BigLaw Bumped Rates Higher
So Some Mid-Sized Firms Did Nicely, Nicely, Thank You

By Zack Needles
The Legal Intelligencer
New York Lawyer
January 24, 2008

PHILADELPHIA -- While it can't be said that midsized firms in Pennsylvania experienced a major boom in 2007, many of them did see increases in revenue, staffing and clientele that either met or exceeded their expectations.

A number of firms, including Kaplin Stewart Meloff Reiter & Stein, Tucker Arensberg, and McNees Wallace & Nurick, reported gains over and above their budgets. While many firms were willing to talk about percentage increases, nearly all were reluctant to provide exact revenue figures.

Many of them attributed the extra income to bump-ups in hourly rates, making no apologies for attempting to stay competitive with larger firms that can afford to shell out for big employee salaries as their hourly rates continue to skyrocket.

"We're all competing for the same talent pool," said intellectual property boutique Woodcock Washburn executive director, Jay Rose, who reported "sizable growth" in revenue for the firm. "We need to keep up with increasing wages. We raise rates every year."

Some midsized firms saw big firms' price hikes as a golden opportunity.

"Middle and smaller firms had a bit more room to increase rates and still look like a relative bargain compared to larger firms," said Maury Reiter, managing partner of Kaplin Stewart, who estimated an increase in proceeds between 7 and 10 percent.

Still, the going rate for larger firms isn't the only factor that dictates how much smaller firms can charge. The reality is midsized firms generally have midsized clientele, most of which can't afford to pay big firm prices.

"We raised our rates less than 5 percent," said David M. Kleppinger, managing attorney of Harrisburg-based McNees Wallace. "Mid-market clientele does have rate sensitivity and we were conscious of that."

Kleppinger said last year saw a revenue increase of about 10 percent for the firm, which surpassed its budget expectations by nearly 19 percent and was consistent with gains made in 2006.

Alexander Henderson III, managing partner of Lancaster-based firm Hartman Underhill & Brubaker, said the firm made a slightly smaller jump in revenues than it did from 2005 to 2006 but still managed to pull in between 5 and 10 percent more income than it did last year.

While many midsized firms posted respectable figures in 2007, some of them reported having a banner year.

Dilworth Paxson called last year one of its strongest, increasing its revenue by 10 percent from 2006.

Managing partner Stephen J. Harmelin said the firm's decision to combine its insolvency team with its securities and white-collar crime team kept the firm's litigation lawyers especially busy last year.

Pittsburgh-based Meyer Unkovic & Scott said it had its best year ever, finishing 9.3 percent over its gross revenue for 2006.

Managing partner Kevin McKeegan also pointed to increasingly ambitious asking prices as a major source of new income.

"We were less shy about [raising our rates]," he said, adding that the majority of his firm's business comes from word of mouth and referrals. "We came to the realization that if national and international law firms could continue to do it, we could do it as well and still be a very good value for the client at the same time."

McKeegan said another factor behind last year's increased earnings was a good amount of commercial litigation work. Several other firms also reported litigation as being a busy practice in 2007.

Consultant Robert Denney, of Robert Denney Associates in Wayne, Pa., said commercial litigation is good work if you can get it but was somewhat surprised to hear that firms listed it as a popular practice area last year.

"Litigation, in general, has sort of flattened out, nationally as well as statewide, because of the cost of it," he said. "Both midsized firms and big firms have generally leveled off."

Many of the firms interviewed for this story said that litigation was consistent and reliable but not necessarily booming.

According to consultant Joel A. Rose, of Joel A. Rose & Associates in Cherry Hill, N.J., litigation is one practice area that is versatile enough to survive (and sometimes thrive) in both good and bad economic environments.

In good times, he said, litigation does well because there is money to be made in lawsuits and in bad times litigation does well because money's tight and people are suing each other over payments they're owed.

While litigation saw some action in 2007, it seemed to be a unanimous opinion that intellectual property law was and continues to be a cash cow for the law firms who offer it.

"IP law was extremely hot last year," said Kleppinger.

Jay Rose said Woodcock Washburn continues to receive plenty of business in all areas of intellectual property law.

"We're generally seeing a lot of interest in the IP world," he said, adding that the firm is currently working on trying to grow its trademark and copyright practice and is in the "embryonic" stage of developing a standards law group. "We're committed to being a full-service IP firm, but only an IP firm."

Denney said it's the IP boutiques like Woodcock Washburn that can truly benefit the most because many midsized general practice firms with only an IP group do not have the manpower to compete with the bigger firms.

Mergers and acquisitions were also popular for a number of the firms that spoke to The Legal, as was real estate law until it fell on hard times toward the end of 2007 as a result of the nationwide subprime financial crisis.

Both Denney and Joel Rose agreed immigration law was also big for those midsized firms involved with it.

While 2007 was a fairly successful year for many of the state's midsized firms, the outlook for 2008 remains shaky as the specter of recession continues to loom larger and larger.

"[The question of what will happen in 2008] is one that keeps me awake at night," McKeegan said. "I think our firm is in good shape, but we'll see what happens. We may all be victims of forces beyond our control this year with the economy doing whatever it is it's doing, which is something you have to recognize and plan for. We're very cognizant of that. Assuming the entire nation doesn't sail into the rocks, we should be in fine shape."

McKeegan said this year Meyer Unkovic plans to start generating revenue a bit differently, shifting away from the "rainmaker model" of attracting new clientele in favor of becoming more "institutional."

The change, he said, is due to the fact that the firm now has over 60 attorneys.

"Firms with 60 attorneys run a little bit differently than firms with 20 or 30 attorneys," he said, also citing the need to compete with Western Pennsylvania's multitude of practicing attorneys as another factor. "There's only so much you can do as one person, but when you combine people's talents you get a lot more for it."

According to Reiter, Kaplin Stewart will be taking a "conservative approach" in 2008.

"Most people anticipate a recession; some people say we're already in one," he said, adding that the firm's rates and budget for 2008 will most likely remain the same as they were last year, with no major hiring plans in the works. "We don't expect significant growth. We're looking to hold our own, but not expecting much."

Gary P. Hunt, Tucker Arensberg's managing shareholder, said the firm is also planning to approach the coming year with a watchful eye, in hopes of being able to take advantage of whichever practice areas can thrive on a wounded economy.

"Financially, the outlook is mixed," he said. "Certain [practice areas] tend to do well when the economy is growing and certain ones do well when the economy is in recession."

As for what practices could receive a boost if the economy deflates in 2008, both Joel Rose and Denney are forecasting a substantial upswing in bankruptcy and foreclosure cases.

Hunt said he expects a recession could cause a spike in business for his firms' insolvency and creditors' rights group. The firm still plans to hire two or three associates this year and possibly acquire one or two more attorneys through lateral hires.

Kleppinger, whose firm will hire six new associates next fall, expressed a similar plan to stay alert and ahead of the curve if the economy does take a downturn.

"We're cognizant [of a potential recession] and we're planning accordingly," he said, optimistic that McNees Wallace's location in Harrisburg could offer at least a little stability during economic hard times. "Central Pennsylvania does not suffer quite as badly during recessions because of the consistency of state government activity and because of the types of manufacturing."

Woodcock Washburn's Rose said the firm would continue normal operations until recession becomes a tangible threat.

"Everyone's been talking about recession for the past two weeks," he said. "I can't tell you that in two weeks our business has changed. We don't know if there will be a recession and we certainly haven't seen any manifestations of that yet."

Henderson, whose firm receives a large portion of its business from the profusion of real estate development in Lancaster, said an ailing economy could hit Hartman Underhill particularly hard as the subprime crisis makes lenders increasingly cautious.

"We haven't seen it yet, but I think we will over the next year," he said.

BigLaw Firms Cash In on Subprime Feeding Frenzy

By Nathan Carlile
Legal Times
New York Lawyer
January 18, 2008

WASHINGTON -- A litigation army is massing at major law firms to fight the wave of investigations, class actions, and bankruptcies that are expected in the coming months — and years — in the wake of the subprime-mortgage mess.

