Regular readers of Above the Law know about the class action lawsuits brought against some law schools accused of fraudulently inducing students to enroll. For example, ATL covered the great legal work evident in the dismissal of a lawsuit brought against New York Law School, and the affirmation of that dismissal on appeal.
What you might not know, however, is that cooking schools, including the California Culinary Academy in San Francisco, were defendants in similar litigation long before law schools were. I knew Ray Gallo, the attorney prosecuting some of those landmark cases, so I followed them closely. Those lawsuits established a kind of model for proceeding against law schools. Unfortunately for the cooking schools, their litigation results were significantly worse than those obtained to date by the law schools.
The law school litigation naturally reminded me of the cooking school litigation, which in turn reminded me of my friend Dupree. He had always dreamed of being a gourmet chef, so he was jubilant when he graduated from the Culinary Academy. Obtaining the education and pedigree were expensive, but Dupree was fortunate to land a job in the kitchen of a world-renowned, five-star steak house. The signature dessert, a sweet jelly roll, was especially appealing to the recent graduate of the school’s baking and pastry chef program.
Dupree worked at the restaurant for years. Though he never became a chef there, he gained valuable experience and considered himself fortunate to be able to observe and learn from experts in the field. Eventually, Dupree decided to pursue his dream of opening his own restaurant.
Dupree explained his vision: He knew that there were a number of people who were willing to pay top dollar for high quality, expensive steaks. And he knew that there were people who loved inexpensive hamburgers even if made from lower quality beef. He wondered about the overlap between those markets.
A five-star steak house generally doesn’t serve burgers. And burger joints don’t generally serve filet mignon. Dupree sensed there was a market for combining the two; that is, high quality, relatively expensive hamburgers.
After a lot of planning, Dupree opened his wagyu burger joint to great fanfare. For those who are not foodies who relish in good eats, wagyu is a breed of cattle which is prone to intense marbling and flavor. The popular Kobe beef is one of the more popular kinds of wagyu.
Dupree’s burgers were certainly not cheap, costing well over $20. But his restaurant did well. It catered to customers who were willing to pay for exceptional quality, but wanted a more casual dining experience. And even though the burgers were expensive relative to, say, McDonalds, the meal still cost a lot less than it would cost to eat at a Michelin-rated restaurant.
The restaurant continued to grow in popularity, cementing a reputation for serving the best burgers in town. But this branding — as a hamburger joint, rather than a restaurant serving exclusive beef — became problematic. Over time, rather than appreciating the casual and relatively inexpensive availability of premium beef, the newer customers began lamenting the high cost for a mere hamburger.
Dupree responded by expanding his menu to include lesser-priced alternatives. He continued to offer wagyu, but also offered less expensive, more traditional types of beef. Those other hamburgers cost about $14.00. The traditional burgers became the restaurant’s top sellers.
Dupree then began offering various specials, discounts, and coupons. These, too, proved to be popular. Dupree’s restaurant was busy, with most patrons ordering the less expensive options. Without OpenTable, customers who might have made reservations to enjoy the wagyu found themselves crowded out by the customers who wanted the less expensive alternatives.
Eventually, Dupree realized the wagyu burgers were no longer driving his profits and, in fact, were unprofitable. He incurred considerable expense importing the beef from Japan, and the relatively low sales made it unprofitable for him to continue offering it. When wagyu disappeared from the menu entirely, no one really seemed to notice or care.
The trend continued. The lower the prices that Dupree charged, the more customers he seemed to attract. No one was much surprised or disappointed when Dupree eventually converted his store to a McDonald’s.
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With boutique and small law firms, I wonder if there is a natural tendency to prefer high volume, low fee work to low volume, high fee work. I’m not the first to notice this; for example, I found an interesting article from seven years ago discussing this very thing.
The economic law of demand says that demand increases as price decreases. Presumably there will always be more demand for less expensive legal services. Whatever the market for expensive, specialized services, there will always be greater demand for less expensive, commoditized services.
Billing ten clients $500 each generates as much income as does billing one client $5,000. Billing ten clients $5,000 each generates as much income as does billing one client $50,000. If you are having trouble finding clients who will pay your rate, you cannot help but notice the greater number of clients willing to pay you something less than your rate.
For firms just starting out, if there is no other work, I imagine it’s hard to turn down the lower fee matters. A small firm might find itself more inclined to take on smaller cases because of necessity or otherwise.
I don’t think that’s a bad thing. I’d hope that the price of legal services would go down. I’d hope that more lawyers could serve more people with limited means. And in a true win-win, low fee work is an option for more lawyers, including junior attorneys.
A firm should proceed with caution though. There are a number of reasons why discounting your rate could be a bad idea. For example, it could send a message that you don’t think you are really worth your “standard” rate.
Also, the success of a commodities type of practice depends on maintaining a certain volume of new cases coming in, and establishing routine handling of matters. But if a firm becomes known for its low fees, it might be hard to successfully market or brand itself as a firm which provides services worth a much higher amount.
If you are capable of generating the business and performing “higher end” legal work, there could be reason to prefer handling fewer, higher value cases. In civil litigation, for example, handling a case with more than a few hundred thousand dollars at stake can take as many resources — and take nearly as long — as does handling a case with ten times that amount at stake.
There are advantages and disadvantages to every type of practice and fee structure, and I don’t claim to know what is best for any particular lawyer. But whichever way your pleasure tends, I think it behooves you to stay aware of the pressures acting upon your choices so that you make them consciously.
Strategic Options for Commodity Practices [Edge International Review]
Tom Wallerstein lives in San Francisco and is a partner with Colt Wallerstein LLP, a Silicon Valley litigation boutique. The firm’s practice focuses on high tech trade secret, employment, and general complex-commercial litigation. He can be reached at [email protected].