

Ways That Startup Lawyers Overcharge - audreymelnik
https://medium.com/entrepreneur-advice/4e8aff11668e
If you have a startup and a lawyer this is a must read!  Avoid being overcharged!
======
grellas
If your startup lawyer deals straight with you, gives you honest estimates,
bills for time actually spent, uses good judgment in managing the legal time
spent on your matter, avoids duplicative billing, is willing to deal fairly
with situations when you question a billing item and have reasonable reasons
for doing so, and, of course, does the job right and is a good lawyer to work
with, then be thankful and do not quibble around the edges about things such
.1 billing increments, small expense items advanced and expected to be
reimbursed, and the like.

Remember that lawyers are in business too and want to devote their efforts
where they will be most rewarded and appreciated. While that certainly doesn't
mean cheating a client, it does mean dealing with clients who see the lawyer
as a trusted ally and not as an adversary and who will not be nibbling at the
ankles with every step a lawyer takes.

In dealing with _any_ lawyer, watch out for padded bills that have vague
descriptions of what was done, beware getting billed for substantial amounts
of lawyer learning time, scrutinize all cases where double billing might be
involved, make sure billing rates match your needs as a company (big firm vs.
small firm), try always to get estimates in advance, negotiate fixed fees or
caps where appropriate, get timely bills sent to you, review the bills
carefully, and question billing items that don't look right. As concerns
lawyer billing, those are the big items. If you pay attention to those, you
will maximize your chances of getting good value from the firm and minimize
the risk of abuses. Beyond that, you normally can ignore the small or trivial
points. Remember that it is a professional relationship and mutual trust
should be the order of the day. If it is not, then maybe it should not be
maintained as a continuing relationship.

~~~
SilasX
That's a lot to expect. Any lawyer diligent and conscientious enough to do all
the stuff you've listed will also be really high in demand and only deal with
the most deep pocketed clients in the first place.

------
smalter
It's good to know how lawyers overcharge, but it's better to find a trusted
lawyer who you don't have to worry about.

We work with Yokum Taku and Jesse Chew at Wilson Sonsini, and they've been
awesome.

Because I'm a former lawyer, I started out our relationship by scrutinizing
every bill.

I stopped when I realized that we were getting an amazing deal. We have only
paid 1 legal bill in 2 years and we haven't been bugged at all about it. Our
legal bill is being subsidized by your Airbnbs and the like. That's the luxury
of working with a great startup lawyer that works with top startups.

~~~
alexdevkar
This is important advice. Spend time finding someone you trust and that you
feel comfortable talking to. You won't run into any of the unethical things
mentioned in this post with a good attorney. In fact, some of those things are
against the rules of professional conduct.

Another important point: You can always negotiate your bill. It is very common
to pay less than the billed amount.

Full disclosure: I'm a former WSGR attorney. Now a WSGR client.

~~~
larrys
"Spend time finding someone you trust"

Sounds very "find a good lawyer".

How do you find someone you can trust? Or do you mean someone who appears
trustworthy?

Also noting that the parent comment says that they stopped checking the bills.
There are cases in business where people know this dynamic and once they
aren't being checked they tend to take more chances. Hence even the person who
relates "he is great and I trust him" may not be aware of what is currently
happening with billing (if they are not checking).

~~~
bfe
The traditional and probably best way to find a good attorney is through your
network of people you trust.

~~~
larrys
I agree that that is the standard and typical advice that people follow.

But people tend to, in addition to doing the subjective "good work" [1], they
refer people that they like personally or who encourage the type of
relationship building that leads to more work. [2]

Also, in theory at least, if an attorney ends up being referred a great deal
and has a nice book of business they would raise their rates and/or push work
off on subordinates, right?

[1] And how, with legal work, do you know if it's "good" until the shit hits
the fan or there is a problem?

[2] Even physicians are susceptible to this (but less so). I don't want to
know who you like personally or who you know but who you think does a really
good job as a clinician. And maybe you hate that person or their personality.
That's fine. I just want someone who is good I don't care if you like having
him over for dinner. (Had a girlfriend once whose father was a surgeon and
they were always entertaining the family practice doctors so they could get
referrals. He was a jerk to his family but he was sweet as sugar to the other
physicians who he needed.

