[Recently, I have had several clients who had hired very large law firms to handle matters that I believed could otherwise have been handled by much smaller law firms. Too bad they had not first read my book, The Art Of Hiring The Right Lawyer And Negotiating A Fee Agreement That Will Save On Legal Costs, before hiring the law firms that they did. The following excerpt is from Chapter One, “Finding A Good Economical Lawyer.”]
Selecting the right attorney to handle a matter can be difficult enough. But I will throw in another consideration. As a part of the process of selecting the right attorney, consideration should also be given to whether an attorney is in a large law firm or a small law firm is needed.
Why is the size of the lawyer’s firm important?
The reason that the size of the law firm is important – at least from a legal cost standpoint – is the fact that generally speaking, lawyers in large law firms have higher hourly billing rates than do lawyers in smaller law firms. So, assuming a lawyer in a large firm and a lawyer in a small law firm both have the same expertise, and both do the same amount of work in a matter, and both achieve the same result, it generally would be less costly to use a lawyer in a small law firm if that small firm’s lawyer’s hourly rate is less.
And as lawyers at smaller law firms typically have lower billing rates, why would anyone purposefully choose to hire an attorney at a large law firm with higher billing rates?
In my opinion, there are two main reasons for this. One is what I call the “vanity factor” of using a high-priced lawyer in a large prestigious law firm.
A friend who consults on litigation management issues with corporations (who are the ones that typically hire lawyers with high hourly billing rates) once told me that lower hourly billing rates are actually viewed as a negative by large corporations. Apparently, very good $500 an hour (or less) lawyers are not looked at in the same favorable way as even mediocre $1,000 (or more) lawyers are, simply based on their hourly billing rates. I believe this prejudice against using lower billing lawyers likely stems from the fact that many corporate lawyers – especially those in large corporations – often come from large law firms. So, it may be that the corporate lawyers are just more comfortable working with lawyers at large, high-priced law firms like the ones they used to work for.
But it is not just corporate lawyers who tend to hire a $1,000 (or more) an hour lawyer versus hiring a $500 an hour (or less) lawyer. Over the years, I have observed that many well-to-do individuals – especially professionals – tend to do business with other professionals in their business or social circles. And they do so even knowing that it means paying more money.
As I noted eariler on in this chapter, I have found that many larger law firms tend to overbill. But not all large law firms do this. Over the years, I have worked with some very good large law firms that have gotten good results for their clients. And they did so without overstaffing, overworking, or overbilling. So, despite the problems that can sometimes occur with large law firms’ legal bills, I definitely am not against using large law firms. In fact, using a $1,000 or even $ 2,000-an-hour lawyer in a large law firm may be the more reasonable thing to do. And as counterintuitive as this may sound, there are definitely those types of matters where it can even be the more cost-effective thing to do.
This brings me to the second reason why a lawyer in a large law firm might be hired. Hiring an attorney in a large law firm is often the right thing to do in large, complex litigation. In such litigation, it usually makes the most sense to use a lawyer in a large law firm because larger law firms generally have more resources to be able to bring to bear on a matter than do smaller law firms. This includes not only more subject matter experts but also just more staff which might be needed in large litigated matters involving multiple issues and large amounts of discovery material. And the larger firms may have more technological capabilities. This is important to have in managing the large amounts of data often produced in large complex litigation.
And unlike small law firms that may only have co-equal partners and associates, billing at the same partner and associate rates, large law firms usually have various levels of partners, associates, and paralegals all at different billing rates. Thus, theoretically, attorneys at larger law firms can more appropriately assign work to the right level of staff to save on legal costs.
Nevertheless, no matter the size or complexity of the legal matter, my rule of thumb is to always first consider hiring a lawyer in a smaller law firm, provided the smaller firm attorney has the subject matter expertise needed and adequate support staff. But if it is determined that the resources of a much larger firm are needed, only then should consideration turn to a lawyer in a large law firm. In other words, clients should put all vanity factors and any personal relationships aside and realistically determine if what is needed is a Cadillac Escalade or a Honda Civic or something in between to handle their matter. This determination especially should be made if it is a litigated matter where the winner might ask the court to have the loser pay the legal winner’s legal bills. In such cases, courts may not force the loser to pay for the winner’s Cadillac Escalade costs.[1] Once a lawyer and law firm have been chosen, most attorneys will prepare a fee agreement for the client to sign. But, as will be discussed in the next chapter, before signing a fee agreement, there are some other things that first need to be discussed and agreed upon by the client and the lawyer.
[1] See, e.g., Beastie Boys v. Monster Energy Co., 112 F. Supp. 3d 31 (Dist. Court, SD New York 2015)(In denying certain legal costs to be passed on, the court stated that “the Court’s review of Sheppard Mullin’s bills suggests that the Beastie Boys opted to pay for, and received, the Cadillac Escalade, not the Honda Civic.”).