GUEST POST—Lawyer Oversupply: Does producing more and more Attorneys result in better prices for average consumers? Does it Actually help the new Lawyers themselves? (Part I)

(While I’m out, Connecticut attorney Samuel Browning is contributing a two-part series on attorney oversupply. -LSTB)

Lawyer Oversupply: Does producing more and more Attorneys result in better prices for average consumers? Does it Actually help the new Lawyers themselves?

We are graduating thousands more ABA-accredited law school students each year than there are attorney jobs. This oversupply is at least a third of the total number of graduates each year, it may actually be higher.

Fortunately this oversupply is not leading to increased frivolous litigation, probably because of fixed costs required to litigate, and other inhibitors and constraints within the present legal system.

The increased supply of attorneys, while initially serving to keep some legal fees lower for the consumer, will probably not lead to any more increased savings for the consumer because there are set expenses needed to litigate certain cases, for which the client will generally have to pay.

Part I

If 44,000 Law School Students are graduating each year they all must be going out there, and filing law suits, litigious behavior is on the rise! They will of course be able to pay off their law loans by creating work for themselves, chasing ambulances.

In Connecticut, where I practice law, this is definitely not the case. Let’s start with the following observation about state courts, which handle approximately 90% of all court cases in America. Private attorneys only have control over whether the caseload in civil cases goes up and down. In criminal and traffic cases which make up about a third of the docket in a Judicial District in Connecticut, cases are initiated by the police who make arrests, and the prosecutors who decide whether to prosecute. It’s out of the hands of the private bar, except when they personally get arrested themselves, but typically this only creates one or two criminal cases at a time.

Similarly marriages break down long before attorneys get involved, and evictions are filed because people stop paying rent. The Connecticut Law Tribune pointed out in 2010 that “approximately 75 percent of all family cases have at least one pro se party and the percentage is not that much lower in general civil actions.”

If the family docket is approximately another third of a typical court’s case flow, (and it was by file volume in Connecticut’s Middlesex Judicial District where I used to work) then only approximately a third of cases are civil, and therefore can be created by enterprising attorneys. Daniel Schwartz has previously discussed these issues on his legal blog and using statistics provided by the judicial branch, pointed out that the numbers of most types of civil cases have remained relatively stable between 1992-1993 and 2009-2010 for example:

92-93 97-98 03-04 09-10
Administrative Appeals (ALL) 2,347 1,416 1,630 1,661
Collections 18,592 15,339 12,600 25,930

Torts

(This includes slip and fall,

and defective premises suits)

5,967 6,516 4,925 4,852
Vehicular Torts 9,980 12,899 11,599 10,183
Foreclosures 12,303 11,834 10,046 26,728

As Attorney Schwartz observes, “The number of foreclosure cases has doubled in the last 18 years (up to 26,728 cases in 2009-2010) and the number of collections cases is at its highest levels (up to 25,930 cases in 2009-2010).” But “take these cases out of the overall numbers because they are economically-driven, you come up with an amazing statistic: The overall number of civil cases filed has actually gone down over the last 18 years – from 26,725 to 25,617.”

What Schwartz does not say, is there is another factor driving this increase in lawsuits. The plaintiffs, (banks in the case of foreclosures) and corporations (in the case of collections) are part of the propertied establishment. They have the money to pay for lawyers, lawsuits, and filing fees, and therefore are in position to initiate lawsuits at their choosing. This does not mean that they have created many additional legal jobs. If you go to the property/foreclosure docket in most Connecticut courts, you will inevitably see a solitary attorney from such foreclosure firms as Hunt, Liebert, Jacobson P.C. overseeing up to 100 foreclosure files a day. The number of foreclosure and collection cases has risen far faster than the number of attorneys paid to work on them.

By contrast, if John or Jane Public wishes to hire a private attorney they usually have a great deal of difficulty coming up with a retainer fee, of say five to ten thousand, which they would need for a contested divorce. If they are being evicted, or sued for purposes of collections, they will typically have no disposable money to hire a lawyer. So any suing by the little guy, is going to be highly limited unless an attorney decides to take the case on a pure contingency basis.

In the past personal injury attorneys could often, and relatively easily, call up insurance adjusters and obtain, say $20,000 settlements for limited injuries, without having to first file suit. In the last 20 years, insurance companies, and other monied defendants have become progressively tougher and tougher, resulting in PI lawyers having to sink, more and more capital into their cases (with probable exceptions of some plaintiff friendly urban areas like New York City, and the state of West Virginia). This of course leads to choices about which cases to take, and which ones to spend resources on.

