Court reporters, clients, and gift giving – talking points

Frequent flyer miles, gifts, discounts and rebates from third party providers

By Peter Geraghty
Director, ETHICSearch
ABA Center for Professional Responsibility

You have a solo practice that concentrates in family law. A court reporting firm has offered you discount points that can be redeemed at the end of the year for cash refunds and other benefits. Can you keep the benefits?

ABA Formal Opinion 93-379 Billing for Professional Fees, Disbursements and Other Expenses made the following statement about what a lawyer should do when offered a discount from third party providers:

…In the absence of disclosure to the contrary...if a lawyer receives a discounted rate from a third party provider, it would be improper if she did not pass along the benefit of the discount to her client rather than charge the client the full rate and reserve the profit to herself. Clients quite properly could view these practices as an attempt to create additional undisclosed profit centers when the client had been told he would be billed for disbursements.

The opinion based its reasoning on Model Rules 1.5 Fees and 1.4 Communication.  It cited to subpart (b) of Rule 1.5 as it existed prior to the ABA Ethics 2000 Commission’s changes to the rule in 2003 which stated as follows:

..When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation.

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Note that both the black letter Rule 1.5 and comment were subsequently amended pursuant to the ABA Ethics 2000 Commission’s recommendations in 2003, although the substance of the two above excerpts from the rule are substantially the same in the current version of the rule. The E2K did, however, add paragraph 1 to the comment that in part incorporates some of the reasoning of Formal Opinion 93-379. This paragraph states:

…Reasonableness of Fee and Expenses

[1] Paragraph (a) requires that lawyers charge fees that are reasonable under the circumstances. The factors specified in (1) through (8) are not exclusive. Nor will each factor be relevant in each instance. Paragraph (a) also requires that expenses for which the client will be charged must be reasonable. 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.

Other state and local bar opinions have concluded that a client should be the beneficiary of rebates, discounts or gifts given to her lawyer in exchange for engaging the services of a third party on the client’s behalf unless the client consents to the lawyer keeping the rebate or discount after full disclosure. See, Alabama (Birmingham Bar Association) Opinion 89-83 (1989):

A lawyer who receives an "award check" from the court reporter as a result of ordering deposition transcripts that were paid for by a client may only accept the "check," which may be used to order merchandise through the court reporter from an exclusive merchandise catalog, after obtaining consent of the client after full disclosure. A lawyer may not accept anything of value absent the knowledge and consent of his client after full disclosure. - 901 Law. Man. Prof. Conduct 1058 (1989).

The Alabama opinion cited to DR 1-102(A)(4) of the Alabama Code of Professional Responsibility (The Model Rule corollary is subpart (c) of Rule 8.4 Misconduct) that prohibits a lawyer from engaging in conduct involving fraud, deceit and dishonesty for the proposition that a lawyer must be “…scrupulous in dealing honestly and forthrightly with members of the public—and particularly with his own clients.” See Also District of Columbia Opinion 185 (1987) and Iowa Opinion 00-2 (2000), a digest of which states:

A lawyer may sell "probate and other similar bonds" to clients, but the commissions, rebates, discounts, etc., belong to the client and must be disclosed and credited to the client unless the client consents to their distribution to the lawyer… - 1101 Law. Man. Prof. Conduct 3601.

On a related topic, See "Can a Lawyer Accept Referral Fees or Commissions from Non-Lawyers?" which appeared in the June 2007 issue of YourABA.

Questions involving rebates, discounts and other benefits from third party providers can present thorny ethical issues. As always, check your state or local bar association ethics opinions and rules of professional conduct.  Your local bar association may be also be able to help.