Contributed by CMJ guest blogger, Jamie M. Magnani
Bank of America’s new plan to seek reductions in its legal fees from certain outside law firms has some experts questioning the ethics of this unusual practice. The bank is seeking a credit on its annual legal fees based on the amount of customer business it sends to the law firms. According to the report, Bank of American has threatened to stop using law firms that refuse to sign onto the one year deal.
The Bank of America agreement is believed to state that the credit sought is calculated based on the total amount of legal fees passed on to third-party customers. Bank of America generally does not comment on specific arrangements with its legal providers; however, a source familiar with the agreement said that, the credit being sought is relationship based rather than percentage based.
Cornelius Hurley, Director of the Boston University, Center for Finance, Policy, and Law opines that if the agreement is based on the amount of fees paid by customers, such an arrangement would be unethical and a “form of pay to play for the law firms.” University of California’s Hastings Law School professor, Geoffrey Hazard explains that the agreement seems to violate the American Bar Association’s rules of Professional Conduct in a least two ways: (1) the bank is getting a reduction in legal fees; (2) and there is a referral in return for money.
Not everyone sees this as an ethical issue. Thomas Spahn, a commercial litigation partner at McGuireWoods in Virginia, said his law firm accepted the agreement and does not have an issue with it. He does not share the concern that this arrangement violates the rule that “a lawyer cannot give anything of value” to someone who sends him business. Spahn’s reasoning is that “most law firms will give benefits to a company that sends them a lot of work, such as free legal seminars or cocktail parties.” He justified this position by stating that the agreement is sound as long as the credit is not tied to a particular fee.
Bank of America does offer some notice to its customers that it is receiving a benefit. Hurley feels the notice is “too vague and not a full-fledged disclosure…” and Hazard comments that “it’s getting the reduction that matters, not who knows about it.”
The bank defended the agreement in a statement issued to Corporate Counsel.
“We do not require clients to retain particular law firms and we are committed to transparency in disclosing fee arrangements, as well as, potential benefits to our company. We are confident that our agreements with external legal services providers are appropriate.”
Eric Cooperstein, a legal ethics practitioner in Minneapolis, believes this agreement raises serious ethical concerns because the rules do not have an exception for client consent. “Quite simply, a legal client’s business cannot be bought and sold.”