by Claire Hamner Matturro
Auditing of attorneys’ bills by professional legal auditors—often former attorneys themselves—
represents a new trend in the practice of law.
This practice is ripe with potential legal and ethical pitfalls for attorneys. Perhaps the most common problem to date in Florida concerns insurance defense attorneys whose bills are audited at the request of the insurance company. Such an audit might involve an unethical violation of the client’s right to confidentiality. However, even when the client requests an audit, and presumably agrees to any disclosure of information to the auditor, such an audit might well result in a loss of the evidentiary protection of the attorney-client privilege.
This article addresses the reasons for the growth of legal audits and what an attorney might expect in a legal audit, along with legal and ethical issues raised by such an audit.
Why Audits Are on the Increase:
Fear of Fraud, Cost Cutting,
and Enforcing Billing Guidelines
Commentators have noted that the majority of attorneys are ethical in their billing practices.1 However, the entertainment industry and recent news reminds the public that irregularities occur in legal billing. The client faced with a substantial legal bill might well remember that Tom Cruise finally brought down “The Firm” not because of its Mafia activities but because of the firm’s fraudulent overbilling. Such popular fiction both helps create and reflects a public perception that ethical legal billing might be an oxymoron.
Not only did Tom Cruise bring down “The Firm” for its overbilling practices, but real-life lawyers also have fallen from lofty places for similar practices. Popular legal fiction aside, Webster Hubbell’s well publicized ordeal with fraudulent billing certainly fed the public perception of lawyers padding and manipulating their bills. Reports of lesser publicized criminal convictions for fraudulent billing practices as well as civil repercussions are sprinkled throughout the media with recurring and disturbing frequency these days.2
Despite such publicity, research and surveys conclude that the majority of lawyers do not engage in fraudulent billing.3 In fact, as one author noted, most lawyers are “so busy with necessary work that they would have no reason to pad their hours or to perform make-work assignments even if they lacked moral scruples.”4 As observed by the Wall Street Journal, “Many of America’s 864,000 lawyers keep scrupulous time records, work as efficiently as possible and never inflate charges.”5 Yet, this last quote appeared in a Wall Street Journal article titled: “Ten Ways (Some) Lawyers (Sometimes) Fudge Bills.”6 After all, it is “only human nature to exaggerate in hindsight, especially when law firms demand a minimum number of billable hours in a year from associates,”7 according to one attorney turned legal auditor. “If one is expected to bill more than 2,000 hours per year, there are bound to be temptations to exaggerate the hours actually put in,” according to Chief Justice William Rehnquist.8
One repercussion of such a perception is the growing trend of auditing attorneys’ bills. In fact, the Wall Street Journal reports legal auditing is one of the fastest growing offshoots of the legal profession.9 “Growing concern about overbilling has in turn spawned an entire new industry: legal auditing,” according to Jim Schratz, lawyer turned legal auditor.10
Within this environment, individual clients, corporate clients, and insurance companies which hire “insurance defense attorneys” to represent their insured are increasingly seeking outside audits of the legal bills submitted by their attorneys. This trend is likely to increase rather than decrease.11 The Wall Street Journal reported that “one of the fastest growth industries in the legal business is made up of entrepreneurs claiming they can find the fat in law-firm invoices.”12
This new industry has sought to capitalize on this fear of billing fraud. A casual search on the Internet for legal auditors reveals a number of websites advertising for business. These advertisements include vague, undocumented, or unfootnoted references to surveys and studies about legal overbilling.13
Fear of fraudulent billing is not the only motive for an audit: Monitoring and controlling costs certainly are common goals of a legal bill audit.14 In the insurance defense arena, an insurance company might audit bills to “closely monitor its law firms and more accurately benchmark the performance of each firm [and to see if it] received value, quality and efficiency in the delivery of its legal services.”15 Cost cutting in corporate America seems to be an across-the-board mantra of the 1990s and insurance companies are no different in that desire than any other business.
Thus, an individual or corporate client, or an insurance company, may request to audit an attorney’s bills due to fear of irregularities or for the purpose of general cost cutting and evaluation.
