MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2009-12
Propriety of Billing Clients for Costs Based on an Estimated Monthly Percentage
In your letter you relate that your firm incurs significant out of pocket costs on behalf of its clients, including, but not limited to, postage, faxes, photocopying, scanning and long distance charges. In addition to the actual costs, there is significant administrative time incurred to track, monitor and bill such costs. Your inquiry to the Ethics Committee is whether it is acceptable to charge clients a fixed percentage on their monthly invoices to cover the costs of these expenses.
In addition, you have submitted a copy of your billing policy which is attached to each retainer letter that is presented for signature to a client and the billing policy is expressly incorporated by reference within such retainer letter, where you propose to charge each client costs on a basis of a percentage not to exceed 5% of the actually monthly billed fees.
Per the Maryland Bar Association Committee on Ethics Guideline 1(c), the Committee does not approve proposed fee agreements or the text of other law-related documents. As such, this opinion will neither address nor approve or disapprove of the sample billing policy presented to the Committee by your law firm, but will provide guidance with respect to the questions posed.
Both the scope of representation and the fees to be charged must be established at the commencement of the representation, and both must be reasonable. See Rule 1.2(c), 1.5(a). Rule 1.5(b) mandates that both the scope of the representation and the fees or expenses that will be charged be communicated to the client.
We caution you to review Attorney Grievance Commission v. Kreamer, 404 Md. 282, 946 A.2d SOO (2008), where the Court of Appeals held that the lawyer’s costs and expenses in maintaining his or her practice of law are subsumed within the charges the lawyer is billing for professional services. In other words, the ordinary and usual costs of operating a law office – rent, utilities, accounting and administrative services and the like – should not be individually billed to the client [946 A.2d 534]. This was discussed in the context of a lawyer billing for opening files and preparing accounting services (which was nothing more than preparing the time sheets); the Court found the lawyer to have violated Rule 1.5. The Court also relied on ABA Formal Opinion 93-379 entitled “Billing for Professional Fees, Disbursements and Other Expenses”, which stated:
“When a client has engaged a lawyer to provide professional services for a fee (whether calculated on the basis of the number of hours expended, a flat fee, a contingent percentage of the amount recovered or otherwise) the client would be justifiably disturbed if the lawyer submitted a bill to the client which included, beyond the professional fee, additional charges for general office overhead. In the absence of disclosure to the client in advance of the engagement to the contrary, the client should reasonably expect that the lawyer’s cost in maintaining a library, securing malpractice insurance, renting of office space, purchasing utilities and the like would be subsumed within the charges the lawyer is making for professional services.”
The Court of Appeals did, however, say that “[S]hould a lawyer wish to charge clients for overhead costs and expenses, such a charge, including its method of calculation, ought to be explained to the client prior to the start of representation, and expressly stated in the written retainer agreement, which the client must consent in advance to the additional fees and their method of calculation.” (emphasis supplied).
Although the Court of Appeals appears to suggest that this practice may be acceptable in a written agreement, signed by the client, we would be wary of what we regard as their rather unenthusiastic endorsement of this practice, in light of their further statement that “”.the ordinary and usual costs of operating a law office – rent, utilities, accounting and administrative services and the like – should not be individually billed to the client, in addition to a charge for legal representation, absent some other extenuating circumstances … ” (emphasis supplied).
In your inquiry you raised concern about the administrative time incurred to track, monitor and bill out of pocket costs. We think Kreamer, supra, makes it clear that administrative costs should not be individually billed to the client.
Although headnote [1] of Rule 1.5(a) in part states: “A lawyer may seek reimbursement for the cost of services performed in-house, such as copying, or for other expenses incurred in-house, such as telephone charges, either by charging a reasonable amount to which the client has agreed in advance or by charging an amount that reasonably reflects the cost incurred by the lawyer, it is this Committee’s opinion that charging any out of pocket expenses based on a percentile basis is not appropriate, and does not fit within the intent of that headnote.
The Committee hopes it has addressed your inquiry and thanks you for your interest. Our opinions are available online at www.msba.org.
REFERENCES:
- Md. Rules of Prof. Conduct 1.2(c); 1.5(a); 1.5(b)
- ABA Formal Opinion 93-379
- Att’y Griev. Comm’n v. Kreamer, 404 Md. 282, 946 A.2d 500 (2008)
ASSIGNED TO: Courtland K. Townsend, Jr.
DATE ASSIGNED: April 22, 2009
DATE DISTRIBUTED: October 20, 2009