June 1, 2011

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Article

Legal

Utah Business Staff

June 1, 2011

The legal industry was impacted as strongly by the recession as any other industry. The downturn has crushed the careers of many recent law school graduates, and local firms are searching for ways to keep the talent pipeline flowing. In this roundtable, legal insiders also tackle the burden of regulations, creative ways to help cash-poor startups and challenges within the judiciary. We’d like to give a special thank you to Stephen Owens, of Epperson & Owens and past president of the Utah Bar Association, for moderating the discussion, and to Holland & Hart for hosting the event. Participants: Bill Fillmore, Fillmore Spencer; Eric Maxfield, Holland & Hart; Tom Bennett, Ballard Spahr; Scott Evans, Christensen & Jensen; John Adams, Ray Quinney & Nebeker; Keven Rowe, Jones Waldo; Hal J. Pos, Parsons Behle & Latimer; Kevin Pinegar, Durham Jones & Pinegar; T. Richard Davis, Callister Nebeker & McCullough Stephen Swindle, Van Cott, Bagley; Christian Clinger, Institute of Advanced Mediation & Problem Solving; Kyle Grimshaw, Austin Rapp & Hardman; Willis Orton, Kirton & McConkie;Peter Billings, Fabian Law; Lyndon Ricks, Kruse Landa Maycock & Ricks; Rick Johnson, Stoel Rives; Catherine Larson, Strong & Hanni; Jeff Silvestrini, Cohn, Rappaport & Segal; Ken Tillou, Parr Brown Gee & Loveless Greg Lindley, Holland & Hart; Sally McMinimee, Prince Yeates; Richard Scott, Chapman & Cutler; Stephen Owens, Epperson & Owens; Bob Babcock, Babcock, Scott & Babcock What areas of law are on the upswing and what are on the decline? What new areas are you focusing on and what may be gone for good? PINEGAR: We are seeing, gratefully, an uptick in corporate mergers and acquisitions. And IP, especially litigation. BABCOCK: We work a lot for construction industry clients and they are getting beat up pretty good. And their work has dropped off some, as the industry has been very tough for them for a few years and probably will be for many more. I have coined what I call the “10 hour” case. After getting the case, after about 10 hours of review, we say, “I’m not sure there’s much at the end of this rainbow. It may not be worthwhile.” ROWE: In the real estate development industry in Utah, there’s a lot of good things on the horizon that I see. We’ve been involved in a lot of new projects. The problem with it is that there’s been so much of a downturn that there’s a lot of people that are struggling to stay in business. So they have work in the future, but they don’t know how they are going to be able to stay in business for long enough to be able to do those projects. We’ve been involved in some great new projects here in the state on the real estate side. It’s just surviving the last few years and being in a position to execute it—that’s the challenge to a lot of businesses in the state right now. POS: With the strong commodity prices, mining continues to be a very strong industry, both here domestically and internationally. Utah is starting to see a lot of renewable energy projects. We’ve been involved in several wind projects here in Utah. But in general, renewable energy is a growth area in the legal market nationally. Are you doing something creative with your legal fees to deal with that situation if they are cash poor? ROWE: I have some construction clients that I don’t bill. I’ve just been talking to them and trying to help them through some of their issues. They’ve been great clients of the firm for a long time, and I’ve kind of become their pro bono counselor to help them through some of their issues. CLINGER: We are seeing a dramatic increase in mediation. Our clients want quick, timely resolution to their cases. Also, we’re seeing an increase in pre litigation mediation where clients do not want to have their cases drawn out in public. They want to have a discreet way to have a case resolved through mediation. SWINDLE: We have seen an increase of emerging young companies—somebody with a good idea, maybe with a good product, or with IP that they want to exploit but are cash poor. We have offered some of these young companies advice on a fixed fee basis relating to formation, intellectual property protection, licensing agreements—any number of things they may need to get started—in an effort to exploit their ideas or their products on a flat fee basis, which, to them, doesn’t break the bank and to us hopefully cements a relationship with a potential client. GRIMSHAW: My field is IP, and I can’t remember the last time I actually had a billable hour project. Every project I’ve had in the last two years, the client says, “This is what it’s going to cost.” And it’s up to us to get it done and to tell them up front if I can do it for that price and if not, well, ultimately he has to go somewhere else. But if I can, the risk is on me. SCOTT: A lot of the work I do is finance related, primarily municipal finance. Generally, fees are based on a variety of factors, including the size and complexity of the financing, and that’s traditional in that area of