What to Expect in an Audit: Paper, People, Prying,
and Computerized Programs
“A legal audit is a careful examination of the legal bills and the underlying documents for the purpose of detecting billing errors, abuses and inefficiencies,” says Judith Bronsther, lawyer turned legal auditor, writing in Accountability Services, Management Analysis of Legal Services Rendered to ABC Insurance Company, 561 Practicing L. Inst./Litigation 99, 157 (1997).16
Such a legal audit may take many forms, from superficial to a comprehensive audit involving a visit to the law firm and questioning of personnel involved in the bills. Many audits will involve some sort of computer program, though the cost of such computerized audits may encourage some customers to ask for a less thorough manual audit.17
Auditor Schratz describes four basic types of legal audits. The “most comprehensive,” which involves both a computerized program and an on-site visit, includes a review of “all fee and expense entries, law firm work product, expense documentation, pre-bills and time sheets. Key law firm personnel are also interviewed.”18 Bookkeepers, secretaries, and paralegals may be questioned by private investigators in such intense audits and at least one case of fraudulent billing was discovered by an interview of a legal secretary.19
The next level of audit includes a study of the paper minus the interviews and the on-site visit. This “less comprehensive” audit reviews “all the firm’s fee and expense entries, and a review of any expense documentation, work product, pre-bills, and time sheets that can be provided by the client.”20 At the next level of scrutiny, an auditor can review “the law firm’s fee and expense billing” without reviewing “any expense documentation, work product, pre-bills or time sheets.” Finally, the least comprehensive audit is a letter report that simply analyzes “specific concerns or issues that can be identified from the client’s billing entries or statements.”21
What an attorney might expect in an audit can be gleaned from legal auditors’ representative samples and commentary.22 Audits often catch such discrepancies as attorney A billing one hour for an interoffice conference with attorney B, who in turn billed two hours for the same conference.23 Catching math errors also is common in audits.24 “Consecutive days billing more than 10 hours each is generally a red flag for legal auditors,” noted an American Bar Association Journal article.25
Beyond that, what is involved might well depend upon the purpose of the audit. A “fraud” audit essentially seeks to determine if the work billed was actually performed by the billing attorney.26 In such a fraud audit, the auditor compares documentation against the actual bill, reviews invoices, and checks documents and correspondences which were billed.27 Another type of an audit, the “efficiency” audit, reviews the bill for “staffing efficiencies and other factors that adversely affect the legal costs.”28 Such an efficiency audit might also combine the same review as a “fraud” audit.29
Accountability Services, a legal auditing firm, produced a “Management Analysis of Legal Services,” published by the Practicing Law Institute, which specifically illustrates what an audit might involve, what it might reveal, and what the auditor might then recommend to the insurance company requesting an audit.30 Using charts and graphs, for example, the auditor analyzed the discovery costs, phone call charges, legal research, motion practices, and trial preparation charges of various firms doing legal work for the “ABC Insurance Company.”31 Based upon this sample analysis, the auditor—herself a former attorney—recommended “less discovery.”32 Further, she recommended better use of phone calls to avoid motion practice.33 Yet while suggesting picking up the phone was better than filing a motion, she also audited the phone call charges with an eye toward “frequent unimportant calls” which do “no more than unnecessarily inflat[e] the legal bills” and suggested some attorneys exaggerate the length of their phone calls.34
After providing charts indicating the audit of legal research from the subject law firms, this auditor recommended no payment for “generic [legal] research,” which she defined as research which is “fundamental to the practice of law. . . .” For examples, she cites bills for research on such topics as “Landlord’s liability re: violent acts” and “Lead/Pollution Exclusions.”35 “[O]verpreparing or prematurely” preparing for trial was also a target of the sample audits.36 Other legal auditors may be less inclined to second-guess an attorney’s judgment. “[T]here is a point at which second-guessing an attorney’s every move can be counterproductive, discouraging an often healthy degree of experimentation and risk taking that the successful resolution of matters often requires.”37
Thus, a legal auditor may well review not just the bills, but actual documents, correspondences, lawyer notes, and files. Lawyers and their support staff may be questioned extensively—in short, matters involving client confidentiality and matters potentially protected by the attorney-client privilege are involved.
Accountability Services, after detailing sample audits and recommending less discovery, less phone calls, less motion practice, less research, and less trial preparation, as well as scrutiny of every billing entry, did note legal audits “tend to have a chilling effect on the attorney-client relationship.”38 Setting aside that understatement, legal audits—whether a fraud or efficiency audit—raise ethical considerations and legal ramifications which are still a matter of developing law.
Ethical Concerns for Insurance Defense Counsel:
Client Consent Required
When Audit Requested
As reflected by two recent Florida ethical advisory opinions, the ethical concerns in an audit most commonly arise in the area of insurance defense work.