Skadden, Arps, Slate, Meagher & Flom alone says it has roughly 100 lawyers across the firm working on subprime-mortgage fallout for clients such as Wells Fargo; O’Melveny & Myers has about 40 lawyers working for clients such as Option One Mortgage Corp. and Ocwen Federal Bank; and Kirkpatrick & Lockhart Preston Gates Ellis has roughly 50 lawyers delving into a bankruptcy investigation, led by partner Michael Missal, of subprime lender New Century Financial Corp.

Several Am Law 200 firms formed subprime-mortgage teams last year in hope of capturing some of the action. They include Greenberg Traurig, Mayer Brown, Perkins Coie, and Pillsbury Winthrop Shaw Pittman. Morrison & Foerster launched a hedge fund recovery practice to address bankruptcy, restructuring, and fund liquidation.

"This is going to continue at a pretty feverish pace," says Missal, who was lead counsel to the examiner in the WorldCom bankruptcy proceedings. He compares the subprime mess to the junk-bond meltdown of the late ’80s: "If history is any predictor, then it’s going to take two to three years of pretty intense activity to work out."

Naturally, the deluge of work is good news for many of the firms, particularly in light of a gloomy economic forecast — brought on, of course, by the subprime meltdown. But one hand gives while the other takes away: Firms that worked on mortgage-backed securities, which boomed along with the housing market, are already feeling the heat. Last week, for instance, Cadwalader, Wickersham & Taft laid off 35 associates to cope with the downturn in corporate work. And, earlier, McKee Nelson restructured or let go about 20 associates — primarily in its New York office.

But the legal fees generated for firms helping to clean up the mess could reach into the hundreds of millions, partners say. Billable hours in subprime litigation are likely to outstrip the massive numbers billed during the accounting scandals earlier in the decade. "People will blame banks, accounting firms, management, and the individual managers for their demise," says James Wareham, global litigation chair at Paul, Hastings, Janofsky & Walker in Washington. "The backdating and accounting fraud era is going to be an insubstantial blip compared to subprime."

Fee Bonanza

What separates subprime from the accounting scandals, including the collapse of WorldCom and Enron, is breadth. The accounting fights involved a few discreet companies and were largely concentrated in the United States. But subprime is an international crisis threatening banks that hawked mortgage-backed securities, rating agencies, insurers, and the lenders and Wall Street firms that backed the play. It has left litigation, securities, regulatory, bankruptcy, and acquisition partners flooded with work.

"My financial services practice started dealing with the real estate crisis of the late ’80s and early ’90s, and this is more significant in its overall ramifications," says Skadden partner Andrew Sandler, D.C.-based head of the firm’s financial services enforcement practice, which has about 25 lawyers working on subprime cases. "It touches the commercial world as significantly as that did, but this has an enormous overlay for consumers."

Last week the city of Cleveland sued 21 major banks and mortgage companies (including J.P. Morgan Chase, Lehman Brothers, Merrill Lynch and Morgan Stanley) in Cuyahoga County Common Pleas Court for roles they played in the subprime mortgage crisis; Sandler says Skadden represents a little less than half of the firms or lenders. And with Skadden defending more than 20 clients from class actions and state attorney general investigations, Sandler says he expects to add more than 10 lawyers to his practice over the next year. (Sandler declined to talk about specific clients.)

Last year, according to a report by Stanford University Law School, class actions jumped 43 percent, from 116 to 166. Some 100 companies were sued in the last half of the year alone, reversing a trend of eight consecutive quarters of decline in class actions. In the past few months in the Southern District of New York, subprime class actions were filed against ACA Capital Holdings Inc., Citigroup Inc., the Federal Home Loan Mortgage Corp., Merrill Lynch, and Washington Mutual Inc.

For Washington lawyers, regulatory work adds to the fee bonanza. The Federal Trade Commission, the Justice Department, the Department of Housing and Urban Development, and banking regulatory bodies are investigating everything from the way banks originate loans to whether they made deals with hedge funds to shield investors from losses.

And then, of course, there’s the Securities and Exchange Commission. The agency has lawyers from every division investigating subprime cases. Lenders alone are engulfed in more than a dozen subprime inquiries, including probes into two of the biggest players in the industry: New Century and Countrywide Financial; just Cleary Gottlieb Steen & Hamilton lawyers representing Bank of America worked on last week’s $4 billion purchase of Countrywide. Subprime hedge funds are also a target: In the Northeast alone, the SEC has more than 30 investigations into hedge funds for potential conflicts of interest and asset manipulation. That’s a huge jump from the previous five years’ national average of 20 SEC hedge fund investigations per year.

Securities and regulatory lawyers say government investigators are facing an extremely difficult task. They must mine through mountains of documents to prove not only incompetence but also fraud. To get through the maze, the SEC has thrown dozens of bodies at cases, with more than 25 lawyers looking into the securitization of subprime mortgages alone.

Law firms are doing the same. "There’s a lot of work representing clients in the early stages of investigations," says Jeremiah Buckley, partner at Buckley Kolar, a D.C. financial services boutique. Buckley, who also serves as general counsel of the Electronic Financial Services Council, says his lawyers are busy gathering documents for discovery while being careful not to "paralyze the business."

One of the biggest feeding frenzies for lawyers has been the collapse of New Century, the second-biggest U.S. subprime mortgage lender. After New Century announced early last year that it would restate earnings, the SEC and New York Stock Exchange pounced, opening investigations. Heller Ehrman partner Michael Shepard headed an internal company probe. Executives lawyered up with partners from Latham & Watkins and Skadden, among others.

And then the firm filed for bankruptcy protection in Delaware last April. The proceeding is being handled locally by Mark Collins, a partner with Wilmington, Del.-based Richard, Layton & Finger, while lead counsel is O’Melveny & Myers San Francisco partner Suzzanne Uhland, chairwoman of the firm’s restructuring group. The Recorder, an ALM affiliate, reported Friday that O’Melveny has earned $12 million from the bankruptcy. The Orange County, Calif.-based company was later smacked by Ohio Attorney General Marc Dann with a lawsuit alleging lending abuses; Skadden is defending New Century in the Ohio case. Dann and New York Attorney General Andrew Cuomo have been leaders in going after the companies responsible for a record amount of mortgage foreclosures. In New York, that includes probes into Washington Mutual and First American Corp.

In the end, it all simply adds up to more and more business for the lawyers. "We’d bet the number of lawyers we have working on subprime will double before June," says Paul, Hastings’ Wareham, whose firm has about 40 lawyers focused on litigation, bankruptcy, and restructuring; the firm is handling subprime for UBS, a global investment bank. "We can’t see this clearing from a litigation standpoint in less than 48 months. And we’re nowhere near full boil."

BigLaw Firm's Latest Cash Cow
 Is Bankrupt Subprime Lender

By Dan Levine
The Recorder
New York Lawyer
January 18, 2008

At O'Melveny & Myers, the white-collar lawyers representing bankrupt subprime lender New Century Financial Corp. had a busy -- and lucrative -- September.

Faced with subpoenas from both the Justice Department and the SEC, O'Melveny's government investigations team billed more than 4,000 hours that month, with former Los Angeles U.S. Attorney Alejandro Mayorkas working 145 hours, according to documents filed in the company's bankruptcy proceeding.

At $705 an hour (half for travel time), that translated into nearly $100,000 in fees for Mayorkas, O'Melveny's fee applications say. The entire white-collar group billed roughly $800,000 in September. Over the course of six months, O'Melveny's white-collar group has billed nearly $3.1 million for its New Century work, according to court documents.

With the subprime detonation still mushrooming over the country -- and white-collar practitioners expecting more government investigations -- these kinds of fees could be rolling into many firms soon.

