CALIFORNIA ATTORNEY'S FEES

In The News . . . . 2014 Altman Weil Flash Survey Of “Law Firms In Transition” Has Some Interesting Trends In Law Firm Management/Client Pricing

 

Discounts Are Prevalent and Nonhourly Arrangements Becoming More Common (But Maybe Not So Profitable).

     Legal consultants Altman Weil have come out with their “2014 Law Firms in Transition Survey” based on receiving survey responses from 304 U.S. law firms, including 42% of the nation’s 350 largest firms (a 38% response rate out of 803 firms which were polled).

     Here are the key “takeaways” from this survey:

     1. Overall billing rates rose 4%, but firm leaders reported that, on average, their firms provided discounts on 21-30% of all hourly rates.

     2. Nearly half of all firms with 250 or more lawyers reported changing their strategic approach to pricing, while only 22% of firms with 50 to 249 lawyers were doing so. In the area of efficient legal service delivery, 54% of the large firm group was pursuing change, compared to 34% of the smaller firms. On lawyer staffing strategy, 59% of larger firms reported making significant changes as opposed to 41% of the smaller firms.

     3. 92% of the responding firms was using non-hourly billing arrangements, with half reporting an increase in fees generated from these arrangements as a percentage of total revenue for 2013. However, only 16% of the firms using these alternative arrangements have been able to make them more profitable than hourly billings.

In the News . . . . 2013 Attorney Hourly rates Are On The Rise, But Clients Are Getting Discounts And Billing/Collection Differential Has Increased

 

     Co-contributors Marc and Mike thank Mike’s father-in-law Tom Basehart for sharing an interesting April 10, 2013 article from The Wall Street Journal (authored by Jennifer Smith) which provides some insights into rising attorney billing rates and client reactions to such a trend.

     Here are the highlights from this article:

     *”Star” partners billing out at $1,150-plus an hour have doubled between the first quarter 2012 to first quarter 2013 according to consulting firm Valeo Partners (320 lawyers versus 158 a year earlier);

     *The “gilded circle” billing at the rates described above includes tax, intellectual property, and M&A deal attorneys;

     *Corporate clients almost always negotiate attorney rates down from “rack rates”, averaging discounts anywhere from 10-30% off of standard rates;

     *The gap between law firms’ “sticker prices” (published rates/billed amounts) and collection rates (what is actually collected) has risen dramatically. According to data collected by Thomson Reuters Peer Monitor, big firms raised their average standard rate by about 9.3% over the past three years, but only increased collections by 6% over the same time frame. Firms that used to collect on average about 92 cents for every dollar of standard time their lawyers worked in 2007, before the economic downturn, now are getting less than 85 cents, a “historic low” according to a Georgetown Law Center for the Study of the Legal Profession senior fellow; and

     *In the first quarter 2013, the 50 top-grossing U.S. law firms boosted their partner rates by as much as 5.7%, billing an average between $879-882 per hour, according to Valeo Partners, increases continuing an upward trend in attorney hourly rates from 2012--when legal fees in general rose 4.8% and associate billing rates rose by 7.4% according to a TyMetrix Legal Analytics/CEB report surveying data from more than 17,000 law firms.

In The News . . . . Brutal Market For Law School Grads, Law Schools Hit The Brakes, And Pricey Hourly Rates For Top Attorneys

 

     Well, we are approaching the end of the year, and that means some snippets from newspaper articles saved by co-contributor Mike’s father-in-law Tom Basehart. Here you go.

Brutal Law Grad Market.

     A Wall Street Journal analysis earlier this year found that members of the 2011 law school class had little better than a 50-50 shot (actually, only about 55%) of landing a full-time, long-term job as a lawyer within nine months of receiving their degress. (“Long-term” was defined as those don’t have a term of less than one year.) And, even for those who did, earned as little as $25 to $30 per hour in grunt-work jobs. Also nationally, 8% of 2011 graduates were said to be in full-time, long-term jobs for which a law degree was preferred but not required, and another 4% were employed in full-time, long-term positions for which professional training was required but for which a law degree offered no advantage. (In comparison, about 78% of 2011 graduates of MBA programs landed jobs within three months of receiving their degrees, according to U.S. News & World Report.) The 2011 data showed that top-ranked schools sent graduates into long-term legal jobs in high numbers, but 87 lower-tier schools had placement rates of 50% or less.

Law Schools Putting on the Brakes.

     Several law schools are cutting down on the size of their incoming classes, based on fewer applicants and a weak job market for lawyers. Experts are estimating that the planned reductions are being done by at least 10 or the roughly 200 law schools accredited in the U.S. According to the Law School Admission Council, Inc., the number of law school applications this year is 65,119, down 14% from a year earlier. About 86% of 2011 law school graduates found jobs in what NALP, a nonprofit educational association for the legal profession, described as the worst market since 1994, when the employment rate was 85%.

Top Priced Attorneys.

     Many top insolvency attorneys are charging over $1,000; however, former U.S. Solicitor General Theodore Olson bills $1,800 per hour, the highest rate yet to be publicly disclosed according to Washington, D.C. consulting firm Valeo Partners.

Substantiation Of Reasonableness Of Fees: Second Circuit Court of Appeals Rules That Contemporaneous Time Records Need To Be Presented For Fee Recovery In All But Rarest Of Cases

Federal Decision Highlights Differences Between Federal Versus California State Approaches; Second Circuit Does Allow Attorney an Equitable “Fallback” Approach.

     At the California state law level, although it is a good idea to keep them, contemporaneous time records are not required substantiation in fee proceedings. (Chavez v. Netflix, Inc., 162 Cal.App.4th 43, 64 (2008).) Beyond that, the trial judges can base fee awards on their own independent determinations of the value of the legal services rendered. (PLCM Group, Inc. v. Drexler, 22 Cal.4th 1084, 1096 (2000).) However, a much different set of constructs governs fee awards at the federal level, as a recent federal appellate decision reveals.

     Scott v. City of New York, __ F.3d __, 2011 WL 1990806 (2d Cir. May 24, 2011) involved a district judge’s award of $515,179.28 in attorney’s fees to plaintiff’s attorney pursuant to the Fair Labor Standards Act’s fee shifting provision, 29 U.S.C. § 216(b). The problem was that attorney failed to keep contemporaneous time records, such that the district judge even on remand sustained the fee award based on her “personal observation” of the attorney’s work.

     The Second Circuit vacated and remanded for reconsideration.

     The reason was that New York State Ass’n for Retarded Children, Inc. v. Carey, 711 F.2d 1136 (2d Cir. 1983) essentially established a hard-and-fast rule that contemporaneous time records were needed as fee substantiation in all but the rarest of cases. The district court’s reliance on “personal observation” of attorney’s work did not suffice because “it is difficult if not impossible for courts of appeal to meaningfully review awards based entirely on a district court’s sense of fairness.” (Scott, supra, 2011 WL 1990806 at *2.)

     However, it did attempt to come up with an equitable compromise. Despite the absence of contemporaneous time records, the Second Circuit did allow the attorney to present his time by analysis of official court records (such as the docket, minute entries, and transcriptions of proceedings) as substitute reliance documentation of compensable hours. The onus was on the attorney, not the district court, to make this analysis, with this approach not running afoul of Carey and with “such a regime prevent[ing] a totally inequitable result in cases such as this . . . .”

     The appellate court also found that a $550 hourly rate was reasonable in nature.

Rates: Association Of Corporate Counsel Has An Interesting “Value-Based Fee Primer” Showing Recent Trends In Attorney’s Fees Rates And Alternative Arrangements For Retaining Outside Counsel

Rising Rates and Savings from Other Options Are Factors Taking Precedence From In-House Corporate Attorneys.

     The Association of Corporate Counsel (ACC) is an in-house bar association for professional corporate counsel who practice in legal departments globally. ACC has published a 2010 “Value-Based Fee Primer,” available for reading at http://www.acc.com/valuechallenge/index.cfm, that has some interesting fee rate statistics and alternative arrangements for retaining outside counsel other than traditional “by the hour” retentions.

     Here are the interesting trends:

     *Non-hourly fee billing arrangements by corporate legal departments comprised 43% of surveyed departments in 2009, up from 27% of departments doing so in 2008;

     *Alternative fee arrangements in law departments totaled $13.1 billion in 2009 versus $8.6 billion in 2008;

     *Savings from alternative billing arrangements ranged from 15% to over 30%;

     *Over the past 10 years, overall costs to U.S. companies rose 20% while legal costs rose 75%, with U.S. law firms actually increasing hourly billing rates during the 2009 great recession and 90% of law firm respondents saying they would increase rates in 2010 (which did indeed happen).

     Although not reported on the ACC website, other validation of these statistics comes from Mattel, which has been engaged in a lengthy battle over the Bratz dolls--with its first quarter 2011 revenue showing an offset by $18.2 million for costs related to the lawsuit with Bratz maker MGA.

     ACC has a basic fee value scheme that breaks outside counsel relationships into the following constructs: (a) defining value; (b) scoping the work to be performed; (c) assessing who is best-suited to perform this work and on what terms; (d) implementing effective fee terms and management processes; (e) managing the legal work and the project coordination; and (f) evaluating the quality of results and processes.