Such a request for an audit, coming from an insurance company to an insurance defense attorney, may trap that attorney between the interests of the company paying the attorney’s bills and the interests of the attorney’s real client, the insured. In the traditional insurance defense situation, the insurance company hires an attorney or a law firm to defend its insured. The insured in turn becomes the attorney’s client. Despite the fact the insurance company actually pays the attorney’s fees, the attorney’s ethical obligations of loyalty and competency are to the client. Once an insurance defense attorney accepts the insured as a client, the attorney “may only act in the best interest of the insured . . . . As long as the representation continues, the attorney’s primary duty is to the insured.”39 The many and varied conflicts that arise from such a situation have been widely discussed.40
While the auditing dilemma is, perhaps, only a new twist in the inherent conflicts of interest in the tripartite relationship between the attorney, the insurance company which pays the attorney’s bills, and the attorney’s client (the insured), an audit raises specific ethical considerations for the attorney and risks waiving the attorney-client privilege.
“Given the requirements of [Florida Rules of Professional Conduct] Rule 4-1 and [Florida] Ethics Opinion 93-5, [an] attorney cannot allow insurers to ‘audit’ and review case files of his [or her] clients who are insured by these insurance companies without first obtaining permission from his [or her] clients.” (emphasis added)41 So spoke The Florida Bar Ethics Counsel in its December 1997 Florida Bar Staff Advisory Opinion 20591. Such a view is consistent among the other states’ ethics advisory opinions which address this, or similar, auditing situations.42
In Florida’s Opinion 20591, an attorney requested an advisory opinion based upon the following operative facts:
The inquirer is an insurance defense attorney. He states that he is increasingly being required by insurance companies, when retained to defend their insured, “to provide very detailed statements to legal auditing services for review before our bills are paid.” The inquirer does not know what the auditing services do with this information, but is concerned that they are using this information to build data bases to serve insurance companies and others, not the insureds. . . . [I]n no instance that [the inquiring attorney was] aware of has an insurance company asked its insured for permission to disclose this information to the auditing services, nor has the existence of the auditing services been revealed to the insureds.43
After issuing its standard disclaimer that the opinion is advisory, and not designed to “to be a substitute for a judge’s decision or the decision of a grievance committee,” this opinion concluded that the inquiry attorney must first seek permission from his or her client before submitting bills to an insurance company’s auditor. After discussing briefly Rule 4-1.8, Florida Rules of Professional Conduct, regarding compensation by third parties, and the comments to that rule regarding insurers and its insureds, the opinion relied upon Rule 4-1.6(a), entitled “Confidentiality of Information,” for support of its decision. Rule 4-1.6(a) states: “(a) Consent Required to Reveal Information. A lawyer shall not reveal information relating to representation of a client except as stated in subdivisions (b), (c), and (d), unless the client consents after disclosure to the client.” The mandatory exceptions under subsection (b) relate to disclosure to prevent criminal acts, death, or substantial bodily harm. Discretionary “may reveal” exceptions under (c) and (d) of the rule include such disclosures as the attorney may need to make defensively in lawsuits involving the client and after a tribunal requires disclosure and all appellate remedies are exhausted.44
The accompanying comment to Rule 4-1.6 notes that a “fundamental principle in the client-lawyer relationship is that the lawyer maintain confidentiality of information relating to the representation.” Further, the confidentiality rule “applies not merely to matters communicated in confidence by the client but also to all information relating to the representation, whatever its source.”(emphasis added)45
Not only did the advisory opinion rely upon Rule 4-1.6(a), it also relied upon Florida Ethics Opinion 93-5, which concerned audits of attorney trust account records by a title insurance company. Similar to Opinion 20591, the earlier opinion by the Professional Ethics Committee concluded that an attorney who was an agent for a title company could not permit the insurer to audit the attorney’s general trust accounts without consent of the affected clients.46 Specifically, Opinion 93-5, in relying upon the ethical obligation of a lawyer to protect his or her client’s confidences, stated: “Because of the duty of confidentiality, an attorney/agent ethically may permit a title insurer to audit the attorney’s general trust account only if the affected clients have consented.” (emphasis added)47
