Saturday, March 26, 2016

What the Hell Happened to the Law Business?

This lady sued her law school for fraud, claiming that they promised her a cushy job that never materialized.   She lost the suit - after hiring another lawyer to represent her.   I hope they were working on contingency!

In the 1980's and 1990's it seemed that getting a law degree was the ticket to the big time - a way of stepping up from the middle class to the upper classes - perhaps even striking it rich.   And this has been a narrative in our country for some time, although it is a flawed narrative.

Abraham Lincoln became a lawyer, and while his law career went better than his career as a retail merchant, Lincoln never became more than comfortably middle-class from his practice.  Even back then, few lawyers became rich.

My Grandfather went to law school after his Father committed suicide.  The family was nearly broke, although his Mother - a formidable woman, apparently - managed to keep the family together by buying and selling second mortgages.   He became fairly upper-middle-class, moving to Larchmont, New York and becoming Mayor of that village. While he drove Cadillacs, his house was fairly pedestrian by Westchester County standards.  He was well-off, but hardly "rich".

Even during the go-go years of the 1980's and 1990's, most lawyers ended up with a good job, not a fortune of money.   Becoming a Lawyer was a way of hanging onto a middle-class lifestyle not a means of moving up a notch in the social ladder.  While I made "a good living" in the Patent Law field, I ended up making more money in Real Estate.  However, having a law degree and the requisite credit rating (and income) was what made my Real Estate investments possible.

Today the law business seems to be in shambles.  While there are still big mega-firms out there billing hundreds of dollars an hour, the norm for most lawyers, particularly recent grads, has been to scramble to make a living.  The "lost generation" of 2000's grads may never make much money in the field, as they entered the market when the business was in the toilet (in 2008) and they are past their "sell-by" date today.

Yes, Lawyers are like fresh fruit - they are only good while ripe.  Look in the classified ads in any law journal or online.  Everyone wants a young associate with "2-5 years experience" in the field.  Someone whose brain is bright and fresh and is up on the latest case law.  Young and smart, but dumb enough to work long hours for fairly low pay - on the implied promise they might make partner some day.

No one wants a 10-year associate.  And certainly no one wants someone like me, with nearly 30 years in the field.  So the poor sods who graduated in 2008 will find it hard to get work - ever.  The jobs becoming available today will be taken by graduates from 2014 onward.

(Even in our courts, this is true.  Much fuss has been made about replacing Antonin Scalia, but the reality is, all of his opinions were drafted by an army of law clerks - young graduates who go to work for the Supreme Court and create new law for all of us.  The old white-hairs on the bench are merely their supervisors.  It is kind of scandalous, if you think about it - the highest court in the land staffed largely by the youngest and least-experienced lawyers.)

Now, of course, this could all turn around perhaps, as law school enrollments decline.  But that could take years, and if you are like the young lady shown above - still struggling to pay off law school debt and not finding "real work" in the field, a future lawyer shortage will be too little, too late to solve her personal problems.

So what caused the meltdown in the law business?   In part, it is a number of obvious things, but also in part, some things that are subtle social and legal trends.   And I think some of these trends may be non-reversible.

1.   Supply and Demand.  This is, perhaps, the biggie.  When I was in law school, demand was high.  People would pay you to go to law school.  So I did.   Today, people are borrowing huge sums of money to go to law school.  It is an entirely different paradigm.   Hiring was up in the 1980's and 1990's, so a lot of people went to law school.   But since it is a pipeline of about 3-4 years time, the supply/demand curves can be entirely different by the time you graduate.

As we shall discuss below, there are factors on the demand side that are bringing down wages.   People are litigating less, courts are making lawsuits less attractive, and more and more litigation tasks (and other legal tasks) are being handled by paralegals - just as nurse practitioners are handling more and more "doctor" jobs today.

But the biggest problem, I think, was supply.  Too many people thinking they were going to strike it rich as lawyers and deciding to go to law school.  And why they thought this was the media, as we will see below.

2.   Women in the Workforce.  No, seriously.  It appears that since women are valued less than men in our society, any field in which they go to work in, not only do they earn less money, but the money made in the field drops overall.  Now, this could be merely an expansion of the Law of Supply and Demand as in #1 above.   Since the 1960's, the dual-income household has become more of the norm than the exception, nearly doubling the size of the workforce by itself - in an era where automation has taken over more and more jobs.

