A recent Law.com story by Mike Scarcella, “Covington’s Eric Holder Bills at $2.295 Hourly, New Legal Services Contract Shows,” reports that Covington & Burling partner Eric Holder Jr., the Obama administration’s first U.S. attorney general and a veteran Washington lawyer, is billing at $2,295 hourly, according to a contract the law firm signed with a public university to conduct an internal investigation about workplace culture.  Holder is Covington’s lead partner on the legal services engagement with Oregon Health & Science University.  The school announced its retention of Covington in late March to lead a “comprehensive, independent investigation of institutional harassment, discrimination, retaliation and racism.”

Covington and other firms have long been hired to conduct internal investigations at companies and other institutions, but in many instances the engagement letters, revealing rates and the scope of legal services, are not matters of public record.  ALM obtained Covington’s contract through a public records request.  Holder’s $2,295 billing rate puts him at the high end of hourly figures.  Billing at other elite firms such as Weil, Gotshal Manges and Kirkland & Ellis have recently approached $2,000.

“Mr. Holder and Covington have conducted examinations of workplace culture and issues related to equity, diversity and inclusion for corporations including Uber, Starbucks and Airbnb,” the university said in announcing the retention of the Washington-based law firm.  The announcement noted that “Holder and the Covington team are also currently assessing race, equity, inclusion and diversity policies and practices at Seattle Children’s Hospital.”

Holder is working with Covington partner Nancy Kestenbaum, co-chair of the firm’s white-collar defense and investigations practice group and a former member of the firm’s management committee. Kestenbaum is billing at $1,445 an hour, the law firm’s engagement letter said.  Covington said it agreed to discount its rates by 10%.

“Hourly rates for other lawyers range from $595 for junior associates to $2,295 for senior partners; and for legal assistants from $290 to $545,” the firm said in its engagement letter.  The firm said it reviews and adjusts rates yearly as of Jan. 1, “although there are circumstances in which we may adjust rates at other times.”  Part of the contract contained information that the university would not release.  The information pertained to clients Covington is advising on clinical trials being conducted at the university.

“As you recognize, we are a large law firm with multiple practices in multiple offices throughout the world, and we represent many different clients in many different industries, including clients who are competitors of each other and sometimes adversaries in legal matters,” Holder wrote.  “In taking on this representation, we commit that we will not represent any other client in any matter adverse to you that is substantially related to this matter.”

A private law firm charging a public client is not rare.  Public records show major U.S. law firms have charged local or state government clients to take a case to the U.S. Supreme Court.  Not every engagement, however, is charged. Some work is done pro bono.

A recent Law 360 story by Lauren Berg, “Judge Says School District ‘Greatly Overpaid’ Morgan Lewis,” reports that a New York federal judge awarded millions of dollars in attorney fees to the NAACP after a Hudson Valley school district was found to be blocking minority voters' preferred candidates from the school board, while criticizing how much the school district paid its counsel at Morgan Lewis & Bockius LLP.

During a hearing, U.S. District Judge Cathy Seibel increased the $4.3 million in attorney fees and costs that a federal magistrate judge recommended be awarded to the NAACP's counsel at Latham & Watkins LLP and the New York Civil Liberties Union Foundation after they won a bench trial.  According to a transcript provided to Law360, the East Ramapo Central School District was found to have violated the Voting Rights Act.

Following the bench trial, Judge Seibel found that in the "unique" school district, in which 98% of private school students are white and 92% of public school students are Black or Latino, statistical analysis showed that both groups voted as blocs.  The minority group has been unable to get a single preferred candidate onto the board since 2007 due to highly organized resistance from the private school community, which is largely Jewish, the judge ruled.  The Second Circuit in January upheld the ruling.

In their objections to the magistrate judge's recommended award, the NAACP's counsel said they should at least be paid the same amount that the school district paid Morgan Lewis and asked for about $8.5 million — all of which they said they will donate to help the public schools in the district — while the school district said there shouldn't be a fee award because the attorneys are working pro bono, according to the transcript of the hearing.

Judge Seibel said the NAACP's counsel isn't entitled to the same rate that its corporate clients pay because they are working pro bono, but they are entitled to a fee.  She also noted that while the attorneys' plans to donate all of the money is "commendable," it will have no impact on her calculation of the fees.