law. BENNETT: We also do a fair amount of public finance, and that has typically been on a fixed fee basis and continues to be that way. We’ve experimented with a lot of different things, at least with our real estate clients, in terms of trying to give them some breathing room at the front end and some certainty. We have done some fixed fee work on the real estate side, and we have done some work at discounted rates with a cap on our budget—that we’ll go this far and then re-evaluate and decide whether the client wants to go forward. We’ve seen some return on that from work done for larger clients in the past two years. We have large national clients come to us and say, one, “We’ll only work with you if you will cap your rates at what they were last year,” and, two, “We’re going to really crank in the budget.” We’ve tried to be as cooperative as we could, and we’re now seeing a little bit of loosening up with those national clients. They are now getting a little more back to the way they were before. And because they’ve cut back on their legal staffs, we find that our work for some of those is actually growing because they cannot handle as much in-house as they were able to before. POS: What we’ve seen in the last couple of years is an increase in volume-based discounts. Clients seem to be very interested in that; the more work they bring, the expectation is that there will be a discount. And we’re starting to see more clients sticking to budgets. TILLOU: We also are using volume discounts on certain larger institutional clients. The other thing that we have done on a rare occasion for a startup is cut the fees by a significant amount and take a cash portion of fees and take an equity position. LINDLEY: One other thing we’ve noticed is that some of our large clients are requesting a fixed hourly rate—a blended rate—which causes us to push as much work as we can to younger associates. For a blended rate, we set a rate that all the lawyers who work on that matter will charge. The partners’ hourly rates are typically much higher than the blended rate, and the associates’ rates are usually lower. So it’s a blend of all of those different rates together to make it so the client has some certainty in what they are going to be charged for things. Coming out of law school has been difficult these last three years. How are your firms doing in terms of recruitment? Are any of your firms growing? What advice would you give to someone coming right out of law school? LARSON: We haven’t grown in the last year, and unfortunately we were not able last year to hire our summer clerks. In terms of recruiting, we’re seeing a very high caliber level of applicants, not only in state but from out of state. We’ve received resumes from law school students from Ivy League schools and schools that normally our firm would not expect to see, as one of the smaller, medium-sized firms in the state. So we’ve got a very high-quality applicant pool to choose from. The market out there is still really, really difficult. I’m glad I’m not in law school now or just finishing law school now. The challenge, then, will be once we get those high-caliber applicants, and assuming the economy improves, are we going to be able to retain those individuals? TILLOU: The advice I would give someone going to law school these days is you need to work really, really hard and make sure you are on the upper part of your class because the job market is going to be difficult for you if you are not. BILLINGS: It’s still definitely a buyer’s market for law firms hiring lawyers. In fact, we are seeing applications from people who have been laid off in other communities. ORTON: If I were giving any advice to students of law, it would be to consider going to the two local schools because there is a tendency to incur great debt while you are a student away from the Intermountain area. You are going to get the best bang for the buck by going to the local schools. We’ve found that for out-of-state students, it was difficult for them to commit for many years to come here after they graduated because of the debt they were incurring. But we have seen, in the last few years, several people want to come back to Utah because hiring conditions have been so poor elsewhere. In our firm, we’ve made a little bit of a paradigm shift in hiring, and that is we’re looking more for lateral hires in the younger ranks. We’re not giving up on interviewing younger people coming out of law school, but we’re looking for people who have been out of school, perhaps trained by other firms, and maybe even those who have gone through clerkships with judges. EVANS: We’ve had some slow growth. Lots of requests for free internships from law school graduates who want to get into the field that way. Both of our local law schools have placement programs, and we’ve been working with them to get interns. Some of them are unpaid; some of them get paid through grants from the law school. DAVIS: As the market contracted, we were happy to see that the attorneys who were being hired as new attorneys seemed to be more aggressively seeking the