Billing for Costs and Disbursements: What Law Firms Can Charge and Clients Can Expect
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Description
Lawyers sell time. Or they sell results. Or they sell the completion of a specified task. However they bill their clients, all lawyers sell their knowledge of and experience in the law. Looked at abstractly, what lawyers sell they carry with them in their minds, then translate into a product composed mostly of words, written or spoken. Lawyers, however, do not practice abstractly. Practicing law requires lawyers to have an office from which to practice; to use the services of an array of others, both inside and outside their law firms; and to employ a constellation of equipment that, while changing over the years, both costs money (to own or rent or operate) and saves money by making the lawyer more efficient. Lawyers who charge their clients for the work they do—lawyers who are, in short, in business—will also, quite appropriately, seek to recapture the cost of being in business in addition to payment of their fees for legal services rendered. Make no mistake about it. Undoubtedly, they may do so, without apology or embarrassment. In fact, law firms had better do so, or they might not be in business very long. But how? In the last decade, we have witnessed much professional discussion and debate about how, fairly, a lawyer may recover the costs attendant on practicing law and serving a client. Does it matter what benefit the money has bought? Does it matter what the client has been told? Does it matter which clients are being charged? Does it matter how much a client is charged? This essay proposes answers to these and related questions. Looking at bar ethics opinions and court cases, the essay discusses different expenses a law firm might have and how it might fairly and properly seek payment for them. While I use the words “fairly” and “properly” conjunctively, in fact I believe that, ordinarily, a policy that is fair will also be proper. By “fair,” I mean several things. First, the firm’s policy should be fair both substantively and procedurally. A policy is fair procedurally if the client has due notice of it. The notice that is due depends on the details of the policy. Second, the policy should be substantively fair between the firm and the firm’s clients. That is, it should reach a reasonable reconciliation of their respective interests in appropriate reimbursement. Third, a policy should be fair as among all the clients of a single firm. None, for example, should unwittingly contribute to a substantial expense imposed solely by the needs of another client. I begin with discussion of an ABA ethics opinion and three local ethics opinions. I then move to discussion of caselaw. Finally, I discuss my own conclusions based on these authorities and a further authority. Before turning to these sources, however, I offer a brief summary. As will be explained in the following pages, three simple rules can usually guide law firms as they set about composing a system for recapturing monies they expend in rendering legal services to clients. This is true whether the expense is for technology or personnel or both, whether it is for a service provided in-house, by an outside source, or through a combination of the two. First, if the firm means only to bill the client for the very charges made by an outside provider (the court reporter, the expert witness, the printer), it need only alert the client to expect such charges and their basis. Similarly, if the firm is going to bill the client only for the direct costs of services provided in-house, or for those direct costs plus a reasonable sum (which can be expressed as a multiplier) to reflect a share of directly associated overhead, it should alert the client to the identity of the service that will be billed this way, perhaps with the additional statement that the service will be billed based on the firm’s direct cost and a reasonable allocation of directly associated overhead. Specification of the amount, rate, or method of billing makes good business sense. Second, if the firm will impose a surcharge on statements from outside providers, it should tell the client that it plans to do so and, because it also makes good business sense and because the client will likely inquire in any event, the firm should say why it is doing so. The client should agree to the charge. Similarly, if the firm plans to charge more for in-house services than the direct costs of providing the services and a share of directly associated overhead, I believe the firm will ordinarily satisfy its obligation if it specifies the rate for the charge and the client agrees. For example: “Facsimile transmissions will be billed at Y cents per page.” Third, whatever the firm charges, the reasons and basis for its computation should be plausible, not surprising. The charges should make sense in the market. Stated another way: If the charges and their basis are not what you can expect a sympathetic but prudent client to appreciate after explanation, don’t do it. Billing judgment is required for disbursements and expenses no less than for fees.
Publication Date
1995
Recommended Citation
Gillers, Stephen, "Billing for Costs and Disbursements: What Law Firms Can Charge and Clients Can Expect" (1995). Faculty Books & Edited Works. 319.
https://gretchen.law.nyu.edu/fac-books-edited-works/319
