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law from the inside out

Is the Real April Fool the Lawyer Who Sues a Client?

So there is this large dust-up, undoubtedly you’ve heard. A client doesn’t pay a law firm invoice after repeated requests. Law firm threatens to sue. Client doesn’t pay. Law firm sues. Client counterclaims. Client gets discovery. Client gets emails, files some as exhibits. Press gets emails:

dlap1

So law firm goes into damage control mode, declines to comment to press, and sends memo to staff. Press gets memo:

dlap2

Wait a minute. Isn’t the point of discovery to find documents and use them to your advantage?

The DLA Piper “That’s Team DLA” lawsuit been covered by Inside Counsel, Thomson Reuters, and even the Op-Ed page of the New York Times. The Op-Ed tries to link this dust-up to the entire billable hour regime.

Wow.

Years ago I asked a very savvy partner at a prosperous law firm whether he had ever sued a client over an unpaid bill. The response was something like this:

No. I can’t say I never would. But it would have to be a large bill, a great result, and a clear winner. And of course a client that I didn’t care about losing.

The intransigent client’s unpaid bill from DLA Piper was reportedly $675,000. To put this in perspective, DLA Piper revenues for 2012 were $2.44 billion (source). I think that works out to about 0.027%.

Some in-house lawyers have put this entire matter in perspective, seeing it as larger than any one firm with a dispute with a single client.

A final explanation in the “not-to-be-commented-upon” internal DLA Piper memo was that the emails were nothing more than:

“…an unfortunate attempt at humor by three former lawyers of the firm.”

Many April Fool “jokes” are unfortunate attempts at humor.

I have to believe many partners at DLA Piper think that the press generated by this collection lawsuit has not been funny. In the least.

This Week in Legal Schadenfreude

When a big law firm experiences difficulties, you can’t miss it in the legal press. And when the challenges become particularly acute, this topic moves into the top-shelf business press.

A prime example is this article from Bloomberg yesterday:

Click on the image to read the work of Bloomberg reporter Paul Barrett. He takes a detailed look at the situation facing Dewey, and even talks about what it may mean for large law firms (and even law students) generally. Here’s a sample, quoting J. Stephen Poor of Seyfarth Shaw:

“Law firms whose business model remains what it has been for more than 30 years — namely, every year we just raise our rates and expect clients to pay up — well, those law firms will find the old ways aren’t sustainable.”

(Just this morning, as I was revising this post, Reuters Legal is reporting that Dewey may have retained bankruptcy counsel.)

Mr. Barrett’s article is required reading. Print it, share it, give it to an aspiring law student. (Thanks to Ron Friedmann and Jordan Furlong for pointing it out; both also mention this one from The Atlantic as well.)

Two aspects of Mr. Barrett’s work contribute to its quality. First, he doesn’t fall for the “some law firms are raising prices” trap that I mentioned earlier this week. The reports that some lawyers are charging $1,000 per hour are not news. They are legal trivia. Anyone who pays close to that is doing so because they have to not because they want to. They won’t pay that for very long and they won’t come back and pay it the following month, retainer-style. You can’t build a large corporate law firm on the backs of $1,000 per hour lawyers.

Second, Mr. Barrett zeros in on what is the real problem at most large law firms: the instability of a high-cost, rainmaker-fueled business model:

Partnership doesn’t nurture broad-minded managers skilled in running sizable operations. In a business increasingly characterized by fierce bidding for talent and high-level defections, many successful attorneys jealously hoard clients and keep an eye on the American Lawyer numbers to see whether they ought to take their “book of business” elsewhere. Under these circumstances, client loyalty at many firms has deteriorated.

Bingo. If Bloomberg wants to continue to add to the quality of the large law firm business model debate, it should publish its own annual list of top law firms. But this one should also include two new columns: (a) percentage of firm revenues among the top 20 billing partners and (b) total debt. The latter one can help separate the firms that can handle some defections from those that likely can’t.

Next week, a longer look at the once and future rainmaker. What was once this:

May now be this:

(To be clear, no right-thinking lawyers take pleasure in challenges faced by any law firm. But this firm in question did tell the New York Times that many partners who departed were “laggards.” What goes around, as someone once said.)

Are AFAs a Pricing Gimmick?

Last time, we saw the Wall Street Journal highlighting how Alternative Fee Arrangements may be starting to encroach upon the Billable Hour regime.

Interestingly, yesterday the WSJ looked at the other side of the coin, profiling some law firms that have lawyers charging out at over $1,000 per hour:

(This is a sort of a reverse “Mendoza Line” for the legal profession. Perhaps it could be termed the “Civiletti Club” or just a “Four-Spot”).

