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Legal Industry Outlook

Law firms in Utah are grappling with unprecedented change, from the work-life changes demanded by Millennials to critical issues of cyber security to a tidal wave of demand for low-cost legal services. Here, industry leaders share how their firms are tackling these challenges.

A special thank you to Angelina Tsu, president of the Utah State Bar, for moderating the discussion.

Participants:

Nate Alder, Christensen & Jensen, PC

Shantelle Argyle, Open Legal Services

James Barnett, Holland & Hart, LLP

Randall B. Bateman, Snow Christensen & Martineau

Melissa Beutler, Big D Construction

Dickson Burton, Trask Britt, PC

Edgar Cataxinos, Mableby, Cataxinos, & Greenwood

Steven Clyde, Clyde Snow

Richard Davis, Callister Nebeker & McCullough

Jennifer Falk, Kruse Landa Haycock & Ricks

Heather Farnsworth, Match and Farnsworth, PC

Paul Harman, Jones Waldo

Brian Hulse, Snell & Wilmer, LLP

Peggy Hunt, Dorsey & Whitney

Tyler Green, Utah Attorney General’s Office

Graden P. Jackson, Strong & Hanni

Kristine Larsen, Ray Quinney & Nebeker

Brent Lorimer, Workman Nydegger

Eric Maschoff, Maschoff Brennan

Thomas Mecham, Kirton McConkie

David Nixon, JLL

Melanie Vartabedian, Ballard Spahr, LLP

Terry E. Welch, Parr Brown Gee & Loveless

Scott Young, Stoel Rives, LLP

 

What changes have you seen in client requests on budgetary and financial matters? What steps are you taking to address those requests and concerns, while maintaining appropriate profit margins for your firm and client representations?

WELCH: It’s becoming more and more common for our clients to want to partner with us in some way and share the risks in some way, get away from the hourly billing model. That’s caused us to really grapple with how we budget. Because, traditionally, law firms, including ours, budget based on hours, and you multiply that by rates, and you multiply that by your realization rate, and you set your budget.

One of the things we’ve done successfully with our clients is establish in the litigation context mileage markers and decision trees. Litigation matters, as we all know, tend to get very complex and you can’t really entirely steer the ship because there are too many variables. So rather than have a set flat fee or a contingent fee, which have traditionally been the other models, we developed a more complex system of mileage markers with associated flat fees as the case develops. And that’s been something that’s been very appealing to our clients.

BEUTLER: From the in-house perspective, one of my biggest frustrations with budgeting is there doesn’t really seem to be a lot of lawyer involvement in managing vendor costs. We have very large electronic datasets, which can be extremely expensive, and I find that lead trial counsel pushes it off to a paralegal, who makes purchasing decisions based on who brings them the best donuts or who gave them an iPad after the last project. Not only do the lawyers not understand the process, they don’t engage in it.

We’ve recently had a very large case where we’re selecting counsel and we will probably have a million dollar e-discovery budget in that case. And unless lead trial counsel, during the interviews, was someone who understood e-discovery and was willing to be engaged in it, they just didn’t seem to be a good candidate. “Oh, we have a great paralegal who does that” just doesn’t seem to be the right answer.

JACKSON: When this issue first surfaced a number of years ago it felt like clients just wanted to pay us less. What we’ve come to find out at our firm is the clients—commercial clients especially—want predictable amounts of money to pay. If they have an idea of what it’s going to cost, then they can budget for it and their general counsels can feel some comfort level in how to proceed. And clients seem to be more able to handle the bumps that may come, even in a litigation case, if they can predict what they’re going to pay at the end.

VARTABEDIAN: One of the things that we’re being encouraged to do is to appropriately leverage cases so that work is pushed down to the lower billable rate attorneys. It’s a win/win situation for the firm and for the client, because lower rates are being charged for work that’s appropriately delegated to those lower billers, and profitability can also be good on the case as well. That’s really up to the partners to properly manage their cases and recognize the work that can and should be pushed down to lower-level associates with lower billing rates.

HULSE: One of the things we’ve been implementing is the staff attorney model. These are people that are really smart lawyers, but just want a little different lifestyle than the rank-and-file law firm that we’ve all grown up with. So they come in at fixed hourly rates, they do really good work, and it’s something you can push down and make that work profitable. So a staff attorney model is one that we’re looking at and it’s working for us.

