Alternative Fees

Tom Wallerstein

When I started my firm, several mentors gave me the same advice: Don’t work for free. It’s easy to see the problem with working for free. Giving away what you’re trying to sell isn’t exactly in the business plan. Unfortunately, this sage advice can only really be learned the hard way, through experience.

Working for free can arise in many different ways. The most obvious example is a client who wants you to represent him but can only promise to pay you later.

Even if your gut tells you that taking on that client is a bad idea, this can be surprisingly tempting to a new firm or solo practice. For starters, there is such a thrill with getting your first client, or your first “real” client, or your first big client, or your first whatever client, that the excitement can cloud your better judgment. You will be tempted to overlook the red flags that you will not be paid for your work….

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Edward Hayes (on The Charlie Rose Show)

What draws people to the practice of law? Some do it for the paycheck, some do it for the prestige, and some do it for the excitement and fun of it all.

Veteran New York litigator Edward Hayes belongs firmly in the final camp. Although he has amassed fame and fortune over almost four decades of practicing law, his legal career reflects a quest for adventure.

And what adventures Hayes has had. After graduating from the University of Virginia and Columbia Law School, he joined the Bronx District Attorney’s office, where he prosecuted homicides (which there was no shortage of in the Bronx in the 1970s). He then launched his own practice, handling civil and criminal matters for such clients as the estate of Andy Warhol, notorious “Mafia cop” Stephen Caracappa, acclaimed architect Daniel Libeskind, actor Robert De Niro, celebrity editrices Anna Wintour and Tina Brown, billionaire publisher Si Newhouse, and then-paramours Sean Combs and Jennifer Lopez (after they were arrested together back in 1999).

Eddie Hayes has even found his way into literature. He served as the basis for Tommy Killian, Sherman McCoy’s defense lawyer in Tom Wolfe’s great novel, Bonfire of the Vanities. Wolfe dedicated the book to Hayes, a close friend of his for many years.

This past summer, I enjoyed the privilege of spending a day with Ed Hayes. We met up at Penn Station and took the train out to his vacation home in Bellport, Long Island, where we enjoyed a leisurely lunch, dining outdoors and overlooking the water. (There are Lawyerly Lairs-style photos of his house, after the jump.)

During our time together, Hayes reminisced about his extraordinary life in the law, offered career advice for fellow lawyers, and showed me how to properly prepare a caprese salad….

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Reema N. Bajaj

Next week, Reema Bajaj, the comely Illinois attorney who has been accused of prostitution, will celebrate her 26th birthday. (You can look up her date of birth on the DeKalb County criminal docket.)

But how happy will that birthday be? There’s a cloud looming over this lovely lawyer….

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Admit it: Your corporation has a lot of legal flotsam and jetsam.

This is probably true no matter what business you’re in. On the corporate side, you have routine business transactions, and you may well handle those in-house. On the litigation side, you have a bunch of routine cases that pose little risk to the company but represent a recurring, and predictable, expense.

I propose that you package up that flotsam and jetsam and sell it off.

What am I thinking?

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I have a friend who is looking for a job at a small law firm. (No, this is not one of those instances in which a person refers to herself as a “friend.” Do you see any quotation marks?) Not surprisingly, she is finding it difficult to land said job. As reported on Vault’s Law Blog, June was a particularly bad month when it came to legal unemployment.

My friend’s situation is not great. Of course, I did not say this to her. Indeed, like most conversations with my good friends, I say this behind her back instead. I am, after all, a good friend.

While things may not be looking so rosy for my friend as an aspiring small-firm lawyer, they are looking pretty sweet for some employed small-firm lawyers….

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So Lat calls me up all excited about some Biglaw Midsummer Bonus or something, which I totally ignore, and also about some hysterical dicta that Judge Kozinski wrote, which I also ignore (although it probably was pretty funny), and then he starts asking me about my law career. Which, you know, ended. And he points out that I failed to get ATL approval of my decision to close my small firm, which means technically, my column should just be called “Big Lawyers,” which is a whole other kettle of fish.

Then Lat says he knows how we can fix it. “Go on,” I say. Lat says that I can tell our readers exactly how to start pricing their legal services instead of just billing their time. “But Lat,” I plead, “I can’t give away my secrets. I have a whole new consulting firm to tell people these secrets in exchange for scads of dollars.”