Building upon the Florida 1997 advisory opinion, a 1998 advisory opinion reiterated the need for the client’s consent before disclosing matters to an auditor. In Florida Bar Staff Opinion 20762, issued March 9, 1998, ethics counsel once more concluded:
Given the requirements of Rule 4-1.6, Florida Ethics Opinion 93-5, and other applicable precedent, the inquiring attorney cannot allow the insurer or third party auditing companies to audit and review detailed billing statements and/or files of his clients who are insured by this insurance company without first obtaining permission from his clients. Whether the insurance contract between insurer and insured grants such permission to the insurer is a legal question upon which Bar ethics counsel cannot provide an opinion.48
As with its predecessor, this opinion concerned an inquiry by an insurance defense attorney. As reflected in the factual part of the opinion, the inquiring attorney was subject to restrictive billing guidelines, which included such directives as “extremely detailed activity entries [in] relation to the inquirer’s communications with his client, the insured. The new guidelines specifically required a detailed summary of ‘what was discussed in office and third party communications’” and other third party communications as well as specifics about trial preparation. To ensure compliance with these billing guidelines, the attorney’s law firm was “instructed to send its bills to a legal auditing service in another state, which has been hired by the insurer to audit the inquirer’s bills to ensure that they are in compliance with the new billing guidelines.” In turn, the auditing company contractually agreed to keep the information “confidential.”49 Further, the attorney and his law firm had been specifically instructed by the insurance company not to contact their clients, the insured, about the new billing requirements.50
Noting the settled principle that an insurance defense attorney’s “client” is the insured, not the insurance company, this opinion reiterated that “the primary duty of an attorney hired by an insurance company is to the insured.”51 Pursuant to this, an attorney may not withhold important information from his or her client.52 Acknowledging, but setting aside, the question of whether bills are subject to the attorney-client privilege, the opinion concluded that as to the billing audits themselves, the attorney could not allow the insurance company to submit the legal bills to the auditors without the permission of the client. In so concluding, the ethics counsel again relied upon Rule 4-1.6 and Florida Ethics Opinion 93-5, just as Opinion 20591 did. In addition, the newer opinion cited a November 1, 1986, Maryland ethics opinion, Opinion 87-12, which held that an insurer may only inspect legal files of its insureds if the client insured consents to the review.53
The Maryland opinion, similar to Florida’s Opinion 93-5, concerned certain language in a lawyer’s real estate settlement sheet which permitted third party inspection of a client’s file. The opinion assumed without deciding that some of the materials in the file would be confidential. Relying upon ethical rules of disclosure, the Maryland opinion expressed the view that the client must be fully informed: “It is suggested that the settling lawyer strongly emphasize that all information in the file could be reviewed. Accordingly, the inquiring lawyer may wish to expand the language on the settlement sheet to include review of information that could be ‘confidential,’ a ‘secret,’ or ‘relate to legal representation.’”54
Florida’s ethics counsel, in issuing these opinions, are in good company with other states faced with the same or similar questions. Most ethics practitioners also rely upon the attorney’s ethical obligation to fully disclose information and to preserve the confidences of the client.55 For example, in Utah, in Advisory Opinion 98-03, an insurance defense attorney queried whether he could submit billing statements to an outside auditing service. The Utah State Bar’s Ethics Advisory Opinion Committee stated that absent the specific exceptions in Utah’s ethics rules (similar to Florida’s Rule 4-1.6), an attorney “may not release information relating to the representation of a client to anyone, even another client, unless the first client consents after a disclosure. Likewise, before a lawyer may release any billing information to an outside audit service the lawyer must have the client’s consent.”56 The Utah opinion further noted:
However, if the lawyer relies upon an insurance agreement for consent, the lawyer must review the agreement with the client and renew the client’s consent before sending any billing statements to the audit service.