There’s another spin that I’ve seen with a lot of my national clients—and I think we’re going to see it much more for our local clients. An example is a software product called Viewabill. Clients are requiring us to partner with these vendors who basically give them real-time information about what the bill is. You know, I want to know what the bill is today at 8 o’clock. And then tonight at 5:00, after you’ve worked on your motion. These software options give a transparency to the process and allow the clients to have that information upfront.

YOUNG: When I take my car in to get serviced, I certainly expect the mechanic to tell me how much it’s going to cost before I engage those services. We’re unique in that oftentimes we’re presented with a problem and we can’t tell our clients how much it’s going to cost to deal with it. Sometimes, especially in litigation, it’s hard to know what it’s going to cost to fix a problem.

The fundamental thing for me is you’ve got to understand your client. Different clients are going to have different needs, different expectations. Sometimes it is an alternative fee arrangement, sometimes it is pushing it down, and sometimes it’s the predictability, it’s a budget. To me it’s coming down to working with your clients, understanding their problems, understanding their needs so you can craft a solution for them.

ARGYLE: We do two really important things to address this issue. The first is we use metrics to determine what our retainer amount should be. Instead of an arbitrary amount, it’s based on the number of average hours. The average number that we do for a custody case, which is between 10 and 12 hours, we get that amount upfront. We write a lot of small refund checks because we’ve been able to pinpoint the amount of money needed to perform the work almost to the dollar.

The second thing we do is if the attorneys enter expenses that they incur, such as process service or e-discovery, they do it in real time, so the client at any given moment can call the office and ask what’s the running balance they have in their trust. And because we do our billing weekly and close our time to the project every day, they almost always know within a few dollars what their current balance is.

FARNSWORTH: Our firm is very different than most of you here. My clients are individuals, and most of them are low income. And so upfront, I operate on a contingency schedule fee, but we have a built-in cap. So the client knows ahead of time this is the most I will pay no matter how much money I am given in the long run. And then the cap is lifted if it goes on to stages beyond that. But it’s very clearly explained to the client upfront so they know exactly what to expect.

ALDER: In the next decade, I think will see corporate clients moving toward in-house and having their lawyers, which are very predictable, handle most matters, with limited involvement and smaller partnerships, smaller appearances, the unbundled corporate work to private law firms.

The other thing that’s fascinating about predictability is that corporate clients are trying very hard to resolve matters quickly. Because that’s the one thing that they can do to avoid the expense of a multi-million-dollar lawsuit. So you’re seeing a great trend toward early resolutions, quick arbitrations, parsing out parts of the case that would be uncontrollable, getting that taken care of, and then litigating the parts that are more predictable.

LEISHMAN: As a former litigator and now a transactional lawyer, I think there’s a big market being underserved because of costs. And I don’t think anyone around the table can really say to a good commercial client how much a piece of litigation is going to cost. When I sit as general outside counsel to clients and talk to them about whether to litigate a matter, the decision these days isn’t so much what can I do to reduce my costs, it’s am I going to be so overwhelmed that I’m not even going to do that matter? And more often than not, my business clients are saying, “I’m just not going to take the risk. I’m going to sit down with the other CEO and I’m just going to settle this matter.”

If you look at the sheets that we all get at the end of every day showing what cases are filed in this jurisdiction, there are fewer and fewer good commercial cases that, in my opinion, really should be litigated. But we’re pricing ourselves out of the market because of uncertainty. The industry’s got to do better or we’re going to lose a huge chunk of revenue because people are just going to go to the ultimate alternative dispute resolution mechanism, which is do it yourself, don’t litigate it, don’t arbitrate it, don’t do anything with it, keep the lawyers out of it and just have your CEO negotiate it.

I were a litigator, I’d really want to focus on what we can do to make it more predictable and less costly.

What’s the role of security in your firm? Do you have security czars to impose restrictions on your information? And do you impose regulations on e-mail and mobile devices?

