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After 66 posts to my other blog “Lawyers with Troubles” I have closed that line of blog posts and will return here for news, commentary and other writings.

More soon.

Ted

Indiana Supreme Court – Choosing a Justice [update]

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One thing that has struck me about the many discussions over naming a woman to the Indiana Supreme Court, including today’s (7-10-12) Star editorial, and the Indiana Law Blog’s* recent post of John Trimble and Federal Judge Jane Magnus-Stinson’s comments is that something is still missing in the analysis.

The Indiana Supreme Court is a team (I will start by discounting the use of sports analogies as they minimize the topic in some eyes, but will end up using that analogy because it fits so well). This is a five person group assigned by Indiana’s State Constitution with making some of the most profound decisions in the state’s history.

Using the sports team analogy, since it fits in so many ways, there is another five person activity that the people of Indiana understand. If Larry Bird, NBA Executive of the Year, would have thought that every spot on the Pacers roster had to be filled with a Roy Hibbert, (7’0” center) style tall player, because the tall guy was the Best Available Player each time the choice came up, and without taking into consideration the roles that the team needed to be successful, Bird would have lost credibility, and the resulting team would not win very many games.

Every coach and general manager of a team sport builds the team based on the totality of the needs of the team, a basketball forward without a strong point guard suffers, a football team of only quarterbacks is weaker than one with linemen and receivers. A volleyball team without a setter, a digger and a hitter is in trouble.

If the Supreme Court was like the Olympic swimming team, it could take the best in every event. But the swim team is a very different kind of team than a “team sports” team. Michael Phelps does not swim slower if Dara Torres loses, but the Pacers and Hibbert do play poorer if Granger and West take a night off.

Is a woman on the court a “role position?” Not in a quota system of “one woman, one person of color, three white men.” But as lawyers with trial experience, trial court judges, transactional lawyers, large firm lawyers and small firm lawyers all need to be found in the appellate court system, and on the Supreme Court, so to do women, African Americans, Hispanics, and gays. None of them should be excluded from court service, and some have the specific skills and qualifications that are needed to strengthen the Indiana’s Supreme court.

Gov. Daniels should follow the Pacers lead, even if the appointment is first thought to be a Plumlee – that Reggie Miller selection worked out, and his sister played a fair game too.

While quality and experience differ from person to person, in judging the members of legal profession, or humanity, there is never “a best” or “most qualified” candidate. And all things are never equal.

*[update, first ed. had the Indiana Law Blog name incorrect, as the Indiana Legal Blog]

What about a Fee Guarantee for Legal Services?

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Would a lawyer ever agree to guarantee legal services? Why and what is it worth? Most lawyers  already provide a guarantee of many of their legal services. Does that surprise you? How the guarantee works depends on the issue involved and the fee structure.

You see it in ads every day, “No fee if no recovery in your personal injury case!” That qualifies as a fee guarantee, (not a results guarantee) and is based on the outcome of the client’s personal injury case. In exchange for the guarantee and the free consultation the value of the fee is fixed based on the outcome of the case. A fair deal for all in almost all cases.

No lawyer can (or should) guarantee the outcome of a case, there are too many variables. No “fee guarantee” or contingency fee is permitted in a criminal case, such as “no fee if you are convicted” or “money back if you go to jail”, that is an impermissible contingency fee in Indiana and most states. Likewise, a lawyer in Indiana cannot have a fee based on the success of a dissolution of marriage action. The court nearly always grants the dissolution sooner or later.

But what about other legal matters that are not prohibited? Would it make sense to have a fee based guarantee on the success of a business purchase agreement? One fee for the negotiation and a second fee based on the price or speed of closing or whatever is of importance to the client makes some sense. It could be based on the negotiation skills the lawyer brings to the table. It is permissible and is subject to the client’s understanding of the terms and agreement to the fee. If the fee is somehow contingent the rules require that the agreement be in a writing confirmed by the client.

Why did I say that most lawyers do provide a guarantee? Most lawyers will fix the mistakes they make, and they usually do it for no additional fee. That is one essence of a fee guarantee. And, naturally, a good lawyers make fewer mistakes in their work. The smarter lawyers realize that a small amount (relative to the price) of the fee is set aside for the guarantee. That amount is there. in exchange for the value of the guarantee, to cover those mistakes that do get made. These lawyers know that nobody will be perfect, and they may have to occasionally correct a mistake they, a staff member, or a third party makes, and for which the lawyer usually gets the blame. If the lawyer calculates right, she can achieve a premium result from having to correct fewer mistakes than expected over a period.

