It's official--the new bankruptcy fee guidelines are rolling out on July 1.

Today's Wall Street Journal has a big article about the U.S. Trustee Program's new fee guidelines for lawyers in larger bankruptcy cases (here).  The rollout of the guidelines isn't a surprise.  The USTP published the proposed guidelines, received comments, revised the guidelines, received more comments, and then promulgated the final version (see here).  As the Wall Street Journal article points out, the next stage of promulgation will address the fees of the non-attorney professionals in the larger cases.

Lois Lupicaand I, as part of our follow-up as Reporters for the ABI's National Ethics Task Force Final Report, will be publishing our Best Practices for Working With Fee Examiners in the next issue of the ABI Journal.  (Special thanks go to three people who gave us very helpful comments in our development of our "best practices":  Andy Vara, Robert Keach, and Brady Williamson.)  We think that our suggestions will be useful as people see an increased use of fee review committees and fee examiners.  

Thanks, Wall Street Journal Law Blog and TaxProf Blog!

Nice to be in the spotlight (here and here).

It's more telling when someone who's been a partner at a major law firm complains about the billable hour than when an academic does it.

In yesterday's New York Times, Steven Harper made some very good points about billable hours (here) in light of the DLA Piper fee litigation (here and here).  I write about fees a lot (see here and here, and I have another piece coming out in a symposium issue of the Akron L. Rev. this summer).  My favorite part of Harper's opinion piece?

Lost in the furor surrounding one large firm’s current public relations headache are deeper problems that go to the heart of the prevailing big law-firm business model itself. Regrettably, as with previous episodes that have produced high-profile scandals, the present outcry will probably pass and the billable hour will endure. 

It shouldn’t. The billable-hour system is the way most lawyers in big firms charge clients, but it serves no one. Well, almost no one. It brings most equity partners in those firms great wealth. Law firm leaders call it a leveraged pyramid. Most associates call it a living hell. 

The fact is that billable hours create perverse incentives, because the way to make more money is to take more time or throw more humans into a project.  But billable hours evolved in part because the old way of billing ("$x for services rendered") didn't give the client a feel for how much work went into the bill.   If we want alternative billing to take hold, two things have to happen:  law firms have to figure out a way to calculate an alternative billing method that, at least on average, gives the firm a reasonable profit on its work, and law firms have to give clients some transparent information on what type of work they did on the client's matter.

One possibility is a flat fee that still records billable hours.  If the flat fee bears a reasonable relationship to the work done, then the client can see who did what, but the incentives for throwing bodies at a problem decrease.  The flat fee becomes a cap that controls costs.

The fear--and it's a legitimate one--is that many types of legal work involve unpredictable possibilities.  Let's say that a matter involves litigation.  Some of the expense of litigation involves responding to what the other side is doing.  So if one side is billing by the hour and the other side has a flat fee, then the flat-fee firm may well be held captive by the firm that is billing by the hour. 

On the other hand, major law firms are experienced in doing complicated work--and that experience is reflected in their billable rates.  If a firm is very experienced in, say, debtor-side chapter 11 work, then it can predict many of the actions that the other parties in the case may take.  It won't necessarily be able to predict the timing of those actions or their intensity (although, if it appears opposite those other firms all the time, it will have some idea of what they routinely do), but it has a feel for what's likely to happen in the case.  It's at least possible, then, that the experienced firm can establish a likely range of the fees and expenses that a matter might engender.  ("In the last several chapter 11 cases, our fees and expenses ranged from $x to $x+n.")

So perhaps flat fees might not work, but rough (and I mean "rough") budgets might act as a cap on a firm's choices for how to handle a matter.  Of course, some unpredictable events might make a budget inaccurate--but a firm can bring those unpredictable events to the client's attention and recalculate the rough budget accordingly.

The fact that a former Kirkland & Ellis partner is calling shenanigans on billable hours is significant.  Let's see how others respond to Harper's opinion piece.

Expensive new book out (but I have an essay in it).

See here.  This book came out of a wonderful set of conferences at the University of Edinburgh, and I owe my participation in the conferences in large part to the marvelous Randy Gordon.

