Marking Up: When Can You Do It, And How?
FeesTexas Ethics Opinion No. 577, issued in March 2007 and published in the October 2007 Texas Bar Journal, addresses when and how a law firm can charge a client more for an attorney’s services than it pays the attorney. The opinion notes that Texas Disciplinary Rule of Professional Conduct 1.04(f) governs the division of fees between “lawyers who are not in the same firm.” When a firm or lawyer charges its client more than it pays a lawyer outside the firm, the opinion considers this a division of fees subject to Rule 1.04(f).
When lawyers are not in the same firm, division of fees is permitted by the rule, under certain conditions. The division of fees must be such that the billing is proportionate to the services provided by each attorney, or the lawyers must assume joint responsibility for the representation. The client must consent to the fee arrangement. As with any fee, the total fee for legal services must not be unconscionable.
The amount paid to another lawyer does not need to be disclosed, and client consent to payment is not required if the payment is made to a “firm lawyer.” The disciplinary rules do not define what lawyers are “in the same firm,” so the opinion suggests a definition. Shareholders, partners and associates are considered to be “in the firm,” as are “other firm lawyers.” Other firm lawyers are those reasonable considered to be within the firm, including of counsel, senior attorneys, contract lawyers, and part-time lawyers. The opinion suggests that other lawyers might qualify as “other firm lawyers” under a variety of circumstances. The ultimate determination of whether a lawyer is within a firm is whether a client might be deceived as to who might be working on their matter. Examples of “non-firm lawyer” given by the opinion include outside patent counsel, local counsel, counsel in another state, and lawyers hired to provide temporary additional staffing for document review or research.
When a firm bills for a non-firm lawyer’s work, it can avoid application of Rule 1.04(f) if the non-lawyer’s bill is neither marked up or down. When the bill is marked up, the opinion implies that the law firm marking up is sharing the fee of the non-firm lawyer; when the bill is marked down, the firm is sharing its fee with the non-firm lawyer. Even when the non-firm lawyer’s bill is simply passed through, the firm must make clear what legal services were provided by a non-firm lawyer to avoid violation of Rule 7.01 (d), which forbids holding out that lawyers are associated unless they are actually associated.
With respect to expenses, ABA Formal Opinion 93-379, available online at http://www.abanet.org/cpr/nosearch/93_379.pdf, concludes that lawyers may not markup expenses, and must pass along any discounts given to them for expenses, absent specific agreement to the contrary. If there is some question as to whether another lawyer’s services are fees or expenses, it seems clear that the client must consent to mark up of those fees or expenses.
It is not uncommon for lawyers to outsource legal research to third parties, whether licensed or not. Indeed, outsourcing to legal professionals licensed in other countries has become quite common. One might analyze such situations as either utilizing “non-firm lawyers” or “non-lawyers.” Client consent to markup of the fees or expenses is required in either situation.