If a lawyer always corrects mistakes, but makes no promise to the clients of a fee guarantee, the premium opportunity will be gone, since clients will agree to pay more for a product with a stated guarantee. If you give the guarantee, you should tell the client about the extra value that you offer and that they get, and that you charge the client proportionately.  If the client wants to bargain for a reduction of the fee, the fee guarantee is something of value that you can negotiate away – before beginning the representation.  See if the client wants to give up the guarantee to save a few percentage points on the fee!

Law School or Not?

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A little off the normal subject, but we will get around to fees eventually. Would or should you recommend a child or a friend’s child going to law school these days?

There has been a change in the legal profession over the past few years. As the housing bubble burst and the economy slowed down, things have happened in law schools great and not so great. Graduates stopped getting jobs that paid wages with little tie to the general economic forces.

New lawyers with little legal value to add to the work done for clients were being paid wages greater than the professors who taught them what they knew. Law firms apparently were buying into the concepts promoted by author Malcolm Gladwell’s book Outliers, where expertise comes in the early immersion into a field. Sometimes considered the 10,000 hour rule, a person has a chance to become extraordinary at a subject after spending more than 10,000 hours working on the skill.

One firm is alleged to demand 3,000 billable hours from its young lawyers. A legal billing expert, John Conlon asserts that a lawyer will normally spend about 3 hours in the office for every two billable hours properly produced. With the firm apparently requiring 4500 hours out of the total annual 8760 hours (8784 during the leap year), 51.3% of the year must be at the office.

I am not an alarmist, and I do not think the legal profession is falling apart. Thirty years ago people were making the same kinds of claims, such as there are too many law students, the law students are spending too much money going to law school, they are taking on too much debt, and there are not enough good jobs to feed all the graduates. I trust the marketplace over the long haul. Yes Congress has recently made the debt nondischargeable, and the amounts are bigger than they were (my educational debt was about 1/2 my first year wages). And for the recent graduates, it is tough out there. Many will leave the field of law, but they leave it with an education that will benefit them in whatever they do.

Good law grads are now moving into positions that mediocre lawyers once took, and that is good for the retail clients who need legal services. When the best and brightest went into wholesale law (working on projects that affected small parts of business operations) the retail practice (dealing with the people who actually live with the result of the legal service) suffered. Now it should get stronger, and that is good for the clients.

What does this have to do with fees? Excess supply of a fungible product drives prices down. Legal services are marginally fungible, in that for some things it does not pay to have the best and brightest. The fees for those fungible services are now more negotiable, and trending flat. The more expertise a lawyer has in the field, approaching the Outlier standard, the more value the lawyer brings to the client, and the fees are holding steady or moving up.

I might recommend to a high school student to keep the law as one option, but for the college junior I may suggest culinary school. It seems to be a good choice for the short run. Law school can wait and many good schools want students with real life experience. Having worked in a restaurant a few times, I know the owners and managers learn how to work and work hard. That is the true skill a potential law student needs to know coming into law school.

addendum

A great new article came out in the January 2012 American Bar Association Journal, written by Professor Bill Henderson at Maurer Law, and Rachel Zahorsky of the Journal.  It focuses on the economics of the law student loan programs and future of the profession. The Law School Bubble focuses on the issue from a different angle.  Good job Bill and Rachel. 12-30-11

Who is the experienced one: When the client meets the lawyer

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If the lawyer is a professional in her relationship with a potential client, shouldn’t she show it by demonstrating her knowledge of the issues and the scope of the client’s legal matter by setting a proposed legal fee for the representation that she can stand behind?  A firm fee in an amount where the lawyer makes a good living for the work done, and the client can count on the fee as quoted?

As a lawyer, I need to share my professional judgment and knowledge with each potential client, to educate the potential client about the scope of the problem they are faced with, whether a lawsuit or a business transaction. Often a client thinks that the legal matter is easier to handle than my prior experience has taught me that it will turn out.  It is my duty and challenge to explain and make clear the scope of the issues involved. If I can do that, and the client realizes the potential issues that need to be tackled, then I should be able to price the legal services, to a reasonable degree if the scope of the services offered are not required to change.