Even where the lawyer has a consent from the client to release billing statements to an audit service, the lawyer should be careful about what information is included. For example, the lawyer may not want to include information that the client took and failed a lie detector test. The lawyer should make sure that no confidential information revealed by the client is in the billing statement.57
The South Carolina Bar Ethics Advisory Committee, in a number of related situations, has repeatedly maintained that an attorney may not release any information to an outside source without the client’s consent. For example, when the Internal Revenue Service Criminal Investigations Division requested an attorney provide it with copies of real estate closing statements and the attorney’s client’s check, the South Carolina Advisory Committee in Advisory Opinion 98-23 stated the attorney could not turn over the information to the IRS absent the client’s consent. Further, the committee noted: “If client refuses to grant his consent to disclose the requested information, the attorney must not reveal the information. The attorney may inform IRS that, in good faith, he ethically can not comply with its request without a court order.”58 The South Carolina opinion cited a number of similar prior advisory opinions, all stressing the attorney’s obligation to protect the client’s right to confidentiality.59
Not surprisingly given its stand with regard to the IRS’s criminal proceedings, the South Carolina Advisory Committee also opined that an insurance defense attorney could not turn over the law firm’s bills to an auditor in Advisory Opinion 97-22. The bills contained detailed information about the services performed pursuant to the representation.60 Like Utah’s advisory opinion, this opinion went beyond the Florida opinions and noted:
[The] Law firm may not ethically release other clients’ billing records to Audit Company. As a practical matter, achieving the informed consent necessary to such an endeavor is highly problematic. Client consent to the release of confidential information must be informed consent, based upon more than the mere fact that a certain type of information, such as billing records, will be released to third parties. Due to the potential effects of the misuse or abuse of such information, disclosure must be full. The lawyer should elaborate on the type of information which may be found in billing records, as well as the potential legal effects of releasing such information to third parties.61
While, as the disclaimers before such advisory opinions note, these opinions are not binding legal precedent, such advisory ethics opinions are nonetheless quite worthy of note. A prudent lawyer will want to comply with these advisory opinions, especially in light of the consistency of the viewpoint that the client’s fully informed consent is required.
A prudent lawyer should also note that the issue of whether legal bills are protected by the attorney-client privilege is not addressed in the Florida advisory opinions, and, given the dictates of Florida’s Rule 4-1.6(a), may be beside the point. In fact, Utah’s advisory opinion, in addressing this issue, specifically noted that the ethics rule on confidentiality exceeds the scope of the attorney-client privilege and protects “all information relating to the representation of a client,” even if the same information might not be protected by the attorney-client privilege.62 As a general matter, whether the bills are protected by the privilege depends upon the situation and the privilege protection is not automatic. In general, an attorney-client privilege may be claimed successfully where correspondences, bills, ledgers, statements, and time records reveal client motive, client secrets, litigation strategy, or the specific nature of legal research which might reveal strategy or client secrets.63
Not only is the issue of whether bills are protected by the attorney-client privilege left open by the advisory opinions, but the Florida opinions leave open the impact of a waiver in the insurance contract. “Whether the insurance company contract between insurer and insured grants such permission to the insurer is a legal question upon which Bar ethics counsel cannot provide an opinion.”64 Thus, whether the insurance contract may contain language which can waive a client’s right to confidentiality, and how that might interreact with Florida’s Rule 4-1.6(a), is a question awaiting litigation.
Whatever questions remain unanswered by Opinions 20591 and 20762, The Florida Bar advisory opinions are consistent in the expressed view that a client must first give permission before an attorney can submit bills for an audit.
Outside Audit to Waive the Evidentiary Attorney-Client Privilege by Federal Court
Not only is the client’s permission required by ethical rules, but to the extent that any attorney-client privileges attach to the audited materials, that privilege may well be waived by an audit. This holding was enunciated by the First Circuit in United States v. Massachusetts Institute of Technology, 129 F.3d 681 (1st Cir. 1997). Keeping in mind that many of these audits delve deeply into the client’s file and step beyond just the actual bill itself, this potentially can be a costly waiver for the client and the attorney who perhaps inadvertently “waived” a client’s right to privilege by improperly submitting matters to an outside auditor.
In Massachusetts Institute of Technology, the Internal Revenue Service sought to discover certain documents from MIT, a tax-exempt university. The documents included “bills for legal services provided by certain law firms that represented MIT during .”65 MIT asserted the attorney-client privilege and work-product doctrines and refused to produce the materials. The “same billing statements” the IRS requested had been previously provided to Defense Contract Audit Agency (the auditing agency) pursuant to contracts between MIT and the Department of Defense.66 The auditing agency reviews materials “to be sure that the government is not overcharged for services.”67 When MIT would not provide the documents, the IRS then attempted to get them from the auditing agency, which refused to comply, citing concerns about “protect[ing] the contractor’s information from unauthorized disclosure. . . .”68
When the issue came before the federal district court in Massachusetts,69 MIT argued that the bills were protected by the attorney-client privilege because the bills revealed “motive . . . in seeking representation, litigation strategy, or the specific nature of the services provided, such as researching particular areas of law.”70 However, the district court ducked the issue of whether the bills actually were protected by the attorney-client privilege because it held MIT had “waived the privilege by voluntarily disclosing” the bills to the auditing agency.71
On appeal before the First Circuit, the appellate court isolated the key issue as: “[W]hether MIT’s disclosure of certain of the documents to another government agency [for an audit] caused it to lose the [attorney-client] privilege.”72 Ultimately, the appellate court agreed with the district court’s holding that MIT had forfeited any attorney-client privilege by submitting the bills to the auditing agency.73 A subsequent case, United States of America v. South Chicago Bank, 1998 U.S. Dist. LEXIS 17445, *7 (E.D. Ill. 1998) (Case no. 97 CR 849) (and cases cited therein), held that “auditors are not generally part of the circle of persons, including secretaries and interpreters, for example, with whom confidential information may be shared without destroying the privilege.”
