Trialtips latest post “How the Billable Hour was set…” posted January 2, 2010 helps clients understand how the billable hour was constructed and how to convert the hourly rate to a fair and affordable fixed fee bill on client legal matters.
Well I hope you are as happy as I am that the December holidays have ended. Now some real work can get done.
The dilemma: If you have any of your firms on an hourly fee basis, then you might notice an uptick in associate hours in December as the associates struggle to meet their hourly billing minimums for the year, just one of the many evils of an hourly billing system left unchecked. On the other hand, if you were paying a fixed fee on a monthly basis you might be feeling like a chump as you write the check for December recognizing that a lot of partying and little litigating actually occurred in December.
So what is a client to do to strike the proper, fair and economical basis between hourly billing and an alternative method? Importantly, if you understand how the billable hour is constructed, you should be able to better evaluate if hourly billing is appropriate for your matter, if the amount billed is fair and whether annual requests for across the board rate increases will be approved or disapproved.
Anatomy of the billable hour: Years ago, law firms wrote a quarterly or annual bill “for services rendered” for a fixed amount and the client paid the bill without question. Clients thought they were being overbilled so they pushed for the hourly billing system. The result was that law firm profits rose! Certainly not the result the clients intended. But it was the result of lawyers being notoriously bad at estimating how much time they spent in total on a matter. (I have found from comparing litigation budgets to actual billings that law firms underestimate their actual time spent 50-66% on a frequent basis.)
Nonetheless, the billable hour was born. Now the law firms had to set a rate per hour per lawyer that encompassed a number of factors. This blog speaks generally to the factors considered at the outset of a new client engagement and not to any one client, firm or matter. The rate typically is set first for the highest, most experienced ranking member of the team. Factors include the senior lawyers experience in the particular matter at hand, the complexity of the matter, whether the senior lawyer will be actively involved or will merely supervise a team of junior partners and associates, whether travel is involved, whether office costs like postage, copying and research are itemized or included in the rate, the economics of time and availability of the senior lawyer and his/her track record in successfully concluding the type of case. Of course, the rate also allows for reasonable overhead such as salaries, rent and overhead, and a profit factor for the law firm.
The rates of lawyers assigned to a matter in descending order of seniority (junior partners, senior associates, junior associates, contract lawyers, paralegals, clerks) are billed at rates based on the senior lawyer’s rate. Unfortunately, this system does not mean that the subordinates’ rate structure bears any relationship to experience or fairness. These younger lawyer rates will fill up most of the legal bill yet they are merely puffed up based on the senior lawyer rate and other factors internal to the firm which the client cares nothing about. For example, the “overhead” included in the rate may include the summer associate recruiting and entertainment fund, the office renovation, the holiday party, staff bonuses and other expenses that may help the law firm run harmoniously but do nothing to contribute to the advancement of the client’s cause.
So is hourly billing or fixed rate billing better for the client? If you consider that lawyer rates are rising without relationship to the economy or the actual costs of litigation and that lawyers notoriously underestimate the time they will spend on a matter, then the fixed rate alternative is preferred from the client perspective. The law firm is likely to underestimate its budgeted amount of hours and, therefore, is likely to underestimate the total cost of the matter. The client then saves money. However, the lawyer-client relationship is not about taking advantage of one party over the other when it comes to getting paid. (Although law firms posting 10% plus profits are not known for giving refunds to clients when this occurs.)
What is a client to do? A client can address the billing method issue several ways. First, always, always, always insist on a budget that explains the tasks to conclude a matter and the time estimated to conclude the matter plus the level of personnel who will be assigned to complete the tasks. Second, evaluate whether the rates for the team below the senior lawyer are fair given the lawyers’ experience and expected contributions to the outcome. Third, evaluate whether the number of people is necessary to the matter, for example is it time sensitive such that ten people must be assigned? Then, multiply the rate times the expected hours and divide over the estimated time that the matter will likely be pending. Armed with this total cost, the client can then evaluate whether the cost appears appropriate for the matter. A particular vulnerability is the high rates charged for the lower level personnel that are not supported by experience or effort. Another vulnerability is the amount of time spent on routine tasks as a result of the training of junior associates or the filing function of paralegals; this is often a black-hole of billing. Cut out the costs that serve the law firm’s interest and not the client’s interest and the overall cost becomes more fair.
