Are contract lawyers an expense or a fee item? This issue has been litigated before and, according to my reading, has been resolved in favor of the law firm. The law firm is entitled to engage contract or temporary lawyers for one price and charge the client a higher price. One rationale for this is that the firm can engage lawyers on a short term basis, without a long term commitment, to provide the work for the client that is necessary. When that job or assignment is completed, the law firm can sever the tie with the contract lawyer and retain a lower overhead. Everyone benefits: the lawyer who otherwise would not have been employed; the law firm that can take on additional work and its resulting benefits; and the client whose goals can be met more efficiently and timely.
The issue usually arises from a complaint by an insurance carrier who is responsible for payment of legal fees under a policy of insurance or a creditors’ committee that wants a larger share of available funds and finds the law firm(s) an easy target. Currently, the Citigroup class action legal fees are being challenged by a group called the Center for Class Action Fairness.
The allegations in this case go beyond the assertion that a law firm cannot charge more than it pays for legal talent. If this were the only issue, the challengers would have no standing; this issue has been resolved and it would be a major reversal of thought for the court to rule otherwise. But, the real issues are whether the engagement agreement mentioned anything about contract lawyers and, if so, what were the terms; what risk did the law firm accept when its fee was based on a contingency (was this a novel area of law or one in which plaintiffs had not been successful before); what was the expertise needed in the matter for which contract lawyers were engaged, and what was the expertise actually engaged; and were the fees charged “reasonable” under all the circumstances.
In this case, the total fees amount to less than 17% of the class action settlement. The court will have to decide whether this was a reasonable fee overall and/or whether each component of the fee requested reasonable. The added risk for any law firm taking on this type of case is that its fee is always reviewed on Monday morning ... the Monday morning quarterback always has a better perspective than does the game-day quarterback. While the large company client can protect itself by hiring the contract lawyers directly, though they could then hardly expect the law firm to oversee that portion of the work product. The client can further protect itself by objecting to paying the legal fee and litigating the fee. But, how does a law firm protect itself against the client (usually someone else speaking in the shoes of the client) so as to avoid an after-the-fact conflict?
In today’s Wall Street Journal, the writer suggests that high priced lawyers are for sale, that is, that clients are pushing back and demanding lower fees irrespective of the stated hourly rates of their lawyers. The reporter’s perspective is skewed only to the larger law firms, “Big Law.” Small firm and sole practitioners have always walked this tight rope between client acceptance and lawyers’ fees, but this doesn’t make news.
The battle between lawyer as vendor and client as purchaser has always existed. The “battle” or adversarial conflict just never received so much publicity as it does now ... And yes, some clients have become bolder as a result of the recent Depression (aka Great Recession).
Also, however, some lawyers will raise their purported rates knowing the financial officer of the corporate client will demand a discount. This way, the law firm receives the engagement, the General Counsel gets served and can protect the rights of the company, and the finance officer can assert he/she saved money for the company. A nice game.
A lawyer who was interviewed for the article suggests the real issue for all concerned: The client must believe he/she/it is receiving value for the fee paid. In other words, it’s the total cost of the legal service, not the rate per hour, that is significant. With more clients and attorneys beginning to speak this language, the real issue is coming into focus.
Life After Law, What Will You Do For the Next 6000 Days? My soon- to-be-released book is a guide to why aging baby boomer lawyers should be planning for their next career. The ABA has concluded that 400,000 lawyers will retire in the next 10 years. That is equivalent to the entire membership of the ABA, the largest volunteer organization in the world!
According to a different report, without reference to law, 10,000 people retire daily!
Look for a dramatic change in our culture as we seek to learn how to live longer, productive lives in different careers. Of course, the economy will also change as older folks become the dominant consumers in this country.
I have been getting more calls from lawyers wanting to retire, wanting to sell their law practices. As a result, I started writing a new book. I just finished Life After Law: What Will You Do With the Rest of Your Life? It is being edited now and will be available for sale in October.
As a result, I've been giving a lot of thought to the definition of Goodwill, the primary asset a lawyer has to sell. And though it is not consistent with the accounting profession's definition, I have come upon a new definition that I believe is more meaningful to the average lawyer, whether buying or selling:
Goodwill can be defined as legacy ... it’s your legacy that you’re passing along to others ... It’s your reputation, your phone number, your system and way of doing business, all the intangible elements that made you successful and provides you, the selling lawyer, with what to sell ... The better is your reputation, the more value your law practice will have.
