“Low-overhead high-talent firms”!  I like it.

Hat Tip:  Minnesota Litigator.

Lawyer have probably been discussing the death of the billable hour since, well, the birth of the billable hour.    The debate continues, and some heavy hitters recently weighed in at an ABA meeting in Atlanta.

Lawyers and their clients are considering new structures such as fixed fees, flat fees and success fees, among others.  So-called value billing, which can mean a flat rate for work for the year, frees lawyers and firms from recording billable hours — though keeping track of overall hours and work conducted may still be ongoing in order to determine overall efficiencies and work done by a lawyer within the firm.

Clients have more security in knowing how much the fee over a certain period will be, and lawyers are also more satisfied because they don’t want to spend their time figuring out quarterly or even 10-minute time allotments of their day.  Value billing also provides an opportunity for firms to gain expertise in areas in which they may not be known as specialists.  As super-litigator David Boies explained, “If a corporation has a flat fee for a year, a firm can go the company and say, ‘You’re already paying us, you might as well use us.’”  Rather than hiring another firm, a corporation may want to give their flat-fee firm a chance to prove what they can offer.  A flat-fee structure can also allow relationships to spread across different corporate departments and to different specialty areas within a firm.

Going one step further, lawyers are also moving towards the “virtual firm”, which makes such alternative arrangements even easier.

The Minnesota Court of Appeals issued an opinion this week in the case of Williams v. Heins, Mills, & Olson that considers such interesting legal issues as  misrepresentation-by-omission, minority shareholder rights, punitive damages and prejudgment issue.  What I found really interesting, however, was the peek it provided into the finances of class-action securities fraud lawyers. 

Brian Williams joined the law firm of Heins, Mills & Olson (“HMO”) in 2000 and became a partner in 2003.  In May 2004, Williams became a non-equity member of the firm, entitling him to a five percent interest in net firm income.  A dispute over how that 5% would be calculated is what led to the lawsuit.

Williams claimed to have billed 2,400 hours per year in 2004-2005, “giving up time with his family, and volunteering and coaching opportunities.”  In exchange, between September 2005 and December 2006 Williams received almost $4.5 million in distributions following receipt of class-action fee and cost awards, including $335,953 on September 21, 2005 (the Broadcom distribution ); $11,072 on June 1, 2006 (the Relafen distribution); $4,164,975 on November 2, 2006 (the AOL distribution); and $49,513 on December 6, 2006 (the Laminates distribution).   (As context, the HMO website describes the Broadcom matter as a $150 million settlement received as lead counsel for the shareholder class in Securities Fraud Litigation). 

Williams resigned from HMO in January 2007,  and sued two months later.  He claimed that the firm had misrepresented his share in the distributions, and that he was entitled to an additional $2.1 million.  After a trial, a jury awarded him $1.65 million in damages, but denied him any punitive damages.  The Court of Appeals affirmed various rulings made by the lower court.   Assuming that the Minnesota Supreme Court does not reverse, that means Williams walked away with more than $6.5 million during a few years at HMO.  Not bad for a non-equity member. 

Gentle reader:  please know that most lawyers do not take home anything close to these amounts and that, like you, we are just trying to support our families.

No surprise to this big firm refugee, but a new study by a legal recruiter confirms that the recession has helped drive Fortune 500 clients tosmall, midsize and boutique law firms. “Because of their lower overhead and operating costs, small firms can offer the same legal services for significantly less than large firms. This makes both new and established small firms attractive to cost-conscious clients,” according to the report from Robert Half Legal, “Future Law Office: Delivering Maximum Value in a Cost-Conscious Legal Era.”

Providing large-firm expertise at small-firm rateshas become even easier because many small and midsize firms have picked up talent that was unavailable to them before the recession. This has helped arm boutique firms with the capability to serve middle-market companies that can’t afford big-firm rates.  Technology, of course, has also leveled the playing field, allowing small firms to compete with their bigger brethren.

Small is the new big.  Only more efficient and more responsive.

By the way, Minnesota CLE’s Solo and Small Firm conference will be August 1-3 in Duluth.  See you there.

Hat Tip: Larry Bodine

Here is a great little story about a car mechanic going the extra mile (pun intended).  Treat your clients well, because what goes around comes around.

It seems British lawyers are jumping on the “virtual law firm” bandwagon.  They seek to develop “a fresh way of working,” using technology ”to give a streamlined service without the traditional law firm infrastructure” and offering ” greater value for money and certainty on fees.”

Sounds familiar!

I just stumbled across an interesting article called “Building a Virtual Law Firm” by Joseph Kashi, an attorney in Alaska.  His article was written six years ago, but it highlights some trends that have only gained speed since then.

Kashi first points out that there is nothing new about “virtual” law relationships; most attorneys regularly associate with, and work closely with, local counsel in other states as the need arises. They collaborate with other attorneys who have expertise in specialized areas.  We use the services of professional and paraprofessional staff who either telecommute or otherwise work off-premises. Attorneys are generally comfortable working with investigators, court reporters, and expert witnesses whom we may not physically meet very often, if at all.

Once we have recognized that these “virtual” arrangements are not a radical departure from our previous ways of practice, we can begin to understand how internet technologies will accelerate this process and create new opportunities.  As Kashi puts it:

Mainstream use of Internet-based legal practice systems will force law firms to change into radically different, flexible practice associations that respond more quickly to market and technological changes. Future law firms will likely adopt a more flexible and democratic horizontal structure that facilitates the quick and efficient flow of critical information, something that’s critical to the quick parry and thrust of almost any law practice. Further, almost every other industry has found that flexible business structures also lend themselves to better profit margins.

Technology has leveled the playing field.  Before computers, law firms depended on large numbers of associates and paralegals to manually collect and process the vast amount of information required by any significant litigation or transaction. This required the addition of intermediate layers to supervise employees and to control the quality of the paperwork as it gradually flowed to the ultimate users.  These additional layers, however, only slows the flow of information to the lawyers who ultimately use it. Too many intermediate lawyers not only reduce the firm’s productivity and responsiveness but also increase overhead and costs, which are usually passed on to the client in one form or another.

By contrast, a virtual law firm will not need to carry the salaries of regular employees, or the costs of fancy downtown offices in which to house them.  Instead, it will rely upon trusted contract professionals and paraprofessionals specially chosen for particular projects.  Clients will no longer be expected to bear the cost of training associates or bring paralegals up to speed on industry specifics.  This flatter structure will lead to greater speed and flexibility in meeting client needs.  Nor will clients be paying for office space filled with filing cabinets and “war rooms”; today, data can be stored digitally for almost nothing, and layers can collaborate virtually via the internet.  These new technologies greatly reduce overhead costs, and therefore, fees billed to the client.

Professionals as diverse as radiologists and university educators are developing new “virtual” models; law firms need to move in that direction as well.

Apparently, its all about trust.

For my in-house counsel friends, here is a great article from Law360 on ways to demonstrate and quantify your value to the company and resist the drive to outsource legal services. 

Four key elements:  there are some tasks that you can do more cost effectively; you know and understand the business better; you are more accessible; and you are able to manage outside legal costs.

There is also a good discussion on the merits of charging-back legal fees to individual departments within the company.