The NAACP's counsel argued that the magistrate judge's award cuts their fees to half of what Morgan Lewis was paid, but Judge Seibel said it's not her job to compare what the plaintiffs seek with what the defendants were paid.  She noted that she must determine what a reasonable, paying client would pay by multiplying the reasonable number of hours by a reasonable hourly rate.

The judge said the school district is not an example of a "reasonable, paying client."  "I think the district greatly overpaid," Judge Seibel said.  "I have never heard of a school district in this area being charged or paying close to $650 an hour for partners or $450 an hour for associates, which is what Morgan Lewis charged."  The judge said that because this case was more complex than another more routine case, it's reasonable that the client might pay more than it usually would, but that the school district in this case paid about triple the normal rate.

"The record simply contains no indication that defendant's counsel's fee is, in fact, reasonable; and I think there are strong reasons to conclude it's not, so it doesn't make sense to try to match it," Judge Seibel said.  "Latham's work has obviously been more valuable to its clients than Morgan Lewis's was to its, but that does not mean defendant has to pay Latham what defendant paid Morgan Lewis."

The judge also noted that the school district could have avoided paying fees to the NAACP's counsel had it settled the case before it went to trial, but she also said the district was under no obligation to settle and might have sincerely believed it could win the case.  The judge also disagreed with the school district's assertion that the NAACP didn't really achieve anything because the school board is still 6 to 3 in terms of white private school members versus minority public school members.

"First, plaintiffs achieved something really big here.  They turned over a big rock and they exposed a years'-long violation of voting rights," Judge Seibel said.  "Second, even if there are only three minority/public school members on the board, they will be ones chosen by the voters, not by a secretive white slating organization."

In her calculations, the judge said she came out a little higher than the magistrate judge, citing the difficulty and complexity of the case that required a high level of skill from the attorneys, as well as the substantial resources needed to effectively prosecute the case.  "I think above what is typical in normal civil rights cases is appropriate and I'm going to bump up from Judge [Judith C.] McCarthy's numbers, although not up to what plaintiffs asked for," Judge Seibel said.

The judge didn't specify the total amount of fees and costs she awarded the NAACP but did say she would offer a higher rate of 25% compared to the 20% offered by the magistrate judge.  At the end of the hearing, Judge Seibel told the NAACP's counsel at Latham that it shouldn't take umbrage at a fee award that will probably come out to be less than what the school district's counsel got, according to the transcript.  She said she thinks the defense counsel got paid too much, but that "two wrongs don't make a right."

"Latham accomplished two very important things here: first, it got its associates some invaluable training and experience while also showing them how rewarding and satisfying public interest work can be; and second, it rectified a serious wrong in the community and restored the voting rights of thousands of people, and you cannot put a price tag on either of those things," Judge Seibel said.  "The firm ought to take pride in both of those accomplishments without diluting it by tying it to an arbitrary number paid to plaintiffs' counsel," she added.

A recent Legal Intelligencer story by Andrew Maloney, “Rate Pressure and Rising Expenses Are Expected to Challenger Firms in 2021,” reports that law firms may have weathered the COVID-19 financial storm last year, but firm leaders and legal observers say economic pressures could bear down again in 2021, including increased expenses, rate pressure and cash-strapped clients.

Big Law likely won’t be able to count on government loans this time , either.  Overall, firms and analysts are optimistic about business this year.  Firms mostly said they expect a return to some version of normalcy by the second or third quarter of the year, according to a report this week from Thomson Reuters and Georgetown Law’s Center on Ethics and the Legal Profession.

At the same time, the pandemic “is likely to continue to pose economic challenges for law firms” this year, the report said, even as vaccines are being distributed en masse.  “First, it is not clear that the same tools used by firms to address the crisis since March will be as readily available in 2021.  Some law firms may well not enter the new year with the same cash cushions they had from 2019,” the report stated.  It notes many firms used the pandemic to increase billing and collections efforts, and as a consequence, may not have as much on-hand heading into this year as usual.

In addition, there’s growing concern about the ability to raise rates this year, while corporate legal departments, with 2021 budget goals, are looking for areas to trim.  ”It may be harder to implement the same level of rate increases at the end of 2020 that firms enjoyed at the end of 2019,” the authors added.

James Jones, a senior fellow at the Georgetown Law Center on Ethics and the Legal Profession and lead author of the report, said he was “dubious” firms could boost rates at the same level they did last year—about 5%.  The average annual rate increase for firms since 2008 has been about 3%, he said.

