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August 31, 2016

How pricing can affect legal practice

Guest post by Carl Herstein, Chief Value Partner, Honigman

Changes in pricing lead to changes in the way law is practiced. 

For example, the way contingency fee lawyers practice is different from the way most commercial full service business firms practice. At Honigman, we have a very big contingency fee segment of our practice in the real estate tax appeals area. So I’ve gotten to see how contingency practices work. They are enormously efficient. As a general rule, lawyers don’t do things until the last minute. That might be thought of as a vice, but call it “just-in-time management” and suddenly it becomes a virtue! 

Now, traditional commercial clients like to talk a lot about their cases, especially if they have in-house counsel. It’s their life, after all, and they are accountable for what happens in these cases. As a result, they often want frequent updates and strategy discussions. The biggest complaint one hears about contingency fee lawyers is “They don’t want to talk to me.”

That’s because for a lawyer on contingency, after communicating what is absolutely necessary, talking is a waste of time and therefore money. It’s a very different model: “We’ll tell you when we think you need to know something.” Now, I’m not suggesting that if you are on a contingency you shouldn’t talk to your clients, and I am exaggerating a bit for effect. But the point is that the billing arrangement changes the perception of the value of the interaction. If somebody wants to call you on the telephone and is willing to pay you $450 to $1,300 per hour to listen to them talk, you are happy to listen.  But, if it doesn’t make any difference to the fee you’re going to collect – or actually reduces it – maybe you will want to move that call along a little faster! 

Similarly, if you’ve got the billion-dollar case, it doesn’t matter how many interesting legal issues there are to chase down or how uncertain the law is. You’ll do the legwork, and the client will want you to. Otherwise, lawyers need to make judgments about what their clients can afford.

Clients will tell you, “Don’t bankrupt me by doing a perfect job,” which is really hard for the current generation of lawyers to deal with. Sometimes a client can talk to a lawyer and say, “We are going to have a problem with this case because fees are already $600,000, the most we can collect is a $1.8 million, and we haven’t even gotten to trial yet.”

And they’ll answer, “You’re not asking me to commit malpractice, are you?”

No one wants anyone to commit malpractice, but you have to make judgments. You can’t bankrupt your client while you worry about perfection. Younger lawyers are usually better able to grasp these dynamics. They are flexible and adaptable; they see the way the world is changing. People my age, my partners and many other lawyers whose world is different than it was when they were growing up – we’re the ones who have the hardest time with it.

This guest post is an excerpt from Carl Herstein’s thought provoking article “The Changing Legal Market: Some Thoughts for Law Students,” originally published in Of Counsel, Wolters Kluwer, August 2016.

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