Given the highly complex issues and intensive labor involved with a company in New Century's situation, O'Melveny's rates seem reasonable, said Randall Burrows, a former McKenna & Cuneo partner who is now a managing director at Navigant Consulting Inc.

"When you hear tales of New York partners charging over a thousand bucks an hour, they look like normal billing rates to me," said Burrows, an expert on litigation management.

"It kind of makes me want to go back to practicing law," he added with a laugh.

The New Century implosion has generated even bigger fees for O'Melveny on the restructuring side of the case. Overall, the firm has billed more than $12.5 million in the six months for which it has submitted fee applications.

While O'Melveny's billings may be normal, its restructuring team in the case has come under fire by a bankruptcy examiner and a judge. On Wednesday, Delaware bankruptcy judge Kevin Carey blasted O'Melveny's attempts to keep the examiner's findings under seal, calling the firm's attorney-client privilege arguments a "smokescreen."

"There are various disagreements between the company and the examiner, and the company respectfully declines to comment on them in the media," said Ronald Low, a New Century spokesman who works at Sard Verbinnen & Co.

But, he added, the examiner has never challenged the "substance of the legal advice given to the company."

A Longstanding Relationship

To put O'Melveny's fees in the New Century case in perspective, in 2006 the firm posted revenues of $869 million. A full year at the pace it is currently billing would amount to nearly 3 percent of the firm's gross. All fees in the case will be subject to court approval, though O'Melveny gets to bank 80 percent of them in the meantime.

O'Melveny was well-placed to catch New Century's restructuring work: It has served as the Irvine, Calif., company's outside corporate counsel since it went public in 2004. New Century's former general counsel, Stergios Theologides, once was an O'Melveny associate. He left the lender in August after nine years there, and did not respond to messages.

New Century announced last February that it would have to restate its earnings due to a problem with the amount of money it had set aside for repurchase of bad loans. That led to an internal investigation by Heller Ehrman, government subpoenas, and the continuing white-collar fees. The company sought Chapter 11 protection in April.

"The investigation by the examiner and the SEC certainly are substantial, but only one part of what the O'Melveny fees are for," said restructuring partner Ben Logan III, who points out that the firm has helped the company auction off a range of assets.

O'Melveny is not the only law firm to earn big white-collar dollars in the New Century bankruptcy.

Upon request of the U.S. trustee, bankruptcy judge Carey appointed K&L Gates white-collar partner Michael Missal, a former SEC staff lawyer, as bankruptcy examiner. Missal's task is to investigate the issues surrounding New Century's restatement and how New Century is managing its assets. He is billing $725 an hour, minus a "voluntary" 10 percent fee reduction.

The examiner retained more than 40 of his colleagues at K&L Gates for the job. That firm billed more than $1.6 million in August, not including Missal's fees. It has claimed a total of more than $8.5 million over five fee applications, which includes the 10 percent reduction.

Missal's investigation of New Century -- which had fought the appointment of an examiner -- soon grew contentious. A key issue appears to be the lender's legal advice, according to court documents.

At the end of August, Missal met with New Century's lawyers to discuss the strategy they used in negotiations with other banks. O'Melveny was the firm providing the legal advice in question, says a lawyer familiar with the case.

In response to "incorrect" perceptions on the part of Missal about New Century's legal strategy, the lender turned over what it calls in the court filing privileged information to the examiner, part of its attempt to change Missal's views.

But that attempt appears to have failed: Missal ultimately filed a report, under seal, which New Century "strongly disagrees with," according to the company's court filing. New Century's legal strategy is "inexorably intertwined" in all of the report's substantive portions, the company says in its filing.

New Century also filed a response to Missal's report under seal, which Missal then claimed in a follow-up filing contained "misleading and inaccurate statements."

Logan declined to comment on the issues with the examiner, but spokesman Low said it would be "absolutely incorrect" to say that Missal had concluded New Century got bad advice.

"To New Century's knowledge, the examiner has never challenged the propriety of the legal advice that the company received," Low said.

Missal's report could be gold for any plaintiffs lawyers attacking the company, and it appears they will soon get access to it. O'Melveny and its local counsel fought to keep the document under seal, arguing that the material given to Missal should not be disclosed.

But the U.S. trustee opposed O'Melveny's attempts, and on Wednesday, Carey indicated he would soon release the report. The judge said he was "singularly unimpressed" with O'Melveny's reply to Missal, and he derided the company for adopting a "bunker mentality."

Logan declined to respond to the judge's comments.

O'Melveny restructuring partners Logan and Suzzanne Uhland litigated the issue for New Century. Logan bills $790 an hour, while Uhland comes in at $725.

BigLaw Firm Rumored to Be
Eyeing NY Merger as Revenues Soar

By Gina Passarella
The Legal Intelligencer
New York Lawyer
January 10, 2008

Reed Smith increased its gross revenue in 2007 by 38.5 percent, due in large part to two mergers completed last year that gave the firm nearly an additional 400 attorneys.

And there is some talk that the firm is currently in merger discussions again, this time with a firm that has strong New York ties.

Reed Smith's revenue increased from $644 million in 2006 to $892 million in 2007.

That increase includes revenue from the firm's Jan. 1, 2007, merger with 250-lawyer Richards Butler London and the March 1, 2007, merger with 140-attorney Sachnoff & Weaver in Chicago.

The revenue per lawyer (RPL) grew by about the same rate as last year, 5.8 percent, from $652,000 to $690,000.

Reed Smith Chairman Gregory B. Jordan said the RPL is "the heart of driving the improvement" of a firm and he was happy that Reed Smith had such an increase in a year when it completed two large-scale mergers.

The firm's profits per equity partner (PPP) did not increase as much as last year's 17.5 percent jump, but the number did reach a milestone for the firm. Jordan said all of the firm's financial indicators came in above budget.

The PPP grew from about $940,000 in 2006 to $1 million in 2007, a 6.4 percent increase.

While Jordan said the $1 million mark is a milestone of sorts for the firm, he said if it was just trying to maximize profits, the firm wouldn't have done "so many mergers so quickly."

There are a lot of one-time costs, he said, that come with mergers, including travel time, technology, training and events. He said there aren't too many companies that have mergers and profit increases in the same year. Jordan said he expects the firm's profits to increase by double-digit percentage points in 2008.

Reed Smith's average compensation per partner increased by about 6.4 percent from $593,000 in 2006 to $631,000 in 2007.

Two of the firm's objectives for 2007 were to enter the Chinese market, which it did, and grow its New York office.

While Reed Smith is at about the same size in New York as it was in the beginning of 2007, Jordan said the firm added several lateral partners and is still aggressively recruiting in the market.

There have been rumors that the firm is in merger talks with New York-based Anderson Kill & Olick, which has a little more than 80 of its nearly 120 attorneys in New York. The firm's 18-attorney Philadelphia office is largely focused on insurance recovery work. Reed Smith has an insurance recovery practice with 39 attorneys - mainly from the Chicago and Pittsburgh offices - with at least part of their practice in that area, according to the firm's Web site.

Without confirming or denying the merger discussions, Jordan said the firm makes it a point not to comment about potential merger partners.

In response to a question about whether the firm was talking to Anderson Kill, New York office Managing Partner Robert A. Nicholas said in a statement last week "it's no secret that New York is a very important market for us and we have been open about both our desire and intention to grow in that market.

"Given our overall growth trajectory, we are always talking with people and firms that might help us grow our presence in the New York market."

According to the full-time equivalent (FTE) calculation used by The American Lawyer, Reed Smith had 1,293 attorneys in 2007. The attorneys who joined from Sachnoff & Weaver, for example, were only counted for 10 months of the year. The firm had a 31 percent increase in the total number of FTEs.

In total, the firm had a little fewer than 1,500 attorneys by Dec. 31 and currently has 1,596 attorneys after the Jan. 1, 2008, merger with Richards Butler Hong Kong.

