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Should Biglaw Be Representing Small Clients?
For the second time in just over a month comes news of another large firm overcharging a small client. Back at the end of October, I posted about former New York Police Commissioner Bernard Kerik's dispute with Fulbright & Jaworski over a $200,000 bill that Kerik claims was unexpected. Now, Reed Smith faces a lawsuit by a non-profit client arguing that it was excessively charged for legal representation (Law.com, 12/4/07) to the tune of $1 million.
According to the article, the Bair Foundation a Christian charitable foundation sued Reed Smith for breach of contract, breach of fiduciary duty, legal negligence and unjust enrichment. The Foundation alleges that Reed Smith estimated the cost of the suit at around $50,000 but that the total tab for the litigation (which the Foundation lost) came to $960,409. The Foundation also asserts that Reed Smith's time records are vague and that it did not properly document its fees. In some ways, then, the Foundation's claims resemble those of Kerik, a standard "bait and switch," wherein clients were told that the case would cost one thing and later charged much more than they'd expected.
But there's an added dimension to the Foundation's case. The Foundation has also argued that Reed Smith's fealty global clients and PPP (profits per partner) lead the firm to charge more than what is appropriate for a smaller client which lacks financial resources. To me, these claims suggest that Reed Smith owed a fiduciary duty to its client to explain its fee structure, and to explore whether that fee structure was suitable for a smaller client.
If the Foundation is successful, would large firms then face liability for failing to advise smaller clients of less expensive options?
I'm not sure of how a court would answer this, but frankly, if I were Reed Smith, I wouldn't want to find out either. Thus, I'm not sure why Reed Smith is fighting this one. Refunding several hundred thousand dollars may be a costly way to make this case go away, but it seems that cost of litigating it (and divulging its billing records or risking the creation of an explicit and heightened fiduciary duty to clients with respect to fees) are even higher.
Posted by Carolyn Elefant on December 4, 2007 at 05:07 PM | Permalink
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