practice of law as opposed to seeking the benefits that come from practicing law. CLINGER: I recently returned from the Western States Bar Conference, and what we’re hearing from the 15 member states is that there is a focus in law school to help students learn law firm practice management. The students come out of law school not knowing how to manage their own career, not knowing how to manage their own small firm. So there is a real trend right now in law schools to focus on that. Fortunately, the Utah State Bar has also been doing programs in the past few years in helping the unemployed or underemployed attorneys with those skills—how to manage their careers, how to manage the billable hour or flat fee rate, how to manage a private-practice firm. If they do get laid off, at least they can start and manage their own firm. RICKS: Another thing that the two schools are teaching particularly well is a practical skill set. We see graduates coming out knowing how to create and use a spreadsheet, read financial statements and actually write a brief that you can read. So we’re able to use them much more effectively earlier in their career. ORTON: Many of us in our firm think that the key to success for the younger lawyers and, hence, for the future of our firm, is the training of our associates. The mentorship program established by the bar is a great help in that regard, but it really falls upon the individual lawyers in our law firm to help the younger lawyers develop those skill sets. We’ve also made a greater effort in training our own associates in what they should be doing, particularly in the litigation area. JOHNSON: We’ve continued to hire, and we continue to have a summer clerk program, and we continue to hire laterally. But we’ve discovered that a lot of people are leaving the practice of law to go into industry. So your clients are hiring your attorneys? JOHNSON: Sometimes it’s clients. Sometimes it’s other opportunities where people have developed a skill set and they want to get out of the practice of law. Being a lawyer is a tough job. It’s a grind. I think many want a different lifestyle. SWINDLE: We’ve continued to hire—both out of law school and laterally. I just wanted to make a point about the number of young people who are graduating from lower-tier law schools that nobody at this table is likely to ever interview. The hope and aspiration of a job in a good law firm is just likely not to happen for them. A lot of those people will not practice law, or if they do practice law, it will be as a sole practitioner. We all get letters from somebody locally, for example, who is in the middle of their class, and the likelihood of them finding the kind of job that they’re expecting in the legal industry is just not going to happen. But they are so anxious to go to law school, and the end result is often very disappointing to them. It’s a very expensive thing. Many of them are in debt. But the likelihood of them landing the job they want is very slim. What do you suggest? Are you telling them not to go to law school? SWINDLE: I would suggest some of them not go to law school or that some of them seek some experience in industry before they go to law school, or seek graduate degrees after law school in a specialty area—environment, tax, estate planning. Some of them ought to seek graduate degrees before they apply to law school, an MBA, a master’s in taxation, something that gives them a leg up to an entry into a law firm. MCMINIMEE: I sit on the bar’s character and fitness committee, and I’m really amazed at how many applicants were obviously not informed about problems that they had going into law school that might prevent them from ever becoming an attorney. And now a couple of years later, lots of money later, suddenly the light might be going on saying, “Oh dear, I might not succeed at becoming an attorney.” MAXFIELD: We’re going to have a whole generation of lawyers—people who graduated a couple of years ago up through the next several years—who are going to be not only without jobs but are going to be floating into the law industry without having had the benefits of working at law firms. And there are things that you learn at law firms that are challenging to learn as a solo practitioner or someone who dabbles in the law—particularly ethical issues. How do you deal with problematic clients, how do you deal with problematic legal issues? Those are things they are not going to learn on their own. As law firms, we have to be looking for opportunities—as challenging as it might be—to employ some of those people. EVANS: What he’s talking about is something the bar is trying to address, and the Supreme Court, with the mentoring program. It’s going to be tough for some of these folks that come right out of law school to learn the practical aspects of dealing with another lawyer, dealing with a judge and so forth. ADAMS: We’ve been very committed to hiring new associates to come up through the ranks. It’s always been an important priority at our firm, and one that continues. In the past few years, we have hired some excellent associates who