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Category: Fee Data / Analytics

NALFA Releases 3 Models of Growth for Litigation Hourly Rates

August 10, 2020

NALFA conducts custom hourly rate surveys for law firms, corporate legal departments, and government agencies.  Our hourly rate surveys provide our clients with the most current and accurate hourly rates within a given geography and practice area.  Starting this year, 2020, NALFA is conducting hourly rate surveys in 5 key practice areas.  These billing rate surveys show the current average hourly rate range for both plaintiffs' and defense counsel at partner and associate levels.

NALFA has released 3 different models of growth (linear, logarithmic, and logistic) for hourly rate ranges in litigation.  These growth curves are based on the universally accepted principle that hourly rates increase with experience (i.e. partner rates are greater than associate rates).  Linear growth is consistent straight-line growth.  Generally, logarithmic growth rises sharply then levels off.  Generally, logistic (S-shaped) growth starts slowly, rises sharply, then levels off.  We did not use exponential (J-shaped) growth because an ever-increasing, very steep curve does not fit hourly rate billing economics.

“These growth models do not account for the factors that effect hourly rates such as geography, practice area, party to litigation, complexity of case, size of law firm, and economics that our surveys do,” said Terry Jesse, Executive Director of NALFA.  "Those variables were not a part of this purely mathematical exercise," Jesse emphasized.

From these growth curves, we learn 2 key concepts:

1.  Logarithmic growth seems to represent the economics of hourly rates and the career span of litigators the best.  Generally, the growth starts rapidly, then increases slower, then eventually levels off.  Here, the highest rate of billing growth takes place in early-career.

2.  Logistic growth is another model that has some appeal to the economics of hourly rates and the career span of litigators.  Generally, the growth starts slowly, then increases rapidly, then eventually levels off.  Here, the highest rate of billing growth takes place in mid-career.



The parameters of these models include the number of years continuously practicing litigation (12 data points), plotted along the x axis and hourly rate ranges (20 data points) along the y axis.  The litigation experience data sets range (less than 2 Years-35+ years) has a variance of 1 year to 5 years.  The hourly rate ranges (less than $200-over $1,200) include a variance of $50 and $100.

Study: Speed Paying Legal Bills Matters Most to Law Firms During Pandemic

June 25, 2020

A recent Law 360 story by Aebra Coe, “Clients’ Speed Paying Bills Could Make or Break Law Firms” reports that a report out shows law firms have fared "surprisingly well" financially during the coronavirus pandemic so far, but experts say there is still a danger that some firms could run out of cash because of difficulty collecting payments from struggling clients.

Most law firms do not have deep cash reserves and rely on monthly collections from client payments to continue operating.  With the possibility those payments could dry up due to clients' lack of ability or willingness to pay, liquidity is a major concern for some law firms right now, according to Michael Blanchard, managing director of the Law Firm Advisory Team at Aon.  "A lot of firms now are starting to realize that productivity may not be the issue but that liquidity from clients paying in a timely fashion is a bigger challenge to a lot of firms," Blanchard said.

According to the report released by Wells Fargo Private Bank Legal Specialty Group, "the legal industry has fared surprisingly well" so far financially during the coronavirus pandemic when compared to other industries, with demand for the surveyed law firms' services down just 1.4% from the start of the year through June 1 compared to the same five-month period last year.

But that modest decline in demand is skewed by a very strong start to the year, with steep declines in demand in April and May, according to Joe Mendola, senior director of sales for the bank's legal specialty group.  That could result in corresponding declines in the payments law firms receive from clients over the next three to four months since there is a lag between when firms perform work and when they are paid, he said.  Demand appears to have "bottomed out" in May, which would likely translate to the largest dip in cash in hand from payments by around August, Mendola said.

In addition to the problem of fewer bills owed in the second half of the year because of declines in demand during April and May, law firms could also face trouble collecting in a timely fashion and being paid in full as clients themselves struggle financially and seek steep discounts, which could lead to cash-flow difficulties for law firms.  "Certainly, through the first five months of 2020, the legal industry has fared better than most industries. But I think the more challenging months will be ahead of us," Mendola said.

The Wells Fargo survey found that while demand was down during the first five months of the year, the amount of money in the pipeline owed to firms, called inventory, was actually up by 7%, suggesting that collections are lagging, Mendola said.  Additionally, 54% of the firms surveyed said client requests for discounts increased in May over the previous month, and 52% said they saw more payment extension requests from clients in May.

"I think the key to 2020's final results [for law firm financials] will be how collections play out," Mendola said.  While firms have taken a hit and likely will continue to when it comes to collecting bills, the damage has not been as substantial as the industry first predicted, according to Gretta Rusanow, managing director at Citi Private Bank's Law Firm Group.