~~~
bfe
I'd say, try to identify people in your network who are sophisticated legal
clients, who have engaged substantively with a number of attorneys over time,
especially if they themselves are also attorneys. They should be able to
distinguish attorneys who do great work and make their clients happy. When
they recommend an attorney, ask for details about what impressed them with
that attorney's work and service.

~~~
larrys
Agree. The way I identified my attorney was by asking someone who wrote a
legal blog (this was years ago) in my industry (blog writer who was a tenured
law professor) who they would recommend. They gave me several names.

The attorneys he referred was from personal knowledge of what they had done
for clients as well as their own interactions in the past (was a federal
prosecutor).

I didn't know the person who wrote the blog (at the time) just cold emailed
for some suggestions.

------
7Figures2Commas
I won't say that this post is devoid of useful information, although there are
some questionable claims (such as the notion that an attorney is double
billing for travel-related work). More importantly, however, I think it misses
a more fundamental mistake that startups make: they don't know how to choose a
lawyer.

If you're working with a firm that has summer associates (referred to as "law
students" in the post), and they are being billed out at $200/hour, you are
almost certainly working with a large, full-service law firm. And large, full-
service law firms are expensive.

Working with a large, full-service law firm is overkill for the vast majority
of early-stage startups. Even when it comes to securities-related work, you
can find reasonably-priced experienced, competent practitioners with BigLaw
backgrounds who work solo or at smaller firms.

------
andrewfong
Having been both a founder and now a start-up lawyer at a large firm, I'd toss
in a few extra tips:

(1) If you're unhappy with your bill, PUSH BACK ON IT. Even if you like the
partner that you're working with, a substantial portion of your bill will be
generated by paralegals and associates like me. And, as an associate, my
marching orders are to account for every last minute of my day, even if I
think it was an unreasonable thing to bill for. In theory, the partner is
supposed to see these items before they go out and make a judgment call on
whether to write it off, but more often than not, the partner will eyeball the
total amount without looking too closely at the details.

Case in point: When I was a founder, a paralegal at a well-known law firm made
a mistake with our cap table and left off a single share. We ended up getting
billed $300 to find that single share. When we changed firms a year later, we
mentioned this to the partner, who was surprised and had no idea this had
happened (despite ostensibly signing off on the bill).

(2) Check in with your lawyer regularly -- doesn't have to be a phone call. A
quick e-mail will do. Bills often come in monthly intervals, and fees can rack
up pretty quickly in that time. As a lawyer, I'll often start work on a new
matter only to find out that my work is no longer required after several weeks
have passed and I've already billed the item. Regular check-ins can help avoid
this. In addition, it'll be easier to draw connections between vague
descriptions on your bill ("Attend to cap table") and what actually happened
("find missing share that paralegal left out"). As a side benefit, regular
check-ins result in faster turn around, especially if there are multiple
matters competing for your layer's attention.

(3) Second opinions can be free. If you're unsure about the advice your
getting from a lawyer, ask a lawyer at another firm. Those other lawyers will
view this as a chance to poach a client and will write their time off as
business development. As a side benefit, those lawyers may point out mistakes
that your current law firm didn't catch or is reluctant to admit to.

------
larrys
"There’s a clause in your agreement that talks about incurring expenses in
connection with your representation and they can bill you for these up to a
certain amount without prior approval. Tell them you require them to get your
approval before incurring such expenses. And list out the expenses you will
not pay for. It’s likely they will have a clause detailing the types of third
party expenses they can incur on your behalf. Push back on this list and
exclude items like mileage, travel, food, phone charges, copying and research
expenses such as Lexis-Nexis, storage and data management services."

Ridiculous. As a business person that has dealt with lawyers, consultants,
accountants (in the bricks and mortar world, not the startup lottery) as well
as has clients that I do work for (so I've been on the other side) I would
totally steer clear of anyone that comes out saying things like this. Unless I
was desperate.

It's just not the way to have a professional relationship which involves
trust.

Get approval on every expense? Even minor ones? Not going to reimburse for
something unless on a white list? Get serious.

This strikes me as penny wise and pound (and time) foolish. The major cost is
the hourly rate and whether you are being billed honestly for that (or not).
And that is something you have no control over unless you are watching them
all the time.

To expect that it matters that you will not approve a minor charge when the
attorney can easily jack up his billing on the major charge is a waste of
time.

Better to question the bills after the fact and if you feel that you shouldn't
have to pay for the lunch bill that your attorney had when meeting with
someone on your behalf while leaving a large tip by all means bring up the
issue.

But just like with employees a certain amount of leeway is often necessary.

