“By encouraging the use of lower cost paralegals rather than attorneys wherever possible, permitting market-rate billing of paralegal hours encourages cost-effective delivery of legal services and, by reducing the spiraling cost of civil rights litigation, furthers the policies underlying civil rights statutes.”
– U.S. Supreme Court1
For nearly thirty years, the U.S. Supreme Court has consistently recognized that paralegals, law clerks, and other paraprofessionals’ services may be billed (and reimbursed by the prevailing party) at “prevailing market rates” verses at the rate actually paid to the paraprofessional.2
In Missouri v. Jenkins, the U.S. Supreme Court addressed whether paralegal and other paraprofessional services may be awarded at market rates under 42 U.S.C. § 1988. Specifically, the State of Missouri argued that paraprofessional time may only be awarded as a cost, meaning that attorneys could only recover for the amount paid to the paraprofessional and could not make any profit by using paraprofessional services. The U.S. Supreme Court unequivocally rejected Missouri’s argument finding that paraprofessional time may be awarded at prevailing market rates. In reaching its decision, the Supreme Court noted the practical reality that “[a]ll else being equal, the hourly fee charged by an attorney whose rates include paralegal work in her hourly fee, or who bills separately for the work of paralegals at cost, will be higher than the hourly fee charged by an attorney competing in the same market who bills separately for the work of paralegals at ‘market rates.’”3
The Supreme Court also rejected Missouri’s contention that awarding compensation for paraprofessionals at rates above cost would result in a windfall for the prevailing attorney. “Neither petitioner nor anyone else, to our knowledge, has ever suggested that the hourly rate applied to the work of an associate attorney in a law firm creates a windfall for the firm’s partners or is otherwise improper under § 1988, merely because it exceeds the cost of the attorney’s services. If the fees are consistent with market rates and practices, the ‘windfall’ argument has no more force with regard to paralegals than it does for associates.”4
In 2008, the U.S. Supreme Court held that paralegal services may be recovered at prevailing market rates verses at the rate the paralegal is paid by the attorney.5 “It seems more plausible that Congress intended all ‘fees and other expenses’ to be recoverable at the litigant’s ‘reasonable cost,’ subject to the proviso that ‘reasonable cost’ would be deemed to be ‘prevailing market rates’ when such rates could be determined.”6 Thus, whether the term “fees,” “expenses,” or “costs” is utilized in connection with paraprofessionals services, the analysis remains the same – paraprofessional services may be reimbursed at prevailing market rates not the cost paid by the attorney to the paraprofessional.
The ABA Model Rules Permit Attorneys to Bill at Market Rates for the
Services of Freelance Lawyers
The Model Rules and related ethics opinions regarding how contract lawyers’ fees may be billed are consistent with the U.S. Supreme Court’s holdings in Richlin and Jenkins and further establish that paraprofessional services of freelance lawyers may be billed at prevailing market rates, irrespective of whether the freelance lawyers are working as lawyers or in a paraprofessional capacity.
The ABA Standing Committee on Ethics and Professional Responsibility (the “ABA Committee”) has given further guidance in its Formal Opinion 93-379, stating:
The determination of a proper fee requires consideration of the interests of both client and lawyer. A lawyer should not charge more than a reasonable fee, for excessive cost of legal service would deter laymen from utilizing the legal system in protection of their rights. Furthermore, an excessive charge abuses the professional relationship between lawyer and client. On the other hand, adequate compensation is necessary in order to enable the lawyer to serve his client effectively and to preserve the integrity and independence of the profession.
In its Formal Opinion 00-420, the ABA Committee directly addressed the question of whether contract lawyers’ services must be billed to the client at the rate paid to the contract lawyer or at prevailing market rates.8 The answer – yes, attorneys may bill the services of contract lawyers to their clients at prevailing market rates as long as the rates satisfy Model Rule 1.5(a)’s reasonableness requirement.
Formal Opinion 00-420 concludes:
Subject to the Rule 1.5(a) mandate that ‘a lawyer’s fee shall be reasonable,’ a lawyer may, under the Model Rules, add a surcharge on amounts paid to a contract lawyer when services provided by the contract lawyer are billed as legal services. This is true whether the use and role of the contract lawyer are or are not disclosed to the client. The addition of a surcharge above cost does not require disclosure to the client in this circumstance, even when communication about fees is required under Rule 1.5(b). If the costs associated with contracting counsel’s services are billed as an expense, they should not be greater than the actual cost incurred, plus those costs that are associated directly with the provision of services, unless there has been a specific agreement with the client otherwise.
In a 2008 opinion, the ABA Committee affirmed its conclusion that contract lawyers may be billed to clients at prevailing market rates instead of the rate paid to the contract lawyer as long as the rate satisfies the reasonableness requirement of Model Rule 1.5.9
In Formal Opinion No. 00-420, we concluded that a law firm that engaged a contract lawyer could add a surcharge to the cost paid by the billing lawyer provided the total charge represented a reasonable fee for the services provided to the client. This is not substantively different from the manner in which a conventional law firm bills for the services of its lawyers. The firm pays a lawyer a salary, provides him with employment benefits, incurs office space and other overhead costs to support him, and also earns a profit from his services; the client generally is not informed of the details of the financial relationship between the law firm and the lawyer. Likewise, the lawyer is not obligated to inform the client how much the firm is paying a contract lawyer; the restraint is the overarching requirement that the fee charged for the services not be unreasonable. If the firm decides to pass those costs through to the client as a disbursement, however, no markup is permitted. In the absence of an agreement with the client authorizing a greater charge, the lawyer may bill the client only its actual cost plus a reasonable allocation of associated overhead, such as the amount the lawyer spent on any office space, support staff, equipment, and supplies for the individuals under contract. The analysis is no different for other outsourced legal services, except that the overhead costs associated with the provision of such services may be minimal or nonexistent if and to the extent that the outsourced work is performed off-site without the need for infrastructural support.