If the client cannot see the potential issues or scope of complexity that will or could happen, then we may not get to an agreement for representation. There are times when a potential client gets sticker shock, cannot believe that the legal issue could cost as much as I  offer to handle the issue for. I will lose some of those clients, but they do have a good sense of what the scope of the case is, and on occasion I have had that person come back to say that I had a better explanation than the next lawyer they talked to, so I get hired. Then I have an educated client who has faith in my understanding of the matter, and a fee that finally makes sense.

The final question is whether I have a duty to price my services so the client can afford them? For most people affordability is a choice of priorities.  Is the legal issue more or less important than other expenses in the client’s life? That is a matter for the client to decide. I can change the value of the legal services, to a small extent.  I am bound by the Rules of Professional Conduct, and the skills I apply cannot be reduced even if the price is reduced, but there may be things we might be able to do, such as operate on a “no deadline” basis for your work.

My experience as a consumer and as a provider of legal services is that the client who disagrees about the importance of the work I am asked to do will not agree about the important aspects of the services I provide. A potential client who wants to have a million dollar estate plan crafted for the price of a ten thousand dollar estate plan will not be satisfied with either the product or the price, if I were to agree. Don’t worry though, I won’t.

State Bar Panel discussion

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I had the privilege last week to join a panel with three of Indiana’s finer lawyers on the issue of Alternative Fee Agreements: The Ethics of Legal Billing.  With me were Judge Mike Witte, now the Executive Director of the Supreme Court Disciplinary Commission, Patrick Olmstead, of Hoover Hull, and a member of the Legal Ethics Committee, Steve Badger, of Bose McKinney and a member of the PLEADS section.

The highlights from my perspective included

  • the stats from the Altman Weil group showing that lawyers who are proactive in leaving hourly billing are seeing the same or more profits at about 70%, but those who are reacting to the client are seeing less in profits at about 60%;
  • the case discussions that give comfort to lawyers that flat fees, however designed, are appropriate so long as they are reasonable when agreed to and when the case concludes, are earned, and are understood by the client;
  • changes to the fee that benefit the lawyer must be handled in accordance with the rule;
  • and the court’s intention that as a fiduciary, the lawyer must put the client’s interests in fees in the proper perspective.
Patrick and Steve put together a great PowerPoint on the issues.
Well done team.

You make the Decision here

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I received a perfect Value Pricing issue this week. A fellow lawyer had a fee question, which I get from time to time. L (short for Lawyer) takes an opponent to task for a “frivolous pleading” and the court agrees, sort of. The judge finds that the pleading was frivolous (according to L) and awards L’s client the sum of $100 to punish OP (short for opposing party) for the bad faith action. My first reaction is “Thanks Judge, where is your memory of being a lawyer?”

L asks: “How much do I make my client happy by chasing the OP and its counsel for the $100?” The lawyer’s conundrum. What do you do when a client’s choice is “not worth it” from a dollars and cents point of view?

DON’T just hourly bill it based on your previous arrangement. Have a conversation with your client. Tell C that the judge did C a small favor. Both sides know the judge agreed, but did not think it was worth the fight. Now the client has a big decision to make – do you try to collect, or hold it over OP’s head? The fact is that you will spend nearly as much time trying to collect $100 as you did proving that OP filed the frivolous pleading. Let’s say that was $500.

As a sensible lawyer you probably would not spend an additional $500 (in addition to the first $500 which an economist would label a sunk cost) to collect $100. But that is not your decision to make. Talk to your client, tell her the truth, that to collect the $100 will be more expensive than the $100, but that this is their dispute and you are not in the business of subsidizing the fights of your clients. Then do three things that are part of Value Pricing: 1) tell the client what it will cost to pursue the $100 award, in order to prove to OC that the client won that issue; 2) tell the client that this is a fundamental change in the fee agreement, so the client is entitled to a second legal opinion under Rule 1.8 of the Rules of Professional Conduct, and; 3) let the client decide.

So, you make the decision here – do you spend $500 or more (I guessed that the value of the chase was $500, it might be $300 or $800 or more) to teach the opposing party OP a lesson that the judge valued at $100? Make your comments to let us know.

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