Holland & Knight – Executive Partner Peter Pietro Prieto predicts law firms will have to devise more creative billing structures in the future.

In 1 on January 3, 2009 at 6:44 pm

Attorney Compensation
Legal Superstars
by John Pacenti

Last spring, Broward Circuit Judge Leroy H. Moe looked to penalize Motorola for violating one of his orders and tainting a trial.

The plaintiff attorneys who spent millions on the case — and who were facing a do-over because of the electronics giant’s misdeeds — wanted compensation.

During a four-day hearing to consider attorney fees, a string of expert witnesses took the stand to give their input on what they thought Stuart attorney Willie Gary and his team should be paid.

A key witness, long-time litigator and former state Sen. Walter “Skip” Campbell, compared Gary to New York Yankees star third baseman Alex Rodriguez. He said Gary should get $3,750 an hour for taking on the complex litigation brought by now-defunct Fort Lauderdale-based SPS Technologies, an innovator of a global positioning device.

Campbell who was an expert witness for Gary, argued that amount should be tripled because of the complexity of the case and the damage done by Motorola’s attorneys, who violated Moe’s order and allowed their witnesses to read trial transcripts of testimony by the plaintiff’s experts before testifying for the defense.

Gary and his team from Gary Williams Parenti Finney Lewis McManus Watson & Sperando were looking for $93 million in attorney fees. That would boil down to more than $11,000 an hour for Gary.

Moe was angry that the defendant violated his witness sequestration order, but he wasn’t that mad.

The judge ordered $20 million in fees, or about $1,000 an hour for Gary — the top fee collected by a South Florida lawyer in the Daily Business Review’s second annual lawyer billing survey.

In 2006, Eugene E. Stearns of Stearns Weaver Miller Weissler Alhadeff & Sitterson was the top earner in the survey at $700 an hour for his firm’s work on a 15-year-old case against ExxonMobil on behalf of gas station owners. Stearns led his legal team to a $1.1 billion federal court judgment against ExxonMobil.

The Daily Business Review’s survey is not comprehensive. The hourly rates were taken from legal filings mostly from U.S. Bankruptcy Court — where they are required — and other civil and probate cases. Some firms, such as Greenberg Traurig, reported their hourly range in fee applications. Many of the filings were found in the federal court on-line computer system. The Daily Business Review examined nearly 300 lawyers’ filings from August 2006 to earlier this month.

Last year, the survey found, most lawyers’ rates fell between the $250 and $500 mark. This year the range remains relatively the same with just a hint of inflation.

The gold standard

How much lawyers should get paid is often the subject of debate, but seldom does a parade of top lawyers have to testify before a veteran judge to help determine the fee. Just as rare is the South Florida lawyer who gets $1,000 per hour — the new gold standard for lawyers, according to the Wall Street Journal.

The nation’s business newspaper of record reported in August that some firms in New York, Washington and Los Angeles had exceeded the $1,000 per hour rate but that other high-profile firms feared such a sum would frighten away clients. One firm called the $1,000 fee “the vomit point” for clients.

For high-profile plaintiff lawyer Gary, walking away with millions in fees is not uncommon. He is accustomed to high-stakes, contingency legal battles with corporate giants. Among other victories, Gary has won a $50 million verdict against Anheuser-Busch on behalf of the Roger Maris family in a distribution dispute. Gary secured a $240 million judgment against Walt Disney Co. for two businessmen claiming the entertainment giant stole their idea for a sports complex.

Most lawyers who usually bill by the hour get nowhere near a Gary payday.
But Greenberg Traurig said it bills up to $650 an hour for partners in South Florida — the highest in the Review survey for a corporate firm.

The highest paid individual Greenberg partner located in court filings was Brian Gart, an attorney who focuses on bankruptcy. He charges $550 per hour.
Partners in South Florida typically charged from $600 to $330 an hour. Associates’ hourly rates ranged from $145 to $450, according to the Review’s survey.

Legal playmakers

In an interview, Campbell said his analogy that the top-notch lawyers need to be treated in terms of salary akin to superstar athletes is not hyperbole.

“If you look at society, many of these same lawyers become CEOs of major corporations, and their compensation as CEOs is significant,” Campbell said. “And if you look at the major league athletes in baseball, basketball, football and try to figure out what they are earning, you would think someone who has professional credentials should be making similar amounts.”

Gary said no one takes into account the money that law firms lose, especially on contingency cases, which he says are the only way clients of lesser means can gain access to the courthouse.

“Most of the time, we lose money in this business,” Gary said. “You lose time, you lose money you never get back. You spend $200,000 preparing a case, and if you don’t win the case, you don’t get paid. You just lost that. It’s gone.”