When I was in law school in the early 1990's, women were, for the first time, outnumbering men in school.   Law School seemed like a good choice for women, as the field was more egalitarian (not entirely so, but more so) than other traditionally male-dominated fields like Engineering or Investment Banking.   Law and Medicine are two fields where women are rapidly filling up the ranks, and this is not a bad thing, of course.

But whether wages in both fields are stagnant because women are in the field (and are perceived as less valued) or whether supply in both fields has gone up, is a good question.   But it is an unusual and unexpected factor.

Of course, the irony is, to women, that once again they are getting a raw deal.  Just as they start to take their rightful place in a field of endevaor, wages go into the dumpster.

3.  The Rise of the Paralegal:   In a recent article in the Journal of the Patent & Trademark Office Society (sorry, I have no online link, articles are not available online) an author opines that there will be a shortage of Patent Attorneys in the next five to ten years, as the number of people taking the Patent Bar has declined.   But his charts and graphs show something astounding - the number of people taking The Patent Agent's Exam has skyrocketed.   Patent Agents are registered to practice before the USPTO and have an Engineering Degree, but no Law Degree.  They are sort of like super-paralegals who can practice a very narrow area of law.   So, the decline in Patent Attorneys is accompanied by an increase in Patent Agents.   It may be that no "shortage" of Attorneys occurs.

In other fields, the same is true.   For law firms, a larger and larger amount of work is being done by paralegals.   In the old days, law clerks or first-year associates would be tagged to do the drudgery of legal research or preparing routine legal documents.   Today, full-time paralegals do this work, accompanied by computers which store most of these documents as forms that can be readily customized for each client. 

Very little legal work is innovative or unusual.   If you are making novel arguments in a legal venue, that is often a sign you are in trouble - or very, very smart.  But in most cases, a Will, Trust, or Personal Injury case is pretty routine, in terms of pleadings and documents.  And these routine documents can be prepared by Paralegals.

And increasingly, as we shall see below, people are realizing that such cases are best settled from the get-go, as litigation means only enriching the attorney and your own expense.

A final word on paralegals:  This is one area where outsourcing has taken its toll.   Not a day goes by that I don't get an e-mail plea - or even a phone call - from an Indian Patent Firm who wants me to "farm out" my legal work to them.   Initially this started out with the drudge work of Patent searching or drawing preparation.  But increasingly, these firms are making pitches for amendment and even application preparation.   I am not sure how many firms - if any - are farming out this work overseas or what the quality of work is.  However it is an indication that any job can be outsourced if you are creative enough. 

4.   The Law Firm as Ponzi Scheme.  I have talked about this before and alluded to it above.  In any large firm, there are a few Senior Partners who make a lot of money, some Junior Partners who hope to make a lot of money, and a lot of Associates who work long hours and think they are making a lot of money.  Stick around at the firm for a few years and you realize that a lot of these Associates end up going down the elevator with a photocopy box of desk ornaments and personal effects.

Simply stated, the odds of making even Junior partner are about 1 in 10, and making senior partner, maybe 1 in 100.  Yes, there are a few lawyers out there who make millions a year.  Most of us make thousands.   Some of us are on food stamps.

And it has always been thus.  The television (see below) likes to romanticize the practice of law and make it out that we all are making tons of money.  But the reality is, more than half the graduates, perhaps 90% or more, don't get those high-paying jobs you see on television 

5.   America Wakes Up to Lawyer Antics?   During the 1980's and 1990's, the law field was all go-go-go with stories about young law clerks being wooed by big-city law firms with things like luxury apartments, limousine rides, and free tickets to the firm's box seat at the ball game.   Work?  That was secondary.   During that era, lawyers could charge what the market would bear, and the market would bear a lot.

But since then, America - particularly Corporate America - has wised-up to the antics and billing practices of attorneys. As one in-house attorney explained it to me, their medium-sized electronics firm was bringing in $5 Million a year in profits on $100 million in sales.  Their legal bills were about $2 Million a year.  If they could cut their legal expenses in half, they could show a 20% increase in profits - which would drive the stock price through the roof.

In another case, two electronics firms were suing each other and we were enjoying billing one of them about $100,000 a month in legal fees. I am sure the opposing side's firm was doing the same thing. The CEO's of both companies did the unthinkable - they went out to play golf together, and by the 18th hole, and worked out a settlement agreement that would put an end to the endless (and unprofitable) litigation and allow them both to confront their real nemesis - the threat of cheap foreign-made products.

