JOHN C. GARRETT : Too Many Lawyers in County? : Former Head of Bar Assn. Looks at Effects of ‘Near Glut’

A decade ago, many lawyers in Orange County knew each other, and they enjoyed an almost genteel camaraderie no matter how tough they fought in court. Today, the faces are far less familiar and the competition is fierce.

In the past 10 years, the number of lawyers in the county has grown to 7,485, more than double the 3,644 attorneys practicing here in early 1978.

John C. Garrett has watched the explosion and has seen the effect of competition on such things as billing, advertising and marketing of law firm services--something unheard of in the 1970s.

The operations of Orange County firms also have been affected by the increasing number of branch offices opened by law firms located elsewhere, even out of state.

Garrett, 48, a former president of the Orange County Bar Assn., has examined the burgeoning legal field and has helped his own law firm, Drummy, Garrett, King & Harrison, chart a course to compete more effectively for business clients. He started practicing law in 1966, and his firm is one of the largest in the county with 42 lawyers.

In an interview with Times staff writer James S. Granelli, he talked about the growing numbers of lawyers in Orange County and their impact on clients and the practice of law.

Q. In the last 10 years, the number of Orange County lawyers has more than doubled while the county’s population rose only 23%. Is there a glut of lawyers in the county?

A. I think it’s getting close to that. There is an increasing scramble for business, and clients are more often getting approached directly by law firms seeking their business. I see a much more frenetic activity in business gathering, especially overt solicitation.

One ramification I see of the near glut of lawyers is an increasing tendency to file frivolous lawsuits, I expect from lawyers who don’t have enough to do. Nine years ago, a California State Bar survey found that 40% of the lawyers who had been in practice for five years or less said they could not find enough work or any work as attorneys, and I’m not sure things are much different now.

Q. What impact does the increased competition in Orange County have on clients here?

A I think through the marketing process, through the increasing choice that clients finally have, business clients are becoming more educated and more sophisticated about lawyers.

Q. Are they getting better legal representation?

A I wouldn’t say directly because of the influx. But my strong impression is to say yes because, overall, they are being more selective, more sophisticated in choosing attorneys.

Q. Are they seeing their attorney fees go up or down?

A I doubt you’ll talk to any client who has seen his or her fees go down. What I do think is happening in the fee area is that as part of their growing sophistication, clients are becoming more aware of the fact that there are different ways that attorneys bill their fees. They are starting to ask those kinds of questions that should have been asked a long time ago.

Q. Such as?

A. For starters, a lot of the arrogance that law firms--generally the more traditional and older law firms--have exhibited in their billings is gone. Law firms 20 years ago, when I first started practicing, would in some cases charge an initial retainer--which was non-refundable--and then separately bill the client at their regular hourly rates. Certainly, that non-refundable retainer, I think, is a thing of the past.

Q. How much was a non-refundable retainer?

A It ranged from $5,000 to $20,000 or more per client. And that’s going back 20 years. It was extreme overreaching, but some firms justified it in one way or another.

Q. It was sort of like a signing bonus for a baseball player?

A Yes indeed. But I think, in part, because there has been increased competition not only here but nationally, law firms realize that that practice is something they can’t justify sufficiently now to convince a client that it’s worth doing.

Q. Are clients getting refunds when they pay flat retainers, such as $25,000, but the hourly fees lawyers actually worked don’t amount to that much money?

A. Well, certainly they should be if that is in their fee agreement, and typically that is what the fee agreement is today.

Q. Don’t lawyers generally make sure they bill $25,000 worth of hours in that kind of situation?

A. I was waiting for that kind of comment, and I like to think that’s not the case. I think that probably it is an unfair criticism, though I’ve certainly heard it before.

Q. What kind of fees are we talking about? What can a small company, for instance, expect to pay in attorney fees to get a big firm like Gibson, Dunn & Crutcher; O’Melveny & Myers; Jones, Day, Reavis & Pogue; Morrison & Foerster; or even your own firm?