Yet more on Larry Mitchell's sunny op-ed on why law school is a good idea.

On another blog (Law School Survival Manual), I've spent a bit of time ruminating over just what in Larry Mitchell's op-ed rubbed me the wrong way.  (See here.)  Other folks are saying the same thing, often in better ways (take a gander at the updates to my post for two such examples, and to the postings on Inside the Law School Scam (starting here). 

I guess what frustrates me most is the sense that decanal groupthink is trying to wish away a lot of the problems that face legal education.  There were many, many kudos to the Mitchell op-ed on one of the deans' listservs.  If those kudos had been from the very top law schools, I'd have understood.  Law degrees from Harvard, Yale, Stanford, and other such schools are likely to be exceptionally good investments.  (After all, I benefit greatly from my degree from Stanford.*)

But when good, but not elite, schools are making their case for law school being a good investment, they can't just trot out the "we train you to think!" and "law is a lifetime career!" arguments.  I don't think that the first of those arguments applies just to law schools (pretty much any good education will train someone to think well).  And I don't think that the "law is a lifetime career" theory works when a law graduate can't get a first law job within a reasonable time.  The "you can use a law degree in other careers" argument is true, of course, but just because someone can use a legal education in other fields doesn't mean that spending six figures to get that degree is always a good idea.

I'm as proud of legal education as every other law dean is,** but I want students to enter law school with their eyes open.  (I also want law schools to provide applicants with accurate data so that they can make good choices about whether to attend law school.)

Data + realistic expectations = good choices.
Assertions + wishful thinking = a disaster in the making.



* Although, to be fair, my degree from Rice is nearer and dearer to my heart, but that's probably true of most folks' feelings about their undergraduate degrees.
** Even though I'm just an interim dean.

Missing the point about out-of-control fees and expenses.

See this story about a court disallowing some over-the-top expenses (here), especially the last three paragraphs.  Hat tip to Prof. Jessica Gabel for sending me the link to that article.

My take:  orders to show cause can be embarrassing.  Being the focus of a story about one's out-of-control expenses is always embarrassing.

Maybe the speed of law practice is such that it makes it difficult for those lawyers submitting fee apps to a court from reading the line-by-line detail of each bill, but scrimping on time reading attachments that get filed with a court is probably not the best place to save that precious time.  I would hope that the same billing judgment that should operate when sending bills to a client would also apply when submitting fees and expenses to a court.

I wrote a couple of articles about fees and expenses:  see here and here. The latter piece includes a long discussion about the book Professional Fees in Corporate Bankruptcies, by Professors Lynn LoPucki & Joseph Doherty.  I agreed with a significant portion of what LoPucki & Doherty said in the book.  (I disagreed with some other parts, but then, no book's perfect.)  The book is a good read:  useful and clear, with some striking discussions about their data.

Bottom line about this news story that started my post:  not everything is billable.  Not by a long shot.  And until lawyers return to the days where they understand that concept, there will be more stories like the one in law.com.

It's nice to be recognized: UNLV (Boyd) Law is 45th in most-cited study.

See here.  Hat tip to TaxProf Blog.

The transcript from the USTP Fee Guidelines meeting is up:

See here.

Thanks, Legal Ethics Forum!

Sure did appreciate this post. 

Dear Dad: OK, maybe now.

Got to say that today's NYT letter to the editor by Donald Bernstein made my day (here).

It's actually not that much fun saying, "we told you so."

In 2009, Eric Van Horn and I suggested (here) that bankruptcy lawyers might want to pay some attention to the public perception that their fees might be unreasonable.  (I admit that I'm a little fee-obsessed these days:  see here,* here, here, here, and here.)

This morning, the New York Times weighed in on the issue of bankruptcy lawyers' fees (here).  The go-to quote?

By opposing these guidelines, the lawyers handling big bankruptcy cases show they are out of touch with economic realities. Worse, in resisting improvements in accountability, they undermine public confidence in the integrity of the bankruptcy process. 

