A recent Law 360 story by Sue Reisinger, “GC Cheat Sheet: The Hottest Corporate News of the Week,” reports that, as several law firms have significantly increased their rates over the past year amid a slowing economy, the relative silence from corporate clients has been deafening.  Law 360 columnist Aebra Coe writes that based on her experience covering the legal industry during the fallout of the last economic downturn, the level of "meh" reactions around the increases is a major shift from the volume of outcry we heard from in-house legal during the 2010s.

So fast-forward to today.  Released at the end of May, the LexisNexis CounselLink 2023 trends report found that timekeeper rates grew on average 4.5% in 2022, the highest level the enterprise legal management platform had recorded since it first produced the report in 2013.  According to CounselLink, average partner billing rates at law firms with 750 or more lawyers increased from $656 in 2015 to $895 at the end of 2021, an increase of 36%.

And yet, Coe doesn't think we've seen the same revolutionary spirit in-house that we saw a decade ago.  Some structural changes are at play, including reducing the number of outside counsel used by legal departments, adopting alternative fee arrangements, using legal technology, outsourcing some lower-level tasks to alternative service providers, taking some work in-house, and making use of data to ensure outside counsel are performing to a high standard and providing value for the money.

A recent Law.com by Maria Dinzeo, “Law Firm Partner Hourly Rates Rose Last Year at Biggest Clip in at Least a Decade,” reports that hourly rates for law firm partners jumped 4.5% in 2022, driven in part by law firms’ fears of profitability losses from inflation and a drop in M&A activity, according to a report from LexisNexis CounselLink.  The report, based on $52 billion in legal spending across 420,000 timekeepers and 1.4 million legal matters, says that annual percentage increase was the largest since CounselLink put out its first report in 2013.

The largest portion of corporate spending went to partners at the 50 largest firms, those with 750 lawyers or more, where the average partner billed at a 46% higher rate than the next tier of firms with 501-750 lawyers.  The 50 largest law firms also saw their market share swell to 47.3%, particularly in regulatory and compliance, mergers and acquisitions and financial matters, where the 50 largest firms consumed 55% of legal billing in 2022.

“There’s all this increased regulatory pressure going on out there.  And who do you want to handle this stuff?  You’re gonna go to the firms that you think had the most insight into this and that’s going to be the big firms,” said report author Kris Satkunas, director of strategic consulting for CounselLink.  She also recently took a preliminary peak at this year’s numbers, and partner rates are on track to rise 5.4%, an even bigger increase than the 2022 record.  Those rates rose 3.4% in 2021 and 3.5% in 2020.

“It’s a very big leap compared to where we have been running for the last 10 years.  But that number will change.  Will it go up or down?  I don’t know,” she said.  “But that’s where things stand today through the first four months of the year.”  Satkunas noted that 25% of partners had increases of over 10% last year.  She said some legal departments also reported seeing double-digit rate increases.  The hikes could be attributed to firms beginning to feel the effects of inflation and less demand for certain types of work.  “I think there’s some fear about being able to hit profitability,” she said.

M&A activity also declined in 2022 after hitting an all-time high in 2020, experts say, when high demand for M&A work, with accompanying litigation, tax, real estate and intellectual property issues, gave firms more work than they could handle.  “M&A was the gift that kept on giving in 2020 and 2021,” said law firm consultant Kent Zimmermann of the Zeughauser Group.  “The massive demand for talent led to a big rate increase and that caused some firms to pull away a lot relative to their peers on profitability and talent advantage.”  Even though M&A work has slowed, Zimmermann said firms are still vying to attract the “best” lawyers as a path toward profitability.

“Even though demand is soft, that rate lever is still important,” he said.  “If there is any recession, it’s looking like it’s going to be short and shallow, so law firms are thinking.  We need to plan two to four years ahead.  We can’t under-do it on the rate increases.  It’s a big driver of our ability to enhance profitability and compete and attract the best lawyers.”

Some firms raised rates twice over the span of 12 months to keep up.  “The internal messaging was we need to pay to be competitive in the market for associates and their pay is going up,” Zimmermann said.  “You need the best and brightest associates and this is what it takes.”

If law firms have only two levers to profitability- raising rates or drumming up more work— raising rates is the easier of the two, Satkunas said.  “Typically, they are more comfortable raising rates.  It’s actually easier to raise rates and go find new customers or find new new work,” she said.  Though alternative-fee arrangements have grown more popular in recent years, this year’s report notes that their adoption remains largely unchanged, and represented 6.3% of total legal billings in 2022, according to the CounselLink report.

“At the end of the day, I believe that most corporate counsel are just more comfortable negotiating an hourly rate discount than being creative.  It’s easier to negotiate a rate than it is to have to think about, what’s the value of this matter, what am I willing to pay for the outcome I want?” Satkunas said.  “I’m disappointed and I really would love to see a real meaningful uptick in the use of AFA’s but it just hasn’t happened.”

A recent Law.com story by Dan Roe, “What $1,000 an Hour Gets You in the Am Law Today,” reports that, inflation be damned, $1,000 is still a lot of money.  In exchange for $1,000, you can have a smokeless fire pit, an eight-person inflatable swimming pool or a drone quadcopter, according to thingsineedtobuy.com.

Last week, Legal Twitter users scoffed at the revelation that they could instead spend about $1,000 on one hour of lawyering performed by a second-year associate at Kirkland & Ellis, per a recent fee application in the bankruptcy of Voyager Digital Holdings surfaced by ex-Greenberg Traurig lawyer Robert Freund of Robert Freund Law.

The second-year in question turned out to be a fourth-year who was admitted elsewhere previously, but Freund’s tweet sparked a dialogue about the pace of Big Law rate hikes in recent years.  Even considering inflation, senior associates only began surpassing the $1,000-per-hour mark a few years ago, while partners have topped the $1,000 mark since the mid-2000s.

