Cost Disciplines in Legal

January 21, 2019

Software Engineer-Turned-Attorney Suggests Replacing Law Firm’s 6-Member Team with 1 Person — Here’s What Happened (Part 1 of 3)

This is a tale of two definitions. Two definitions of what “productivity” means in the delivery of legal services to a company.

It’s about an MIT-trained software engineer named Jason Barnwell who worked in one of the country’s major corporate law firms right out of USC Law School.

The tale begins two months into his first job with a nationally prominent corporate law firm.

Spoiler alert: In Part 2 we learn that Jason Barnwell later became — and is now — Assistant General Counsel – Legal Business, Operations & Strategy at Microsoft.

But I’m getting ahead of the story.

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Jason Barnwell had been, “staffed as the junior-most associate on an M&A deal advising our client as they sold their business”. He was “naïve” enough — his word — to believe that automating a process in which the law firm deployed six associates and paralegals to photocopy and collate voluminous shareholder consent documents would improve the team’s productivity.

Not to mention, deliver better service to the client.

By writing some basic computer script that was part of his software engineer skill set, Mr. Barnwell’s automation solution would enable one individual to prepare all of these necessary transaction packages — thus freeing up the remaining five team members to do the other tasks needed to close the deal.

For Jason Barnwell — veteran of 4 years of software engineering — getting more done, with fewer resources, in less time, and with fewer mistakes — that all seemed fairly “productive”.

But Jason Barnwell — newly minted attorney with a mere 2 months of corporate law practice — was about to learn that his new profession had a different definition of “productivity” than what he’d been taught at MIT.

December 7, 2018

Judge Chips Away at Legal Profession’s Business Model: Criticizes A Lawyer’s Failure to Use Artificial Intelligence

by Joel A. Webber

The case of Cass v. 1410088 Ontario Inc. contains this one sentence written by an Ontario Superior Court judge in the course of disallowing from an attorney’s fee request the amount designated for “legal research”:

“If artificial intelligence sources were employed, no doubt counsel’s preparation time would have been significantly reduced.”

…

Padding on the hours billed for researching case law is a favorite method for bulking up legal fees related to court cases — for lawyers in the United States — as well as for those in Canada:

1. Thomson Reuters’ Canadian arm noted this:

“Judge says AI could have been used”, and “Courts mindful of technology”.

2. A Toronto-based intellectual property lawyer offered this observation:

“Really, that judge was saying, ‘If you can do this faster, why are you not doing it faster? Why are you charging your client for something that could be done more efficiently?”

3. And the CEO of legal AI pioneer Ross Intelligence Andrew Arruda tweeted:

“If artificial intelligence sources were employed, no doubt counsel’s preparation time would have been significantly reduced.

“… IT’S HAPPENING FOLKS.”

October 15, 2018

What Can Health Care Teach Business about Managing its Lawyers? Seeking Answers at the Mayo Clinic (Part 3 of 3)

by Joel A. Webber

Collaboration — on a consistent basis at least — calls for more than good intentions. Real teamwork is promoted — or it’s discouraged — by the way we pay people for their work.

In her “What Makes Minnesota’s Mayo Clinic Different?”, financial journalist Maggie Mahar interviewed one of its physicians, Dr. Marc Patterson:

“You may have heard that at Mayo, doctors collaborate. But did you know that after their first five years all physicians within a single department are paid the same salary?

” … ‘Most could earn substantially more in private fee-for-service practice’, he adds.

“’It doesn’t matter how much revenue you bring in,’ Patterson explains, ‘or how many procedures you do. We’re all salaried staff—paid equally. This is very good for collegiality and people working together,‘ he adds.

…

Part 2 of this series described the Mayo Clinic’s teamwork approach to medicine. Mayo Clinic insiders describe this use of salaries rather than fee-for-service or other rewards for revenue generation as the foundation of teamwork medicine. Dr. Larry Jameson, executive vice-president of the University of Pennsylvania Health System, in a recent Knowledge@Wharton issue, stated that this use of salary to pay physicians removes, “potentially perverse incentives that are based on volume“.

October 12, 2018

What Can Health Care Teach Business about Managing its Lawyers? Seeking Answers at the Mayo Clinic (Part 2 of 3)

by Joel A. Webber

In Part 1 I described how the Mayo Clinic simultaneously achieved both the highest clinical standards and robust new efficiencies in its heart surgery department.

In looking to the Mayo Clinic for ideas on how to better manage the work that lawyers do for our businesses, I’d like to look in this Part 2 at one of that organization’s hallmarks:

Teamwork medicine rather than a star-performer focus.

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Warren Buffett has long used the word “moat” to describe a company’s competitive advantage. In his annual letter to Berkshire Hathaway shareholders for 2007, Warren Buffett cited teamwork medicine — as contrasted with individual superstar doctors — as the key to the Mayo Clinic’s appeal to patients:

” … If a business requires a superstar to produce great results, the business itself cannot be deemed great. A medical partnership led by your area’s premier brain surgeon may enjoy outsized and growing earnings, but that tells little about its future. The partnership’s moat will go when the surgeon goes. You can count, though, on the moat of the Mayo Clinic to endure, even though you can’t name its CEO.”