Thus, the U.S. Supreme Court, the Model Rules, and the ABA Committee have confirmed that attorneys can bill their clients for freelance lawyers’ services, irrespective of whether the lawyer is acting in a paraprofessional capacity, as long as the rate is a reasonable fee consistent with prevailing market rates and disclosed to the client.
The Texas Twist on Billing
Texas diverges minimally from the Model Rules (as the Texas Center for Legal Ethics acknowledges). If an attorney is billing for freelance lawyer services as an expense or such services are included in the attorney’s flat fee charged to the client, then Texas is consistent with the ABA Model Rules.
If an attorney is barred in Texas and wants to bill for freelance lawyer services, Texas may have a small twist. In Opinion 577, the Texas Center for Legal Ethics addressed how the services of lawyers “outside of the firm” (i.e., contract lawyers and lawyers from another firm that are associating for a specific matter) may be billed to the attorney’s client. Notably, Opinion 577 does not speak to lawyers providing services in a paraprofessional capacity. However, to the extent Opinion 577 applies to freelance lawyers working in a paraprofessional capacity (something that the Texas Center for Legal Ethics has not opined on), Opinion 577 provides that lawyers may bill their clients for contract lawyer services at more than the rate paid to the contract lawyer if the following four requirements are met:
1. The fees must be proportional to the services provided by the contract lawyer;
2. The client must consent to the terms of the fees paid to the contract lawyer;
3. The total fee (i.e. fee billed by the lawyer and the contract lawyer for the services) must not be unconscionable under Rule 1.04(a); and
4. The lawyer’s billing must show that the contract lawyer is not a member of the lawyer’s firm.
In short, when Texas attorneys engage freelance lawyers through LAWCLERK, Texas may require these additional disclosures. We say “may” because when freelance lawyers are engaged through LAWCLERK, they are working in a paraprofessional capacity and as such, the foregoing four requirements may not be applicable.
Additionally, if the services of the freelance lawyers through LAWCLERK are included in the flat fee the Texas attorney charges her client, then the four requirements are not applicable.
If the Texas attorney bills the services of freelance lawyers through LAWCLKER at prevailing market rates (as permitted by the ABA and U.S. Supreme Court), based on Opinion 577, Texas attorneys may want to disclosure to their clients that freelance lawyers are being engaged at the rates the attorney sets for the freelance lawyers’ services when billing the client, that they acknowledge on their invoices that the freelancers are not members of their firm, and that the rates are reasonable (which is always a requirement under the ethical rules).
In response to inquiries, we have prepared proposed language you may want to consider sending to your clients or incorporating into your engagement agreement to provide disclosure regarding the use of freelance lawyers through LAWCLERK:
If you are a solo attorney, you may want to consider incorporating language similar to the following into your standard engagement agreement:
I will be the attorney in charge of the relationship with you and my hourly rate is currently $___. However, I may allocate and assign work among paralegals, other paraprofessionals and legal assistants in a manner which I believe to be most efficient. Time worked by law clerks, paralegals, project assistants, investigators or other full-time or contract paraprofessionals will be charged at billing rates ranging from $___ to $___ per hour. These billing rates are subject to change annually and the Client will be notified of any changes to those billing rates whether directly or by invoice.
If you are part of a firm with other attorneys, you may want to consider incorporating language similar to the following into your standard engagement agreement:
The principal basis for computing our fees will be the amount of time spent on the matter by various lawyers and legal assistants multiplied by their hourly billing rates. I will be the attorney in charge of the relationship with you and my hourly rate is currently $___. However, the matter may be supervised by another attorney at the firm. In any event, the firm will allocate and assign work among our partners, associates, paralegals, other paraprofessionals and legal assistants in a manner which we believe to be most efficient. Our current rates for attorneys range from $___ per hour to $___ per hour. Time devoted by law clerks, paralegals, project assistants, investigators or other full-time or contract paraprofessionals are charged at billing rates ranging from $___ to $___ per hour. These billing rates are subject to change annually and the You will be notified of any changes to those billing
If you have any questions, please reach out to the LAWCLERK Care Team at email@example.com. We are standing by and ready to help.
. . . . . . . . . . . . . .
1. See Missouri v. Jenkins, 491 U.S. 274 (1989).
2. See Richlin v. Chertoff, 553 U.S. 571, 570 (2008); see also Missouri v. Jenkins, 491 U.S. 274 (1989).
3. See Missouri, 491 U.S. at 287.
5. Richlin v. Chertoff, 553 U.S. 571 (2008).
6. See id. at 579-580.
7. ABA Comm. On Ethics and Prof’ Responsibility Formal Op. 93-379 (Dec. 6, 1993) (Billing for Professional Fees, Disbursements and Other Expenses) (emphasis added).
8. See id., at Formal Op. 00-420 (Nov. 29, 2000) (Surcharge to Client for Use of a Contract Lawyer).
9. See id. at Formal Op. 08-451 (Aug. 5, 2008) (Lawyer’s Obligations When Outsourcing Legal and Nonlegal Support Services).