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By Becky Rolland

With the end of the month comes the most dreaded as-pect of the legal profession – compilation of the billable hour. Although associates, law clerks and paralegals equally admit frustration regarding reaching monthly

quotas, the billable hour helps law firms achieve their financial pro-jections. For that reason, billable time is here to stay.

History of the Billable Hour

Early in the 20th century, law firms utilized “value billing" by calculating legal fees based on “services rendered”. When repre-sentation was complete, attorneys plowed through the files and calculated the time spent, evaluated the results achieved, and tried to determine what dollar amount should be billed based upon what

The Truth About the Billable HourCall it a curse, call it a game. However you look at it, law firms took a long time to create the billable hour. They aren’t about to give it up too terribly soon.

the client would find acceptable. Invoices did not include a specific number of hours and had very few details. This system seemed to work as legal fees were rarely challenged.

In the 1940s, state bar associations began publishing minimum fee schedules that set standard prices for different legal services. The schedules would "suggest" various fees such as one fee for handling a contested divorce and another for drafting a will. While these fee schedules were voluntary, they were enforced by the threat of disciplinary action against a lawyer whose fees were regarded as too low.

But with the reform of the Federal Rules of Civil Procedure in 1938, lawyers' workloads increased dramatically. The pretrial discovery rules before civil trials are credited with transforming lawyers into litigators, who spend more time preparing cases and exchanging motions than appearing in court. As the work load became unpredictable and complexity of the case varied, it became difficult to set a reasonable flat fee in advance.

Law firms began using the current billable time system in the late '50s when billable hours were promoted as the key to profits. The billable hour was used in setting income projections and performance goals for attorneys. In 1958, an ABA committee issued a pamphlet called The 1958 Lawyer and His 1938 Dollar urging lawyers to start thinking like business men and looking at their work habits beginning with time records, the lawyer's "sole expendable asset”.

By 1960, hourly billing became the dominant billing method used by non-contingency fee attorneys. As hourly billing spread, the number of billable hours expected of firm attorneys increased dramatically. Within the last ten years, the number of billable hours expected of legal professionals has increased exponentially.

In the ‘70’s, the legal profession experimented briefly with published fee schedules. However, in Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975), the Supreme Court put an end to this practice referring to it as “a classic illustration of price-fixing” that violated federal antitrust laws.

In 2005, the International Paralegal Management Association (“IPMA”) reflected the following results in its survey of paralegals: 28% responded they did not have a billable hour requirement; 6% set their own billable requirement; 7% billed below 1500 hours per year; 22% stated their billable hours ranged between 1500-1599 hours; 35% billed 1600-1799; and 2% billed above 1800 hours per month.

Court Determines Market Rates for Paralegals

Nineteen years ago, the U.S. Supreme Court handed down the watershed case regarding paralegal fees, Missouri v. Jenkins, 491 U.S. 274, 109 S.Ct. 2462, 105 L.Ed. 2d 229 (1989), stating that paralegal work should be compensable at market rates under Section 1988 of the Civil Rights Act. Justice Brennan stated:

[B]y encouraging the use of lower-cost paralegals, rather than attorneys wherever possible, permitting market-value billing of paralegal hours’ encourages cost-effective delivery of legal services….

Because the case was specific to a federal civil rights statute, other courts may not follow this ruling. However, the current trend is to allow recovery for paralegals’ billable time.

When cases involve attorney fee disputes, a prevailing party can receive compensation for charges incurred through the use of legal assistants, paralegals or law clerks (“legal assistants”) provided that legal assistants perform tasks that would otherwise require the time of the attorney. The court in Ahwatukee Custom Estates v. Bach, 193 Ariz. 401, 403, 952 P.2d 106, 108, determined that the time expended by non-lawyers should reasonably be charged against the non-prevailing party. The applicant is required

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to show that a legal assistant has acquired legal training and knowledge sufficient to permit him or her to contribute substan-tially to the attorney’s analysis and preparation of a particular legal matter.

