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$540,000 overcharge sheds light on law firm bills

Arbitration award calls policies into question

By Casey Ross
Globe Staff / December 10, 2010

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An arbitrator has found the law firm Goodwin Procter overcharged a real estate client by more than $540,000 in a rare showdown over the billing procedures used by many of Boston’s largest and most prominent legal practices.

The arbitrator, Jeffrey Martin, ruled Goodwin submitted “vague’’ invoices to Northland Investment Corp., failed to provide a promised discount, and used too many of its attorneys to bill for the same legal tasks.

As a result, Martin ordered Goodwin to cut its $1.1 million invoice by 55 percent.

The case is unusual both for the amount of money involved and because it is playing out in public, with the parties disputing financial matters and other issues that law firms typically handle in private.

Although the matter is still being contested — Northland has asked a court to reduce its bill still further, to zero — the arbitrator’s finding calls into question the business model Goodwin and many other large law firms have relied on for decades: Deploying huge legal teams to pursue clients’ cases, often assigning more than a dozen lawyers to compile research, conduct depositions, and draft motions.

The promise of such treatment is part of what attracts clients to large firms, but it can also leave them shocked when they get bills for work by a multitude of lawyers, each costing upward of $250 an hour, and some much more.

“Firms simply throw bodies at cases, and that allows them to bill and bill and bill,’’ said Alan Fanger, a Newton lawyer who specializes in fee disputes with law firms and legal malpractice cases.

“Until fairly recently,’’ he said, “most corporate clients just paid the bill and didn’t ask any questions.’’

But the economic downturn has caused many corporate clients to more closely scrutinize their legal bills and challenge fees they deem unreasonable. Moreover, increased competition between law firms is prompting some to consider alternative billing arrangements, such as flat fees instead of hourly billing.

Fee disputes between law firms and their clients are not unusual, with more than 130 cases a year in the state coming before an arbitration board run by the Massachusetts Bar Association. But legal analysts said disputes typically involve less than $10,000, many resolved before the arbitrator even rules.

Despite the size of the overbilling found by the arbitrator, Goodwin said, the firm does not see Martin’s decision as a repudiation of its practices.

If anything, the firm said in a statement, Martin’s decision affirms its position that Northland still owes it money — now around $560,000 plus other disbursements — rather than backing the client’s assertion it doesn’t owe Goodwin anything.

Northland, meanwhile, said the decision supports its contention Goodwin dramatically overcharged it and then was unable to justify many of the charges.

The company is now seeking to have even its reduced bill thrown out by a Middlesex Superior Court on the grounds of misconduct by a lead Goodwin lawyer, Gilbert Menna, whom Northland accuses of violating his attorney-client obligations by disclosing confidential financial information about the company and bad-mouthing its chief executive.

The two companies once had a much more amicable relationship.

Northland had hired Goodwin to represent the developer in several legal matters between 2006 and 2009, paying about $3 million for the firm’s work. The company, which builds large residential and commercial complexes across the country, then received a $1.1 million bill for Goodwin’s representation in an unsuccessful battle with another company that briefly had formed a business partnership with Northland.

The bill for that losing effort led to a heated dispute between Goodwin and Northland, with the law firm bringing the case to an arbitrator to seek payment.

Northland said the fight got personal, and accused Menna of going on a tirade and referring to Northland’s chief executive, Steven Rosenthal, as “cheap’’ and “a lunatic’’ (as well as a more derogatory name) in front of one of Northland’s top investors.

Northland also said Menna told the investor, Michael D’Amelio, that the company was “financially unsound,’’ prompting D’Amelio to spend months reviewing Northland’s books before making additional investments.

In his Oct. 19 ruling, Martin did not consider the allegation against Menna but found that Goodwin failed to make a case for several of the charges on its invoices. The questionable charges included: 206.8 hours of work by six employees to prepare a complaint and injunction papers; 102.9 hours for seven employees to draft another document; and 64.8 hours for five employees to prepare for a motion hearing.

Martin does not disclose the dollar value of the individual charges in his ruling, but lawyers at prominent downtown law firms typically charge from $250 an hour for low-level associates to $750 for top partners, lawyers say.

Another important claim under dispute: whether Goodwin had promised Northland a substantial discount on its final bill. Martin ruled the firm did, and on that matter alone, he shaved 30 percent from the sum.

A spokesman for Northland said it will continue to pursue the allegations of misconduct against Menna. “The company wants to be heard on this issue,’’ the spokesman, Doug Bailey, said. “They feel this escalated once the breach of duty occurred.’’

Goodwin has not filed a response to Northland’s motion. But in a statement, the firm said the allegations against Menna, who recently won a lifetime achievement award from a national real estate association, are a sideshow meant to distract from Northland’s responsibility to pay the firm.

“The arbitrator properly viewed these allegations as irrelevant,’’ the firm’s statement said. “It is unfortunate that Northland now seeks to avoid its own legal obligations by engaging in an unfounded attempt to smear Goodwin Procter and its lawyers.’’

Casey Ross can be reached at cross@globe.com.