He said the growing cost to get experts to testify is the main factor boosting his litigation expenses. But other law firm leaders cited different factors driving up their costs — and in turn the fees they charge clients.

At corporate law firms, escalating associate compensation is one factor.
The highest paid individual associate in the Review’s survey was Jean Laws-Scott at $450 an hour. She is an associate with Gary’s firm who worked on the Motorola case.

Two Berger Singerman attorneys tied as the top billing associates at corporate firms. Ilyse M. Homer in the firm’s Miami office and Paul Avron at the Boca Raton office bill $350, according to the survey.

But Greenberg Traurig reported it has at least one “top-end associate” in South Florida who gets $505 an hour. Matthew Gorson, president of the firm, declined to name the associate.

Most fees for associates located in court filings fell between the mid- and high $200s.

Campbell said associates can be the driving force behind a law firm’s financial success. “The thinking is that if you are to have a successful practice that bills hourly, then you need a young whippersnapper out of law school who wants to bill 2,000 hours a year.”

Gorson made no apologies for the six-figure starting salaries big firms pay associates. It’s necessary to pay well if you are going to compete to attract “the best and the brightest,” he said.

“We need to have the best associates, and we have to be competitive in the market place,” Gorson said.

Increased scrutiny

News reports about excessive attorney fees and a continuing political debate about purported frivolous and unneeded litigation, have caused increased scrutiny of legal bills from judges and clients.

“I think a lot of judges are just accepting it as a cost of doing business, but now and then you will see a judge get their back up,” said Barry Davidson, partner at Hunton & Williams in Miami.

Harley S. Tropin of Kozyak Tropin & Throckmorton in Coral Gables said, “I would say that judges, because lawyer fees are in the news more, scrutinize filings more — as they should.

Tropin was among the most expensive partners in South Florida, billing $600 an hour. B. Carey Tolley of Hunton & Williams in Miami also was among the priciest partners, increasing his hourly wage from $520 in 2005 to $545.
Most of the partners who fell right at the $500 per hour range in the Review’s survey were on Gary’s team in the Motorola case.

As rates continue to rise, clients are increasingly pushing back.

Law firm leaders said more clients, especially corporate, are shopping around and looking for discounts or alternative billing arrangements — afraid the billable hour is a never-ending sinkhole.

Law firm leaders said they are confronted with increased litigation costs, the need to hire top associates out of law school, higher malpractice insurance premiums, rising rent and assorted technology costs.

“It’s just not paying for the time for the attorney working on the case. You have to support the infrastructure,” Davidson said.

Still, South Florida firms have posted record revenue and profit. Despite the cooling economy, the biggest firms posted double-digit growth in revenues in 2006, according to the annual Review 15 survey.

Bilzin Sumberg Baena Price & Axelrod in Miami, for example, reported $66.1 million in gross revenue — a 23 percent increase over 2005. Greenberg Traurig climbed 13 percent to $199.6 million in 2006.

Brenda Pagliaro Emery, the general counsel for Tamarac-based City Furniture, said the company is very happy with its outside legal work but rising costs do concern her.

“Hourly rates continue to increase, which is a problem,” Emery said. “Litigation is already a drain on corporations across the board, and I’ve seen increases in probably the last 24 months for hourly rates.”

Emery has grown increasingly frustrated by what she sees on bills to her company from outside counsel. She cited one invoice in which a law firm billed City Furniture for 12 hours of research on a simple matter, for the cost of a research service, $1 for a fax and $1 for a phone call.
She declined to name the firm.

As a result, Emery is working on billing guidelines for outside law firms that will state emphatically what City Furniture will pay for and what it will not. It plans to impose a cap on hours for research, for example.

Emery said she has also cut costs by bringing more legal work in-house, taking on the company’s worker compensation cases in January 2005. She said the company hasn’t asked for a discount rate but is clearly thinking in that direction.

“Unfortunately, they don’t really have different hourly rates for local business versus national ones,” she said.    

“I think we end up paying the national rate. I think it should be a little more competitive rate.”

But the big local firms insist they are still among the best deals in the country, particularly when compared to lawyers in top-tier markets such as Chicago and New York.

Greenberg Traurig’s Gorson said clients still know that reputation and quality count and are willing to pay for both if they get results.

“Liken it to the surgeon. If you need a surgeon, you are not going to worry that he costs $5,000 an hour for surgery, you want to have the best surgeon in the world,” Gorson said. “If you have a major transaction involving a lot of money, and there is little more room for costs, you might be looking for the best lawyer and best firm to handle your transaction.”

Gorson said attorney hours pretty much stay the same. The only way they can increase their income or cover costs is to raise their hourly rate.