After analyzing the total cost based on the law firm’s given budget and rates, the client can evaluate if fixing the cost of the matter at that price makes economic sense. If the law firm will not agree to a set rate, one must ask why?
Finally, the client agreed to a rate and budget at the outset. I have yet to see in 26 years of practice, a budget that includes annual increases in the hourly rate. Why should the law firm be allowed to annually increase the rate when it didn’t budget for this cost? The client is well within its rights to hold the law firm to its contract, to bill a set rate for designated lawyers for the matter. Of course, in certain economic times it is fair to adjust for inflation and cost of living increases related to law firm expenses but short of these reasons, why should a client pay more to the law firm every year just so the partners can take home more profits that year? Adjustments can always be made during a matter if it is pending longer than predicted or is more complicated than it initially appeared.
Clients, it’s a new year. Open your files and look at the requests for rate increases. Don’t automatically grant them. Look at the engagement letters from your law firms and see if the law firm has built in an “automatic rate increase” clause into the letter and if so, write a letter rejecting that approach. Look at the budgets on your files and take the start of the New Year as the time to start a new approach to evaluating whether the hourly rate fairly charges your company for the work done or whether it is time for billing on fixed rate cost based on the law firm’s predicted time and rates.
If not now, when are you going to reset the balance between legal services and fees? It will affect your company’s bottom line.
Have you met your lawyer? Your lawyer has been given the task of speaking and advocating on your behalf. There is no higher honor or burden to bestow on someone else. Why then, would you let a perfect stranger be your representative on your personal or business dispute? There is no reason. Yet daily, clients let the firm rainmaker or managing partner sell the firm to the client then assign the matter to an attorney whom the client knows nothing about. This has to stop.
In this day and age of video conferencing methods (voice IP, Skype for free video conferencing and a host of other online video meeting sites and software), there is no excuse for not meeting your lawyer early in the engagement.
A judge, a jury, opposing counsel, company representatives, witnesses, court personnel and many others will meet and interact with your lawyer. Their impression and interaction will determine their future cooperation, behavior and receptiveness to interacting with the attorney and the legal team. It behooves every client to take the time to meet counsel.
What do you want to know besides what she looks like and how she dresses? It depends on the engagement but here are at least a few key questions to raise in a matter involving negotiations or a dispute of any type. One reason to ask the questions is for the content of the answers. The other equally important reason is to determine if the attorney has the personality qualities that you want in the person assigned to represent you/your company in the legal matter.
- How many times have you been lead counsel in a similar matter? What was the value of the matter that was at risk?
- Did the matter result in a good result for your client or a better result for the opposition? Get details.
- Do you provide budgets on your files? How close to budget have your cases come in over the past year?
- How many lawyers work with you on a matter? What is the maximum and minimum? What are the levels of experience of those lawyers and their purpose on the team (Training? Cost-effective work? Leading a team of younger attorneys?)?
- Who assigns the work for your cases, a junior person or you personally?
- Who most often has the contact with opposing counsel and the court on your matters?
- Are you required to report to anyone on this file while it is pending?
- How technologically savvy are you? Do you write most of your own work or rely extensively on staff?
The answers matter. The more involved in doing the work or at least assigning the tasks, the smaller the team, the closer to budget, the greater the experience in similar matters, and the more personal contact with the court and opposing counsel, the better chance you have of knowing who is doing your work. And just as importantly, knowing that the professional you retained and are comfortable with, is actually representing your best interests. It doesn’t cost extra to ask the questions, so just do it.
Client, remembering meeting that highly personable, well-established trial lawyer on your recent trip to the law firm? The one with the corner office and custom suit? He’s not in his office today because there is no other new client seeking a law firm to hire and he has no intention of working on your matter. Did you call the team of lawyers you ended up with? Could they answer any of your questions directly or did they need to “check with someone (i.e. senior partner)” before answering your question?
This week’s news reported that in-house counsel salaries over the past two years have frozen yet the companies are requiring those counsel to take on more work. This week’s news reported that one BigLaw firm, Reed Smith cut the pay of first year lawyers, the very crop of talent they expect to make their margins on in two to three years. I have yet to see a story where any BigLaw or other firm announced hourly fee cuts or even freezes on rates for the coming year to ease the burdens on clients.
