Tuesday, December 9, 2008

When Do Hourly Rates Become Ridiculous?

I'm going to venture out there on an editorial limb and suggest that now...December 2008....billable hourly rates are officially unreasonable in the US at large firms. The National Law Journal reports that "[t]he average of this year's average firmwide billing rates, which include partner and associate rates, climbed by 4.3%. The level of increase for average firmwide billing rates was lower than the increase last year of 7.7%, compared with 2006. The continued uptick in legal expenses means that law firms should expect clients, especially in a worsening economy, to hire more attorneys in-house and to rely more heavily on "flexible staffing," said Pamela Woldow, general counsel and principal of Altman Weil Inc., a law firm consultancy. In addition, clients, such as pharmaceutical companies, that in the past did not demand alternative or varied fees will be "negotiating harder" for better deals on legal services, Woldow said. The average of the average firmwide billing rate for 2008 was $363 per hour, compared with $348 in 2007. The average of the median firmwide rate this year was $350 per hour, compared with $347 per hour last year.

The most expensive hourly rate came from White & Case, which reported that the high end of its partner rate was $1,260 per hour. (I choked a little just now) The firm's average partner billing rate was $747 per hour. With 2,205 attorneys, White & Case is ranked No. 6 on the NLJ 250. In a written statement, White & Case said that the high end of its billing rates was "representative of only two potential billing scenarios for clients" and "[did] not take into account a number of key factors, including blended rates and rates negotiated with specific clients."Coming in second was Dorsey & Whitney, where the high end of the partner rate was $1,180. Dorsey's average partner rate was $505. The top rates at Dorsey & Whitney were charged by two international tax partners practicing in London, said firm spokesman Bob Kleiber. The firm declined to identify the partners charging that rate.The two law firms also reported the highest associate rates, with White & Case charging $920 per hour at the high end of the range and Dorsey & Whitney charging up to $820 per hour for associate work. The average associate rate at White & Case was $456 per hour. The average associate rate at Dorsey & Whitney was $301 per hour. The $820 fee charged at Dorsey & Whitney applied to one associate practicing in the firm's London office, Kleiber said. Regarding average partner billing rates, 86.2% of the firms charged more this year than last year. The average of the average partner rate this year was $451 per hour, while the average of the median partner rate was $435 per hour.Regarding associate rates, 80.7% of the law firms responding to the billing survey both in 2007 and 2008 raised the high end of associate rates. The average of the average associate rate for these firms was $282 per hour. The average of the median associate rate was $274. Two law firms besides Dorsey & Whitney and White & Case reported partners who charged four-figure rates. They were Pittsburgh-based Buchanan Ingersoll & Rooney, at $1,020, and Chicago-based Jenner & Block, at $1,000. Several law firms came close to the $1,000 mark on the high end of the partner rate range. They were New York-based McKee Nelson, at $995; Washington-based Patton Boggs, at $990; Cooley Godward Kronish of Palo Alto, Calif., at $980; Locke Lord Bissell & Liddell, at $975; Chicago-based Winston & Strawn, at $975; Venable of Washington, at $950; Loeb & Loeb, at $925; Washington-based Hogan & Hartson, at $900; and Reed Smith, at $900. Alternative and variant billing systems were popular among many law firms. Of the 127 firms that responded to billing questions, 66 reported that they received at least a portion of their revenue from alternatives and variations. "Variations" to the billable hour mean discounted fees or blended hourly rates, while "alternatives" include fixed or flat fees.Many law firms derived most of their revenue via variations. "

The ethics issues implicated by these astronomical rates is that there is a duty to zealously represent clients regardless of the hourly fee, so there is per se no additional value added for the $1,260 an hour representation. If it is skill that people buying, there may be value added for peace of mind of the client who thinks they have hired a magician who can make things happen that other attorneys can't. Is it ethical to charge whatever the market will bear? One could argue the sophisticated client could go elsewhere and get similar representation. I'm not sure there is even an ethics issue here, it's just interesting to explore why the in house legal community is in such a rage over it and a discussion of right or wrong. I would suggest that in house attorneys are to blame if they don't tell outside attorneys what they are willing to spend on a project or per billable hour. Man up! (you too women!).
The flip side of the ubber expensive attorneys are the talented attorneys at the same firms who don't want the rates to constantly increase for various reasons (guilt, client concerns, limits on marketing when fees are too high), but are billed at those rates due to the firm's policies. The options are to leave the firm they fought so hard to become a partner in or to just not be concerned with the fairness of the rates. Neither is a particularly good solution to the problem.

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