~~~
audreymelnik
I would say that it is "penny wise and pound foolish" for a lawyer to nickel
and dime by charging for expenses like these. The bigger picture is actually
that the lawyer realize that eeking out every little expense from a startup
client isn't productive. The aim should be helping that company to get to a
stage that they can have a big exit, and charging for things like these is
only going to constrain that possibility. Lawyers often seem to pass on
charges that in any other industry would be considered a cost of doing
business. The aim here is not to accept that from a lawyer. The main cost
should be the rate rather than the ancillary services and expenses.

~~~
larrys
"that the lawyer realize that eeking out every little expense from a startup
client isn't productive."

You are making a statement of fact based on your perspective. You could be
right. My thoughts are based on many years in business, what I have
experienced, and what I have observed. [1]

"The aim should be helping that company to get to a stage that they can have a
big exit"

Except that it's a lottery and the attorney probably realizes that they have
to make hay while the sun shines (or whatever that expression is). Most
companies won't progress and won't have big exits, right?

Now if you want to argue that by doing this enough startups will be offended
to the point that they won't refer business to them that might be a valid
criticism. But in a world where people forget the price and remember other
things (like results or even the way they are treated) I'm not sure that is
the case (although it could be).

"Lawyers often seem to pass on charges that in any other industry would be
considered a cost of doing business. "

What do you mean by any other industry? Are you saying that there aren't
consultants that do the same thing? There are.

As far as those industries that don't do that it's because they are charging
for a product or service that has certain bounds already set and baking in
their costs into that. Law is charged generally by the hour. So it makes sense
to break out those costs. Or they have certain methods that have billed over
time that are not easy to change. My accountants don't charge when they write
a letter because it's not what accountants do. But they charge me a fixed rate
for services also.

And, in fact, I'd rather hire a painter and say "give me an hourly rate and
I'll buy the paint and supplies for you" that way I don't have to worry that
he is estimating to high and baking that into the price.

"The main cost should be the rate rather than the ancillary services and
expenses."

If we can assume that if they have to eat things that they previously passed
on, in order to make the same profit they will then have to either a) charge
more per hour or b) bill for more hours, right? Unless you are arguing in
general that "lawyers make to much money" which is an entirely separate
argument.

[1] Now I once had a case where an attorney charged me for fedex overseas that
the opposing side requested and made me pay for it. I said "why did you charge
me" and he said "that's what attorneys do for each other". My thought was "why
do I have to pay money so you can maintain a good appearance with that
attorney"? But when you think about it if the attorney on the other sides sees
that your attorney has a cheap client they will also know that that client
won't want a long dragged out case which runs up legal bills. And they will
use that to their advantage. I know this because I have done that to my
advantage in situations (both legal and non legal). After all nobody wants to
go against a deep pockets client. (This doesn't cover every possible pro and
con but only illustrates that there are dynamics that you might not think of.)

------
rayiner
This is generally good advice, but I'd like to discuss #6 (double billing
during travel) and #9 (overbilling on assignments). Both are highly unethical
practices. I can't imagine that they're all that common, if only because in
this day and age of electronic billing and sophisticated clients, it's so easy
to get caught doing something like that.

As for #4 and #7, as a client you can probably get concessions given that it's
a buyer's market for legal services right now.[1] But generally, I think those
practices are legit. The cost of training is baked into the price of every
product you buy, and legal services is no different. With regards to #7
specifically, that tends to be a situation where the junior lawyer who doesn't
say anything on the call will be the one doing whatever work comes out of the
call. It will cost you more money in the long run if he or she isn't on the
call and has to get a download after the fact.

A better approach is to communicate via e-mail when possible and communicate
directly with the associate doing your work unless the partner needs to be
involved. This is kind of related to #2 and #10. Where I used to work, mid-
level and senior associates would handle the day-to-day communications with
the client for securities offerings or credit agreements worth tens of
millions of dollars. If you retain a large firm where an associate will be
doing most of the work on your matters, then find a team where the partner in
charge is good at delegating the day-to-day stuff so you don't have to incur
his higher rates for that sort of thing. Alternatively, depending on your
needs, you might find a small outfit or even a solo practitioner who will be
doing most of the work on your matter himself or herself, and doesn't need to
deal with the inherent overhead of delegation.

[1] Given that, it might just be easier to skip the nitpicking and ask for a
10% discount on the final bill.

PS: What do people here thing about fixed fee arrangements? I'm not sure how
they should be structured for a startup, but that would avoid a lot of the
silliness inherent in billing. At the end of the day, there is a price to
legal services based on supply and demand. Whether you charge for law students
or raise the top line fee or give an across-the-board discount is ultimately
cosmetic.