A. If a small businessman comes in and he wants to incorporate his business in a one-shareholder corporation, then he’s looking at probably around $1,000 in legal fees and around $500 in costs, and that’s a ballpark estimate. If there are two shareholders, then you need the shareholder agreements, buy-sell agreements between the two of them if one of them wants out. That can be another $1,000.

Q. What is the typical hourly rate such firms would charge for corporate work on the typical Orange County firm, a company with $5 million to $100 million in sales?

A. The per-hour rates in Orange County, at least for attorneys at our level who represent those kind of companies, range from $80 an hour to $300 an hour. The range is based on the level of experience and the attorney involved.

Q. A typical partner, however, is going to be charging $200 to $300 an hour?

A I’d say $190 to $300.

Q. Nobody is really charging much more than $300 an hour?

A I think there are some charging, I’ve heard, $350 an hour for specialized matters such as securities, tax and antitrust matters.

Q. Are there other effects caused by the competition for legal work?

A Another practice that is still around but is going by the boards is the value-billing approach, which says that for large deals we will charge two or three times our normal rate--just because the size of the deal justifies it. That’s overreaching. Clients are getting sophisticated enough to realize that there is a limit and that they are going to ask about those things. They are going to ask that the charges be itemized, and they are going to ask what the hourly rates are. And clients will bring pressure to bear.

Q. A major operation or a major case would be something like a merger or acquisition. What’s the fee?

A. Good example. There are some Wall Street firms that do the lion’s share of this work nationally. They’re pretty routine at $350 an hour and up--with premiums added at the end of a deal.

Q. Premiums for what?

A. Well, that’s a good question. Sometimes I’m not sure, and other times they’re justified. The times they’re justified is when it’s an extremely unique, unusual, complex problem that the attorney has been instrumental in solving. There have been times where attorneys have been forced on short notice to work around the clock at great personal sacrifice over an extended period of time. Those kinds of merger and acquisitions are the ones where certainly a premium can arguably be justified. But just on the size of the deal alone, adding that kind of premium I don’t think is proper.

Q. What about itemized billings?

A. The itemizing of the billing gets back to the cavalier approach that a lot of firms have taken in the past. A lot of them send monthly bills out “for services rendered, $10,000 for the month of April.” The bill is not itemized. It’s not showing hourly rates, the attorneys who worked on it, the time spent on each attorney or even a description of the work done.

Q. Can a law firm that handles business matters keep the same clients year after year without really gaining more clients and still expect to continue to increase revenues every year?

A. Theoretically, yes.

Q. Why?

A. Because the same clients’ need for legal work could vary from year to year. Indeed, the client may suddenly have a large litigation case in year two which didn’t exist in year one. The client also could be growing considerably, and its legal needs increase along with its growth.

Q. Is it generally true that as a company grows its need for legal services increases?

A Yes, I believe that to be an accurate proposition.

Q. Does that say anything about our litigious society?

A It definitely is a commentary on the litigious nature of our society. For the good not only of the profession and businesses but also society, it’s probably time that clients as well as lawyers use alternate methods to resolve disputes rather than simply file lawsuits in a knee-jerk fashion. While lawyers seem to get the blame for this, I think that clients generally need to start realizing that there is not necessarily a legal remedy for every single slight that occurs in society.

Q. What impact have the outside firms had on the practice of law in Orange County?

A What I have noticed is that among the transactions we do, we are dealing increasingly with lawyers from these kinds of firms. By these kinds of firms I mean branch offices of Los Angeles-based firms or indeed firms headquartered out of state.

Q. What does that impact have in terms of competition among the local lawyers?

A Well, what it means most dramatically so far has been a great increase in the marketing of our profession.

Q. In what way? What have you done? Or what are lawyers doing in general in marketing?

A. Well it’s virtually limitless. Starting off with the U.S. Supreme Court decision which declared invalid any ban against attorney advertising 10 or 11 years ago, lawyers have gone from not marketing their services at all to going overboard in some cases. They have certainly gone to the preparation of firm brochures--which have almost become standardized in even the largest law firms--to newsletters. There’s even one firm that has a videocassette newsletter it sends out to clients and prospective clients.