MIT argued its disclosure of the bills for the audit was not “voluntary” due to the “practical pressures and the legal constraints to which it was subject as a government contractor.”74 The First Circuit handily rejected this argument and held “assuming arguendo that [these pressures] existed, MIT chose to place itself in this position by becoming a government contractor.” Thus, reasoned the court, “MIT’s disclosure to the audit agency resulted from its own voluntary choice, even if that choice was made at the time it became a defense contractor and subjected itself to the alleged obligation of disclosure.”75
The First Circuit then issued this “warning”:
We add, finally, a word about reliance and fair warning. MIT may have had some reason to think that the audit agency would not disclose the documents to the IRS (and the agency did not do so). But MIT had far less reason to think that it could disclose documents to the audit agency and still maintain the privilege when IRS then sought the same documents. [cites omitted] The choice to disclose may have been reasonable but it was still a foreseeable gamble.76
The analogy between MIT’s situation and an insurance defense attorne
y’s situation when faced with a company demand for an audit is obvious. But the message is equally worthy of warning for any attorney whose client, individual or corporate, might request an audit as the underlying principle that a voluntary disclosure to a third party waives the privilege remains the same. While this case (as of this writing) has not been cited by either a Florida court or the 11th Circuit, there is no particular reason to suggest Florida courts or the 11th Circuit would reach a different conclusion on the specific question of whether disclosure of the bills and other documents pursuant to an audit waived any privilege that attached.77
Thus, at this junction in an area of developing law two principle warnings become instructive: 1) in an insurance defense, or analogous situation in which someone other than the actual client pays the legal fees and requests an audit, the attorney cannot submit the bills and supporting material to an outside auditor without the client’s permission; and 2) regardless of who requests the audit, voluntary submission of legal bills and supporting materials might subsequently be deemed a waiver of any evidentiary attorney-client privilege. q
1 See generally Howard L. Mudrick, Is Padding Widespread? No: Billing is Serious Business, A.B.A. J. 43 (Dec. 1990) (stating that the “vast majority of lawyers bill ethically and accurately.”); Amy Stevens, Ten Ways (Some) Lawyers (Sometimes) Fudge Bills, Wall. St. J., Jan. 13, 1995 (hereafter Lawyers’ Bills, Wall. St. J.) (“Many of America’s 864,000 lawyers keep scrupulous time records, . . . and never inflate charges.”), reprinted at Accountability Services, Management Analysis of Legal Services Rendered to ABC Insurance Company, 561 Practicing L. Inst./Litigation 99, 157 (1997) (hereafter Management Analysis). Cf. William Ross, The Honest Hour: The Ethics of Time-Based Billing by Attorneys 5 (1996) (concluding after a survey that “most attorneys probably try to achieve honesty in billing,” though abuses exist); Darlene Ricker, Greed, Ignorance and Overbilling: Some Lawyers Have Given New Meaning to the Term ‘Legal Fiction’, 80 A.B.A. J. 62, 63–5 (Aug. 1, 1994) (quoting Tony Boggs, then director of Lawyer Regulation for The Florida Bar, as saying only 2.2 percent of alleged overbilling fee cases resulted in disciplinary action in Florida. “Truly fraudulent billing is not very common,” he said.); Mark Hansen, Billing Beyond Fees, 78 A.B.A. J. 24 (Apr. 1992) (noting a study conducted by the National Survey Center, a private market research company, “suggests most [law] firms don’t overcharge their clients for routine services or mark up the costs of third party expenses.”)
2 See James P. Schratz, Cross-examining a Legal Auditor, 20 Am. J. Trial Advoc. 91 (1996); see also Ricker, supra note 1, at 65–66; Ross, supra note 1, at 23–25 (for a summary of some such cases).
