Death to the Billable Hour?

Lawyers and clients have talked for years about the problems with billable hours as a way to calculate the value of legal services.  Billing by the hour can reward inefficiency and slow work.  However, there has been a reluctance to do away with them.

I recently talked with two  businessmen about alternative fee arrangements and they had very different views on the notion of alternative fee arrangements.

One, a former outside lawyer and now a general counsel at a large company, expressed skepticism about alternative fee agreements.  He said that everyone talks about alternative fees deals but folks rarely actually agree to engage in them.  He relies on the default of hourly fee arrangements because it is familiar.

I talked to another and he had a different notion.  He was not concerned about hourly rates, he wanted to talk about how much the job costs to complete.    He said, “I don’t care how much it cost by the hour, I want  to now how much it costs to get it done.”  Lawyers often lose sight of the fact that legal matters are a business expense for clients and do not exist in the vacuum of the legal system.

Every case has variables, but lawyers ought to be able to predict, at least within a range, how much a case will cost to handle.  Litigation is a business expense and business people want to know  what the cost of litigation  will be.  In order to vary from the billable hour, the lawyer and client  must have a degree of trust and relief valves on both sides if the case does not turn out as predicted.  The benefit its to create a “win-win” for the lawyer and the client.

2014 Bonus reports from “Big law” firms validate the business model of alternative fee arrangements.  The largest reported law firm bonuses were reported by Boies Schiller.  Two associates received $375,000  bonuses.    As most folks know, Boies Schiller is primarily a litigation firm.   They rely on alternative fee arrangements in large part as opposed to billable hours.  In a recent interview about his firm David Boies discussed the way his firm creates leverage through fee arrangements rather than armies of associates.  He stated that their partner to associate ratio was 1-1.5 which is low for “big law” law firms.    He correctly noted that the alternative fee arrangement promotes efficiency.  The full article is here:

Alternatives to billable hours can provide a win-win for clients and lawyers.  The key is an open dialogue and information sharing that allows an open discussion about how alternative fee arrangements can be structured

Add Some Appeal to Arbitration Agreements

Most business people know that arbitration provisions in contracts can help avoid litigating matters in court before unsophisticated juries or elected state court judges.  Some use them to avoid litigating in “judicial hell holes.”



However, in spite of the benefits of arbitration,  some businesses have been reluctant to use arbitration provisions due to very  limited appeal rights.  In fact, the bases for review of an arbitration award by a court are practically nonexistent.

Section 10(a) of the FAA establishes the grounds on which a court may set aside an arbitration award:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. § 10(a).Section 11 provides the only grounds for modification of an award:

(a) Where there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing or property referred to in the award.

(b) Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted.

(c) Where the award is imperfect in matter of form not affecting the merits of the controversy.

The order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties.

9 U.S.C. § 11.

Court review of an arbitration award made under the FAA is “extraordinarily narrow” and “exceedingly deferential,” Prestige Ford v. Ford Dealer Computer Servs., Inc., 324 F.3d 391,393 (5th Cir. 2003).   Vacatur or modification is available only on the limited grounds set forth in §§ 10 and 11. 552 U.S. at 588, 128 S. Ct. at 1405.  Parties may not contract to expand judicial review beyond the bases set forth in the statutes. Id.

A recent revision to the AAA Rules provides for appellate review by a AAA appointed panel.

These rules are fully set out at  In short, they provide a review based on the written record without oral argument and  contemplate a ruling witin 90 days.  The appeal process is started by filing a notice of appeal within 30 days of the arbitration award.

If you need help adding some appeal to your arbitration agreements, contact me.