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A Philadelphia trial judge, in an issue of first impression, ruled lawyers, not clients, are responsible for paying court reporting costs.

Philadelphia Court of Common Pleas Judge Ramy I. Djerassi said a law firm cannot pass the costs on to the client under the principal-agent relationship embodied in agency law without having expressly noted the client was on the hook for the costs.

According to the opinion in JDR Acquisition v. Mitts Milavec, law firm Mitts Milavec, now known as Mitts Law, had a contract with plaintiff James DeCrescenzo Reporting (JDR) to record and transcribe 11 depositions in a federal civil case. The client in that underlying case was not a party to the contract, Djerassi said in his opinion. The judge said Mitts Milavec refused to pay the court reporting bill, arguing it should be paid directly by the client.

"The law firm's argument that agency law shields them from paying the money is inapplicable," Djerassi said. "The law firm clearly contracted for the services that were performed. Additionally, public policy makes attorneys responsible for court reporting bills unless there is an express waiver by the attorney."

Djerassi's opinion was in response to an appeal filed by Mitts Milavec and its principal, Maurice Mitts. After a March 21 bench trial, Mitts Milavec was found liable for $35,364, which included the more than $31,000 in fees owed to JDR plus interest. No liability was found against Mitts individually, Djerassi said in his opinion.

Mitts Milavec argued at trial that JDR knew the law firm represented client Devon IT in a federal case against IBM Corp. for which JDR agreed to provide court transcription services. Mitts Milavec argued JDR "implicitly agreed" that Devon would pay JDR directly, according to the opinion. But Djerassi said neither law nor evidence supported that contention.

The case was somewhat complicated by the fact that the agreement between JDR and Mitts Milavec was oral with no written contract. But Djerassi found the terms of the oral agreement were sufficiently specific to be enforceable. He noted that JDR gave Mitts Milavec certain discounts and free services to win the business. Djerassi said JDR representatives testified there was an implied understanding that Mitts Milavec would pay the court reporters directly. One representative said JDR's standard practice is to send its bills to the law firms directly and there was nothing to suggest its work with Mitts Milavec was any different. The representative also testified that no one at Mitts Milavec ever suggested anyone else would be paying JDR's invoices.

Djerassi pointed to the testimony of JDR founder James DeCrescenzo, who said his arrangement with Mitts Milavec was "implied," the same as all of his business relationships with lawyers.

"'I would never enter into an arrangement with anybody other than the lawyer and his firm … I have been a court reporter for over 40 years, sir, I have never entered into an agreement with the lawyer's client,'" DeCrescenzo had testified. "'They are not my clients, I don't know who they are; I have no relationship with them. I have never spoken with anybody from Devon or Devon IT, I don't know if they are creditworthy or not. I deal with lawyers, and I have always dealt only with lawyers.'"

Djerassi said that testimony was convincing. He said JDR relied on an oral contract with implied terms that were standard in the industry.

The judge further noted that Mitts Milavec's actions showed it also understood the agreement meant the law firm would pay the court reporting costs. Djerassi said Mitts Milavec sent out the deposition notices and Mitts Milavec's address was the billing address for all JDR invoices. The judge said Mitts Milavec had sole authority about what happened to the transcripts and who had access to them.

The law firm also never told JDR that its invoices were sent to the law firm in error, the judge said. And Mitts Milavec never told Devon IT or JDR that it wasn't paying the invoices until JDR filed the lawsuit against the firm.

Djerassi said Mitts Milavec's claim is also contradicted by its own written legal retainer with Devon IT. The retainer assigns financial responsibility for litigation expenses to Mitts Milavec, stating all expenses will be incurred and paid for by the firm, according to the opinion.

After finding an oral contract existed between the parties and that the evidence showed the contract terms were for Mitts Milavec to pay JDR, Djerassi addressed the agency law defense raised by Mitts Milavec. The law firm argued agency law makes Devon IT entirely liable for JDR's bill.

"Though this seems to be a question of first impression in Pennsylvania, a majority trend nationally favors attorney liability where a client/law firm retainer holds the law firm responsible for litigation services," Djerassi said.

Under agency law, in which an agent has the authority to act on behalf of a principal, there are two lines of thought regarding the payment of court reporting costs, Djerassi said.

The first line of thought holds an attorney liable only if he has expressly agreed to pay such services in the retainer, according to the opinion. Djerassi noted Mitts Milavec expressly agreed to pay for litigation services and Maurice Mitts testified at trial that court reporting costs were litigation expenses.

The second theory of agency law, Djerassi said, holds that lawyers are liable for court reporting costs absent an express disclaimer because attorneys generally exercise control over the litigation and are more akin to independent contractors than agents.

"Efficient court administration puts accountability on attorneys unless they have negotiated an express disclaimer in favor of their clients' promise to pay," Djerassi said.

Mitts did not return a call for comment. Gary Samms of Obermayer Rebmann Maxwell & Hippel, who represented JDR, declined to comment.

Mitts Milavec's dispute with JDR is not the only one to emanate from the law firm's representation of Devon IT. The firm sued Devon IT for $2 million in unpaid attorney fees. The Legal reported in December 2013 that a Pennsylvania federal judge ruled Mitts Milavec was not entitled to an additional $2 million in legal fees because it breached its fee agreement with its former clients when it failed to pay third-party vendors.

Gina Passarella can be contacted at 215-557-2494 or at gpassarella@alm.com. Follow her on Twitter @GPassarellaTLI.

(Copies of the 11-page opinion in JDR Acquisition v. Mitts Milavec, PICS No. 14-1864, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •