The end of the billable hour?

The New York Times reports that the recession is causing law firms to re-think the basic business model of the billable hour. I wonder if this is really the case, but if firms truly do start to re-think the way they deliver and charge for legal services, I applaud the trend. Much has been written about the inefficiencies and perverse incentives created by what has become the standard business model. Charging by the hour penalizes efficiency, and encourages lawyers to engage in time-consuming tasks that may be of marginal benefit to the client. Coupled with the compensation structures at most law firms, which reward lawyers for racking up billable hours rather than for saving clients' money, this system seems ripe for re-examination particularly during an economic downturn when clients would like to reduce their legal expenses.



The Times piece acknowledges that there is only anecdotal evidence that law firms are actually offering alternative fee arrangements. Alternative billing arrangements have not become more prevalent in part because lawyers do not really know what their services are worth, and have little experience in estimating the total cost of a matter. In anything other than the simplest matters, many variables present themselves that make it difficult to determine in advance how much time and effort need to be put into an engagement. In my experience, clients have also shown some resistance to alternative billing arrangements. They are used to assessing the reasonableness of rates and the number of hours spent on a project, but less accustomed to evaluating the total cost of a matter.

I have always been open to alternative billing arrangements. Working on a contingent fee is often the most attractive way to proceed on a plaintiff's case, for both lawyer and client. When representing a defendant, it is more difficult to set a fee based on something other than a simple calculation of rate times hours spent. Defendants in a lawsuit rarely have an upside. They only have the cost of defense, and the cost of settlement or verdict. While a total victory for the defense can reduce the verdict cost to zero, the defendant still has to pay its own legal expenses, unless the case allows for recovery of attorneys' fees. So offering a flat fee for a defense case can be intimidating for both lawyer and client. If the case settles early, the client perceives a windfall for the lawyer. If the case proceeds all the way to trial, the lawyer may be underpaid for his work, and has less incentive to spend hours on case preparation. A realistic flat fee determined at the outset of a complicated case may be a larger number than the client is prepared to accept. Other alternatives are budgeted fees, flat monthly retainers, graduated fees for disposition of the case at various stages, and incentive fees based on the amount of the verdict or settlement. All these options are worth exploring.

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Recession-Era Litigation

The first thing we think about in difficult times is our continued survival--our ability to keep our businesses afloat. For many law firms, that has meant re-tooling, layoffs, cost-cutting, discounts, and whatever other measures are necessary to continue to make a living. I think we need to do more than that. To me, this seems like a good time to re-examine the way we practice, so as to help clients conduct their businesses more efficiently.

One part of that re-examination might ask whether litigation can be conducted more efficiently.
That doesn't just mean cutting billing rates, or coming up with clever alternative fee arrangements. To look at the profession that way would treat the provision of legal services as a commodity. It's not enough to sell our billable hours more cheaply, or to figure out better ways to package those hours. It's more important to find ways to solve problems for clients without using so many of those hours. For example, we know that most of the work that is done during the pre-trial phase of a case is of little use at trial. I rarely find much material in the reams of pre-trial motions that are sometimes filed that can be used at trial. I don't introduce most of the documents obtained during discovery as exhibits; and I don't cite very much of the deposition testimony. So it would seem that one way of conducting litigation more efficiently is to avoid doing work that is not going to help settle the case, or help try the case. This goal may be easier said that done, since we don't always know in advance what will prove useful later. But it is probably good to question whether the work we are doing is likely to prove beneficial if the case goes to trial. We also know that more than 90% of cases never even go to trial. So another way of conducting litigation more efficiently is to try to reach settlements sooner, before a huge amount of time and effort are put into pre-trial motions and discovery. In most cases, this time and effort does not change our view of the facts significantly. Therefore, it generally makes sense to explore settlement early.

Another part of the re-examination involves questioning whether the tools of litigation are the best means of resolving the client's problem in the first place. That means exploring other means of dispute resolution. It also means trying to work out issues that arise during a lawsuit using negotiation rather than litigation. Every disagreement with one's adversary need not turn into a pre-trial motion or an angry letter. Generally the results that can be achieved by a little give-and-take are just as good as the results that can be achieved by bringing every problem that arises in a case to the attention of the judge.

I think sometimes we lawyers are afraid to be conscious of costs, and also afraid to explore alternative means of resolving disputes, not only to preserve a way of operating that is beneficial to ourselves, but also because we are afraid of being seen as less than the most zealous possible advocate of our clients' interests. We assume that clients are going to be most impressed with a scorched earth, aggressive litigation strategy. Many clients tell us that they want such an aggressive approach, and they want to give the other side no quarter. I believe, however, it is our job to remind clients of the costs of such a strategy, and also to advise them that such a strategy does not always lead to the best result. We can do this without losing sight of the objective of achieving the best possible result for the client, and without sacrificing any of the preparation that is necessary to prepare the most effective case for our clients.

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Justice

If there is one federal agency crying out for reform, it is the Justice Department. Attorney General Gonzalez was forced to resign in disgrace after losing the confidence of members of Congress from both parties. The politicization of the Justice Department, brought to light by the firings of a number of U.S. Attorneys, has still not been fully investigated. And the Department's policies on torture and wiretapping may leave the greatest stain of all on the Bush Administration.



Therefore it may be appropriate that Obama's nominee Eric Holder receive careful scrutiny from the Senate. But the hostile tone of Senator Specter's remarks yesterday was still surprising. Rather than focusing on the issues of integrity, politicization, and adherence to the rule of law and the Constitution, Specter instead questioned whether Eric Holder would be sufficiently independent from the President. Perhaps some of this criticism is a reaction to the disastrous leadership of Alberto Gonzalez, but we should not allow legitimate concerns about the mistakes of past administrations to hobble future administrations that are going to be facing different issues.

Traditionally it has been considered helpful to the functioning of a coherent administration, for the Attorney General to be close to the President. The strong arm of the law, whether to enforce civil rights, or to shape antitrust policy, or to regulate securities markets, is an essential tool of any administration's ability to pursue its goals. The Attorney General must be in sync with the President on these issues. President Kennedy chose his own brother for the job. President Reagan appointed his close confidants William French Smith and Ed Meese. President Clinton, on the other hand, was saddled with an attorney general who was highly competent but never especially close to him, and as a result found himself the subject of several questionable investigations, and also never seemed fully in control of this important arm of the government.

The idea that the Justice Department should be independent of the Executive Branch of which it is a part is an idea that itself should receive scrutiny. Granted that the Executive Branch itself is not above the law, and that members of the administration must remain subject to investigation for abuses and illegalities. Granted also that the Attorney General's first loyalty must be to the Constitution and the law, not to the president. Still, the Attorney General's primary role is not to serve as a watchdog over the President who appointed him, but rather to act as an agent of the President. If we insist that the Attorney General remain wholly independent of the President, Presidents will respond by moving more of the legal functions of their office inside the White House, in the manner that the White House National Security staff has sometimes been used as a miniature State Department when the Secretary of State was viewed as too independent or ineffectual. The Cabinet should be allowed to function as a team under the direction of the President. Congress has an important role as a check on the Executive Branch, a role which it too often abdicated during the Bush administration. Congress should not be foisting that role onto the Cabinet officers themselves.

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