     Here are the options frequently used other than traditional hourly billing arrangements:

     *Fixed fee per deliverable--affixes an “all in” price for a distinct piece of work;

     *Fixed fee per matter--sets a fixed price for all legal work relating to a particular matter;

     *Capped fee--sets a ceiling on what the client will pay the law firm in a particular matter or for a particular piece of work;

     *Flat fee per period--covers distinct categories of services during the course of a specified period;

     *Portfolio fixed fee--assignment of a large portfolio of work to a single firm for a fixed fee after competitive bidding for a set period;

     *Per capita fee/”ad agency” model--fixes a set price of “purchase” on a discounted basis for the full- or half-time services of a certain person or team producing the work required;

     *Incentives/performance-based hold back/success fees--aligns interests by tying a portion of law firm compensation to outcomes achieved;

     *Pure contingency--compensation depends entirely upon achieving certain outcomes; and

     *Hybrid--combination of one or more of the above approaches on a given matter or for a given portfolio.

Section 1717 and Prevailing Parties: Fourth District, Division One, Rules that Civil Code Section 1717’s Prevailing Party Standard, Mutuality Principle, and Reasonable Fees Standard Apply to an Attorney’s Fees Provision in a Consent Decree

Order Granting the People $707,882.50 in Attorney Fees and Costs of $32,673 Goes Up in Smoke, But Not to Worry, Parties Will Get to Light Up Again in Trial Court

     In this appeal, R.J. Reynolds Tobacco Company challenged an order awarding attorney fees to the People for enforcing a Consent Decree banning participating tobacco manufacturers from “using or causing to be used” any “cartoon” in the advertising, promoting, labeling or packaging of tobacco products.  The Consent Decree contained a unilateral provision:  “In any proceeding which results in a finding that a Participating Manufacturer violated this Consent Decree and Final Judgment, the Participating Manufacturer or Participating Manufacturers found to be in violation shall pay the State’s costs and attorneys’ fees incurred by the State of California in such a proceeding.” In re Tobacco Cases I, Case No. D056589  (4th Dist. Div. 1 4/5/11) (certified for publication).  But is a Consent Decree entered by the Court the same as a contract, and is a proceeding to enforce a fee provision in a Consent Decree an “action on a contract” triggering recovery of attorney’s fees under Civil Code section 1717 rules and standards?

Reasonableness Of Fees: Two Recent Incisive Legal Intelligence Studies Show Average Billing Rates For Small And Mid-Sized Firms And Internal Costs For In-House Counsel Departments

     Incisive Legal Intelligence has two fairly recent surveys that may be of interest to those of you who follow our blog with respect to national attorney hourly rates and in-house counsel costs. Here you go.

2009 Billings Rates and Practice Survey for Small and Mid-Sized Firms.

     In its 2009 study on billing rates and practices in small and mid-sized firms, Incisive Legal Intelligence has tallied some interesting findings from a sample size of 255 nationwide firms with the largest group having an average of 21-40 lawyers.     

     This is what they found:

          *The majority of firms bill by the hour, regardless of firm size.

          *The average billing rate, nationwide, is $284 per hour.

          *Firms with 2-8 lawyers have an average hourly billing rate of $262, firms with 76-150 lawyers increase to $295 per hour, and firms with over 150 lawyers have an average billable rate of $333.

          *The average billing rate also increases with a lawyer’s number of years in practice, with lawyers in or near major metropolitan areas commanding much higher fees than the averages.

           *By region, average hourly rates break out this way: Northeast -- $319; West -- $296; South -- $276; and Midwest -- $264.

           *The Pacific division (California, Oregon, Washington, Hawaii, and Arizona) has higher billing rates with an average hourly billing rate of $319.

           *The practice areas with the highest hourly billing rates are Plaintiffs’ Contingency Litigation ($413), followed by Labor/Employment ($302), General Law ($296), and Real Estate/Land Use ($294).

          *A client can be expect to be charged hourly rates for paralegals and other support staff.

2008 Study on In-House.

     In a 2008 Law Department Metrics Benchmarking Survey of 111 companies, Incisive Legal Intelligence reports that the median internal cost of operating an in-house law department at a large company grew to $381,618 per lawyer, a 10% increase over the previous survey year. Median external expenditures for large companies were up significantly, from $616,519 to $705,270 per lawyer. Corporate law departments participating in the study spent the highest percentage of outside counsel fees on litigation (37%), followed by intellectual property (15%) and then mergers and acquisitions (12%).

     What are the primary criteria for selecting outside counsel? Answers in order of priority: firm specialization; responsiveness; and cost. For those companies evaluating outside counsel, here the the three top evaluation criteria: results; knowledge/experience; cost.