A recent Law.com by Andrew Maloney, “Where Are Partner Billing Rates Surging the Most in Big Law,” reports that, while partner billing rates rose last year all over, they skyrocketed in certain practice areas in Big Law and several U.S. cities, according to a new analysis.  Going forward, billing rates are expected to continue another steep increase this year.  Partner billing rates surged to record levels last year “in all tiers of law firms and in all practice areas,” but it was high-dollar practices that commanded some of the largest rate increases, with mergers and acquisitions, commercial and contracts, and corporate practices leading the way, according to the latest trends report from LexisNexis CounselLink.

Hourly rates for all partners jumped between 2021 and 2022 by 4.5%. That’s higher than the increases in 2020 (3.5%) and 2021 (3.4%), and the highest since CounselLink first began producing the trends report in 2013.  The median hourly rate for partners in M&A shot up much more, with a 6.4% jump between 2021 and 2022.  Commercial and contracts, corporate, and labor and employment practices also notched significant rate increases, growing 5.8%, 5.6% and 5.6%, respectively, last year.

With the exception of labor and employment, the median hourly rates charged by partners in each of those practices was $675 or more, according to CounselLink.  The median rate for M&A partners was $955, the highest rate of any practice area in the report.  For commercial and contracts, it was $706. And for corporate work, it was $675.  The median hourly rate for partners in labor and employment was $530.  The trends report is based on $52 billion in legal spending across 420,000 timekeepers and 1.4 million legal matters.

Kris Satkunas, director of strategic consulting for CounselLink, noted that partner rates were on pace to rise 5.4% in 2023, even higher than last year’s record growth.  “There’s still a lot of work to be done in 2023 that has yet to be billed.  So, could that change?  Yes, of course,” she said.  “But we’re on this trajectory right now, and my gut feeling is that it probably won’t go down.  It may go up even a little bit.”

While the 2022 rate growth happened in a year of slower demand, she said she’s not convinced there’s a correlation between rate growth and demand at the practice level.  More often, she said, it’s a firm-wide decision.  She noted that M&A rates, for instance, were still growing at a decent clip a couple of years ago when the practice area was as busy as ever.  In 2022, as demand faltered, the rates grew more than ever.  Analysts told Law.com that partner billing rates rose partly because law firms were feeling the effects of inflation and trying to maintain profitability as demand took a hit.

Rates are higher for practices such as M&A partly because that work is more often done by the larger, more expensive firms, Satkunas said.  “These are kind of the big, high-risk, bet-the-farm sort of matters, and those corporate counsel want to go to the firms they have the most faith in, and those tend to be the larger firms,” she said.  Indeed, the trends report noted that in 2022, the “Largest 50″ firms handled 68% of M&A work. “With regard to the other high rate practices of regulatory & compliance, commercial & contracts and corporate, the ‘Largest 50′ firms had 57 percent of the work from these practices,” the authors wrote.

Overall, the largest firms increased market share, the report noted, with their largest gains in regulatory and compliance, corporate and real estate work.  But head count size didn’t always determine the largest rate increases.  In 2022, the median rate at firms with 501-750 lawyers grew by 9%, but only 3% for the largest firms, the report said.

Rates by City

The report also noted many of the largest legal markets saw the biggest jumps in rates.  Six major metropolitan areas saw median partner rate growth climb higher than 5%: Washington, D.C. (a 6.6% jump, to $925 per hour), Chicago (5.8%, to $765 per hour), Los Angeles (5.7%, to $795 per hour), New York (5.5%, to $975 per hour), San Francisco (5.5%, to $608 per hour) and Seattle (5.1%, to $780 per hour).

“On the opposite side of the spectrum, two cities saw hourly growth rate below 2 percent: Dallas and Detroit,” the report noted.  Utah led the way in terms of partner billing rate growth among states, with the median rate climbing 6.2% in 2022, up to about $350 per hour.

Satkunas said some of the growth among cities and states is a reflection of the size of law firms there. Dallas and Detroit have some large firms, but also plenty of midsize and smaller firms that didn’t raise rates quite as much.  Law firm partners in Utah had more double-digit increases than partners in other states, she noted. Utah just has a smaller population of law firm partners than most states and is thus more susceptible to outliers.

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 360 story by Emily Lever, “NY Firm Says Enviro Co. Failed To Pay Legal Fees” reports that Bochner IP PLLC sued environmental company Global Thermostat in New York state court over allegedly skipping out on a $102,000 bill for its work on intellectual property transactions aimed at fending off bankruptcy, saying Global Thermostat "never intended to pay" in full.

When Global Thermostat found itself at risk of bankruptcy, the company's co-founder agreed to grant it the use of her intellectual property, according to a complaint filed in New York Supreme Court.  Bochner handled the IP transactions, for which Global Thermostat paid the first few installments of the six-figure legal bill — a deliberate deception to create a false sense that Global Thermostat intended to and could pay the full bill, according to Bochner.

"Defendants successfully closed on the transactions and avoided bankruptcy, without having to fulfill their obligations to plaintiff," the complaint says.  Global Thermostat, a startup billing itself as being able to suck carbon dioxide out of the atmosphere and stop climate change, was co-founded in 2010 by Graciella Chichilnisky based on technologies she patented.