So are AFAs really a challenge to the Billable Hour, or just another way of getting paid for business as usual?

I think the answer is “both,” but I lean a little toward the latter.

To explain why, let’s buckle up and look briefly at how cars have been sold over the last 15 years. Yes, living close to the Motor City colors my view of a lot of things.

At some point in the last decade, many auto makers realized that cars were too expensive for most people to buy (a) for straight cash or (b) over time. So some bright financial types came up with the idea of mainstream leasing. Yes, you would essentially buy the depreciation for a defined term pegged upon some expected residual value of the car. (Heck, there were even a bunch of smart lawyers who figured out how to securitize pools of these leases.)

So many people who used to buy, now leased. Some of the leases being offered in the 2003-2008 period were so attractive that you really had to take them, as long as you could predict your mileage with confidence.

We all know that as the economy started tanking in 2008, the ensuing credit crunch meant that almost all leasing went away. Then car buyers were faced with buying again, and many couldn’t afford the domestic offerings, so they went again to imports. Yes, they essentially offshored their purchasing of transportation.

So what does this have to do with AFAs? Let’s look at it like this: many of the firms moving to AFAs are at the high-end of the legal services food chain. The BMWs, as it were. Now today, with the economy strengthening a bit, I can lease a mid-range BMW for about $599 per month. Or I can lease a Chevy (that has all the utility if not the panache) for $299 per month. Is the BMW worth it? Sure, but for most purposes the Chevy is OK, too. (And let’s not get into the ZipCar angle to this analysis, but that’s really part of what the LPOs are doing.)

AFAs are and will remain a tool for GCs to use to control legal costs. But many GCs will also continue to selectively move “down-market.” They will find the all-in costs to be lower, regardless of AFAs, hourly billing or however you price the service.

Law firms with higher costs, over time, will charge more. That’s why it’s really important for GCs today to shop around and kick the tires.

(P.S. I am not implying that BigLaw will go the way of the Big Three. Yet.)

The Billable Hour in a Bleak House

When I hear something “new” about the Billable Hour, I feel like I have just emerged from a time capsule.

As a new associate in a go-go corporate boutique law firm in the mid-80’s, the billable hours were flowing like Moet & Chandon in the VIP room in an LA nightclub. In my first year, I billed 2,230 hours. Nights, weekend, holidays. This wasn’t firm time, this was good time.

But it really wasn’t a good time, and I left after my first full year.

So for at least 30 years, I have seen the Billable Hour as something to behold: crazy and inefficient, sure. But persistent, definitely.

Then yesterday our favorite issue bubbled up in the Wall Street Journal. The WSJ Law Blog dutifully noted it.

Here is the headline:

Watch out? For what?

If the Billable Hour is in decline, it is like watching a glacier recede.

As Charles Dickens wrote in Bleak House:

Jarndyce and Jarndyce drones on. This scarecrow of a suit has, in course of time, become so complicated that no man alive knows what it means. The parties to it understand it least, but it has been observed that no two Chancery lawyers can talk about it for five minutes without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause; innumerable old people have died out of it. Scores of persons have deliriously found themselves made parties in Jarndyce and Jarndyce without knowing how or why; whole families have inherited legendary hatreds with the suit. The little plaintiff or defendant who was promised a new rocking-horse when Jarndyce and Jarndyce should be settled has grown up, possessed himself of a real horse, and trotted away into the other world. Fair wards of court have faded into mothers and grandmothers; a long procession of Chancellors has come in and gone out; the legion of bills in the suit have been transformed into mere bills of mortality; there are not three Jarndyces left upon the earth perhaps since old Tom Jarndyce in despair blew his brains out at a coffee-house in Chancery Lane; but Jarndyce and Jarndyce still drags its dreary length before the court, perennially hopeless.

As I have noted before (2008, some of the links don’t work), I see the Billable Hour not as a model, but as a regime.

Next time, a few thoughts about what is really going on with alternative fee arrangements.

Until then, roll the video that supports the status quo…

Billable Hour Promo Video Leaked

Fresh on the heels of yesterday’s discussion about the real meanings behind the Billable Hour debate, something showed up in my email inbox late last night.

I can’t confirm the authenticity of the video. One source said it is an early demo version of a promo video to be shown before the keynote at the next annual meeting of a major legal organization. Another source said it was commissioned by a major international law firm as a way to rally the troops at the next partners’ retreat.

Rear-guard act of desperation, or savvy disinformation by an AFA guru? Decide for yourself.

I anticipate getting a C&D sometime in the next 48 hours, so watch it while you can. Whatever the source, someone really dug deep for the archival footage of Honest Abe doodling after one of his many lost elections. Color, no less.