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August 6, 2008 3:18 PM

Reed Smith Loses Round One of Overbilling Lawsuit

Posted by Julie Triedman

Reed Smith, in recent years refashioned as a global firm with more than 1,500 lawyers, is fighting bill- padding claims brought by a former client in its own backyard. In November the firm was sued for allegedly overbilling a nonprofit foster care agency $1 million in a case one lawyer initially had estimated would cost $50,000. The matter has turned into something of a public relations nightmare for Reed Smith, as The American Lawyer reported in January.

Now the case, filed by the rural Mercer County, Pennsylvania, Bair Foundation, has passed a major hurdle. Last week Judge Dominick Motto of the Lawrence County Court of Common Pleas knocked down four of Reed Smith's five preliminary objections to the counts. Bair's allegations--including breach of fiduciary duty, fraud, excessive billing, and failure to abide by rules of professional conduct--are stated with sufficient specificity to merit discovery, the judge said. Representing Bair is Bruce Fox of Obermayer Rebmann Maxwell & Hippel.

The complaint painted a picture of a billing machine run amok. Bair tapped Reed Smith to defend it in a federal employment bias claim lodged by a former employee and a job candidate, both of whom accused Bair of religious discrimination. According to the complaint, Reed Smith employment partner Patrick Ritchey advised Bair that its legal costs and its damages exposure together would total $100,000, at most. Ultimately, the firm billed Bair nearly $1 million--$270,000 just in the month before the trial. Bair went on to lose at trial in February 2006, adding to the costs connected to the matter--the agency was liable for $197,000 in damages and another $266,000 in plaintiffs' legal fees.

Reed Smith has tapped William Pietragallo II of Pittsburgh's Pietragallo Bosick & Gordon to defend the firm. Back in December, Pietrogallo noted that Bair's director never once raised the issue of costs until a full year and a half after Bair lost at trial. And Greg Jordan, the firm's chairman, said the firm usually solves fee disputes with a conversation or two. But in this case, he told us in December, "it was, 'Here's our complaint, and you better pay all the money back or we're going public with it.'"

The complaint links the alleged excesses to extreme internal billing pressures at the firm, which has made aggressive and public moves to cement its place in the top tier of global firms. (Last year it vaulted to twenty-third from thirtieth in revenues in the Am Law 100 law firm rankings.) As The American Lawyer has previously reported, employment partners have been feeling that pressure more than most at large firms. Fox says he hopes to get more information out about those pressures in discovery.

In an April 17, 2007, post on the Adam Smith, Esq. blog, Reed Smith's Jordan spoke about the firm's strategy. "As our clients get bigger and want deeper relations with fewer law firms, we need to win. And we are. We have fewer and fewer, say, $750,000-a-year clients, and more situations where that client goes either to $5 million a year or zero."


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