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2001 The Daily Journal Corporation.

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December 14, 2001

HIGH LAW-OFFICE OVERHEAD DRIVES UP COST OF LITIGATION

By Lawrence R. Jensen

 

Michael E. Ford's recent article argued that the reason that most folks can't afford lawyers is because there aren't enough of them. "Many Cannot Afford Lawyers Because of State Bar Policy," Forum, Nov. 2, 2001. Ford believes that bar admission standards should be lowered to admit more practitioners. But his analysis of the problem is incorrect, and his solution will not help.

As an attorney who has worked in two medium-sized firms for seven years before opening my solo practice in 1994, I believe that one of the main reasons litigation is so expensive is because the practice of law involves such high overhead. My overhead expenses are lower than many, but considering that there are a limited number of hours in the day, I have to charge well in excess of $200 per hour to make a profit equivalent to a salary of less than $100,000 per year, without benefits. 

Here is a representative sample of a solo attorney's yearly overhead expenses (not necessarily identical to my own) errors-and-omissions insurance, $6,000; medical insurance, $2,000; disability insurance, $1,500; office rent, $20,000; law library maintenance, $7,500 (this one shot through the roof after West acquired Bancroft Whitney, as titles like the Miller & Starr California Real Estate CD-ROM jumped from less than $40 per month to $120 per month in one year); mandatory continuing legal education, $1,000; auto insurance, $1,000; state and local bar dues, $750; postage and delivery expenses, $1,000; computer-related expenses, $2,000 per year; accounting and other professional fees, $1,000 in a good year; other miscellaneous expenses, $10,000 or more. And I haven't even mentioned the cost of a good legal secretary - try $60,000 a year or more, including benefits.

At $220 per hour, I have to bill and collect around 500 hours before I have made a dime. If I bill and collect another 500 hours at that rate, I've just cracked $100,000 per year, but I don't have any benefits beyond medical insurance. If I want to put away $10,000 in my SEP-IRA and take a couple of modest vacations, I'm now considerably less than $100,000.

Add in uncollectibles, nonbillable time (extensive for a sole practitioner, unless you have staff or professional help, which drives up overhead even more), pro-bono work and the occasional illness, and you have an attorney working 45 or more hours a week, 50 weeks a year, billing $220 per hour, and in no position to charge anything less if he wants to survive in the San Francisco Bay Area.

Adding more lawyers to the mix, especially lawyers less competent than those already admitted, won't change the economics of practicing law. It simply will reduce the quality of the bar, thereby driving errors-and-omissions premiums to even more astronomical rates.

Lexis and West have obtained a monopoly and have the legal profession over a barrel, so an appropriate antitrust lawsuit or professional boycott of those firms might help lower legal fees. Maybe attorneys should start a new legal publishing house to compete with these behemoths.

Passing legislation to eliminate the numerous grounds for tolling the statute of limitations on malpractice claims could help reduce errors-and-omissions premiums. Reducing bar dues would help a bit. Reducing MCLE requirements has helped a bit.

Realistically, more lawyers won't change the overhead equation. We're stuck with high overhead, so the hourly rates can't drop much. If lowering litigation expenses so that mere mortals can afford lawyers is the goal, then lowering law-office overhead is one of the best solutions.

The only other solution is somehow to streamline and simplify the litigation process so that less attorney work is needed to do a competent job.

Unfortunately, the courts are going the other way. In the federal courts, things are going high-tech. This means lots of new programs, computers and attorney-training overhead. A full-blown information-technology staff person may be needed just to attain the ability to file documents with the court and present a case. Federal court was expensive before high-tech. For instance, even a simple courtesy extension of time to answer discovery requires a court order.

To try a case in federal court, you need to try it four times once at the outset, by anticipating every possibly relevant piece of evidence and disclosing it; again, at the inevitable motion for summary judgment; one more time, in the course of doing the overwhelming pretrial filings that are required; and, finally, at the trial itself (if the client isn't bankrupt by then).

Sure, the pretrial work designed to reduce the number of issues to be tried to a bare minimum reduces the courts' workload. But it increases the attorney's workload astronomically. I tell my clients that it would cost around $50,000 to try their case in state court but double that if they are in federal court.

In state courts, I can't tell you the number of hours that I have wasted attending meaningless case-management conferences, because the number is too high to count. It doesn't matter if you tell the judge that the case won't be at-issue in 60 days because there's a demurrer that needs to be ruled on; then there is likely to be a cross-complaint that needs to be filed, served and answered.

The case will be set for 60 days, anyway. Then there will be another meaningless case-management conference, and I will have to send my client another bill for $350 for preparing another questionnaire and attending another hearing. Add in the standard nonappearance by one or more opposing counsel, and any complexity whatsoever, and pretty soon you've attended three or four conferences on a single case, at a total cost of $1,500 to your client.

The fast-track rules are another problem. It used to be, in the good old days, that if your client had limited income, you could move the case along slowly and keep the monthly fees at a level that they could afford. No more. With fast track, you go as fast as the court wants you to go, so coming up with all that fee and cost money in a short period of time is the client's problem.

The last thing that is considered in setting court rules and procedures is the cost implications for litigants. As the courts fob more and more work on lawyers, the amount of work that they have to do to avoid sanctions and/or malpractice increases.

Accordingly, if we want to reduce legal fees, the other thing we should do is obtain more judges and courtrooms, make court rules and procedures less time-consuming, and spread some of the high cost of litigation to the taxpayers.

 

Lawrence R. Jensen is a sole practitioner in San Jose.

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