Courts Define the Definition of a Paralegal

In Continental Townhouse East v.Brockbank, 152 Ariz. 537, 544, 733 P.2d 1120, 1127 (App. 1986), the court adopted the following definition:

A legal assistant is a person, qualified through education, training, or work experience, who is employed or retained by a lawyer, law office, governmental agency, or other entity in a capacity or function which involves the performance, under the ultimate direction and supervision of an attorney, of specifically-delegated substantive legal work, which work, for the most part, requires a sufficient knowledge of legal concepts that, absent such assistant, the attorney would perform the task.

According to National Federation of Paralegal Associa-tions, “substantive work is work requiring recognition, evaluation, organization, analysis and com-munication of relevant facts and legal concepts”.

Interestingly, courts have denied attorney fees because of the tasks that should have been completed by a paralegal. Specifi-cally in Lockrey v. Leavitt Tube Employees Profit Sharing Plan, 1991 LEXIS 17175 (N.D. Ill. E.D.) and Kitamura Machinery of USA v. Climteq, Inc., 1993 LEXIS 3330 (N.D. Ill. E.D.), attorney fees were reduced because the court said the paralegal, not the attorney, should have performed the deposition summaries and assembled documents.

In re Busy Beaver Building Centers, Inc., the Court of Appeals for the Third Circuit set the tone for the new market-driven ap-proach to paralegal compensation. The Court considered:

… the costs of 'equivalent' practitioners of the art (including their billing structures), as well as the applicant's billing practices with 'equivalent' clients and practices of comparable non-bankrupt-cy firms and the rates at which their services are provided.

In Busy Beaver, the Third Circuit overturned the lower Courts' refusal to compensate for paralegal services when it categorized their work as "clerical" holding that the classification of work as clerical does not determine compensability. Rather, noting the "remarkable transformation of the legal market" over the last two decades, including the incorporation of paralegals providing a wide range of services, the Court found the relevant question to be whether billable rates of non-bankruptcy paralegals and bankruptcy paralegals were comparable.

Finally, providing the court with information on the credentials of each billing professional including attorneys, law clerks and parale-gals is helpful but not essential in allowing paralegal fees. In Chevron, U.S.A. Inc., v. Aker Maritime, Inc., et al. defendants contended that no award should be made for paralegal fees or alternatively, that the requested paralegal fees should be vastly reduced. Judge C. Wilkinson, Jr. saw things differently when he stated:

“…that without listing any names or qualifications of Frilot, LLC’s paralegals, Chevron states that paralegals customarily bill at $ 75 per hour and that …rate is within the range of prevailing market rates and the rate is not contested.”

California Leads in Paralegal Qualifications

On September 13, 2000, Governor Gray Davis signed AB1761; a bill that defines the term paralegal/legal assistant as an individual who works under the supervision of an attorney; who must meet certain educational criteria and must complete continuing education. The in-tent of this bill is to differentiate those who work under the supervision of an attorney and those who provide services directly to the public. For those who work under the supervision of an attorney, the only intended change to the profession is a higher standard of education and mandatory continuing education to utilize the title of a paralegal. The duties of those who work under the supervision of an attorney remain unchanged and the bill simply codified existing case law.

In California, paralegals have the requirement of confirming that they have law-related experience under the supervision of an at-torney and that their paralegal cer-tificate is from an ABA-approved school or a properly accredited postsecondary institution that offers at least 24 semester units of law related study.

Paralegals are also required to maintain continuing legal education. In fact, public entities and corporations in California have begun asking law firms to prove that their paralegals are compliant under the law before they agree to pay paralegal fees included in attorney billing.

Since your law firm does not want to be put into a position of having to write-off large paralegal fees because these fees were unrecoverable, you should retain a copy of your credentials and CLE certificates in a file for ready access. Law firms could be exposing themselves to ethical issues by misrepresenting to a client that employees are qualified paralegals and billing them as such when, in fact, they are not.

