The business of law

-- Particularly when clients do not have in-house counsels

[Parts I & II are here & here.]

Psychological barriers

     By "psychological barriers" I mean the ones created by the different roles and viewpoints assumed by the lawyer and the client. The client wants to accomplish the goals it has set to achieve, often by solving various problems. The lawyer, on the other hand, must decide whether a project proposed by the client can be legitimately accomplished. These two roles can conflict with each other at times.

     Such conflict can create three types of psychological barriers to communication. First, the client may anticipate that the lawyer will oppose the project that it is proposing, and thus unconsciously minimize the lawyer's participation. Second, if the proposed project is determined to be legally risky, the client may blame the lawyer, rather than tackle the problem directly. Finally, the lawyer may focus solely on the present legal issues, neglecting to work with the client to devise a better plan.

     For example, let's say a company wants to market its new products on the internet by giving away online coupons and rebates. The company is thinking about attaching some adwares to these coupons and rebates, and is willing to post notices of these adwares but in small print. It does some research on its own, and decides not to talk to the lawyer to avoid the costs and potential hassles. (This is the first type of psychological barrier.) The company then goes ahead with the marketing campaign, but before long receives customer complaints about the adwares. The company then talks to the lawyer, who concludes that the court may find the small print notice to be insufficient. The client, adamant that such adwares and notice are reasonable and should be lawful, questions the law's logic and blames the lawyer for his interpretation of the law. (The second type of psychological barrier.) The lawyer then spends time analyzing case law to confirm his prior conclusion, but does not help the client develop a legally less risky alternative program. (The third type of psychological barrier.)

     These psychological barriers are shared by both in-house counsels and outside lawyers, although it is a less serious problem for in-house counsels because they are the client's own employees. For outside lawyers, the solution lies with improved communication between the parties. The lawyer, being a professional, is in the best position to initiate such a communication.

Conclusion

     Clients without in-house counsels lack the luxury of extended communication with their lawyers, and thus tend to rate the outside lawyers by their efficiency -- by how fast they can resolve a matter. This tendency, however, may not result in the most desirable outcome. In fact, most legal matters are fact-specific and fact-sensitive. A fast resolution may not be the right resolution, without careful considerations of all relevant facts. That tendency for a quick resolution is simply an indication that achieving full and efficient communication simultaneously is not an easy task. This task faces at least three obstacles: (1) unpredictable costs, (2) lack of easy access, and (3) psychological barriers. These obstacles, however, can be minimized. And, the lawyer, as a professional, will benefit the most by initiating the task of due diligence to overcome these obstacles.

-- Particulary when clients do not have in-house counsels

[Part I is here.]

Unpredictable costs

     In-house counsels are normally paid fixed salaries, plus bonus. Their costs are generally predictable, although they can be expensive. Outside lawyers, on the other hand, traditionally charge by the hours. The pros and cons of the “billable hours” method have been widely discussed, so I won’t repeat it here. In short, the client won’t know beforehand the total costs of the retainment with the billable hours method. In addition, the client’s perception of what is “billable” can be quite different from that of the lawyer, resulting in many unpleasant surprises when the client receives the bill. Consequently, clients tend to minimize their dealings with the lawyers, waiting until the last minute to initiate contact. Outside lawyers, therefore, normally do not participate in the planning stages of a project, when sound legal advises may carry the greatest marginal benefits. Moreover, both the clients and the lawyer are pressured, consciously or unconsciously, to rush through the engagement to save money. Outside lawyers, thus, get involved only at a late stage and work with insufficient communication, causing them to scramble to catch up in a short period of time. That may in turn induce the lawyers to increase their fees, creating a vicious cycle!

     Because of these drawbacks to the hourly fee method, many other alternatives have become more common in recent years, particularly for smaller clients. These alternatives include fixed-fee, contingency fee (if applicable), general retainer fee, hourly fee with caps, or combinations of all the above. If chosen properly, these alternatives may significantly lessen the unpredictability in legal fees. Lawyers, however, cannot expect the clients to be already familiar with these alternatives. It behooves upon lawyers to identify and present the best-tailored alternatives to the client. This is a good policy anyway, because by discussing the proper billing method early in the retainment, the lawyer opens the first door to improved communication with the client.

