Source: https://www.sdcba.org/index.cfm?pg=EthicsOpinion20133
Timestamp: 2019-04-21 18:39:22+00:00

Document:
In addition to and independent of Lawyer’s fees for legal services on Client’s behalf, Client is also responsible for costs and expenses Lawyer incurs representing Client. Some typical costs and expenses include fees of expert witnesses, investigators, and consultants, filing fees, the cost of hearing and deposition transcripts, jury fees, copy services, travel expenses, and any other costs or expenses Lawyer incurs on Client’s behalf.
May an attorney ethically charge a client for providing in-house services such as secretarial overtime, photocopying, processing electronic discovery, electronic legal research, the cost of CDs, mileage and parking, meals, Federal Express and postage and long distance telephone?
California Rules of Professional Conduct 4-200; 4-100(B)(3); Business & Professions Code section 6148(a)(1); ABA Model Rule 1.5; ABA Formal Opinion 93-379 (1993); ABA Formal Opinion 00-420; Association of the Bar of the City of New York Formal Opinion 2006-3; Bird, Marella, Boxer & Wolpert v. Superior Court (2003) 106 Cal.App.4th 419; Ojeda v. Sharp Cabrillo Hosp. (1992) 8 Cal.4th 1; Allen v. City of Los Angeles (C.D. Cal. January 13, 1995) 1995 WL 433720; Zynga Game Networks v. Ekran (N.D. Cal. August 31, 2010) 2010 WL 3463630; In re Media Vision Technology (N.D. Cal. January 23, 1996) 913 F.Supp. 1362;Ringcentral, Inc. v. Quimby (N.D. Cal. April 8, 2010) 711 F.Supp.2d 1048, 1066; American Small Business League v. U.S. Small Bus. Admin. (N.D. Cal. September 12, 2005) 2005 WL 2206486; City & County of San Francisco v. Cobra Solutions, Inc. (2006) 38 Cal.4th 839; State Compensation Ins. Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644; Kennedy v. Eldridge (2011) 201 Cal.App.4th 1197; Legacy Villas at La Quinta Homeowners Assoc. v. Centex Homes (C.D. Cal. April 30, 2012) 2012 WL 1536036; People v. Millard (2009) 175 Cal.App.7th 31; Margolin v. Regional Planning Comm. of Los Angeles County (1982) 134 Cal.App.3d 999; In the matter of Kroff (1998) 3 Cal. State Bar Ct.Rptr. 838; In the Matter of Elstead (2012) 2012 WL 5406777; and In the Matter of Fonte (1994) 2 Cal. State Bar Ct.Rptr. 752.
Rule of Professional Conduct 4-200 and Costs.
None of the factors identified in Rule 4-200(B), however, or anything else in Rule 4-200, explicitly identifies which costs or other charges a lawyer may appropriately pass on to a client. Moreover, scarce California authority addresses the issue.
The line between “costs” and attorney overhead included as part of the lawyer’s 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 [citation omitted]. Increasingly, lawyers are attempting to expand their ability to recoup certain expenses such as travel, postage, photocopying, word processing and computer research charges.
None of these federal cases, however, addressed the ethical propriety of charging a client for these kinds of expenses; rather, the only issue was whether the court would award them as costs.
Business & Professions Code Section 6148(a).
Given the absence of direct—or even indirect—California authority on this question, and for that very reason, we look to ethics opinions outside California for guidance. The Rules of Professional Conduct, the State Bar Act, and the opinions of California courts interpreting that authority bind California lawyers. Although the ABA Model Rules are not binding in California, they may be used for guidance by lawyers where there is no direct California authority and the ABA Model Rules do not conflict with California policy. (City & County of San Francisco v. Cobra Solutions, Inc. (2006) 38 Cal.4th 839, 852.) Thus, in the absence of related authority, we may look to the Model Rules, and the ABA Formal Opinions interpreting them, as well as the ethics opinions of other jurisdictions or bar associates for guidance. (Rule 1-100(A) (ethics and rules and standards promulgated by other jurisdictions and bar associations may also be considered); State Compensation Ins. Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644, 656.) “Thus, especially where there is no conflict with the public policy of California, the ABA Model Rules serve as a collateral source for guidance on proper professional guidance in California.” (Kennedy v. Eldridge (2011) 201 Cal.App.4th 1197, 1210 [internal quotation marks and citation omitted]; Legacy Villas at La Quinta Homeowners Assoc. v. Centex Homes (C.D. Cal. April 30, 2012) 2012 WL 1536036 at *7).
