A recent WSJ story, “Legal Fees Cross New Mark: $1,500 an Hour,” reports that the day of the $1,500-an-hour lawyer has arrived. Partners at some of the nation’s top law firms are approaching—and, in a few cases, surpassing—that watershed billing rate, making the $1,000-an-hour legal fees that once seemed so steep look quaint by comparison.
Despite low inflation and weak demand for legal services, rates at large corporate law firms have risen by 3% to 4% a year since the economic downturn, according to Citi Private Bank’s Law Firm Group.
“We just raise them every year,” said John Altorelli, a finance lawyer at DLA Piper LLP in New York, who says the firm has set his rate at more than $1,500 an hour. Mr. Altorelli, who filed for personal bankruptcy in 2014 to halt a legal battle with the estate of his former law firm, Dewey & LeBoeuf LLP, cracked the $1,000-an-hour mark a decade ago. His fees have risen steadily ever since.
To soften the blow to clients, Mr. Altorelli does more than half his work on some kind of fixed-fee basis. “Using hourly rates is really anachronistic, but we still do it,” he said. Raising rates ensures that law firms keep up with the competition and helps them wrest more money from clients, who routinely demand discounts for all but the most sensitive work.
“If you think of the rules of supply and demand, how in the world can they keep raising their rates?” said Jeff Carr, a former general counsel of oil-and-gas services and equipment company FMC Technologies who for years has been an outspoken opponent of hourly legal rates.
The rate creep has boosted law firms’ revenue at a time when many of them are under pressure from lower-cost legal-service providers and corporate clients that are keeping more legal work in-house. Revenue at law firms rose 4% last year, according to Wells Fargo Private Bank’s Legal Specialty Group, though demand rose just 0.5%.
“Lots of law firms will charge whatever the market can bear,” said the head of one of the nation’s 200 largest law firms. Documents filed in chapter 11 bankruptcy cases offer a rare public glimpse at mounting fees. These court filings show the rates of partners specializing in corporate restructuring, as well as those with specialties like tax, litigation and corporate law.
A review of filings over the past three months in about two dozen bankruptcy cases shows that senior partners routinely charge between $1,200 and $1,300 an hour, with top rates at several large law firms exceeding $1,400. Proskauer Rose LLP’s hourly partner billing rate has climbed as high as $1,475, while Ropes & Gray LLP’s tops out at $1,450, court papers show.
Kirkland & Ellis LLP’s top hourly billing rate is now $1,445. And rates at two firms—Akin Gump Strauss Hauer & Feld LLP and Skadden, Arps, Slate, Meagher & Flom LLP—peak at $1,425 an hour.
Martin Bienenstock, who leads Proskauer’s restructuring practice, called the $1,225 an hour he billed clients last year “a market rate similar to my peers at other firms,” and said he charges the same rate for nonbankruptcy work.
“The clients have kept coming back and growing during my 38-year career,” he said in an email, adding that clients generally prefer dealing directly with senior lawyers versus younger associates with lower rates.
In disclosing their firmwide rate increases, many firms tell the courts it is a standard way of keeping pace with “economic and other conditions.” These include rising fixed costs, such as real estate and salaries.
In theory, a law-firm partner’s pay rises and falls with the success of the firm. But, as competition for top talent increases, many firms feel the need to guarantee salaries or ensure a partner’s pay doesn’t fall, even in down years.
Still, only elite lawyers can charge $1,400 an hour or more. Such rates are found almost exclusively in New York and other major markets, and only in the least price-sensitive fields like mergers and acquisitions, restructuring, tax, antitrust and high-stakes litigation and appeals. For lawyers at the very top of those fields, hourly rates can hit $1,800 or even $1,950.
“You have a very few people at the very top where price is almost no object,” said legal consultant Bruce MacEwen, who likens it to the way celebrities, sports stars and best-selling authors are paid. “It is a talent market.”
Most lawyers in the U.S. fall well below those high marks. In a survey of in-house legal departments by BTI Consulting Group, the average highest rate paid for law-firm partners was $875 an hour in 2015, up more than 27% from three years earlier. Of the respondents, 38% had paid more than $1,000 an hour for a lawyer, and the highest rate those in the survey paid was $1,600 an hour.
For many firms, the stated rate is simply a starting point in discussions with corporate law departments. As a result, said legal consultant Ward Bower of Altman Weil, “sophisticated” law firms tend to implement annual rate increases to offset clients’ requests for discounts.
Such discounts are becoming more commonplace. A decade ago, law firms could typically get clients to pay around 92% of their stated rates, according to Thomson Reuters Peer Monitor. Last year, that fell to less than 83%. Smaller companies can get squeezed the most on fees, because they don’t send enough work to any one law firm to get the best deals.
Companies with $4 billion or more in annual revenue were twice as likely as those with less than $100 million in revenue to use some form of alternative fee, according to a survey from industry trade group the Association of Corporate Counsel.
Some industry watchers view the raise-and-discount approach with skepticism. “If clients are pushing back on rates, the answer isn't to raise them” and then ask for a discount, Mr. MacEwen said. “The answer is to provide better total value.”