GPSOLO December 2008
Reinventing the Wheel and Charging Your Client to Do It
Archeologists suggest that the wheel may have originated in Mesopotamia circa 3,500 BC. (That one is for you Jeopardy! fans.) There are no known records that indicate whether the inventor charged the same amount for production of the second wheel as he or she did for the first (and really, how much good is just one wheel anyway, unless you are a unicyclist). What is likely, however, is that a similar amount of labor was necessary to produce that second wheel as the first.
The same cannot be said regarding the researching of legal matters or the drafting of documents, particularly in the computer age. Moreover, whereas there is no indication that wheelwrights have ever had to follow a code of ethics, lawyers must obey the rules of professional conduct.
The Ethics Rules
Model Rule of Professional Conduct 1.5 states that “a lawyer shall not . . . charge . . . an unreasonable fee or an unreasonable amount for expenses.” That sounds simple enough. But what is reasonable? On the surface, it would seem reasonable that if you provide the same services and produce the same product for Client A and Client B, that you would charge them the same amount. Not so fast. Remember, among the factors that the Model Rule names in determining reasonableness are the time and labor required of the lawyer and the novelty of the questions involved. The question may have been unique when you addressed it first for Client A, but it sure wasn’t when you addressed it for Client B one month later.
The Time Spent Doing the Research
There is no question that you may charge for the time you spend doing research for Client B. If you have already done the research on behalf of Client A and are charging Client B strictly by the hour, then you may not charge Client B additional fees for the work already done (as made clear in ABA Formal Ethics Opinion 93-379), though you may charge for any time spent tailoring the research to suit the current client or updating the research (just as the wheelwright might charge for refining that first wheel to make it more of a circle than a hexagon, which had made for a rather bumpy ride).
But if you are charging the current client in some manner other than by the hour, how do you incorporate the prior research into the equation? What is its value? This is something that you and your client have to agree upon at the beginning of the relationship.
What kind of research you are doing also may be relevant. Is it research dealing with a specific pleading or is it general background research on an area of the law? If it is the latter, you may have to go a little further to justify the entire expense. If you market yourself as an expert in the field, costs associated with general background research may be questioned. So, if you are an Internet addict, you may find that not all your online expenses will be compensated. And speaking of technology addictions, don’t let your BlackBerry habit get you in trouble regarding your fees. Remember, double-billing is double-billing. If you are e-mailing a client from your BlackBerry during a deposition on behalf of a different client, you can’t charge both clients for that time.
And, of course, you may bill only at your rate for your time. So, if you hand your paralegal a note with the parameters for a computer search you want done, but the paralegal is the one who spends all the time on the computer gathering the results, you have to charge the client at the paralegal’s rate for that time spent doing the research, not at your rate. The time you spend reviewing the research results will, of course, be billed at your rate.
And what if you hired an attorney from outside your firm to do the research—perhaps even a lawyer in India? A discussion of outsourcing must wait for another article, but what costs may you pass on to your client in regard to the use of contract lawyers? ABA Formal Opinion 00-420 addresses this issue. Basically, as with any client-specific expense, you may get reimbursement from the client. However, whether you may receive an amount over and above your actual costs depends on how you categorize your expenses. If you are billing these expenses as fees, then you may add a surcharge if the total fee is still reasonable. However, if you are not billing these expenses as fees, and if you and the client have not reached a specific agreement as to a surcharge, then you may not add one to the bill.
Let’s assume that you did all the research yourself. Did you have to? Could an associate have done the research instead at a lower hourly rate? Courts will address that issue and may lower a fee award to reflect the lower rate.
The Out-of-Pocket Costs of Online Research
In the old days you might have trotted down to the nearest law library and spent the day roaming the dusty stacks to do your research. Today, you are more likely to invest in a subscription to one of the online legal research services and roam the high-speed stacks of the Internet from the comfort of your home or office or local airport. (More than 70 percent of solos and small firm lawyers responding to a recent ABA survey stated that they subscribe to online legal research services. For more information on the survey, see www.abanet.org/genpractice/resources/costrecovery/index.html.)
The dusty library was free. The online library is not. May you recoup the costs of using it and, if so, from whom and on what basis? ABA Formal Opinion 93-379 tells us that you may not charge a client for overhead expenses but may charge for the costs associated with computer research for that client, that is, the amount your online provider billed you for the time spent in their electronic library. But you may not add a surcharge to these costs when passing them on to the client.
