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'Smaller' Client Claims Reed Smith's Big-Client Focus Led to Inflated Bills
The Legal Intelligencer
December 04, 2007
It is not uncommon to see international firms shed practice areas orattorneys that do not fit in with their economic models. But one clientis arguing that maybe it is professional negligence for those firms tokeep their smaller clients.
The high demands on partners in global law firms to increase profits,the client said, ultimately led to its claims of professional negligenceagainst Reed Smith. The religious nonprofit alleged it was excessivelycharged for its legal representation in a routine employmentdiscrimination case, according to the complaint in The Bair Foundationv. Reed Smith.
And the nonprofit's attorney said he thinks these large firms shouldn'trepresent the smaller organizations.
The Bair Foundation, described in the complaint as a Christiancharitable foundation devoted to foster care for children, sued ReedSmith in Lawrence County Common Pleas Court in Pennsylvania after it wasallegedly charged nearly $1 million in legal fees and costs in defenseof the suit.
The Bair Foundation brings claims of breach of contract, breach offiduciary duty, legal negligence, fraud and unjust enrichment.The foundation said in the complaint that it was originally told thecase would cost them $50,000. That was then upped to $112,000 during thecase. The final price tag in legal fees and costs for the litigation,which the foundation ultimately lost, was $960,409, according to thecomplaint.
"In implementing its ambitious strategy of capturing global clients,which Reed Smith boasts results in 'a constant increase in revenue perpartner,' it has acknowledged that comparatively small regional or locallaw firms can or perhaps should service smaller clients," the complaintstated. "This is so because such firms typically charge much lower feesthan 'white shoe' international law firms like Reed Smith and aretherefore more affordable to these smaller clients.However, Reed Smith has inexplicably continued to represent certain muchsmaller clients which lack substantial financial resources, such asBair, a not-for-profit charitable foundation."
The foundation's attorney, Bruce C. Fox of Obermayer Rebmann Maxwell &Hippel in Pittsburgh, said no explanation was ever given as to why thefees increased to nearly $1 million. He said his client was "badly takenadvantage of."
Fox said he doesn't think large, international firms should representclients like the Bair Foundation because of global law firms' economicmodels.
"Reed Smith has had an enduring relationship with the Bair Foundationduring which it has always provided competent and effective legalcounsel," the firm's counsel, William Pietragallo II of PietragalloBosick & Gordon in Pittsburgh, said in a statement. "The reality is thatthe foundation's insurance paid most of the legal fees in this casewithout question or complaint. Inevitably time allows the truth tosurface. When it does, Reed Smith will prevail."
The complaint alleges that Reed Smith took advantage of Bair's lack oflegal sophistication by engaging in "inappropriate billing practices."These allegations included overstaffing of the case, failure to describebilling entries by subject matter or activity, secretly raising therates of the lawyers billing Bair and billing at rates that exceededwhat was promised, according to the complaint.
The complaint also alleges that Reed Smith failed to advise Bair tonotify its insurance carrier of the discrimination suit. The carrieroriginally rejected any claims by Bair because of the failure to notify,but ultimately agreed to pay a portion of the defense costs andindemnification.
According to the complaint, Reed Smith charged Bair an additional$26,660 to negotiate with the insurance carrier.The complaint further alleges that Reed Smith failed to raise certaindefenses that Fox said would be obvious to anyone who practicesemployment law. One example was the use of the Religious OrganizationExemption as a defense, the complaint stated. Reed Smith neglected tobring that defense or to raise the point that one of the plaintiffs inthe underlying suit had recently filed for bankruptcy, according to thecomplaint.
Reed Smith had done work for Bair in the past and had built a trustingrelationship, the foundation said in the complaint, but then the firmtook advantage of the trust.
"Circumstances were ideal for churning because there were two checkwriters splitting the cost of Reed Smith's legal fees," according to thecomplaint. "Because the cost of defense was shared between Bair and AIG,neither had especially strong incentives to carefully monitor ReedSmith's legal bills, to question or criticize Reed Smith's opaque andunspecific time entries, or to otherwise manage and control Reed Smith'soverstaffing of the case and excessive billing."
The Bair Foundation is based in Lawrence County on the Pennsylvania-Ohioborder and has a location in Ohio, where Reed Smith represented theorganization in the discrimination suit.
The underlying suit was brought by two employees of the foundation inthe U.S. District Court for the Northern District of Ohio. They claimedreligious discrimination and Bair hired Reed Smith to defend the claimsbecause the firm had represented the foundation in similar mattersbefore, according to the complaint. Reed Smith has also represented Bairin small matters involving Bair's status as a charitable foundation.
Fox said he expects an answer to the complaint in January.