Lat is quick to admonish me. “We don’t keep secrets from our readers, Jay. That’s why our readers know all about my obsession with all things Sophia Chua-Rubenfeld and why they all know that Elie is as jovial as an Ewok in real life.” Then his tone sharpened: “Plus we can always get Staci to write your column in a tenth of the time it takes you. And we can even have her use your name as a pseudonym.”

Well played, Mr. Lat, well played. So here then are the secrets to pricing your legal wares in eight easy(ish) steps.…

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What did you do yesterday? I’m assuming you went to work. Did you put in a full day? Great. Let’s assume you got started around 9:00, took about an hour for lunch, and signed off at 7:00. Maybe for you that’s a light day, or maybe that’s a long day. Doesn’t matter. So that means you worked nine hours. OK.

Let’s further assume that you frittered away an hour, mostly spent reading Above the Law or wondering why they’re still playing hockey in the summertime (I’d make a Bruins reference here, but it would be strictly from the bandwagon). So that leaves eight hours of bona fide work. Eighty point-ones. Four hundred eighty minutes.

Now look over your timesheet from yesterday, and think about how you spent those 480 minutes. Were they all the same? Were they all of equal value to solving your clients’ problems?

Of course not. But if your minutes aren’t all the same, why are you counting them as being the same? What are the real reasons that lawyers track their time?

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Egad! The General Counsel just announced that your target for next year will be to handle 20 percent of all outside legal spend on an alternative fee basis! What do you do?

You can’t just do flat fee agreements! What happens if you agree to pay too much, and you’ve given away your client’s money? And success-based fees are a great idea, but they’re impossible to calculate! How does anyone know at the start of a piece of (non-routine) litigation what the case is worth? Since you don’t know the value of the matter, you can’t set the target from which you’ll judge success.

What’s an in-house lawyer to do?

Calm down. Here’s a way to ease into alternative fee agreements that will put neither you nor your outside firms at risk, will educate you slowly over time, and will meet your internal objectives….

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Paul Oekten

* “How can I keep other people from stealing my idea?” If you’re hoping to do so through copyright law, good luck. [Law of Fashion]

* Howrey CEO Robert Ruyak blamed alternative fee arrangements for contributing to Howrey’s downfall, but Jay Shepherd isn’t buying it. [The Client Revolution]

* Speaking of Howrey, former partners have been picked up in recent days by Venable, Covington, and Arnold & Porter. [Am Law Daily]

* Paul Oetken, the openly gay New York lawyer nominated to the S.D.N.Y. bench, has received a “unanimously qualified” rating from the ABA. [Poliglot / Metro Weekly]

* For-profit colleges are under legal attack; could law schools be next? [STLtoday.com]

* What do great jazz musicians and successful trial lawyers share in common? [Underdog]

* What are some strategies for playing hooky from your Biglaw job? [Corporate Monkey Lawyer]

* It’s Pi Day. Or is it Pie Day? How about everybody eats 3.14 slices of pie so they’re covered both ways. [Pls Clarify via Blawg Review]

* It’s NCAA tournament time. Join our group “Above the Law Blog” with the password “abovethelaw” and fill out a bracket. The top three finishers will get ATL t-shirts (and mad respect from lawyers who like to procrastinate everywhere). [ESPN]

People are talking about an interesting Slate article entitled “Leaving Big Law Behind: The many frustrations that cause well-paid lawyers to hang out their own shingles.” It’s currently the most-read piece on the site. But it’s actually quite similar, even down to some of the sources, to an article that appeared a few days earlier in Crain’s New York Business:

A lawyer’s hourly billing rate used to be a badge of pride — the higher the number, the more valuable (and supposedly brilliant) the lawyer. But over the past 18 months, a strange phenomenon has been sweeping the legal arena: Partners at major law firms are quitting because they want to be able to charge less for their services.

This is, of course, not a new development. Kash and I wrote about it in a December 2009 cover story for Washingtonian magazine, in which we interviewed a former member of the $1,000-an-hour club who left a large law firm and started his own shop so he could offer clients better value. But all the recent coverage — in Crain’s, Slate, and elsewhere — suggests that the trend is picking up steam.

Which kinds of lawyers are leaving Biglaw to hang up their own shingles? Why are they doing it? And how’s it going for them?

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