Aaron Morris' Business Law Alert : Orange County Business Litigation Lawyer & Attorney : Morris & Stone Law Firm : Santa Ana, Tustin, Irvine, Newport Beach, Southern California, CA

The profits being realized by the research services were so high that at the first mega-firm I worked for they offered a free trip to Hawaii to the attorney at the firm that spent the most time using the service.  The firm gladly passed along word of the contest and the associates obliged by signing on and staying on for days at a time.  Only after I pointed out the conflict of interest in such an arrangement did the firm cancel the contest.

 

Flash forward a few years and the competition between LexisNexis and Westlaw – the two major services – became intense.  They both began offering flat fee arrangements for law firms.  For around $200 per month, an attorney can perform unlimited searches in specified databases and print to his heart’s content at no additional charge.  But in a throwback to the earlier times, the services continued providing invoices that showed the charges under the old hourly system.  The attorney would pay just $200 for the month, but the invoices would reflect, say, $8,000 in search fees, perhaps to make the attorney appreciate the incredible deal he was getting.

 

This proved too tempting for many large firms.  Ignoring the actual cost, big firms continued to bill their clients at the rates reflected in the invoices, turning legal research into huge profit centers.  Any other business would recognize that as highly unethical – like a contractor charging a home builder hugely inflated prices for materials – but the big firms just saw it as another in a long line of fictional charges, like billing for faxes.

 

Apparently the practice has not abated.  In an action filed in Los Angeles Superior Court, the firm of Chadbourne & Parke is alleged to have engaged in this practice.  According to court records, the firm’s client was billed $108,000 for the law firm's services, of which roughly $20,000 was for legal research fees.  At the rate my firm pays for legal research services, it would take nine years to incur those fees.

 

Lesson for all businesses:  If you find yourself embroiled in litigation, don’t be shy about questioning charges, and consider having another attorney audit the legal bills you are receiving.  Most clients quite understandably have no point of reference for how long an activity should take or what is a proper amount for the costs.  Clients are free to agree to any cost arrangement, but a firm cannot turn costs into a profit center without disclosing the costs in the fee agreement.