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Real Reform

by John W. Toothman

The ABA Journal (Sept.1995)

This article was awarded the ABA's 1995 Ross Essay Award.

    The public image of the legal profession can be pretty much summed up by the New Yorker cartoon in which a lawyer tells an acquaintance that he is "not a lawyer in the pejorative sense."

The legal system will never be universally popular as long as it produces losers as well as winners. Yet even winners complain that justice is too often delayed and denied, and thus the cost of obtaining it too often exceeds its value.

Granted that the results of litigation can never please everyone, we can, nonetheless, endeavor to make the process less wasteful.

To begin, Federal Rule of Civil Procedure 1 succinctly describes how the system, both criminal and civil, ought to operate by guaranteeing the "just, speedy, and inexpensive determination of every action."

Any definition of "just" is hopelessly subjective--we are looking for something more pragmatic. "Speedy" and "inexpensive" can be objectively determined and therefore provide a practical starting point for a path to real reform.

First, though, there is the need to avoid the detours taken by others through substantive and procedural reforms. The public is wary--and rightly so--of self-proclaimed experts whose promises to fix the justice system hinge on passing laws that tip the scales of justice in their favor.

Typically, they pass result-oriented reforms--the latest wave of tort reform included--that give rise to unexpected consequences, then disappear with the next political tide.

Any improvement upon the justice system must be accomplished with relative neutrality or else the entire system will ebb and flow with each political sea change. For, if reforming the judicial system hinged on first improving the political system, the task would be hopeless, indeed.

Another route to reform--tinkering with procedures instead of substance--also turns out to be a fool's errand. The 1993 amendments to the Federal Rules of Civil Procedure are a case in point: Dozens of districts opted out and little has really changed, while uniformity has been shattered.

Because they are implemented in an adversarial system, changes in procedural rules, even facially neutral ones, either have surprisingly little impact or only serve to complicate rather than simplify the system.

Look at Rule 11, which was supposed to deter frivolous conduct with sanctions but, instead, exacerbated the problem when offending litigators realized they could use it as a tactical weapon to harass opposing counsel.

Another example is civil discovery, originally intended to provide ready access to information to create a level playing field. No one ever anticipated that the price of playing on the field would become so high that the deepest pockets could bury everyone else, including judges.

The reason these reforms derailed is that lawyers, claiming a duty of zealous representation but who are motivated by a desire to run up fees, always can find something to argue about. Change a rule to make it simpler, and adversaries will argue about the interpretation and intent of the new rule, its relation to the old, whether the change is retroactive, whether old precedents still apply, whether a judge-made exception should apply instead, and so on.

The result, by virtue of the adversarial process, is that no procedural change is ever the last word and nothing is ever final. Thus, any real reform must take this dynamic into account or else be doomed.

Given that reforming rules rarely reforms the cost or delay of the legal system, it is time to blaze a fresh, more direct path to change. If we can just set aside the traditional dichotomy of procedure and substance, we might find guidance in the economic principles recently imported into the law. They suggest that financial incentives, and, in particular, lawyer economics, may be the key to reform.

Bluntly put, hourly billing and the duty of zealous representation--two self-constructed pillars of the legal profession sacrosanct to most lawyers--are responsible for spiraling costs and delays. Avoid them, and the path to justice would be cheaper and quicker.

Billing requirements and zealous advocacy provide a motivation and a justification for running up legal costs and delay. When pressed by a doubting client to justify expense and delay, lawyers argue that they have no choice but to be so zealous (and expensive), for fear of malpractice liability or an ethical complaint.

This provides a ready excuse for lawyers to treat time and, consequently, money as no object--assuming their clients allow it, which is, increasingly, not the case. Ironically, it is the clients who are changing the system de facto by choosing lawyers whose vision matches theirs.

The issue of legal fees is a major source of public dissatisfaction, ranging from the expense of an uncontested divorce or routine real estate transaction to the hundreds of millions of dollars the federal government and major corporations spend on private firms each year.