are mid level, and it’s true that they come with a greater skill set and excellent training. But in larger firms, if you are taking that route exclusively and not continuing to hire younger associates, you begin to put at risk the future of the firm. In larger firms there’s already a tendency in our market to have kind of an inverse pyramid where you’re partner heavy and thinner in the younger ranks. It really begins to create issues on whether you have the excellent writers, the researchers—all the tasks that are done at billing rates that are far more desirable for clients. There are times we have looked for older associates, but we are very much committed to hiring new associates, and we think that’s an important priority that will serve us and our situation well. What legal trends are you seeing? TILLOU: I practice in the area of federal taxation, and we are seeing a definite uptick in what I would call the aggressiveness of the IRS, particularly at the examination level, in taking positions contrary to the positions of our clients, resulting in increased value of the work at the appeals level. DAVIS: An area we’ve seen that has changed markedly over the last couple of years is a cottage industry that is vilifying all financial institutions, everywhere from foreclosures to lenders, and that is not assisting in the economic recovery. Instead, it’s requiring additional attorney fees to be spent defending financial institutions against spurious and unfounded claims, and that is a problem. BENNETT: We are still seeing a lot of work in the distressed real estate area. The other thing we are seeing that is a little more positive is a lot of activity in real estate developments that involve a public/private partnership. We’re doing a lot of that work around the country, but also locally with transit oriented developments that tie in with the TRAX line and FrontRunner. You also find cities now trying to be more aggressive in attracting businesses through tax and other financing incentives. One of the few areas where there is financing available is for projects that have a public component to them. PINEGAR: In the securities area, we are seeing a rush of legislation from Congress that affects our public company clients in the area of shareholder access to proxies. It’s been difficult to help our clients keep on top of that. RICKS: We’re a small, boutique firm with two divisions. One is family law, and that’s just steady as she goes, whatever the economy is doing. On the business side, securities and transactional kinds of things, some of the deals that we saw put on the shelf for the last couple of years seem to have new life. They may actually get done. We’re also seeing a lot of new business startups. As people lose their jobs and can’t find anything to replace it, they decide, “I’ve always wanted to do this. I’m going to form my own business.” EVANS: We’re getting an increase in FINRA cases—financial investments gone bad, people claiming their financial advisers misled them. We’re seeing an increase in both defense work and plaintiff’s work that we’ve never seen before. POS: I practice environmental law and it’s becoming more difficult to get federal environmental permits on projects. BILLINGS: Utah legal fees are low. We’ve found we are doing a fair amount of work for out of state clients, from California in particular, as well as Illinois and Indiana, which is an interesting, developing phenomenon. PINEGAR: We’ve had a similar experience. They like our rates, we do quality work and can be competitive. MAXFIELD: From the client perspective, if you come to Utah and hire a lawyer, you are likely to get an exceptional lawyer. We have a very highly concentrated amount of lawyers who have great educational experience and great legal experience. When you combine that with the value because of our seemingly low overhead in this town, you really can get exceptional legal service. Let’s talk about state judges—with their salary and the cutbacks on their staff, I’m concerned that we’re not going to get the highest level of lawyers applying for state judgeships in the future. Does anyone share that view and what should we do about it? SILVESTRINI: I’m not certain that the quality of the judiciary has gone down, but I do see judges under stress and judges who have difficulty being prepared, difficulty addressing the legal issues in the depth that’s required to make good decisions because they don’t have the resources. We really ought to work to try to convince someone on the hill that the judiciary does need those resources to serve the people of Utah. OWENS: It’s not fair to the judge and, frankly, it’s not fair to our clients. If we are ready to go to trial and we cannot get a trial date for four or five months and it may be bumped—those kinds of things are terribly difficult. And I think it makes the job of a state judge less desirable. POS: When businesses are looking for a new community to relocate to, one of the things they look at is the legal system. So if there are problems in getting cases resolved quickly and expeditiously, it could have a