August 27, 2010 5:01 PM

The Billable Hour Endures

Posted by Ed Shanahan

By Steven Harper

Drinker Biddle & Reath recently announced the appointment of a new chief value officer. According to this report in The Legal Intelligencer (a sibling publication to this blog), it's the product of the Association of Corporate Counsel's Value Challenge initiative encouraging law firms to look beyond the billable hour model and focus on efficiency, alternative fee arrangements, and leaner staffing.

A law firm management consultant called the move "brilliant--a real culture shift--a business model shift."

This supposedly breakthrough position is not being filled by a lawyer, much less a firm leader. Drinker's new CVO has spent the past decade working as a law firm marketing director at four different law firms.

How can such a person bring about the end of the billable hour? She can't and she won't. But it's not her fault.

With every recession, the billable hour takes another public relations hit and law firm leaders scramble to appear responsive. Regularly over the past 20 years, optimists have declared its imminent demise. Clients detest its perverse rewards for inefficiency; associates crumble under the pressure of ever-increasing annual requirements. Even perceptive big-law partners acknowledge the toll it has taken on the culture of their firms and the nature of the profession.

Yet it survives because it has powerful defenders, including the U.S. Supreme Court's conservative five-man majority. Yes, the obstacles facing those seeking better days are that formidable.

The lawyers in Perdue v. Kenny A sued on behalf of children in Georgia's state-run foster care program. After eight years, the trial court awarded attorneys fees under the federal statute permitting winning plaintiffs to recover from the losers in such cases. In its April 2010 ruling, the Supreme Court adopted a rule that, ultimately, will reduce that monetary award by several million dollars.

Writing for the majority, Justice Alito took offense at the suggestion that the prevailing civil rights lawyers should "earn as much as the attorneys at some of the richest law firms in the country." He seems to think that's a bad thing.

Importantly, the Court rejected the argument "that departures from hourly billing are becoming more common." It noted that "if hourly billing becomes unusual, an alternative to the lodestar method [hours worked times billing rate] may have to be found. However, neither the respondents nor their amici contend that that day has arrived."

But now how will that day ever arrive? In 1983, the Court first adopted the lodestar calculation as a useful starting point for fee awards. Now, its first significant ruling on the issue in almost 30 years has stripped away almost everything but the lodestar in determining a lawyer's appropriate compensation level.

Where's the room for practitioners to experiment away from hourly billing? Nowhere to be found in the majority opinion. In fact, the Court's analysis extends beyond civil rights cases to "virtually identical language in many of the federal fee-shifting statutes." It will influence any federal court evaluating any kind of fee request--fee-shifting or not, including bankruptcy petitions. State courts will continue to use the lodestar approach in probate, divorce, and other proceedings.

As a result, lawyers maximizing their chances for court approval of their fees will adhere to hourly billing. Innovators experiment at their peril because, depending on the type of matter, they risk not getting paid. The Supreme Court's imprimatur on the billable hour regime creates a perpetual loop that won't help the profession jettison it.

But here's the really bad news. Even if: 1) clients succeed in their current efforts to promote alternative fee arrangements in purely private matters, and 2) the Supreme Court revises its position somewhere down the road, the worst aspects of the billable hour system will continue to haunt big law.

Here's why. Accounting for the time that lawyers and other billers work during the day is firmly embedded into firms' data collection systems. Those systems won't disappear; neither will the resulting internal reports used to conduct annual reviews. Freeing clients of the billable hour yoke won't change lawyers' lives--unless it makes them worse.

It's already happening. Even today, a client's agreement to a fixed fee arrangement doesn't relieve the attorneys working on the matter from logging their time. The fact that a special fee client doesn't get an hourly rate-based bill doesn't matter to reviewers. For them, the relevant metric remains the total number of hours spent serving firm clients. It's a common denominator used to compare and evaluate associates (and partners).

So even when their time doesn't result in a direct client charge at an hourly rate, attorneys continue to feel the heat of the billable time metric: "Keep your hours up."

In fact, another metric--client billings--can make some alternative fee regimes even worse. Senior partners compare time actually spent on fixed fee matters to budgets they developed when negotiating the arrangements in the first place. When an associate or younger partner’s actual time exceeds what the senior partner had assumed, the junior attorneys sometimes feel pressure to record less time, appear more efficient, and render the matter more profitable.

In other words, eliminating hourly fees can cause younger attorneys to work more hours than they report to the system.

How will a real chief value officer handle that one? Not in a way that makes affected lawyers feel better. After all, there's still no metric for attorney well-being.

 

Steven J. Harper is an adjunct professor at Northwestern University. He recently retired as a partner at Kirkland & Ellis, after 30 years in private practice. His blog about the legal profession, The Belly of the Beast, can be found at www.thebellyofthebeast.wordpress.com. A version of the column above was first published on The Belly of the Beast.

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