Even the American Bar Association concedes in a formal ethics opinion: "One major contributory factor to the discouraging public opinion of the legal profession appears to be the billing practices of some of its members." (ABA Formal Opinion 93-379.)

A U.S. News & World Report poll published in January found that 56 percent of Americans believe lawyers "use the system ... to enrich themselves."

No one argues that lawyers should be compelled to work for free, but the public questions whether legal services, and the results they yield, are worth what they cost.

Of course, the intangibility of most legal services contributes to the perception that their value is illusory. Also, part of the problem is human nature: The value of a fine meal seems less once the meal is over and the bill has been delivered.

There is no question, however, that the cost of legal services has soared over the last 35 years, corresponding with the growth of law firms and lawyer compensation.

The relatively recent "tradition" of hourly fees provides firms with incentives to procrastinate, complicate, add staff, mark up expenses, and create new categories of timekeepers, like paralegals, document clerks and so on.

And the pressure to bill is unrelenting: Last year's record revenues become this year's floor, so the pyramids base must keep expanding. This pressure began in the 1960s, but by the late 1980s the pyramid had exhausted the available client demand, with the 1990 recession being the last straw.

Even the Committee on Professional Responsibility stepped in, with ABA Formal Opinion 93-379, to criticize as unethical certain byproducts of billing pressure, like double-billing and expense markups.

The committee modestly noted that the "common perception that pressure on lawyers to bill a minimum number of hours and on law firms to maintain or improve profits may have led some lawyers to engage in problematic billing practices."

In fact, law firms whose revenues depend on hourly fees and constant growth resemble, analytically, pyramid schemes, where everything seems great while new business is plentiful, but any contraction in income is catastrophic.

Hourly billing quotas, whether explicit or implicit, not only take the satisfaction out of law for many lawyers but cause clients to doubt the quality of those many late night and weekend hours, and the necessity for the numbingly endless work.

Professor William Ross, of Cumberland School of Law of Samford University in Birmingham, Ala., writing in the Rutgers Law Review, argues, "Excessively clever strategies for accumulation of hours and the protraction of litigation for the conscious or unconscious purpose of generating more billable hours have aggravated a widespread cynicism about the legal profession that ultimately calls into question the integrity of the judicial system and weakens public faith in the quality of the nations justice."

The current generation of lawyers can hardly imagine practicing law without billing by the hour. Yet many alternatives, like fixed fees, retainers and contingent fees, have been around far longer than hourly billing and are still in use. Properly designed, these and other alternatives to hourly fees remove the skewed incentives of hourly billing, and replace them with incentives to handle matters efficiently--both quickly and cheaply.

An added benefit is that these alternatives take lawyers off the hourly billing treadmill, allowing them to sell the quality of their work, thereby rewarding their experience and intellect, not just their endurance.

Reform, though, will not start with the largest firms. Those firms grown to unnatural proportions in a hothouse environment of hourly billing and ingenue clients are the most threatened by an efficient, competitive environment. Their very structure--all those extra partners, associates and other billing staff-- would become liabilities instead of assets. In "The Betrayed Profession," Sol Linowitz, a former partner at Coudert Brothers (which shed a few partners in 1994), says firms "may find that clients dont want the traditional law firm at all."

Beyond its impact on firm structure, the hourly billing environment also has influenced, for example, litigation strategy and tactics. Some litigators cannot conceive of handling a case without the usual overstaffing and overkill in motion practice, discovery and wrangling with opposing counsel.

Meanwhile, settlement negotiations must take place on the courthouse steps, after nearly all the potential fees have been earned and the litigator suddenly (and conveniently) recommends settlement.

When pressed to justify their expensive strategies and tactics, law firms invariably take shelter behind the pillar of zealous representation.

If hourly billing is the financial engine of most law firms, the duty of zealous representation-- the second obstacle in the path to efficient reform--is the gas pedal.