Of the 1,293 attorneys, which is the metric used to determine the RPL, PPP and average compensation per lawyer, Reed Smith increased its equity partnership by 25.8 percent from 213 equity partners to 268. It increased the non-equity tier by 27.3 percent from 264 non-equity partners to 336.

Jordan said one of the things he was most pleased with was the new revenue brought to the firm by the two mergers that neither Reed Smith nor its merger partners otherwise would have had.

He said the Richards Butler London combination resulted in $40 million in additional revenue that neither Richards Butler nor Reed Smith would have had. The Sachnoff & Weaver merger added a little more than $20 million in new revenue.

The heart of Reed Smith's strategy remains the financial services and life sciences clients. He said the firm's relationships with its banking and pharmaceuticals clients expanded in 2007. The real estate finance and private equity practices were also very strong.

Jordan said the firm saw a pick up in its corporate restructuring and bankruptcy practices as well. The litigation group continued to do well, he said. Unlike other large firms, Jordan said Reed Smith is pretty balanced with the litigation group actually exceeding the business side of the practice in size.

Having one-third of the firm's attorneys outside of the United States is a help, Jordan said, when the U.S. economy is slowing. One example is Reed Smith's expansion into the United Arab Emirates with the addition of former Dubai World general counsel Sahia Ahmad.

Aside from the investment interest in the Middle East, Jordan said there is a lot of work related to the western investment coming out of the region and the firm hopes to see the same from its ties to China.

As Reed Smith grew over the last year, it saw the departure of some local partners who cited increasing rates as the reason for their move. Jordan said the firm has not systematically done away with any practices or clients. He said the work those attorneys do just might change as the firm looks to do higher-end work for high-end clients.

For the most part, 2008 will be a year of integration as Reed Smith brings in the Hong Kong attorneys and continues integration of its two mergers in 2007. Jordan said the firm would take time to build out its New York and Hong Kong offices.

Reed Smith currently has 330 attorneys in London but is moving into new office space in the spring of 2009 that could hold between 450 or 500 lawyers, Jordan said.

Cadwalader Lays Off 35 Lawyers

Anthony Lin
New York Law Journal
New York Lawyer
January 10, 2008

Cadwalader, Wickersham & Taft, a leading law firm in the area of mortgage-backed securities, announced today it was laying off 35 lawyers in the face of continued weakness in the area.

The firm also said it would redeploy staff and continue with efforts to diversify its practices.

"These actions affect some talented lawyers who have made significant contributions to the firm," Cadwalader said in a statement. "The firm's partners and Management Committee have put a great deal of effort into mitigating the impact of the business environment on the firm, making today's announcement even more difficult."

The firm expressed confidence in its long-term success and said the present actions would not affect client service.

The market for securities tied to residential mortgages has all but disappeared since late summer, when a wave of defaults among subprime mortgage borrowers shattered investor confidence. Most of the major Wall Street banks have reported massive losses in securitization and many have announced their intention to pull out of the sector altogether.

A number of law firms active in the area have already announced layoffs.

Clifford Chance terminated a six-lawyer group in November. Thacher Proffitt & Wood and McKee Nelson both have offered buyouts to large numbers of associates working in the area.

Thacher Proffitt Chairman Paul Tvetenstrand said yesterday that 24 of its associates had accepted buyouts and the firm would not be resorting to layoffs.

Cadwalader has been one of the largest players in the securitization market.

Indeed, its strength in the area has been the engine of the firm's meteoric rise up the profitability charts over the past decade. Once dismissed as a second-tier firm, Cadwalader ranked third in New York with profits per partner of $2.9 million in 2006, lower only than perennial leaders Wachtell, Lipton, Rosen & Katz and Cravath, Swaine & Moore.

In an interview with the Law Journal in 2007, Cadwalader Chairman Robert O. Link predicted continued success.

"Are we going to have difficulty sustaining this?" he asked at the time.

"No, short of some cataclysmic event that hits everyone else too."

Still Gaining Atmosphere
Elite Firms Continue to Boost Billing Rates,
and Clients Aren't Happy

By Leigh Jones
The National Law Journal
New York Lawyer
December 11, 2007

Attorney billing rates shot up in 2007, with approximately three-quarters of the law firms that participated in The National Law Journal's annual survey boosting the amounts they charged for partner and associate services.

At the same time, the average firmwide billing rates, which included partner and associate rates, climbed by 7.7%, while the firmwide median rates rose by 7.1%, compared to the firms that reported billing data in 2006.

Despite grousing by clients about ever-higher lawyers' fees, 75.2% of the firms providing billing information this year and last charged more this year than they did in 2006. The figure represents law firms that increased the high end of the billing range charged by their partners and associates.

This year's percentage of law firms increasing their high rates fell shy of last's year's percentage of 79.3%. But the 2007 uptick, in addition to first-year associate raises to $160,000 at elite firms, did not sit well with many clients.

"There's always been frustration. Now there's anger," said Susan Hackett, general counsel for the Association of Corporate Counsel.

This year, 119 law firms responded to questions about billing rates that were included in the NLJ's 2007 survey of the nation's 250 largest law firms. The survey questions were asked of approximately 300 law firms. Last year, 139 firms answered questions about their billing rates, including 109 firms that responded this year.

Among those firms reporting average and median rates both this year and last year, the average of the average firmwide billing rate increased to $348 per hour from $321 in 2006, and the average of the median firmwide billing rate this year was $347, compared to $324 in 2006.

Two law firms reported charging clients $1,000 an hour — but one later insisted that its initial report was in error and that its actual top rates were considerably lower.

At Greenberg Traurig, the range for partners first reported was between $300 and $1,000 an hour, with a partner billing average of $490 and a median of $500. In 2006, the billing rate for partners at Greenberg Traurig ranged from $270 to $850, with an average rate of $460 and a median of $475. When asked about its rates, however, a spokeswoman for the law firm said that it should have reported its highest billing rate in 2007 at $850.
The other law firm reporting a $1,000-an-hour rate was Wilmer Cutler Pickering Hale and Dorr, where the partner billing range ran from $475 to $1,000. A spokeswoman for the firm declined to identify any partner who charged the top rate.

Only one firm among those surveyed reported a decrease both in its partner and associate fees. At Sutherland Asbill & Brennan last year, partners billed as much as $845 an hour; this year, the high end of its partner billing range fell to $715. The Atlanta firm reported the high end of its associate range at $415, compared with $530 in 2006. Again, the firm attributed the anomaly to a reporting error. A spokeswoman said that the high end of the firm's partner range actually was $890, and that the high end for the associate range was $515.

The vast majority of the law firms that answered questions about their billing practices reported increasing their partner high rates, or at least leaving them the same as last year. A full 91.7% of the 109 firms that responded in both years raised their high partner rates, and among those firms, 7% left associate high rates the same as last year. In addition, 12% of the firms that boosted partner high rates reduced associate high rates at the same time.

The profession appeared to deepen its embrace of billing variations and alternatives. Of the 47 law firms that provided such data for this year and last, 34% increased the portion of their revenues earned through variations to their standard rates. The variations included discounts and blended rates that were relative to the firms' standard billable hour rates. Alternatives involved departures from billing by the hour, including fixed or flat fees, hybrid fees and contingency fees.

Some 31.9% of those firms reported the same portions of their revenues through variations and alternatives this year as they did in 2006, while 4.2% decreased the percentage of revenues they received through variations and alternatives.

Bruce Elvin, associate dean at Duke Law School, expects clients to increase their reliance on varied billing structures. Elvin, who teaches a course on the business and economics of law firm practice, added that smaller firms with lower overhead likely will benefit from the higher fees that big firms are charging. In addition, clients will handle more of their legal work themselves.

"As rates go up, clients assess more closely the distribution of work and who's doing it," Elvin said.

The law firm with the highest associate rate was McKee Nelson, which reported a rate on the high end of $595. Its associate range started at $375. The firm's average billing rate was $446; its mean was $455.