Surveys her bank conducted found that at the start of April, firms anticipated that they would see a 15% drop in demand, a 15% drop in revenue and an 11% lengthening in the collections cycle.  But the actual numbers for April and May, according to Rusanow, ended up showing an average decline in demand of 6.2%, a decline in revenue of 1.3% and a slowdown in collection times of 3.4%.

"The bottom line is: Going into this there was very much a concern that not only would activity levels drop, but it would be hard to collect from clients, and in fact what's happened is it hasn't been as bad as anticipated at the industry level," Rusanow said.  But Rusanow and Mendola both noted that there was significant dispersion in the industry during the first few months of the year, with some firms performing well and others performing poorly, all of which is wrapped up in those averages.

Actions that firms have taken during this time — likely as a result of fear of major drops in revenue and demand — have made a big impact on preserving their financial health, the experts said.  "Probably the thing resounding across the industry in the past few months has been a very much disciplined approach around billing and collections," Rusanow said.

That means firms have buckled down on attorneys getting their time tracked and bills promptly sent out to clients, and many are having conversations with clients about their ability to pay, she said.  Some firms have drawn on their lines of credit for cash flow, according to Mendola.

In addition, GLC Business Services CEO Michael Hayes said that smaller firms have been able to rely on the federal government's Paycheck Protection Program for loans that are either forgivable or are to be paid back at a very low interest rate.  "The Paycheck Protection Program has added liquidity to small firms and their clients," Hayes said.  "It pushes off the potential for danger at least until the end of year."

In addition to turning a closer eye to getting paid for the work they do and finding ways to keep money flowing in, law firms have also cut costs in anticipation of a dip in revenue, according to Aon's Blanchard.  That has meant reduced partner draws, reductions in associate and staff pay, some layoffs, some cuts in real estate expenses as attorneys and staff work from home, and less money spent in areas like travel, training and firm retreats.

"I think firms have started looking at different ways to improve their margins," Blanchard said.  Mendola said the belt-tightening has helped.  His survey found that at the end of May the industry has reported good liquidity with almost 90% of the responding firms showing three months or more coverage of monthly expenses excluding partner draws.  "I think those cost-cutting measures are paying off.  It's better to be prudent and readjust than not be ready," he said.  "Once money is out the door, you're not going to get it back."

Demand Grows for Hourly Rate Data in Big Bankruptcy

May 26, 2020

A recent Legaltech News story by Rhys Dipshan, “Reorg Launches New Database to Bring Big Data Analytics to Bankruptcy Fees” reports that the recession is already choosing its winners and losers: The once-strong appetite for M&A work is increasingly being replaced by a growing demand in bankruptcy services.  And due to efforts started in advance of the current economy, some in the legal tech space are looking to capitalize on this new opportunity.

Financial intelligence provider Reorg has announced the launch of its Legal Billing Rates Database, which aims to provide corporations and law firms with benchmarks regarding outside counsel’s bankruptcy fees.  The goal is to help general counsel and other corporate officers make informed bankruptcy hiring decisions, as well as help law firms competitively set their rates.

Darby Green, Reorg’s senior director of product, strategy and innovation, explained that the database pulls interim, monthly, and final fee applications from U.S. Bankruptcy Court dockets in the Southern District of New York and the District of Delaware, which she called the “preeminent jurisdictions for these types of large Chapter 11 [bankruptcy cases].”  She noted that “the attorneys involved in these [cases] come from all over … and also fee examiners expect that from jurisdiction to jurisdiction you’re not changing your fee, so it can become a good place to get an overall sense of what these fees look like.”

To be sure, while demand for bankruptcy services has grown in recent weeks, the new database was not built in response to the current market.  “When you build a data science-driven tool, it actually takes a very long time to do; we’ve been working on this behind closed doors for more than a year,” Green said.

She added that the development was “really a time-consuming process” given the need to structure docket data that was obtained via PACER.  For example, “even something as simple as figuring the department [took time].  Since every law firm is structured a little bit differently, you’re not going to necessarily find ‘bankruptcy lawyers’ at every firm, you might find ‘restructuring,’ you might find ‘financial insolvency,’ etc.”

Of course, Reorg is far from the only company offering legal spend or bankruptcy analytics, with LexisNexis, Bloomberg, Wolters Kluwer, Bodhala and Brightflag, among others, competing in the market.  What’s more, legal research providers such as Fastcase and Casetext are also planning on expanding their bankruptcy analytics and services.

