New England Biz Law Update
Legal-malpractice lawyers say the ability of a major law firm to defend itself against a complaint filed by a longtime client will rise or fall on whether a judge finds the firm’s services were so excessive that portions of its $1.2 million legal bill must be returned.
Plaintiff George Haseotes filed suit derivatively on behalf of Cumberland Farms after he learned that Boston’s Goodwin Procter had racked up a seven-figure tab by assigning 34 lawyers — billing at rates of up to $825 an hour — to work on a potential sale of the company. (See sidebar below.)
Shortly after contemplating the possibility of selling, however, the convenience store chain was advised by an investment banker that the timing was not right, plaintiff’s counsel Stephen F. Gordon of Boston said.
By that point, the 850-lawyer Goodwin Procter had already billed an “excessive and unjustifiable” amount of time and money for work that was completely unnecessary, considering that the sale never even came close to fruition, Gordon said.
“The law is very clear that the circumstances of each case determine when it is appropriate to do the work. In this case, it’s not even a close call,” Gordon said. “Goodwin Procter is a fine, old firm. But in this case, where there was no transaction in sight, there was simply no need for three dozen lawyers to do what they did.”
According to the unusually detailed breach-of-contract and constructive trust complaint, many of the firm’s billing entries were so bare-bones that it was impossible to determine whether the lawyers’ time was necessary or reasonable.
In a May invoice, an attorney billing at nearly $800 an hour allegedly provided no other description than “telephone conference.” In another instance, a partner in November 2007 reportedly billed $825 an hour for work that was entered as “attention to deal” and “telephone calls regarding deal.”
Gordon said he intentionally did not identify any individual partners or name any members of the firm as co-defendants in the suit.
Anthony S. Fiotto of Goodwin’s litigation department is handling the case for the firm.
Lee Feldman, a spokesman for Goodwin Procter, said in a written statement that Cumberland Farms and the firm have enjoyed a productive attorney-client relationship for more than 45 years. The firm continues to represent Cumberland Farms on several pending legal matters, he said, and looks forward to a prompt resolution of the disagreement.
”We are disappointed that a single director has chosen to file an action in 2012 challenging legal fees for Goodwin’s work related to potentially significant transactions contemplated by Cumberland in 2007-2008,” Feldman stated. “We do not believe that director represents the views of the company.”
‘Completely cavalier’
Charles P. Kazarian of Boston, who is not involved in the suit, said the case will turn on the specific terms of the representation provided and the communications that occurred leading up to the formation of the lawyer-client relationship.
“Without knowing what it takes to prepare for a sale of such a large amount, and without knowing the precise directive the client gave to the law firm, it’s very hard to say there is something wrong with the timing or duration of the legal fees,” he said. “The stunning thing to me, after reading the complaint, is the lack of transparency in Goodwin Procter’s billing.”
Kazarian said the Middlesex Superior Court complaint contains numerous instances in which the firm’s billing entries contain woefully vague descriptions.
“It’s just completely cavalier to submit that kind of a bill. You’d think a firm that is devoting so many resources to a case would also devote some resources to making sure the billing was transparent,” he said. “When you’ve got billing entry after billing entry that are completely opaque, you’re talking about the opposite of transparent — and that creates an attorney-client problem.”
Kazarian, who represents plaintiffs in legal-malpractice actions, said questions regarding the reasonableness of a bill frequently can be answered only through costly and time-consuming litigation.
“The rule is thou shall not charge a clearly excessive fee,” he said. “But we really don’t have much guidance from the courts or the ethical rules as to what that means or who decides.”
When the parties begin discovery, the shareholder will have difficulty dealing with the fact that Cumberland Farms is not actually a party to the suit and paid its bill to Goodwin without making any challenge, he noted.
The firm likely will respond with a motion to dismiss challenging the shareholder’s standing to bring the complaint, several analysts have said.
Gordon, who is handling the case with Alan S. Fanger of Wellesley, countered that the evidence will show that other members of Cumberland Farm’s board of directors believed the fee was excessive. There is a natural reluctance, however, for clients to question a law firm’s bill, particularly when they have a long-standing relationship with the firm, he said.
