Death of the Hourly Fee as the “Lodestar” of Reasonable Billing.
I recall an anecdote about Clark Clifford in a book written in the 1970’s, apocryphal perhaps, but telling nonetheless about that bygone time. Among his many accomplishments Clifford was White House Counsel to President Truman, an advisor to Presidents Kennedy and Johnson, and Secretary of Defense under Johnson. In this period he was considered by many the most powerful lawyer in America. In the anecdote a major corporate client was very concerned about proposed tax legislation that might negatively impact his business, and wrote to Clifford asking what he should do. Clifford wrote him, “Do nothing,” and included a bill for $5,000. The client was enraged and wrote back to Clifford, saying that for $5,000 he deserved more of an explanation than that. Clifford wrote him again and replied, “Because I said so”, and included another bill for $5,000.
That story, and the zeitgeist it represented for our profession in the 1970’s, is as irrelevant to our future now as the buggy whip in the age of the automobile. Hourly fees as the “lodestar” of reasonable billing are being assigned to the scrap heap of history, not by lawyers naturally, who benefit disproportionately from this inefficient work and pricing model; but by the consumers of our services who will no longer tolerate legal work and fees divorced from the true productive value of achieving their desired results. It is being replaced with client demands for alternative fee arrangements (e.g., fixed fees; capped fees; contingent fees based on specific results) where the client has some assurance that the sky is not the limit. “Regardless of billing structure, one certainty is the movement of risk toward lawyers.” R. Zahorsky, supra at 1.
Small Crafts Advisories
“One morning Jem and I found a load of stovewood in the back yard… ‘Why does he pay you like that?’ I asked. Because that’s the only way he can pay me. He has no money. ‘Are we poor Atticus?’ Atticus nodded. ‘We are indeed’.”
Harper Lee, To Kill a Mockingbird (Harper Perennial Modern Classics 2002) at 23.
The hyperbaric pressures of the current economic recession, combined with greater scrutiny by clients themselves concerning productivity and cost-effectiveness of legal services, will continue to exert downward pressure on legal fees and costs that can be passed on to the clients across all practices, large and small. However, these trends will impact solo and small practices most heavily because of the diseconomies of scale in smaller practices, which preclude cutting into the marrow of essential overhead expenses while still being able to function; and the greater competing demands for a solo or small firm lawyer’s daily time (e.g., office administration, rainmaking, etc.) in managing a legal practice with few hands on deck. But large firms will no longer be immune from these economic realities either, as evidenced by the massive layoffs taking place and cut backs in hiring. See David Segal, Is Law School a Losing Game? (NY Times January 8, 2011) (“If you are a law student hoping to land a job at a large law firm, good luck to you. About 53% of firms reduced or discontinued hiring first years in 2009 and 38% plan to do so in 2010…. This will exacerbate the problem of new graduates being able to find positions in law firms.” …”Overall the need for inexperienced assoicates has decreased and may never rebound.” David Lat, Law Firm Survey Confirms All the Depressing Stuff You Alread Knew About the Business of Biglaw (June 25, 2010) at 1; R. Zahorsky at 1 (“You just don’t need the bodies and man hours to get answers anymore”… E-Discovery tools have eliminated he need to have junior associates review boxes of documents, which is why you are seeing thousands of junior associates being laid off.”); Lisa Van Der Pool, Job Market for lawyers in 2011 is favorable but don’t expect a hiring ‘frenzy’ (Boston Business Journal, January 10, 2011). The exclusion and exodus from large firms will force ever greater numbers, out of necessity, into small firm practice, swelling still the ranks of solos and small firms, and creating greater competition for an ever-shrinking piece of the professional pie.
Stephen M. Winnick, Esq. is the founder and senior partner of Winnick & Sullivan LLP (www.winnlaw.com); and the developer of Summary Judgment™(www.summjudg.com), a comprehensive case and practice management software tool built on Eastgate Systems’s Tinderbox data platform (www.eastgate.com/Tinderbox). Additional information about Summary Judgment’s features and operation is available in his prior blog series entitledWinvictus’s Summary Judgment – the Romero Case(www.winvictus.wordpress.com).
Copyright © 2011 Stephen M. Winnick, Esq. All rights reserved.