YOUNG: A lot of us have seen the recent hacking instances with some of the biggest names in the industry, Cravath, Weil Gotshal, Jenner & Block. The list goes on of these top-tier law firms that have been hacked. Some of these hackers are finding law firms to be an easy target. They’re saying where can I get information for insider trading purposes, for other purposes to make a dollar? And the easiest, the lowest-hanging fruit is the law firms.

So we’re very foolish if we don’t have a security czar, if we don’t take every step we possibly can to try and protect our information resources, protect our clients’ information. We do have a security czar. We’re in the middle of a big push for every single lawyer in our firm to go through security training. It’s absolutely top of mind for us. And it needs to be for everybody in the industry these days.

HULSE: We’ve got a security czar, our director of IT. He’s been pushing security issues for the last 12 years. When we got rid of Blackberries many years ago, he’d make us bring them in to the office so he could drill through them. And I thought that was just ludicrous. But turns out that he was probably right to make sure there was no possibility that data bits could be obtained.

And he’s really proactive with our clients, a lot of our larger national clients, that have their own security requirements as far as where their information’s stored and how it’s protected. They want to make sure that we’re doing what we’re supposed to be doing. And he makes sure that that happens.

LEISHMAN: Our financial institution clients are making us be compliant or we’re ineligible to serve them. So they give us their criteria, and we have to meet them. Sooner or later it’s going to become a competitive fatality issue if you’re not able to tell your clients that you’re in compliance. Even for us, for example, to do local counsel work on a bond offering, we have to be qualified to work with the institution, who’s our ultimate client. So I suspect we’re all going to have to deal with this sooner or later. And we’ve bit the bullet and invested a lot in it to try and figure it out.

WELCH: In the last six months, our firm has had two of its major clients experience cyber security breaches that resulted in identities of some of their people being stolen and much of their personal information in the marketplace. We are adept, as firms, at advising clients with regards to those issues, hiring experts, getting them involved immediately, talking to them about the major downside of a cyber security breach. But as is often the case, a lawyer is often the worst client. We need to do a better job advising ourselves, getting experts involved internally.

VARTABEDIAN: One thing that our firm recently had us all do was download an app that actually allows the firm, if you lose your mobile device, to remotely wipe your entire system off of the phone. And it’s a pain personally, but we have to have a six-digit code password to get into our mobile devices.

ALDER: When you hire a law firm, you are also hiring the sophistication of that law firm, the development of that law firm’s practice. And cyber security is going to be an important part of overhead going forward because it’s not free.

On the flip side, the clients need to understand the importance of their own cyber sophistication. Daily we read about some client that lost some portion of the case file or missing part of e-discovery, and how terrible the sanctions are to that client—losing the case outright, receiving adverse instruction, just absolutely having bad outcomes because their own cyber structure is not up to speed. So this is an area where both law firms and clients need to get up to speed quickly, preserve data on the one end for us to be able to use it in court, but also not be subjected to the evils that are out there.

How important is pro bono to your law firm? What policies have you adopted to provide this needed service? Do you feel our profession should be mandated to provide specific hours or service requirements in the pro bono area?

DAVIS: Most of the people around this table meet with people who have large incomes, good businesses, sophisticated legal needs. The vast majority of the population of this state are absolutely denied the right to legal assistance. They don’t have the money. And it’s just not the poor people, it’s the median-wage earner. We have the responsibility to step forward. We’re not just a business, we’re a profession. And we need to step forward and help the people in family law, in the debtor area, in immigration, in landlord-tenant issues.

Jennifer and I serve on the Third District Pro Bono Committee, and over the past year the committee has served, through referrals, about a thousand people. There is room for every attorney and every law firm. Honestly, the vast majority of the pro bono lifting is being done by sole practitioners and small law firms. The large law firms are largely neglecting their responsibility. Maybe you’re writing a good-size check for Justice For All. But we are not doing our part in going forward and helping.

ARGYLE: My organization is unique in that we are not a pro bono non-profit, we’re a low bono non-profit. Low bono is the way of the future for addressing the unmet legal need in this country.

It is statistically impossible for a pro bono service to meet the unmet legal need in this country. Only 12.7 percent of Utahns qualify for pro bono through Legal Aid or Utah Legal Services or any of the other umbrella organizations, such as Justice For All. But 51 percent of Utahns fit into our sliding scale. These are all people who would not be eligible for a free attorney. Every licensed attorney in the country would have to do 200 hours a year of pro bono in order to meet the unmet legal needs of just the indigent population of this country.