Global Thermostat PBC, Global Thermostat Operations LLC and Global Thermostat Licensing LLC sought new investors to save them from a possible bankruptcy, according to the complaint.  The companies paid Chichilnisky royalties for her technology, but potential investors insisted Chichilnisky transfer the patents to the companies as a condition of investment, according to the complaint.

Chichilnisky agreed, and the companies agreed to pay her legal fees in connection with the transfer of IP as compensation for the loss of royalties.  Bochner, a civil litigation and intellectual property firm, represented Chichilnisky in the transaction.  Bochner drafted a settlement that allowed the companies to avoid bankruptcy, according to the complaint.

Global Thermostat paid Bochner's first three invoices, which were each for $20,000, before the settlement closed.  But once the settlement was finalized Aug. 12, they stopped paying, leaving $102,679.25 worth of invoices unpaid, according to the complaint.  The companies "failed to disclose material information of their intent and/or ability to pay" to give Bochner the impression they would pay the full legal bill and to keep the firm working on the settlement that would preserve their business, according to Bochner.

"Defendants made these assertions and payments in order to induce plaintiff into believing it would be paid for all further work done in negotiating and finalizing the transactions," the complaint says.  Global Thermostat also ignored demands for payment from other firms that worked on the transaction, according to the complaint.

A recent Law360 story by Jessica Corso, “Houston Attorneys Sued for $5M Over Altered Fee Agreement,” reports that three Houston-based attorneys are being sued for around $5 million by a former client who claims that they deceived her into changing their fee agreement during a legal fight over her late father's will.  Caroline Allison sued Jorge Borunda, Nicholas Abaza and Michael Trevino in Harris County District Court on Nov. 9, arguing that the attorneys should return most of the money she paid them to represent her in a probate dispute involving the will of her father, who died in 2017.

Allison claims that she agreed in 2019 to hire the lawyers on an hourly basis but, a year later, they asked for a change to a contingency fee agreement whereby they would get 35% of any money or assets she collected from her father's estate.  According to the lawsuit, the lawyers made Allison believe that the case would go to trial and end up costing a lot of money.  In reality, they knew that her father's second wife, with whom Allison was fighting over the estate, was close to a settlement at the time they asked for the 35% fee, according to the lawsuit.

"By October of 2020, the lawyers determined that the estate was worth more than $18 million," according to the complaint. "Unsatisfied with their current arrangement with Caroline, and with dollar signs in their eyes, the lawyers set upon a course of conduct to fraudulently induce Caroline to change her agreement from an hourly rate to a contingency fee."  Six months after signing the new contingency agreement, the case settled, with Allison and her brother, who had also hired Borunda and Abaza, together receiving around $9.5 million, according to the lawsuit.

Allison claims that she ended up paying the lawyers $1.65 million more than she would have had she stuck to an hourly rate.  She is suing for that money back, plus treble damages she said she was owed under the Texas Deceptive Trade Practices Act.  She is alleging violations of the Texas law, as well as negligence, breach of fiduciary duty and fraud.

A recent Law360 story by Emily Lever, “Ill. Bar Insurer Can’t Ditch Law Firm Defense in Fees Fight,” reports that the Illinois State Bar Association Mutual Insurance Company can't avoid defending a law firm accused of wrongfully pocketing attorney fees for its handling of an estate case, an Illinois appellate court ruled, saying the suit is covered by the firm's malpractice insurance.  The insurer has a duty to cover lawyer Alan E. Sohn and his firm in a dispute with Randy Sly, the executor of an estate Sohn represented in probate court, over $280,000 in legal fees, according to a three-judge panel of the First Judicial District of the Appellate Court of Illinois.  The court held that the money at issue is not just for fees — it's also a loss incurred by Sohn's alleged malpractice, meaning it can be understood as damages.

"Sly's injury is not a consequence of the fees charged, but a consequence of Sohn's allegedly negligent advice," Justice Mary Ellen Coghlan wrote on behalf of the panel.  Justices Aurelia Pucinski and Carl A. Walker concurred.  The court rejected ISBA Mutual's 2019 appeal, which argued that the suit against Sohn seeks repayment of attorney fees rather than damages, and therefore the issue is a billing dispute and not about the practice of law, so Sohn's insurance shouldn't have to foot the bill.

Sly is suing Sohn, claiming his former attorney gave him faulty legal advice on executing the estate of Linda Loessy, who died in 2012.  The Circuit Court of Cook County ruled that Sohn's work "resulted in little benefit" to Loessy's estate, which was "not a complicated estate to administer."  The court ruled that he should have been paid no more than $135,000 for his services and should return the excess, which amounted to $185,000, plus more than $95,000 in court fees incurred by a court-appointed guardian for Loessy's children in his action against Sohn.

Sohn's insurance, which was active throughout the course of case, covers "wrongful acts" related to the "rendering of or failure to render professional services," but excludes attorney fees, which ISBA Mutual argued let it off the hook for the $280,000.  A straightforward billing dispute would be "purely ministerial" and not sufficiently related to the practice of law to qualify for coverage, according to the panel, but this dispute is both about the fees billing and about the alleged misbehavior by which Sohn obtained the fees, the panel held, noting that the court-appointed guardian's filings say the payouts to Sohn "substantially reduced" the estate.

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