This post was originally published May 17, 2009 and was updated May 9, 2022.
Many years ago, I posted at Legal Blogwatch about an ongoing lawsuit against biglaw firm
Chadbourne Park, alleging that Chadbourne engaged in deceptive practices and committed
fraud for, among other things, billing the client $20,000 for online research services when
the actual cost to the firm was only around $5000. The case got me to wondering about
- Should you mark up the cost of online legal research when you pass the charges on to your clients as a disbursement (i.e., expense item)?
- Should you pass on costs of online legal research to clients as a separate “line item” expense, or treat the costs as overheard, encompassed in your overall billing rate or flat fee?
As to the first question, ABA Model Rule 1.5 and ABA Ethics Opinion 93-379 provide
guidance. Both sources allow lawyers to pass on out of pocket costs, like deposition fees
or courier expenses specific to a client and needed for a given case. In contrast to case-
specific expenses, overhead – i.e., those costs like rent or malpractice insurance needed to
keep the firm operating – may not be passed on to clients under ABA Ethics Opinion 93-379.
With technology, however, many costs that lawyers readily charged to clients as expenses
are now more appropriately treated as overheard. Take the disputed legal research costs in
the Chadbourne case. Back in the 1990s, services like Westlaw and Lexis charged on a per
search basis so it was easy to identify and assign costs to a specific client. Fast forward to
today, and practically every research tool is some kind of “all you can eat subscription” –
which makes it more akin to an overhead charge than a recoverable expense. The same
holds true for long distance calls. Most firms today have affordable VOIP service with a flat
monthly fee for all calls.
What’s more, today’s clients are more savvy about costs. The client in the Chadbourne case
knew enough about how online legal subscription research services work to question his
bill. As the Internet makes more aspects of doing business transparent, we lawyers can
expect to see questions – and eventually lawsuits from clients who believe they’ve been
overcharged. So taking liberties with a client’s bill to squeeze out a few more pennies
doesn’t make sense from a business perspective. And even many large firms have started
to acknowledge the changes; more than half don’t pass on legal research costs according
too this ABA article.
Finally, if you’re concerned that not being able to bill for legal research products, phone charges
or other costs may hurt your bottom line, raise your rates to make up the difference. Overall,
that’s a far better approach than charging clients for every little item anyway.