Pro bono is noble and amazing, and please, definitely sign up. But we also need to find a way to get our attorneys a way to earn a living and be willing to serve this demographic. We need to find a way to bridge the gap between the big firms and people like us, who are down in the trenches doing this work at $60 an hour.

WELCH: Law firms have a responsibility to incentivize it, to make sure that it’s happening. My own preference is that it happen that way from individual attorneys at law firms, although I recognize the Bar may have to step in if it’s just not happening.

About a decade ago, we started budgeting for pro bono and giving credit toward normal billable hours for a certain amount of pro bono per attorney. In the last five years or so, our firm has undertaken a significant involvement with the Rocky Mountain Innocence Center, and we are one of the firms that sponsors the Tuesday Night Bar. We do that sometimes at the firm in addition to over at the Bar, and so it’s sort of grown into an entity of its own.

BATEMAN: We ought to open our mindset more to the low bono versus the pro bono. I do quite a bit of both. And I’ve had far better success with low bono than I have pro bono. My experience with a lot of pro bono cases is the client’s more than happy to just have you do everything and often is not as cooperative as they could be. Where I charge a little bit, I get a lot better cooperation from them. And they’re happier at the end, interestingly, than when I’ve done it for free. I’ve had cases where we did it for free, had a great result, and they’re not impressed. Whereas the low bono clients, where they paid a little bit, seem happier the case got concluded much more efficiently.

VARTABEDIAN: Ballard incentivizes lawyers by offering a billable credit for pro bono work done. And there’s actually no cap on the credit. That allows lawyers to take it as far as it needs to go—and I’ve seen cases that have gone all the way to the Utah Supreme Court. It allows you to take on more meaty, weighty cases and not worry about getting cut off right at the 50 hours.

Beyond that, we have pro bono projects that are laid out in each office. One of the things we did was new visas for women that were the victims of domestic violence and allowed them to obtain naturalization if they helped law enforcement apprehend the wrongdoers. Recently we’ve laid out a clemency project. Blake Wade, who’s the managing partner at our office, represented an individual who was one of the 61 people that President Obama recently commuted the sentences of. And that was a pro bono case.

Is there a difference with the younger associates? What do you see as their biggest concerns, fears, and requests? And what are they bringing and adding to the profession to make it stronger and better?

HULSE: Millennials have just got a different work ethic. I don’t think it’s a poor work ethic, it’s just different. We’ve seen a lot of people where quality of life is really important to them. They’re going to work hard, but they’re going to work different than we all grew up working. They want to be able to be on the ski lift for six hours, from 8:00 till 2:00, and then they’re going to get off and they’re going to work from 2:00 till midnight.

It’s something we have to figure out because it’s here and it’s not going to go away. We’ve got to find meaningful ways to deal with it that are going to make them feel comfortable with what they’re doing and not feel like there’s some pejorative thing that comes along with work-life balance. Because that’s important to them.

HARMAN: I got an e-mail yesterday from one of our associates. We recently adopted a policy for paternity leave that didn’t exist when I had my kids. And this e-mail was so touching. He said, “The policy conveyed to me the firm’s support of my decision to take some time off. And it turned out to be two of the best weeks of my entire life.”

That simply wasn’t thought of 20, 30 years ago. And it’s really important to these younger people to have that experience with their families. As firms you need to come up with ways to help them feel like this is important, you respect me, and you want me to be happy. And I’ll work as hard as I can for you. This associate here works his tail off. He’s never missed a billable hour requirement in the seven years he’s been with us. And for him to write this very lengthy e-mail to the board of directors telling them how appreciative he was really made me stop for a second and think maybe we need to do some more of these things.

ALDER: We need to better address the issue of the low percentage of women that practice law. It’s in the 20 percent range. We need more women to practice law in the state of Utah. We don’t have enough women on the bench. And, nationally, we’re challenged. Other states are doing much better than we are. We need to make sure we’re doing everything we can to take the women that do graduate from law school and give them a full career in law.

