Overbilling suit alleges K&L Gates used these techniques to increase fees
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An overbilling lawsuit filed against K&L Gates on Monday alleges the law firm used multiple techniques to increase its fees fraudulently while representing a company in a suit over a failed lease agreement.
The Aug. 24 suit, filed in the District of Utah’s Central Division, says K&L Gates billed $1.6 million in legal fees between May 2016 and October 2016, even though it was not hired to be the primary law firm in the representation.
Law360 has coverage.
The suit was filed by Chicora Life Center and its owner, Chicora Garden Holdings. Chicora Life Center’s manager is lawyer and developer Douglas Durbano, who announced a congressional run in January but failed to get on the primary ballot, the Deseret News reported in May.
According to the suit, a lawyer within K&L Gates reported to Chicora that the law firm hosts an annual seminar in Phoenix for lawyers to learn various ways to increase their billing. The suit claims that K&L Gates used these techniques to increase billing:
• Block billing, in which lawyers aggregate multiple smaller tasks into a single block entry. Such billing can inflate total hours billed to a client by up to 30%, the suit says, citing information from a State Bar of California arbitration advisory on detecting bill padding.
• Hoarding, in which an overqualified professional with a high billing rate retains work that could be passed on to lower-paid professionals. “Often, hoarding results in partners doing associate work, associates doing paralegal work, and/or paralegals doing clerical work,” the suit says.
• Multibilling, which occurs when multiple attorneys perform the same task or attend the same event when one lawyer could handle the task.
The suit says K&L Gates “intensified its deceptive billing practices” after the lead lawyer on the project died and another lawyer took over. The new lawyer left K&L Gates to start his own firm in July, according to Law360.
K&L Gates was retained by Chicora Life Center in connection with its suit in bankruptcy over a breached lease at the Charleston Naval Hospital, the suit says. Most of the legal services were to be performed by Durbano Law, which drafted papers to be reviewed by K&L Gates.
Despite the agreement, the suit says, “K&L’s billing records show substantially more time billed for the very documents that Durbano Law initially drafted, with only minimal changes to the papers to show for it,” the suit says.
Chicora Life Center had planned to renovate and reopen the hospital as a social services hub, according to a 2014 news story. Chicora claimed that Charleston County, South Carolina, backed out of a deal to become the main tenant; the county settled the suit by buying the hospital property for $33 million, ABC News reported in 2017.
Chicora Life Center’s lawsuit against K&L Gates claims that the law firm became its adversary when Charleston County offered to buy the naval hospital in a cramdown plan to pay Chicora Life Center’s creditors. At the time, K&L Gates had accrued more than $1 million in legal fees against Chicora Life Center, and the plan would satisfy the outstanding fees, the suit says.
When reviewing the plan, Chicora Life Center discovered that equity holders of Chicora Garden Holdings would be liable for a significant capital gains tax that would not be covered by the cramdown plan, the suit says. Chicora Life Center asked K&L Gates to file an objection with the court, but K&L Gates allegedly refused.
“Shortly after the dust settled from the bankruptcy proceedings, Chicora Holdings affirmed that it would be subject to a tax liability” of more than $3 million, according to the suit.
The suit alleges breach of contract, breach of fiduciary duty, fraudulent billing, and aiding and abetting a breach of fiduciary duties.
K&L Gates did not immediately respond to the ABA Journal’s request for comment.