long-term impact on the business development in this town. DAVIS: The legislative body over the last several years has been, at least to my opinion, kind of anti-bar biased. We need to be a little bit more proactive in speaking with our legislators and representatives to make sure they understand the importance of the legal process, not only in the courts but in all the other factors for this place we’ve come to live and love. CLINGER: It’s important to remember that the judiciary is a third branch of government and not a department of government, and our judiciary has faced cutbacks year after year after year. We realize that everyone has to tighten their belts, but when our judiciary is taking 7 percent and 14 percent budget cuts, it puts an immense strain onto the judiciary and their staff. All of us have clients that we really want to go to bat for and others who cause us great headaches. Describe what makes a good client. BILLINGS: Tell us the bad facts as well as the good facts. Don’t wait us for us find out the bad facts from the other side. RICKS: A good client will let the attorney help them set and measure their expectations for the outcome or for the process. We’ve been through these types of transactions or cases before, so let us help you create a realistic set of expectations. SWINDLE: We like cooperative clients—clients that are working with you, telling you the truth, trying to develop a common strategy to solve their respective problems. LARSON: I’ve had clients who just want their case to go away, and that is a near impossibility in most circumstances. And so they have to listen to the advice of the attorney and set reasonable goals and expectations. SCOTT: It’s all about the communication. Clients really appreciate it when we communicate with them on a regular basis. There are bad facts and transaction structures and there are problems and there are objectives—a good client that has thought those things through and willingly describes everything about the transaction that they know and what their goals are helps get the right result and saves time. Good communication on one side fosters good communication on the other side. BENNETT: You want a client who is willing to participate in the process with you. Representing a client really ought to be a partnership between the lawyer and the client. And just as you find some lazy lawyers, sometimes you find lazy clients, where they just sort of get reports from time to time, but from a transactional standpoint, maybe they don’t read the documents until the night before and then you’ve got a problem. How has corporate compliance become more burdensome? What are the trends, challenges or opportunities facing these clients? LINDLEY: A few years ago, we had the Sarbanes-Oxley Act, which added all kinds of increased regulatory demands on publicly traded clients, and that’s kind of followed through with the Dodd Frank bill. There are a number of things in there that increases the expense of compliance and the risks to them as they try to keep up with everything. The SEC has been given broad rulemaking powers and it’s tough to keep up. TILLOU: We are seeing the same thing in the tax and benefits area, where the Department of Labor and the IRS are continually promulgating additional regulations, imposing additional disclosure requirements on employers. It’s a continuing trend and it seems to be accelerating. RICKS: There are new statutes that come along regularly that cause an initial flurry of corporate counseling and updating the clients as to the new law. But, frankly, at the end of the day, we just say to our clients, “Fraud is and always has been fraud, and if you are a public company, you have to disclose everything publicly that’s material about your company.” For the most part, the companies that we all deal with are trying to do it right and the cost is going up. It is higher, but they are good people and they are trying to do a good job and it comes down to that. DAVIS: Whether financial institutions are being regulated by the state or the federal government, some of those regulations are just for regulatory purposes to help the internal operations go forward, and most of those do not have private rights of action. Nevertheless, many plaintiff’s attorneys try to quantify that right of action, which exponentially increases the cost of doing business for those financial institutions in trying to defend those claims. SCOTT: My experience is primarily with governmental entities, but the same trend also applies there. The IRS is much more aggressive in examining the activities of governmental entities. What type of pro bono work or reduced fee work are your firms doing? FILLMORE: There’s two kinds of pro bono work: voluntary and involuntary. There’s plenty of both. We try to support BYU as a pro bono program and to do a lot of nonprofit work for free. We try to serve on a variety of community boards and give advice. It’s part of our firm ethic and it’s not just the right thing to do—it’s good for business. LINDLEY: We have a firm requirement that every lawyer put in a hundred hours of