Green, however, believes that where Reorg stands out is in its sole focus on bankruptcy fees.  “Our understanding is that we are the only company that is applying machine learning and this type of analysis to bankruptcy dockets.  There are a lot of providers looking at district court dockets, but what is unique about us is that because we’re so focused on the high yield and stress and distress markets that we are really embedded in bankruptcy dockets, and that provides an advantage,” she said.

Judge Won’t Destroy Hourly Rate & Attorney Fee Data

April 22, 2020

A recent Law 360 story by Andrew Stricker, “King & Spalding Denied Destruction of Fee Docs in FOIA Case, reports that a federal judge in Washington, D.C. refused to grant a request from King & Spalding LLP to "turn back the clock" and destroy court records that included the firm's billing rates and other fee data.  Partially denying a recent motion from the law firm in a Freedom of Information Act case with the federal government, U.S. District Judge Amit P. Mehta also said he would not order officials at the U.S. Department of Health and Human Services and the Department of Justice to destroy or return copies of the documents they were served.

King & Spalding "asks the court to turn back the clock and treat the sealed material as if [the firm] had never intentionally placed it on the court's docket," Judge Mehta said.  "That the court cannot do."  The decision springs from the firm's attempt to cloak the billing rates of King & Spalding lawyers who sued the HHS and DOJ after the agencies refused to hand over information related to an investigation into medical implant manufacturer Abiomed, a King & Spalding client.

After winning the FOIA case, King & Spalding petitioned for attorney fees early this year, and attached sealed exhibits containing billing rates and information about the work the firm had done to support the fee motion.  But on April 8, one day after Judge Mehta said it was "untoward" of the firm to keep the information out of the public domain as it sought federal dollars, the firm moved to withdraw its fee motion as well as the sealed exhibits.  The firm's motion also requested a court order for its clerk and the government to "destroy all copies of the sealed exhibits in their possession."

The defense opposed the request, telling the court that it was unaware of any authority requiring them "to destroy copies of non-privileged documents that, upon service on the government, became part of a government system of records."  In his decision, Judge Mehta agreed that the firm had offered no justification for destroying the records, despite its citation of a New York federal court decision about courts' inherent powers over their own processes to prevent injustices.

King & Spalding "does not assert that defendants must destroy or return their service copy to prevent abuse, oppression or injustice," the judge said.  "Indeed, it seems that plaintiff's demand for relief is premised on little more than its mistrust of defendant's continued retention of the records.  But that is not a sufficient reason."

While Judge Mehta had previously ruled that the fee exhibits could not remain sealed, he reasoned that the firm's about-face on the fee request "changes that calculus[.]"  "Although the court continues to believe that the likelihood of competitive harm is low if the exhibits were made public, that factor does not override the absence of any genuine public interest in their unsealing," he wrote.

King & Spalding filed FOIA requests in 2016 seeking correspondence within the government about Abiomed.  The agencies dragged their feet for years and cost the firm "hundreds of thousands of dollars" in fees and costs in the ensuing litigation, which the government ultimately lost at summary judgement, according to the firm's Feb 3 fee motion.

ALM Media Cites NALFA Hourly Rate Survey

March 11, 2020

ALM Media Properties LLC covers a recent NALFA survey, The 2020 Class Action Hourly Rate Survey in its recent Critical Mass newsletter, Critical Mass: Coronavirus Cancels MDL Program at Duke Law, Where Professor's Death Has Shocked the Mass Torts Bar. A Survey Probes Hourly Rates in Class Actions, On Both Sides,” by Amanda Bronstad.  The ALM newsletter sites NALFA’s class action hourly rate survey data.  The newsletter reads:

In Class Actions, Do Defense or Plaintiffs Lawyers Charge More?

Attorney fees in class actions are a hot topic, with both sides of the “v” often remarking that the other charges higher rates.  Turns out, they’re about the same.  That’s according to the National Association of Legal Fee Analysis, which released a first-ever survey this month about the hourly rates that class action lawyers charge.

For the 2020 Class Action Hourly Rate Survey, NALFA emailed “hundreds of thousands” of attorneys, in the nation’s 16 largest legal markets over a two-month period, according to Terry Jesse, NALFA’s executive director.

The findings: 95% of all class actions fall within the $200-$1,200 hourly rate range for both defense and plaintiffs’ counsel at partner and associate levels.  Partners for 20 years or more, on both sides, charged between $801 and $900 per hour, while partners with 16 to 19 years of practice charged hourly rates of $701 to $800 for plaintiffs and $601 to $700 for defendants.

Jesse told me:

“We thought that plaintiffs rates would be higher because they’re taking on more risk than defense lawyers are.  We assumed, yes, plaintiff rates would be higher.  We were surprised that defense rates were keeping pace with the plaintiffs’ rates, at both the partner and associate level.”