forwarded an email from another paralegal where the boss asked her to do several things on a case and then bill it to the boss’s time. Obviously, Vicki, this is ripping off the client, unethical, and I feel it exploits the use of paralegals. I have thought about making an anonymous complaint to the state bar. Just wondering if you have any advice for a paralegal out here in the trenches.

Thanks!

Anonymous

Dear Anonymous,

Thank you for subscribing to Paralegal Strategies and for taking the time to send your question. This is not the first time I’ve heard of this practice and I share your concerns.

First, I must say that my goal is to provide paralegals with information that will help them to better perform their work and to increase their career satisfaction. It is NOT my goal to interpret Model Rules as they apply to attorneys or to tell attorneys how to practice law or manage their law businesses.

That said, the circumstances you describe are disturbing because they are dishonest and unfair to the client. They also diminish the professional status of the paralegal. It is a practice that is probably more prevalent than we know. It is a practice that should be exposed but I believe that would best be done by clients and by Judges.

There are, however, some important points that every paralegal (and every attorney) should be aware of and pay attention to. Are you ready? It’s long!

The purposes for hiring paralegals. Paralegals are hired for several reasons:

  • to free up attorney time for other substantive work; provide legal assistance to more clients than he or she could do without a paralegal; increase firm profits; and
  • to provide quality legal services to the public at a fair rate. Paralegals and supervising attorneys must be aware of the specific rules, decisions and statutes applicable to fees and to paralegal utilization within his or her jurisdiction.

It goes without saying that if an attorney is going to charge for paralegal time, the paralegal must meet the standards set by the definitions adopted by the American Bar Association, various states, and all paralegal professional associations.

What does the ABA say about fees? There are two specific ABA Model Rules that apply to fees and to paralegals:

Rule 1.5: Fees

a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following:

1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal services properly;

2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

3) the fees customarily charged in the locality for similar legal services;

4) the amount involved and the results obtained;

5) the time limitations imposed by the client or by the circumstances;

6) the nature and length of the professional relationship with the client;

7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and

8) whether the fee is fixed or contingent.

Rule 5.4 Professional Independence of a Lawyer  Prohibits the sharing of legal fees and states that a lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.

The ABA also has Guidelines for the Utilization of Paralegal Services.

Guideline 8: A lawyer may include a charge for the work performed by a paralegal in setting a charge and/or billing for legal services.

Comment to Guideline 8

In Missouri v. Jenkins, 491 U.S. 274 (1989), the United States Supreme Court held that in setting a reasonable attorney’s fee under 28 U.S.C. § 1988, a legal fee may include a charge for paralegal services at “market rates” rather than “actual cost” to the attorneys. In its opinion, the Court stated that, in setting recoverable attorney fees, it starts from “the self-evident proposition that the ‘reasonable attorney’s fee’ provided for by statute should compensate the work of paralegals, as well as that of attorneys.” Id. at 286. This statement should resolve any question concerning the propriety of setting a charge for legal services based on work performed by a paralegal. See also, Alaska Rules of Civil Procedure Rule 79; Florida Statutes Title VI, Civil Practice & Procedure, 57.104; North Carolina Guideline 8; Comment to NALA Guideline 5; Michigan Guideline 6. In addition to approving paralegal time as a compensable fee element, the Supreme Court effectively encouraged the use of paralegals for the cost-effective delivery of services. It is important to note, however, that Missouri v. Jenkins does not abrogate the attorney’s responsibilities under Model Rule 1.5 to set a reasonable fee for legal services, and it follows that those considerations apply to a fee that includes a fee for paralegal services. See also, South Carolina Ethics Advisory Opinion 96-13 (a lawyer may use and bill for the services of an independent paralegal so long as the lawyer supervises the work of the paralegal and, in billing the paralegal’s time, the lawyer discloses to the client the basis of the fee and expenses).

It is important to note that a number of court decisions have addressed or otherwise set forth the criteria to be used in evaluating whether paralegal services should be compensated. Some requirements include that the services performed must be legal in nature rather than clerical, the fee statement must specify in detail the qualifications of the person performing the service to demonstrate that the paralegal is qualified by education, training or work to perform the assigned work, and evidence that the work performed by the paralegal would have had to be performed by the attorney at a higher rate. Because considerations and criteria vary from one jurisdiction to another, it is important for the practitioner to determine the criteria required by the jurisdiction in which the practitioner intends to file a fee application seeking compensation for paralegal services.

Don’t forget the US Supreme Court. The US Supreme Court has been asked on two occasions to decide whether paralegal time may be reimbursed at market rates under fee shifting statutes. Twice the Court has provided an unequivocal “yes.” In doing so, the Court has recognized that paralegal time should be billed the same as other professional staff.

Missouri v Jenkins, 1989: The Court addressed the recoverability of paralegal fees under §1988 of the Civil Rights Attorney’s Fee Awards Act of 1976. The Court recognized that everyone (attorneys, paralegal employees and clients) benefits from the proper utilization of paralegals. In its opinion, the Court stated: By encouraging the use of lower cost paralegals rather than attorneys wherever possible, permitting market-rate billing of paralegal hours “encourages cost-effective delivery of legal services and, by reducing the spiraling cost of civil rights litigation, furthers the policies underlying civil rights statutes.”