Let me provide an example, I once looked into handling a case in which a mentally ill woman was in the bathroom when her ceiling collapsed upon her and a relative had to drive her to a hospital. She had aches and pains but it was a soft tissue injury case. She also did not attend more than one of her physical therapy sessions, and since she was on disability she had no economic damages. Add to this a lien by the state of Connecticut for prior medical treatment which would have taken half of any settlement, I had to do the following math. The case was worth maybe $15,000 /2 = $7,500 – deposition expenses, and filing fees, we were looking at a recovery of possibly $5,000 at best of which I would receive only 1/3rd. So I passed. Such calculations underlie most attorneys’ economic decisions whether to take a particular case.

In Connecticut, a civil filing fee is typically $300, and there is an additional fee for having the case heard by a jury of $425. Let’s suppose you have four depositions to take, a plaintiff, a defendant, and two witnesses. Typically a court reporter will charge $3.50 a transcript page, with a page per minute of deposition time. Let’s suppose three hours of deposition for each party, and two hours for each witness. That’s ten hours, or 600 pages of transcript. At our per page price, that’s $2,100 plus an appearance fee for the court reporter each time they show up. It could be more or less than $100, but that brings us up to $2,500 for a routine civil case. If you bring in experts (especially medical doctors) they will typically charge you $325 per hour or more door-to-door.

In short, for a simple, bare bones contested, civil matter an attorney can easily spend $3,000 to $3,500 just to get his case ready for trial, which is the most likely point the opposing side is willing to talk about a decent settlement offer. Jury selection and a simple trial itself will take between one to two weeks of time. Let’s call that 80 billable hours. At $200 an hour, the Attorney would be shooting for a return of $16,000, or at contingency rates, an award of approximately $43,000 to make trial worth their time.

There are many administrative hearings that would cost less to do, and there are also trials which are much more expensive, but the math indicates that when John or Jane Public walk in the door to retain Al Solo Attorney, Al either wants a strong case, to go pure contingency, or he’s going to want a retainer fee, that will typically be over $3,000 and more typically over $5,000, unless say, there is a statute that permits the awarding of attorney’s fees, or alternately, it’s a couple-hour affair like a small claims court case.

The result is that plaintiff’s attorneys and defense attorneys who are representing private individuals either will take cases they view as strong, or they will demand a multi-thousand dollar retainer to make sure they do not lose money if they do not collect a judgment. There are of course many well-funded plaintiff’s firms which have no problem taking the majority of their cases on a contingency basis. However the more under-employed new lawyers law schools graduate each year, the more under-funded solos end up in the market, and these attorneys are hardly in the financial position to forgive retainer fees and bankroll the expenses of many, if not most of their cases.

The two other largest categories of cases other then civil are criminal and family law. In criminal cases, because of the sterling quality of most defendants, defense attorneys demand a hefty retainer up front, because they otherwise have no assurance of being paid. Divorce actions which can drag on for years, and can be bitterly fought, also occasion such retainer demands. As a result no matter how many attorneys one were to create, there is a ceiling of private individuals who can pay their retainer fees, and a finite number of cases that are promising enough to be taken on, at no cost to the plaintiff. At least in Connecticut, if you adopt a pay-as-you-go approach with a client of limited financial means you are never going to receive a normal attorney’s wage from a case. I once had another lawyer attempt to refer me a contested family case from a court 30 miles away when he left the practice of law. He had been doing it as a favor, and he didn’t seem to understand why I wouldn’t take it for a flat fee of $125 per court appearance. If you want to earn minimum wage as an attorney you shouldn’t accept such arrangements.

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3 Responses

  1. The overwhelming likelihood is that producing more lawyers isn’t driving costs down because lawyers are choosing to do things other than law.

    Legal fees aren’t really “fixed costs”. Court fees are, but lawyer’s rates (per page or per hour) are not. Maybe the HOURS are fixed, but the cost per hour is not fixed. It’s probably a little bit “sticky”, as in once you’re paying someone a certain wage per hour it’s hard to cut their pay, but we’re talking about young lawyers entering the industry, and they can be offered lower wages from the outset. This should result in a reduction of rates for the use of junior lawyers, which should save people money.

    If legal fees aren’t dropping, law firms do actually compete with each other on the basis of profits, and barriers to entry for law firms aren’t that high, then that means that you don’t have a flood of lawyers entering the marketplace. Which means they’re not doing law – maybe they prefer to remain unemployed than take a lower salary because they think the salaries will come back up, maybe they are taking jobs in consulting or finance or management, whatever… but structurally, the argument you lay out isn’t economically consistent with competition among law firms!

  2. Trevor writes:
    [The overwhelming likelihood is that producing more lawyers isn’t driving costs down because lawyers are choosing to do things other than law]

    This assertion of “choice” is one that I will get to shortly, but would you agree or disagree with my claim that there are only a finite number of clients with good cases, or well paying clients for SMALL law/SOLO law to represent. Note, I argue that the average small law client is an individual of relatively modest means, as compared to a big law client who is a corporation, or very wealthy individual.