What is the irony and similarity in these stories? The people working the hardest have the most to do and are being paid the least amount of money. This inequity can only result in the following: exhaustion, burnout, fatigue, illness, lack of motivation and the overwhelming feeling that there is no way out.
Why do I paint such a bleak picture? Because I have seen too many clients think they are selecting the best counsel only to have the work land back in their lap along with legal bills that are far too high for the value transferred to the company. The law firm always rolls out the A team to land the business. Rarely does the client meet the team let alone meet the person/partner (maybe) who will lead the team. Rarely is the client even told it will take a team of up to ten attorneys, meeting together at least one hour per day, to stay abreast of the legal matter.
How do you put a stop to this? Ask a few questions during the hiring process, assuming you have been given any control over this process, before the legal engagement begins:
1. Who will lead this case from start to finish? What percentage of time do you expect the leader to put in?
2. What is the trial experience of that person? Number of trials as lead lawyer, to a conclusion, the result and the offer and demand headed into trial.
3. How many assistant lawyers or paralegals should be expected to be assigned to this matter and who are they (ask for resumes). Make sure the bill contains only their names and not other strangers. How many meetings and when are they likely to be held to advance the matter?
4. Does the firm bill in minimums? For example, it is highly common to read BigLaw bills where a paralegal bills 8 hours a day for managing the case file. What this means, how many documents are processed and how it advances the legal status of the case is anyone’s guess.
5. What is the overall case plan based on what little is known at the outset? What is the estimated budget for that plan? What variables could affect that budget? How many first and second year lawyers will be part of the plan?
6. What work is expected/required by me, in-house counsel, to advance this legal matter to a conclusion. Estimate the hours and time frame.
What good will it do you to ask these questions? At a minimum, you will approach the matter with your eyes wide open as to what type of hit your annual budget will take and what type of hit your own personal schedule will take to support the matter. Of course, the turnkey firm that can give you personal service, from a trial partner (if it is a dispute) with a reliable budget will beat almost any other offer you hear.
In the end, you will know what you just signed on to if you hire that firm. If you pick the firm where your frat buddy works, or is nearby, or just happened to be the last firm you hired, you get what you deserve. But then again, the choice of outside counsel is not always yours to make or veto. But if costs, efficiencies and results are important, along with morale, and a balanced life, you need to be more vocal about the process. After all, if you’re in-house counsel, it’s your life that will be affected along with the outcome.
Clients, can we speak frankly? Do you have your budget for your most recent piece of legal work yet? Did you ask for one? Now is the time to insist on a detailed litigation budget.
The case budget is an essential tool for litigation management. It forces your lawyer and you to carefully examine what is in dispute, what is required to prove or disprove the allegations and the costs associated with this process. The best example I’ve heard to analogize to the need for a budget is to compare a house rehab project with a budget and plan and one without. Under each situation, the rehab job will eventually get done. But with the budget and plan in hand at the outset, all parties know what it will cost to a reasonable degree of certainty, the right parts are installed at the right time and the outcome usually matches the plan. The rehab project that is done on an “as you go” basis usually finds that steps were missed, costs are surprisingly high and some essential component is missing or incorrectly installed.
Requiring a budget from a lawyer is not asking for rocket science. The lawyer will resist the effort, will delay or ignore the request and fill the budget with assumptions and disclaimers. But think of it this way, if a doctor can create an annual budget for his research to cure cancer, or a scientist can prepare a budget for the cost to launch the shuttle on its next trip, then a lawyer should be able to calculate the costs to bring the litigated matter to a conclusion. A lawyer familiar enough with the litigation process, and the billing process should be able to estimate the costs in a matter.
Plus, no one says a budget is set in stone. Of course, a case changes course due to other parties, court rulings, the court calendar, and the behavior of one’s opponent. But these events occur in all cases and should be taken into account in a budget.
Creating the budget should not be the end of the process though. It is essential on at least a quarterly basis to compare the actual bills to the budget to determine if the case is following its predetermined course or is off-track. This short review should tell the client if the case is progressing as anticipated and at the cost projected.
