ANDREW J. GUILFORD : Justice Has Its Price : Head of County Bar on Trying Times, High Legal Fees

It seems axiomatic that we have too many laws, too many lawyers and too much litigation.

California has 108,000 active lawyers, and more are coming on board every year, despite efforts by the profession to limit the number through tougher testing. In Southern California, there are 58,000 lawyers, 8,628 of them in Orange County.

And local lawyers are being put to use mainly by the horde of small businesses that have become the county’s trademark. At one point, the state appellate court division in Santa Ana had more appeals on civil cases such as business litigation than it did on criminal cases, making it the only division in the state not preoccupied with criminal appeals.

Then there are legal fees. It used to be that the rich could afford them, the poor didn’t have to pay and the middle class settled differences in the street.

Now fees are getting out of hand. In the bankruptcy of American Continental Corp., the former parent of the failed Lincoln Savings & Loan, the corporate estate has $6 million in assets and the possibility of winning $29 million more in lawsuits--and a $15-million legal bill that gets paid before creditors get any money.

But all that may be the price we pay for having so many individual rights, says Newport Beach lawyer Andrew J. Guilford, the new president of the Orange County Bar Assn.

Guilford, 40, a business trial lawyer, is one of the younger bar leaders.

As bar president, he wants to continue the push by local members of the profession for a “decent” federal courthouse, more judges and a nationally accredited law school.

He also has been a managing partner for the 30-lawyer Orange County office of Sheppard, Mullin, Richter & Hampton, a Los Angeles firm with about 250 lawyers in four offices in California.

Guilford talked recently with Times staff writer James S. Granelli about rising legal fees, some of the causes for the expense and some prospects for at least holding fees steady.

Q. Why do we have so many lawyers? And do we need them all?

A. I think we have so many lawyers because law is an attractive, challenging profession and because there are a lot of people who view the legal profession as an interesting profession to get into. Perhaps the excitement presented on the “L.A. Law” television series has encouraged people to join the legal profession, although “L.A. Law” people are saying there are too many lawyers. It is also a lucrative profession for some.

Q. Do we need them all?

A. I think at this point that, yes, we do need them all. We have a society that more than any other society in the world works for the protection of individual rights. And when you have a society that is as committed as ours to the protection of individual rights, you need lawyers to help with that.

Q. But some would say that lawyers created that sort of atmosphere by pushing for new rights and creating, in essence, jobs for themselves.

A. Yes, you could make negative comments about the motives. But I think the motive stems from a strong American commitment to individual rights. I personally think we’ve gone too far in terms of bureaucratizing the system and complicating the system and perhaps recognizing a few too many rights. It is too much of a burden on society to uphold such a commitment to certain new ideas that have come up.

Q. What rights, for example, should not have been recognized?

A. I personally think that as a business lawyer in the area of contract enforcement, we have gone into a situation where individuals are given far more rights under contracts than contracts sometimes provide. And, on the other hand, individuals have rights to get out of contracts that they didn’t previously have. I think those rights arise out of a commitment to fairness and equity, but at times they place an incredible burden on a businessman who asks a simple question: Is this contract enforceable? His lawyer has to say, “Well, maybe 100 years ago it might have been, but now we have to explore different theories that may suggest it’s not.”

Q. Why does it cost so much for individuals and companies to hire a lawyer?

A. Partly because the system has become so complex. Lawyers can’t give easy answers. Lawyers have to spend the time to work their way through the complexities of the system. If, in fact, the lawyer could simply say, “This contract is enforceable” with certainty, that might reduce a lot of the expenses.

Another reason why it costs a lot is that lawyers are in fact a very bright group of people who work very hard. And bright people who work hard often command significant salaries.

I guess a third reason is that although there are a lot of lawyers, the supply of highly qualified lawyers is limited. All this leads to a misperception that all lawyers are highly paid. But there’s a vast majority of lawyers who are not particularly highly paid. About 33% of the lawyers across the country earn $25,000 or less.

Q. Is there anything about the size or structure of law firms that contributes to the high cost?

A. Yes, there are. One of the things that has been pressuring firms to charge higher rates is the salaries being demanded by entry-level associates. If a firm is interested in hiring, say, the top 20% of the students in the top 10 law schools in the country, they’re looking at a very small market, generally a seller’s market. As a result, those entry-level associates have demanded high salaries of $70,000 to $90,000 a year in certain parts of the country. With firms paying that for entry-level people, it has an impact on the pricing structure.

Q. Does that mean that as competition continues for new associates, legal fees are simply going to go higher?

A. There are some factors pushing toward equilibrium. At the moment, with the economy slowing down, firms are finding that they can’t continue to raise their rates and they can’t continue to expand at the rate they previously were. So associates out of law schools are now learning that perhaps it’s no longer a seller’s market. In fact, I’ve even heard the fascinating thought that entry-level pay might actually decline. I’m not sure if we’ll see that.

Q. Wouldn’t it be cheaper for partners to do more of the work because they could get it done quicker?

A. No. In a typical case, there are various levels of experience required. I think a partner can contribute something to a case at his or her higher billing rate, and an associate can contribute something at his or her lower billing rate. If properly managed, you end up with an efficient allocation of resources. It wouldn’t make sense for a partner billing above $200 an hour, for example, to get extensively involved in reviewing 10,000 documents in a business case.

Q. Are clients, then, paying essentially to train inexperienced associates?

AThat may be the case in some firms. I’m hopeful that’s not the case in ours. That, I think, would reflect poor management of a case.

Q. Is there a solution to the high cost? Is the use of paralegals part of the solution?

A. I believe they are. I believe there are a lot of solutions. The legal system promotes inefficiencies, and there are a number of things we can do to this system to promote efficiency, in terms of prosecution of cases, recognition of rights and so forth.