October 10, 2018

What Can Health Care Teach Business about Managing its Lawyers? Seeking Answers at the Mayo Clinic (Part 1 of 3)

by Joel A. Webber

Last year the Wall Street Journal recounted how — eight years earlier — the Mayo Clinic’s heart surgeons had asked for two more operating rooms to meet skyrocketing demand.

“No” – replied the Mayo Clinic’s CEO — himself a physician.

Not only did he say “No” — CEO Dr. John Noseworthy then asked heart surgeons at what is probably the number one-rated hospital system in the world to redesign every aspect of their work.

For at least 20% in cost cuts.

Clinic-wide, Mayo has reported $900 million in savings over the past five years from such re-engineering projects.

And eight years after that request the Mayo Clinic’s heart surgeons got half of what they’d asked for — just one additional operating room.

Eight years later.

…

Meanwhile, over in the business legal sector, aggregate spending never goes down (here and here).

October 8, 2018

Perverse Incentives: Law Firm Bills by the Hour — Court Cuts Its $1.8 Million Fee Down to $670,000 (Part 3 of 3)

by Joel A. Webber

This last of three posts about a 54-page opinion in which U.S. Bankruptcy Court for the Central District of Illinois Judge Mary Gorman explained her reduction of a nationally prominent law firm’s $1.8 million fee down to $670,000 offers a case study of the billable hour’s perverse incentives.

Today I address a case-study-within-a-case-study — a bill for $270,000 within the $1.8 million total sought by the law firm. Judge Gorman considered the wisdom of a law firm’s decision to pursue multiple litigations that — she believed — offered better odds to the lawyers of getting their hours paid than it offered to the client of getting recovery that would exceed those lawyers’ fees.

Judge Gorman’s case-study-within-a-case-study illustrates a critical drawback to use of the billable hour to price attorneys’ work:

Even when the client loses, the lawyers win.

Except in the unlikely event that the hourly bill is submitted for approval by someone with the legal sophistication — and firmness — of a reviewer like Judge Gorman, who cuts that $270,000 bill down to $80,748. But I’m getting ahead of the story.

October 5, 2018

Perverse Incentives: Law Firm Bills by the Hour — Court Cuts Its $1.8 Million Fee Down to $670,000 (Part 2 of 3)

by Joel A. Webber

The 54-page opinion in which U.S. Bankruptcy Court for the Central District of Illinois Judge Mary Gorman explained her reduction of a nationally prominent law firm’s $1.8 million fee down to $670,000 offers a case study of the billable hour’s perverse incentives.

Under “General Mistakes and Carelessness”, the Judge detailed important errors in the Law Firm’s fee statement.

Those errors show two consequences of using the billable hour to price lawyers’ services:

First, the “rack-em-up” focus on maximizing hours billed gives lawyers incentive to — knowingly or not — charge clients more than the work calls for.

Second, in the attempt to maximize those hours billed, attorneys can easily — intentionally or otherwise — obscure from the client’s view who-did-what-for-how-much.

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Four points among several Judge Gorman made here:

1. She called out the Law Firm for charging $234,450.50 for work they’d, “either not included in the billing invoices or … never actually earned”. After specific cuts, the Judge reduced the remainder of the $1.8 million requested by 20%.

October 3, 2018

Perverse Incentives: Law Firm Bills by the Hour — Court Cuts Its $1.8 Million Fee Down to $670,000 (Part 1 of 3)

by Joel A. Webber

On July 10, 2018 U.S. Bankruptcy Court for the Central District of Illinois Judge Mary Gorman issued a 54-page opinion explaining why she cut a law firm’s requested total hourly fee of $1.8 million down to an approved total hourly fee of $670,000.

Judge Gorman was responsible to approve or disapprove legal fees charged to the debtor by the debtor’s law firm because those fees are paid out of the bankruptcy estate’s assets.

The judge’s explanation of her drastic fee cut offers a case study in the perverse incentives of the billable hour.

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Notes on format and content:

1. The text in this and the following two posts doesn’t refer to the law firm or its attorneys by name — but to the Law Firm, or to Attorney A, Attorney B, etc. This post’s purpose is to make a point about cost control and management of legal work — not to embarrass anyone.

The Law Firm ranks among the American Lawyer magazine’s “AmLaw200” — the 200 largest U.S. law firms by gross revenue and other key metrics.

2. While I don’t wish to embarrass anyone, I do need to substantiate what I say by reference to objective sources. Therefore the law firm and lawyers named in Judge Gorman’s 54-page opinion can be readily identified in it. Also, I consulted other court filings on the electronic docket (pay wall) for In re: Earl Gaudio & Son, Inc. at Case No. 13-90942.

3. Unlike this blog, Judge Gorman’s opinion did not address the wisdom of pricing lawyers’ services by reference to billable hours versus an alternative fee arrangement. To the contrary, when a lawyer seeks approval of legal fees from a federal court, the billable hour is the standard because that is the conventional model of the legal profession. (I followed this practice myself three years ago after winning a judgment for my client in a civil rights lawsuit — because I had to.)

4. My argument is not that use of the billable hour necessarily leads to excess costs and wasted effort — but that it creates incentives that make those bad outcomes more likely.

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I begin with Judge Gorman’s summary offered at the end of her 54-page opinion — with underlined headings that I’ve provided:

Failure to “Focus on this Case as Required”