HUD is seeking $726,400 back from PHA in disputed outside legal spending

Attorney Mark M. Lee was a man of few words when billing the Philadelphia Housing Authority.

For at least 100 days, Lee's billing entries stated that he was "on site" at PHA during a federal audit, saying little else. His firm billed the agency $242,000 for his work, at $310 to $315 an hour.

PHA has said it needed to pay an outside lawyer to monitor the federal auditors and respond to questions that its own staffers - whose pay is much lower - were unable or too busy to answer.

But that explanation isn't flying with the U.S. Department of Housing and Urban Development. And now it wants its money back.

In a Dec. 22 letter, HUD regional counsel Sheryl L. Johnson informed PHA it is required to reimburse $726,400 in federal funds used to pay Lee and other lawyers at Schnader, Harrison, Segal & Lewis L.L.P. for the audits.

Lee, currently a federal prosecutor in Delaware, did not respond to a request for comment.

Schnader's supervising partner for the PHA work, James J. Eisenhower, in an e-mail, took responsibility for the billings, saying: "The format and content of our bills did not violate PHA's rules. That is why PHA approved them, and it is why PHA never questioned the scope or detail of the work being performed. At all times, PHA was fully informed about our work."

The battle over Schnader's fees is fallout from a March audit by the HUD inspector general's office of PHA's spending on outside lawyers. From 2007 to 2010, PHA paid outside law firms $38.5 million - more than any major public housing authority in the country. The HUD audit scrutinized a $4.5 million sampling of those invoices.

HUD now oversees PHA and provides the majority of the agency's $376 million budget. Before it returns to local control, PHA has to both account for its past legal spending and rebuild its legal department.

Until it does, PHA is prohibited from spending taxpayer money on outside lawyers.

"We're in a very, very vulnerable situation right now," said Barbara Adams, PHA's general counsel since August. "My main mission is to get HUD appeased, satisfied."

Schnader, which billed PHA for a total of $3 million during the 2007-10 period, is just one of the firms whose invoices are being scrutinized by PHA and HUD.

Three others - Ballard Spahr L.L.P., Duane Morris L.L.P., and the defunct Wolf Block firm - billed significantly more than Schnader. The bulk of their invoices have not been released because of an ongoing federal court case.

The Inquirer obtained copies of PHA's Schnader invoices under the state's Right to Know law.

They give a far more detailed glimpse than previously available of how PHA spent money on lawyers. Issues that arise from a review of the invoices include how PHA:

Used outside lawyers as stand-ins for PHA staffers, who work for a fraction of the cost.

Failed to have a general counsel - the person who serves as gatekeeper, overseeing legal spending - from December 2005 to August 2011.

Ignored its own long-standing rules to control legal costs.

One rule that was repeatedly overlooked was a prohibition on "block billing."

PHA's Guidelines for Outside Counsel stated in boldface type: " 'Block Billing' Prohibited." It described block billings as lumping multiple tasks together in a single billing entry, "making it impossible to determine the value and appropriateness for each entry."

PHA spokeswoman Nichole Tillman said the guidelines were in effect during the period covered by the HUD audit in March.

The agency's legal contracts briefly mention the guidelines. The supervising lawyers responsible for their firms' work with PHA must sign the contracts as Eisenhower did for Schnader

Despite the ban on block billing, HUD's inspector general said those types of bills were regularly submitted by Schnader and other firms. Under recent changes, PHA no longer expressly bans block billing - though it requires lawyers to provide clear explanations of their work.

Tillman acknowledged that PHA "did not always follow the Guidelines for Outside Counsel when reviewing and approving legal invoices."

Of the 472 invoices the inspector general's office reviewed from various law firms, it said 30 percent had block billings - a total of $2.4 million. There was no firm-by-firm breakdown of that amount.

PHA's last general counsel before Adams, Leigh A. Poltrock, did not reject block billings out of hand, but would raise concerns "when a firm repeated the same billing entry throughout the invoices," Tillman said.

After Poltrock left in 2005, there were a series of acting general counsels until Adams filled the post in August. Tillman said block billing "did occur on some occasions and should not have been approved."

