With many companies still struggling financially as the economy continues to slowly rebound, business expenses are being closely monitored.
This has caused legal fees to come under scrutiny as well, with clients calling to question just what office expenses incurred by the law firm they are responsible for paying.
A recent ethics opinion by the San Diego County Bar Association (SDCBA) concluded that an attorney can charge his or her client for certain overhead expenses as long as those expenses are reasonable and necessary to the representation.
Most of a lawyer's costs should be described in a fee agreement, but even if not, certain basic office services should be covered, said Ed McIntyre, chair of the SDCBA’s legal ethics committee.
"You can still bill a client for the direct cost of a service that's necessary to represent a client," he said. "But, obviously, the intent isn't to make some additional profit, but that the costs be reimbursed."
The office expenses that can be covered include secretarial overtime, photocopying, processing electronic discovery, long-distance telephone calls, mileage, postage and meals.
"The smart practice is to spell it out (in an agreement), so the client has complete disclosure," said McIntyre, a partner with Solomon Ward Seidenwurm & Smith LLP.
He said the committee took up the subject because there have been several inquiries about it, and there was little guidance in California that addressed the issue.
Most of the time, he said, the issue has been raised in federal court, which refers to the legality under certain statutes but doesn't address the ethical implications.
"We found that you've got a bunch of federal courts that are all over the lot," McIntyre said. "If someone is looking for what they can or cannot do, there wasn't a lot to look at."
The ethics committee looked to the state's rules of professional conduct, the State Bar Act, the opinions of California courts and the American Bar Association (ABA) model rules for guidance.
In 1993, the ABA issued a formal opinion on the subject, stating, "The lawyer may recoup expenses reasonably incurred in connection with the client’s matter for services performed in-house, such as photocopying, long distance telephone calls, computer research, special deliveries, secretarial overtime and other similar services so long as the charge reasonably reflects the lawyer’s actual cost for the services rendered."
A California appellate court ruled that the line between extra costs and basic overhead included as part of attorney fees is an undefined and changing one.
"Traditionally, the costs associated with a lawsuit have included items such as transcript, filing, service and jury fees and hourly compensation paid to experts who serve as witnesses or consultants," the appellate opinion stated. "Increasingly, lawyers are attempting to expand their ability to recoup certain expenses such as travel, postage, photocopying, word processing and computer research charges."
The court, however, did not address whether such an “expansion” is ethically permitted, McIntyre said.
Likewise, the 1993 ABA opinion concluded that a “lawyer may not charge a client for overhead expenses generally associated with properly maintaining, staffing and equipping an office.”
The “overhead” expenses the opinion cited included maintaining a library, securing malpractice insurance, renting office space and purchasing utilities.
“The use of LexisNexis — is that a legitimate charge because of the efficiency it creates or is it just part of the firm’s overhead, like books in a previous era?” McIntyre asked.
Secretarial overtime is also a tricky area because with better planning it can be avoided.
“Did the client call a meeting and was overtime necessary?” McIntyre said. “Was it driven by client demand? That is so fluid.”
The ethics opinion is advisory only and not binding on any member of the SDCBA or the State Bar.