A malpractice case recently filed in California, J-M Manufacturing v. McDermott, Will & Emery, alleges that a law firm committed two wrongs in e-discovery. First, the firm, using outside contractors, allegedly missed 3700 documents that should have been withheld in discovery. The exact nature of the mistake that caused the failure to claim privilege is not clear. The cause may have been an improper word search conducted on the 250,000 documents maintained by 160 custodians, or that attorneys contracted to review the documents for privileged materials made mistakes. The law firm spot checked the work done by the contract attorneys. For more information on the possible nature of the error, see this article. It is not clear from the initial filings whether the damages alleged are due to an unfavorable outcome in the case, or from disclosure of information to other parties that would not have otherwise been disclosed.

The second claim is that the law firm marked up the price of the outside contractor services to the client. Some of those services may have been for contract lawyers, and some for technical vendors. A recent Texas ethics opinion, Opinion 577, concludes that lawyers may mark up the amount paid to a “firm lawyer,” but not to a “non-firm lawyer” unless the client consents. What constitutes “non-firm lawyer” is not completely clear from the opinion, though “contract lawyers” are listed as being possible firm lawyers, depending on a number of factors including work location. ABA Opinion 08-451 suggests that if a firm provides no infrastructure support for outside lawyers, then no mark up of outside attorney charges is permitted without client consent. Mark up of expenses above actual cost is not permitted unless the client consents in any event. A secondary issue suggested by the Texas ethics opinion is that clients should have notice of which non-firm lawyers will be working on their matters. It is possible that the client in J-M Manufacturing will seek a return of all legal fees based on a breach of fiduciary duty as well as the marked up amount on improperly marked up legal fees and expenses.