Boutique Law Firms

Tom Wallerstein

I’ve known some lawyers to proudly proclaim that in litigation, they leave no stone unturned. They boast that they will pursue every defense, review every document, and raise every argument. In doing so, presumably, they assure victory. They strive to win at any cost.

This approach makes sense when a well-funded client faces bet-the-company litigation. In that case, of course, a lawyer should pursue every possible path to victory, even if a particular path seems like a long shot. It may cost a lot to win, but even more to lose. In these cases, the economic interest of the attorney and the client are aligned. If the amount at stake warrants it, the lawyer can work the case to the max, and the client is happy to pay for it.

But smaller firms handling smaller matters know that many times, winning in litigation is relative to the amount at stake and the fees incurred. Every client is initially delighted to receive a favorable verdict at trial. But when the heat cools down, and only the bill remains, even the winning client may resent his lawyer when he reflects on the price he paid for his “victory”….

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I have spent many hours talking to others about the future of the legal profession. My Biglaw friends (at least the one who remains) proclaim that the future of legal practice is not that different from the past — by which she means that Biglaw is the future. The attorneys I meet from small law firms, in contrast, predict that Biglaw is out and small firms will prevail. My unemployed lawyer friends believe that they, along with a bunch of other unemployed lawyers, will toil away as hourly document review attorneys in the future. I believe that the children are our future, teach them well and let them lead the way. Oh, sorry, that is Whitney. RIP.

Corporate Counsel recently published an article, Bye Bye Big Firm, that predicts that while small law firms will not overtake Biglaw, they will be a major part of the future of legal practice. The article offers several reasons for predicting this future trend:

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Tom Wallerstein

If you’re trying to grow a solo or small firm practice, you generally shouldn’t work for free unless you have a deliberate business development objective in mind. Conversely, if you have a client willing to pay, you generally should prefer to scale up your headcount instead of turning down work due to lack of bandwidth.

Does this mean you should never turn down a client who is willing and able to pay your fees?

No. There are lots of reasons it might make sense to turn down a paying client….

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Tom Wallerstein

There comes a time in all associates’ careers when they stop and do the math. They think about their salary, bonus, and benefits. They think about their billable hours. They multiply their billable hours by their billable rate and suddenly they think, hey, WAITAMINUTE. My firm makes three four five times what it pays me!

Like any other salaried employee, the more hours an associate works, the less they make per hour, bonuses notwithstanding. They might not mind so much if they’re also bucking for promotion, i.e., up for partner. Regardless, at some point, every associate thinks, “if only I were paid as much per hour as I bill per hour . . . .”

That moment for me was the epiphany that ultimately led to helping form my own firm. But since that time, I’ve also been able to see the other side of the fence, so to speak. There are a lot of reasons — some obvious, and some less so — why the math isn’t quite as simple as it seems….

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* Obamacare’s individual mandate may be in jeopardy, and it’s all because of that stupid broccoli debate. No, Scalia, as delicious as it is, not everyone would have to buy broccoli. [New York Times]

* Biglaw firms aren’t going away, but thanks to the recent onslaught of partner defections to small law firms, their high hourly rates might soon be going the way of the dodo. [Corporate Counsel]

* The “good” news: Northwestern Law will be limiting its tuition hike to the rate of inflation. The bad news: next year, it will cost $53,168 to attend. I officially don’t want to live on this planet anymore. [National Law Journal]

* A Littler Mendelson partner is recovering from a stabbing that occurred during a home invasion. On the bright side, at least he’s not a partner at Dewey — that’s a fate worse than being stabbed these days. [Am Law Daily]

* Law school applicants are dropping like flies, but some law schools were able to attract record numbers of students. UVA Law must have some real expertise in recruiting collar poppers. [The Short List / U.S. News]

* “I have a suggestion for you; next time, keep your [expletive] legs closed.” O Canada, that’s the basis of one crazy class action suit, eh? Dudley Do-Right would never treat a female Mountie like that. [Globe and Mail]

Lawyer fight!

When a person mentions high-powered asbestos litigation, most of the time you would assume that means lawsuits seeking damages for health problems caused by the infamous chemical.

Not this time. Right now, there is a war emerging between attorneys at one of the most prominent asbestos litigation law firms.

Last week, a former attorney at a major asbestos plaintiff’s firm sued his former colleagues. Joseph C. Maher II made some pretty intense allegations of lawyerly espionage that one blogger called a combination of the “lawyering skullduggery of The Firm with the medical malpractice aspects of The King of Torts.”

What is going on here? Is this the real deal, or just a disgruntled, laid-off lawyer?

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Tom Wallerstein

Law bloggers, including me, spend a lot of time talking about the economics of being a lawyer. This site voraciously covers news about salaries and bonuses, and often opines about the financial value of a law degree. I, too, often write about some particular financial aspect of managing a litigation boutique.

But as I have told countless prospective and current law students, if you’re in it for the money, you’re in the wrong profession. And this was true even in the glory days when six-figure bonuses were routine, and when students were only half joking when they called for starting salaries of $190,000 per year.

Virtually no amount of money can justify tolerating everything it means to be an attorney. Ask someone like Will Meyerhofer. The billable hours, the deadlines, and the overall stress makes many attorneys question why they ever went to law school in the first place. Dear 16 year old me…

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Tom Wallerstein

Over the last few years, the legal market has changed dramatically. We live in a buyer’s market in which the clients hold the upper hand and can demand financial concessions from their attorneys that go beyond lower hourly rates.

This good news for clients might sound like bad news for lawyers. If lawyers can’t charge as much, they likely won’t make as much. But although greater price competition might lower revenue for some firms, it surely presents an opportunity for others. Small law firms often compete with bigger firms on price, and increased client sensitivity to legal fees can be a marketing boon to firms that can undercut their competition (with the familiar caveat, of course, that the smaller firm must be able to provide the resources and quality required by the particular matter).

The changing market invites, if not demands, lawyers to offer concessions for clients. Happily, many of the concessions have relatively little impact on the firm’s bottom line, but can garner significant goodwill with clients. For example….

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Tom Wallerstein

I’ve written before about some of the challenges a small law firm faces when hiring employees. But more fundamental and difficult questions are why and when should a solo or small law shop expand by adding employees?

Like all businesses, most firms with excess demand for their services have a natural incentive to grow. A company is leaving money on the table if it is forced to turn away work because all of its lawyers are at full capacity with their billable work.

The incentive to grow might be tempered by concerns over preserving a valued culture. A small law firm might resist growth because it fears disrupting a favorable workplace environment. With each new associate hired, however, the reasons for not hiring the next associate get weaker.

The major disincentive to growth is the inability to predict future business. Litigation is especially fickle. A case might go to trial, and generate hundreds of hours of billable work, or suddenly be dismissed or settled. In litigation especially, sometimes the line between swamped and dead is razor thin.

This uncertainty makes hiring additional associates extremely risky — even if the immediate workload warrants it….

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I hate to invoke a cliché, but “David versus Goliath” captures the challenge a smaller firm faces when litigating against an Am Law 200 firm. A small firm can feel like David when facing a larger firm that can bring more resources to bear on legal research, drafting motions, reviewing documents, etc.

The challenge increases when applied to clients. Many of my firm’s initial clients were startups or emerging companies with limited litigation budgets. Their adversaries often were much larger, established companies with seemingly unlimited budgets. Thus, we faced not only the challenge of litigating against brand-name firms with hundreds of attorneys, but we also initially had clients who simply could not afford to spend as much in legal fees as their well-heeled opponents.

So how can a small firm, especially representing a smaller company, effectively litigate against a proverbial army of lawyers representing a client to whom money is no object?

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