Can a law firm ethically “markup” fees charged by a contract lawyer?  An interesting question, and one I have been asked more than once in my time as a practice management advisor.

In her article, Choosing a Contract Attorney: Tips for Establishing a Working Relationship, Heidi Strauch notes:

“The ABA addresses surcharges to the client for contract attorneys in Formal Ethics Opinion
00-420. Opinion 00-420 concludes that if the cost of the contract attorney is billed to the client as fees for legal services, the hiring firm may add a surcharge, but if the attorney is billed as an expense, a surcharge is not permitted. Although the difference between a “fee” and an “expense” seems to be one of form rather than function, it stems from the client’s expectations based on the label you use. So when you add a surcharge, for goodness sake call it a fee. The amount of the surcharge is controlled by the rule requiring that a lawyer’s fee not be clearly excessive.
RPC 1.5(d).”

I would add that no firm should bill for the services of a contract lawyer unless the client has agreed to pay for those services – regardless of how that time is characterized (“fee” or “expense.”)

Here are the takeaways for those of you who may want to use a contract lawyer on your cases:

1. Include a provision in your fee agreement permitting use of a contract lawyer;
2. Clearly describe in your fee agreement how contract lawyering services will be billed;
3. If you choose to characterize contract lawyering services as an “expense” you must pass on the contract lawyers “fees” at cost (in other words, you cannot mark up the contract lawyer’s time.)
4. If you choose to characterize contract lawyering services as “fees” you may add a surcharge or markup.  The amount of the surcharge and the overall fee paid by the client cannot be clearly excessive.  A fee is excessive when:

“… After a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee. Factors to be considered as guides in determining the reasonableness of a fee include the following:

• the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
• the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
• the fee customarily charged in the locality for similar legal services;
• the amount involved and the results obtained;
• the time limitations imposed by the client or by the circumstances;
• the nature and length of the professional relationship with the client;
• the experience, reputation, and ability of the lawyer or lawyers performing the services; and
• whether the fee is fixed or contingent.”

Oregon RPC 1.5(b).

If your intention is to split fees with the lawyer whom you propose to hire as a contract attorney, then the client must consent.  Oregon RPC 1.5(d) provides:  “A division of a fee between lawyers who are not in the same firm may be made only if: (1) the client gives informed consent to the fact that there will be a division of fees, and (2) the total fee of the lawyers for all legal services they rendered the client is not clearly excessive.”  See Chapter 12, “Referral Agreement Between Lawyers” in the OSB Fee Agreement Compendium.  (Login to the members only area of the OSB Web site, and choose Explore BarBooks.)

Copyright 2012 Beverly Michaelis