pro bono each year. It’s something that’s measured and tracked and it’s important to us. JOHNSON: We don’t have a requirement, but we have an active pro bono group that encourages partners and associates to participate, and we give credit to those who do participate. MCMINIMEE: The bar and the law schools are doing a better job, too, of helping people who want to provide the pro bono time but not on an extended basis. We’re all worried about billable hours, but when you have those opportunities, it’s a win-win. CLINGER: The bar has taken a new measure of the unbundling of legal services for those who may not qualify for legal aid. Attorneys who want to help can kind of piecemeal either a transactional process or a litigation process on an as-needed basis. So that has been able to help out people who might not be able to afford full priced legal services. BENNETT: Our firm, like others, has a very active pro bono program. But there is also this whole group of people that are not getting served—normal, middle class people. Are we willing to do semi-bono work for anybody? Are we willing to take on a neighbor who’s got a fence dispute or a problem with their daughter or something? That is something that each lawyer has to take on personally because there is less of an institutional support for that. But it’s still an obligation that we have and maybe need to focus more on. Lawyers are often cursed but frequently needed. How can we better articulate the value of lawyers in society? JOHNSON: I heard someone say that lawyers don’t build bridges, we don’t build buildings, we don’t produce anything—we don’t do anything that you can pick up and look at. But we solve a lot of problems. We resolve disputes. If we do it right, we create a more peaceful world. And, of course, that is undermined if we are not civil, if we are not honest, if we don’t do our best job to take care of our clients, if we don’t follow our code of professional responsibility. But when we do all of those things, our clients appreciate us and they recognize that we provide a valuable service. ROWE: The other thing that lawyers do is facilitate getting business done. There is no significant business transaction that ever happens without lawyers being involved and facilitating that transaction. We have a skill set that is unique: we are able to see both sides of the transaction better than other people because of our training. SWINDLE: Bridging this question with the pro bono issue—I suspect everybody in this room and most lawyers do a lot of work with some substantially discounted fees for lots of people that are not indigents—they are not pro bono—but they may not have the full ability to pay for legal services. I suspect all firms do a lot of that, which goes unnoticed, and that needs to be known. BABCOCK: It’s easier to talk about the value of lawyers when we look around the world and compare societies that don’t have a rule of law, and the chaos and the troubles that they face. In the last few years, we have become painfully aware of the chaos in the Mexican society. Where is the rule of law, and how do you create that? Or in the Middle East—where is the rule of law? And yet, lawyers are kind of the grease in the wheels of the system that has a rule of law that gives some finality. I like to joke with clients that in the Old West, you could meet on Main Street at high noon and you could get it resolved pretty inexpensively with a little lead and some gunpowder, and there was no appeal right. But as a society, we concluded that was not the way to try to enforce the rule of law. We decided to do it in a civil and more productive way. But if you look across the border in other countries, you’ll see the value a little easier than trying to point out what life would be without it. PINEGAR: You look around this table—we are businesses in this community, too. We employ hundreds of people here. We provide a livelihood for people and benefits for their families. In addition to facilitating transactions and other good things that happen, we provide a great life for a lot of citizens in Utah. ORTON: Too many times we as lawyers don’t argue for ourselves, and it’s kind of ironic that as advocates, we advocate for our clients but not for the legal profession very much. I’ve tried throughout my life to tell people when asked that I’m proud to be a lawyer. I’ve made a point of telling younger lawyers in my firm that they should be proud of who they are and what they do. CLINGER: In September 2012, we’ll have the 225th anniversary of the U.S. Constitution, and we do need to reach out to the community and teach about how the rule of law is important, why it is important, and the value of attorneys in forming the Constitution. Many people can name the great scientists or explorers throughout history, but how many of us can name the great attorneys? We do need to talk about the role of attorneys, what we do and how we create society, whether it’s in transaction work or litigation work, and get those names of the great attorneys known and taught.
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