The True Cost of Contract Attorneys Called Into Question

26 April 2013 IT-Lex Technology Law Publication

IT-Lex Technology Law

On April 1, 2013, a federal judge in the In re Citigroup Inc. Securities Litigation, Case No. 1:09-md-02070 (SDNY), ordered a plaintiff firm to produce, among other things, information regarding the rates charged for its contract attorneys’ document review as well as evidence to establish that such rate was reasonable. The dispute emerged in the context of a proposed $590 million settlement between Citigroup and investors claiming that the bank hid its financial exposure in toxic mortgage debt. In the proposed settlement, plaintiff firm Kirby McInerney sought $100 million in fees which included rates it charged for contract attorneys at $500 per hour or more. Contract attorneys hired directly may charge more in the realm of $25-80 per hour.

It is not uncommon for plaintiff and defense firms alike to hire contract attorneys to review the massive amount of documents generated in the e-discovery phase of litigation. Nor is it unheard of that law firms charge a mark up to their clients for these contract-attorney services given the professional liability exposure and overhead costs the firms are assuming under these arrangements. At issue before Judge Stein, though, is how much of a mark up is reasonable.

The plaintiff firm argues that the mark up is reasonable given the assumed professional risk and the sophisticated financial structure and concepts involved in the case. On the other side, Mr. Frank, a Citigroup shareholder, argues that the contract attorneys required no special expertise and Citigroup’s contract attorneys were paid in the range of $25-35 an hour, by comparison. A ruling is expected in the next few weeks.

This dispute is a good reminder to lawyers engaged in e-discovery and their clients to think about whether the use of contract attorneys makes sense in their particular case in first instance and, if so, to think strategically on the front end about how they will be used, supervised, and ultimately priced to the client. Firms and their clients should open the lines of communications about the use of contract attorneys and agree up front regarding what they will do (i.e., the scope of their work) and how the client will be charged for their services. In the age of predictive coding and other e-discovery tools, contract attorneys may not always be the best or most efficient approach. In some cases, they still are, but e-discovery lawyers know that there is no one-size-fits-all way to manage and budget an e-discovery review, and need to make the evaluation about resources and strategic approach as early in the case as possible.

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