Driving up costs

Some critics contend law firm hourly fees are unfairly high and that plaintiff attorneys bog down the court system with cases designed to generate fees, not outcomes. Campbell, a plaintiff attorney, believes, however, that obstructionist defense tactics are the main cause of rising litigation costs for companies.

“It’s called Nit-Pick and Delay — that famous law firm,” he quipped. “Judges have to have the desire to stop the obstructionism. Sometimes they take it for granted it’s going to happen.”

Campbell said when he complained recently in court about opposing counsel not turning over a document, a judge told him: “You know it’s going to happen, so why are you bitching about it?”

Discovery battles appear to be the driving force behind rising costs as corporate giants try to drain plaintiff resources by delaying the case as long as possible, he said. Bryan Quigley, the spokesman for the Institute for Legal Reform in Washington, says it’s quite the contrary: Large companies and corporations are often the victim of predatory legal practices by lawyers looking for deep pockets. He said the high cost of litigation forces companies to settle.
“The defendant might have a very strong and even overwhelming case, but the costs and risks can be so high, they are forced into settlement whether they like or not,” Quigley said.  “We call that legal extortion.”

He said a lot of criticism recently has been directed toward class action cases. In these cases, members of the class end up receiving coupons for some menial service, but the lawyers reap millions of dollars in fees, Quigley said.
“They take their fees off the top. Lawyers are not going to take coupons,” Quigley said.

Creative billing

One thing both plaintiff and defense lawyers agree on is that litigation is expensive. And corporate clients are increasingly looking for ways to cut costs.
“Clients are looking for alternative billing procedures. It’s just something they want a lot of,” said Peter Prieto, executive partner of Holland & Knight’s office in Miami. “They feel lawyers billing by the hour is inefficient and a disincentive for lawyers to be efficient.”

Prieto predicts law firms will have to devise more creative billing structures in the future.

Clients are increasingly asking for fixed fees and risk-sharing arrangements.
Prieto said larger firms don’t like to fix their fees because usually it’s hard to predict how much work an engagement will require until it is under way. When it comes to litigation, it is next to impossible.

“You never know what the other side will do,” Prieto said.

Also, he said, for the most part large firms don’t get involved in cookie-cutter type cases in which a fee could be set for a particular service. Fixed fees “are very rare, especially in high-end litigation,” he said.  Discounts are another story.

Prieto said clients who bring lots of work to a firm expect a cut rate. There is push-pull between clients and attorneys as they work to balance fees and expectations.

“We need to work with our clients,” he said.

Gorson of Greenberg Traurig said larger clients also ask for alternative billing arrangements when they have high volume.

 “Alternative billing doesn’t accomplish a great reduction in price. It gives greater assurance to the client to what they can expect,” he said.

When it comes to flat fees, he said the work has to be quantitative and similar: 1,000 eviction proceedings or 500 foreclosures.

Harvey Gurland, the administrative partner with the Miami office of Philadelphia-based Duane Morris, said law firms need to be flexible with their billing.

“There are times we start with an hourly basis and then something changes in six months and clients might need to go on a blended-rate basis,” he said. “You need to work with clients to make the right fit.”

Prieto says clients are also asking for other intangibles these days, such as ethnically diverse legal teams.

“They do it for altruistic reasons, but they also do it because they believe in tried cases a lot of juries are diverse and they want their lawyers to be reflective of that,” he said.

Clients also demand that the firms they work with keep pace with technology. They want to know if they can interface with your computer and inspect documents. They want you to have best technology available for their case.

Savvier clients

Rates are usually set by partners and firm executives. Marketing departments at firms sometimes do focus group studies with clients without lawyers present to get feedback on fees, as well as other issues.

Michael Short, vice president of Hildebrandt International, a legal consulting firm based in New Jersey, said clients are becoming more sophisticated in evaluating who does their legal work. Short said from his Washington office that billable hours make general counsel and other in-house lawyers cringe. “It’s like a runaway train that’s not going anywhere,” Short said.

As a result, clients have become savvier as to who does their outside legal work and are paying increasingly more attention to controlling their legal costs. They are more sophisticated at looking at their portfolio of cases, Short said, and may go with several firms rather than just one. Still, Short said there appears to be a stalemate. While corporate clients rally around cost control, the legal world wonders where risk meets reward.

“You hear from general counsels: ‘We want more predictability. We want to know how it’s going to turn out.’ And the experienced litigator says, ‘How are we going to know how it is going to turn out? Is it going to be settlement or summary judgment? How can we encapsulate all the potential outcomes into some kind of win-win arrangement?”

Posted via email from HKLaw Investigation


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