Lack of easy access

     A second advantage provided by in-house counsels is that they are full-time employees and thus regularly accessible. The client can consult with the counsel or obtain representation at any stage of a project and as frequently as needed. That is not the case for outside lawyers. The unpredictable costs discussed above forms the first line of barrier to access, preventing clients from freely contacting outside lawyers. Additionally, outside lawyers may not be available when clients decide to initiate contact.  Even after retainment, an outside lawyer generally will not be as easily accessible as an in-house counsel.

     Like other professionals, access is the most valuable asset of a lawyer. Therefore, clients generally need to pay to gain greater access to outside lawyers. There are, however, many different ways to compensate outside lawyers for easier access. For example, many clients pay periodic retainer fees to make sure their lawyers are available at a short notice. Some lawyers may agree to reserve a certain pre-set time for a client, in exchange for a retainer, a higher hourly fee, or a higher fixed fee. The client can choose the best option that fits its budget and legal needs. On the other hand, lawyers can help minimize this obstacle by absorbing part of the costs of conducting get-to-know-the-client due diligence.

-- Particularly when clients do not have in-house counsels

     Most clients, I believe, want to communicate with their lawyers as early and often as possible. When lawyers are involved in a project from day one, they develop a full understanding of the project, which allows them to put themselves in the client’s shoes. This is why large organizations hire in-house counsels. In-house counsels normally become an integral part of the management, participating actively in the daily operation of the organization. After all, the best way to advise the client is to become the client, although lawyers remain bound by their ethical duties. As an example, Pfizer, the pharmaceutical giant, recently named its general counsel as its new CEO.

     I will discuss the 3 obstacles in later postings. For a Chinese version, click the link below. 請點按下行連結鍵文以觀讀中文版.

     Marketing has been a quagmire, a tug-of-war, a struggle, a balancing act for me. On the one hand, to be able to offer my service to the others, the others must first know the existence of my practice. And, of course, my practice won't last long unless it has enough clients. (This has nothing to do with the for-profit nature of a private law practice. Even nonprofit legal services must market themselves.) On the other hand, the public has generally been skeptical of the credibility of any marketing campaign. So, when a lawyer markets himself to the public, the mere act of marketing risks damaging the public's "perception" of his integrity, credibility, sincerity, or judgment. What's the point of undertaking marketing, when it risks damaging some most valuable assets of a lawyer?

     Of course, I am not the first lawyer to face this quagmire. True, some lawyers seem better at managing it than others. (For example, when President Lincoln was a lawyer, he had no problems taking out newspaper ads.) However, the legal profession in general, has been wary of the potential pitfalls of marketing, so much so that the American Bar Association wholesale barred lawyer marketing in 1908. This marketing ban remained in effect for almost 70 years until 1977, when the Supreme Court ruled it unconstitutional in Bates v. State Bar of Arizona. (See here for a good historical account and analysis, by the American Bar Association itself, of lawyer marketing rules.)

     Currently in New York, lawyer marketing is allowed, but with some restrictions. (For example, all public communication must not be misleading, deceptive, or fraudulent; lawyers generally cannot solicit business directly by in-person or phone contact (including, but not limited to, ambulance chasing); lawyers cannot compensate a person for referral; etc.) I think of these restrictions as guidelines, baseline guidelines for lawyer marketing. (To be respected and followed unless and only if the Courts disallow it.) Also, the American Bar Association has published another set of non-binding guidelines, which it calls "Aspirational Goals". (See here.)

     Aspirational goal #8 in the ABA guideline states: "How advertising conveys its message is as important as the message itself." I agree with it, but would rephrase it: "How advertising conveys its message is part of the message."

     That does not completely solve my quagmire, but at least helps me come out with a quick principle: It's not only what, but also how!

     Traditionally, private law firms choose their names according to the names of the managing lawyers. If a firm has more than two managing lawyers, its name would normally include only these lawyers' last names, such as "Baker & McKenzie", or "Jones, Day, Reavis, & Pogue". For solo lawyers, the name could be based on the lawyer's last name or full name, such as "The Law Office of Doe", or "The Law Office of Jane Doe".