McKee Nelson reported fielding 224 attorneys this year, representing a 30.2% growth rate for the law firm since 2006. In 2007, it added 32 associates. But in light of the slowdown in private-equity and structured-finance work, the firm recently initiated voluntary, temporary "sabbaticals"for associates.

Those cutbacks and the reassignments of other lawyers have affected about 29 associates, said McKee Nelson partner William Nelson.

Nelson said that the attorneys performing credit-market work billed by the project, not by the hour. "Rates are not an issue for us," he said. "Our clients wouldn't hire us if they didn't think our rates for services were fair."

That logic may hold true for some rates, but not for all, said Hackett of the Association of Corporate Counsel.

"The problem isn't the $1,000-an-hour lawyer who's worth it," she said. "It's the $450-per-hour associates who aren't."

                    Small Client Accuses BigLaw Firm
                        of Neglect in Malpractice Suit

By Gina Passarella
The Legal Intelligencer
New York Lawyer
December 4, 2007

It is not uncommon to see international firms shed practice areas or attorneys that do not fit in with their economic models. But one client is arguing that maybe it is professional negligence for those firms to keep their smaller clients.

The high demands on partners in global law firms to increase profits, the client said, ultimately led to its claims of professional negligence against Reed Smith. The religious nonprofit alleged it was excessively charged for its legal representation in a routine employment discrimination case, according to the complaint in The Bair Foundation v. Reed Smith.

And the nonprofit's attorney said he thinks these large firms shouldn't represent the smaller organizations.

The Bair Foundation, described in the complaint as a Christian charitable foundation devoted to foster care for children, sued Reed Smith in Lawrence County Common Pleas Court in Pennsylvania after it was allegedly charged nearly $1 million in legal fees and costs in defense of the suit.

The Bair Foundation brings claims of breach of contract, breach of fiduciary duty, legal negligence, fraud and unjust enrichment. The foundation said in the complaint that it was originally told the case would cost them $50,000. That was then upped to $112,000 during the case. The final price tag in legal fees and costs for the litigation, which the foundation ultimately lost, was $960,409, according to the complaint.

"In implementing its ambitious strategy of capturing global clients, which Reed Smith boasts results in 'a constant increase in revenue per partner,' it has acknowledged that comparatively small regional or local law firms can or perhaps should service smaller clients," the complaint stated. "This is so because such firms typically charge much lower fees than 'white shoe' international law firms like Reed Smith and are therefore more affordable to these smaller clients. However, Reed Smith has inexplicably continued to represent certain much smaller clients which lack substantial financial resources, such as Bair, a not-for-profit charitable foundation."

The foundation's attorney, Bruce C. Fox of Obermayer Rebmann Maxwell & Hippel in Pittsburgh, said no explanation was ever given as to why the fees increased to nearly $1 million. He said his client was "badly taken advantage of."

Fox said he doesn't think large, international firms should represent clients like the Bair Foundation because of global law firms' economic models.

"Reed Smith has had an enduring relationship with the Bair Foundation during which it has always provided competent and effective legal counsel," the firm's counsel, William Pietragallo II of Pietragallo Bosick & Gordon in Pittsburgh, said in a statement. "The reality is that the foundation's insurance paid most of the legal fees in this case without question or complaint. Inevitably time allows the truth to surface. When it does, Reed Smith will prevail."

The complaint alleges that Reed Smith took advantage of Bair's lack of legal sophistication by engaging in "inappropriate billing practices." These allegations included overstaffing of the case, failure to describe billing entries by subject matter or activity, secretly raising the rates of the lawyers billing Bair and billing at rates that exceeded what was promised, according to the complaint.

The complaint also alleges that Reed Smith failed to advise Bair to notify its insurance carrier of the discrimination suit. The carrier originally rejected any claims by Bair because of the failure to notify, but ultimately agreed to pay a portion of the defense costs and indemnification.

According to the complaint, Reed Smith charged Bair an additional $26,660 to negotiate with the insurance carrier.

The complaint further alleges that Reed Smith failed to raise certain defenses that Fox said would be obvious to anyone who practices employment law. One example was the use of the Religious Organization Exemption as a defense, the complaint stated. Reed Smith neglected to bring that defense or to raise the point that one of the plaintiffs in the underlying suit had recently filed for bankruptcy, according to the complaint.

Reed Smith had done work for Bair in the past and had built a trusting relationship, the foundation said in the complaint, but then the firm took advantage of the trust.

"Circumstances were ideal for churning because there were two check writers splitting the cost of Reed Smith's legal fees," according to the complaint. "Because the cost of defense was shared between Bair and AIG, neither had especially strong incentives to carefully monitor Reed Smith's legal bills, to question or criticize Reed Smith's opaque and unspecific time entries, or to otherwise manage and control Reed Smith's overstaffing of the case and excessive billing."

The Bair Foundation is based in Lawrence County on the Pennsylvania-Ohio border and has a location in Ohio, where Reed Smith represented the organization in the discrimination suit.

The underlying suit was brought by two employees of the foundation in the U.S. District Court for the Northern District of Ohio. They claimed religious discrimination and Bair hired Reed Smith to defend the claims because the firm had represented the foundation in similar matters before, according to the complaint. Reed Smith has also represented Bair in small matters involving Bair's status as a charitable foundation.

Fox said he expects an answer to the complaint in January.

Firm Cuts Billables for First-Years

By Leigh Jones
The National Law Journal
New York Lawyer
October 9, 2007

Dallas-based Strasburger & Price is cutting billable requirements for first-year lawyers to allow more time for associate training.

Strasburger & Price, with 183 attorneys, is reducing its standard billable-hour expectations from 1,920 hours to 1,600 hours.

At the same time, it will require incoming associates to spend 550 hours shadowing senior attorney mentors, participating in training sessions and working on pro bono projects.

The adjustment is designed to enhance on-the-job training while relieving clients from some of the burden of paying for it.

New associates will continue earning at least $140,000 as long as they meet the revised billable-hour demands and the training requirements.

The law firm, which has five offices in Texas, one in Washington and one in Mexico City, hires about seven associates each year.

The law firm decided to make the change based on "ongoing dialogue" its leaders have with associates, said managing partner Dan Butcher. Associates expressed concern about fulfilling training requirements and providing pro bono work while also meeting the 1,920-hour requirement. "This is a more realistic goal," Butcher said.

The reduction potentially is "significant" in relieving billing pressure for first-year associates, said Richard Gary, former chairman of Thelen Reid & Priest and now principal of Gary Advisors, a law firm consultancy in Tiburon, Calif.

He added, however, that the training demands will keep associates busy.

"It's not as if they can leave the office in the afternoon to go play in the local softball league," he said.

The move also sends a message to budget-conscious clients that has marketing value for the firm, Gary said.

High Dissatisfaction

The new policy at Strasburger & Price comes at a time of high dissatisfaction among associates at the nation's big law firms. Earlier this year, a group of more than 100 law students from top schools across the country called on big firms to reduce billable-hour requirements and implement balanced-life programs, at reduced pay to associates, if necessary.

According to NALP, a nonprofit organization that tracks legal job placement, nearly 80 percent of associates leave large firms by the time they are in their fifth year of practice.

At least one firm has completely done away with billable-hour requirements for first-year associates. In August, Ford & Harrison, with 190 attorneys, announced that it no longer was requiring billable-hour minimums from its new attorneys.

What Legal Superstars Charge

By John Pacenti
The Daily Business Review
New York Lawyer
September 24, 2007

Last spring, Broward Circuit Judge Leroy H. Moe looked to penalize Motorola for violating one of his orders and tainting a trial.

The plaintiff attorneys who spent millions on the case — and who were facing a do-over because of the electronics giant’s misdeeds — wanted compensation.

During a four-day hearing to consider attorney fees, a string of expert witnesses took the stand to give their input on what they thought Stuart attorney Willie Gary and his team should be paid.