Denial of Fees Due to Lack of Description in Billing

A client will be more willing to pay a legal bill that explains what tasks were preformed and whether the task was worthy of the amount charged. A lack of this data may result in denial of fees. For example, in McGreevy v. Oregon Mutual Insurance Co., 951 P.2d. 798 (C.A. Wash. 1998), paralegal fees were denied when the only information provided was the total number of hours worked and an hourly rate.

It is best to make billing entries very specific, listing what issue was discussed or what documents were reviewed. Repeating the same phrase such as “trial preparation” or “review file”, only leads to suspicions of a duplicate entry.

In Walker v. U.S. Dept. of HUD, 99 F. 3d 761 (5th Cir. 1996), a paralegal’s time was entirely disallowed because all activity for a day was lumped together without adequate descriptions. Fee entries that contained “terse listings” such as “library research,” “analyzing documents,” “reading background documents,” “phone interviews,” without any further explanation were rejected.

Stop Losing Time!

Paralegals often miss capturing valuable time entries because they do not enter work in a timely and accurate fashion. Those that wait until the last minute to enter time, trying to recollect and reconstruct what they did the previous month, are more likely to lose billable

time. Important details are often missed when using scribbled notes to record a telephone conversation or an entire month of e-mails must be reviewed to determine what matters required follow-up.

To prevent a loss of billable time, record your time contem-poraneously on a daily basis. A majority of time keeping software programs have incorporated a “case timer” feature that allows the timekeeper to have several matters open at once to record interrup-tions by telephone calls and e-mail. Consider how easy it is to forget to record a 10-minute conference with your attorney regarding one matter, while you are working on another.

Another added convenience of time management software is the ability to create “macros”. When entering a three letter macro code as an abbreviation for the task performed, the system automatically provides a detailed description. By creating descriptions of tasks that clients can identify as a paralegal assignment instead of an administrative task, law firms can proactively reduce the number of write-offs for paralegal time billed.

Although time entry is tedious, by combining similar tasks that can be recorded in blocks of time, such as telephone calls or check-ing court dockets, you will ensure more time is captured.

Finally, be aware of what prevents you from billing time. If you are constantly searching for files, recognize the problem, trace the source and be proactive finding a solution. A poor method of tracking billable time results in “leakage” of time and money lost for your firm.

Billable v. Non-Billable Time

Law firms differ in their treatment of non-billable time. Although some firms allow two hours per week for non-billable time for tasks

“Law firms could be exposing themselves to ethical issues by

misrepresenting to a client that employees are qualified paralegals and

billing them as such when, in fact, they are not.”

such as maintaining a closed file, entering and reviewing time entries, and submitting check requests, most non-billable time is discouraged. When you are entering non-billable time, maintain the same standard of detailed and accurate descriptions of your work.

Most law firms encourage paralegal attendance in seminars to maintain CLE credits. This does not mean that every seminar or paralegal association meeting will be credited. It is best to be clear about your law firm’s policy on non-billable matters.

Finally, as the quotas for billable time increases, pro bono or community service work usually decreases, depending upon whether it is the firm’s policy to allow billable hour credit for these services.

If you think you are including too many non-billable entries, take note that according to the IPMA survey: 17% of paralegals spend less than 10% of their time on non-billable matters, 18% spend 11-30%, 8% said 31-50% of their time was non-billable, 3% said their non-billable time comprised 51-70% of their time, 4% stated 70% of their time is non-billable and 50% of the respondents were not required to track billable time (note that for governmental and some corporate entities tracking non-billable time is not required).

Future Trends

As current case law continues to recognize the paralegal’s contribu-tion to the legal field, paralegals have become more profitable. It is a winning combination for the client and the law office to utilize more paralegals since not only can their time be charged to clients and recovered as fees, they are less expensive to employ than associate attorneys and do not earn a direct share of the firm’s profits. ■