    Trevor, do you mean “choose to do something other then law”, or that these current J.D. grads are “forced” by the economy to do something other then practice law.

    This is an important difference. One indicates that people are obtaining J.D.’s as the so called “flexible” degree, the other that JD’s cannot find work in their chosen field. It strains belief that of the 44,000 J.D. graduates each year, less then 31,000 obtain jobs as lawyers because they “chose not to practice law”.

    Trevor writes:
    [Which means they’re not doing law – maybe they prefer to remain unemployed than take a lower salary because they think the salaries will come back up.]

    Since Unemployment does not pay benefits to people who have spent three years out of the job market, I wonder why you advance this “possibility”. It is more likely that they would obtain some sort of job to keep a roof over their head, even a non-law job. Perhaps some graduates of TTT schools with rich parents can completely sit out the job market, but I doubt it would be more then a handful.

    Trevor writes:
    [ and barriers to entry for law firms aren’t that high, then that means that you don’t have a flood of lawyers entering the marketplace]

    Trevor, this would make sense if you were trying to say because barriers to entry for law firms are high then you don’t have a flood of new lawyers entering the marketplace. Or you could be arguing that the barrier for law firms to enter the maket are low, so that more lawyers could enter if they choose. Due to your phrasing, I am unsure what you are exactly arguing.

    I do know it is easy to create a new law firm, but more difficult to build the “book” of clients that will support such an effort, and it is difficult to get hired to a well paying job as a lawyer right out of law school, unless you have family connections, or good class placement, or you went to a highly ranked law school.

    Trevor writes:
    [ maybe they are taking jobs in consulting or finance or management, whatever]

    I’d like to refer you to the blog below in which a New York University Law School Grad who was at Sullivan and Cromwell before he chucked the law explains that a law school education will often prevent you from finding other work. Perhaps the missing 14,000 or so JDs, all went to good financial jobs, somewhere, but I think most are scrambling to find anything that pays, let alone pays well.

    http://thepeoplestherapist.com/2010/11/03/extremely-versatile-crockery/

    Trevor says:
    [If legal fees aren’t dropping, law firms do actually compete with each other on the basis of profits,]

    Actually, if legal fees drop that would support your assertions about competion, however while there will be some negotiated price reductions among large firms, there are certain pay levels below which lawyers will not take certain cases because of overhead expenses. (Think of those nice offices Sullivan and Cromwell, and others have in New York, and no, I’m not thinking of their document processing room in the basement)

    For example a big law firm would probably never accept a $100 hourly fee. It wouldn’t cover their expensive overhead. A solo would. However GE is not going to hire a solo, they will simply compare prices among a group of big law firms which are set up to provide a complex porfolio of services. Small law, and big law are generally two separate legal markets.

    Now roughly 126,000 attorneys work for the top 250 law firms in this country, (Two years ago it was 5% more attorneys) The fact they are laying off attorneys indicates that regardless of competition they either cannot, or will not fund the jobs they used to, and that one traditional source of high paying legal jobs has gone stagnant, or is decreasing. The fact that they are decreasing their summer associates, and entry level hiring does not support the argument that people are choosing not to practice law.

    Competition among law firms for clients with the ability to pay for litigation and other services, still requires a client who is still able to pay a sizable retainer fee, a substantial hourly fee, and meet litigation expenses.

    If you deal with Joe Public many are strapped given the present economy, and have great difficulty making a down payment for one’s legal services.

    If they cannot afford to pay a reasonable fee there will be no competion for their services and they will not be able to provide any attorney with work. (This does not include the attorney who take their case for a ridiculous fee which ends up losing them money)

    I laid out in detail some of the fixed costs involved in filing a civil suit for the small firm or solo practicioner. Are court fees fixed? Yes they are. The only time you get them waived is if the client is indigent, at which point, the judge will ask you if you are being paid or doing the case pro-bono.

    Court Reporters similarly are loath to compromise on their per page fee for depositions. I have seen the State negotiate a more favorable rate for itself, but that’s because it could deliver over a thousand orders a year. This is beyond the resources of most solo practicioners.

    Finally I have rarely if ever met a Doctor who will close their practice for a day to come to court to testify, and not charge a substantial hourly price as I'[ve outlined above. Could you please tell me how you obtain this service for free? I always like to pick up new tricks from experienced practicioners.

    This is relevant, because if one does not practice in Big Law, one has to watch one’s expenses for each case, and if your client is not paying for these expenses, you are. This limits the number of cases you file, because unless you are sitting on top of a pile of money, you have to decide whether taking a contingency agreement will pay off in a particular instance. Sometimes it does, sometimes it doesn’t, but it limits the amount of paying clients for small law, and therefore the amount of lawyers who can practice small law.

  3. Interesting post. Since more and more law graduates are flooding the market, I wonder how many are seeking legal niche’s in their practices.

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