A key witness, long-time litigator and former state Sen. Walter "Skip" Campbell, compared Gary to New York Yankees star third baseman Alex Rodriguez. He said Gary should get $3,750 an hour for taking on the complex litigation brought by now-defunct Fort Lauderdale-based SPS Technologies, an innovator of a global positioning device.

Campbell who was an expert witness for Gary, argued that amount should be tripled because of the complexity of the case and the damage done by Motorola’s attorneys, who violated Moe’s order and allowed their witnesses to read trial transcripts of testimony by the plaintiff’s experts before testifying for the defense.

Gary and his team from Gary Williams Parenti Finney Lewis McManus Watson & Sperando were looking for $93 million in attorney fees. That would boil down to more than $11,000 an hour for Gary.

Moe was angry that the defendant violated his witness sequestration order, but he wasn’t that mad.

The judge ordered $20 million in fees, or about $1,000 an hour for Gary — the top fee collected by a South Florida lawyer in the Daily Business Review’s second annual lawyer billing survey.

In 2006, Eugene E. Stearns of Stearns Weaver Miller Weissler Alhadeff & Sitterson was the top earner in the survey at $700 an hour for his firm’s work on a 15-year-old case against ExxonMobil on behalf of gas station owners. Stearns led his legal team to a $1.1 billion federal court judgment against ExxonMobil.

The Daily Business Review’s survey is not comprehensive. The hourly rates were taken from legal filings mostly from U.S. Bankruptcy Court — where they are required — and other civil and probate cases. Some firms, such as Greenberg Traurig, reported their hourly range in fee applications. Many of the filings were found in the federal court on-line computer system. The Daily Business Review examined nearly 300 lawyers’ filings from August 2006 to earlier this month.

Last year, the survey found, most lawyers’ rates fell between the $250 and $500 mark. This year the range remains relatively the same with just a hint of inflation.

The gold standard

How much lawyers should get paid is often the subject of debate, but seldom does a parade of top lawyers have to testify before a veteran judge to help determine the fee. Just as rare is the South Florida lawyer who gets $1,000 per hour — the new gold standard for lawyers, according to the Wall Street Journal.

The nation’s business newspaper of record reported in August that some firms in New York, Washington and Los Angeles had exceeded the $1,000 per hour rate but that other high-profile firms feared such a sum would frighten away clients. One firm called the $1,000 fee "the vomit point" for clients.

For high-profile plaintiff lawyer Gary, walking away with millions in fees is not uncommon. He is accustomed to high-stakes, contingency legal battles with corporate giants. Among other victories, Gary has won a $50 million verdict against Anheuser-Busch on behalf of the Roger Maris family in a distribution dispute. Gary secured a $240 million judgment against Walt Disney Co. for two businessmen claiming the entertainment giant stole their idea for a sports complex.

Most lawyers who usually bill by the hour get nowhere near a Gary payday.

But Greenberg Traurig said it bills up to $650 an hour for partners in South Florida — the highest in the Review survey for a corporate firm.

The highest paid individual Greenberg partner located in court filings was Brian Gart, an attorney who focuses on bankruptcy. He charges $550 per hour.

Partners in South Florida typically charged from $600 to $330 an hour. Associates’ hourly rates ranged from $145 to $450, according to the Review’s survey.

Legal playmakers

In an interview, Campbell said his analogy that the top-notch lawyers need to be treated in terms of salary akin to superstar athletes is not hyperbole.

"If you look at society, many of these same lawyers become CEOs of major corporations, and their compensation as CEOs is significant," Campbell said. "And if you look at the major league athletes in baseball, basketball, football and try to figure out what they are earning, you would think someone who has professional credentials should be making similar amounts."

Gary said no one takes into account the money that law firms lose, especially on contingency cases, which he says are the only way clients of lesser means can gain access to the courthouse.

"Most of the time, we lose money in this business," Gary said. "You lose time, you lose money you never get back. You spend $200,000 preparing a case, and if you don’t win the case, you don’t get paid. You just lost that. It’s gone."

He said the growing cost to get experts to testify is the main factor boosting his litigation expenses. But other law firm leaders cited different factors driving up their costs — and in turn the fees they charge clients.

At corporate law firms, escalating associate compensation is one factor.

The highest paid individual associate in the Review’s survey was Jean Laws-Scott at $450 an hour. She is an associate with Gary’s firm who worked on the Motorola case.

Two Berger Singerman attorneys tied as the top billing associates at corporate firms. Ilyse M. Homer in the firm’s Miami office and Paul Avron at the Boca Raton office bill $350, according to the survey.

But Greenberg Traurig reported it has at least one "top-end associate" in South Florida who gets $505 an hour. Matthew Gorson, president of the firm, declined to name the associate.

Most fees for associates located in court filings fell between the mid- and high $200s.

Campbell said associates can be the driving force behind a law firm’s financial success. "The thinking is that if you are to have a successful practice that bills hourly, then you need a young whippersnapper out of law school who wants to bill 2,000 hours a year."

Gorson made no apologies for the six-figure starting salaries big firms pay associates. It’s necessary to pay well if you are going to compete to attract "the best and the brightest," he said.

"We need to have the best associates, and we have to be competitive in the market place," Gorson said.

Increased scrutiny

News reports about excessive attorney fees and a continuing political debate about purported frivolous and unneeded litigation, have caused increased scrutiny of legal bills from judges and clients.

"I think a lot of judges are just accepting it as a cost of doing business, but now and then you will see a judge get their back up," said Barry Davidson, partner at Hunton & Williams in Miami.

Harley S. Tropin of Kozyak Tropin & Throckmorton in Coral Gables said, "I would say that judges, because lawyer fees are in the news more, scrutinize filings more — as they should."

Tropin was among the most expensive partners in South Florida, billing $600 an hour. B. Carey Tolley of Hunton & Williams in Miami also was among the priciest partners, increasing his hourly wage from $520 in 2005 to $545.

Most of the partners who fell right at the $500 per hour range in the Review’s survey were on Gary’s team in the Motorola case.

As rates continue to rise, clients are increasingly pushing back.

Law firm leaders said more clients, especially corporate, are shopping around and looking for discounts or alternative billing arrangements — afraid the billable hour is a never-ending sinkhole.

Law firm leaders said they are confronted with increased litigation costs, the need to hire top associates out of law school, higher malpractice insurance premiums, rising rent and assorted technology costs.

"It’s just not paying for the time for the attorney working on the case. You have to support the infrastructure," Davidson said.

Still, South Florida firms have posted record revenue and profit. Despite the cooling economy, the biggest firms posted double-digit growth in revenues in 2006, according to the annual Review 15 survey.

Bilzin Sumberg Baena Price & Axelrod in Miami, for example, reported $66.1 million in gross revenue — a 23 percent increase over 2005. Greenberg Traurig climbed 13 percent to $199.6 million in 2006.

Brenda Pagliaro Emery, the general counsel for Tamarac-based City Furniture, said the company is very happy with its outside legal work but rising costs do concern her.

"Hourly rates continue to increase, which is a problem," Emery said. "Litigation is already a drain on corporations across the board, and I’ve seen increases in probably the last 24 months for hourly rates."

Emery has grown increasingly frustrated by what she sees on bills to her company from outside counsel. She cited one invoice in which a law firm billed City Furniture for 12 hours of research on a simple matter, for the cost of a research service, $1 for a fax and $1 for a phone call.

She declined to name the firm.

As a result, Emery is working on billing guidelines for outside law firms that will state emphatically what City Furniture will pay for and what it will not. It plans to impose a cap on hours for research, for example.

Emery said she has also cut costs by bringing more legal work in-house, taking on the company’s worker compensation cases in January 2005. She said the company hasn’t asked for a discount rate but is clearly thinking in that direction.

"Unfortunately, they don’t really have different hourly rates for local business versus national ones," she said. "I think we end up paying the national rate. I think it should be a little more competitive rate."

