Lawyer's Charge Opens Window On Bill Padding
By NATHAN KOPPEL
The career of Matthew Farmer, a junior partner in the Chicago law offices of Holland & Knight LLP, was on the upswing in December 2004. He had just won a monthlong trial for Pinnacle Corp., a Midwestern home builder accused of copyright infringement, and gotten kudos from many of his partners.
But weeks later, after reviewing billing records in the Pinnacle matter, he decided to leave the 1,200-lawyer firm. Mr. Farmer, 42 years old, believed his own hours on the case had been inflated by the partner in charge of billing, 62-year-old Edward Ryan. Fearing he would violate state ethics rules if he kept quiet, Mr. Farmer blew the whistle to Holland & Knight lawyers.
The firm, which has 24 offices in the U.S. and abroad, took no action and denies Mr. Ryan or the firm did anything wrong. "The amount billed by Holland & Knight in the litigation was reasonable and appropriate," says L. Kinder Cannon III, the firm's general counsel. Mr. Ryan declines to comment.
Last October, Mr. Farmer took a 7% pay cut to join Cohn Baughman & Martin, a 12-lawyer firm. He says he moved of his own accord because he was upset that Holland & Knight wasn't acting against Mr. Ryan.
While the facts of the case are still in dispute, Mr. Farmer's billing allegations offer a rare window into the tricky and emotional issue of inflated billing by law firms. It's difficult to know how widespread billing fraud is, but Stephen Gillers, an ethics professor at New York University School of Law, says "there is a general consensus that billing fraud has increased" as law firms seek to increase profits and attract top lawyers.
"Bill-padding is the perfect crime," adds William Ross, a professor at Samford University's Cumberland School of Law in Birmingham, Ala. It is seldom detected because it is almost impossible for clients to know whether "an attorney really spent three hours doing research instead of five hours," he says. He says that in a billing survey he conducted in 1996, two-thirds of the attorneys (and three-fourths of the clients) reported knowledge of bill padding. Earlier this year, a partner at Willkie Farr & Gallagher LLP left the firm and was suspended from practicing law due to bill fraud.
Meanwhile, Mr. Farmer is still pressing his claims against Holland & Knight. In February, he sent a letter detailing his charges to a Minnesota state court judge, Janet Poston, accompanied by internal Holland & Knight billing records. Mr. Farmer's letter led Pinnacle's insurer, Connecticut Specialty Insurance Co., to file claims against Holland in May, stating that "Ryan and Holland & Knight inflated and falsified legal bills." Last month, the insurer reached a confidential settlement with Holland & Knight, withdrawing the fraud claims. But Connecticut Specialty's outside counsel, Robert Haugen, believes the original motion was credible. "I have a standard to live up to in [Minnesota] when I file pleadings," he says.
Mr. Farmer, who joined Holland & Knight in 2000, became involved in the Pinnacle case in the summer of 2002. A competitor had filed suit in Minneapolis federal court, claiming Pinnacle built homes that infringed on copyrighted designs and seeking more than $30 million in damages. (The jury's finding in favor of the defendant was later reversed due to an evidentiary ruling at trial; the case may be retried in the future by someone other than Mr. Farmer.)
After the trial, Mr. Farmer reviewed the firm's bills. The first invoice struck him as odd, he says. It claimed he worked 6.5 hours on Aug. 7, 2002, the day he learned of the suit. Mr. Farmer says he distinctly recalls hearing about the case late that day and spending only 15 minutes on it.
Over the next two days, Mr. Farmer says, he checked further to see if the first entry was an aberration. He finally quit probing, he says, after discovering some 60 instances of bill padding. Mr. Farmer believes that from August 2002 through September 2003, Mr. Ryan inflated his time — and that of three other lawyers in the case — by more than 450 hours, an overcharge that Mr. Farmer says exceeded $100,000. Mr. Farmer believes his discovery may have been the tip of the iceberg, for he says he analyzed only a "sampling" of the more than $3.5 million of Pinnacle bills.
In one instance, Mr. Farmer says, Mr. Ryan sent a bill to Pinnacle claiming that partner Scott Petersen had worked 89.8 hours over a 17-day period in March 2003. Mr. Farmer says internal firm records show the lawyer didn't work on the case at all during that time. Mr. Farmer also accuses Mr. Ryan of creating "fictitious" narratives using such phrases as "review key documents" and "analyze defense strategy" to describe work that Mr. Petersen never performed. Mr. Peterson didn't return calls seeking comment. The two other lawyers on the case declined to comment.
Mr. Farmer reported his findings in early 2005 to Colin Smith, a firm partner charged with ethics oversight, suggesting that Holland & Knight file a report with the state's attorney-ethics commission. "Don't go there," he says Mr. Smith warned him. "Why would you want to do this to Ed Ryan?" Mr. Smith declines to comment.
Colleagues describe the tall, white-haired Mr. Ryan as a genteel litigator. "I always found Ed to be an excellent lawyer and a gentleman of the highest character," says Michael Kanute, a former Holland & Knight partner. Another former partner, Julie Shelton, says she "can't imagine that he would do anything unethical." At Chicago office functions, another former partner recalls, Mr. Ryan liked to offer positive messages to lawyers. "He would use the sort of catch words that were expected by headquarters, like, 'We are so glad to gather together as the Holland & Knight family.' "
Soon after the meeting with Mr. Smith, Mr. Farmer says he had a "very awkward" 10-minute meeting with Mr. Ryan. He says Mr. Ryan told him that he himself had billed time internally to Pinnacle for which he hadn't charged the client and that he therefore inflated other lawyers' hours on the case to compensate for his uncharged time. In the final tally, Mr. Farmer says Mr. Ryan told him, Pinnacle's total bill reflected the actual time the firm worked on the case.
But Mr. Farmer says he found the explanation "unpersuasive." He says Mr. Ryan occasionally offered strategic advice and edited briefs for the case but never performed routine tasks. "He never stepped foot in a courtroom, never drafted any legal papers, never deposed a witness," says Mr. Farmer, who worked full-time on the matter from the start.
"The amount billed was consistent with the value of the time worked," Mr. Cannon, Holland & Knight's general counsel, said in response to questions about Mr. Farmer's allegations.
Early last year, Pinnacle was acquired by home-builder Hovnanian Enterprises Inc. "These issues occurred well before we were associated with" Pinnacle, a Hovnanian spokesman said. "We have no independent knowledge of the facts."
After his meeting with Mr. Ryan, Mr. Farmer waited for an investigation into his allegations. "I figured at some point, someone would register disbelief or disgust," he says. When that didn't happen, Mr. Farmer moved to the less prestigious Cohn Baughman. "If you look at Matt's résumé, you realize this was not a lateral move," says William Elward, a former classmate of Mr. Farmer's at Loyola University Chicago School of Law.
Late last year, still convinced it was his ethical responsibility, Mr. Farmer reported his bill-padding claims to the Illinois Attorney Registration & Disciplinary Commission. (The commission's chief counsel, James Grogan, won't comment on the pending investigation.) Then, Mr. Farmer sent the seven-page letter and billing records to Judge Poston. "Edward F. Ryan . . . frequently inflated far beyond the hours that the timekeeping attorneys had actually recorded," he wrote the judge, who was then presiding over a lawsuit brought by Connecticut Specialty against Pinnacle regarding the legal bills.
Though Mr. Farmer says he is happy in his new job, he concedes he is dazed by the turn his life has taken. Before that, "if you told me I would be out of my firm in a handful of months, I'd never have believed it," he says.
Write to Nathan Koppel at nathan.koppel@wsj.com
Printed in The Wall Street Journal, page B1 Source
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