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Markup . . . polo: why advancing costs, at cost, is the best strategy

Per the Massachusetts Rules of Professional Conduct, at Rule 1.8(e), there are specific exceptions to the bar on attorneys providing financial assistance to clients, when it comes to advancing court costs and expenses of litigation. The Board of Bar Overseers has written on the limitation of this exception to court costs and expenses of litigation, at its ethics articles repository, here. For a discussion of what 'court costs' are, this (fairly antiquated) Massachusetts Bar Association ethics opinion provides some insight.

There are a number of ways in which advanced costs could be related to litigation expenses, and this ABA ethics opinion lists three specifically, and how each should be handled. Rule 1.8(e) most often comes into play for cases with large expenditures, such as certain contingent fee cases, where a law firm has so much money at stake that it has, in effect, an interest in the litigation. But, disbursements and in-house services, apart from general overhead, also represent common, small and irregular litigation costs that get advanced, as well.

The revised Massachusetts Rule 1.5 requires written fee agreements in most cases, which is to include information respecting 'the basis or rate of the fee and expenses for which the client will be responsible' (emphasis added), at (b)(1). Per comment [1B] to the rule, lawyers have the choice, respecting in-house expenses, to charge either 'an amount that reasonably reflects the cost incurred by the lawyer' or 'a reasonable amount to which the client has agreed in advance'. Where those in-house expenses charged to the client do not reflect the actual out-of-pocket expenses of the law firm, the fee agreement must outline how the expenses are calculated. For more on the practical, ethical application of marking up litigation costs, see section (2) of this article from the BBO.

As a matter of practice, however, it does not make good business sense to mark up advanced costs in bills to clients, given the reasons elucidated in the above-referenced ABA ethics opinion. The client is also unlikely to agree to the arrangement in the first place. Additionally, the practice makes the lawyer look cheap, and supplies the easy intimation that maybe business is not going so well after all, if the firm appears very willing to nickel-and-dime clients in that way. Marking up costs is also a surefire way to upset those clients of yours who do examine their bills closely -- good luck getting a referral from a client to whom you've marked up costs. For those reasons, and others, most attorneys just advance fees and costs (where appropriate), and charge their clients without a markup.

Tip courtesy of Jared Correia, Law Office Management Assistance Program.

Published July 11, 2013

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