But the big local firms insist they are still among the best deals in the country, particularly when compared to lawyers in top-tier markets such as Chicago and New York.

Greenberg Traurig’s Gorson said clients still know that reputation and quality count and are willing to pay for both if they get results.

"Liken it to the surgeon. If you need a surgeon, you are not going to worry that he costs $5,000 an hour for surgery, you want to have the best surgeon in the world," Gorson said. "If you have a major transaction involving a lot of money, and there is little more room for costs, you might be looking for the best lawyer and best firm to handle your transaction."

Gorson said attorney hours pretty much stay the same. The only way they can increase their income or cover costs is to raise their hourly rate.

Driving up costs

Some critics contend law firm hourly fees are unfairly high and that plaintiff attorneys bog down the court system with cases designed to generate fees, not outcomes. Campbell, a plaintiff attorney, believes, however, that obstructionist defense tactics are the main cause of rising litigation costs for companies.

"It’s called Nit-Pick and Delay — that famous law firm," he quipped. "Judges have to have the desire to stop the obstructionism. Sometimes they take it for granted it’s going to happen."

Campbell said when he complained recently in court about opposing counsel not turning over a document, a judge told him: "You know it’s going to happen, so why are you bitching about it?"

Discovery battles appear to be the driving force behind rising costs as corporate giants try to drain plaintiff resources by delaying the case as long as possible, he said.

Bryan Quigley, the spokesman for the Institute for Legal Reform in Washington, says it’s quite the contrary: Large companies and corporations are often the victim of predatory legal practices by lawyers looking for deep pockets. He said the high cost of litigation forces companies to settle.

"The defendant might have a very strong and even overwhelming case, but the costs and risks can be so high, they are forced into settlement whether they like or not," Quigley said. "We call that legal extortion."

He said a lot of criticism recently has been directed toward class action cases. In these cases, members of the class end up receiving coupons for some menial service, but the lawyers reap millions of dollars in fees, Quigley said.

"They take their fees off the top. Lawyers are not going to take coupons," Quigley said.

Creative billing

One thing both plaintiff and defense lawyers agree on is that litigation is expensive. And corporate clients are increasingly looking for ways to cut costs.

"Clients are looking for alternative billing procedures. It’s just something they want a lot of," said Peter Prieto, executive partner of Holland & Knight’s office in Miami. "They feel lawyers billing by the hour is inefficient and a disincentive for lawyers to be efficient."

Prieto predicts law firms will have to devise more creative billing structures in the future. Clients are increasingly asking for fixed fees and risk-sharing arrangements.

Prieto said larger firms don’t like to fix their fees because usually it’s hard to predict how much work an engagement will require until it is under way. When it comes to litigation, it is next to impossible.

"You never know what the other side will do," Prieto said.

Also, he said, for the most part large firms don’t get involved in cookie-cutter type cases in which a fee could be set for a particular service. Fixed fees "are very rare, especially in high-end litigation," he said.

Discounts are another story.

Prieto said clients who bring lots of work to a firm expect a cut rate. There is push-pull between clients and attorneys as they work to balance fees and expectations.

"We need to work with our clients," he said.

Gorson of Greenberg Traurig said larger clients also ask for alternative billing arrangements when they have high volume. "Alternative billing doesn’t accomplish a great reduction in price. It gives greater assurance to the client to what they can expect," he said.

When it comes to flat fees, he said the work has to be quantitative and similar: 1,000 eviction proceedings or 500 foreclosures.

Harvey Gurland, the administrative partner with the Miami office of Philadelphia-based Duane Morris, said law firms need to be flexible with their billing.

"There are times we start with an hourly basis and then something changes in six months and clients might need to go on a blended-rate basis," he said. "You need to work with clients to make the right fit."

Prieto says clients are also asking for other intangibles these days, such as ethnically diverse legal teams.

"They do it for altruistic reasons, but they also do it because they believe in tried cases a lot of juries are diverse and they want their lawyers to be reflective of that," he said.

Clients also demand that the firms they work with keep pace with technology. They want to know if they can interface with your computer and inspect documents. They want you to have best technology available for their case.

Savvier clients

Rates are usually set by partners and firm executives. Marketing departments at firms sometimes do focus group studies with clients without lawyers present to get feedback on fees, as well as other issues.

Michael Short, vice president of Hildebrandt International, a legal consulting firm based in New Jersey, said clients are becoming more sophisticated in evaluating who does their legal work.

Short said from his Washington office that billable hours make general counsel and other in-house lawyers cringe. "It’s like a runaway train that’s not going anywhere," Short said.

As a result, clients have become savvier as to who does their outside legal work and are paying increasingly more attention to controlling their legal costs. They are more sophisticated at looking at their portfolio of cases, Short said, and may go with several firms rather than just one.

Still, Short said there appears to be a stalemate. While corporate clients rally around cost control, the legal world wonders where risk meets reward.

"You hear from general counsels: ‘We want more predictability. We want to know how it’s going to turn out.’ And the experienced litigator says, ‘How are we going to know how it is going to turn out? Is it going to be settlement or summary judgment? How can we encapsulate all the potential outcomes into some kind of win-win arrangement?’"

The questions won’t be answered any time soon.

Portion Control: NY Judge Rejects Fee
Totaling Two-Thirds of Settlement

By Joel Stashenko
New York Law Journal
New York Lawyer
September 14, 2007

ALBANY - A federal judge has denied an attorney's attempt to bill a client for legal fees totaling nearly two-thirds of the amount of a settlement the client reached with a municipality over an aborted drug-dealing case.

Northern District Judge David N. Hurd ruled in

, 04-cv-1012, that anything above a 33 1/3 percent payment to attorney Kevin A. Luibrand and his Albany firm, Tobin & Dempf, would be "excessive and unreasonable." The judge reduced attorney's fees to $29,000 from the $63,000 sought from the plaintiffs, Thomas M. Damiano and Rita Damiano.

Mr. Luibrand immediately filed a notice of appeal challenging Judge Hurd's determination from Utica to the U.S. Court of Appeals for the Second Circuit.

Mr. Luibrand said in an interview that he had a "written and signed" retainer with Mr. Damiano that dated to 2002, when he began to defend the Amsterdam, N.Y., man against allegations that Mr. Damiano was involved in what police described as one of the largest cocaine rings ever uncovered in upstate Montgomery County. As far as Mr. Luibrand was concerned, that agreement continued as the protracted criminal investigation and prosecution of Mr. Damiano was dropped in 2004 and Mr. Luibrand launched an action against Amsterdam and several individual police officers for violating Mr. Damiano's civil rights.

Mr. Luibrand said he has "never seen" a situation where a judge has imposed legal fees based on the one-third contingency standard when an attorney was working on a retainer agreement.

The unusual case began in late June 2002, when Mr. Damiano, a mason, was asked by Alex Zayas to offer a bid for work Mr. Zayas wanted performed at his house. Mr. Damiano inspected the work site and left a message on Mr. Zayas' home phone that night.

A few days later, police arrested Mr. Zayas and several others for operating a cocaine distribution and sales ring. Mr. Damiano was not among the suspects, but police subsequently found his message on Mr. Zayas' phone and began to investigate whether Mr. Damiano was also involved in the drug ring.

At one point before he was charged, Mr. Damiano was brought to Amsterdam police headquarters under the pretext of being a "friend" and doing a "favor" for officers whom he knew. When he discovered that he was being questioned as a criminal suspect, Mr. Damiano asked to leave but was told he could not, according to Mr. Damiano's brief in his civil case.
Mr. Damiano was eventually charged with second-degree conspiracy and drug possession. Mr. Luibrand said the charges were reduced three times against Mr. Damiano, but that his client refused to plead guilty on each instance. In February 2004, Justice Joseph M. Sise of Montgomery County Supreme Court gave the county's district attorney, James E. Conboy, 90 days to bring Mr. Damiano's case before a grand jury.