~~~
vacri
_The cost of training is baked into the price of every product you buy, and
legal services is no different_

At $60/10min, they can take their lumps for training new staff, just like
everyone else. If you call tech support, you're not charged extra when there's
a trainee doing a ride-along. If you use retail, it doesn't cost more if a
trainee cashier is serving you with a supervisor hovering over them. Having
your car fixed doesn't cost more because an apprentice worked on it.

No other industry sees this sort of extra charge as reasonable, especially
when there's so much fat built into the price to begin with.

~~~
Riseed
It's not clear to me whether the issue was being charged an additional $200/hr
for a ride-along law student, or being charged $200/hr for a law student's
solo work.

I agree that charging extra for a ride-along simply doesn't seem fair.
However, based on my experience, it's quite possible that the law student
researched or wrote solo (billed at $200/hr), and then reported back to the
lawyer with a finished product that only needed review (billed at $600/hr).
Given the choice, I would much rather pay $200/hr than $600/hr.

~~~
jotm
I think she meant you paying $600/hr, and the lawyer delegating the whole task
to the student (=increased chance of errors and bad work for the full price).

~~~
rayiner
That would be a breach of ethical practice (billing the partner rate for work
not done by the partner). Generally, the complaint about summer associates is
billing for their work at all. Clients don't feel like they should have to pay
$200-300/hour for the work of a law student. It's a reasonable complaint, and
as a client you should try to get a good deal. That said, the billed rate is a
fiction. Most time billed by summer associates is written off by the firm.
When they do put together presentable work, the time will be marked down. E.g.
some summer associate spent 10 drafting a simple document, the client will be
billed for 2-3 hours or however long a junior associate would have taken to do
the same task. Generally, of course.

------
larrys
"So let’s say a lawyer’s fee is $600 per hour (which is $10 per minute). He
speaks to you on the phone for 2 minutes. That just cost you $60. Not $20.
That’s a $40 rounding charge. Wow. Another way to think of it is a 200%
markup."

So what we have is that the base cost of a phone call with your lawyer is
always going to be $60. I don't have a problem with that other than obviously
it would be nice if the cost were zero.

As far as $60? A conversation of 2 minutes and a conversation for 10 minutes
is still interuptive and takes your attention from whatever you are doing. As
anyone who has been in a zone doing work will attest to.

~~~
joshuaheard
And, a 2 minute phone call doesn't take just 2 minutes. The lawyer has to pull
the file, make notes on the call, set a tickler, then put the file back. Boom,
10 minutes.

------
audreymelnik
Thanks everyone for your comments. My main point in raising these points was
to start a dialog about what is and is not acceptable to charge for and to
raise awareness of these items for startups looking to take on a lawyer and I
think I've definitely done that! Many (but not all) of the points I raised in
this post were sourced from an analysis that my friend performed of a
startup's legal bills from two separate silicon valley law firms.

~~~
alexdevkar
If your friend knows of instances where Silicon Valley firms (1) double-billed
travel time or (2) billed as you stated in the value billing section, consider
reporting those to the CA State Bar. These are ethical violations.

------
tkiley
If I were still an IT consultant and a client raised even half these issues
with me, I would probably terminate my relationship with that client, because
I don't want to be nickel-and-dimed.

If I would find this sort of pushback so irritating as an IT consultant, I
presume a legal consultant would find it just as irritating. Why would you
want to annoy an important consultant in this way?