Richlin v Chertoff, 2008: The question before the court was similar to Missouri v Jenkins except that the court was asked to review if paralegal fees could be reimbursed at market rates under the Equal Access to Justice Act. The court again stated that paralegal fees may be awarded at market rates.

What are ‘market rates’? The market rate is the typical charge for a person of comparable education and experience performing a certain level of task in a specific area of law and geographic locale. For this reason, the billable hour rate for a paralegal in Cedar Rapids IA may not be as high as in Los Angeles CA. The billable hour rate for a paralegal working in real estate may not be as high as the rate charged for a paralegal working in intellectual property.

The client. Clients have historically been concerned about the delivery of cost-effective legal services. Today’s economic circumstances have increased their concerns. Attorneys can counter their concerns and meet their needs by providing a high caliber work product at a lower cost through the use of paralegals. Again, those paralegals MUST be qualified through education, work and/or experience to perform substantive tasks that, in the absence of the paralegal, would be performed by the attorney.

Fee Petitions: This is where the issue of fees gets particularly sticky for attorneys. They must not commit a fraud upon the court. Therefore, when they submit fee petitions where they have absorbed paralegal time as their own, they are not being truthful. Instead, the fee petition should set forth the time spent by the paralegal and also the time spent by the attorney. These are separate.

The fee petition must itemize the date the work was performed, the identity of the person doing the work, detail of the task performed, and the time spent. The amount charged must reflect reasonable local market standards. It is also helpful to provide the court with information regarding the credentials of each billing professional. The lack of this data may result in the denial of fees.

The court should closely scrutinize these petitions. The opposing party should also. If there is no paralegal time on the petition, and the Judge or the opposing party is aware that the firm utilizes paralegals, questions should be asked.

Courts have denied attorney fees because the work should have been done by paralegals. In the matter of Metro Data Systems, Inc. v Duranao Systems, Inc., 597 F.Supp 244 (D.Ariz.1984) the Court refused to authorize compensation for lawyers performing services that could have been performed by a paralegal. As was so aptly put in the decision rendered in Urisic v Bethlehem Mines, 710 F2d 670 (3rd Cir.1983), the Judge said:

“Michelangelo should not charge Sistine Chapel rates
for painting a farmer’s barn.”

Usually paralegals do not set their billing rates. The matter of setting billable rates for every member of the firm, including paralegals, is usually left to the firm’s administrators and/or attorneys. In fact, because paralegals are prohibited from setting the client’s fees, they probably should not make any decisions regarding charges to the client. The majority of paralegals are responsible for keeping track of their time, as well as meeting billable hour goals which are, again, determined by the firm’s administrator’s and/or attorneys.

Ethical obligations. The tasks and services that are performed by the paralegal and for which compensation may be sought must be substantive and NOT clerical in nature and, also, consist of tasks and services that would otherwise be performed by an attorney. The paralegal should ensure truth in billing by describing the task accomplished accurately and honestly, including the records of actual time spent on the task.

At this point, truth in billing becomes the attorney’s ethical obligation because the attorney has the direct relationship with the client. The attorney has the ultimate authority concerning methods, amounts and descriptions used when clients are billed. This may vary from practice to practice. Still, truth in billing is every attorney’s obligation.

What can paralegals do?

1) Be sure the attorney you work for fully understands the criteria a paralegal must meet in order for the paralegal’s time to be billed to the client, including the fact that the paralegal’s work must be substantive in nature;

2) Be sure the attorney you work for understands that paralegal fees can be recovered but they must be presented in a properly drafted fee petition.

3) Be sure you are truthful…always…in your time recording practices. Record only the time you work and never for work that is clerical in nature.

4) Be sure to maintain a high degree of personal and professional integrity; and

5) Review opposing parties’ fee petitions carefully; if they should include paralegal time but do not, your firm may be able to oppose them on this issue.

In conclusion: Beyond maintaining your own high ethical standards as you enter your time for work done for clients and making the attorney aware of ethical obligations regarding paralegal fees, there is really little the paralegal can do.

If your situation is intolerable, you should look for other employment but that may not be a viable option. Sometimes you just have to remember which side of your paycheck you’re signing.

It is my hope, though, that the practice of attorney’s billing paralegal time at their own rates will be squelched by attorneys themselves realizing that this is a dishonest practice, by savvy clients who ask why they are not being charged for paralegal time, and by judges who are aware that paralegal time should appear on fee petitions separately from the attorney’s time.


©2009 Vicki Voisin, Inc.

Do you want to use this article in your newsletter, ezine or Web site? You can, so long as you include this entire blurb with it: Vicki Voisin, “The Paralegal Mentor”, delivers simple strategies for paralegals and other professionals to create success and satisfaction by achieving goals and determining the direction they will take their careers. Vicki spotlights resources, organizational tips, ethics issues, and other areas of continuing education to help paralegals and others reach their full potential. She publishes a weekly ezine titled Paralegal Strategies. More information is available at www.paralegalmentor.com