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2 Cases Signal Insurers' Rebellion Against Lawyers


Exhibit A in the reams of court papers documenting the legal cat fight between the Fireman's Fund insurance company and the Latham & Watkins law firm is a photograph of several of the firm's paralegals, each dressed for success in a T-shirt that reads, "Born to Bill."

The firm, a respected Los Angeles-based legal giant, insisted that the shirt was irrelevant to the case at hand, a 1988 legal fee dispute. But the insurance company suggested that it symbolized the Latham firm's mentality, that the law firm employed a "scorched-earth" policy in preparing cases for trial--a practice designed to generate millions of dollars in fees.

About a month ago, the two sides settled the case, with Latham paying $1.5 million. Because the deal involved 600-lawyer Latham, the second-largest law firm in California, the settlement underscored the emergence of an insurance industry movement to challenge rising legal bills--even from the most prominent and powerful firms.

"A lot of people don't like insurance companies," said Jim Schratz, Fireman's Fund vice president for claims. "But a lot of people don't like lawyers, too. So it's a fair fight."

Schratz added a few moments later, "And we think we're winning."

The two most striking California challenges to legal bills have both involved cases in San Diego--the Latham case and the unrelated, so-called "Alliance" case. Though other cases are in the works around the country, these two, both of which evolved over the past few years, are the first in the nation that generated legal bills that led to headlines, Schratz said.

The Latham case stemmed from a civil suit that its San Diego branch office handled in San Diego Superior Court.

Fireman's Fund alleged that Latham's bills were abusive. It objected to the firm's costly tactics. It complained of tabs for meals, hotels and travel, and spiced its lawsuit with details of billed dinners that included "lobster scampi de la casa."

Meanwhile, for months now in San Diego federal court, prosecutors, Fireman's Fund and other insurance firms have been trying a piece of the Alliance case, in which about 20 California attorneys are charged with generating at least $50 million in fraudulent bills. That case, a massive chunk of civil and criminal litigation, is due to continue for weeks or even months.

The Alliance case stands apart because of the scale of the alleged fraud, according to lawyers and insurance company experts. What makes the Latham case so intriguing is that the court files in the case offer a rare insight into the way big law firms, which are privately held and which jealously guard financial particulars, bill their cases.

Latham & Watkins is very big. It has offices in San Diego, Los Angeles, Costa Mesa, San Francisco, Washington, Chicago, New York and London, according to a lawyer's guide.

Latham's clients in recent years, eager to be allied with the legal cachet of a firm with worldwide resources, have included RJR Nabisco Capital Corp., Beatrice Co., Bell Atlantic Corp. and Safeway Inc., according to a legal trade magazine.

Its recent clients have also included First Executive Corp., the Los Angeles-based insurance holding company that was hard hit by a souring portfolio of junk bonds and filed last month for Chapter 11 bankruptcy court protection. Drexel Burnham Lambert, the failed investment house, used to contribute 5% of Latham's revenues, according to a San Francisco legal paper, the Recorder.

According to another trade paper, the National Law Journal, Latham partners pull down about $660,000 a year. Beginning lawyers start at about $70,000 a year, the paper reported.

To provide those kinds of paychecks, basic economics dictates that the lawyers and paralegals at the firm must bill as many hours as possible each year.

According to data Latham supplies to law school placement offices, its associates average 2,100 billable hours each year. That means its lawyers are billing--as opposed to chatting in the office or eating lunch--at least eight hours each day, every day of the business year.

It's that kind of economic pressure that tempts lawyers, particularly at big firms, to pad the bills, said Schratz of Fireman's Fund, which is based in Novato, north of San Francisco. The line between honest billing and fraud, Schratz said, seems to have blurred.

"If you're talking about padding bills, if by that you mean fraud, it is rampant, absolutely rampant" in lawyers' bills, he said. "I have no doubt about that at all."

"From my perspective, if you're given my definition of fraud--that is, if you put down an hour of work and you didn't work that hour, that's fraud--a rough estimate would be 70% of all bills involve some fraud," Schratz said.

The current president of the State Bar of California, Los Angeles lawyer Charles S. Vogel, disputed Schratz's charge.

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