In questioning Schnader's billings, HUD's regional counsel has flagged repeated entries by lawyer Sean Whalen. For every working day during April 2010, Whalen used a description of about 40 words for his services. Again and again, he wrote: "Correspondence, conferences, review, analysis and drafting of materials, and meetings."

The cost for the month: $55,000.

The previous month of March, Whalen - who has since left Schnader - explained his work every day, Monday to Friday, with a similar phrase, with minor word changes. Cost for the month: $47,000.

HUD regional counsel Johnson said in a June letter to PHA that Whalen's "description of services for the months of March and April of 2010 are identical for many days."

PHA replied that the lawyer assisted on three audits and helped the authority with a federal investigation of asbestos problems. HUD said it was still reviewing the billings.

Contacted recently, Whalen declined to comment.

Eisenhower said Whalen and Lee were high-quality lawyers.

"Sean Whalen and Mark Lee are young lawyers of outstanding character and integrity who did excellent work for PHA," he said. "Again, PHA was well aware of their work at all times. In fact, they reported on a nearly daily basis to PHA counsel and executive staff."

In a July letter to PHA, Eisenhower said Whalen's billing entries "could have been more descriptive."

Temple University law professor David Kairys said Whalen's entries "raised a serious question of what was done."

"That long paragraph that's just repeated day after day," Kairys said after reviewing some of Whalen's billing entries. "It's got the worst aspects of block billing."

Kairys said that block billing was a long-standing practice of many firms but that clients were increasingly protesting and firms were moving away from the practice.

"It is a shift for the legal profession," he said. "It's a shift that I think should be made."

Many private companies flag block billings with the help of a number of consulting firms that specialize in monitoring legal invoices.

Amar Sarwal, vice president and chief legal strategist for the Association of Corporate Counsel in Washington, said block billing was "a very problematic practice."

Sarwal, the U.S. Chamber of Commerce's former general-litigation counsel, said lumping many tasks together could allow lawyers to obscure a bill with issues they might not want highlighted.

"Maybe they spent too much time on one issue and want to hide it," said Sarwal, whose 29,000-member organization trains corporate executives how to better manage legal costs.

Schnader's invoices show that apart from the $242,000 PHA paid for Lee to be "on site" for 100 days, the firm billed an additional $108,000 for 41 days of Lee's on-site work when he also said he had meetings or drafted documents.

PHA's Adams told Johnson, the HUD regional counsel, that the authority needed to use outside lawyers as backup to PHA operations manager Keith Caldwell.

"Outside counsel was necessary to provide Mr. Caldwell additional staff resources able to address the audit," Adams said in an Oct. 13 letter. "The function of outside counsel was to clarify PHA's policies and procedures."

HUD disagrees.

"You merely advised that outside counsel was necessary . . . because of insufficient manpower to run day-to-day operations," Johnson said in an Oct. 24 response.

Adams pleaded PHA's case again in a November letter with Johnson, but the HUD counsel was unswayed.

PHA is now talking to officials at HUD's Washington headquarters about what to do, Adams said.

She stressed that Schnader's use of the phrase on site for the audit may have been deemed sufficient under former PHA executive director Carl R. Greene. The work of the lawyers was needed - at least part of the time, she said.

Adams said that of all legal invoices under review by HUD, "my bottom-line question is what percentage of the total billings do we think is flawed?"

"Some of what should not have been paid is perhaps due back from the law firms," Adams said. "That depends if problems were their fault or PHA's fault."

Schnader has repaid $14,822 that it billed PHA for Lee's attendance at an anniversary dinner party and for Lee and others when they attended PHA public events.

Adams was unequivocal: "There should never, never be a time entry that says 'at party.' "

Eisenhower has said Lee's billing entry, saying he "attended anniversary party," for which Schnader charged $1,417 for 4.5 hours work, should not have resulted in a bill. The same day, Schnader also billed PHA $2,835 for nine hours Lee spent monitoring federal inspectors conducting an audit.

Eisenhower called the money Schnader repaid to PHA "an accommodation" to a client. The firm is not offering to repay any money Lee billed for monitoring.

The public scrutiny of PHA's billings has had an impact among the city's law firms. "The whole legal community of Philadelphia has had a wake-up call," Adams said.

Inquirer staff writer Dylan Purcell contributed to this article.