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When legal fee auditor Lawrence Kwasny examines a firm’s bills, he checks to see whether the client was charged for online legal research, and how much. Did the firm treat Westlaw and Lexis time as overhead and eat the cost? Were the research charges passed along to the client? Or was the online service bill so high or so vague that it looked like the cost of research was marked up, an absolute no-no, he says. “Sometime there’s a red flag,” says Kwasny, director of CS Legalgard of Philadelphia. “A markup is something that should never happen.” Yet even without markups, the debate over how a firm should treat its online research costs remains a lively one, and it may soon get livelier, given the economic uncertainty that has reinvigorated the search for savings among firms and clients. “It’s a hot button item; it comes up all the time,” says Johanna Bizub, who follows the issue as a legal librarian for Prudential Insurance Co. and as president of the New Jersey Law Librarians Association. She says corporations are paying particular attention these days to their outside firms’ online research bills and are quick to require documentation when the corporate counsel isn’t sure the bill has been justified. And she says there’s so much ferment on the issue, it’s impossible to divine a trend beyond the usual drive by clients to get the best services for the lowest possible amount. Ron Heide, a former president of the New Jersey Association of Legal Administrators, says, “It’s going in the direction of law firms eating the cost.” On the other hand, accountant and law firm consultant David Politziner, of Flemington, N.J.’s Amper, Politziner & Mattia says, “We are starting to see it [charging clients] a little bit more, as a way of passing along costs.” Right in the middle is Terry Dick, director of technology marketing at Westlaw. He says that a year ago he surveyed firms about their policies and it wasn’t conclusive as to whether online research is considered a pass-along cost or overhead. “It’s all over the map,” he says. Any discussion of the issue starts with ethical considerations. There is no Rule of Professional Conduct in New Jersey on the subject beyond RPC 1.5′s blanket requirement that fees be reasonable. The generally accepted guideline, Dick says, is a 1993 formal opinion by the American Bar Association’s Committee on Ethics and Professional Responsibility, No. 93-379. It says that unless the client agrees to pay for an in-house service, the lawyer is obliged to charge no more than the direct cost associated with the service. In the absence of a specific agreement, “it is impermissible for a lawyer to create an additional source of profit for the law firm beyond that which is contained in the provision of professional services themselves,” the opinion says. “The lawyer’s stock in trade is the sale of legal services, not photocopy paper, tuna fish sandwiches, computer time or messenger services.” The opinion was promulgated after publicity about Wall Street firms engaging in the now-discredited policy of making themselves purveyors of administrative services, not just legal services. The ABA made clear in the opinion, however, that it wasn’t getting into a discussion of how firms decide what accounting factors to consider when determining the cost of a service. Does the cost of, say, the food at a breakfast meeting include just the ingredients, or could the firm add the client’s pro rata share of the cost of the plates? Making such a determination about online research is easy for firms that have pay-by-the-hour arrangements with their providers. Liberty Corner, N.J.’s Kalison, McBride, Jackson & Murphy has such a deal, says firm administrator Susan Buchanan, the current president of the state’s legal administrators group. Even firms that pay a flat fee for online research shouldn’t have much difficulty calculating each client’s cost. The firm establishes how much of the total billable online time is attributable to each client and then bills each client for a comparable percentage of the total cost. The best way clients and firms can avoid conflict over such costs is to come to an agreement before the representation begins, all those interviewed for this article agree. Some add, though not for the record, that a slight markup could be achieved by getting the client to agree to a fixed hourly cost without getting into a discussion about actual cost to the firm. However, most of those following the issue say it is generally agreed that the technology costs that enable a firm to perform online research — like the breakfast dishes — should be considered overhead. Even so, financial officers at firms often argue that they have the right to recoup such capital expenditures by charging clients extra for online research. Administrators and librarians point out that computers have become a necessary component of any business and that asking clients to pay for online research would be like asking them to pay a pro rata share of library books. Clients are usually willing to pay online research costs when they are reminded that the ability to perform online research quickly tends to reduce the number of lawyer hours that will be billed. “Our clients have no problem with it,” says Kathryn Stoppello, the librarian at Morristown, N.J.’s Schenck, Price, Smith & King. Librarian Bizub suggests that the debate over payment for online services is part of the larger, never-ending discussion about what kind of billing corporations will accept from firms. In companies’ requests for proposals to firms seeking business, the rules about charging for online research are usually explicit. If not, a lively bargaining session is likely. When online research costs are permitted, she says, corporate counsel at Prudential will occasionally ask her opinion on whether the time an outside lawyer spent online was necessary. When the time seems high, the company will ask the firm for additional information. She says some companies are requiring outside firms to use a particular online research provider with whom the company has a relationship. And firms that want to get a particular piece of business will sometimes have to accept the fact that some companies won’t hire lawyers that bill for online research, she says. The philosophy is, “just charge me for your hourly rate. I don’t want to know what you pay for research.”

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