Yes, Some Unethical Attorneys Pad Their Bills. Here’s One Clear Case

What started as a simple question ended with an unexpected legal bill. Experts discuss what happened and chime in with some free advice on a reader’s query about changing the mission statement of his charity.

By H. Dennis Beaver, Esq.

published 6 November 2021

in Features

An illustration shows a large figure shaking a small one upside down until money falls out of his pockets.

(Image credit: Getty Images)

“We recently hired ‘Roger,’ who is a partner in a large law firm, to handle our small, educational foundation. His firm’s website and LinkedIn states that he has a master’s in taxation and represents charities and tax-exempt organizations.

“Our articles of incorporation allow us to send college students majoring in mechanical engineering to a German university for an intensive summer program in addition to improving their German. COVID made travel impossible, and the $125,000 in our foundation’s bank account is just sitting there, unused.

‘I Think My Lawyer Has a Substance Abuse Problem!’

“So I phoned Roger, and asked if we could donate some of these funds to organizations that help refugees from Afghanistan and still maintain our charitable tax exemptions. We spoke for less than a minute. He said, ‘Let me do some research on this.’

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

“His bill just arrived, and we went insane. He charged $85 for that one-minute phone call — and close to $800 for himself and his paralegal for two hours of ‘research’ one day and over an hour ‘reviewing’ it and ‘documents’ the same day!’

“I Googled our question and found the answer in less than five minutes! The senior partner in his firm told me, ‘Roger said that he had to spend this time researching your complicated issue.’

“I asked to be sent copies of his research and the documents he reviewed but have received nothing.

“Shouldn’t an attorney who holds himself out as working with tax-exempt organizations know the answer to that question already? Also, don’t I have the right to copies of his research and documents, if they exist at all, as we’re billed for them? What do you think about this? ‘Hans.’”

That Lawyer Should Have Known the Answer

I ran this question by Los Angeles attorney William M. Ramseyer whose law practice concentrates on charitable organizations. When I told him what Roger said about having to do research, he replied:

“What research? A lawyer with a master’s in taxation who claims to handle tax-exempt matters knows this stuff! We get the same question all the time. He lied to the client and his senior partner. This is bill padding and is illegal.

Escape from the Planet of the Lawyers

“Hans should have immediately been told, ‘There is a huge difference between sending students on educational trips and donating money to refugee organizations. You are facing legal and accounting fees that could use up much of your foundation’s money! Be patient. We will all be able to fly again eventually.’”

2 Ethics Experts Weigh in on Bill Padding

An expert of lawyer ethics and best practices, Los Angeles-based attorney fee arbitrator Aaron Shechet commented:

“While it is often necessary for lawyers to research areas of the law about which they may be unsure, I would disallow all aspects of Roger’s bill that involved legal research for something he clearly must have already known, based upon his academic training and law practice, which includes tax-exempt organizations. Additionally, his client has a right to that research, and a failure to provide it is telling.”

Los Angeles-based Stan Goldman, a legal ethics professor at Loyola Law School, provided this analysis:

“When presented with a simple question that any expert could have answered without doing research, charging for it is plain wrong. It is bill padding. Clearly, in that brief phone call, Roger could have answered the question, and charging $85 would have been reasonable — but nothing more.”

What to Do If You Think You’re Being Taken Advantage of

First, watch out for these red flags, which Shechet warns about:

Block billings, where the lawyer bills for a number of separate services without specifying the time devoted to each. So, the client just receives a bill that states “X dollars owed for Y hours worked.” Most judges frown on this as it allows for easy bill padding.
High minimum billing times, where a lawyer bills in increments of half an hour instead of a more accurate statement of time actually spent. So, you spoke on the phone for five minutes but are charged for half an hour.
Repeated entries that are the same amount of time, such as “Research 4 hours” over and over again.
Repeated entries for file review with the same amount charged each time. Billing to review a file like clockwork, every few days, when nothing is happening on the case.
Billings that you know were incorrect because you were there. For example, you met with the lawyer for 15 minutes but were billed an hour.
Being billed for office overhead — telephone, fax, utilities — or secretarial services, unless, for example, there is some emergency situation requiring extra hours of work over a weekend.

If you see any red flags, it’s time for a frank discussion with the lawyer who sent you the bill. See if you can come to an agreement over fair charges. Before refusing to pay, contact your local bar association attorney fee arbitration section. Also, a good thing to do is to review your state bar’s attorney fee arbitration advisories, such as California, 2016-02 Analysis of Potential Bill Padding and other Billing Issues.

Shechet just released a powerful new book — Skipping the Learning Curve: Advanced Litigation Concepts and Strategies for New Lawyers — that touches on the ugly, wasteful, financially client-abusing, dishonest side of law practice. He tells it like it is, how lawyers financially abuse the system, running up needless bills for services that generate little, if any real value to a case, and keep it going just as long as the money to pay hourly bills keeps flowing in.

Often pre-law students have a notion that the legal system is dedicated to solving problems and basic fairness. His book will quickly dispel such notions.

Finally, Let’s Get Back to the Reader’s Question about Charities …

With all that as a background, for anyone thinking of starting a charity, or changing the goals and mission statement of your organization, Ramseyer offers recommendations on what needs to be done, beginning with your articles of incorporation.

When the Articles do not allow for Other Charitable Purposes

“Your reader’s articles had a narrow, specific purpose. This is one of the most common, preventable and costly errors. If they do not permit funds to be used for other related, charitable purposes, then the cost of changing the organization’s goals can be expensive.

“A new application to the IRS and your state agency — such as the Attorney General — would most likely be required.”

Understand How Assets must be used

“Your assets must be dedicated to the specific purpose described in the articles. Any other use is considered a breach of the charitable trust,” he points out.

So, to avoid problems down the road:

Describe your charitable purposes broadly enough to cover related activities you may want to do in the future.
If your articles are too specific, state agencies will likely require that all of your current funds be segregated from new donations and used exclusively for the older purposes. Only newly raised money can be used for the expanded goals.
You must hire a CPA to set up parallel accounting systems.
A good idea would be to have your books audited every year to prove you were following the segregation.
Realize that the cost can easily run into the tens of thousands of dollars. This could consume a large portion of the funds intended for charitable purposes.

“Dennis, an honest lawyer would have immediately told this couple to stick to their original purposes, as we will all be able to fly soon. Fraudulent billing is a common practice in many large law firms. Your reader’s gut instinct was right.”

6 Troublemaking Clients Chiropractors and Lawyers Should Refuse to Take

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

TOPICS

After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, You and the Law. Through his column, he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."