At law firms, there are also solutions that should take place. One is to utilize paralegals to keep the costs down. Another is to develop creative means of billing cases--beyond hourly billing, that is.

Q. Billing by the case, for instance, rather than the hour?

A. Yes. We’re seeing more of that. There might be some efficiencies also in various technological advances relating to computer research and such.

Q. Would law firms start looking for the best and brightest paralegals, pushing those salaries up and forcing firms to charge higher fees?

A. Possibly. It really is hard to predict, and it depends in part on what rules are adopted. It depends on what paralegals are permitted to do. Can they go to court? Do they have to work under someone else? Can they open up their own firms? Who is going to monitor them? How much should they be regulated? There is some thought that whatever happens, paralegals shouldn’t be allowed to go to court, partly because of the impact a less-experienced person has on the court system. There’s been the suggestion that we might have paralegals prepare cases and send them out to attorneys, turning them into a large lawyer referral service on litigation matters. So it’s difficult to predict how paralegals would ultimately pan out without knowing what the exact rules would be.

Q. What does all this mean for the company out there looking at future legal bills?

A. The bottom line is that something has to be done because I don’t think business can continue to foot the bill they’ve been asked to foot. And I think the events we’ve been observing show that businesses are getting tired of this and they want to see alternatives. The law firms that are going to get work are the firms that are providing those alternatives. And nationally, globally, the countries that are going to succeed are the countries that can develop systems that can efficiently resolve disputes while giving due care to important American conceptions of fairness and equality.

Q. Are you saying that spiraling legal fees are partly responsible for hurting our ability to compete worldwide?

A. Yes. It could mean that American businesses might find it more difficult to compete with Japanese businesses, for instance. It means increased costs to the consumer for products produced by a company that pays large legal fees.

I think what concerns me most is whether our fees are approaching the level where it’s making it difficult for American companies to compete. On the positive side, I think those fees reflect certain high aspirations of America and how it structures its society. But I think it is appropriate to ask whether the benefits are sometimes exceeded by the costs imposed. I don’t want to blame it all on the macro-structuring of our society. I think we have to look on the micro-structuring of the legal profession too. But it is an issue, and it makes it tough for companies to compete and be profitable.

Q. And, I imagine, tough to explain to the client.

A. It is a difficult thing to justify because when an attorney is done, there’s not a building standing there, there’s not a new photocopy machine in the copying department. Instead, there’s a piece of paper lying on the desk that’s a judgment for or against the company or an opinion letter that is hard to grab hold of as something justified by the cost.

Q. Barely a decade ago, lawyers were exhorted to pay more attention to the business side of their firms, to become more cost-effective and so forth. But is too much attention being paid to that today?

A. Yes. And I’m concerned that if it goes too much further, we might have to consider the impact it has on our professional obligations. It’s important, I think, to almost all lawyers that we fully meet our ethical obligations.

Q. How does that come into play?

A. For example, an attorney is ethically charged not to accept a case that he or she does not have the skill to handle. If lawyers start focusing too much on profits, and if they feel threatened with extinction, there is the possibility that they might overextend themselves and accept cases that they shouldn’t be accepting, either because they lack the skills or are already overburdened with cases. That’s one example where profitability might impact ethical considerations. Another situation is that if we focus too much on profits, would an attorney working for a major company overlook a conflict situation that might arise? I haven’t seen that happening, but I’m concerned that if we continue to focus on profits we might run into those sorts of problems.

Q. So it seems imperative that law firms start changing. But change hasn’t come easily to the profession. It still adds associates and continues to grow.

A. Firms have a strong need to grow because of the way the legal world is structured. You hire these young associates with the expectation that they’ll become partners. And then when they become partners, they need their share of associates. As a result, we have this constant push for growth so that we can make our talented associates partners. This gives an increased pressure for growth that may not exist in other professions and businesses. So a good number of law firms are looking to grow in a market that won’t necessarily support all that growth.

Q. It sounds as if the profession would be overflowing with lawyers and on the brink of bankruptcy were it not for high legal fees.

A. Well, what you have is the possibility that the larger firms are going to be merging with the smaller firms and there’s going to be a coalescing in the profession. There’s some signs of that so far.

Q. Recently, the firm of Drummy, Garrett, King & Harrison--one of Orange County’s older and larger firms--broke up. Is that symptomatic of the times?

A. Well, I regretted seeing that. They’re a fine firm, and they’ve been a big contributor to the Orange County community for many years. The reasons behind it I do not yet know. There is the fact that some of the people left to join a a large San Francisco firm, which is further evidence of the coalescing phenomenon. It’s also true that in down times, real estate is highly affected, and law firms in Orange County are extremely tied to the real estate market. That might be one of the reasons we are seeing this in Orange County.

Q. Nationwide, law firms appear to be dissolving more quickly and, for the first time in significant numbers, getting rid of partners for reasons that have nothing to do with competence. What’s going on?

A. I think you’ve seen some firms specialize in certain areas over the last five or 10 years, and those areas aren’t doing well now. They may not have the structure that allows them to transfer their work to an area that would be doing well--for example, to an insolvency practice that is booming now. During the 1980s, some firms concentrated on merger and acquisition work and depended to a large extent on that work for their income. In down times like we have now, merger and acquisition work is scarce.

Q. Some of the nation’s biggest firms have opened offices here. Are we going to see a significant retreat from Orange County because of the times?

A. I don’t think so. I’ve been accused of being a Pollyanna, but I think that the prospects for Orange County are indeed very bright. The studies I see show us as being the fastest-growing area in the United States over the next 20 years. Those who make the commitment to Orange County will continue to grow. We’re obviously in a slowdown right now, but that’ll turn around. I think the future for Orange County is very bright.