SBM Blog

Tremors: Is the Legal Market Working?

From Kyle McEntee at Law School Cafe:

The largest law school class ever enrolled just graduated and it will be replaced by the smallest class in 40 or so years. To enroll the upcoming class, schools will also likely offer larger discounts than ever before—a number that has been growing very quickly. My projections suggest that law students will borrow $480 million less during 2013-14 than in 2011-12 from the federal government. That’s a loss of almost a half billion dollars caused by lower enrollment and heavily discounted tuition. Information can do wonders, even in a dysfunctional market.

Tremors: Your Technological Incompetence May Soon Cost You Corporate Clients

Law Technology News reports that the general counsel of KIA, D. Casey Flaherty, has a "tech audit" test for firms competing for KIA's corporate work. The firms are invited to send a top associate of their choice to take it. Nine BigLaw firms have taken the test; all have flunked. The audit tests proficiency in using basic, generic business tech tools such as Microsoft Word and Excel for simple tasks. Casey reasons that if a lawyer takes 50 minutes to accomplish a task that someone skilled in Excel can do in 5 minutes, that's 45 minutes of billed time that KIA shouldn't have to pay. At this point he's settling for taking 5% percent off every bill a firm submits until it passes the test. But he's clearly on a mission beyond that -- in a keynote address at a West Coast tech conference Casey told his audience that he has just partnered with a training firm to automate his audit and make it available for free to general counsel.

HT: ABA Journal

Work Trends: We'll Call You When We Need You

The Guardian reports on a growing employment trend in the U.K., presaged by McDonalds:

Almost a quarter of Britain's major employers now recruit staff on zero-hours contracts that keep workers on standby and deny them regular hours.

According to government estimates, 23% of employers with more than 100 staff have adopted the flexible contract terms for at least some staff following a surge in the number of public sector services contracted out to private providers.

Labour MPs and unions have branded the contracts as a throwback to the Victorian era and say they are being used by employers trying to avoid agency-worker regulations, which entitle agency staff to the same basic terms and conditions as permanent employees after 12 weeks.

The 2011 Workplace Employment Relations Study found that the proportion of firms with some workers on zero-hours contracts rose from 11% in 2004 to 23% in 2011.

Might this become a model for legal employment that is cyclical or unpredictable by nature?

Tremors: UK Insurance Company to Buy National Personal Injury Firms

Introducing a new SBM Blog category -- Tremors.  In it you will find legal practice developments elsewhere that may or may not lead to rearranging the landscape here in Michigan. We have been reporting on these developments since the blog's beginnings.  Here's the latest, from Bloomberg:

Admiral Group Plc (ADM), the U.K. motor insurer that owns confused.com, started joint ventures with two law firms after the government banned the practice of selling details of customers who have been in an accident.

Admiral will form the partnerships with law firms Lyons Davidson and Cordner Lewis Solicitors beginning May 1, the Cardiff, Wales-based firm said today in a statement. The government on April 1 banned so-called referral fees paid to insurers.

Prime Minister David Cameron outlawed the fees as part of an attempt to bring down the cost of motor insurance, which has climbed by more than a third over the past four years as claims soared due to the success of lawyers working on contingency fees and spurious injuries. By bringing the legal services in-house, Admiral gets to maintain revenue from successful legal claims against other insurers.

The acquisition is possible through legal reforms that allows "ABS" (alternative business structure) ownership of law firms.  And yes, you read that right: confused.com. 

For interesting background, see this story from the Sunday Mail in January.

Fallout From English Legal Reform? Government Shuts Down 250-Lawyer Law Firm

The passage of the UK's tradition-altering Legal Services Act of 2007, which sharply limited lawyer self-regulation and opened the ownership of law firms to nonlawyers, was hailed as the dawn of a new age of affordable, consumer-friendly legal services, and derided as the death knell of legal professionalism. Now comes word of the government-forced shutdown of a large Birmingham law firm whose business and marketing plan was awarded "'Most Innovative Marketing Idea 2010." From the Law Society Gazette:

All 250 solicitors and employees of Midlands firm Blakemores, owner of the consumer brand Lawyers2you, were today told to clear their desks and go home after an intervention by the Solicitors Regulation Authority.

The innovative and fast-growing firm appears to be the latest casualty of a crisis in the personal injury sector. One analyst blamed cashflow problems against the ‘toxic combination’ of legal aid cuts and the shrinking of the PI market.

The SRA said it intervened ‘in order to protect the interests of clients (or former or potential clients), or the interests of the beneficiaries of any trust of which Blakemores Solicitors LDP or any of the partners of Blakemores Solicitors LDP is or was a trustee’. Practising certificates have not been suspended.

Blakemores was founded in 1961 by Roger Blakemore to specialise in property conveyancing. In 2002 managing partner Guy Barnett (pictured) led the firm through a major expansion, which included setting up Lawyers2you stands at more than 20 public-facing sites including airports and shopping centres.

In 2010, Blakemores was awarded the title 'Most Innovative Marketing Idea 2010' by consultancy 360 Legal Group for launching Lawyers2you, one of the UK's first direct consumer legal marketing brands.

Callers to Blakemores today heard just two ringtones before a voicemail prompt invited them to leave a message. An insider told the Gazette that employees were summoned to a meeting mid-morning today, told to get their possessions from their desks and go home.

Staff who asked about redundancy payments were told they would need to claim anything they were owed from the government.

The comments to the Gazette story are well worth a read. Some days it feels lie the UK is conducting a giant experiment for the benefit of the U.S. legal profession, testing what works and doesn't. Today is one of those days. Back to you, Roberts P. Hudson:

No organization of lawyers can long survive which has not for its primary object the protection of the public.