Yep.  The right approach--demonstrated with particular skill by Cravath's Rich Levin and the National Bankruptcy Conference--is to work with the Office of the U.S. Trustee to reach a workable compromise.  Ultimately, it's the job of the bankruptcy court to determine whether an estate-paid professional's fees and expenses are reasonable.  The Office of the U.S. Trustee is trying to help bankruptcy courts do their job by giving estate-paid professionals a heads-up as to what the U.S. Trustee Program will consider presumptively unreasonable.  Those professionals who are willing to meet the government halfway by saying, "we are very uncomfortable giving you this information, and we don't think the information will help you, but we are comfortable giving you this other information instead, which will help you" are handling this issue the right way.


*  The way that this first link is set up will count this very post as the first in the list.  You'll want to skip that one, unless your brain likes infinite loops, to move to the others in the list.

Some thoughts on reasonable attorney fees.

The juxtaposition of two articles this morning caught my eye.  This morning's Wall Street Journal's article, The Law Firm Business Model Is Dying, reminded me of Big But Brittle, the must-read article by Bernie Burk & Dave McGowan.  (Bernie & Dave's article is much better at discussing the nuances of the changes affecting BigLaw; the WSJ piece is just about lawyer deregulation.)  The other is a New York Times Dealbook piece by Andrew Ross Sorkin:  Madoff Case Is Paying Off for Trustee ($850 an Hour).  Here's the quote in that article that caught my eye:

In a particularly caustic exchange in court last year, Judge Rakoff, upon seeing a group of lawyers enter the courtroom on behalf of the trustee, said: “Can I ask a question, which is, since the trustee’s fees come out of the funds that otherwise would be available for other purposes, why are there four attorneys from the trustee here in court today?”

When the lead lawyer responded that he might need to consult with his colleagues during his argument, Judge Rakoff shot back sarcastically: “If it turns out you give your argument without needing to consult with them, of course, you and your firm won’t charge for their appearance today.”

The lawyer replied: “I, your Honor, am not going to make any promises.”

The fact that these two pieces came out today is just a coincidence, but the backstory on both is that lawyers who assume that their way of doing business will continue indefinitely are in for a shock.

In terms of the Madoff case, I'm a firm believer that Irving Pickard is doing a good job and is worth his hourly rate.  Not every legal theory will work when applied to a particular set of facts, but he's doing his best to get some significant recovery for Madoff's victims. 

But Judge Rakoff is right, too:  just because a law firm can bring several people to a hearing doesn't mean that it should.  The problem of "staffing balance" is the tension between representing a fiduciary (and the concomitant desire to leave no stone unturned, in order to fulfill the fiduciary's duties) and the question of who ends up paying the bills for that representation.  The more diffuse the responsibility is for paying those bills, the less opportunity there is for the client to say, "let's do this but no more than this."

The problem is particularly acute in large chapter 11 bankruptcies, but that's not the only situation in which the problem occurs.  (See here and here for some of my thoughts on staffing balance.)

We train lawyers to be risk-averse.  Risk-averse people are prone to making sure that all of their bases are covered.  That means that lawyers will want to bring everyone to a hearing who might possibly have something to contribute, "just in case."  But with new technologies around to let lawyers call in to hearings, or to be on cell-phone standby, there are ways to trim those bills.  If the lawyers would be willing to move to those technologies but for court rules that interfere (such as prohibiting cell phones in courtrooms), then courts need to rethink their rules.  And if the lawyers are behaving responsibly about who they bring to hearings, then I can see giving them the benefit of the doubt in close cases.

But the most important thing is for the lawyers to communicate their reasons for their staffing choices to the court.  Waiting until a court starts making comments in public about the staffing choices creates the risk that a court will find those staffing choices unreasonable per se. 

There are a couple of ways to communicate staffing choices to the court.  One is explicit:  "Your Honor, with me today is Attorney X (who will cover [single issue]), Attorney Y (who will cover [different issue]), and Attorney Z (who is responsible for helping me with today's overall hearing because [reason])."  Another is by setting benchmarks in advance, with rebuttable presumptions about how many attorneys should be billing for a given task.