Clients, you have a right to know what the litigation is going to cost. Lawyers have the knowledge and ability to complete this task. You should insist on a detailed budget that itemizes the activities expected to be undertaken, the attorneys (by name and rate) who are expected to perform the activities, and allow for a category on the budget that covers case reporting and correspondence. Whether you use a form your company designed or use the ABA Billing Codes, or allow the lawyer to explain the activities and cost in his own form, it behooves the client to insist on a budget before proceeding with any activity.
Lawyer suicide: the final option. Robert Ambrogi called the suicide death of a highly respected lawyer The Economy’s Most Tragic Consequence. The ABA Journal featured the story as A Death in the Office. Law.com followed with a blog piece about another lawyer’s suicide in Wisconsin this past month. While GP Solo author Mary Robinson writes this month that “”we are not tough enough on the depressed due to the great pain they inflict on people around them” and “the great harm they cause to clients.”
The public disdains lawyers, often eager to tell the latest malicious joke about them. Clients hope to avoid the lawyers and their bills regardless of how dedicated a team of lawyers worked on the client’s matter. Law firms want more hours and clients from their lawyers not less hours or happy employees. But “they”, the group of lawyers who are ill with depression, have no one to protect them. That is the great legal tragedy.
Is Lawyer Depression And Suicide Really A Problem?
A “1990 Johns Hopkins University study found lawyers were nearly four times as likely to suffer from depression as the average person. Other studies have shown that lawyers are two to six times more likely to be clinically depressed than people in other lines of work.” Mark Hansen, The Less Final Option. Suicide rates among lawyers have risen dramatically. The Illinois Lawyers Assistance Program reports a 9.2 percent increase of clients with psychological issues over last year, and a 363 percent increase since 2001-2002. Id. Tennessee had nine lawyer suicides in an 18 month period between 2005 and 2006. Id. Other state bars report averaging one lawyer suicide a month. Id.
What Is The Cause?
The comments that followed Robert Ambrogi’s blog (The Economy’s Most Tragic Consequence) blamed the suicide on big law, rainmaking and billable hours. A few comments noted the reality of depression on the sufferer and its possible role in the lawyer’s decision to kill himself. The ABA Journal and Ambrogi blamed the economy causing layoffs of rainmakers. The lawyer’s history indicated he had struggled with depression in years past.
I submit that those persons seeking to explain the suicides and rampant depression among lawyers need to better understand the pressures that blew the lid off the boiling pot. Of course, we cannot go back and ask the victims what was the precipitating event or the last straw. And not every lawyer that bills long hours or is pressured to bring in clients is depressed and contemplating suicide. But we can glean some interesting information from the daily news.
Lawyers can fall out of society’s norm and into depression in multiple ways, the job pressures being only one factor. Relationships, happiness, lifestyle, genetic makeup or financial troubles are other stressors. This blog focuses on the law firm environment; other blogs will address the other factors down the road.
What Is A Firm Supposed To Do With A Depressed Lawyer?
At a law firm, it could be that the root of unhappiness is due to the lack of rainmaking skills, or low hours/low profitability, or a firm that outgrew its workload and pink slips started appearing around the firm. But illness, particularly depression, virtually guarantees that a lawyer cannot survive the demands of the law firm given the nature of the professional code of conduct, the cost of treating depression and the lawyer’s depression’s financial impact on the firm.
Depression is experienced by virtually everyone at some point in their lives. Depression can be of short term duration due to recovery from an illness, a tragedy involving a close friend or family, or a relationship or lifestyle issue. Depression can also be of long-term duration due to an imbalance of chemicals in the brain requiring medicine and ongoing treatment over a period of time.
Regardless of duration, “lawyers who suffer from depression become overwhelmed by seemingly routine legal or administrative tasks; sometimes they literally are unable to bring themselves to look at files, to return phone calls, or to open mail.” Mary Robinson, GPSOLO, October/November 2009, p. 33. Depression can inhibit the lawyer’s ability to exert any rainmaking skills, to bill hours, to maintain a caseload or any timely contact with clients.
Law Firm Options
Regardless of the law firm size or whether the lawyer is a partner, an associate or in-house counsel, the ABA Model Rules of Professional Conduct Rule 5.1 impose a duty on partners and supervising lawyers to do something. For all we know, this duty drove the decisions of the law firms that let lawyers go because of depression.