~~~
jasonlotito
Were you doing this as an IT consultant? Where you double billing for your
time? Were you changing rates without warning?

~~~
tkiley
Good point.

On second thought, I think the more important issue is the one 7Figures2Commas
raised: If you have a lawyer who does the worst of this stuff, you have the
wrong lawyer.

With that said, my blood pressure would definitely climb if a client
challenged a 6-minute incremental bill for a phone call that was only 2
minutes.

~~~
nopassrecover
Isn't it "nickel and diming" to charge for that 2 minute call at all in the
first place?

------
danray
Half of these are unethical (i.e., they violate actual, binding rules of
professional ethics with actual consequences).

The other half should be spelled out in the engagement letter. If you don't
like it, tell your lawyer -- we really will negotiate on these issues.

~~~
larrys
"Half of these are unethical"

Which ones exactly and why? (Serious question if you are making a general
statement please back it up with more information.)

------
lukev
A lot of these strike me as not only sneaky, but unethical and possibly even
illegal. For example, as a software consultant I would feel I were committing
fraud were I to bill two clients for the same hour of time.

Is there a different consensus around the definition of "billable time" in the
legal world that makes this not as bad as it sounds?

~~~
gamblor956
Some state bars have decided that lawyers can no longer bill travel time to
one client if the time is also spent billing work to another client. However,
many states still accept this practice, because on its face, it is perfectly
reasonable and ethical.

For example: if a client is being billed for time spent traveling on behalf of
the client, the lawyer could _do nothing_ while traveling and the time would
still be billable to that client (as travel time). Even if the lawyer then
does work for another client at the same time, the lawyer is still spending
time traveling for the first client. (Note that travel time is frequently
billed at lower rates or is otherwise discounted compared to normal billable
work.) Curiously, however, it is not permissible to bill the same client for
travel time _and_ again for time spent working on that same client's case
while traveling.

~~~
ProblemFactory
Billing for idle travel time, but not double-billing travel+work makes sense.

The premise is that travel is _wasted_ time by the lawyer - that he could have
used for another client or family if he did not have to travel. If they can
bill another client during travel, then it wasn't wasted time for them after
all.

------
papasmrf
As a lawyer, I'll first say that it is always okay to haggle a little bit
about the billing arrangement. I would expect an entrepreneur to want to
negotiate.

Two, some of these practices described would raise eyebrows with state ethics
committees. Double billing travel time, rounding up your billable hours, it
all amounts to padding your bills. Lawyers have been disbarred for such
practices, and this typically happens when people start wondering how they can
be billed greater than 24 hours per day by the same attorney.

Lastly, if you are a start up, you have no business going to an attorney that
is going to charge you $600.00 per hour. A rate that high should be reserved
for some specialties, like perhaps patent litigation. If you are paying an
attorney $600.00 to incorporate for you, you probably will not be in business
for long.

------
001sky
Although I wouldn't over-think this, if you've never dealt with counsel before
this article is worth a couple of minutes to skim through. Just one example is
probaly enough to highlight, but it is a classic: _Resource double-up.

"You’ll have a conference call scheduled and they’ll invite additional
attorneys to sit in. And they’ll charge you for it, even though they may not
say a word during the meeting. Add a clause to your contract that says, “We
agree not to bill you for any more than one attorney on any conference call
with you.“_

------
acjohnson55
I had a good experience with Scott Walker and Ki Ingersoll at Walker Corporate
Law. Granted, I have no basis for comparison, so I could very well have
overpaid. But for the fixed-rate company conversion they did, their guaranteed
rate was in line with the estimates I got elsewhere. I felt like they were
quite helpful and attentive, and there were no surprises. What I could not
afford was uncertainty in results or budget. By that standard, they delivered.

------
Riseed
If you're trying to be penny wise about legitimate third-party expenses like
mileage and legal research, why pay $49 fee to a third party (in addition to
state fees) to change your company’s name? You could have saved that third-
party fee if you'd done it yourself through the Secretary of State's website.

As an additional tip, you may be able to save some money by doing some of the
legal research yourself. Google works surprisingly well for some things, as
does the local public library, which may have a subscription to Lexis Nexis or
Westlaw. Facebook is a great resource for family law issues. There are also
free law-specific resources like nolo.com (e.g. [http://www.nolo.com/legal-
encyclopedia/small-business](http://www.nolo.com/legal-encyclopedia/small-
business)) or avvo.com.

------
stretchwithme
I had mine arguing some obscure issue in some convoluted way just to get past
the 20 minute mark so he could bill for another 10 minutes. And then they bill
you $35 for sending you automatic reminders about important dates you're
already reminding yourself about.

------
cykho
The most atrocious overcharges we've experienced have been around equity asks.
For some reason firms think it's good practice to ask for a sizable chunk as
an interest payment for their incorporation fee (which they expect to be paid
anyways). Even if a company is worth $1m (founders time for 4 years) half a
point (standard ask) is $5k. If incorporation costs $10k (mid-range) that's
50%+ interest! Not to mention there is some risk mixing the roles of counsel
(representing the company) and owner (a minority shareholders) I think this
has spilled out from WSGR and hope it stops soon.

------
kylered
Seriously, if you have a lawyer that needs to scam you out of your cash, then
you have the wrong lawyer. Go hire a professional. Good lawyers are really
busy and don't need to lie to you to make money.

------
nirmel
I would love feedback on my startup, Lawdingo.com (YC W13), as I believe it
addresses many of these issues. We get independent lawyers to be transparent
about their prices, we solicit community reviews, and we make lawyers
available instantly. I'd humbly recommend people try it out for their startup
legal needs. It's free.

