Last week, the National Law Journal reported that a California plaintiff’s lawyer has filed a class action suit against Chadbourne & Parke, alleging that the firm engages in a pattern and practice of billing its clients based on hourly rates charged by online legal research providers, even though the firm actually pays a flat rate for its legal research subscription.
According to the complaint, between October 2004 and May 2005, Chadbourne charge the named plaintiff, Texas businessman J. Virgil Waggoner, approximately $20,000 for legal research fees. Waggoner alleges that the charge should have been closer to $5,000.
The complaint alleges causes of action for violation of Cal. Bus. & Prof. Code §17200 (unfair business practices), unjust enrichment and fraud.
As the article points out (and as my research has confirmed), a firm may recover online legal research costs from its clients, and may even profit by adding a markup to those costs, as long as the client has agreed to such an arrangement. If Waggoner’s factual allegations are true—and, based on Chadbourne’s transparent effort to paint Waggoner as nothing more than a disgruntled former client by pointing out that Waggoner brought the California action only after his New York malpractice suit was dismissed and after the firm sued him for unpaid legal fees, I suspect they are—this suit is a cut and dried case in which a BigLaw firm desperately trying to prop up its PPP will finally get its well-deserved comeuppance.
But, although the article about the Waggoner case prompted me to explore the issue of recovering online legal research costs from clients, that case isn’t what got me all riled up: what’s upset me is what I discovered in the course of my further research.
I knew that the ABA’s GP|Solo Division had addressed the issue of recovering online legal research costs in a recent GP|Solo article as well as in a CLE session at last year’s National Solo & Small Firm Conference. So it was no surprise that my investigation into the issue quickly brought me to a page on the ABA’s website, where the Division has collected a number of resources about recovering the cost of online research. Since Thomson Reuters is one of the primary sponsors of the GP|Solo Division, the Division’s interest in this issue is, shall we say, understandable.
Since I didn’t get a chance to attend the cost recovery CLE at the NSSFC last year, I decided to watch the session online. Now, I owe a great debt to the GP|Solo Division (sponsors of the Solosez listserv, which has been critical to the success of my law practice). Many of my closest friends and colleagues are very active in the Division. On a personal level, I like Keith McLennan, who presented the cost recovery session (and, to be honest, I’m not even sure that the contents of the session reflect his personal views—he may have been roped into presenting the session because he is a past chair of the Division). I’m even a big fan of Westlaw (as opposed to Lexis, at least). But I was disgusted with the rationales advanced for recovering from clients a cost that is part of a law firm’s overhead.
McLennan explains that lawyers used to consider the cost of online legal research to be part of overhead. As such, that cost was one factor lawyers took into account when setting their hourly rates. But ever-increasing hourly rates led to pushback from clients, he explained, so some firms have decided to recover the costs as disbursements.
The efficiency rationale also looms large. Under that line of reasoning, clients benefit from the use of online legal research because a research project that might take a lawyer using actual books five hours to complete can be completed in much less time using online legal research.
Then there’s the fairness rationale. Since a lawyer might use online legal research resources more for some clients than for others, says McLennan, it’s not fair for all clients to pay an hourly rate that is inflated by consideration of the cost of the lawyer’s online legal research subscription.
Of course, under this same reasoning, lawyers should be recovering from their clients the proportional cost of any tool that comes with a flat monthly fee. Do you pay a flat rate for long distance calling? By all means, go after your clients for their proportional share of your phone bill. After all, clients benefit when a lawyer can quickly resolve an issue over the phone, instead of writing a letter (which arguably takes more time and comes with its own associated overhead costs). And, since a lawyer talks to some clients more than others, it’s not fair for all clients to pay an hourly rate that is inflated by consideration of the cost of the lawyer’s long distance calling plan.
I’m not suggesting that lawyers should never bill clients for extraordinary expenses incurred when the lawyer must use a resource that is outside the scope of a reasonably broad flat-rate plan: I do it myself. As a legal research and writing services provider who lives in New York and serves clients nationwide, I maintain a Westlaw subscription that gives me access to all federal and state cases, statutes and regulations; law journals; and many New York-specific secondary sources. Through Westlaw’s ResultsPlus add-on, I also have access to an almost unlimited number of secondary sources that are relevant to the issues I’m researching. Nevertheless, on extremely rare occasions, it’s necessary to go outside my subscription plan. Sometimes I eat that cost; other times, I explain to the lawyer I’m working with why it’s necessary to go outside my plan, and obtain prior approval to incur an out-of-plan disbursement, which I then pass on to the lawyer at cost.
Still, cost recovery should be the exception, not the rule. Don’t nickel and dime your clients: when setting your rates—whether you bill by the hour, charge a flat fee, or use any other billing arrangement—take into account all of your overhead—including the cost of your online legal research subscription.