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Category: Law Firm Economics

Study: Washington, DC Outpaces Peer Cities on Hourly Rate Growth

February 15, 2024

A recent Law.com story by Abigail Adcox “ ‘D.C. Was Our Best-Performing Region’: Billing Rate Increases and Demand Growth Drive Strong Year in the Beltway”, reports that law firms based in Washington, D.C., finished out 2023 with a strong financial performance, propelled by billing rate increases, expense control and robust demand within regulatory and litigation practices, according to results from a bank survey.

Among D.C.-based firms, gross revenue was up 7.6% in 2023 over the previous year, higher than the industry average of 6%, as the average billing rates in the region rose 8.8% compared with the industry average of 8.3%, according to Wells Fargo’s Legal Specialty Group’s year-end survey results.  Those results included eight firms headquartered in the D.C. region.

“D.C. was our best-performing region,” said Owen Burman, senior consultant and managing director with the Wells Fargo Legal Specialty Group.  “When talking to firms to really find out what drove it, the regulatory side was on fire for so many firms. And litigation overall has been supporting many firms this past year.”  In average revenue growth, D.C. firms exceeded peers in New York City (7%), California (6.6%), Texas (6.3%), Florida (5.9%), Chicago (5.2%), Philadelphia (4.7%) and Atlanta (4.4%), according to Wells Fargo data.

“The practice mix was very much in favor of D.C.-headquartered firms” in 2023, Burman said, citing robust demand within restructuring, antitrust and litigation practices, as other firms saw the impact of slowdowns in the transactional market.  It follows a lackluster 2022 for D.C. firms, which “underperformed,” as anticipated enforcement activities under the Biden administration didn’t come to fruition as expected, according to Burman.

However, in 2023, as demand picked up within regulatory and litigation practices, D.C. firms were able to control expenses and were less aggressive in hiring, contributing to their revenue growth.  Profits per equity partner were up 10.7%, compared with the industry average of 4.9%.  The number of full-time equivalent lawyers at D.C. firms also grew by 2%, slightly below the industry average of 2.8%. However, productivity at D.C. firms was down 1%, still better than the industry average (down 2.1%).

Demand among all lawyers was also slightly better at D.C. firms (0.9%) than the industry average (0.7%), but fell short of peers in New York City, which saw a 2% increase in demand.

Controlling Expenses

Meanwhile, total expenses grew 4.1%, the best out of all eight regions tracked, and above the industry average of 6%.  “They were able to control the expense growth much better than peers,” Burman said.  “Last year they were able to control the lawyer compensation pressures a bit more than other markets.”

Billing rate increases were in large part able to compensate for increases in lawyer compensation at D.C. firms last year.  “All together the rate increases are covering it.  The problem is that they were hoping it would cover other investments and now they have to redirect that money into supporting the lawyer compensation,” said Burman, adding that artificial intelligence and innovation investments are other top priorities for firm expenses.

Because of these expenses and other priorities, in 2024, D.C.-based firms may see more expense pressure, and they may be more in line with the industry averages in expense growth, he said.  Still, entering the year, D.C. firms are “optimistic,” Burman added, expecting strong demand within litigation and regulatory practices to continue.  “Their growth estimates are quite optimistic,” Burman said.  “Litigation, restructuring practices are still quite strong.  So those haven’t tailed off as we’re anticipating this rebound in transactions.”

ALM Covers NALFA’s 2023 Litigation Hourly Rate Survey & Report

February 2, 2024

A recent Law.com story by Michael Mora, “Where Miami Ranks in States Litigators Charge Highest Attorney Fee Rates,” reports on NALFA's 2023 Litigation Hourly Rate Survey & Report.  The story reads:

The National Association of Legal Fee Analysis released new intelligence providing micro and macro data of hourly rate ranges for both defense and plaintiff lawyers, which one attorney-fees expert said is the confluence of the coronavirus pandemic changing the geography in which people are living and working and the emergence of Miami on the national scene.

And that expert, Edward Mullins, a partner at Reed Smith in Miami, is not involved in the study.  The Am Law 100 firm attorney said he was surprised by the portion of all rates in Miami being at 18% in the most expensive tier and suspected that it is due to the influx of major law firms entering into the market in the last few years.

“Many of the new lawyers coming in are working not on local work, but more likely are doing work that is based in other areas like New York or other areas from where they are emigrating,” Mullins said.  “These new lawyers are integrating their N.Y. rates into the market and increasing the rates, but I don’t think that the rates charged for local work are increasing at the same pace.”