~~~
papasmrf
As a lawyer I am always interested in sites that want to try to change the
legal profession in some way. My thoughts: Do you vet the attorneys in some
way, ie, require a bar license number to become a lawyer on the site? Usually
on the consumer side these sites just turn into a race for the bottom price,
with no real regard for the quality of the representation that will be given.
Frankly that is a problem for all of these types of sites, it should be a
concern for you in terms of attracting quality lawyers to the site, a quality
lawyer with a quality practice will not necessarily want to get into a
position of competing on lower and lower prices.

------
lr
All of these are great to watch out for. However, the "Value Billing" one
seems a little like, oh, let's see... Software! Programmers do value billing
all the time. We write one piece of software and charge n number of customers
for it. So, if programmers can do it, so can lawyers.

~~~
nknighthb
If you've been contracting with customers to provide them your time as a
programmer and charging them in this way, your customers need to sue you.
Legal services are not a packaged product, they are time, and that time is
what is being paid for.

~~~
papasmrf
This comment really illustrates the major flaw in hourly billing. People begin
to believe that all they are paying for is time. But they really are not just
paying for time. They are paying for an attorney's expertise in getting the
job done. This is why I try to stay away from hourly billing as much as
possible. The billable hour is a scourge to the profession imho.

~~~
nknighthb
They are paying for time. The time of the attorney being engaged. Time from an
attorney with significant expertise will, of course, cost more than time from
someone who just passed the bar.

If you want to bill on some other basis, fine, but you are not entitled to
tell your clients you're billing them an hourly rate and then make up the
hours based on the value you think is being provided. That's fraud.

~~~
papasmrf
I agree with you. My point was just that I do not want my value being reduced
to nothing but time, and that is exactly what hourly billing does. So I tend
not to do use hourly billing. Having done it working for other attorneys, I'll
tell you it is a crappy way to spend your day keeping track of minutes.

------
adamzerner
It really seems like the law industry does this type of stuff all the time,
which is bs.

The law industry is a service business. You pay them for their services. The
service you get is much less than what you pay for. This mismatch = an
opportunity to do better and make a lot of money.

------
diziet
You can also use services that provide lawyering a-la-carte :
[https://www.upcounsel.com/](https://www.upcounsel.com/) or things like
[https://www.clerky.com](https://www.clerky.com) .

------
sarreph
Could anyone explain to me what the author may be alluding to as a 'regular
lawyer' as opposed to 'your lawyer'?

"If you use your lawyer, you’ll get charged way more than if you used a
regular lawyer"

------
paul_f
Whatever you do, never use the attorney recommended by your investors.

~~~
borplk
can you please elaborate on this?

------
hudibras
At what point does it become more cost-effective to hire your own counsel?

------
etanazir
your goto lawyer should be a friend.

