Daniel Klein’s Legal Line
Each month Daniel Klein fields corporate legal questions posed by Passport’s readers. Do you have a Russia-related legal question you’d like Daniel to address? Tell him about it at firstname.lastname@example.org.
About four months ago we hired the Moscow office of a large multi-national law firm to assist my Western company with a somewhat straightforward tax legal issue. They indicated in writing that the estimate to resolve the issue by providing us with an advisory memo and that it would cost an “estimated” $21,000 and we hence were asked to pay a retainer in that amount. They were late in providing us with bills and fi nally they sent us cumulated bills for three months. The total was a shocking $58,000! I looked through the invoice with the lawyers’ timesheets and found that there were many internal meetings where 5 or 6 of their mid-level lawyers were involved, each billing between $400 and $500 each, which seems very expensive to me. In some invoices there were 15 diff erent staff who worked on the matter from various offices; I only recognized four names. I have had 3 relatively short meetings but behind the scenes apparently they spent collectively over 100 hours on this matter in the past four months with no resulting work product to show for it. Also, although I indicated that time was of the essence and they even promised me orally to come up with a proposed memorandum with a solution within two months, I am still waiting for it. However, I understand now that they don’t have a memo nor any internal documents indicating the preliminary conclusions of their efforts. I was told that the memo won’t be ready for at least two more months and are asking us for an additional $61,000 which would also cover the amount that we have yet to pay. As they have originals of many of our valuable corporate documents we feel constrained by this and feel we need to pay the full amount. Also, headquarters is putting tremendous pressure on us to cut costs especially in view of the current economic crisis in Russia. Do you have any recommendations on this?
Dear Frustrated Client:
Unfortunately I am not sure there is much advice I can provide to you on this, other than you probably need to try to negotiate with them. You perhaps do not want to sue them as that could be costly and quite challenging especially since they are a law firm themselves. In your negotiations I would stress that as you are not in the law business and you have no idea how much a firm’s time is necessary to address a given legal issue. This is strictly their business and clients have no way of trying to second-guess a firm’s internal practices and resource management. You might want to try to point out as well that the firm should be responsible to send you timely bills and that they should have let you know that your account exceeded the $21,000 that you originally gave them. However, they may point out that the $21,000 is only an “estimate” and not a guaranteed cap amount. However, unfortunately even if they are sending untimely bills, and even if you went to court I am not sure that your position would be a very strong one. It appears, unfortunately, that you really do owe them the $58,000 less the $21,000 you paid, but it would appear to me from what you indicated that you are not obligated to continue working with that firm. However, since they have already done a fair amount of work to date, perhaps you do not have much choice. If you like I can give you a few tips for dealing with law firms that may assist you when you give assignments in the future.
Hourly Rates in Moscow: First off, if you think they are overcharging for their rates, it is useful to know what international firms in Moscow charge. According to Gwilym Davies of Global White Pages which publishes a survey of hourly rates for Moscow firms, he has informed Passport Magazine that in 2007 (figures for 2008 where not available at time of publication) multinational law firms in Moscow charged the following average rates:
- Average entry level associate billing rate (1st years) - $312
- Average mid level associate billing rate (5th years) - $421
- Average senior associate billing rate (10yrs +) - $504
- Average salaried/local partner billing rate - $636
- Average equity partner billing rate - $748
Fixed Fees, Estimates and Billing Practices: It is quite common for firms to just charge on a purely hourly basis. This is especially the case for complex litigations, negotiations and other situations where it is difficult to predict the amount of time the law firm needs to spend on a matter. However, for more project based work it is common for firms to give estimates and even fixed fees. An estimate is only that and there is no guarantee that the final fee will correspond with the estimate: could be higher or lower. Fixed Fee assignments put the clients at risk in that even if the firm spends less time on matters they will still be entitled to the agreed to Fixed Fee. On the other hand, the law firm also takes a risk that if the assignment requires more resources than they originally estimated, they lose since they are only entitled to bill for the agreed to fixed amount, unless there is a later negotiation with the client where the client agrees to a higher fee or to put the assignment on an hourly basis. This frequently happens where unexpected issues are discovered during the course of executing the assignment. One other reason that bills may seem higher than they should be is that law firms charge not only for communications with clients and meetings with clients but also for internal communications and meetings. The rational for this is that law firms’ resources is their time, and time spent on a client no matter how the time is spent, is valuable billable time that could have been spent on other matters. Finally, I would like to point out that most firms charge a minimum quarter hour even if they only spend a minute or two, say reading an email.
Daniel Klein is a partner at Hellevig, Klein & Usov. His column is intended as commentary and not as legal advice.