Again, seemingly simple enough. But what if you want, in essence, to charge your clients for maintenance of an online library? If, in the old days, you didn’t head down to the county law library but instead maintained your own dusty library at your offices, it’s clear that you were not permitted to charge your clients any portion of the overhead expense of maintaining that physical library absent a specific agreement with the client to the contrary. What if instead of maintaining a physical library, you now maintain an online library—that is, you pay a monthly charge to a provider for access to online legal research instead of paying by the minute? Is that still overhead? Or is there a way of recouping some of these costs from your clients? Courts have held that the fixed subscriber fee is an overhead expense that is not recoverable.
But the Comment to Model Rule of Professional Conduct 1.5 states that “[a] lawyer may seek reimbursement for the cost of . . . expenses incurred in-house, such as telephone charges, either by charging a reasonable amount to which the client has agreed in advance or by charging an amount that reasonably reflects the cost incurred by the lawyer.”
Pennsylvania Informal Opinion 2006-30 confirms the notion that you may not make a profit off of your client by charging more than your actual online costs and addressed the manner in which you may make an allocation of the costs among clients. The Pennsylvania Informal Opinion acknowledges that the monthly charge is “akin” to an overhead expense, but it allowed that there were acceptable methods of recouping some of these costs from clients. The lawyer may, as suggested by the inquiry, “calculate the average number of billable minutes per month during which the [online] service could be used based on an average day . . . and arrive at a per minute charge of use. . . . This uniform per minute charge would be available to charge each client for whom the Computer Research would be used during the month.” The Opinion goes on to state that there might be a formula that would allow the lawyer to recoup an even larger percentage of the costs than the one suggested by the inquiry.
However, the Opinion states that it would not be acceptable to use a method that “pro rates each client’s monthly usage by the total usage of all clients in the given month and recoups the entire monthly charge by spreading the actual cost over all clients’ usage during the month regardless of actual volume of usage” because this “could easily lead to arbitrary and widely divergent charges to clients on a month-to-month basis for the same services.” The Opinion suggests that “such an arbitrary method of allocating costs” might represent a violation of the professional conduct rules on Communications Concerning a Lawyer’s Service and on Misconduct (dealing with conduct involving dishonesty, fraud, deceit, or misrepresentation).
However, the Opinion further states that the pro rata method would be acceptable if the clients gave informed consent after full disclosure of the method by which the charges would be calculated. The total monthly charges to clients under this method would always equal, and never exceed, the lawyer’s monthly cost, so the lawyer would not be making a profit off the clients.
Fees Versus Costs
So, you’re going to recoup some costs of computer research from your client. But are they costs or fees? Just as the categorization of costs was a factor in the discussion of contract lawyers above, it is again here. Some courts hold that the costs of computer research should be considered overhead and factored into the lawyer’s hourly rate. Other courts have moved toward allowing reimbursement through addition of the costs on top of the hourly attorney fees. This is particularly relevant if you are working under a contingent fee agreement, which must explain the client’s responsibility for such expenses in a written agreement between you and the client, or if you are collecting fees from the opposing party pursuant to a fee-shifting statute.
Other Technology Expenses
Legal research is not the only technology expense that you may want to charge against the client or recover from the losing party. At least one court has held that the cost of a computer program purchased by a law firm specifically to aid in the prosecution of a case was a necessary and reasonable expense that could be recovered with other costs from the defendants. And, of course, there are still the “ancient” technology costs. As stated above, you may not charge general overhead expenses to clients, but you may charge the client for actual, reasonable in-house expenses such as photocopying and long-distance telephone calls.
In the grand scheme of things, these ancient technologies aren’t that old, but as technology advances at an increasingly rapid pace, they sure seem that way. Think of the thousands of years between that first wheel and the first computer and the relatively short period of time since. Thirty years ago there were no discussions about reimbursement for online research. And yet some basics never change. Your fees still have to be reasonable, and people still keep trying to reinvent the wheel. In 2001, an Australian man, attempting to demonstrate the flaws in Australia’s patent system, registered a patent for a “circular transportation facilitation device”—a wheel.
Arthur Garwin is professionalism counsel with the American Bar Association's Center for Professional Responsibility. He may be reached at Art.Garwin@americanbar.org. The Center for Professional Responsibility’s ETHICSearch service can help you locate citations to relevant ABA rules, ethics opinions, and other ethics resources regarding fees: email@example.com.