     The main reason behind this naming practice is of course professional pride. The lawyers of the law firm are proud of the high level of professional service they offer, such that they want to identify the practice by their personal names. Professional pride, however, is not the only reason why so many law firms have followed this naming practice. Before 1983, the laws of all states required the name of a law firm to identify the lawyers practicing in the firm. This requirement was based on a set of rules governing lawyers' conducts established by the American Bar Association (ABA).

     You may wonder whether this naming rule violated a law firm's right of freedom of speech. Indeed, such type of naming rule was challenged in the Supreme Court in the case of Friedman v. Rogers (1979). The Court, however, upheld the states' constitutional right to regulate the naming practice of a professional company.

     In 1983, four years after the Supreme Court's ruling, however, ABA passed a new set of lawyer rules. The new rule generally permitted law firms to choose a name that does not identify any lawyer of the firm, as long as the name is not misleading, deceptive, false, or fraudulent.

     It's been over 20 years since ABA established the new naming rule. But, not all of the states have adopted it. Based on my preliminary research, 39 states and the District of Columbia have adopted the rule. (AL, AK, AR, CA, CT, DE, FL, GA, HI, ID, IL, IA, KS, LA, MA, MD, ME, MI, MN, MO, MT, NH, NC, ND, NM, OK, OR, PA, RI, SC, SD, TN, UT, VT, VA, WA, WV, WI, WY.) On the other hand, 11 states still require a law firm name to properly identify the lawyers practicing in the firm. (AZ, CO, IN, KY, MS, NE, NV, NJ, NY, OH, TX.)

     This disparity may pose a problem for multi-jurisdiction law firms that use non-traditional names. For example, let's say a law firm is incorporated in Illinois, which has adopted the new naming rule. The law firm chooses the name "MagCarta, LLC". (Just something popping up in my head.) The law firm proves to be a success, and it plans to expand to New York. Because New York has not adopted the new naming rule, however, the law firm must choose a different name in the state. This means potential loss of name recognition. (Currently, the New York Bar Association is considering whether to adopt the new ABA rules. See New York County Lawyer Association Newsletter, December 2005, P. 1.)

     Personally, I favor less regulation on the name of a law practice. As long as the name is not misleading, deceptive, false, or fraudulent, it is the level of professional service that will truly identify a law firm.

Notes added on December 8, 2005

It turned out my original incorporation filing was lost in mail. The NY Department of State never received it. I resubmitted the incorporation filing, with requests for expedited handling. The filing was processed within a day.

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     I considered two forms of setting up my law practice: a Professional Corporation (PC) or a Professional Limited Liability Company (PLLC). Eventually, after many twists and turns, I chose PC. The main reason: The high price of publishing a notice of formation of a PLLC. Read on …

     The public notice requirement of a PLLC (and LLC) is statutory, codified in the New York Limited Liability Company Law, §1203(c)(2) (§206 for LLC). The requirement has the following relevant components (the list is not complete):

1. It requires the company to publish a notice of formation within 120 days after filing the articles of organization.
2. The notice must be published in two newspapers of the county where the office of the company will be located.
3. The two newspapers will be designated by the county clerk, except one of them must be published in the county where the company office will be located.
4. The notice must be published once per week for six successive weeks.
   

     According to the county clerk here in Manhattan (New York county), one of the newspapers will be the New York Law Journal. And, the minimum cost of publishing such a notice in the New York Law Journal is more than $700. That means the notice requirement will cost close to $1200. That is not a small consideration!!! Forming a PC, on the other hand, is not subject to such requirement.

     On top of this, the filing fee of a PLLC in New York is $200. For a PC, the fee is $135. (More under conditions not applicable to me.)

     BTW, New York offers several choices of expedited handling of filing, costing from $25 to $150. For $25 extra, a filing can be processed within 24 hours. Learn from my mistake: pay the $25. Otherwise, your filing may still be sitting under a pile of files waiting to be processed, 2 weeks after mailing out the filing. If you do not request the expedited handling, the processing time will be 3-6 weeks, depending on whom you talk to. Too long for me!!!