Rule 5.1, parts (a) and (b) impose on partners and supervising lawyers to oversee the conduct of lawyers within the firm or organization. This Rule has broad sweeping language that could impose a duty (but not vicarious liability) on the partners to do almost anything when it learns that a lawyer has a medical problem.
Some BigLaw firms have employee assistance programs and help the employee work through their problems. Others terminate the employee upon first notice of a problem having no desire to “carry him” or “supervise and oversee his work let alone one’s own caseload. In short, the lawyer is viewed as a liability. Some firms think clients will pull files should they learn of the illness so the firm’s act first and terminate the lawyer. While other firms think their duty under Rule 5.1 (or its similar rule in their jurisdiction) is to conduct a full medical and psychological armchair investigation, despite having no medical training and the plethora of laws implemented at the federal and state level to protect an individual’s medical privacy. One author maintains that the ADA does not offer refuge to the depressed lawyer and accommodations need not be made for the lawyer. GPSOLO, p. 11.
The decision to fire the lawyer upon notice of depression is troubling. This action assumes that no amount of time or treatment or oversight could solve what might be a temporary problem. The consequences can be harsh though if a lawyer in the midst of depression must now struggle with a job loss.
The decision to conduct an armchair medical investigation is even more troubling because of the number of laws it treads upon and the lack of training by lawyers to conduct such a witch hunt. Yet the Model Rules provide no guidance as to the extent to which a firm must proceed to ensure the client’s work is being performed timely and competently. Must the firm get a doctor’s report (and violate HIPPA)? Must the firm require the employee to see a psychiatrist? Should the firm be privy to the results of the exam?
It strains credulity to believe the Model Rules contemplated a full blown medical analysis by lawyers in a firm thereby violating every law on employee privacy that one can think of. Yet Rule 5.1 is not restrict in breadth or depth and can be used to destroy any lawyer’s career directly (through firing) or indirectly (leaking the medical information to the legal community).
Did Rule 5.1 Have Anything To Do With The Recent Tragedies?
It is not for me to say whether the recent suicides by the lawyers and judges were pushed by their firm’s carrying out Rule 5.1 in its harshest form and terminating them or whether inadequate billable hours, small caseload size or poor rainmaking skills was the final straw or something completely unrelated to the workplace. But one can say that this Rule 5.1 overly broad statement of duty hands a law firm a convenient way to discard the very serious problem of a lawyer at risk rather than encourage the law firm to find a solution to help the lawyer. Certainly any lawyer aware of the Rules would be loathe to disclose to his firm or friends his depression and its depth if the potential consequences are investigation or termination. Keeping the problem silent also is not an acceptable answer.
Many people function on many types of jobs with anti-depressant treatment, just like many people function with other disabling illnesses that require daily medication: heart disease, cancer and diabetes to name a few. The compassion shown in addressing those cases should be extended to lawyers before another one is pushed to the edge of the abyss.
I spoke with a colleague last week who was readying his case for a bench trial to be held outside of his customary jurisdiction. He commented that the lead lawyer for the plaintiff did not know his file. Always a fun piece of information to know heading into trial. He also commented that his team (the defense) had been working until 9 pm every night for several weeks and through the weekends without breaks. Query: was either lawyer ready for trial? Did the client know the state of readiness of the case it was about to submit to a stranger (the judge who knew nothing about the case or subject matter) to decide the outcome at a cost of thousands of dollars? I don’t think so. And the danger of not knowing could mean the difference between winning and losing.
What is Readiness For Trial?
At its most basic level, Readiness means the lead lawyer knows the parties, the issues, what issue must be won and what issues cannot be lost. He knows what evidence is marked and ready for presentation to the court and he has supervised the preparation of exhibits to enhance their presentation to drive home a point. Most importantly, he personally has met the witnesses, knows who he will call in his case in chief and why, and who he will likely cross-examine and why.
It Can’t Be Done On The Way To The Courthouse?
Some lawyers are so busy and so in demand that they think they can pick up the basics of the case from an associate on the way to court and they rely on the associates to do all of the work expected from the lead lawyer. This is not Readiness for trial.