[C]osts in maintaining a library, securing malpractice insurance, renting of office space, purchasing utilities and the like [that] would be subsumed within the charges the lawyer is making for professional services.
If a California court were to follow the federal cases cited above,7and determine that the cost of certain in-house services are part of a lawyer’s general overhead, then a lawyer may not properly bill them to a client, absent express, advance agreement with the client.
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.
The ABA opinion further concludes that, absent specific agreement in advance, the lawyer may not charge a client more than the direct cost associated with the service such that it would be improper for a lawyer to add a surcharge to the actual cost of a disbursement. So also, if the lawyer receives a discounted rate from a third-party provider, it would be improper not to pass the benefit of the discount to the client rather than charge the client the full rate and reserve the profit to the lawyer.
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.
California Endorsement of ABA Formal Opinion 93-379.
Likewise, the Association of the Bar of the City of New York’s Formal Opinion 2006-3, in addressing outsourcing of legal support services, followed ABA Formal Opinion 93-379 and concluded that a lawyer may charge the client no more than the direct cost associated with the outsourcing, plus a reasonable allocation of overhead expenses directly associated with providing that service.
Both ABA Opinion 00-420 and New York Opinion 2006-3—following ABA Opinion 93-379— would permit charging more than the direct cost of the service and reasonable allocation of overhead related to it if the initial fee agreement specifically identified the costs to be charged.
Applying ABA Formal Opinion 93-379, as endorsed by Kroff, and Model Rule 1.5’s Comment 1, Lawyer could legitimately charge Client the actual direct cost of photocopying, processing electronic discovery, electronic research, the cost of CDs, mileage and parking, meals, Federal Express, postage and long-distance telephone, provided that those costs were directly related to her representation of the Client. Since nothing in Lawyer’s fee agreement establishes that the Lawyer may charge Client more than the direct cost associated with each service, Lawyer is ethically prohibited from doing so.
Secretarial overtime, however, presents a different issue. If the overtime was incurred, for example, because work for other clients was done during the normal workday and work for Client was, thus, performed on an overtime basis, charging Client for that secretarial overtime would not comply with ABA Formal Opinion 93-379. It would not be an expense reasonably incurred in connection with Client’s matter; rather, it reflects how Lawyer prioritized her office workflow. If, on the other hand, some emergency or time exigency required that some work for the Client necessarily had to be performed on an overtime basis, then, arguably, passing that expense on to the Client is ethically permissible.
Given the absence of California authority, a California lawyer should look to, inter alia, the ABA Model Rules and ABA Formal Opinions interpreting them for guidance on the issues which this opinion raises. Relying on ABA Formal Opinion 93-379, and specifically its favorable endorsement in Kroff—itself a decision involving State Bar discipline—a California lawyer may bill a client for costs and expenses actually specified in the initial fee agreement so long as they are not unconscionable. Absent such specification, a California lawyer may bill a client for the direct cost of in-house services necessary for the lawyer’s representation of a client. The intent of such charges, however, is not that the lawyer make an additional profit, but rather solely that the lawyer be compensated—at actual cost—for expenses necessarily incurred in the client’s representation. In addition, a lawyer may bill a client for a reasonable allocation of overhead expenses directly associated with providing the in-house service.
Disclaimer: The Legal Ethics Committee of the San Diego County Bar Association issued this opinion. It is advisory only and is not binding on any member of the SDCBA, any other member of the State Bar of California, the State Bar of California or its Board of Governors.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.