After further delays, the drug charge against Mr. Damiano was dismissed on June 29, 2004.

Civil Rights Claims

The subsequent civil rights violation case filed on behalf of Mr. Damiano and his wife Rita alleged that his constitutional rights were violated by his arrest and the protracted investigation of his case. The suit named the city of Amsterdam and several individual officers as defendants.

Mr. Damiano, the father of young twin girls, contended that he suffered "shame, embarrassment, humiliation, distress, damage to his reputation, loss of consortium" and loss of income for being branded as one of Mr. Zayas' accomplices, according to his brief.

Mr. Damiano said he was forced to stop coaching his girls' soccer team and that his wife could not go to the local market out of shame of having her husband implicated in the drug ring.

Mr. Luibrand said he did not name the Montgomery County District Attorney's Office in the civil rights action because prosecutors have "almost absolute immunity" against such claims.

On Sept. 5, 2007, five days before a trial was to have begun in Utica, the parties agreed before Judge Hurd to a $100,000 settlement.

The judge agreed that $10,000 of the amount should be paid to Mr. Luibrand and Tobin & Dempf for defending Mr. Damiano against the criminal charges, plus $3,000 in expenses.

Mr. Luibrand then asked Judge Hurd to review Mr. Luibrand's records for hours and rates totaling $63,000 for pursuing the civil rights claim against Amsterdam. Judge Hurd said that bill would consume 72 percent of the $87,000 remaining to Mr. Damiano and his wife from the settlement, leaving them with "only" $24,000.

"There is no need to review the plaintiffs' attorney's hourly and rate records," the judge wrote in a ruling dated Sept. 7. "With a settlement disbursement of $87,000, any award above 1/3 or 33 1/3 percent would be excessive and unreasonable. In fact, if plaintiffs' attorney's reasonable hours multiplied by the Northern District's reasonable rate turned out to be less than $29,000, the attorney's award of $29,000 would be unreasonable."

Mr. Luibrand said that in the interview that his hourly billings in the case were consistent with the rates recognized in the Northern District of $210 an hour for partners' time and $150 for associates.

                     The Billable Hour: Demanding,
                         Disparaged and Now Dead 
                at Least at One Atlanta-based Law Firm

By Leigh Jones
New York Lawyer
The National Law Journal
August 20, 2007

Ford & Harrison, a 190-attorney labor and employment firm, has tossed out billable hour requirements for first-year associates. The program aims to close the practical-skills gap of law school education and increase value to clients. The firm also hopes it will enable associates to handle meatier matters more quickly.

Overall, Ford & Harrison's leaders expect the new program to help retain beginning lawyers and appease clients.

"Everyone sits around and complains about the problems," said C. Lash Harrison, managing partner of the law firm. "I figured, what the heck, maybe we can try something."

The idea is for associates to spend their time observing depositions and witness interviews and attending hearings and litigation strategy meetings. While the firm has no specific expectations of associates meeting the 1,900 billable hours it previously required from new attorneys, it does expect that some of the work they undertake during their first 15 or so months will be valuable enough to bill.

Laurie Hartman, assistant dean for the Office of Career Services at Emory University School of Law, said that she was not aware of any other sizable law firms that had completely done away with billables for new associates.

"It's a great idea," she said, adding that the program would help students to differentiate Ford & Harrison from other law firms.

Forward thinking

Ford & Harrison, which has 18 locations, pays first-year attorneys $125,000 in its larger offices. Although the Year One program could entice top students who otherwise would take jobs at elite firms that pay the going first-year rate of $160,000, the high cost of legal education is still a huge factor in their selection, Hartman said.

The decision to make the change required some forward thinking, Harrison said. His biggest concern was presenting partners with an idea that initially would bring in less money.

"The key is trying to do something that appears to have a chance of working without breaking the bank," he said, adding that it will take a few years to see the full benefits of Year One.

Most partners liked the concept, he said, and saw it as a way to eliminate all the hand-wringing — and time — involved in determining which hours worked by associates are valuable enough to bill. Partners also saw the long-term payoff of training new lawyers to become profitable sooner in their careers, he said.

But whether Ford & Harrison's program can transfer to larger law firms is unclear.

"It's an interesting approach, and perhaps we'll all learn something from it," said Frank Burch, joint chief executive officer of 3,333-attorney DLA Piper. "That said, smaller firms can do things informally that larger firms approach more systematically."

Harrison said he has kicked around the idea of eliminating first-year hires altogether and instead meeting business demands with lateral hiring. But that approach creates a "two-pronged problem," he said.

"You have to undo all the bad habits they've learned and you have to train them in good habits. It's better off to go ahead and make the investment on the front end," he said.

Ford & Harrison typically hires 12 to 15 associates each year, said Meg Holman, an attorney and the firm's director of professional development. This fall, however, it needs only six associates, which will make the implementation of the program easier, she said.

The medical school approach, in which students gain practical skills experience from working as interns and residents, served as the model for the firm's program.

Stressed Out Associate's Death Ruled an Accident

New York Lawyer
May 15, 2007

An associate at the London headquarters of Freshfields Bruckhaus Deringer who fell to his death at the city's famed Tate Modern gallery was suffering from cannabis-induced depression, the Evening Standard reports.

That conclusion was reached in a coroner's finding that the death of George Matthew Courtney, 27, after falling from his perch on a bannister while using his Blackberry PDA, was accidental.

But the associate lifestyle may have played a part, as Courtney was one of several associates who had reportedly approached firm management about the stress of grinding out 14 hour days to hit billable targets in the weeks before his death in February and had also discussed the problems he was having with his long hours and sleeplessness with his psychologist.

Big Bad Bills: Padding Hours
 and Double Billing Clients On the Rise

By Lisa Brennan
New Jersey Law Journal
New York Lawyer
May 10, 2007

More lawyers than a decade ago are padding their bills with unnecessary hours or billing two clients for the same chunk of time, a law professor's survey finds.

"The attorneys who responded to the recent survey seemed, on the whole, to be less ethical in their billing practices than those [that] responded to the earlier surveys," says William George Ross.

Ross, of Cumberland School of Law in Birmingham, Ala., did the survey to update his book, The Honest Hour: The Ethics of Time-Based Billing by Attorneys, published in 1996. He randomly polled 5,000 associates and partners at firms of various sizes across the country.

Of the 251 respondents, 54.6 percent said they sometimes pad their billable hours by performing unnecessary work, up from 40.3 percent of respondents to his nearly identical survey 11 years ago.

Two-thirds of the respondents had specific knowledge of bill padding by themselves or other attorneys, the same percentage as in the earlier study.

Ross also found an increase in the percentage of attorneys who bill two clients at the same time: 34.7 percent, compared with 23 percent in 1996.

Typical examples are doing work for one client while waiting in court for another client's case to be heard or working on one client's file while en route on an airplane to see another client.

Conversely, the number of lawyers who believe double billing is unethical fell, from 64.7 percent in 1996 to only 51.8 percent in 2007, Ross found. Those who found double billing to be an acceptable practice, however, said it was essential to inform the client of the practice upfront.

"This is not a problem unique to any state in particular, it's a national problem," says Ross, who teaches professional responsibility among other courses. The survey appears on his Web site, www.williamgeorgeross.com.

Howard Erichson, a professor who teaches ethics and professional responsibility at Seton Hall University School of Law, attributes the increase in bill padding to pressures on lawyers to generate billable hours.

Erichson says law students should be made aware early about the billing pressures they will face in their practices. "I make my students aware of the ethical pressures that billable hour expectations create for lawyers," says Erichson. "I want them to be able to face ethical pressures with their eyes open. It's all too easy for lawyers to engage in rationalizations. If you want them to charge their time honestly, you have to teach it early."

Metuchen solo David Rubin, who represents lawyers in ethics matters, adds: "There are tens of thousands of lawyers in New Jersey, and some of them feel pressure to bill lots of hours, so it's not surprising that the problem exists here."

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