It is said that no one wins lawsuits but the lawyers, and that is indeed true. We get paid, generally, win or lose.  And even "the little guy" is wising up to this.  If you google "unhappy with personal injury settlement" you will see pages of postings.  People are realizing that hiring a lawyer to "litigate" (and I use that term loosely) their case resulted only in endless delay of the settlement and a smaller payout in many cases - as opposed to what they could have negotiated with the insurance company.

6.  The Myth of the Law Business.   Television shows loved to depict life at a law firm as romantic - literally.  Shows like L.A. Law or Alley McBeal depicted law firm life as one fabulous lunch date after another, followed by a little sack-time with your law partner. Once in a while, you'd go to court and say outrageous things to a Judge, who, impressed by your wit and wisdom, would acquit your client.

Of course, this is not reality, just television.  Today, more realistic portrayals of the life of lawyers - as low-paid drudges or folks living marginally- are becoming the norm.  Shows such as "Better Call Saul" depict lawyers as losers and quasi-criminals. And perhaps this is a bit of an exaggeration in the other direction, but at least a less glamorous portrayal.

When I was in law school, you could tell the types who went there because of television.  They clearly  thought that working in a law firm was going to be like on TeeVee.  And they thought that law school itself would be like television as well.  They were disappointed in both.  It turns out that both are just a lot of work, and the pay isn't all that great.

If your idea of what it is to be a lawyer is based upon some television show - even if you won't admit to this - you might want to re-think a law career.

7.  The Death of Litigation.  The courts have put a damper on the good-old-days of lawsuits.  Things like punitive damages have been curtailed severely.   The idea that you can win "litigation lottery" and win millions of dollars at trial is basically hooey.

Oh, sure, you'll still hear of jury verdicts with outrageous damage awards.  But these are usually reduced severely on appeal - and you never hear about that.  In the famous "McDonald's Hot Cup of Coffee" case, the lady won $3.8 million at trial (not $5M as often reported) but it was reduced to a little more than $600,000 on appeal. McDonald's probably spent more on legal fees.  It was hardly a lottery-like payout as people like to claim.

This doesn't stop lawyers from advertising that they will win big settlements for your car crash or whatever.   But the reality is, if you get into a fender-bender, you are not going to receive a life-changing amount of money. You may not even receive enough to buy a new car.  You may not even get enough to repair your old car and pay your hospital bills - after paying legal fees.  And you do pay them, with contingency-fee attorneys.

In other fields, similar curtailment of abuse has occurred.  Class-action suits were once huge money-makers for law firms.  You have probably been a member of such a suit and never realized it.  A clever law firm finds some billing discrepancy or some disclosure issue or some other situation were a big company has arguably cheated a lot of people out of a little money each.  They file the case in Illinois (one town there claiming about half of all such suits filed in the country - until recently) and then almost immediately offer to settle for a token amount (for the plaintiffs) while the law firm rakes in millions.

So you get a coupon for a free car wash, which supposedly "makes you whole" for having a car with a dangerous fire defect.  The Law Firm gets $5.6 Million.  That's how the game is played.  A bit of corporate shakedown, and no one comes out ahead - except the lawyers.  But that was the good old days.  You can still file such a suit today, but it is harder to certify the class and thus you have to have a more substantial claim than in the past.  The days of the drive-by class-action suit are largely over.

Even in the Patent field, the glory days of Kodak v. Polaroid may be over.   The courts have reined in interpretation of Patents, and new rules and laws have made it harder to get broad Patents allowed.  While Patent "Trolls" continue to annoy many large and small companies, there are signs that these changes to the laws are having effects.   And no longer is it possible to put your competitor out of business with a Patent suit, if indeed it was ever possible.

And bear in mind that in each of these cases, not only does this mean less work for Plaintiff's lawyers, but less work for defendant's lawyers as well.   Like I said, we make money from both sides of the transaction.

So what does this mean for the practice of law?   Well, it could be a sign we are heading toward a less litigious society - or that the law and litigation, like so many other fields, has been quantified and normalized as part of the cost of doing business and that individual cases become routine transactions and not some grandiose show-trials.  As such, the idea of the "white shoe law firm" becomes less and less of a reality.  No one can afford to pay the outrageous rates of such firms - and indeed, the company that hires the expensive law firm ends up losing, as they hemorrhage cash at a faster rate.

But I think as a long-term trend, pay in the law field will remain stagnant.  We are heading toward a "McLaw" type of environment, where legal documents and legal briefs are served up with a side order of fries.

Something to think about before you borrow a hundred grand to go to law school!