Judge Lippman, Chief Judge of the New York Appeals Court, announced a pro bono requirement to gain admission to the New York Bar. Every new lawyer will have to prove their performance of 50 hours of pro bono practice before being admitted to the New York state bar. Mandatory pro bono is now a reality in New York.
He said, "If pro bono is a core value of our profession, and it is—and if we aspire for all practicing attorneys to devote a meaningful portion of their time to public service, and they should—these ideals ought to be instilled from the start, when one first aspires to be a member of the profession."
His first error of judgement, in my opinion, is to conclude that pro bono is a "core value" of the legal profession. While many lawyers "give" many hours freely of their time and expertise, it is not the essence or "core value" of the legal profession. This has been substantiated many times over when bar associations call on their members to provide free services for low and moderate income people. Many do step up to the plate. But, not all. Thus, it's obviously not a core value of the profession.
He then said that "We think that if you want that privilege, that honor of practicing law in the state of New York...then you are going to have to demonstrate that you believe in our values." He is really saying that if you want to practice law in NY, you better meet my values. Interesting that he says that practicing law is a privilege, not a right. Seems as though we're taking a test to get our driving license. Driving a car is a privilege and in order to get you on the streets, you need certain requirements. I guess Judge Lippman equates getting a law license with a driver's license.
Why does this new requirement apply only to new lawyers? Why doesn't this requirement apply to all lawyers in NY, even those who have been practicing for a few years? Judge Lippman's excuse for this discriminatory practice is that existing lawyers' practices are very diverse and some lawyers already are having difficulty earning enough money to put food on the table. Thus, they should be excused from this requirement. The real reason is that the Judge would have a rebellion on his hands if he tried to spread the requirement to all present lawyers in the state.
I've talked about internships for lawyers. We've discussed articling in Canada. And now I find out that the State of Georgia has a mandatory mentoring program for brand new lawyers. Perhaps we're not so far away from the internship process. On the other hand, since Georgia has been working this path for quite a few years and others have yet to follow, perhaps it's still a pipe dream that even the current recession won't make happen at either the law school or Bar level. It may still take the combination of law firms and client demands to create an effective post-law school education program for learning how to become a lawyer.
I had the pleasure of keynoting a recent conference sponsored by LexisNexis. During a panel discussion among practitioners, technology consultant and myself, the topic of the cost of new technology was discussed. One of the suggestions I made was that the successful law firm of the future will use technology to create and enhance its effort at knowledge management. The firm that is able to retrieve its pre-existing knowledge and use it again will be more efficient, reduce its costs and therefore provide excellent results for clients at a lower price.
Then, the question arises: Who owns the knowledge, who owns the forms, the precedent knowledge? Does the client who paid for it own it? Does the law firm own it? Or does the lawyer who created it own it? This becomes more important in an age of greater lateral movement.
Some clients have as a condition of engagement that they (the client) own the intellectual property ... and that the law firm must share it with other law firms who handle the client's affairs (e.g., product liability litigation) in other parts of the country.
Do you have a firm policy on this? What do you do concerning your intellectual property when a lawyer leaves your firm? Is your policy different when the lawyer is a partner as contrasted to when the lawyer is an associate?
For the second day in a row, the WSJ ragged on lawyers. It's front page headline says "How to Surgically Remove Lawyers From Hospitals" .... Without reading more than the front page headline, one would think that lawyers are a problem for hospitals and need to be removed ... and here's how to do it.
But, when you turn to the Personal Journal section of the paper, the article talks about hospitals' negligence and the fact that many deaths and serious injuries/illnesses are caused by the hospitals and their staffs after the patients enter for other maladies than that which resulted in death.
The writer states that some hospitals are admitting their negligence and approaching the patients and their families with apologies and financial offerings that make sense. Under such circumstances, of course, the patients don't need to work with lawyers ... and that's one way of keeping lawyers out of the discussion. (There are other issues here from the perspective of the patient's protection; that's a subject for another time.)
The real reason for the lawyer is that the institution denies culpability and seeks to stonewall the injured party. What a novel idea -- actually talk to the injured party, admit responsibility and seek to negotiate/mediate a solution acceptable to all parties.
That, however, is not the tone of the headline, nor the attitude of the newspaper. Too bad. Truth should be the standard, not paper sales. I should admit that the headline is not false, just conveys the wrong impression of the article's content.