Overbilling lawsuit prompts debate over ethical duties to smaller clients
Overbilling lawsuit prompts debate over ethical duties to smaller clients

[JURIST] A Pennsylvania judge has ruled [order, PDF] to allow Christian foster parent organization Bair Foundation [advocacy website] to proceed with its lawsuit [complaint, PDF] against the well-known law firm Reed Smith [firm website], rejecting four preliminary challenges by Reed Smith. The lawsuit alleges that Reed Smith overcharged Bair for representation in an employment discrimination lawsuit, billing Bair almost one million dollars despite originally telling the group that legal fees would only run $50,000. Bair asserted that the large firm model, which focuses on billable hours and pulling in large profits, is inappropriate for dealing with smaller nonprofit clients:

In implementing its ambitious strategy of capturing global clients, which Reed Smith boasts results in "a constant increase in revenue per partner," it has acknowledged that comparatively small regional or local law firms can or perhaps should service smaller clients. This is so because such firms typically charge much lower fees than "white shoe" international law firms like Reed Smith and are therefore more affordable to these smaller clients.

However, Reed Smith has inexplicably continued to represent certain much smaller clients which lack substantial financial resources, such as Bair, a not-for-profit charitable foundation.

Bair sued for breach of contract, breach of fiduciary duty, fraud, legal negligence, and unjust enrichment. The judge dismissed the unjust enrichment claim. The Legal Intelligencer has more.

Reed Smith has touted its pro bono [Reed Smith backgrounder] work, but some argue that such large firms are ill-equipped to effectively serve clients that don't fit the firm's "global" target size. The case has sparked a great deal of commentary [New York Malpractice Blog report] among legal bloggers debating the ethical duties of law firms in dealing with nonprofit and smaller clients. Many legal professionals believe [Ohio Employer's Law Blog post] that smaller clients might be better served by smaller firms. When Bair first filed the lawsuit last year, one critic speculated [Legal Blog Watch post] 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."