Top Lawyers Get $400 an Hour as Fees, Salaries Rise
Remember when top lawyers charged $100 an hour? Then it went to $200? Well, would you believe $400 an hour?
Driven by the spiraling cost of wooing top law school graduates, major law firms in Los Angeles and other cities now are charging $350 to $400 an hour--or more--for the services of their senior partners.
“They’re paying more for their (first-year) ‘associates’ and everything ratchets up from there,” said Michael Waldorf, a Los Angeles headhunter who places lawyers with firms.
Salaries for 25-year-old associates are rising so fast that brochures printed for an American Bar Assn. conference last month, which said starting salaries in New York City were $76,000, were out of date by the time the conference was held. The salaries were already at $82,000.
In Los Angeles--and other second-tier legal markets--they are running at $65,000 to $72,000 at the highest-paying firms.
Lawyers’ fees have been rising steadily at annual rates of 5% to 10% and, propelled by rising costs, there is no limit on how high they could go.
“Four hundred dollars isn’t a big deal in L.A. for senior lawyers--or anyplace,” said John Weil of Altman & Weil, a consulting firm for lawyers. “If you go to the top firms and you look at the really top partners, you’re going to get rates in the $400 to $425 range.”
Fees of $350 an hour are relatively commonplace.
“For a top partner . . . we’re in the ($350 an hour) range and I’m sure most of the people are,” said Michael H. Diamond, managing partner for the Los Angeles office of Skadden, Arps, Slate, Meagher & Flom, the world’s third-largest law firm, with more than 1,000 attorneys.
The only brake on ever-rising fees in California is a court ruling that says lawyers cannot impose charges that “shock the conscience.”
“It’s a very vague standard,” said Erica Tabachnick, one of the State Bar attorneys charged with enforcing it. A fee “can shock one guy’s conscience and not another’s.”
As a result, it is rare for anyone to be disciplined for charging unconscionable fees.
All this is seen as wretched excess by some.
Judge’s Pay
Senior U.S. District Judge John V. Singleton, after 23 years on the bench in Houston, earns $89,500--or less than some 26-year-old, second-year associates in New York.
He said he does not get as much respect from young lawyers as he once did, and he thinks salaries have something to do with it.
“I think that escalating salaries have had maybe a subliminal impact on young lawyers,” the judge said. “They think to themselves . . . ‘Why in the world should I pay a lot of attention to you? I’m making as much or more than you are--you dumb ass!’ ”
Not all legal services cost this much. Surveys show that senior partners in all firms nationwide average $150 an hour. On the Westside of Los Angeles, for example, a few family lawyers charge $400 an hour, but hourly fees for most legal problems typically run from $150 to $250.
In addition, many lawyers take cases on contingency--charging only if they win.
Corporate clients rarely complain about what senior partners charge because these lawyers tend to work fast and give good advice, analysts say. But clients are driven mad by hefty bills for the slower and less sophisticated work of gangs of inexperienced associates.
Young lawyers typically remain associates for 7 to 10 years. At first, they help the partners by doing grunt work, then graduate to more responsible tasks, then are typically made partners themselves or asked to leave.
In large firms, it is standard to bill clients for the work of the youngest associates at rates ranging from $75 to $95 per hour, and some firms are billing at $110 an hour or more.
“Anything above $95 for a low associate I think is outrageous,” said Larry Smith, managing editor of the trade publication Of Counsel. “The client has absolutely no assurance that the person billing at that rate merits that amount. . . . He got here yesterday. I think he knows where the courthouse is, and I think he knows what the tax rates are.”
But firms want to bill as much as they can for their associates, because associates are the partners’ profit centers.
Historically, law firms have maintained ratios of three associates to one partner--with the higher-paid partners using associates to generate a high number of “billable hours.”
Partners at the country’s six most-profitable firms now earn in excess of $1 million a year, according to a recent survey by the American Lawyer magazine. At Los Angeles’ most profitable firm, Latham & Watkins, profits-per-partner average $645,000, the survey showed.
