Using Data to Catch Lawyers Inflating Bills

May 13th, 2011

An interesting application to analytics and supercrunching to the practice of law–catching when lawyers inflate their bills with bogus charges. From Forbes Blog:

Using a combination of software and human auditors, Sterling snoops out charges for services like photocopying and making travel arrangements that law firms would dearly love to shove off on their clients, but properly belong under the category of  “overhead.”

He formed Sterling three years ago and has developed a database of state regulations and legal precedent to help determine whether, say, it is ethical and legal to charge a bill for preparing bills. (SIPC says the federal bankruptcy code allows lawyers to charge for preparing a fee request but Paige can rattle off a string of cases suggesting otherwise.)


The first step is to make sure the client is getting detailed electronic bills. That way, software can make the first cut, identifying questionable charges for photocopying, or a firm that assigns a new lawyer to the case without first obtaining approval from the client. Software can also sniff out whether there was an unnecessary number of lawyers on a conference call or if the client is being charged for putting documents in chronological order.

What are some of the inappropriate costs they catch?

One of his favorites: Charging clients for the use of conference rooms. Paige says he’s  uncovered some law firms that form separate LLCs to rent out their conference rooms, turning them into profit centers instead of a cost of doing business.

“If you went into most non-law firm offices and sat in a conference room with a professional, you would not expect to get a bill for that,” he says, speaking in the precise, unemotional tones of an insurance adjuster. (SIPC says it refused to pay $16,000 in conference-room charges sought by one firm.)

Another favorite is a practice Paige calls “grazing.” The telltale sign: A rainmaker partner, the type who brings in the big clients and charges $750 an hour or more for his services, who bills in 15-minute increments for an afternoon or entire day. Paige pictures the partner wandering through the office, checking in with associates and junior partners on various client matters — or possibly inquiring about their daughter’s latest lacrosse game.

Sterling’s auditors also look for “pyramiding,” or putting a high-priced lawyer to work on a task better handled by a paralegal or secretary. At law firms across New York, he says, lawyers with fancy degrees and several years of experience are running photocopiers, scanning legal documents for routine issues like conflicts, and making indexes of exhibits — all at a rate of $200 an hour or more.

There is somewhat of an indictment of the exploding legal profession, and its extravagant cost systems.

What Paige is really attacking is an entire business model, the big-firm practice of hiring armies of associates and paying them $50 an hour while charging the clients $250 or more. The latest Baker & Hostetler bill lists some 300 associates billing at rates as high as $557 an hour and more than 60 paralegals and clerks billing at an average of $250 an hour.

“This structure is needed to support the overhead of these large firms, and the expectation of the partners of how much money theyre going to make,” Paige says.

This bubble will soon burst. Technology will help catch the extravagance outside the firm,and will help eliminate it inside the firm.

H/T Overlawyered.