Q. What do the brochures and the newsletters do besides touting the firm’s achievements and abilities?

A. Brochures and newsletters usually provide good information. Brochures deal with a firm’s area of practice and experience and may also deal with a firm’s billing practices. Newsletters provide information generally on current topics of legal interest. I feel our profession is having increasing trouble in drawing the line between giving that kind of good information and overzealous puffing.

Q. And the decision on advertising has allowed them to market their firms?

A Yes. The magazine ads, the television ads for law firms, all this stuff was unheard of 10 years ago. I’m afraid that the pendulum has swung a little bit too far and that our profession is getting into increasing trouble drawing the line between where that practice is good in providing the client necessary information on the one hand and where it becomes blatant hucksterism on the other.

Q. Perhaps, but one of the biggest problems for anyone needing legal services is finding the good lawyers at reasonable rates. How do they do it?

A. I think traditionally, from the business side at least, they have done it certainly not by responding to ads nearly as much as by word of mouth, by personal acquaintances and by reputation. I’m afraid that the advertising decision has turned loose the sharks of our profession into a feeding frenzy that I think is unseemly.

Q. Any examples?

A. I’ll give you one example. Just within the last few months, a name partner in a Los Angeles firm set up a conference call with one of his partners, who was on his honeymoon in Hawaii. Together they phoned a client of ours to try to pitch their firm doing legal work for our client.

Q. Has the client stayed with you?

A. So far. But what’s important about the incident is that that kind of practice is going on. And who’s to say it’s wrong? The rules of professional conduct actually allow that kind of thing as long as there is a prior relationship with the client, and I think in this case there was a personal relationship.

Q. Do you have any examples that don’t involve your law firm?

A Oh, yes. In fact, one occurs to me that is part of this whole new marketing approach and that is caused by this near glut of lawyers. There are several cases in which law firms looking for space to lease in Orange County have negotiated exclusive agreements to represent the office building owner as an exaction for agreeing to lease space in the building.

Q. What’s wrong with that?

A. I’m not sure it is wrong. It is simply another example of the degree of aggressiveness with which we are collectively marketing ourselves. And I think it is a direct offshoot of the increased number of lawyers here in the last five or 10 years.

Q. Are lawyers then getting more creative in the kinds of deals they’re making?

A. No, I don’t agree with that. Lawyers have always been creative in terms of deals they are making in representing their clients. But if you’re talking about deals they’re making for themselves, sure, that’s creative.

Q. Is greater competition causing law firms to seek marketing help from advertising and public relations companies?

A. I’m not sure who generates the contact, but one is approaching the other in vastly increasing numbers.

Q. Your law firm is included?

A. Yes. This is the clear trend in the business side of the practice of law, at least among firms practicing corporate, business and real estate law. We don’t intend to sit on the sidelines and watch that game being played without getting professional assistance in areas we are not trained in or particularly inclined to immerse ourselves in. The ostensible purpose is to provide the good information I described. The unstated reason certainly is to make sure people know we’re a prominent firm in the county.

Q. Also to keep current clients and attract new ones?

A Yes.

Q. How many lawyers are coming to Orange County from out of the state or out of the county?

A I would guess that most of the lawyers have come from within the county or within the Southern California area. But they have, in growing numbers, joined law firms that are based outside of the county and, increasingly, out of the state.

Q. Do you have any idea how many out-of-county and out-of-state law firms have set up shop in Orange County?

A. At least three dozen now, and about eight of them are out-of-state firms. Also, many L.A. firms and New York firms with offices in Los Angeles handle some Orange County business.

Q. Why are they coming here?

A. California is the most populous state, and that means that increasing numbers of businesses are going to be attracted to the state and, particularly, to Southern California. The businesses have established regional offices and even national headquarters in Orange County. That, in turn, attracts increased need for local legal work. And I think topping all that off is that this area is a very attractive place to live.

Q. Then most of the lawyers who are joining these law firms--local or out of the area--are lawyers practicing corporate and general business law?

A. I think that’s a fair statement. I think the main attraction certainly has been from the business practice rather than other areas of law, like criminal law or family law. As one indication, the number of lawyers who have joined the county bar association’s business and corporate law committees has increased 65% in the last five years, while membership in the other bar committees rose only 28%.