Communication is key.  Without such communication, lawyers will be judged in hindsight about the reasonableness of their actions. Whether the client is paying close attention to the bills or is merely an amalgam of interests that--by definition--will not pay close attention to the bills, there are too many pressures on the practice of law to let law firms bill without explaining their staffing choices to someone (the client or the court).

Do I really expect some law schools to close in the next few years? Yes. Yes, I do.

In this cross-post on our Law School Survival Manual blog, I attempt to clarify that--although the ability to discharge student loans in bankruptcy is bleak--it's not quite as bad as I glibly said it was on the Bloomberg Law podcast.  But it is bad, and something has to give.  As I indicated in my most recent essay about legal education (here), some schools aren't going to be able to justify their continued existence.  Even some very good schools are tightening their belts (see here).

And the job market for most lawyers is shrinking, not expanding.  Check out this Dealbook Q&A (here) with Michael Trotter.  His predictions are sobering.

When you combine the trends in law jobs with the increasing cost of attending law school (check out one of my favorite blogs, The Legal Whiteboard)--and you combine those two things with the fact that most student loans are non-dischargeable--you get a lot of law deans who are facing a lot of sleepless nights.  Law professors should also be nervous, because tenure won't protect them from being laid off when their law schools close. 

It's time to rethink what we mean when we talk about legal education.  That's a complex subject, but it's crucial that law professors have honest, non-turfy, non-pointy-headed-academic discussions about what we're doing and what we should be doing.

Oh, and my Buck Rogers reference in the interview?  That's from one of my favorite movies, The Right Stuff.  Here's the quote (from the imdb.com site):

Gordon Cooper: You boys know what makes this bird go up? FUNDING makes this bird go up.
Gus Grissom: He's right. No bucks, no Buck Rogers. 

Yep.  No tuition, no school.  No bucks, no Buck Rogers.

More shameless self-promotion: my article on fees in chapter 11 cases is out.

You can download it here.

I loved the blog The Legal Whiteboard even before . . .

Jeff Lipshaw so kindly posted about my latest piece (here).  Thanks, Jeff!

Shameless self-promotion: my most recent article about legal education.

Available at SSRN (here).

Bloomberg Law on the 10 greatest legal movie lines.

See here.  I feel very self-actualized.  I use nine of these movies when I talk about lawyers in pop culture, and I use five of the same clips that Bloomberg Law used.  Enjoy.

Brent Newton's newest article.

The always interesting Brent Newton has just posted this article (here) about legal education.  Although I don't agree with everything he's said, he sure has moved the discussion forward (and made it more fun to discuss).  It's a must-read.

In other news, Penn State's law review took my forthcoming piece on legal education, so as soon as it's published, I'll post a link to it.

UPDATE:  Bill Henderson's comments about the article are here, and Bill's always another "must read" of mine.

Why I could be a good director of a public company.

Today's WSJ offers some thoughts on why there aren't more female directors (here).  As I say over at one of my other blogs (here), there are some frustrating implications of that issue.  But here's why I might be useful to some companies:

1. I've actually run two organizations.  They were both educational institutions (I served as the dean of two law schools, the University of Nebraska College of Law and the University of Houston Law Center), not for-profit public companies, but I do have more than an inkling of the challenges facing companies that have to juggle changes in demand and tight workforce restrictions.)
2. I study the behavior of organizations.  OK, I'm usually studying them because they're dysfunctional, but still, I am paying attention to how humans behave in organizations.
3. I study ethics.
4. I understand companies that have to operate in tough financial circumstances.  That doesn't mean that I'm interested only in companies that have filed or are considering filing for bankruptcy protection, but it's fair to say that I could be useful for those types of companies.*

So if you know a company that's looking for more women, and you're comfortable suggesting me as a candidate, I'm interested in talking.

* Of course, if Disney's board ever comes calling, I've loved that company since, well, I was a kid.

Bloomberg Law podcast on bankruptcy ethics.

Here.  Thanks to Bill Rochelle and Lee Pacchia for inviting me to do one of their podcasts.