Sometimes, law firms reap their largest rewards by billing according to the results they achieve, rather than the hours they work. This method is typically used when stakes to corporate clients are particularly high.
“Clients will say, ‘If I’m being sued for dumping toxic wastes, or I’m the object of a hostile takeover, I don’t care what it costs to pay the lawyer. I just need to get out of this problem,’ ” said Lawrence Bright, vice president of Hildebrandt Inc., a consulting firm for lawyers and the corporations that use them.
In a classic example, New York’s Wachtell, Lipton, Rosen & Katz last fall charged Kraft Inc. a reported $20 million for two weeks’ work.
The Wall Street Journal translated that to $5,000 an hour for each of the couple of dozen lawyers on the case, assuming that each worked around the clock.
The lawyers have said that their fee, under the circumstances, was cheap. Representing Kraft while it was being taken over by Philip Morris Cos., they pried out of Philip Morris an extra $2 billion for their client.
Work on mergers and acquisitions requires lots of hardy bodies with sharp minds. Wall Street law firms that specialize in it are among the fiercest in recruiting new law school graduates. They are looking for people who will drop everything to focus on a client’s pressing problem.
“The nature of takeover work requires lots and lots of bright people who can manage stress and and work at speed,” said Dennis J. Block, a partner at New York’s 508-lawyer Weil, Gotshal & Manges.
To handle it, Block said his firm tries to recruit at least 60 new law school graduates a year.
The process of wooing them begins long before they graduate.
Summer Work
“We have a summer program in which we hire . . . 60 to 70 second-year students,” Block said. “And we pay them something like $1,500 per week.”
But rather than put them to work, the law firm treats the youngsters like tourists.
During the day, it shows them depositions and hearings, and allows them to observe deals being negotiated. In the evenings, Block said, “buses leave for the movie, the show, the baseball game, the picnic, the museum or . . . whatever the evening entertainment (is that) we’re providing.”
Top firms in Los Angeles and other cities run similar programs, in which they compete with the Wall Street firms for the small pool of graduates from top law schools.
One side effect of the competition is that it is getting easier for students with relatively poor grades to get lucrative jobs.
“If you happen to be at the right schools, and if you have either good grades or good interpersonal skills, it’s a remarkably easy path,” Yale Law School associate dean Stephen Yandle told the recent American Bar Assn. conference. “Sometimes law firms don’t even look at grades when recruiting for summer clerkships. . . . If you do well as a clerk, no one may look at your grades.”
LAW FIRMS’ HIGHEST HOURLY RATES
FIRM CITY RATE Brown & Wood New York $400 Curtis, Mallet-Prevost, Colt & Mosie New York $400 Lord, Day and Lord, Barrett Smith New York $400 Steel Hector & Davis Miami $400 Fulbright & Jaworski Houston $400 Manatt, Phelps, Rothenberg & Phillips Los Angeles $375 Weil Gotshal & Manges New York $375 Phillips, Nizer, Benjamin, Krim & Ballon New York $375 Hale and Dorr Boston $375 Rogers & Wells New York $365 Sheppard, Mullin, Richter & Hampton Los Angeles $355 Cox, Castle & Nicholson Los Angeles $350 Hufstedler, Miller, Kaus & Beardsley Los Angeles $350 Brown & Bain Phoenix $350 Jenner & Block Chicago $350
NOTE: Of Los Angeles’ five largest firms, as measured by their gross revenues, only one--Paul, Hastings, Janofsky & Walker--would provide rates to The Times. Paul, Hastings said its top rate was $325. The others--Gibson, Dunn & Crutcher, Latham & Watkins, O’Melveny & Myers, and Irell & Manella--refused to say what their rates were, nor have they been reported in other recent surveys. Sources--Of Counsel: The Legal Practice Report, July 1989; and The National Law Journal, Nov. 1988