Jones also pointed to a recent Thomson Reuters survey of more than 200 legal departments that found about 89% said holding down outside counsel costs was one of their highest priorities for 2021.  He noted that corporations have significantly increased personnel whose job is to oversee outside counsel agreements.  According to Reuters’ Legal Department Operations Index, about 57% of companies had people in those roles in 2019. In 2020 that number shot up to 81%.  “So, given the economic uncertainties and enormous pressure that companies are under, I would be surprised if they sit still for a 5% increase,” Jones said in an interview.

Joshua Lorentz, a partner at Dinsmore & Shohl who chairs the firm’s finance committee, said the firm ended 2020 “on a solid note” and expects 2021 to be a “net gain” for business.  But he said one wrinkle to the budgeting process this year is figuring out where to set rates, as clients try to forecast how much COVID-19 will alter their bottom lines again.  “I don’t know that a majority of companies are asking for discounts, but perhaps discounts for new work, COVID discounts. For some clients, we’re willing to lean into that,” Lorentz said.

He said the firm is evaluating which clients needed breaks in 2020 and having discussions about their projections for 2021.  ”And with all that information, we’re able to see who needs us to lean in, who appears to be weathering the COVID situation.  Then we try to budget conservatively on top of that,” he said.  As an example of that conservative budgeting approach, Lorentz said Dinsmore is preparing this year’s numbers as if expenses such as conferences and business travel will still go forward as they would in a pre-pandemic year.

“And if it ends up that things get canceled in February and March and in the summer, then it’s additional profit for the partnership and the attorneys,” he said.  “But if we don’t budget for it, and things suddenly get clear, it’s tough to go find the money.”

Rising Expenses

The Georgetown and Thomson Reuters report noted that “almost all firms” significantly reduced costs by being more efficient about physical office space, staffing, in-person meetings and business travel in 2020, and such drastic changes could amount to a “tipping point” that permanently alters how firms do business.

Lathrop GPM could be one of those firms. Managing partner Cameron Garrison said this week that while he hopes to have a firmwide return to in-person work later this year, “I do expect that our typical work week may look very different once we return to the office.”  He said in an email that’s a result of the firm likely continuing to leverage remote work options for its staff.

At the same time, for many firms, the savings created through remote work and reduced travel are likely a one-time deal.  “I think the challenge that we’re going to have in 2021 is the very sharp expense reductions that we saw when we went into lockdown.  Those expense reductions—they’re not going to repeat, and we’re going to see our expense numbers rising again,” said Michael McKenney, managing director of Citi Private Bank’s Law Firm Group.  “So that margin expansion that we saw is unlikely to repeat.”

However, McKenney said many firms are “very, very strong” in terms of how much cash they have on-hand entering 2021.  He noted rate increases have been “very steady” since the financial crisis of 2008, and there are plenty of signs COVID-19 won’t hamstring the market this year the way it did in 2020.  “The outlook, particularly if vaccine distribution is handled better than it has been initially, is for a fairly vigorous rebound in a level of activity,” McKenney said, noting that some of the most leveraged practices that were hit hard almost a year ago are starting to come back.

“We saw corporate M&A shut down, capital markets activity was reduced, litigation was hampered because it was very hard to take depositions.  Juries were not sitting,” he said.  “Those things have begun to reopen, and people are doing them very successfully virtually.  Corporate M&A is back up, capital markets is back up, so many of our leverageable practices—practices that generate strong hours—are coming back.”  Garrison, the Lathrop firm leader, said the long-term economic and societal effects of COVID-19 are still unknown.  But one area that could pick up as a result of economic pain in the short term is pro bono.

“While not an economic challenge, I also believe that firms will be challenged with increased pro bono requests due to an increase in people facing financial hardship,” he said.  “We are very focused on balancing the pro bono time we can offer to support our communities while increasing the support that we add to our clients.”

A recent Law 360 story by Hailey Konnath, “DC Judge Slams DOJ’s $212K Fee Payment to Arnold & Porter,” reports that a District of Columbia federal judge criticized a deal in which the Trump administration will pay Arnold & Porter more than $212,000 in legal fees to resolve a battle over expedited traveler security clearance programs, calling the fees excessive and the government's conduct "embarrassing."

