Tuesday, May 29, 2012

Some thoughts on reasonable attorney fees.

The juxtaposition of two articles this morning caught my eye.  This morning's Wall Street Journal's article, The Law Firm Business Model Is Dying, reminded me of Big But Brittle, the must-read article by Bernie Burk & Dave McGowan.  (Bernie & Dave's article is much better at discussing the nuances of the changes affecting BigLaw; the WSJ piece is just about lawyer deregulation.)  The other is a New York Times Dealbook piece by Andrew Ross SorkinMadoff Case Is Paying Off for Trustee ($850 an Hour).  Here's the quote in that article that caught my eye:
In a particularly caustic exchange in court last year, Judge Rakoff, upon seeing a group of lawyers enter the courtroom on behalf of the trustee, said: “Can I ask a question, which is, since the trustee’s fees come out of the funds that otherwise would be available for other purposes, why are there four attorneys from the trustee here in court today?”

When the lead lawyer responded that he might need to consult with his colleagues during his argument, Judge Rakoff shot back sarcastically: “If it turns out you give your argument without needing to consult with them, of course, you and your firm won’t charge for their appearance today.”

The lawyer replied: “I, your Honor, am not going to make any promises.”
The fact that these two pieces came out today is just a coincidence, but the backstory on both is that lawyers who assume that their way of doing business will continue indefinitely are in for a shock.

In terms of the Madoff case, I'm a firm believer that Irving Pickard is doing a good job and is worth his hourly rate.  Not every legal theory will work when applied to a particular set of facts, but he's doing his best to get some significant recovery for Madoff's victims. 

But Judge Rakoff is right, too:  just because a law firm can bring several people to a hearing doesn't mean that it should.  The problem of "staffing balance" is the tension between representing a fiduciary (and the concomitant desire to leave no stone unturned, in order to fulfill the fiduciary's duties) and the question of who ends up paying the bills for that representation.  The more diffuse the responsibility is for paying those bills, the less opportunity there is for the client to say, "let's do this but no more than this."

The problem is particularly acute in large chapter 11 bankruptcies, but that's not the only situation in which the problem occurs.  (See here and here for some of my thoughts on staffing balance.)

We train lawyers to be risk-averse.  Risk-averse people are prone to making sure that all of their bases are covered.  That means that lawyers will want to bring everyone to a hearing who might possibly have something to contribute, "just in case."  But with new technologies around to let lawyers call in to hearings, or to be on cell-phone standby, there are ways to trim those bills.  If the lawyers would be willing to move to those technologies but for court rules that interfere (such as prohibiting cell phones in courtrooms), then courts need to rethink their rules.  And if the lawyers are behaving responsibly about who they bring to hearings, then I can see giving them the benefit of the doubt in close cases.

But the most important thing is for the lawyers to communicate their reasons for their staffing choices to the court.  Waiting until a court starts making comments in public about the staffing choices creates the risk that a court will find those staffing choices unreasonable per se

There are a couple of ways to communicate staffing choices to the court.  One is explicit:  "Your Honor, with me today is Attorney X (who will cover [single issue]), Attorney Y (who will cover [different issue]), and Attorney Z (who is responsible for helping me with today's overall hearing because [reason])."  Another is by setting benchmarks in advance, with rebuttable presumptions about how many attorneys should be billing for a given task.

Communication is key.  Without such communication, lawyers will be judged in hindsight about the reasonableness of their actions. Whether the client is paying close attention to the bills or is merely an amalgam of interests that--by definition--will not pay close attention to the bills, there are too many pressures on the practice of law to let law firms bill without explaining their staffing choices to someone (the client or the court).

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