03 July 2007

Excessive Legal Fees

Like every lawyer in private practice, I make my living by charging clients for my services. Sometimes, I charge by the hour; sometimes I charge a flat fee or a contingent fee. Different kinds of cases have different fee structure. I'm neither the most expensive attorney in practice today, nor the cheapest. I call fees expensive only rarely, as you never have the full facts before you in a case. But, I think I've found a candidate:

A recent district court decision in Westar Energy v. Lake . . . gives a little bit of insight into just how much money is involved, and the resources the firms commit to defending their client. Douglas Lake was a senior executive at Kansas utility Westar Energy, and was indicted along with former CEO David Wittig on fraud charges. The first trial ended in a hung jury, while the second resulted in a conviction of Lake on some counts related to an alleged fraud involving the use of corporate resources for personal purposes and false reporting to the SEC. In January 2007, however, the Tenth Circuit reversed the convictions, finding insufficient evidence to support some of the charges and remanding for a third trial on others, including a conspiracy count, and Lake was released from prison. In February 2007, the government decided to go forward with a third trial.

Westar has a broad indemnification provision in its by-laws that allows for advancement of reasonable attorney's fees, and through April 2005 the company advanced $4.6 million to Lake's attorneys from Hughes Hubbard in New York and local counsel. After that point, however, Westar refused to pay any further, and Hughes Hubbard has moved to withdraw from representing Lake in the third trial because it has not been paid about $4 million in fees. In addition to his trial counsel, Lake retained Wilmer Cutler from Washington D.C. to represent him on appeal, which cost $2.2 million and involved seven or eight attorneys billing time on the matter. All told, Lake's legal fees in the criminal matter to this point have totaled over $15 million, and he has also incurred costs in defending private securities class actions and shareholder derivative suits. . . .

Given the complex nature of the case, Judge Robinson determined that Lake's hiring of New York trial counsel and DC appellate lawyers, along with local counsel, was not unreasonable. The court only required Westar to pay 50% of the claimed fees for Hughes Hubbard and Wilmer Cutler because of questions about the reasonableness of their bills, but still ordered a payment of over $3 million.

The opinion notes, for example, that two full days of more than eight hours were charged to have attorneys pack boxes.

Suppose, for shits and grins, that the lawyers retained are charging $1,000 an hour, and suppose, that out of pocket costs, which are generally the smaller part of the total bill in a case are $1,000,000. This would imply that the lawyers spent 2,200 hours on the appeal, and 12,800 hours in pre-trial preparations and two trials. In a trial context, you can burn through a lot of time knowing the witnesses and the evidence cold and gather potentially favorable evidence, but it is hard to fathom employing half a dozen lawyers to work nearly full time for a year on a criminal case. Consider also that since this is a criminal case, Mr. Lake didn't have to respond to a single significant discovery request, and was not deposed, as a result of his 5th Amendment rights. The public defender's office spends about 400 hours per death penalty case it has, although, those are, admittedly often quite simple cases, even though the stakes are high, as they often involve an incident that took place in a matter of hours on a single day.

The appeal fee, while smaller, is in many respects even harder to understand. In an appeal, the task is more more standardized -- you prepare a brief short of appeal and docketing statement (rarely more than dozen pages and from a standard form), you direct that a record of the trial proceedings be prepared (a couple of page standard form document), you read the trial court record (the bulk of which is a full transcript of the trial and sentencing hearing), you prepare a principal brief of 14,000 words (generally less than 50 pages), and you prepare a reply brief of 7,000 words. Then, you prepare for an deliver an oral argument of about an hour. End of story. This happens on a very compressed time schedule. Suffice it to say that it is possible to conduct a very solid appeal in a reasonably complex case for 220 hours, and a respectable, professional appeal in a typical case with considerably less time.

Particularly appalling in that his attorney is threatening to withdraw over non-payment of fees, when mere attorneys representing mere mortals are frequently not allowed to do this even when they have been paid a mere pittance and their clients then run out of money.

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