A very successful trial lawyer, Louis Nizer, observed about the trial process that, “[p]reparation is the be-all of good trial work. Everything else-felicity of expression, improvisational brilliance-is a satellite around the sun. Thorough preparation is that sun.” There is simply no substitute for knowing the strenths, the weaknesses and the nuances of the case. The prepared lawyer knows if his opponent was sloppy in his expert’s preparation, knows the case law on the case critical issues, knows the jury instructions the jury (in a jury trial) will likely see and the law the judge must follow in a bench trial, and has his witnesses lined up and prepared to stand and deliver. Anything short of this is a disservice to the client who has put his trust in the lawyer. Non-disclosure of the unpreparedness of the file to the client is a disservice of the greatest magnitude if not an ethical violation in itself. Yet everyday, trial lawyers don’t know their case and start a trial as if they do.
This is not a malady limited to plaintiff or defense lawyers; both fall victim to other demands and deadlines and short-change the trial preparation. Sometimes the unprepared lawyer is playing the odds that the case will settle at the eleventh hour because that is what statistically 95% of the cases do. But sometimes, the client insists on a trial, unwittingly walking into battle with a lawyer who is neither mentally or physically prepared.
What Other Type of Readiness For Trial is There?
The second type of lack-of-readiness is more insidious than the first. This second type is exemplified by the defense lawyer mentioned in the first paragraph above. The lawyer has devoted his life to the case and so has his team of partners and associates. They have worked long hours and arrived home exhausted only to return the next day to the office for more labor- and mentally-intensive work. This team will show up to the courtroom with the briefs, witnesses, exhibits and notes ready to begin the battle. However, they will show up physically exhausted; they will have drained their brain of creativity, strength, mental acuity, reaction time and all the mental functions that go with a well-fed, well-rested, clearly thinking brain. And it will show in their presentation.
The unrested, unfed, exhausted trial lawyer does as much a disservice to the client as the unprepared. This lack of physical and mental preparation will emerge when quick thinking and creative responses are required.
What is the Client to Do?
First and foremost, the client must ask the lead trial lawyer specific questions about the level of preparation of the case at least 60 days in advance of trial. The client should not accept a written report penned by an associate and signed by the partner. A conversation should take place on the critical aspects of the case, those parts that led the client to decide to take the case to trial, and confirm that the case is well in hand. The client should know who is on the team, the amount of work those lawyers are doing on the team, and what they are doing. When red flags arise during this conversation, sailors take warning that rocky seas are ahead for that case. You will see a breakdown in the trial team and how they interact in the courtroom, with witnesses and with each other. Trials these days are as brutal on the body as marathons and it behooves the client to take the time to find out if its trial team is keeping its eye on the big picture.
Second, the client should be assured, again through dialogue not a form report or a photocopy of lunch menus, that the intense preparation for trial is not coming at the expense of the lead trial lawyers health or welfare. Any client or law firm working its lawyers to 9 pm and beyond each night for weeks at a time should have arranged adequate break time, i.e. portions of days off to get personal matters taken care of, or weekends off, and most importantly, insured through supervision and oversight that the trial team is being well-fed.
Aha, you say, I had to read this far to find out my trial lawyer wants a free lunch! Not true. The trial team needs to be well-rested, well-nourished and have time to stop and reflect on what is being done, by whom and when, all of which can be accomplished during a lunch or dinner break brought into the law firm. The cost? Less than one associate billable hour. The benefit? A team that is not so drained or so rushed that it cannot think straight as it heads into and through the trial.
Law firms work for clients. Clients don’t send in files for a law firm to have its way with the case then rollover and settle the claim. It behooves the law firms to think about the client’s needs at all times and in all aspects. The client has put an enormous amount of trust and resources into the law firm to get to the eve of trial. The ABA Model Rules of Professional Conduct Rule 5.1 place a burden on supervising lawyers to make reasonable efforts to oversee the work of other lawyers and personnel in the firm. It is time to make sure the trial lawyers are ready for trial and the clients know exactly who is walking into the courtroom and with what degree of stamina in order to prevail. Law firms, it is time to oversee your trial teams readiness at both levels. Clients, it is time to ask the questions.