Prompted by the AJC's reporting, the Federal Aviation Administration in July began investigating if Atlanta improperly used airport revenues to pay outside law firms, including Paul Hastings, for work associated with the federal corruption probe of the Reed administration.
Using airport funds to pay for non-airport services, known as revenue diversion, is against FAA regulations and could jeopardize tens of millions of dollars in future aviation grants if the FAA found the city engaged in it.
Clark Cunningham, a professor of legal ethics at Georgia State University, said the absence of documentation in Paul Hastings’ flat-rate bills will make it difficult for the city to justify what legal work was performed with airport revenue.
“There is no question that the city should have demanded, and Paul Hastings should have provided, better documentation for the work being done for this extraordinary amount of money,” said Cunningham.
Cunningham and other experts told the Atlanta Journal-Constitution that two factors make Paul Hastings’ flat-rate bills highly unusual. For starters, the city is unable to produce an agreement, known as an engagement letter, that details the legal matters the firm was working on, and the set amount to be paid every month. Engagement letters are required under city guidelines. The flat-rate bills started at $25,000 a month in 2014, and climbed from there.
Not having an engagement letter in place for millions of dollars of legal work is “almost unheard of,” Cunningham said.
And at the same time the city was paying the flat-rate bills, Paul Hastings was submitting invoices with hourly rates of more than $900 for legal work that is specified in five distinct engagement letters, according to documents obtained by the AJC under the Georgia Open Records Act. The hourly rate invoices include initials for the attorneys working on those matters, a description of the work, and the amount of time spent on it.
The AJC reported earlier this month that some of that legal work involved two Paul Hastings' partners — both close associates of Reed — who had business interests in airport contract awards while defending the city against legal challenges that alleged those contracts were awarded based on favoritism.
The city’s law department has exclusive authority to hire outside lawyers. Cathy Hampton, city attorney for most of Reed’s tenure as mayor, said part of the flat rates paid were for two Paul Hastings’ attorneys who were “loaned” to her department during staffing shortages. She said the flat-rate billing method saved taxpayer money.
“With the many hours both lawyers worked on multiple Aviation matters at their own offices and in the office space in City Hall and at Hartsfield-Jackson, hourly billing would have been cost prohibitive,” Hampton said.
Hampton did not specify when the two attorneys were on loan, and both regularly billed the city on an hourly basis at the same time Paul Hastings submitted large flat-rate invoices, according to documents reviewed by the AJC.
For work performed in June, 2016, one of the lawyers, who had been admitted to the Georgia bar five and a half years earlier, billed the city for 257 hours at a “discounted” rate of roughly $600 per hour, 15 percent less than his standard $700 hourly fee.
“I have never heard of a five-year associate being paid $700 an hour in the Atlanta area,” said Cunningham.
For all of 2016, the two attorneys billed the city on average a combined 143 hours per month. That same year, Paul Hastings submitted flat-rate invoices to the city totaling more than $1.3 million.
Hampton said the flat-rate “offered a better value proposition for the City” because it also gave the city access to “other associates or partners having higher billing rates to work or consult on complex research and analysis matters.”
Hampton noted that the city paid flat rates to other firms, and the method produced excellent results while allowing the department to stay within its budget for outside counsel.
Following digital publication of this story Thursday, Hampton said outside law firms did not always have engagement letters in every legal matter because of the high volume of work they performed.
But she later amended that statement to say such contracts were, in fact, always required under department policy, and that Paul Hastings “should have signed one, and the inability to locate that letter suggests that this process was overlooked in this instance.”
“There were likely other instances over the years when this may have happened with no intent to help or harm any specific service provider,” she said.
But she did not explain why the firm's bills escalated around the time fired airport general manager Miguel Southwell alleged in May 2016 that Reed steered airport contracts to favored political donors.
The AJC reported in August that the Reed administration used outside attorneys to negotiate a secret settlement with Southwell that resulted in a statement signed by both men that said neither engaged in "civil or criminal wrongdoing." Reed has never said from where the money for Southwell's settlement came.
The secret settlement was in addition to a $85,000 payment approved by City Council.
In response to AJC questions, Reed issued a statement saying none of the undocumented money spent on Paul Hastings’ legal bills went to Southwell.
“The City of Atlanta did not spend any additional funds on its settlement with Mr. Southwell other than the $85,000 that was approved by the Atlanta City Council in 2016,” said Reed, who started his law career at Paul Hastings in 1998.
City Council was led to believe that a majority of that $85,000 payment was going to Southwell, for job training and relocation costs. In reality, it went to cover the fee for Southwell's attorney, Lee Parks, who negotiated the secret settlement.
A spokeswoman for Paul Hastings declined to comment on the flat-rate bills. citing attorney-client privilege.
Other counties eschew flat-rate billing
Georgia’s rules governing attorney conduct allow flat-rate billing, but also require lawyers to define the scope of representation and the basis for the fees, “preferably in writing.”
“It would be unusual to not have any specifics about what that billing included, meaning the attorney performing the work, the billing rate and what work was done,” said Santana Flanigan, an adjunct professor of law at the University of Georgia.
Neither DeKalb or Gwinnett counties hire outside lawyers for pre-determined monthly fees.
Cobb County Attorney Deborah Dance said she used a flat-rate contract with the firm that negotiated the Braves stadium deal. But that agreement capped total county spending on legal fees at $285,000, and required the firm to detail its work and hours on monthly invoices, Dance said.
“Itemized invoices are the general rule,” Dance said.
A spokesperson for Atlanta Mayor Keisha Lance Bottoms told the AJC last month that the City Attorney’s Office is conducting “a thorough review of all (outside counsel) engagements and will continue to make changes as deemed appropriate.”
Current city attorney Nina Hickson declined to comment on Paul Hastings’ flat-rate billing through a spokesman, saying it was inappropriate “to answer for decisions made prior to her appointment.”
“The use of alternative rates — which includes flat billing rates — is a determination made by the City Attorney,” the city spokesman said. “There are no hard and fast rules about when or under what circumstances to use alternative rates. The City Attorney exercises his or her judgment to negotiate the best rate for the City.”