Nowadays, there may not be a second-year billing at $1,000 per hour—but Paul, Weiss, Rifkind, Wharton & Garrison comes close at $995 per hour.  That’s according to an American Lawyer review of bankruptcy fee requests from 10 firms in the Am Law 200, which included fees requested in the past six months for associates and partners with rates closest to $1,000 per hour.

Sullivan & Cromwell charged a similar rate of $960 an hour for second-year associates in its most recent fee application in the FTX bankruptcy.  Bankruptcy giants Kirkland, Latham & Watkins, and Weil, Gotshal & Manges offered more experience for roughly $1,000, charging that amount for associates with between three and five years of experience.

Getting out of the Am Law 50 gets you a junior partner at Katten Muchin Rosenman, but the Second Hundred is where a $1,000/hour lawyer’s years of experience reliably hit the double digits.  At 180-lawyer Cole Schotz, where profits per equity partner exceed $1 million, a 19-year partner recently billed at $950 per hour in the bankruptcy of Armstrong Flooring.  Equity shareholders at Jackson Walker, a frequent local counsel to Kirkland & Ellis in the Southern District of Texas, bill at a blended rate of $950.

However, the fast-approaching $1,000-an-hour first-year associate (conspicuously absent from the aforementioned e-commerce site) may not draw as much ire from clients as some observers would posit.  For starters, many clients decline to pay for first-years in general, said Laura Johnson, legal operations manager of Sterling Analytics, who helps legal departments draft billing guidelines for outside counsel.  And among the most elite firms, billing rates are of little consequence when the stakes are high.  Instead, billing analysts like Johnson instruct clients to concentrate on staffing, an area where firms can more easily rack up huge bills.

“If you’re hiring a top-tier firm you know you’re going to be charged really high rates,” Johnson said.  “We tell our clients to focus on staffing and how they’re billing for the task they’re performing—if a simple matter should take one partner and one associate and all of the sudden there are three partners and four associates, that’s what we’d focus on more than the rate.”

The old adage in real estate that it's all about location, location, location may also apply to hourly rates in litigation.  NALFA released the results from its annual hourly rate survey of civil litigation in the U.S.  The results, published in the 2022 Litigation Hourly Rate Survey & Report, contains billing rate data on the factors that correlate to hourly rates in litigation: geography, years of litigation experience, position or title, complexity of case, and law firm size.

This empirical survey and report provides macro and micro data of defense and plaintiffs' rates in regular and complex litigation, at various litigation experience levels, from large law firms to solo shops, and in the nation's largest markets.  This is the nation's largest and most comprehensive survey or study of hourly billing rates in civil litigation.  Over 16,600 qualified litigators, both defense and plaintiffs' counsel, from across the U.S. participated in this hourly rate survey.

For the third year in a row, the nation's top litigation billing rate city is Washington, DC.  When we aggregate all the responses from Washington, DC, 23 percent of the responses fall within Tier 4 rates ($901-Over $1100), the highest percentage of the 24 cities in the billing rate survey.  Only 10 percent of DC litigators fall within Tier 1 rates (Less Than $200-$400), the lowest percentage of cities and slightly over two-thirds of all DC litigation rates fall within Tier 2 rates ($401-$650) and Tier 3 rates ($651-$900).

NALFA recently released the results from its 2022 Litigation Hourly Rate Survey.  The results, published in The 2022 Litigation Hourly Rate Survey & Report, contains billing rate data on the factors that correlate to hourly rates in litigation: geography, years of litigation experience, position or title, complexity of case, and litigation practice size.

This empirical survey and report provides micro and macro data of current hourly rate ranges for both defense and plaintiffs’ litigators, at various experience levels, from large law firms to solo shops, in regular and complex litigation, and in the nation’s largest markets.  This data-intensive survey contains hundreds of data sets and thousands of data points covering all relevant billing rate categories and variables.  Over 16,600 qualified litigators participated in this survey.  This is the nation’s largest and most comprehensive survey or study of hourly billing rates in litigation.

For the third year in a row, at the macro level, we find a chi-squared distribution for litigation billing rates.  When we plot all responses (plaintiffs' and defense) in both regular and complex litigation on a graph (x,y axis), we have a general shape distribution model known as chi-squared distribution.  That is, the distribution is not the standard or normal (classic bell-shaped curve) distribution.  In data science, chi-squared is a gamma type distribution.  Our model here starts from a low point ($200-$250), climbs to the highest point ($451-$500), before the midpoint ($601-$650), then declines gradually and finishes with a long tail with an uptick at the very end (Over $1100). 

"You can see that the climb upwards is steeper than the gradual decline downwards," said Terry Jesse, Executive Director of NALFA.  "Just knowing, at the macro level, that litigation rates fall within the chi-squared distribution is a major development in hourly rate economics," Jesse added.  In the graph below, the y axis is the percentage of responses and the x axis is our 20-point hourly rate scale (Less than $200 to Over $1100).

Every year, NALFA conducts an hourly rate survey of civil litigation in the U.S.   Today, NALFA released the results from its 2022 hourly rate survey.  The survey results, published in the 2022...

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The old adage that real estate is all about location, location, location may also apply to hourly rates in litigation.  NALFA recently released the results from its annual hourly rate survey of civil...

Read Full Post

Every year, NALFA conducts an hourly rate survey of civil litigation in the U.S.   Today, NALFA released the results from its 2021 hourly rate survey.  The survey results, published in The 2021...

Read Full Post

A recent Bloomberg Law story by Roy Strom, “Big Law Rates Topping $2,000 Leave Value ‘In Eye of Beholder’” quoted two NALFA members, John D. O'Connor of O'Connor & Associates in San...

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