The U.S. Department of Homeland Security in August backed down from its defense of the policy barring New Yorkers from enrolling in some of U.S. Customs and Border Protection's Trusted Traveler Programs, including Global Entry, SENTRI, NEXUS and FAST.  The government also admitted that it violated the Administrative Procedure Act's rulemaking process in instituting the policy and admitted that it made "inaccurate or misleading statements" about the policy.

As part of the agreement ending the case, DHS said it would not stop New Yorkers from participating in Global Entry or other traveler programs on the basis of the state's refusal to provide the federal government with access to the New York State Department of Motor Vehicles' records, according to the settlement.  The government also agreed to cover the plaintiffs' counsel's fees.  To be clear, the parties don't need court approval to move forward with their agreement, U.S. District Judge Richard J. Leon noted in the order.  However, the government and Arnold & Porter were seeking a court order incorporating the deal into a final order of dismissal.

Judge Leon declined to do so, saying that while the other provisions of the agreement are fair and reasonable, "I am quite concerned, and have been from the outset, about the reasonableness of the amount of attorney fees agreed to by the parties."  In particular, the judge knocked the U.S. Department of Justice for not requesting the actual billing records from Arnold & Porter.  Those records show that eight total attorneys billed time on the case, a number of attorneys that he deemed "entirely unnecessary to the needs of the case."  The DOJ also chose not to suggest that attorney fees be calculated according to anything other than the firm's standard corporate rates, Judge Leon said.

Had the DOJ pushed for using rates established in the U.S. Attorney's Office's Laffey Matrix — and only covered the fees for four attorneys — the fee award would be just $82,562, he said.  "The court believes the Department of Justice should have been more aggressive in protecting the public fisc," the judge said.

Judge Lean added that "[p]erhaps, however, it is not so surprising that they weren't in this case.  After all, it is not every day the Department of Justice and their clients have to confess to written and oral misrepresentations on the record in a high profile case!"  It appears that Arnold & Porter — "unfortunately at the taxpayer expense" — simply capitalized on the government's desire to put the matter to rest as quickly as possible, he said in the order.  Judge Leon said he hopes that in the future, the DOJ's leadership will take the necessary steps to ensure that attorney fees it agrees to are indeed fair and reasonable.

As far as the conclusion of the Global Entry case, Judge Leon said the parties have two options: they can file a stipulation of dismissal or they can reduce the fees portion of their deal and get it incorporated into his final order of dismissal.  "The parties have made it clear to the court that their settlement agreement does not require judicial approval and is in fact self-executing," he said. "Fine."

He added, "Negotiating an agreement in a pro bono case that bypasses judicial approval and requires defendants to pay in excess of $200,000 in attorney fees might warrant a tip of the proverbial cap from fellow practitioners, but it is irrelevant to a judicial analysis of whether to incorporate the parties' agreement into an order of dismissal."

Stanton Jones, one of the Arnold & Porter attorneys on the case, told Law360 that it was "illegal for the federal government to try to deny Global Entry to New Yorkers in retaliation for its refusal to participate in immigration enforcement."  In a statement provided to Law360, Jones added that "all fees recovered in this case will be contributed to the Arnold & Porter Foundation, a tax-exempt private foundation that provides scholarships to minority law students, funds fellowships for recent law school graduates at tax-exempt organizations, and awards grants to other charitable and educational organizations."

A recent Law 360 story by Britain Eakin, “PTAB Says Inability To Pay Legal Fees No Reason To Deny IPR,” reports that the Patent Trial and Appeal Board has agreed to review Dareltech LLC's "selfie stick" patent, rejecting the company's argument that since it can't afford to pay for counsel, Microsoft's inter partes review challenge should be denied.  The decision instituting IPR, the board said Dareltech's inability to pay to defend its patent doesn't qualify as a reason for the board to exercise its discretion to deny review, as the company had argued.

"Patent owner's current financial circumstances are not sufficient reason to preclude petitioner from pursuing its statutory rights to challenge the patentability of the claims," the decision said.  Dareltech had asserted that its lead counsel doesn't participate in post-grant matters, and that its backup counsel had been representing the company in other matters pro bono, but is unable to devote the time and resources to this IPR.

Additionally, Dareltech argued that it incurred expenses to prosecute the patent family, develop and commercialize the claimed invention without significant revenue and defend related IPRs, and so the board should deny review.  But the board was unmoved.  The PTAB also shot down Dareltech's argument that the board should deny the petition because it has no district court dispute with Microsoft, which it contends is acting as a proxy for Chinese technology company Xiaomi.