3 See supra note 1.
4 Ross, supra note 1, at 35–36.
5 See Lawyers’ Bills, Wall. St. J., supra note 1.
6 See id.
7 See Andre Martinez, Billing practices have changed forever the lawyer-client relationship, Pittsburgh Post-Gazette, B-1, B-2 (Feb. 19, 1995) (quoting Judith Bronsther, founder of Accountability Services, Inc.).
8 William H. Rehnquist, Dedicatory Address: The Legal Profession Today, 62 Ind. L.J. 151, 155 (1987).
9 See Lawyers’ Bills, Wall. St. J., supra note 1.
10 See generally Schratz, supra note 2; see also Ross, supra note 1, ch. 22.
11 See Schratz, supra note 2, at 93; see also Ross, supra note 1, at 221.
12 See Lawyers’ Bills, Wall. St. J., supra note 1.
13 See, e.g.:
http:\\www.legalfees.com\execsumr.htm and http:\\www.primenet.com\~awong\
14 See generally Ross, supra note 1, at ch. 22.
15 See Management Analysis, supra note 1, at 113–14.
16 See id.
17 See Schratz, supra note 2, at 93.
18 See id.
19 See Ross, supra note 1, at 222.
20 See Schratz, supra note 2, at 93.
21 See id.
22 See generally Ross, supra note 1, at ch. 22; Management Analysis, supra note 6, at 99–160.
23 See Lawyers’ Bills, Wall. St. J., supra note 1.
24 See id.
25 See Ricker, supra note 1.
26 See Management Analysis, supra note 1, at 157.
27 See id.
28 See id.
29 See id.
30 See id. at 99.
31 See id. at 99, 125–133.
32 See id. at 125.
33 See id. at 128–29.
34 See id. at 129–30.
35 See id. at 132.
36 See id. at 133.
37 Ross, supra note 1, at 225, quoting Robert E. Litan and Steven C. Salop, Reforming the lawyer-client relationship through alternative billing methods, 77 Judicature 191, 193 (1994).
38 See Management Analysis, supra note 1, at 157.
39 Fla. B. Prof. Ethics Comm., Opinion 97-1 (1997) (The “attorney should inform the insurer that, when he has been retained to represent an insured, he may only act in the best interest of the insured. . . .”); Fla. B. Prof. Ethics Comm., Opinion 81-5 (1981) (“The duty of the lawyer to accept or continue representation of an insured only where the insured may have the full benefit of the lawyer’s independent professional judgment is clear.”).
40 See generally Charles Silver, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255 (1995); Douglas R. Richmond, Walking a Tightrope: The Tripartite Relationship Between Insurer, Insured, and Insurance Defense Counsel, 73 Neb. L. Rev. 265 (1994); Brooke Wunnicke, The Eternal Triangle: Standards of Ethical Representation by the Insurance Defense Lawyer, For the Def., Feb. 1989, at 7, 13 (an excellent analysis of the conflicts of interest created by the situation).
41 Fla. B. Ethics Couns., Advisory Opinion 20591 (December 31, 1997) (hereafter Opinion 20591), reprinted in its entirety in 17 Trial Adv. Q. 7 (Winter 1998).
42 See Utah St. B. Ethics Advisory Opinion Comm., Opinion 98-03, 1998 WL 199533 (1998) (“Before a lawyer may submit billing statements to an outside audit service, the lawyer must have the client’s consent”); S.C. B. Ethics Advisory Opinion Comm., Advisory Opinion 98-23, 1998 WL 274852 (1998) (“Attorney may disclose any documents to the IRS with client’s permission or pursuant to a Court Order.”); S.C. B. Ethics Advisory Comm., Advisory Opinion 97-22, 1997 WL 861963 (1997) (“Upon receipt of informed consent from the insurer as well as the insured, a lawyer would not be ethically prohibited from submitting his bills directly to a third-party auditing firm, unless the lawyer believes that doing so would substantially affect the representation.”); Philadelphia B. Assn. Prof. Guidance Comm., Guidance Opinion 91-31,1991 WL 325888 (1991) (Law firm “must obtain consent (i.e., a release) from each client before [the law firm] may disclose his/her/its name and address to [law firm’s] bank” pursuant to bank’s request for a security interest in the law firm’s accounts receivables to secure an outstanding loan to the law firm.); S.C. B. Ethics Advisory Comm., Advisory Opinion 89-03, 1990 WL 709781 (1990) (“Disclosure to an insurance company as a part of its routine audit of the lawyer/agent of any information relating to the representation of a client without the expressed or implied consent of the client would be ethically improper.”); Philadelphia B. Assn. Prof. Guidance Comm., Guidance Opinion 87-12 (1987) (Client must consent to the release of client information for a union’s prepaid legal plan audit); ABA Comm. on Ethics and Prof. Responsibility, Informal Op. 1443 (1979) (“[S]taff lawyers or legal services programs should not disclose confidences and secrets of a client in the absence of understanding consent of the client, and that, in disclosing to the program’s policy-making or governing boards information about clients and cases, the lawyers should follow procedures to preserve the clients’ anonymity.”).
