How much is TOO much? Attorneys fees are out of control

From the August 22, 2007 Wall Street Journal:

"The hourly rates of the country’s top lawyers are increasingly coming with something new — a comma"

Quietly and without much fanfare, leading law firms have been steadily increasing their hour billing rates and the WSJ’s timely article broke the silence, creating an online avalanche of outrage and disbelief via blogs and editorials from diverse sources.  Everyone seems to be asking: "How on earth can attorneys possibly justify $1000+/hour billing rates??"

Well, Microsoft may have perhaps put it most succinctly:

“This is grossly excessive by any measure, and truly proves the maxim that human greed has no bounds…"

That comment, triggered by $4702.50/hour billing rates from plaintiffs’ counsel in a Wisconsin antitrust class action suit against Microsoft, was included in court pleadings after Microsoft — which admitted no wrongdoing — decided to settle the case via the payment of plaintiff counsel fees.  Lead plaintiffs’ counsel Richard Hagstrom was apparently perplexed by the defendant’s comment and is quoted as saying that he "can’t figure out what they are talking about".  He patiently explained to the newspaper that  in contingent fee cases like the one in Wisconsin, plaintiffs lawyers deserve a premium. Okaaaaay…

What Mr. Hagstrom describes as an entitlement befitting the heroic defenders of the hapless general public sounds a lot more like greed to the rest of us…even those of us not known for our low hourly fees.  Look at it this way: broken down into a 40 hour work week, that hourly fee adds up to $188,100 per week.

That’s some premium.  But it’s downright reasonable compared to what high flying Willie Gary, the flashy Florida plaintiff’s attorney, bills per hour: $11,000.  Quoted last April in the WSJ online, Gary had this to say about a settlement agreement wherein he asked for hourly compensation in that amount:  “Look, had we won the case, we would have gotten $4 billion in fees.”  The poor guy was getting stiffed!

As egregious as these rationales sound to the rest of us, they are but the tip of an iceberg of legal billing practices and philosophies that corporate America and its shareholders are increasingly unable to choke down.  The reason: a fundamentally ineffecient business model which the U.S. bar continues to perpetuate despite global economic realities and pressure from its corporate client base. 

As early as the mid-90s, other service sectors — most notably the accounting sector — realized that without intelligent evolution responsive to client needs, they would become dinosaurs.  In contrast, our increasingly litigious society has deified those who milk the system’s inefficiencies.  The bar members most recognized in our communities can be gauged not by their published articles or A/V ratings but by their advertising budgets.   And let’s be honest: behind the barrage of advertising that the plaintiff’s bar has deluged upon the U.S. for the past few decades is a population which, more often than not, views any minor fender bender as a potential lottery winning ticket.  By no means is the greed we witness limited to those of us with law degrees.

One sector of the population which can and is doing something about this is corporate America, which has had enough of the nonsense, and general counsels are leading the way.  Thomas Sager, assistant general counsel of DuPont Co., told the WSJ in that same article that he recently balked when a New York lawyer cited $1,000 as his hourly rate. Instead, Mr. Sager says, he agreed to pay the attorney a flat monthly fee. "One-thousand dollars may be someone’s choke point, but mine is actually a lot lower," he says.   Others like legal maverick James Buda, vice president and general counsel for Caterpillar, have decided that enough is enough and created competetive bidding processes and other mechanisms to keep outside counsel fees under control.  Mssrs. Sager and Buda are representative of a growing number of inside counsel who realize that while law is far from a commodity, neither is it some sort of mystical force immune from the rules of the market economy.

Recently we presented an immigration services proposal to a significant international client.  The client, which is growing very rapidly, has about a dozen folks in its internal immigration team, operating in an offshore jurisdiction favored for high workforce ability and low cost.  The team could not keep up with volume and outside counsel was relied upon more and more for immigration solutioning.  Given that the outside firm was billing the client about 300% the going per-visa rate for large-volume clients, we were fishing in a barrel.  But imagine our surprise when, after crunching the numbers, we realized that our per-visa delivery cost was lower than their in-house offshore per-visa cost…even though we were doing 100% of the work inside the U.S.!  Wherever it is being deployed, the efficient delivery of legal services is what corporations and their shareholders demand, and intelligent process workflow is what leads to cost control.

Law is anything but a commodity and skilled legal practitioners are entitled to the economic benefits associated with expertise.  But we are also ethically bound to our clients, and protecting their financial interests is an inherent part of that.  In these Dylan-esque changing times, law firms will increasingly fall into two camps: those who respond to their clients needs and those with nostalgic memories of "how great things used to be…"

Tags: Managing Outside Counsel Fees