BATEMAN: Before my dealings now, I had my own boutique firm. We were half women in the firm. I had amazing women who worked for me, and it was because we had complete flexibility. One of my best associates is a stay-at-home mom who practices law starting about 6 o’clock, when her husband gets home, and she works till midnight. And it’s a great tag team. I work on the project. I send it to Sara. Sara works on it. It’s there on my desk in the morning. She’s an awesome attorney and she has exactly the life she wants.

You can handle all of these things with technology and with the adoption of the Millennial lifestyle if we’re willing to not have to have people in the office between 9:00 and 5:00. There’s a lot of great women out there who would love to practice law, but don’t want to put in 2,000 hours a year, who don’t want to be in the law office when they have family duties. And if firms are willing to be flexible, you will get some amazing attorneys.

LARSEN: We’ve tried to encourage the retention of women by offering a reduced hour program, that some of our women have taken advantage of, and just worked all the way through their associate years and then became partners. So it’s been very helpful in having us not lose some of those women otherwise because of the challenges with work-life.

Some of the challenges aren’t just the fact that we’re raising families, but I also think women have a more difficult time in client development and having their own clients. So as you advance more as a partner, your compensation may not be the same as the males, where you haven’t developed those skills, you haven’t been on the pitch teams as much, going to clients and learning how to do that. So our firm is trying to give those skills to women, and really trying to make the men in our firm aware of that fact and encouraging them to put women on those teams when you go pitch a client or make sure the women are present at trials and getting that type of experience.

WELCH: One thing has been a little pet peeve of mine over many years, and that is that we value the law firm’s hours. And we send a message, sometimes unintentionally, that hours are valued. Well, hours are the way we deplete our most valuable assets, which are our people. And if we don’t, in the long term, keep our people happy—men, women, Millennials, old people, all of us—then we’re going to lose. If we have women leaving because they’re being asked to sacrifice too much time given their lifestyle, and Millennials leave for the same reason, then we’ve really missed out on what is tomorrow’s biggest success. We need to communicate better what we value, which is long-term, productive, happy people. And hours are the absolute worst way, in my estimation, to take care of those valuable assets. We’ve got to do a better job communicating what we value is you. We value our people.

ARGYLE: Our firm was formed with the intention of creating work-life balance. The co-owner and I both have two young children at home. So everybody’s on a reduced hour track, because we have no partners, we’re nonprofit. Our billable time is 1,350 a year, and that includes benefits and paid leave.

What that gives us is the opportunity for variable compensation. If they choose to bill more, they’re paid at a higher rate for those additional hours. Most of them opt to do 1,650 a year. But that still is the typical six-hour billable day. But it’s their choice.

FARNSWORTH: In our firm, when we do reviews twice a year and we talk to the employee about what they’re doing right and what they’re not doing right, we give them the same opportunity and ask for their feedback on what we can do to make them happier and have a better quality of life in the profession. If you show them that respect, I’ve seen it come back tenfold. If I give someone time off because they have a family emergency, I feel like the productivity the next week shoots up.

GREEN: I think there’s a common perception that if you want a better work-life balance than you might get at a law firm, then maybe you could go in-house and get a great job at a local company. But if not, just go to the government. Right? So you can go there, you can put in your time, and it’s good enough for government work and that’ll be it. That’s sort of the classic knock.

That may be true in some instances, but I have found there have been times where, just based on the nature of the work and things that we’ve been doing, that my hours have repeatedly exceeded what I put in while I was in private practice in Washington, DC. They have just been crushing at times. But the flip side is it was really interesting work and really fun stuff. Utah had a Cert Petition granted to the U.S. Supreme Court, so I had a chance to go back and argue that a couple of months ago.

Earlier we were talking about how sometimes young lawyers in firms don’t have the sort of practical experience that they might need. That’s not really a problem we have at the Attorney General’s Office. When you show up day one, here’s your docket, here are your cases, go manage them. We have new lawyers who are fresh off of clerkships. One attorney, in our criminal appeals section, has been out of law school two years, and in the two or three months he’s been with our office, has already argued in the Utah Court of Appeals and has a number of Utah Supreme Court arguments scheduled. By the time he has been in our office for a year or two, he will have had as much on-his-feet time as many of the junior or maybe even some more senior partners at the firms around town.