The NALFA empirical survey and report provides that micro and macro data, which, in addition to ranging from defense and plaintiff attorneys, does so at various experience levels, from the largest law firms to solo shops, in regular and complex litigation, and in the nation’s largest markets.  Over 24,800 qualified litigators participated in the survey.

Here, there are four categories: tier one, which ranges from $250 to $450; tier two, which runs from $451 to $700; tier three, which ranges from $701 to $950; and, tier four, which runs from $951 to over $1,300.

Nationally, Washington, DC, has the largest tier four percentage at 25%; then falling to a tie in second at 18% with Miami and New York.  For tier three, Washington has the highest percentage by far, at 51%; with San Francisco in second at 32%, and New York tied for third at 30% with multiple cities, including Boston and Los Angeles.

As for tier two, New Orleans and Las Vegas garnered the highest percentage at 44%; followed by Phoenix, Arizona, and San Francisco, at 43%; and, several cities fell closely behind, including Dallas and Denver with 42%.  And, for tier one, New Orleans has the most, standing at 39%, while Phoenix sits at 35% followed by Las Vegas at 33%.

Law Firm’s Reimbursement Agreement Violates Ethical Rules in Colorado

January 16, 2024

A recent Law 360 story by Thy Vo, “Colo. Justices Say Firm’s Departing Atty Fee Is Unenforceable, reports that the Colorado Supreme Court has found a family law firm's contract requiring a departing attorney to pay a fee for every client he took with him is unenforceable, ruling in a unanimous decision that such a provision would improperly limit the attorney's practice and incentivize attorneys to drop clients with less lucrative claims.

In the published decision, the justices said Modern Family Law's reimbursement contract requiring that lawyers pay a fixed fee for clients that follow them, without any consideration for actual costs, violates the state's rules of professional conduct for attorneys.  While there are circumstances where reimbursement would make sense — like if a firm spent additional money to court a big client — justices called the firm's "undifferentiated" fee a "direct intrusion on the attorney-client relationship."

"Of particular concern, such a fee forces attorneys to make individualized determinations of whether a client is 'worth' retaining and incentivizes them to retain clients in high-fee cases and to jettison clients with less lucrative claims," Justice Melissa Hart wrote on behalf of the court.

Troy R. Rackham of Spencer Fane LLP, counsel for former Modern Family Law associate Grant Bursek, told Law360 that they are "grateful" for the court's opinion.  The $18,000 that the firm demanded from Bursek when he left was roughly a quarter of his total net compensation at the time, Rackham said.  "He decided to challenge the unfairness of the provision … and wanted to create a precedent that firms shouldn't be able to do this," Rackham said.

The Colorado law firm's reimbursement agreement required departing attorneys to reimburse the firm for "marketing expenses related to any client, case or active matter" that they took with them.  The contract lays out a fixed fee of $1,052 per client, plus 1.5% in monthly interest, based on "historic" expenses for clients of the Denver office, according to the ruling.  When Bursek left the firm in September 2019 and 18 clients decided to go with him, Modern Family Law demanded he pay $18,936 under the agreement.  Bursek refused, prompting the family law firm to sue him for breaching their contract.

Modern Family Law contended that Bursek, a competent lawyer who previously ran his own firm, exercised his autonomy in signing the reimbursement agreement, allowing him to benefit from the firm's marketing.  He wasn't required to sign the agreement unless he opted to use the firm's marketing services and the reimbursement doesn't apply to clients that Bursek brought to the firm or who were generated by referrals, according to the firm's petition for writ of certiorari.

A trial court concluded that the per-client reimbursement provision unreasonably restricted Bursek's right to continue representing his clients and said the entire agreement was unenforceable.  On appeal, a Colorado Court of Appeals panel agreed that the fee was unreasonable and unenforceable, and held that a fee that "disincentives an attorney from leaving a firm" can pass muster if it's not "unreasonably restrictive."  Courts should consider several factors when assessing reasonableness, such as attorney autonomy, client choice, and the financial burden on a law firm when an attorney departs, the panel said.

The appellate panel also reversed the trial court's tossing of the entire agreement, finding parts of the contract unrelated to the per-client fee were enforceable.  That included a provision requiring Bursek to pay the firm's attorney fees and costs for disputes related to the agreement.

In the ruling, Justice Hart said Modern Family Law's fixed fee is "fundamentally at odds" with a rule aimed at protecting a lawyer's professional autonomy and ensuring clients have the freedom to choose an attorney.  While reasonableness is an appropriate standard for assessing whether a financial disincentive impermissibly restricts a lawyer's right to practice, the justices said they didn't need to address that question here because Modern Family Law's fee doesn't take into account actual costs associated with specific clients.