A classic statement of the duty of zealous advocacy is found in Henry Brougham's representation of Queen Caroline before the House of Lords in 1820: "To save [one's] client by all means and expedients, and at all hazards and costs to other persons, and, amongst them, to himself, is his first and only duty."

Stirring words, but the courts are littered not with lawyers felled by these hazards but rather with clients killed by their share of the costs.

Zealous representation is more properly a matter of attitude and perspective, not a mandate for maximizing the expense or quantity of effort. Indeed, quality effort that, by its efficiency, also reduces the client's financial burden more surely serves a client's overall interest in avoiding a pyrrhic victory. "I was never ruined but twice--once when I lost a lawsuit, and once when I gained one," lamented French writer Voltaire.

Generations of litigators have put the duty of zealous representation on a pedestal, denying that they may be expected to work efficiently or required to estimate or budget their fees.

The old Code of Professional Responsibility, through Canon 7, was never so adamant about that duty: "A lawyer should represent a client zealously within the bounds of the law," though this circularity made the restriction mean little.

The current Rules of Professional Conduct have lowered the pedestal of zealousness considerably. Rules 1.3 and 3.1, the closest descendants of Canon 7, contain no exhortation to zeal, but, instead, admonish lawyers to act with "reasonable diligence and promptness" and prohibit "frivolous" litigation. These are followed closely by Rule 3.2's requirement that litigation be "expedite[d]." See also Rule 3.4(d) (prohibiting "frivolous" discovery requests and requiring "reasonably diligent effort" in responding).

"Zeal" itself has been relegated to a comment after Rule 1.3. Client interests are unquestionably still paramount, which was the goal of zealousness, but there is no ethical license to ignore cost-effectiveness of legal services.

The irony is that zealousness was supposed to protect clients, not punish them. Zealous representation was recognized as an extreme obligation, possibly in conflict with the interests of the public and the courts, so it has always been limited one way or another to protect the interests of third parties, but not to protect its intended beneficiaries.

In a demonstration of the law of unintended consequences, zeal, divorced from sensitivity to cost and delay, has harmed the very clients whose interests were the justification for this extraordinary duty in the first place.

Judge Thomas Reavley of the 5th U.S. Circuit Court of Appeals at New Orleans notes in an article in the Pepperdine Law Review the tendency of overzealousness to backfire: "Rambo and kamikaze lawyers lead themselves and their clients to zealous extinction."

Clients already suspect that, despite all this lip service, their interests are really irrelevant. And as U.S. News & World Report stated: "The real problem underlying the legal systems excesses [is] that lawyers increasingly are acting in the interests of no one but themselves."

Lawyers must be reminded, and clients reassured, that a zealous adversarial position may be reached by many paths, with the quickest and cheapest having the advantage of better serving a client's financial interest. Properly zealous advocacy requires an aggressive attitude, integrity and diligence, but zealous advocacy does not require a zealous bill.

No new law or rules change is needed to streamline justice by reforming hourly fees and tempering zeal with common sense. Realigning economic incentives and the attitudes that exacerbate them can be accomplished lawyer by lawyer. And those lawyers who do not change risk losing clients to those who do.

Indeed, the future is bleak for lawyers who cling to their hourly fees and insist that zealous representation requires unlimited representation. Every few months, another law firm with 100-plus lawyers explodes or dissolves. Meanwhile, the pool of clients that will pay huge legal bills without questioning their value is dwindling.

The 1990 recession certainly focused clients attention on legal fees, which the roaring '80s had made easy to notice. Having learned that lesson, clients will never again return to paying exorbitant fees. They instead seek pragmatic, streamlined law firms.

In the end, the notion that some lawyers may opt out of reform is illusory. Competition and natural selection--the law of the jungle--are already leaving dinosaur carcasses by the side of the path. Lawyers of the future will survive by brains, not by billable brawn. They will be leaner, more agile and sensitive to the client environment.

To stay ahead of their competition, they will seek an efficient path, for fear that they might be the next to fall by the wayside.

Copyright 1995, 1998 John W. Toothman




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