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Billing Rates Hit the $1,000 Mark

Law firms are generally conservative entities, tepid about breaking barriers when it comes to work-life balance or diversity. But today's Wall Street Journal reports on one barrier that I'm betting every law firm is avid to bust right through: the $1,000-an-hour billing rate.

Nathan Koppel reports that several New York firms, including Simpson Thacher & Bartlett, Cadwalader, Wickersham & Taft and Fried Frank are expected to raise their top rates for some partners to $1,000 an hour. While some attorneys began billing at that rate last year, what's different now, according to Koppel, is that "a critical mass" is developing around $1,000 fees, and as such, more and more firms are comfortable with those rates.

Noted litigator David Boies (formerly partner at Cravath and now principal at his own firm, Boies, Schiller & Flexner) criticized the rates in a quote in the article:

Frankly, it's a little hard to think about anyone who doesn't save lives being worth this much money," says David Boies, one of the nation's best-known trial lawyers, at the Armonk, N.Y., office of Boies, Schiller & Flexner LLP.

  Another lawyer, Steve Sussman (who often handles high-stakes contingency matters), explains that the hourly fee of $1,100 is intended in part to discourage anyone from hiring him on an hourly basis.

However, clients aren't necessarily put off by the increases. Even perennial law firm value-hunter Mike Dillon, Sun Microsystems' GC, opines in the article that: "$1,000 for very seasoned lawyers who can solve complex problems doesn't seem to be inappropriate."   

In a similar vein, Jeff Lipshaw, in a post at the Legal Profession Blog, does not find the $1,000-an-hour rate inherently objectionable:

To me, it's just a number.  As a GC, I was far more interested in total budgets and value-propositions than the hourly rate.  So I could see ponying up an ungodly hourly rate for the certain few (like Kevin or his counterpart at Weil Gotshal, the handsome and debonair Steve Newborn) who could bring value to bear (Brackett Denniston III, the GC of General Electric allows as he has done the same).  I scratch my head more at paying a litigator that much for two reasons:  it piles up quickly, and I can only imagine a very few "bet the company" cases that would warrant fees at that level.  Indeed, one of our strategies within the company was to bid out important but not mission critical work to high quality lawyers at non-financial center firms. 

Lipshaw's blogging colleague Nancy Rappaport has some reservations about the higher fees, however:

The problem, of course, is that the rate doesn't distinguish between "review file" and "develop brand-new legal theory that saves the day."  And then there's the copycat issue, where lawyers who think that they're worth $1,000/hour want to increase their rates just to stay in the game....How many of the law firms increasing their rates to the new four-digit high spend much time calculating their "value added" part of the equation?  I'll bet that, instead, they're just trying to make ends meet, given the still-increasing overhead caused by high associate salaries, and of course there's always the ego problem (he charges $X, therefore I will, too).

I agree with Lipshaw and Rappaport to the extent that they recognize that the issue here is overall cost, not hourly fee. If a partner is charging $1,000 an hour to make a couple of phone calls and resolve a case in a morning (for $4,000), then the hourly fee is a far better value than having an associate billing at $200 an hour to work on the case for a month. Unfortunately, as Rappaport suggests, a problem arises when lawyers raise rates and they don't increase value but just keep billing as usual, only at the higher rate. It's hard to justify paying a lawyer $8,000 a day to sit at a court hearing or review some documents.

On the other hand, the comments from the lawyer who charges $1,000 an hour to discourage clients from signing up by the hour doesn't hearten me much either. After all, the only reason that a firm would want to turn down $1,000 an hour to bring clients over to a flat-fee arrangement is where the latter are resulting in effective rates in excess of $1,000 an hour. And I naively believed that the point of flat fees was to increase value to clients, not generate more money for lawyers.

But what's your view? Would you pay $1,000 an hour to a lawyer, and if so, in what circumstances? When is that fee justified -- if ever?

Posted by Carolyn Elefant on August 22, 2007 at 04:18 PM | Permalink | Comments (1)


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