43 See Opinion 20591, supra note 41.
44 Rules Reg. The Fla. Bar 4-1.6, reprinted in 71 Fla. B.J. 624 (Sept. 1997).
45 Comments to Rules Reg. The Fla. Bar 4-1.6, reprinted in 72 Fla. B.J. 695 (Sept. 1998).
46 Opinion 20591, supra note 41.
47 Fla. Comm. of Prof. Ethics, Opinion 93-5 (1994).
48 Fla. B. Ethics Couns., Advisory Opinion 20762 (1998).
49 See id.
50 See id.
51 See id.
52 See id. (cites omitted).
53 See id., citing Md. St. B. Assn. Ethics Comm., Opinion 87-12 (Nov. 4, 1986).
54 Md. St. B. Assn. Ethics Comm., Opinion 87-12 (Nov. 4, 1986).
55 See ethics opinion cited, supra note 47.
56 Utah St. B. Ethics Advisory Opinion Comm., Advisory Opinion 98-03, 1998 WL 199533 (1998).
58 S.C. B. Ethics. Advisory. Comm., Advisory Opinion 98-23, 1998 WL 274852 (1998) (and citations to other similar South Carolina advisory opinions therein).
59 See id.
60 S.C. B. Ethics. Advisory. Comm., Advisory Opinion 97-22, 1997 WL 861963 (1997).
62 Utah Opinion 98-03, supra note 56.
63 See generally Old Holdings v. Taplin, Howard, Shaw & Miller, P.A., 584 So. 2d 1128 (Fla. 2d D.C.A. 1987) (holding that, where the billing statements may include detailed descriptions of the nature of the services rendered and could therefore reveal the mental impressions and opinions of the attorneys to opposing counsel, the billing statements may be protected from discovery by the attorney-client privilege); In re Grand Jury Proceedings, 896 F.2d 1267, 1273–75 (11th Cir.) (setting forth a detailed discussion of when the privilege might or might not apply for legal bills), vacated on other grounds, 904 F.2d 1498 (11th Cir. 1990); In re Grand Jury Subpoenas, 123 F.3d 695, 698 (1st Cir. 1997) (agreeing that legal bills “are not per se non-privileged merely because they were intended primarily for billing purposes. What matters is not the form of the information, but its content.” (cites omitted)).
64 Florida Opinion 20591, supra note 41; See also Florida Opinion 20762, supra note 48.
65 See United States v. Massachusetts Institute of Technology, 957 F. Supp. 301, 302 (D. Mass. 1997).
66 See United States v. Massachusetts Institute of Technology, 129 F.3d at 683.
68 See United States v. Massachusetts Institute of Technology, 957 F. Supp. at 302.
69 See United States v. Massachusetts Institute of Technology, 957 F. Supp. 301.
70 See id. at 303.
71 See id.
72 See id. at 682.
73 See United States v. Massachusetts Institute of Technology, 129 F.3d at 683, 686.
74 See id. at 868.
75 See id.
77 But see Diversified Indus., Inc. v. Meredith, 572 F.2d 596, 611 (8th Cir. 1978) (en banc) (holding no waiver when the initial disclosure is made to, and at the request of, a government agency). Whether a court would expand that holding to an insurance company’s request for an audit is doubtful. Further, see United States v. Massachusetts Institute of Technology, 129 F.3d at 685 n.3, for cases finding a waiver even when the initial disclosure was to, and at the request of, government agencies.
Claire Hamner Matturro, an appellate attorney, is a visiting instructor of law at Florida State University College of Law, currently teaching legal research and writing. Mrs. Matturro is the editor of the Trial Advocate Quarterly. An earlier version of this article appeared in that publication.