“We are aware that [the firm] may choose to make that an issue, and we will show [Cumberland Farms] felt the bill was wrong. But the sentiment was that they had bigger fish to fry,” Gordon said. “Goodwin has represented Cumberland Farms for decades, and the firm does fine work. It just went overboard here, unnecessarily.”
‘Attention to detail’
Kazarian said he continues to be amazed at the billings practices of some law firms.
“If your intention is to bill $1 million, you probably should let a client know what to expect,” he said. “If you don’t have a long-term relationship with your client, there should surely be an engagement letter that gives the client some indication of what’s going to happen and when it’s going to happen.”
Because Goodwin had represented Cum-berland Farms for several years, prior dealings and previous billing practices will prove to be highly relevant factors at trial, he added.
“If this was a brand-new engagement, I think the onus falls more on the attorney. But if it’s a long-standing relationship, where in the past when they’ve called upon Goodwin and the firm has sprung into action by putting a battery of attorneys on it, then that would be a completely different story,” Kazarian said.
Joseph S. Berman of Boston’s Looney & Grossman said almost every lawyer-client dispute he handles results from a lack of communication between the parties.
Berman advises law firms to bill clients on a monthly basis and to include a detailed explanation of who is doing the work and what services are being provided.
“Especially given the rates that law firms charge and the amount of time it takes to do things, it’s incumbent upon lawyers to explain what they did for an hour,” he said. “Simply writing ‘attention to detail’ isn’t sufficient.”
Berman, who lectures and writes in the area of professional liability, said deciding if a bill is reasonable often is determined by looking at the complexity of the matter, the skill and experience of the attorneys involved, and the significance of the legal task to the client. While lawyers tend to bear the brunt of responsibility in a fee dispute, it is incumbent on clients to carefully review their bills and immediately raise any concerns to the firm, he said.
“You get a bill on a monthly basis, and the client has to exercise some control over that,” he said. “If the lawyers are off on some frolic that has no relationship to the client’s legitimate goals, then shame on the lawyer. But also shame on the client for not being on top of it.”
Former Board of Bar Overseers Chairman George A. Berman said the law distinguishes between conduct that breaks an ethical rule and behavior that violates a civil statute.
Massachusetts Rule of Professional Responsibility 1.5 prohibits a lawyer from charging an excessive or illegal fee, he said. In 2006, the Supreme Judicial Court held in In the Matter of Fordham that fee agreements are not simply pure matters of contract with the client, said Berman, a Boston lawyer.
“They always have implied into them an ethical requirement that fees be reasonable,” he said. “Even if the client agrees to a fee and pays it on the terms agreed to, it can still be invalidated on the basis that it is unreasonable under the circumstances.”
While the ethical rules undoubtedly apply to the lawyers, it is not clear what impact they would have in a civil suit between two private parties, said Berman, who noted that he is unfamiliar with the details of the Cumberland Farms case.
Sidebar: Complaint details billing by Boston’s Goodwin Procter
A lawsuit brought by the largest shareholder of Cumberland Farms accuses Boston law firm Goodwin Procter of excessively billing the Framingham convenience store chain in 2007 and 2008 while the company contemplated a potential sale.
By the time an investment banker advised Cumberland Farms that the time was not right for such a deal, according to plaintiff George Haseotes, Goodwin Procter had unnecessarily charged the company more than $1.2 million in legal services.
A chart included in the Middlesex Superior Court complaint breaks down the firm’s billing.
Date Amount
4/30/07 $13,880.00
5/31/07 $49,193.95
6/30/07 $81,090.60
7/31/07 $123,899.14
8/31/07 $58,913.87
9/30/07 $36,573.23
10/31/07 $41,572.52
11/30/07 $76,631.67
12/30/07 $99,992.29
1/31/08 $123,265.79
2/29/08 $86,289.31
3/31/08 $249,519.92
4/30/08 $206,574.93
5/31/08 $14,200.32
Total $1,261,597.54