Whether the Legal Services Act offers a better model for protecting the public is still very much up in the air.

HT: ABA Journal

MSU's ReInvent Law Takes Message Of Change On The Road

Michigan State University College of Law's ReInvent Law Laboratory, cofounded by professors Dan Katz and Renee Knake, put on a quite a show in Silicon Valley last Friday, according to several enthusiastic reports and tweets. Seek a more dynamic profession; look around you, Michigan. The answer is being invented here.

Provocative Idea of the Day: "This Appeal Brought To You By..."

Carolyn Elefant at My Shingle wonders, "What if lawyers could subsidize the out of pocket cost of briefs and even the legal fees with paid advertising from sponsors who support the clients’ cause?":

As a lawyer who frequently handles appeals before federal circuit courts, it’s discouraging for me to tell clients that they may have to shell out anywhere from two to four thousand dollars simply to cover the cost of preparing eight bound copies of an initial and reply brief, along with eight copies of joint appendix that depending on the size of the record, could amount to 1500-2000 pages.  These out-of-pocket costs alone are often scary enough to deter clients from even thinking about appeals — which is unfortunate since in  many situations, the legal work itself isn’t all that complicated either because the appeal can be limited to a discrete issue or because many of the issues were already thoroughly researched and argued in the proceedings below.  In fact, I’d guess that many lawyers – myself included – might be willing to take on an
appeal that involves a juicy issue on a partial contingency or even pro bono basis so long as we weren’t on the hook for the rather considerable out of pocket costs as well.

So I got to thinking – what if lawyers could subsidize the out of pocket cost of briefs and even the legal fees with paid advertising from sponsors who support the clients’ cause? With legal briefs now widely posted online by lawyers at numerous courts and agencies
(where they are often linked to by the press or bloggers)not to mention more social sites like JD Supra, a sponsor could at once generate good visibility online and good will from its customers.

I know it sounds crazy (even my ordinarily taciturn husband derided the concept cheesy), but let me make my case to the court of public opinion.  First – would there be a market for sponsorship of briefs? I think so.  Many briefs at the appellate and Supreme Court level deal with broad policy issues – privacy, data protection, copyright , defamation in an internet age and more – that are important to companies and their customers. Sponsorship would give companies an opportunity to show that they support a particular position. Likewise, cases involving zoning issues or eminent domain or local curfews or tax laws may not capture national attention, but matter within a community – thus making the briefs of interest to local businesses.  And while many times companies do weigh in on these issues by filing amicus briefs, it’s far less expensive to sponsor a brief than to go through the trouble of preparing one.

Elefant goes on to note some practical and ethical considerations (read the whole thing -- it's not long). I'll be checking back to My Shingle for the comments as they come it.

HT: ABA Journal

Update: Non-Lawyer Ownership of U.S. Law Firms

The lawsuit challenging the ethics rules that prevent nonlawyer ownership of law firms brought by an East Coast law firm, Jacoby and Myers, has inspired The Economist, which favors the change, to write about where things stand, in "The Case Against Clones:"

Even if Jacoby & Myers loses this round, experiences abroad may change the debate in America. Several years ago, Australia allowed “alternative business structures”, including non-lawyer ownership of firms, and even public flotation. Slater & Gordon got a listing in 2007, making it the world’s first publicly traded law firm. Last year the Legal Services Act brought similar rules to Britain. The Co-op, best known for its supermarkets, has announced plans to offer cheap legal services. Duke Street, a private-equity firm, has bought over half of Parabis, itself a group including two law firms. And Slater & Gordon has bought Britain’s Russell, Jones & Walker. More than 300 British law firms are waiting to become alternative business structures under the new law, according to Jomati, a legal consultancy. (Special rules for Scotland limit outside ownership to 49%.)

Report On 2012 Law Firm Prosperity: The Rich Didn't Get Richer

The 2013 Report by the Center for the Study of the Legal Profession at the Georgetown University Law Center and Thomson Reuters Peer Monitor on trends in the legal market in 2012 and predictions for the future is not encouraging for those who favor business as usual. Some highlights:

• In 2012 the number of lawyers in U.S. firms grew by 2%, but demand grew by only 0.5%
• After eight straight quarters of falling demand for legal services in the U.S.,  demand increased at the end of 2010, and has grown modestly since then, but is still well below the pre-2008 period.
• Unlike the U.S. and Europe’s, demand for legal services in Asia and Latin America has been strong, but may be beginning to slow.
• Lawyer productivity has been essentially flat.
• Billing rates rose 3.4%, but realization rates continued to fall, reaching an historic low of 83.6% AmLaw 100 firm realization rate was even lower, 82.8%.
• Profits per partner grew an average of 3.58%.  AmLaw 100 firm growth was only 2.45%.
• The median starting salary for law school grads entering private practice has fallen 35% since 2009.
• The gap between equity and non-equity partners is growing, as lawyers with ownership stakes now average about 2.5 times more compensation. Pay spreads are increasing to 7:1 or even higher at some firms.

Here's the report (PDF).

New Antidote To Partner Envy -- Partner Layoffs

A story in the Wall Street Journal says that reaching the top rung of the law firm ladder may no longer be a guarantee of a secure professional future:

Having trimmed junior lawyers and staff in the years after the economic downturn, some big firms now are fixing a stern eye on partner performance. The firms are keeping close track of how much business lawyers bring in and how many hours they bill. Those with disappointing numbers can have their pay cut or be stripped of their ownership stakes. Others are simply shown the door.

"Law-Firm Partners Face Layoffs" says that while the phenomenon is not universal, at many of the country's 200 top-grossing firms there are partners who are struggling to bill 1,700 hours a year, or even 1,500 hours.