Part of the Solution

Idealistic musings about eDiscovery

The Ethics of Lawyers’ Fees in eDiscovery

[Note: This was originally written as part of an article for a print publication for Texas lawyers, but was cut from the publication draft. Most references to the Texas Rules of Professional Conduct (TDRPC) can also be read to refer to one of the ABA Model Rules of Professional Conduct. – Gary]

It is certainly no surprise to any member of the Texas bar that TDRPC 1.04(a) emphasizes, “A lawyer shall not enter into an arrangement for, charge, or collect an illegal fee or unconscionable fee[.]” This means that, in addition to charging clients reasonable fees for the work the attorneys do personally, they should not artificially inflate the fees passed through from, let’s say, a team of document review attorneys. These temporary attorneys typically work for an outplacement firm, and get paid $25-35 per hour for their time reviewing documents (increasingly, all electronic) as part of the first-pass document review. The outplacement firm marks up these fees in billing the law firm. Frequently, the law firm will then mark up the fees again in billing its client.

This raises the ethical question: How much can a firm ethically mark up the contract attorneys’ time? Most people would not consider a reasonable markup indefensible (after all, the law firm has overhead costs too). But how much is “reasonable”? Let’s presume that you hired an expert witness who charged your firm $15,000 for his services, but the firm billed the client for $50,000 for the expert. Most grievance committees wouldn’t blink at issuing sanctions for this egregious markup.

Similarly, firms mark up the fees of their staff attorneys. However, given that contract reviewers are not technically engaged in the practice of law when performing first-pass document review (they do not, after all, determine how the documents they review fit into the theory of the case), at what point does the firm’s markup cross the line into “an illegal or unconscionable fee”? One team of bloggers has argued that since contract review attorneys exercise no independent legal judgment, they are essentially “a piece of office equipment” and therefore, like charges for copies or courier fees, they should have their costs marked up only minimally.

Except in the context of attorney fee awards generally, courts haven’t yet wrestled with the ethical implications of contract review attorney markup. A malpractice case pending in L.A. Superior Court, J-M Mfg. Co., Inc. v. McDermott Will & Emery, will likely shed some light on this issue eventually. The plaintiff has sued the McDermott law firm claiming that they did not adequately supervised an outsourced document review project, and that as a result, some 3,900 privileged documents (out of about 250,000 total) were produced that should not have been. This matter, however, will take years to result in a written opinion. [Many thanks to Joe Howie for posting the Complaint.]

The notion of “reasonable fees” goes beyond merely marking up an outside reviewer’s bill. A trio of respected commentators – Patrick Oot, Anne Kershaw, and the aforementioned Joe Howie – have argued that in ESI collections, failure to utilize technology to consolidate duplicate records prior to review, thereby requiring multiple reviewers to look at exactly the same content to make exactly the same responsiveness and privilege decisions (each of whom must of course bill for their time separately), is by definition double-billing and, therefore, unethical. They wrote:

If ediscovery were a small part of litigation and duplicate consolidation had an imperceptibly small impact on ediscovery, the whole debate might be dismissed under the rationale of de minimis non curat lex. However, the cost of ediscovery in general, and the cost of relevance and privilege reviews in particular, have been a major concern for years. There are no excuses for “not getting it” when it comes to ediscovery. Lawyers who bill hundreds of dollars an hour are implicitly promising a certain level of competence that would include the basic notion of consolidating duplicates.

These commentators go on to note, “[L]awyers are making representations to their adversaries and to the courts regarding the volume of ESI that has to be handled and the time required to review those records. Lawyers who don’t properly consolidate duplicates are inflating the time and cost required to review their productions.” Such behavior would violate TDRCP 4.01: “[A] lawyer shall not knowingly: (a) make a false statement of material fact or law to a third person[.]” It might also run contrary to Comment 6 to TDRCP 1.04, noted in the first paragraph above: “[A] lawyer should not abuse a fee arrangement based primarily on hourly charges by using wasteful procedures.”

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